Defaulting banks - where will it stop?

[Jan Klimkowski]

So, the Fed pledges low US interest rates for two years:

Federal Reserve pledges to keep interest rates low for two years

America's central bank pledged to peg interest rates at their ultra-low level for a further two years to boost growth in the world's biggest economy.

The US Federal Reserve said it was prepared to use a range of policy tools should growth and unemployment continue to weaken over the coming months.

But the US Federal Reserve made no commitment to begin a third round of quantitative easing, the process of electronic money creation that has pumped $2tn (£1.2tn) into the US banking system over the past two and a half years.

(snip)

In a statement, the Fed said it expected "a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting" and anticipated that a jobless rate of about 9% would decline only gradually towards the level judged by the central bank to be consistent with keeping inflation low and employment high.

It added that economic conditions were "likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013", and had looked at a range of policy tools to promote a stronger low-inflation recovery. These would be employed "as appropriate" in the light of fresh information on the economy.

Previously, the Fed had said it would keep borrowing costs low for an "extended period" but the commitment to maintain them at an exceptionally low level led to three members of the policymaking open market committee dissenting from the decision, the first time this has happened for almost 20 years.

The Dow Jones industrial average of US blue chip stocks had been up 100 points before the Fed's statement but was 150 points lower half an hour later.

Cary Leahey, managing director and senior economist at Decision Economics in New York, said: "This is a lame way for the Fed to try to help the marketplace. They redefined extended period to mean at least mid-2013. But to today's marketplace, what difference does it make if they tighten in 2012 or 2013?"

Prompting Market Ticker's Karl Denninger to write (with charts here):

Bernanke Calls Deflationary Depression

The bond market figured it out immediately, pricing it in.

(chart)

That's the 10 year Treasury on a weekly chart. It is now back to effectively where it was in the depths of the crash.

(chart)

The 5-year yield is below that of the crash.

And the 2-year has basically been turned into a T-bill.

The bond market is telling you that there will be no material economic growth for the next two years and that a deflationary depression is the economic path that will be followed.

This is effectively what happened in Japan, although the worst of the economic impacts have been muted as they had tremendous internal surpluses to expend (those, incidentally, are now pretty-much "used up" - two decades later.) We do not have those internal surpluses - to the contrary.

The stock market has been doing plenty of "up and down" and it will probably rally for a bit yet, as stock traders tend to be the short bus riders. But make no mistake - the bond market's response to the FOMC announcement is entirely rational and consistent with only one outcome - a sustained economic slowdown coupled with deflation, not inflation.

What will cause this? The debt bubble collapsing. Maybe kicked off by Congress failing to reach agreement or doing a "nothing" with the so-called "commission." Maybe kicked off by collapsing net interest spreads for the banks and then their collapse from the weight of their bad loans and inability to earn their way out of the box they've painted themselves into. Or maybe Unicredit blows up and the tsunami comes from Europe. There are plenty of things ticking out there, and it only takes one big one that goes off to set the next move in motion.

The bottom line is that either the bond market is wrong or stocks are wrong. Given that Bernanke just provided you his pronouncement and expectations, I wouldn't bet against the bond market, and if the bond market is right then the modest "mini-crash" we just saw is a warning and not a buying opportunity, just as Pompeii's Vesuvius rumbled many times before it blew its stack.

When this is priced into the equity markets - and others - it is likely to be in the form of a nasty dislocation. This also fits with the technical picture; assuming the low today of 1103 holds for the moment and is a localized low then the most-likely retrace is up around 1220, all in the S&P 500.

The next move down, unfortunately, should comprise almost four hundred S&P points and close to four thousand DOW points, and is likely to be more violent than what we just experienced. It could be worse too - it's possible that we see an S&P decline of more than six hundred points, basically cutting the indices in half, more-or-less "all at once."

Enjoy the rally today (and likely for a bit yet on a forward basis) but beware - if I have to choose between the stock market and bond market as to who's right the bond market is almost always both the leader and the correct choice

[Jan Klimkowski]

The Swiss National Bank needed an emergency swap line of $200 million.

If the Gnomes of Zurich, with their code of Omerta for Moneylaunderers, are tapped out, then the market tickers of global market capitalism are a work of pure fiction.

