10/14/2011 5:35 PM ET|
Has Europe saved itself?
An alphabet soup of financial maneuvers allows Europe to dodge the most recent round of bank crisis bullets. But government debt worries linger.
Last week I mentioned in passing the "lack of action" on the part of the European Central Bank at its meeting on Oct. 6. It turns out that I missed an important nuance, but my oft-quoted friend the Lord of the Dark Matter straightened me out.
While not mentioned in its press release, the 12- and 13-month long-term refinancing operations that the ECB mentioned during a press conference were, in the LODM's words, a "big deal" and "the closest anyone will ever see the ECB come to doing QE (quantitative easing)."
In debt they trust
This explains why banks and debt markets have traded higher since what was otherwise basically a "nothing done" by the ECB. The long-term refinancing operations are significant, because any one of the 7,500 banks that have access to the ECB can present any eligible collateral and the ECB will lend it however much it wants at fixed rates for 12 months and then 13 months (though some limits do apply based on the quality of the collateral).
The net effect is not the Ben Bernanke-style quantitative easing we've seen from the U.S. Federal Reserve, but it's the closest the ECB can get at the moment. So while it isn't permanently buying bonds (as the Federal Reserve does, hoping you believe it will sell them back to the market someday, which it never will), once the ECB implements this long-term refinancing operation, it could always decide somewhere down the line, when the next crisis hits, that it will unilaterally extend these facilities indefinitely. This would effectively monetize the debt it accepts as collateral. That is not what has occurred, but you can now see how the ECB could get there from here.
From gas to liquid, but not exactly solid
One thing is certain: A liquidity crisis in the European banking system is now less likely. Of course, this does not address the fact that the government debts still have a question mark over them, because European Monetary Union countries don't have access to printing presses they can use to conjure money to buy whatever debt they spew forth.
The potential insolvency of sovereign debt was brought back to the front of people's minds on Oct. 7, after Europe's equity markets had closed. The Fitch investment rating service downgraded Spanish and Italian debt two notches. In addition, last week, on Oct. 10, Greece continued to worsen, as its one-year debt traded at an eye-popping yield-to-maturity of 150%, and on Oct. 12, the yield on Italian 10-year debt rose to 5.7%, perilously close to the supposed supercritical danger zone of 6%.
Nevertheless, this long-term refinancing move is a clever step toward money printing, and I believe it has probably defused the nuclear "tripwire" Europe has been, at least temporarily.
Thus, the questions now are whether the ECB can find a way to use the European Financial Stability Facility to recapitalize some banks and if the ECB can deploy some weasel words, whereby "solvent government debt" will be purchased. If so, it may be able to deal with the inevitable Greek default without having the entire continent implode.
Out of the frying pan, onto the bandwagon
If by some chance this European rescue that has been cobbled together "works" for a little while and October does not turn out to be a disaster, there are liable to be any number of money managers who have to react. They will have too much cash and be forced to chase the market higher, just as they drove it lower trying to get out on the mistaken belief that it was 2008 all over again.
I am not suggesting that is a reason for anyone to do anything, but I have seen this movie many times before, where market action forces folks to do something. In any case, I think it is worth keeping in mind as we see how things start to develop.
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
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Many people commenting here have the idea that banks are causing this European crisis, that excessive government debt is caused by banks lending money to governments by buying their debt. Sounds like "The wind is caused by the violent shaking of the trees" logic. The cause of government debt is spending more than you take in. In Europe's case (and soon to be ours in the USA), the reason is simple:
"The problem with Socialism is that you eventually run out of other peoples' money". --M. Thatcher
If you taxed the so-called top 1% at 100% instead of 5% extra, it wouldn't make a dent in our deficit. If you looted them and passed it out to the other 99%, it would only amount to a few bucks each, which would be irrelevant. This idea is just a screen for increasing taxes on all of us to keep government handouts at their current unsustainable level--or even worse, increasing them.
OCCUPY TOGETHER is bigger than any political party could ever hope to be! Our movement is far too large to try to politicize into one party's agenda!
We are the 99%'s! The 99% that the world generally doesn't hear much about, or talk about, OR LISTEN TO! We are the regular people of the world! Our movement goes all over the party lines around the world and right back home! Political party's are nothing compared to us!
This is history in the making! Never before have the protests been so wide spread! The 99%'s are letting their voices be heard and showing their strength in numbers. Governments had better listen because we will not be ignored any longer! WE THE PEOPLE ARE TAKING OUR GOVERNMENT BACK!
We will not rest until we end corruption in our government and corporations!
Our own elected officials have tried to belittle us and have called us names. Eric Cantor calls the 99%'s an angry mob, and then back pedals a few days later, after he sees how strong we are becoming! President Obama has backed the protests, sadly however, he offers no new solutions. Mitt Romney described the protests as "dangerous" and "class warfare." Herman Cain, not only told those OCCUPY TOGETHER protesters without a job to blame themselves for being unemployed, but also suggested the protests were a conspiracy "planned and orchestrated to distract from the failed policies of the Obama administration."
