Europe’s Greek Showdown: The Sum Of All Statist Errors

The politicians of Europe are plunging into a form of ideological fratricide as they battle over Greece. And “fratricide” is precisely the right descriptor because in this battle there are no white hats or black hits—-just statists.

Accordingly, all the combatants—the German, Greek and other national politicians and the apparatchiks of Brussels and Frankfurt—- are fundamentally on the wrong path, albeit for different reasons. Yet by collectively indulging in the sum of all statist errors they may ultimately do a service. Namely, discredit and destroy the whole bailout state and central bank driven financialization model that threatens political democracy and capitalist prosperity in Europe——and the rest of the world, too.

The most difficult case is that of the German fiscal disciplinarians. Praise be to Angela Merkel and her resolute opposition to Keynesian fiscal profligacy and her stiff-lipped resistance to the relentless demands for “more stimulus”   from the likes Summers, Geithner, Lew, the IMF and the pundits of the FT, among countless others. At least the Germans recognize that if the EU nations are going devote 49% of GDP to state spending, including nearly a quarter of national income to social transfers, as was the case in 2014, then they bloody well can’t borrow it.

Notwithstanding the alleged German led austerity regime, however, that’s exactly what they are doing. Germany has managed to swim against the surging tide of EU public debt, lowering its leverage ratio from 80% to 76% of GDP in the last four years. Yet the overall debt ratio for the EU-19 has continued to soar—meaning that the rest of the EU drifts ever closer to fiscal disaster.

Euro Area Government Debt As % of GDP


Indeed, Germany’s frustration with the rest of the European fiscal sleepwalkers is more than understandable, as is its fanatical resolve not to give an inch of ground to the Greeks. Or as Merkel’s deputy parliamentary leader, Michael Fuchs told Bloomberg,

There is no way out” for Greece from its treaty obligations….. conditions set for Greece by The Troika (EU, ECB, IMF) for bailout funds “have to be fulfilled…. That’s it, very simple.”

This isn’t just teutonic rigidity. It’s actually all about the so-called capital contribution key—-the share of the EU bailout fund that must be covered by each member country in the event of a default.

At dead center of Greece’s $350 billion of debt is $210 billion owed to the Eurozone bailout mechanism. Germany’s share of that is 27% or roughly $57 billion. Yet the prospect of tapping the German taxpayers for some substantial part of that liability in the event of a Greek default is not the main problem—-even as it would mightily catalyze Germany’s incipient anti-EU party.

The real nightmare for Merkel’s government is that the next two largest countries in the capital key are on a fast track toward their own fiscal demise. So what puts a stiff spine into its insistence that Greece fulfill the letter of its MOU obligations is that if either France or Italy is called upon to cover losses, the whole bailout scheme will go up in smoke.

There is not a snowball’s chance that the already faltering governments of either country would survive a capital call from the EU bailout funds. Indeed, the prospect of a partnership with Marine Le Pen and Beppe Grillo is undutedly what was on German Finance minister Schaeuble’s mind when this picture was snapped during his meeting with Varoufakis.


Just consider the delusionary partners Germany has at present—even before any Syriza-style election upheavals. In another of his patented outbursts of truth over the weekend, the Greek finance minister suggested that Italy was next and that it too, will discover “it is impossible to remain inside the straightjacket of austerity.”

That drew an immediate response from Italy’s Economy Minister, Pier Carlo Padoan, who tweeted to the world that Italy’s debt is “solid and sustainable”.  

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A Look at the 15 Years Before and After 2000…. OOOOOOF!

Submitted by Thad Beversdorf  –  The First Rebuttal Blog

Grab a coffee and an energy bar and enjoy!

Taking a step back outside of our predetermined schools of thought and simply looking at the world versus where we were say 20 years ago and OMG what a difference 20 years can make.  For instance you wouldn’t know what OMG meant 20 years ago and you wouldn’t have google to figure it out.  But more seriously 20 years ago we were on the precipice of the longest stretch of world peace the world has known in modern history.  We were on the precipice of the first US budget surplus since abandoning Bretton/Woods.  We were on the precipice of the only period of true economic growth we’ve seen since the 1970′s.  We were on the precipice of the period that would see American’s standard of living higher than ever before.  We were also on the precipice of implementing the foreign and monetary policies that would end up being the catalyst for a perpetual state of global meltdown.