Cue Panic As Fed Resumes Liquidity Swap Lines, Lends $200 Million To Swiss National Bank, Most Since October 2010

Submitted by Tyler Durden on 08/18/2011

If yesterday's news broken by ZH that one bank was in dire need of US dollars and ended up borrowing $500 million from the ECB was enough to send the market down almost 5% today, then the follow up news that the FRBNY just reactivated FX swap lines with Europe will likely send ES limit down at tomorrow's open. The FRBNY has just announced that in the week ended August 17, it lent out $200 million to not the ECB, not the BOE, but the "most stable" of all banks: the SNB. This is the first use of the Fed's Swap Lines since March, and the most transacted under this "last ditch global bailout swap line" (see more on how the Fed bailed out the world using swap lines here) since October 2010. This event also gives us a hint that the European bank in question in dire need of cash is Swiss, which in turn means that it is not some usual PIIGS suspect, but one of the two "big ones." If true, this means that the European insolvency, liquidity and what have you crisis is about to take an exponential step function higher

Meanwhile Credit Agricole and Deutsche Bank are toast, and Canada is next in the sights of the speculators who took down Italy and are gunning for France.

Is The Next Domino To Fall.... Canada?

Submitted by Tyler Durden on 08/18/2011

While two short months ago, "nobody" had any idea that Italy's banks were on the verge of insolvency, despite that the information was staring them in the face (or was being explicitly cautioned at by Zero Hedge days before Italian CDS blew out and Intesa became the whipping boy of the evil shorts), by now this is common knowledge and is the direct reason for why the FTSE MIB has two choices on a daily basis: break... or halt constituent stocks indefinitely. That this weakness is now spreading to France and other European countries is also all too clear.After all, if one were to be told that a bank has a Tangible Common Equity ratio of under 2%, the logical response would be that said bank is a goner. Yet both Credit Agricole and Deutsche Bank are precisely there (1.41% and 1.92% respectively), and both happen to have total "assets" which amount to roughly the size of their host country GDPs, ergo why Europe can not allow its insolvent banks to face reality or the world would end (at least in the immortal stuttered words of one Hank Paulson). So yes, we know that both French and soon German CDS will be far, far wider as the idiotic market finally grasps what we have been saying for two years: that you can't have your cake and eat it, or said otherwise, that when you onboard corporate risk to the sovereign, someone has to pay the piper. Yet there is one place where that has not happened so far; there is one place that has been very much insulated from the whipping of the market, and one place where banks are potentially in just as bad a shape as anywhere else in Europe. That place is.... Canada.

As the chart below shows, which is a ranking of global banks by tangible common equity, lowest first, of the banks with a TCE ratio of under ~4% a whopping 30% are those situated in Canada, the same place where nobody thinks anything can go wrong, and which has been completely spared from the retribution of the bond vigilantes. Something tells us Canadian sovereign CDS, not to mention Canadian bank CDS, are both about to go quite a bit wider...

[Jan Klimkowski]

European markets have suffered massive (c4-5%) losses today.

The next domino to fall may be Belgium. From Zero Hedge:

BIG PIS: The CEO Of Europe's Most Troubled Bank, Dexia, Quits As Contagion Tsunami Sweeps Over Belgium

Submitted by Tyler Durden on 09/05/2011

Just when we thought the world was running out of headlines, here come something that will send futures scurrying for even more safety. According to Belgian Nieuwsblad, the CEO of Belgium's biggest bank has just resigned. As a reminder, Dexia is the one European bank that in the 2008-2009 period borrowed more money from the Fed than anyone else, and which we have discussed on several occasions in the past few months as being rumored to be on the receiving end of a variety of liquidity "complications" and countreparty concerns. Typically rumors of that nature, coupled with the sudden departure of the CEO, end up being proven as fact shortly to quite shortly. In other news, we are happy to announce the expansion of the PIIGS to BIG PIS following the arrival of the latest country to join the sovereign and bank funding crisis.

Google Translated

Stefaan Decraene, the chief executive of Dexia Bank Belgium, leave the company. That tells the time and is confirmed by Dexia. He is succeeded by Jos Clijsters.

