Monday, June 25, 2012

EuroSummit v20.0

  Yes folks-- this Thursday and Friday the European leaders will meet to solve the economic crisis for the twentieth time since early 2010, which since the last meeting {v19.0} has seen Spain and, as of today Cyprus, sucked into the vortex. This morning Spain formally asked for a banking bailout, and as the day progressed, so did Cyprus.

  I have complete confidence a solution will be found. After all, they were the last ninteen times. The markets will celebrate; stock markets will rise; fear will ease. Dom Perignon and congratulations will be passed around like dust in a Sahara sandstorm. People will turn the channel and catch up on Jersey Shore.

  It will look something like this: Spain's banks will get a bailout loan. Cyprus, too. There will be a "stimulus package" of about $150 billion {details coming "later"} and promises of stern response to any further crisis. In short, this will be nothing more than another bandaid and hot air on a system that has just lost it's foot to a landmine.

  Today a few noted columnists sounded the alarm-- many of whom have been doing so for years. George Soros warned that if the Summit was an utter failure, it could prove to be fatal to the Euro. Paul Krugman's article today was particularly dire, comparing today to not just 1937, but the far uglier year 1931, when a very similar situation which began with an Austrian bank called Kreditanstalt of Vienna went under and got the Depression really rolling. Here's the link to Herr Krugman's latest rant:

  This bandaid will buy time-- about a month or so. By mid August v21.0 will need to be crafted when they realize the amount allocated to save Spain is probably a fifth of what they really need and Italy begins showing signs of going under. Spain's economy will show further signs of economic decline, as will Italy. Portugal's economy will be literally imploding like Greece before it. Until such time as the powers that be realize that a Grand Reset is needed, this will continue. In the meantime, watch the price of gas. As it goes down, take it as a sign that the entire system is sicker and sicker as deflation sets in and demand recedes. I'm still sticking by my prediction that gas will go under $3.00/gal this year.

  One day soon enough {2013 is my guess} this farce will end very badly and very suddenly and we will all pay a dreadful price for the greed of bankers who were allowed to shred the laws enacted after the Depression to prevent just such an occurance via our under informed and over bribed politicians.

  Solutions you ask ? Unfortunately, nothing short of an entire systemic reset is needed here. The financial system is so complex, so overindebted in so many different forms that anything central banks and governments do will only delay the inevitable collapse of this bloated, diseased beast. My next post will be on what a sound financial system should look like instead of the one we currently have. Here's an article from Simon Johnson, former head of the IMF, on the complexity of it all:


  1. What would an 'entire systemic reset' involve? All money becomes worthless and all debts are forgiven? For everybody, or for he banks, or for the indebted nations?
    - - - -
    "I'm still sticking by my prediction that gas will go under $3.00/gal this year."
    Didn't Newt Gingivitis state that, if elected president, he would lower the price of gas to $2.50/gal?

  2. Systemic reset would involve the forgiveness of all debt for everyone: people, governments, companies, etc. All banks would be forced to start again from Day 1 under a new, simplified and rigidly enforced set of rules. I'll post it this weekend.

    Gas is likely headed that direction anyways as deflation's stranglehold gets stronger and stronger. I do believe Newt's idea involved something other than deflationary strangulation, however :-}

    1. "Systemic reset would involve the forgiveness of all debt for everyone: people, governments, companies, etc."

      Then I guess as someone who has always avoided debt I was a sucker for behaving responsibly. Maybe I should borrow every penny I can get my hands on and make leveraged bets. Either I become rich or all is forgiven. Win-win for me and everyone else, right?

    2. You're responsible behavior probably means you never paid a nickel to a bank in interest and you have hard assets that are not subject to repossession. You're doin just fine. Any such reset is going to be unfair to some. There are no perfect solutions when entire economic systems go under, but perhaps we can avoid things like world wars and revolutions this time. That is what my post will seek to do. Then we get to the part whether my {self admitted} far reaching wisdom will be acted upon. Yeah.

  3. Dear Mr. K--So I should just go CHARGE IT??

    With no debt but relying on SSA and savings then I will quickly go under. My dr. doesn't understand why I keep saying that I'm not keen on a bunch of tests. Why bother? I keep wishing I could figure out where I could park ANY money safely. I don't think such a place exists any more. Although, at a store on Sat. the owner joked you need 3, silver, and lead.

    Unfortunately, he may be right.

  4. The term safe is subject to the person uttering the word. If it was me, I'd stick with a mixture of relatively safe bonds {A or better sovereigns, no longer than 5 years} and perhaps 10% in physical metals. Most on SSA don't have such choices; most are entirely dependent upon the monthly check.

  5. Mr. K--Interesting take put out today on Iran possibly closing the Straits July 1st if the European sanctions go into effect. Could this now change the game?

    While all attention is on the 'big Play-it-again-Sam' conference, will that be minor news if we have 24-hour-a-day 'news' coverage of the Supreme Court Health Care decision mixed with Iran ramping up some fervor to go along with the political mess in Egypt?

  6. Iran won't do this unless attacked I think. The Supremes will likely strike down a fair part of ObamaCare. Egypt is a mess-- their new Islamic leaders will discover that a slow bank run has been going on, their currency reserves depleted and that they can't support a large military as well as feed their people. Then we get to the part about whether or not anyone will invest in a nation with an Islamic government. The greatest danger in Egypt is economic collapse.

  7. The new Egyptian islamic leaders will blame Israel for their problems, which is the 'rally around the flag' method of controlling the masses and deflecting public anger away from themselves.

    Once the honeymoon is over, watch for this to happen.
    Remember, you heard it from Mammoth first.