Years from now students will only read about a time when the world had increasing real incomes, positive interest rates, debt used for investment rather than for consumption, employment was assumed to mean full time, welfare was a temporary relief for only the most unfortunate, disability was given only to those disabled, a majority of kids were born into two parent households, America did not lead the world in imprisoning its citizens, the police actually served and protected the public, money had both time and intrinsic value, news was verified, the Constitution was a nation’s supreme mandate, democracy meant a self governed people, freedom didn’t come with chains, war wasn’t peace, lies weren’t truth, earnings growth came from operational expansion rather than operational contraction, productivity gains meant the same amount of workers generating more output rather than less workers generating the same output, production was the manufacturing of something you could touch, climate change meant taking a vacation, wars were approved by congress and fought against aggressor nations not disagreeable concepts, banks were pillars of commerce rather than wrecking balls, and you could take your family to the movies for less than a week’s wages. Continue reading

First Corporate America, Now China

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The amount of inconsistency is certainly consistent when viewing the trouble mainstream analysis has with trying to exclude the possibility of economic forces from explaining why things are the way they are. The latest trade data from China was deafening, too much to pass off as a simple case of a minor blip. Exports in January declined rather sharply, “unexpectedly” of course, while imports simply collapsed:

Exports dropped 3.3 percent from a year earlier, against a median expectation of a 6.3 percent gain, while imports plummeted 19.9 percent, the biggest slide since May 2009, a time when the economy was dealing with the global recession.

The reason economists expected a pretty good gain in exports:

Thinking that easing measures in Europe would boost demand for Chinese goods, analysts polled by Reuters had expected to exports to rise by 6.3 percent, and imports to fall by only 3 percent, to give a trade deficit of $48.9 billion.

Again, self-reinforcing bias over the efficacy of monetary policy that continues to at least stumble, if not make the whole condition that much worse. However, the “shocking” part of the equation seems to be the import figure, not because it is to such a greater magnitude but because it seems far easier to ignore or pawn off as solely a currency problem. The price of oil has declined so much it skews the direct interpretation of volume, so most of the optimistic economists can talk instead about the “dollar” rather than the fact they were so far off on Chinese exports too.

But the fact that the relevant comparison for January 2015 in terms of Chinese imports relates only to May 2009 and earlier makes this “dollar” appeal moot. Lest anyone forget, the only time we have seen a greater collapse in oil prices just happened to be at that moment; so in May 2009 Chinese imports were also within the “throes” of a “dollar” issue. It should not be this difficult to connect the dots between “dollar” problems, global recession and “unexpected” trade difficulties – they are all part of the same process. Thus, the combined appearance of all three is not at all “unexpected.” This is the trade “sister” of corporate America’s “dollar” loathing of recent vintage.

ABOOK Jan 2015 IBM Revenue

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Shoot Bank Of America Now—-The Case For Super Glass-Steagall Is Overwhelming


The mainstream narrative about “recovery” from the financial crisis is a giant con job. And nowhere does the mendacity run deeper than in the “banks are fixed” meme—an insidious cover story that has been concocted by the crony capitalist cabals that thrive at the intersection of Wall Street and Washington.

So this morning comes yet another expose in the Wall Street Journal about the depredations of Bank America (BAC). Not surprisingly, at the center of this latest malefaction is still another set of schemes to grossly abuse the deposit insurance safety net and enlist the American taxpayer in the risky business of financing high-rolling London hedge funds.

In this case, the abuse consisted of BAC funded and enabled tax avoidance schemes with respect to stock dividends—–arrangements which happen to be illegal in the US.  No matter. BAC simply arranged for them to be executed for clients in London where they apparently are kosher, but with funds from BAC’s US insured banking entity called BANA, which most definitely was not kosher at all.

As to the narrow offense involved—-that is, the use of insured deposits to cheat the tax man—-the one honest official to come out of Washington’s 2008-2009 bank bailout spree, former FDIC head Sheila Bair, had this to say:

“I don’t think it’s an appropriate use…….. Activities with a substantial reputational risk… should not be done inside a bank. You have explicit government backing inside a bank. There is taxpayer risk there.”

She is right, and apparently in response to prodding by its regulator, BAC has now ended the practice, albeit after booking billions in what amounted to pure profits from these illicit trades.

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The Shadow Of Crisis Has Not Passed: Some Overwhelming Evidence Its Gotten Larger & More Ominous

Submitted by Jim Quinn  –  The Burning Platform

In Part One of this article I laid the groundwork of the Fourth Turning generational theory. I refuted President Obama’s claim that the shadow of crisis has passed. The shadow grows ever larger and will engulf the world in darkness in the coming years. The Crisis will be fueled by the worsening debt, civic decay and global disorder. I will address these issues in this article.