Dexia's departure Decraene tonight confirmed in a press release. The bank also announced that it Jos Clijsters by the board of directors was appointed new CEO of Dexia Bank Belgium. "The experience of Jos Clijsters in the financial sector and his knowledge of Dexia guarantee the continuity and development of the bank to serve its customers," it sounds.

The new vice chairman of the executive Marc Lauwers, the board member responsible for the Belgian retail bank.


According to Time, there are "strong indications" that Decraene (46) will switch to the French financial giant BNP Paribas, the parent of Dexia's rival Fortis. Confirmation has not yet.

Not the first

The departure comes at a time when Dexia's very difficult, and the financial markets to deal with a growing crisis of confidence in investors and creditors. The departure of Decraene may be the result of tensions between the Belgian and French arm within the group. It's no secret that it was difficult to find Decraene the Frenchman Pierre Mariani, Dexia's CEO of the entire group.

Earlier this year already got several other executives of Dexia, including Xavier de Walque, financial director of Dexia Bank Belgium, and Wim Vermeir, an asset to the ancien Dexia Asset Management.

[Jan Klimkowski]

There may be some more games, but I agree with Market Ticker's Denninger that the bell has tolled loud and clear:

It's Over

Put a fork in it folks.

As I write this the DAX is down well over 5% and there are multiple banks that are lock-limit down and have been suspended over in Europe.

Greek 1 and 2 year bonds are trading over 50% on yield. That's not a yield, it's an implied recovery on a default which the market now says is inevitable.

The fraud has finally caught up with the scammers and taking on more and more debt to cover up unpayable debt has run its course. Nobody believes it will work any longer, essentially. The market has called on the scams and frauds and is now serially demanding proof that the banks can fund their liabilities. It is doing so by driving down equity prices, forcing the institutions into a corner where their cash flow inadequacy is exposed.

Banks in the US and Europe have covered this up for the last three years. I pointed out the scams in 2007 and used as an example Washington Mutual when I caught them paying dividends with money they did not have.

That was all that honest regulators (call them "cops" if you wish) needed to step in and demand that crap stop immediately, and to close the institution if they couldn't or wouldn't cease and desist.

But that was not done.

Then 2008 happened, exactly as I predicted it would. Why? Because while you can lie about balance sheets for a long time, I've never seen a bank anywhere in the world that will let you lie about a deposit ticket. That is, cash flow always wins.

The solution? Borrow more money! Look Ma, I can't be broke - I still have checks!

That was good for two years. But now that scam has run out of gas as well, as the ability to continue to roll over paper one instrument after another finally hit the wall and people said "wait a second, this is a scam - you can't pay the original note and are trying to con me!"

Well, yes. They were. This is a surprise when we've spent 30 years running the same scam? Exactly how dumb are you to continue to buy into the same scheme that you know blew up in your face in 2008?

In 2007 and early 08 I counseled "ring-fencing" the government in the United States and pulling the supports, forcing the over-levered to default. Yes, I know, that would be disruptive. Very disruptive. But the government would go on and in the places where there was too much leverage, those people would go bankrupt on both sides of the transaction. Instead of blowing $4.5 trillion on "stimulus" programs we could have spent $200 billion providing three hots and cot to a quarter of the population for a year. "Creative destruction" would have taken care of the rest - the bad institutions would have gone under, bankruptcy would have been rampant, but from the ashes there would have been a massive rebound in the economy and the clouds would lift - with about half the debt in the nation gone.

But now the $4.5 trillion is gone and it did nothing other than make the problem worse! We propped up the insolvent and let them play games for two more years, but we solved nothing and there has been no recovery. There was no recovery in jobs, no recovery in anything - except stock prices that sucked people back in after having sold at or near the bottom. Now they're being hammered a second time within three years by the same fraud that got them the last time, egged on by a Federal Reserve ChairSatan who has publicly taken credit for the stock market's rise, implicitly stating he would continue to make sure it didn't collapse again.

The problem is that neither he or anyone else can continue to cover up fraud forever.

The market has declared that it does not believe claims of solvency and capital adequacy of financial institutions and is now demanding strict proof. There is no proof available as the claims of solvency are lies.

