[occupyaustin-reading] Too late to save the European economy; key links

Roger Baker bakeroger at gmail.com
Tue Nov 15 14:48:02 CST 2011

"...it’s not so much that it's hard to understand; instead, it's hard
to accept..."

OK, so what if the European Economy crashes? There seems to
be a converging agreement that it will. The global financial
system is so interconnected that the European banks will likely drag
down the US banks. Scroll down to see the red and blue chart below
the first link with the true level of debt obligations of various
countries compared to their GDP. Its like begging for a global bank run.

-- Roger



Ilargi: I'm convinced it’s not so much that it's hard to understand;
instead, it's hard to accept. Still, for most people that's enough
reason to not understand.

It might therefore be a good moment to reiterate what we've said often
before at The Automatic Earth: the financial system as we know it can
not be saved. It doesn't matter whether "official institutions"
nominate 30 banks as being too big to fail, or 300. It is inevitable
that the enormous amounts of debt accumulated in a relatively and
amazingly short period of time must be serviced. Pay offs, write
downs, defaults, bankruptcies. They're cast in stone. It's too late,
too big to fail or not.

Just as it is too late for the Eurozone. Tons of "experts" clamor for
Europe to move closer together, and form for instance a full fiscal,
if not political union. But it's way too late for that. The interests
at this point in time have simply become too divergent.

There now seem to be talks underway to form a strong Euro core group.
Ironically, these talks are led by France. Ironic, because France is
the only country that really stands to benefit from such a core group.
That is, if it's allowed to be a member. Which is highly questionable.

French President Nicolas Sarkozy is witnessing the fall of Italian PM
Berlusconi with sweaty palms. He has ample reason, says also Henry
Samuel in the Telegraph:

'France will be the next to crumble', warns Gordon Brown
France risks becoming the next victim of the sovereign-debt crisis "in
the coming weeks", Gordon Brown, the former prime minister, has

Mr Brown’s prediction came as the difference between French borrowing
costs and those of Germany hit record levels. EU leaders urged France
to draw up further austerity measures to meet its deficit reduction
targets, amid fears the eurozone’s second biggest economy could
crumble if Italy’s debt crisis spirals out of control.

Mr Brown, speaking in Moscow, said: "France is in danger of being
picked off by the markets in the coming weeks and months." [..]

"Let’s not have any illusions," said Jacques Attali, a former adviser
to president François Mitterrand and head of the European Bank of
Reconstruction and Development. "On the markets French debt has
already lost its triple-A status."

One Elysée Palace official told Le Monde newspaper: "If Nicolas
Sarkozy loses our triple-A, he is dead."[..]

Ilargi: While I have no desire to address Gordon Brown's level of
credibility here, if we assume that the last statement is indeed true,
then Sarkozy's career is over. Because there is no way France will
keep its AAA rating. The only way that would be possible is if Germany
(and/or the US, China) would guarantee anything French that's not
bolted down. Not going to happen.



"Increasingly, the key dynamic underpinning global risk markets is the
expectation for the Fed and global bankers to ensure the "moneyness"
of Treasury and global sovereign debt. Indeed, "risk on" or "risk off"
now rests chiefly on the markets' immediate, perhaps whimsical, view
of the capacity for the world's central banks to sustain the faltering
sovereign credit boom.  Such a backdrop creates extraordinary
uncertainty and is inherently unstable. It points, problematically, to
binary outcomes (ongoing speculative boom or bust) across global asset
classes, certainly including currencies. And it creates a dynamic
where an acutely fragile global financial and economic backdrop can
actually incite only more destabilizing speculation and excess.

For the record, here's Mr Faber's perfect response to Simon Hobbs:
"Well, I think I'm very constructive and I'm a great optimist in life.
Otherwise I would commit suicide in view of the kind of governments we
have nowadays. Because, for sure, they will take wealth away from the
well-to-do people one way or the other. And from the middle class they
will take it away through inflating the economy and lowering the
standards of living."



"...If Professors Brückner and Grüner are right, then we can expect to
see a steady rise in right wing groups sprouting up in countries
across the south. Their popularity, in large part, will depend on
their ability to rekindle nationalism and to pin the ongoing
depression on the troika’s policies. If they succeed, then their ranks
will swell and their demands –of an immediate withdrawal from the
17-member monetary union and a restoration of national
sovereignty–will lead to a splintering or, perhaps, breakup of the



Europe’s Crash Landing

“Italy is now mathematically beyond the point of no return.”  –
Barclays Capital

“… it’s game over for the euro zone. The extend and pretend stuff
ain’t gonna work…. if you are an investor, this is the moment of
truth. Everything – every asset class – depends on how the euro zone
performs in the Italian Job. There are only two outcomes, here. If
Italy blows up, a Depression is upon us; banks would be insolvent, CDS
triggers would implode the system, bank runs would begin, stock
markets would crash, and you will would see sovereign debt yields go
to unbelievable lows for nations with a lender of last resort.”
(“Italy, Italy, Italy”, Edward Harrison, Credit Writedowns)

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