Debt, Civic Decay & Global Disorder

The core elements propelling this Crisis – debt, civic decay, and global disorder – were obvious over a decade before the financial meltdown catalyst sparked this ongoing two decade long Crisis. With the following issues unresolved, the shadow of this crisis has only grown larger and more ominous:


  • The national debt has risen by $7 trillion (64%) to $18.1 trillion since 2009 and continues to accelerate by $2.3 billion per day, on track to surpass $20 trillion before Obama leaves office and $25 trillion by 2019.

  • The national debt as a percentage of GDP is currently 103% (it would be 106% if the BEA hadn’t decided to positively “adjust” GDP up by $500 billion last year). It is on course to reach 120% by 2019. Rogoff and Reinhart have documented the fact countries that surpass 90% experience economic turmoil, decline, and ultimately currency collapse and debt default.
  • Despite the housing collapse and hundreds of billions in mortgage, credit card, auto, and corporate debt being written off, dumped on the backs of taxpayers and hidden on the Federal Reserve balance sheet, total credit market debt has reached a new high of $58 trillion.

  • Harvard professor Laurence Kotlikoff has been a lone voice telling the truth about the true level of unfunded promises hidden in the CBO numbers. The unfunded social welfare liabilities in excess of $200 trillion for Social Security, Medicare, Medicaid, and Obamacare are nothing but a massive future tax increase on younger and unborn generations. Kotlikoff explains what would be required to pay these obligations:

To honor these obligations we could (a) raise all federal taxes, immediately and permanently, by 57%, (b) cut all federal spending, apart from interest on the debt, by 37%, immediately and permanently, or (c) do some combination of (a) and (b).”

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Finally A Hockey Stick, But Not The Good Kind: Wholesale Inventory-To-Sales Ratio Is Soaring

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

One of the primary criticisms I have leveled against economic interpretations based solely on statistics like GDP is that they are relative in the narrowest sense. GDP especially compares one quarter to the prior, meaning that it is susceptible to those that extrapolate short-term trends. In this current age of monetary elongation in the “business cycle”, that is a dangerous proposition, though it explains a lot, I believe, of why optimistic forecasts never make it past the next quarter or two.

A big reason for that is inventory change, which we have seen inaugurated in several mini-cycles within the latest downturn dating back to the middle of 2012. As such, each year, economists take the increase in inventory as a permanent or at least durable signal of robust expansion – only to see those extrapolations thwarted by something as truly benign as winter (twice now).

So it is again with 2014, which started in concern before giving way again to a mid-year mini-cycle which “confirmed” the finality of the “recovery” at long last. However, since the summer, there has been a marked slowdown in wholesale activity that actually grew more severe the last two months of the year. That means 2014 actually ended on a very sour note.

ABOOK Feb 2015 Wholesale Trouble Sales Inv YY

From a longer-term perspective, you can see the problems with something like GDP as it relates to short-term focus. Not only are the mini-cycles evident in wholesale sales and inventories, by historical comparison the 2012 slowdown has left overall growth lacking, remaining significantly below levels of activity consistent with actual and sustained economic growth. The difference is not just mathematics, either, as it means a very real “thumb on the scale” of true wealth creation and thus actual economic progress.

The more immediate problem for the economy in the coming months is that wholesale sales have fallen off while inventories have not. I don’t usually point to the seasonally adjusted figures for reasons that I have made plain in the past, but in the case where even the adjusted series shows an outlier I think it is important to present it. For seasonally-adjusted wholesale sales, the monthly change has been negative four out of the past five months with the fifth month registering basically zero growth. Continue reading

Minsk Summit Highlights A Shaky NATO Union – Russia Is Far From Isolated

Submitted by Mark O’Byrne  –  GoldCore

– Merkel and Hollande to attend peace talks in Belarus to resolve Ukraine’s civil war today

– US and UK not invited

– Germany and US present united front but tensions ripple under the surface

– Foreign Minister of Greece, Nikolaos Kotzias, to meet his Russian counterpart Sergei Lavrov today as the crucial Eurogroup of finance ministers meet to determine the fate of Greece and the Euro

– Russia negotiates free-trade agreement with Egypt.  Cyprus permits Russia to use ports and airstrips for humanitarian and emergency purposes

The leaders of Russia, Germany, France and Ukraine will meet in the Belarusian capital of Minsk today in a bid to resolve Ukraine’s brutal civil war.

The meeting, which the Russia Today news agency describe as a Franco-German peace initiative, will not include the leaders of the US or Britain.