Therefore, we're seeing the DAX down more than 5% and many banks over in Europe falling 5 or even 10% a day. Our own markets were down 2.5% Friday and the futures at present are down another 2%, so we're right behind them. Many European markets are just 15 - 20% above the 2009 lows and it appears they're headed straight for them.

We won't be far behind.

This is not an academic exercise. Many institutions - especially insurance companies and pension funds - are heavily dependent on that not happening. They will detonate if the market trades there and remains there for any length of time.

Congress has ignored the warnings from myself and a handful of others who have been in front of this for years. The government simply doesn't give a damn - either Republicans or Democrats. Both sides of the aisle are too busy blowing the banksters under the desk and protecting their frauds.

Oh sure, there will be bounces and there will be moves higher in the market, and there will be further attempts to "save" the market and "save" the economy.

They will fail, because none of the proposals on the table are intended to do anything about the fraud and until that is cleared from the system there can be no actual and durable recovery.

Unfortunately there are so many possible detonations approaching at high speed that there is no option but to move the lights.

[Jan Klimkowski]

Monty Python

Bring out your Dead.

[Jan Klimkowski]

The Swiss just destroyed traders with leverage on the "wrong" side of FX speculation.

The comments at Market Ticker are worth perusing, since some of the posters are active traders:

Swiss Central Bank Detonates FX Traders

In what may well be the single largest one-day move in the FX markets ever (I can't find a larger one among "major" currencies with material representation in FX) the Swiss National Bank decided to "peg" (via printing) the CHF to 1.2 Euro.

The result was an essentially-instantaneous move in the CHF against everything of almost 10%.

(Chart at url)

For the uninitiated FX trades are often done with rather extreme amounts of leverage. This sort of move has a very high probability of utterly destroying many traders - anyone on the wrong side of it, basically.

But what's worse is that it also effectively steals about 10% of the purchasing power of everyone holding Swiss Francs all at once!

Sure, if you're a manufacturer and exporter in Switzerland you just became "more competitive." But you got more competitive by stealing the value from everyone else in the economy who just lost the same 10% change you enjoy.

How will this play with the Swiss populace? That's a good question, considering that most of them are consumers and not exporters......

[Ed Jewett]

20 Quotes From European Leaders That Prove That They Know That
The Financial System In Europe Is Doomed

September 7th, 2011
Via: Economic Collapse Blog: (See below)

The financial crisis in Europe has become so severe that it has put the future of the euro, and indeed the future of the EU itself, in doubt. If the financial system in Europe collapses, it is going to plunge the entire globe into chaos.
…

If we see nations such as Greece, Portugal and Italy start to default, we could have quite a few major European banks go down in rapid succession. That could be the "tipping point" that sets off mass financial panic around the globe.

Of course the governments of Europe would probably step in to bail out many of those banks, but when the U.S. did something similar back in 2008 that didn't prevent the world from plunging into a horrible worldwide recession.

Right now, the way that the monetary union is structured in Europe simply does not work. Countries that are deep in debt have no flexibility in dealing with those debts, and citizens of wealthy countries such as Germany are becoming deeply resentful that they must keep shoveling money into the financial black holes of southern Europe.

These bailouts cannot go on indefinitely. Political and financial authorities all over Europe know this and they also know that Europe is rapidly heading toward a day of reckoning.

The quotes that you are about to read are absolutely shocking. In Europe they openly admit that the financial system is dying, that the euro is in danger of not surviving and that the EU does not work in its present form.

Posted in Collapse, Dictatorship, Economy, Elite

http://cryptogon.com/?p=24748

****


"The financial crisis in Europe has become so severe that it has put the future of the euro, and indeed the future of the EU itself, in doubt. If the financial system in Europe collapses, it is going to plunge the entire globe into chaos. The EU has a larger economy and a larger population than the United States does. The EU also has more Fortune 500 companies that the United States does. If the financial system in Europe breaks down, we are all doomed. An economic collapse in Europe would unleash a financial tsunami that would sweep across the globe. As I wrote about yesterday, the nightmarish sovereign debt crisis in Europe could potentially bring about the end of the euro. The future of the monetary union in Europe is being questioned all over the continent. Without massive bailouts, there are at least 5 or 6 nations in Europe that will likely soon default. The political will for continued bailouts is rapidly failing in northern Europe, so something needs to be done quickly to avert disaster. Unfortunately, as anyone that has ever lived in Europe knows, things tend to move very, very slowly in Europe.

