Down to the wire in Europe

The European Monetary Union seems unable to get ahead of the region's problems, putting stress on markets worldwide even as the endgame approaches.

By Bill_Fleckenstein Jun 15, 2012 2:05PM

Image: Europe. Copyright: CorbisA lot of last week's market action, particularly in European markets, seemed to be largely maneuvering at the margins, as I imagine folks felt the need to jigger their positions in front of Sunday's election in Greece.


Not that any such maneuvering would have been constructive. But suffice to say, the endgame is rapidly approaching for all of the PIIGS, those troubled nations of Portugal, Italy, Ireland, Greece and Spain.


There were more signs of that on Wednesday and Thursday, as the collapse of European sovereign debt markets accelerated, with yields on Spanish debt rising more than 40 basis points to 6.85%. Likewise, Italy's rose about 25 basis points to as high as 6.25% (before both markets rallied a bit). In addition, France saw its rates rise 17 basis points to 2.70%, while Germany's rose 12 basis points to 1.40% (these last two are noteworthy only because of the resulting percentage declines in bond prices).


False hope springs eternal

To demonstrate that hope still trumps facts, there had been a brief respite from the worrying Sunday and Monday, as world markets were initially higher on the news of the Spanish bailout fantasy, with our S&P ($INX) futures leaping almost 1.5% early Sunday evening. I have no idea who was dumb enough to believe that the news, as the details were extremely sketchy.


How sketchy? There hadn't even been a decision about whether the money would come from the European Stability Mechanism or the European Financial Stability Facility, with the former not even coming into existence until July 1. If it is the latter, there are going to be collateral problems. Then there are the knock-on effects, i.e., how the Irish will want similar treatment (retroactively) and the Greeks will try to use this is in their upcoming elections. In any event, the momentum from the weekend didn't even make it to lunchtime on Monday.


Every day that goes by, the pressure increases on those in charge of the flawed euro currency project to do something bigger and bolder, and the more desperate they become, the more likely that is. On the other hand, it is hard to see what they can do to get ahead of the curve, as events are quickly going from the impossible to the inevitable on a regular basis.


Sudden-death overtime

Unfortunately, I have no idea what the endgame will look like. Either the European Central Bank will blink and print enough euros to buy more time for the political leaders to continue their policy of can-kicking half-measures, or the eurozone will actually fracture.


The latter seems more disastrous. On the other hand, how they might keep the whole thing together seems virtually impossible to figure out, even if the ECB does print lots of money (though printing would most likely delay the destruction of the eurozone for quite some time).


The bottom line -- as has been the case for three years now -- is that the European authorities still seem unable to grasp the dire nature of the situation they are in, and they are constantly trying to play catch-up with virtually everything they try to address.


King World News

Tuesday's interview with Erik King turned out to be pretty timely. You can listen to it here.

Jun 17, 2012 11:08AM
BS-- the European authorities grasp the dire nature of the situation.  We in the US don't grasp the dire nature of our spending situation.  Once we have painted ourselves in the corner, much like Europe, we'll grasp the dire nature after it's too late.
Jun 17, 2012 7:08PM

In the Greek situation at this point, all roads lead to austerity. They can remain in the Euro currency and accept some austerity. They can bail out and go back to the Drachma, which will entail even more austerity (since they'll have to balance their budget completely, since no one in their right mind is going to buy Greek bonds denominated in Drachmas without a huge discount). What they can't do is continue on as they have been, with government-paid retirement at 50, free government-paid this and that, and running a Socialist railroad where it would be cheaper to just buy every ticket-holder a taxi ride to their destination. Of course, this is what they WANT to do, but I doubt the German taxpayers WANT to finance it with deductions from their paychecks.

Jun 16, 2012 7:08AM

"The dire nature of the situation" indeed.


I wholly agree with you, Bill. I would have assumed the most important aspect of creating a "union" out of old empire nations was to preserve what made them unique and capitalize on it. That didn't happen and now that Greece is trying to leave and recover what they can, the bankers who blew it are crying foul. Sorry, but banker intervention from the beginning is what was foul.


Do banks really care if the EU falls apart? Nope. They want MORE MONEY in the form of additional stimuli. In the book: Fiat Money Inflation in France by Andrew Dickson White (economic corruption leading to the French Revolution) written in 1876- America's first banker bamboozle attempt, it says the original issues of fiat money were worth more than the subsequent, making those issue Notes a commodity disguised as stimuli. In otherwords, the more subsequent issues, the higher the value of the original issue pieces of paper. Much like then, bankers never had an interest in helping anyone but themself.   

Jun 16, 2012 7:21AM

Tell me how today's situation varies at all from America's economic showdown in 1905 with Loan Sharks and the banks who funded them?


By 1905, cities with populations of 25,000 or more across America were seriously over-indebted to money hustlers. The label- Loan Shark- was coined that year. Hustlers borrowed from East Coast banks (Morgan, Mellon, etc.) and lent it to naive factory workers at the dawn of the Industrial Age. All those cities had platted the land around factories into tracts. Sears sold a complete house kit down to the nails for under $700. The concept of keep-up-with-the-Joneses marketing initiated then too. The reason it all worked-- hustler money in the form of credit without proper regulation or oversight with rates exceeding 400% and terms exceeding the net weekly paycheck on purpose. Basically, once you borrowed, you never stopped owing (PIIGS nations today). East Coast banks sold "complex financial instruments" to wealthy shareholders, municipalities and funds- stating they were safe. Obviously, people couldn't pay what they didn't have and stopped trying. Without cash payments on the outrageous debt, Loan Sharks filed for bankruptcy protection and East Coast banks begged the government to bail them. We did. The credit Notes to the Loan Sharks were not charged off. They were privately collected by liquidating confiscated and abandonned assets and never repaid to America.