RT suggests that the talks were triggered by John Kerry’s visit to Kiev where he announced the possibility of the US arming Ukraine government troops adding that “Europe is reluctant to have a full-blown war on its doorstep.”

Preliminary talks between Merkel, Hollande and Putin in Moscow on Friday were held behind closed doors. On Monday Merkel met with Obama in Washington. While they tried to present a united front the subtext of their statements and their body language gave a different impression.


US politicians have been clamouring for Obama to provide weapons to the Ukrainian government. But Merkel was unequivocal in her response to such proposals. “I don’t see a military solution” she said adding that sending arms to the Ukraine government would be “not just highly risky but counterproductive.” Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Truth to Power: This Man Will Never Be Invited Back On CNBC (Zero Hedge)
Nobody Understands Debt – Including Paul Krugman (Steve Keen)
Cornered Greeks Brace For Confrontation (BBC)
Greek PM Tsipras Wins Confidence Vote Before Talks With Creditors (NY Times)
Greece’s Last Minute Offer To Brussels Changes Absolutely Nothing (AEP)
Europe’s Greek Showdown: The Sum Of All Statist Errors (David Stockman)
Germany Rejects Greek Claim For World War II Reparations (Reuters)
Lazard Sees $113 Billion Greek Debt Cut as ‘Reasonable’ (Bloomberg)
Wednesday is Going to be Huge for Europe (Bloomberg)
Germans Swoon Over Greek God, Yanis (Irish Ind.)
Schaeuble Says ‘Over’ for Greece Unless Aid Program Accepted (Bloomberg)
EU-Greek Relations Soured by Leaks; Sides Further Apart (MNI)
Getting Rich Greeks to Pay Taxes Is Tsipras Biggest Test at Home (Bloomberg)
Greece To Collect €2.5 Billion From Tax Evaders ‘Straight Away’ (Kathimerini)
Greece Inches Closer to Renewal of Debt Crisis (Spiegel)
Meet Greece Halfway, Europe (Bloomberg Ed.)
EC President Juncker Poses Challenge To Merkel And Austerity Policies (Spiegel)
This Single Currency Move Pressures The Entire Eurozone (Das)
US Farmers Watch $100 Billion-a-Year Profit Fade Away (Bloomberg)
Moody’s: Lower Oil Prices Won’t Boost Global Growth In Next 2 Years (MW)
World’s Biggest Oil Trader Warns Crude Prices Could Dive Again (Bloomberg)
OPEC Producers Cut Oil Prices to Asia in Battle for Market Share (Bloomberg)
Ukrainians Rage Against Military Draft: “We’re Sick Of This War” (

Much more here: Debt Rattle February 11 2015 –

Audit The Fed – And Shackle It, Too

The reason to be fearful about the economic and financial future is that we are in the thrall of a mainstream consensus that is downright meretricious. In attacking Rand Paul’s audit legislation, for instance, one of the time-servers on the Fed Board of Governors, Jerome H. Powell, let loose the following gem:

“As recent U.S. history has shown, elected officials have often pushed for easier policies that serve short-term political interests…..”

Perhaps Mr. Powell is a descendent of Rip Van Winkle—–and missed the last 20 years of history while doing LBOs at the Carlyle Group and helping Congress improve upon its enviable record of fiscal management while at the Bipartisan Policy Center. But whatever he was doing—snoozing or otherwise distracted—- it most assuredly was not gathering evidence that “elected officials” were putting undue pressure on the Fed for “easier policies”.

For crying out loud there is exactly zero evidence that “politicians” had anything to do with zero interest rates.  And ZIRP defines the ultimate level of “ease” according to Bernanke himself, who famously described his policies as positioned at the “zero bound”.

Indeed, given the very earliest expected date for “lift-off” in June, the Fed will have pinned the money market rate at zero for 80 months running.This unprecedented tsunami of “easy money”, of course, happened with nary a Congressman or Senator darkening the door at the Eccles Building.

Folks, this whole chorus of Fed governors—–yesterday’s lineup included Richard Fisher and Charles Plossner—-defending the sacred “independence” of the Federal Reserve is downright Kafkaesque. Rather than protecting the Fed from meddling politicians, it is the American public that desperately needs protection from the depredations of an unelected monetary politburo that runs the entire financial system.