If the bailouts end and Europe is not able to come up with another plan before then, mass chaos is going to unleashed. Most major European banks are massively exposed to European sovereign debt, and most of them are also very, very highly leveraged. If we see nations such as Greece, Portugal and Italy start to default, we could have quite a few major European banks go down in rapid succession. That could be the "tipping point" that sets off mass financial panic around the globe.

Of course the governments of Europe would probably step in to bail out many of those banks, but when the U.S. did something similar back in 2008 that didn't prevent the world from plunging into a horrible worldwide recession.

Right now, the way that the monetary union is structured in Europe simply does not work. Countries that are deep in debt have no flexibility in dealing with those debts, and citizens of wealthy countries such as Germany are becoming deeply resentful that they must keep shoveling money into the financial black holes of southern Europe.

These bailouts cannot go on indefinitely. Political and financial authorities all over Europe know this and they also know that Europe is rapidly heading toward a day of reckoning.

The quotes that you are about to read are absolutely shocking. In Europe they openly admit that the financial system is dying, that the euro is in danger of not surviving and that the EU does not work in its present form.

The following are 20 quotes from European leaders that prove that they know that the financial system in Europe is doomed....

#1 Polish finance minister Jacek Rostowski: "European elites, including German elites, must decide if they want the euro to survive - even at a high price - or not. If not, we should prepare for a controlled dismantling of the currency zone."

#2 Stephane Deo, Paul Donovan, and Larry Hatheway of Swiss banking giant UBS: "Under the current structure and with the current membership, the euro does not work. Either the current structure will have to change, or the current membership will have to change."

#3 EU President Herman Van Rompuy: "The euro has never had the infrastructure that it requires."

#4 German President Christian Wulff: "I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU's workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank's independence"

#5 Deutsche Bank CEO Josef Ackerman: "It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels."

#6 ECB President Jean-Claude Trichet: "We are experiencing very demanding times"

#7 International Monetary Fund Managing Director Christine Lagarde: "Developments this summer have indicated we are in a dangerous new phase"

#8 Prince Hermann Otto zu Solms-Hohensolms-Lich, the Bundestag's Deputy President: "We must consider whether it would not be better for the currency union and for Greece itself to go for debt restructuring and an exit from the euro"

#9 Alastair Newton, a strategist for Nomura Securities in London: "We believe that we are just about to enter a critical period for the eurozone and that the threat of some sort of break-up between now and year-end is greater than it has been at any time since the start of the crisis"

#10 Former German Chancellor Gerhard Schroeder: "The current crisis makes it relentlessly clear that we cannot have a common currency zone without a common fiscal, economic and social policy"

#11 Bank of England Governor Mervyn King: "Dealing with a banking crisis was difficult enough, but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop."

#12 George Soros: "We are on the verge of an economic collapse which starts, let's say, in Greece. The financial system remains extremely vulnerable."

#13 German Chancellor Angela Merkel: "The current crisis facing the euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957."

#14 Stephane Deo, Paul Donovan, and Larry Hatheway of Swiss banking giant UBS: "Member states would be economically better off if they had never joined. European monetary union was generally mis-sold to the population of the Europe."

#15 Professor Giacomo Vaciago of Milan's Catholic University: "It's clear that the euro has virtually failed over the last ten years, even if you are not supposed to say that."

#16 EU President Herman Van Rompuy: "We're in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don't survive with the euro zone we will not survive with the European Union."

#17 German Chancellor Angela Merkel: "If the euro fails, then Europe fails."

#18 Deutsche Bank CEO Josef Ackerman: "All this reminds one of the autumn of 2008"

#19 International Monetary Fund Managing Director Christine Lagarde: "There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken"

#20 German Chancellor Angela Merkel: "The euro is in danger ... If we don't deal with this danger, then the consequences for us in Europe are incalculable."

Most of the individuals quoted above desperately want to save the euro. They are not going to go down without a fight. The overwhelming consensus among the political and financial elite in Europe is that increased European integration in Europe is the answer.

For example, EU President Herman Van Rompuy is very clear about what he believes the final result of this crisis will be....