Jun 16, 2012 7:35AM

So who stands to lose if Greece votes to leave the EU? Most Americans wonder what exposure we have in the debt that will potentially default. The answer is-- not much.


Much like in 1905, the Bonds associated with the debt were sold in very large increments to-- the big businesses that terminated all of us over the past 5 years! That's right, American corporations fired their workforces to become more cash-rich than ever in history. The Founders had all passed on, so the Board seats and all the executive positions were either recently appointed or hired-in. They sold off factories, machinery and proprietary secrets to foreigners, increasing the cash reserves even more. Notice how the Fed's Bank Rate hovers just above ZERO? Who does that help, except big businesses that borrowed on top of those record cash reserves. They invested all that amassed wealth in EU Debt were the boasted return would have been enormous. As I said... much like 1905, the consumer simply tapped out.


America needs to block any further issues of fiat currency and deny banks another bail-out. What fails is the hollow shell of big corporate platforms with divicive management but no assets. No big business retains the machinery that gave it substance, the operations expertise that let it function and the skilled labor that generated the quality. All they are is a Brand with iconic value. Here is a chance to recover folks...

Jun 15, 2012 6:46PM
So why did the gold miners go down today?  Why is the xlf up today?  I feel like I am at Las Vegas gambling.  Not that I gamble.  Maybe I do since I invest in the stock market.
Jun 17, 2012 7:04PM

I get the impression that "V_L" is pushing the wornout Socialist line that people have a right to expect anything from government even if the government can't afford it--i.e. is unable to collect enough taxes from its own people to hand out to other people. While a Socialist government can get away with this as long as it is only taxing its own people--to the extent that its own people will allow it--it most certainly cannot forever get away with it by borrowing additional money from other nations and other people. Eventually other nations and banks (and their depositors like you and me) are going to realize that it will never be repaid and will stop sending good money after bad. Then that government and its people will have to learn to live on what they have, and adjust accordingly. This might be called "austerity", but most of us call it "living within your means".


Jun 17, 2012 8:02PM

I love it when manipulators digress to words like "Socialism" and inevitable "austerity". You'll note in those posts that "debt" is mandatory and apparently any resorted-to currency will requires bonds to float the government, that ignores the people, spends too much, runs to shark banks... rinse repeat rinse repeat. Hmmmm... before the desire to run around pecking i-phones, there were traditions that people globe-wide desired but only made in Greece. They existed because the people there wanted real lives, real culture and no global reliance.

What I want is-- closure of fiat banks that make debt to make complex financial instruments whose interest goes to fiat banks that make more debt until words like quadrillion really exist. For more than a decade, we have digressed to financial control without a soul and people who live like drones. There isn't any actual living being done (no, it doesn't count if it's in a RPG online).

Greece failed itself. When the Reich came to claim it 70 years ago, people fought with everything they had to keep those tradsitional specialities unique. They won and passed the legacy on to the children, who sold it to China to cheaply produce and played Elitist. Now their children cannot even recognize when they are being assimilated into a very expensive failure. Sorry, but manufacturing debt solely for financial benefit doesn't have a name like Communism, Socialism, False Capitalism or Fascism. It has another-- Inflationism. Greece's new government already sold out, that's how they won. Tomorrow, it will cost a little more than all the revenues to cover the debt. See my original posts for how that worked in history... doomed to repeat over and over and over and over.  

Jun 17, 2012 6:52PM

Apparently "V_L" doesn't realize that the Greek people have let their "real lives", as they have come to know it, become only possible by more and more government debt. There comes a time when other people will no longer buy this debt, because it becomes obvious it will never be repaid. Then the peoples' "real lives" will have to adjust to not having other peoples' money.

I'm not being superior here--we in the US will someday be in the same jam since we have so many people who do not realize their lifestyle is dependent on the government running huge deficits. Or if they do realize it, they think they're entitled to it, and/or think it can go on forever.

Jun 17, 2012 5:19PM

So "apparently" the "democratic" party wins in Greece. The people, the same people that burnt the banks down and suffered through a central banker installed as PM, who got them- 25% interest on billions in debt, 20% unemployment and sent all the administrative people to Germany... voted to stay in the collective destroying them, instead of chancing freedom and an independent identity again? It looks like freedom lost and big finance won. Tomorrow... dawn comes and the bill. What a thrill. For America, it means there will be another QE this week, more debasing of existing currency, no new job creation and more power to order types.


How very sad.

Jun 17, 2012 7:17AM

Merkel says: There will be no renegotiation of the contract.

Wikipedia says: A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing, though contracts can be made orally.


Please note the word-- "voluntarily". Greeks did not voluntarily enter any contract. Government Officials did while thousands protested. At no time did the negotiated contract actually do anything good for the People of Greece! Austerity (hack a leg off to lose weight) was worthless. It always is recommended when the maker of the contract will gain advantage from it. Knowing that the cause of the debt was a waning of exclusivity in traditional exported products, what did the EU do to revive exclusivity, thereby create strength in the revenue stream that would honor and settle the debt? Nothing. THAT, is precisely what is at stake here. Nothing ventured, nothing gained. Fiat money is not real money. The machinations of financiers should never interfere with real life and lives-- ever. 

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Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website,, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



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