Let’s say you have saved a quarter million bucks over a lifetime of working and scrimping, but wish to keep it safe and liquid in your retirement years. Well thank you “independent” governors of the Fed for the privilege of owning a bank CD that generates 40 bps or the grand sum $2.75 per day. That’s one visit to Starbucks each morning, but forget the cappuccino. It’s just black coffee for you! Continue reading

US Stock Market: Trend Uniformity Still Absent

Submitted by Pater Tenebrarum  –  The Acting Man Blog

Consolidation or Topping Pattern?

From a technical perspective, the recent trading range in the US stock market is not really telling us much about what to expect next. It is possible to regard it as a drawn-out consolidation pattern prior to a renewed surge, but it is just as likely that it is in fact a distribution pattern.

We have discussed the sentiment backdrop a number of times recently. Although the public exuberance that was visible in 2000 is largely absent, virtually every other measure of sentiment, whether in terms of positioning, surveys or of the anecdotal variety, seems stretched like rarely before. In many ways it is the exact opposite of what was seen near the 2009 lows. Anecdotal evidence includes items like the stock market valuation accorded to a company that owns four mobile grilled cheese dispensers in the OTC market (a cool $100m.), which is discussed in more detail by Barry Ritholtz here.


Image credit: fmh

However, sentiment data have looked quite stretched for more than a year already (although they have reached their greatest extremes to date late last year and early this year). This hasn’t kept the market from advancing, but there may be some information in the fact that sentiment has not (at least not yet) turned cautious in the course of the recent trading range. From experience, trading ranges that are destined to be resolved by upside breakouts tend to involve a deterioration in bullish sentiment.

Today we want to briefly look at trend uniformity and a few other simple technical data points though. It should be noted ahead of this exercise that since the market remains quite close to its highs, there are of course quite a few sectors and individual stocks that continue to look technically strong at the current juncture. The breakdown in energy stocks due to falling oil prices has gone hand in hand with a revival of sectors that looked weak previously, such as consumer discretionary stocks.

Below is a weekly chart of the S&P 500. In recent months, a noticeably divergence between prices, the RSI and MACD has formed on a weekly basis. This is noteworthy mainly because it hasn’t happened in quite some time – the last time a strong weekly price/RSI divergence was recorded was just before the hefty correction in summer of 2011 commenced.

This time, the divergence is more glaring, insofar as it has been put in place over a time period of more than a year:

SPX-weekly RSI,MACD divergencesWeekly divergences between price and RSI and MACD in the SPX – click to enlarge.


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Our House of Cards — Paul Craig Roberts and Dave Kranzler

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

As John Williams ( has observed, the payroll jobs reports no longer make any logical or statistical sense. Ask yourself, do you believe that retailers responded to the very disappointing Christmas season by rushing out in January to hire 46,000 more retail clerks?

Perhaps those 46,000 retail jobs is the BLS telling us that they have to come up with new jobs to report whether or not there are any.


As we have reported on a number of occasions, whenever the price of gold in the futures market starts to rise, massive uncovered shorts are suddenly dumped on the market. As the shorts dramatically increase the supply of future contracts all at once, the supply overwhelms demand, and the price of gold is driven down despite the fact that the demand for gold in the physical market is strong. (Remember, the price of gold is determined in the futures market in which contracts are largely settled in cash and seldom in gold. The physical market is where gold bullion is purchased, not paper claims on gold for speculation.)

Last Friday the attack on gold was coordinated with the announcement of the suspicious jobs report. The price of gold was hit hard with an avalanche of uncovered gold futures contracts dumped at the same time that the U.S. Government’s Bureau of Labor Statistics (BLS) released what can only be described as an incorrect employment report. The avalanche of paper contracts that were dumped onto the Comex (both the trading floor and electronic trading computer system) took the price of gold down $39 in three hours, with most of the price hit occurring in the first 40 minutes after the jobs report was released.

The volume of contracts that traded after 8:00 a.m. on the Comex was unusually high for a Friday, running about 60% above Thursday’s volume for the same time period.   Such departures without cause from normal trading patterns are indicative of market manipulation, and Friday’s price smash capped a week in which the price of gold was taken lower every day at 8:30 a.m. after the release of economic reports, most of which reflected a deteriorating condition of the U.S. economy.

Gold is a refuge in times of uncertainty. With yen, dollars, and euros all being created at a faster rate than goods and services are being produced, with both stock and bond prices at bubble levels, gold is definitely an attractive refuge. Confidence in gold would pull money out of the rigged markets for financial instruments and make it more difficult to maintain the appearance that all is well. To attack gold simultaneously with issuing a happy jobs report doubles the encouragement to remain invested in financial paper and to continue to hold the over-printed currencies.

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