"This crisis in the euro zone will strengthen European integration. That is my firm belief."

Many of the elite in Europe are now openly talking about the need for a "United States of Europe". Just consider what former German chancellor Gerhard Schroeder recently had to say....

"From the European Commission, we should make a government which would be supervised by the European Parliament. And that means the United States of Europe."

But as mentioned above, things in Europe tend to move very, very slowly. The debt crisis in Europe is rapidly coming to a breaking point, and it is very doubtful that Europe will be able to move fast enough to head it off.

What we may actually see is at least a partial collapse of the euro and a massive financial crisis in Europe first, and then much deeper European integration being sold by authorities in Europe as "the solution" to the crisis.

This would be yet another example of the classic problem/reaction/solution paradigm.

The "problem" would be a horrible financial crisis and economic downturn in Europe.

The "reaction" would be a cry from the European public for someone to "fix" things and return things back to "normal".

The "solution" would be a "United States of Europe" with much deeper economic and political integration which is something that many among the political and financial elite of Europe have wanted for a long, long time.

Right now, the people of Europe are very much opposed to deeper economic and political integration. For example, 76 percent of Germans says that they have little or no faith in the euro and one recent poll found that German voters are against the introduction of "Eurobonds" by about a 5 to 1 margin.

It looks like it may take a major crisis in order to get the people of Europe to change their minds.

Unfortunately, it looks like that may be exactly what is going to happen."

http://theeconomiccollapseblog.com/archi...-is-doomed

[Keith Millea]

September 7, 2011


The Big Fire Sale

EuroZone Deathwatch

by MIKE WHITNEY

There's no way to overstate the calamity that's unfolding across the Atlantic. The eurozone is imploding. The smart money has already fled EU banks for safe quarters in the US while political leaders frantically look for a way to prevent a seemingly-unavoidable meltdown. Here's an excerpt from a post at The Streetlight blog that explains what's going on:

"…ECB data seems to indicate that monetary financial institutions (MFIs) in Europe have been moving their deposits out of European banks. Where is that money going?….

European banks are shifting their cash assets out of European banks and putting much of them into US banks…. This has happened at a significant rate, with a net transatlantic flow from European to US banks that probably totals close to half a trillion dollars in just six months."
("Europe's Banking System: The Transatlantic Cash Flow", The Streetlight blog)

The eurozone is experiencing a slow-motion run on its banking system. Andwhile the ECB's emergency loans and other commitments have kept the panic from spreading to households and other retail customersthe big money continues to flee as leaders of large financial institutions realize that a political solution to the monetary union's troubles is still out-of-reach.

The spreads on Spanish and Italian sovereign bonds have risen to nosebleed levels while the interest rate on the Greek 1-year bond has topped 70 percent, a tacit admission that Greece has lost access to the capital markets and will default despite the persistent efforts of the IMF and ECB.

At the same time, overnight deposits at the European Central Bank (ECB) continue to rise as jittery bankers stash billions at the "risk free" facility. According to the Wall Street Journal: "Banks deposited €166.85 billion ($235.23 billion) at the ECB, the central bank said Tuesday, up from the previous 2011 peak of €151.1 billion recorded Friday, and the highest since €172.09 billion recorded Aug. 9 2010." This is yet another sign that nerves are on-edge and that banks are preparing for the worst.

German Chancellor Angela Merkel has been stalled in her attempt to push through changes to the European Financial Security Facility (EFSF) that would allow it's governors to use billions in emergency funds to bail out underwater EU banks that made bad bets on sovereign bonds. The German parliament (Bundestag) will vote on the issue on September 23 with the future of the 17-member monetary union hanging in the balance. If the EFSF is not given the "expanded powers" it seeks, then investors will ditch their bank shares and the markets will plunge. Political developments in Germany will determine whether the eurozone has a future or not.

This is from Reuters:

"Funding market tensions have triggered emergency measures at European banks, with some firms now dumping assets at the fastest rate since the collapse of Lehman Brothers as they seek to build up stockpiles of cash and reduce their reliance on short-term borrowings.
Nervy lenders have sold off billions of euros of "good assets" since the start of August, according to treasurers and business heads overseeing such sales, with some firms also halting new loans to large corporate clients in an effort to preserve cash.

