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Commentary on The Capital Markets- Category [International]

Hmmmm...

President Obama on Saturday made an personal plea for gay rights during his visit to Kenya, warning that “bad things happen” when countries discriminate against certain groups of people.

“As an African-American in the United States, I am painfully aware of the history of what happens when people are treated differently under the law,” Obama added during a joint press conference with Kenyan President Uhuru Kenyatta. “I’m unequivocal on this.”

But Obama’s call for universal gay rights was quickly dismissed by Kenyatta, who described the issue as something “our culture, our society does not accept.”“For Kenyans today, the issue of gay rights is really a non-issue. We want to focus on other areas that are day-to-day living for our people,” he said, citing heath concerns and women’s rights.

It's always amusing to see our nation try to shove its views down someone else's throat.  The pushback on this one, however, was foretold as it was expected the Kenyan government wasn't going to just roll over and take the lashing from Obama, even though I suspect he thought he could get away with it unchallenged.

Uh, nope.  

Maybe -- just maybe, the Kenyans are on to something...

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Uh, yeah -- at least I give Bloomberg credit for "where did the money come from?" being the first question asked in the associated video smiley

Greece’s government said it’s repaying 6.8 billion euros ($7.4 billion) to creditors and depositors queued at reopened banks in the first signs of stabilization after last week’s bailout deal.

The country ordered payments on Monday to the European Central Bank, the International Monetary Fund and the Greek central bank, a Greek Finance Ministry official said on condition of anonymity. The euro rose on the news.

The EU loaned the Greeks the money that was then paid back to the EU.  In other words the Greeks got effectively-zero benefit but the balance on their loans increased!

Yes, that is a "sign of stabilization", sort of like it is a sign of stabilization when you have lit the fuse on a bomb and the fuse goes inside the box containing said bomb.

For a short while your situation appears to have improved.......

smiley

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No kidding?

The modern Greek tragedy isn’t over—after an interlude, there will be more acts. The deal struck with European leaders on July 13 will, with luck, avert an immediate financial collapse. But three underlying problems remain: Greece must escape from the current depression, reduce its debt burden and restore its competitiveness.

Of course there will.

Just as there will be right here in America, for the same reason.

Bailouts, no matter how they're conducted, are an immoral act for they remove the check and balance on bad behavior (you get reamed!)  But leaving aside the ethical and moral arguments for a minute, they're degenerate, stupid and poisonous to the economy generally irrespective of how they're done.

The reason is found in mathematics: Loans, when created against impounded collateral, are neither inflationary or deflationary on balance.  That is, at the time of the loan creation more "money" circulates but at the same time an asset of equal or greater value is removed from the ability to circulate.  That's neutral.  Further, as the loan is paid off that "extra" moneyness is removed from the economy and the asset is returned to its former ability to circulate.

So far so good.

However, when a loan is made against nothing, that is a pure "promise" to pay with nothing behind it (which is inherently always true when the borrower is a sovereign!) then there's a problem because that "loan" is in fact an inflation of the money supply.  If a bank makes that "loan" and is able to count the so-called "debt" as "money good" even though there is nothing of actual value behind it other than a promise that the citizens will pay taxes in the future then the impact is inflationary right then and there.

The unfortunate reality is that all lending to a sovereign is in fact unsecured.  In this case that lack of security was realized; Greece couldn't pay and worse, the "lenders" knew this at the time they made the loans.  

The usual "remedy" for this is that the loan is defaulted and the "moneyness" comes out of the economy; since there was no collateral the inflation is reversed.

But it gets "reversed" out of the lender's hide; since they took no collateral and yet the funds got spent (and presumably redeposited by someone), which means that "someone" now has a claim on funds as a liability of the bank -- and the bank doesn't have it!

That risk is the check and balance on bad behavior.  It is not only how it is supposed to work it is how it has to work for there to be any sort of economic balance.

Instead, in the US in 2008 and now in Greece (twice already, and now apparently a third time!) when the bank discovers it made an unsecured loan to someone who can't pay they cajole, threaten and arm-twist the government to take the bad paper and make it an obligation of the government, that is, your obligation!

This is theft; it not only crystallizes the loss it comes immediately out of your hide.

Leaving aside the fact that if you manage to steal $8,000 billion (which is what was stolen by the banksters in the 08 blowup here from Americans) you ought to be tried, sentenced and then hanged in public where all the kids can see you twist so there is a nice deterrent against anyone else doing the same thing in the future the fact is that this act immediately and permanently destroys the economic purchasing power, and thus the GDP, of the nation where it takes place.

That's what is going on in Greece and it's why their GDP contracted by more than double the cut in government deficit spending.  The people were forced to absorb the bad debts the banksters took on and it came straight out of their purchasing power, just as happened here.

This is why there has been no material economic expansion since 2009.  It is why the real, that is monetary-expansion adjusted output growth since 2011 has only been about 1% annually.  This damage cannot be prevented when you take that action; it is mathematically certain.

It is for this reason that such acts are inherently unworkable.  It's not that there is a lack of political will or anything like that.  It's simply arithmetic -- and it is for that reason that all such attempts must be met with indictment, not acquiescence.

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Draghi just now: ECB exposure to Greek debt is €130 billion.

In other words, out of the ~300ish outstanding, the European Central Bank has roughly half of it and is thus exposed to a 100% loss on the entire sum should Greece walk off.

How did they wind up with that exposure?  That's simple: Post the first two bailouts they "bought" it from the commercial banks that formerly had it, transferring the risk from private concerns that had taken it on with the intent to make a profit to the entirety of the EU citizenry.

I remind you that the ECB has single-digit billions in capital; their leverage on this debt alone is well over 10:1 without any exposure to anything else.

Given that everyone says that Greece cannot pay the ECB is factually bankrupt right here, right now.

And this is why the market is up wildly on this now-admitted, in-your-face, fact.

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2015-07-15 18:09 by Karl Denninger
in International , 178 references
 

Your parliament just gave away the entire contents of your bank accounts to the ECB and German banks.

No, I'm not kidding.

PS: They're going to try to collect the debts you owe those banks too....

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