THESE ARE ELECTED PEOPLE THAT WORK FOR US! TALKING ABOUT THEIR FELLOW AMERICANS LIKE THAT!! They have refused to do anything to solve the problems, THEY SEE NO PROBLEMS! They do not even see the problems in their own constituencies! They do NOT represent "The People" They have all been bought and paid for by the corporations and are waiting to see who gets the nod to be shipped to Washington D.C.
They see us and yet they still do not listen! WE NEED TO GET LOUDER I GUESS!
Many have stooped to childish name calling and idle threats against the protesters, they have tried putting false words out, saying they were official documents from the Occupy Wall Street protest, trying to convince everyone that we were not organized and they said we were wasting our time because protests don't work, etc., and yet, we all not only persisted, in spite of their constant badgering, lying and false rumors, but, now our numbers are proving that we are doing the right things!
No sane person can deny what we the 99%'s have seen and experienced in our lives! Every person that works to earn a living, will benefit from the protesters efforts!
951 cities to date and this is only since Sept 17th.! Our message WILL be heard! This is snowballing faster than anyone could ever imagine. This will continue to grow as time passes too! Plans have been made into next year for the protests and yes it will be a long cold winter for everyone, but we will not be defeated due to weather or anything else!
Soon the police and governments will resort to violence to try to stop the protests, it has already started in a few cities. Why are they afraid of the people? WHY ARE THEY AFRAID OF HAVING THE PEOPLE ORGANIZE?
This proves that they are trying to stop our message from getting out. This proves that they are afraid that their corruption will be plainly exposed to the world!
They are afraid that the corporatism will be changed back to capitalism. They are afraid that the billions they have invested in elections around the world have been wasted! THEY ARE AFRAID OF BEING HELD ACCOUNTABLE FOR THEIR ACTIONS OF THE PAST! They are afraid that the people will demand justice! They are afraid because they know that they cannot stop us!
Their fears are justified.
They have much to loose and all of us 99%'s of the world are coming looking for them! We the people are looking for justice with a vengeance! You all should have expected this!
We told you this was coming, Why didn't you listen to the warnings?
CAN YOU HEAR US YET?
Perhaps my view of the Occupy Group is shaded by the NUTS during the 60's protesting against the Viet Nam War.
However, I see similarities. A bunch of Sheep being lead by an ideal that is causing local, state and federal governments to waste more money is the answer. I say waste money because in order to maintain a semblance of order, police must be kept watching them instead of doing the job we pay the police to do...catch bad guys.
If this group really wants to make an impact, instead of occupying Wall Street, they should Occupy the White House. Why? Because of the wishey washey politics from the current resident of the White House.
The primary Socialist Myth is that no businessman makes money except by "screwing someone", therefore he/she isn't entitled to keep their earnings. Therefore some commissar can decide who wins and loses. (BTW, this is what's wrong with Wall Street already!)
Did Steve Jobs screw you by creating and selling you your favorite devices? (Personally I've never been able to convince myself I needed them, enough to spend my meager funds on them, but I bet 80% of the people in the "Occupy anything" movement have them.)
How about the people who supplied you with food today? How about those whose taxes paid for your food stamps? Already 80% of taxes are being paid by the wealthy. Can some loopholes be closed to make taxes more even? Of course! But it doesn't need this Socialist ranting about the wealthy. "If you go carrying pictures of Chairman Mao, you ain't gonna' make it with anyone anyhow." -- John Lennon
Apple has about US $70 billion cash on hand. They sell the apple phones, and computers, etc. Apple would only sell at a price the consumer is willing to pay for these items.
So because they have US $70 Billion in cash saved up, should the OWS-ers wish all Americans get that money for free?
If Apple feels bad about having all that money and redistributes it to the rest of America, that would be about US $200 for every man, woman and child in America (pop. 350,000,000). I wonder how far that would go toward solving anyone's problems?
Lost on Earth:
You are the reason we all will lose with a Great(er) Depression. Walk down Wall street and smell the future of the World. Pot, body odor, dirt, sex and chaos. The new future.
Redistribute the wealth, but who is going to work to provide the initial money? Perhaps the One World Gov't of George Soros and the SEIU will provide for all, I'm sure.
Some day the sign, 'Every animal is equal", will read "Every animal is equal, "But some are more equal than others". - Animal Farm. You'll see this when the PIGS stand upright, befriend the humans and wear clothes. And the animals slave away under a new master.
Right, Delmar. (Is there a refutation there?) My attitude is this:
Just because someone has money, and just because you may want it, is no excuse to rob anyone. It's funny how the common law recognizes this easily, and most people agree. But somehow people allow themselves to be confused when the robbery victim has no obvious facel In the Apple example, let me give you some faces:
1. Apple employees, and employees of their suppliers, many of whom would lose their jobs.
2. Apple shareholders, including my retired mother, who can't afford to be robbed.
The next time someone wants to loot a company, think about these people directly instead of some abstract "right" they assign to themselves and want you to assign to yourself.
MH438 since most teens' sole ambition now is to be a cartel leader, porn star or operator of a marijuana dispensary I would say we better start creating more service industry jobs in the restaurant field for them so they can afford to pay more taxes to uphold my social security pension. It's the 1960s all over again. What a bunch of loser kids in America. Who would you hire? The foreign kid with five languages and a PHD or the Slim Shady? Bill Gates knows the answer to that one.
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