Such a defensive response to the enfolding funding crisis in Europe is the clearest sign yet that credit market tensions whether rooted in truth or unwarranted investor panic pose an increasing threat to the global economic recovery, potentially choking off credit to critical engines of growth." ("Banks dump assets as funding worries intensify", Reuters)

It's a firesale, and it's getting worse. The banks have already jettisoned their good assets and are now left with the toxic dreck that will fetch only a fraction of their original cost. As the bank run accelerates, the need for cash will increase forcing the ECB to either dig deeper or let the financial system crash.

EU leaders have frittered away an entire year while sparks on the periphery turned into full-blown firestorm. Now the inferno has spread to the core and policymakers still can't settle on a course of action. This is policy paralysis at its worst.

The problem is political not economic. Eurozone leaders are being asked to create a fiscal union with powers that surpass those of the individual states, a United States of Europe. But the groundwork has not been done to engage the public or build consensus, which is why the ECB continues to rely on half-measures and band-aid solutions like emergency loans and bond purchasing programs. Now investors have seen through the ruse and are demanding swift action or they'll send the markets into freefall. So, time is of the essence, which is why the eurozone's chances for survival are so slim.

Mike Whitney lives in Washington state. He can be reached atfergiewhitney@msn.net

http://www.counterpunch.org/2011/09/07/e...eathwatch/

[Peter Lemkin]

Yup, the whole world economy will shortly collapse...but the ultra rich have physical assets that never loose value..in fact..increase in value at such times...gold, diamonds, oil, drugs, et al..... got yours?! - if not, like me you're screwed! :banghead: :wavey: :poketongue:

[Greg Burnham]

by Anthony Hall [UPI]:

It was all of 18 weeks ago the U.S. economic recovery looked at least semi-solid -- but with reports trickling in that hinted of a backslide.

That would be way back in late April, with the Dow Jones industrial average closing at 12,810 points. This week, having spent January through July ahead for the year, the DJIA skidded off September's high above 11,500 to a low of 10,733, triggering renewed talk of a second global recession.

Back in May, manufacturing reports kicked it off. In New York and Philadelphia, there were signs of manufacturing gains flat-lining. The housing market, an economic cornerstone, was not helping. The trade gap indicated the United States was more broke at the end of each month than at the start, to the tune of $50 billion or so per month. Then, job gains promising for four months, hovering just above a break-even point, started to flat-line as well. Trouble was on the way.

How quickly did that trade deficit number enter one ear and exit the other?

Even under debate in jaded Washington, $50 billion would turn a few heads. It happens to be five Environmental Protection Agencies paid for in one month with a little left over -- a Congressional Budget Office, perhaps.

It is almost the size of the Department of Transportation's annual budget, which hovers between $70 billion and $75 billion.

What could New Jersey do with $50 billion -- or California? Here's something funny: $50 billion in North Dakota? Funny, right?

What would Miami do with $50 billion? How about Minneapolis? How about handing it to Montpelier, Vt.? How absurd is that?

How about giving it to another country? Each month, the United States hands the Organization of Petroleum Exporting Countries roughly $12 billion. The trade deficit with China lately hovers between $25 billion and $30 billion.

How many jobs is that?

Currently, it would seem out of place to revisit President Barack Obama's pledge to double the size of U.S. exports within the next five years given the problems everywhere else.

On the other hand, as overly simplistic as this sounds, isn't $50 billion each month at least the start of a solid jobs program? And one that is tax-free, to boot?

In international markets Friday, sharp losses from the past two trading sessions moderated in most markets. The Nikkei 225 index in Japan lost 2.07 percent and the Shanghai composite index in China fell 0.41 percent. The Hang Seng index in Hong Kong lost 1.36 percent and the Sensex in India dropped 1.22 percent.

In Australia, the SP/ASX 200 index lost 1.56 percent.

In midday trading in Europe, the FTSE 100 index in Britain gave up 0.32 percent, while the DAX 30 in Germany shed 1.92 percent. The CAC 40 in France lost 1.69 percent and the Stoxx Europe 600 index lost 1.18 percent.

ANTHONY HALL || United Press International


(Source: UPI )
(Source: Quotemedia)