David Stockman on the Coming EuroZone Disaster

David Stockman’s Contra Corner is the place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. He tells it like it is. Here’s his take on the Greek situation. Time is running out.


If you don’t believe financial markets are well and truly broken Monday’s tepid response to the Greferendum should be dispositive. The house of cards known as the Eurozone is about to hit the wall, unleashing financial contagion and turmoil far and wide. So any investor or trader in their right mind should have been slamming Jim Cramer’s triple sell button early and often.

For lack of doubt, consider what Merkel’s Vice-Chancellor and leader of the German socialists had to say on Monday. Recall Herr Gabriel is purportedly the voice of the enlightened left and the politician hoping to soon relieve Angela Merkel of her job:

Sigmar Gabriel, the German vice-chancellor and economy minister, said there could be no question of writing off Greek debt because other countries that have had loans such as Ireland, Portugal and Spain would demand equal treatment.

‘I really hope that the Greek government – if it wants to enter negotiations again – will accept that the other 18 member states of the euro can’t just go along with an unconditional haircut,’ he said.

‘How could we then refuse it to other member states? And what would it mean for the eurozone if we’d do it? It would blow the eurozone apart, for sure.’

Oh, yes, he used the “conditional” word, meaning that if Greece signs up for a permanent regime of reform, austerity and depression its paymasters in Brussels and Berlin might be open to an accounting double shuffle. That is, to having Greece’s crushing loans extended to 40 years from 25 years, its grace period on interest and principle repayments stretched beyond the current 2023 time frame and its interest rates pared to something less than 1.5%. On an NPV basis, this is supposed to be some big deal concession.

But who do these clowns think they are kidding? Some day all of this debt will have to be rolled over, and eventually the monetary mountebanks running the ECB and other central banks will be unable to prevent interest rates from normalizing.

So put an honest interest rate—–say 6% on a country that has been a chronic deadbeat for two centuries——-on its current $350 billion of fiscal debt and the pro forma interest computation rounds out to 10% of GDP. It is doubtful that even Art Laffer would claim Greece could grow out from under that kind of financial albatross.

So the real red line is very simple. Above all else, 61% of the Greek public voted for relief from the onerous debt that has been imposed upon them by the troika and faithless Greek politicians in Athens. If they don’t get an outright haircut in excess of $100 billion, Greek democracy will remain permanently indentured to its troika paymasters.

Yet is there an iota of chance that the other 18 Eurozone nations plus the IMF will agree to a meaningful and honest “haircut”  during the next 48 hours that Angela Merkel has allotted for reaching a new deal or a Grexit?  Well, for starters, her iron-fisted finance minister has just averred that a discount on the EFSF debt is actually “prohibited” by the EU treaties.

End of discussion.

Then in the unanimous consent parade you have the Finns, who fell in line last time only by an 11th hour side deal. Said their finance minister:

We’re not willing to reduce Greece’s debt burden,” said Mr. Stubb. “We did that already in 2011; we did that also in 2012.”

So do the boys and girls who play in the Wall Street, London and other assorted casinos really need to be struck upside the head with a 2X4?

Even Jean-Claude Juncker, President of the European Commission, heretofore a dove on finding a compromise with Greece, and a sawdust-for-brains politician willing to kick any available can, did not see fit this time to lie just because things have gotten so serious. Instead of opening the door to a debt haircut, he merely dismissed the Greek referendum as an ‘irrelevant circus’.

Nor was that the extent of the European Commission’s doves dissing of the prospects for a Greek debt haircut:

Valdis Dombrovskis, the European Commission vice president responsible for the euro, said a write-down of Greece’s £270 billion debt mountain was now‘off the table’ after the referendum.

Next, throw into the mix prime minister Tsipras once again trolling around Putin-land for an alternative source of money; a German government which cannot even discuss a third bailout deal prior to a favorable resolution from a hostile Bundestag, which also happens to be on recess; and an open breach between Angela Merkel and Francois Holland on the core matter of a debt haircut and accommodation of Greece’s demands for relief from the troika memorandum.

The latter shatters the very Franco-German alliance on which the entire rotten troika bailout regime has rested.

The Germans have an impolite term for what that adds up to—- einen shitschturm!

And it will be a doozy. What the referendum did was to force the troika con job out of the accounting shadows. The Greek people now fully understand that it was not they, but the European banks and bond funds which were bailed out by the troika.

And the taxpayers of Europe now understand that it is they who are on the hook, not the Greeks who can’t and won’t pay; and not the Brussels apparatchiks, who committed them to off-budget guarantees that they falsely assured would never come due.

For purposes of clarity, here is the updated due bill for the 18 Eurozone nations which must act with unanimous agreement in the next 48 hours. It now amounts to 341 billion euros and is reaching the comical state. These fools have simply strapped themselves to a financial time bomb.

Read More.

What Will Come of Greece? What Madness Will Follow?

JHK is in fine form today and comments on the long drawn out affair with the IMF, the ECB, and especially German negotiators.  As James Howard Kunstler puts it, the can they’re trying to kick down the road is now a 50 gallon drum of cement. The end game is near.


History in Free Verse (by JHK)

History might not rhyme, exactly, but it’s not bad for free verse. Greece is this century’s Serbia — a tiny, picturesque backwater nation blundering haplessly into the center stage of geopolitics. And the European Union is, whaddaya know, Germany in drag, on financial steroids.

Nobody knows what will happen next in the struggle to wring some kind of debt repayment promises out of poor Greece. Without “restructuring” — a virtual national bankruptcy proceeding — there can be no plausible promises of repayment. Both sides seem to have exhausted their abilities to juke their way out. The European Union and its wing-men at the European Central Bank (ECB) and the International Monetary Fund (IMF) can only pretend to kick that fabled can down the road because it has turned into a cement-filled 50-gallon drum. The Greek government can only pretend to further dismantle its civil service and pension systems lest angry citizens toss it out and replace it with a new government, perhaps an ugly and pugnacious one made up of Golden Dawn party Nazis.

In the background, Spain, Portugal, Italy, Ireland, and perhaps even France wait without peeping to see if Greece is allowed to restructure, because you can be sure they will demand the same privilege to debt relief. But that’s hardly possible because the ECB has been engineering a shift of debt-holding away from the big corporate banks  — which made all the stupid loans — to the taxpayers of their member states, especially Germany, which stands to be the biggest bag-holder when a contagion of serial default seeps across the continent.

This implies, of course, that along the way to that outcome something sickening happens to the price of all the bonds that the debt is embodied in. Namely, its value craters for the simple reason that the threat of non-payment makes interest rates shoot up to reflect the actualization of risk. That would certainly set off the booby-trap of derivative interest rate swaps and credit default swaps that have been laid into history’s greatest financial minefield. Thus, the big banks that were supposedly shielded by the ECB shell game of Hide the Debt Pea Somewhere Else, will blow up in a daisy-chain of unpayable obligations.

The net effect of all that will be the disappearance of nominal wealth — it crosses an event horizon into a black hole never to be seen again. The continent discovers it is a lot poorer than it thought. Fifty years of financial engineering comes to the grief it deserves for promoting the idea that it’s possible to get something for nothing.

Read More at James Howard Kunstler’s blog.