May 292015
 
 May 29, 2015  Posted by at 2:32 pm Finance Tagged with: , , , , , , ,


Walker Evans Saint Charles Street. Liberty Theatre, New Orleans 1935

With the 3rd US Q1 GDP print coming in at -0.7% (-3% if not for inventories), perhaps the media spotlights – and lively imagination – can move away from Greece for a few weeks. The US has enough problems of its own, it would seem. For one thing, its Q1 GDP is now worse than Greece’s. Of course its debt is also much higher, just not to the IMF and ECB. But let’s leave that one be for the moment. Though a bit of perspective works miracles at times.

Of course it’s not a technical recession yet for the US, which only recently presented a +4% quarter with a straight face, and there’s always the ‘multiple seasonal adjustment’ tool. But still. It’s ugly.

The IMF confirmed on Thursday that Athens has the right to ask for “bundled” repayments in June. “Countries do have the option of bundling when they have a series of payments in a given month … making a single payment at the end of that month,” as per an IMF spokesman. Who added that the last country to do so was Zambia three decades ago.

That leaves Athens, in theory, with a 30-day window, not a 7-day one. This of course takes the pressure cooker away from Athens, and the media attention as well. There is no immediate risk of a default, or a Grexit, or anything like that. The negotiations with the creditors will continue, but the conversation will change with time less of an issue.

One thing that’s changing is that the pressure on the other eurozone countries is rising fast. They might yet get to regret the way ‘their side’ conducts the debt talks with Syriza, in which they are a party through the eurogroup of finance ministers. Because it makes ever more deposits disappear from Greek banks, some €300 million in the past few days alone. That triggers a eurozone ‘program’ entitled Target2. For those who don’t know what it is, I’ll use an explanation by Mish from 2012:

If a Greek depositor sends money to a foreign bank (say a German bank), that bank now has additional deposits. To the extent it doesn’t want to recycle them (in the past, it may have used them to buy Greek government bonds), it deposits them with a national central bank – in this case the Bundesbank. Target claims are created because the Greek bank that loses deposits gets funding via the ECB’s ELA (Emergency Liquidity Assistance) program.

Simply put, the ECB sends money to the Bank of Greece in a kind of open credit line to make up for the cash that left the Greek bank. There are some restrictions, but not many. This is not a major problem unless Greece changes currencies, or defaults. If it does, Greece will repay the credit line with Drachmas, not euros.

There are quite a few other ways in which the rest to the eurozone is on the hook for Greek debts, but this is a major one. RIght now, so-called ‘Intra-Eurosystem Liabilities’ from the Greek national bank, the Bank of Greece, have risen to €115 billion and counting -fast-. Germany’s on the hook for 27% of that, or €31 billion. While that is not life threatening for Germany, other countries will not feel that comfortable.

Countries like Spain and Portugal may by now scratch their heads about taking a hard line on the Greek issue. They may not have fully realized to what extent the eurozone is indeed a shared commitment. All eurozone nations now have at least another 30 days to think that over. The main risk in that period is that Greece may decide to leave on its own.

The 30-day grace period will probably dampen the deposit outflows for a bit, depending on what both parties have to offer in the way of statements going forward. And the incumbent ‘leaders’ in various countries can use the time to try and tell the troika that they don’t want to explain the potential losses to their voters. There are elections coming up all over, starting with Italy this weekend.

There is another possibility: that the ECB makes good on its long running threat of limiting Greek banks’ access to the ELA program. But, given the 30-day ‘grace’, and given that it would be seen as a political move by at least some parties, that seems unlikely. And it’s not like the entire thing has now become predictable, just that there’s breathing space. In which clearer -and smarter- heads can prevail.

As for the US, it’s spring, the season to adjust. But -0.7% still stings, and things ain’t going well at all no matter what anybody tells you.

Home Forums The Pressure Just Shifted from Greece to the US and EU

This topic contains 2 replies, has 3 voices, and was last updated by  TheTrivium4TW 3 years, 8 months ago.

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    Walker Evans Saint Charles Street. Liberty Theatre, New Orleans 1935 With the 3rd US Q1 GDP print coming in at -0.7% (-3% if not for inventories), per
    [See the full post at: The Pressure Just Shifted from Greece to the US and EU]

    #21330

    Professorlocknload
    Participant

    Not to worry,,,Grandma’s got cookies in the oven. Trillions of ’em.

    #21349

    TheTrivium4TW
    Participant

    Hi Ilargi,
    There are no solutions in the debt-money paradigm “box.” NONE. Basing money on debt is prima facie fraud as the borrowers, in total, never has enough money to pay their debts unless the lenders take a vow of poverty that results in them controlling $0. Of course, they do just the opposite, they hoard the debt receipts (aka, “money”) while bankrupting massive swathes of society.
    Even so, you prattle on about non solutions within the debt-money box.
    Steve Keen was recently exposed as someone who supports the idea that banks make more money doing essentially nothing than the workers in a society. When the debt-money system was proven to be a fraud using 5th grade math, he ran away like a child whooped on a 5th grade playground.
    Now, I don’t want people to presume that I think you and Steve Keen are “controlled opposition” when I’ve seen so many people simply enslaved to irrationality inimical to even their own direct interests.
    Spend the time to think your way out of the debt-money box or you will keep promoting non-solutions as false solutions.

    Here is the take down of Steve Keen in the Comments section.
    https://www.forbes.com/sites/stevekeen/2015/03/30/the-principal-and-interest-on-debt-myth-2/
    You can access the Comments section by clicking on the grayed-in box on the left under Steve Keen’s picture. Note that Professor (Bankster financed, Bankster promoted via Forbes – A MAJOR CONFLICT OF INTEREST TO TELLING THE TRUTH ABOUT HIS EMPLOYER’S DEBT-MONEY FRAUD – all capped for those that missed the obvious!) Keen avoided the real issues every time a real issue was brought up and tried to dismiss a 5th grade level mathematics fraud as needing “a more complex model.” Baffle ’em with BS, Steve, right? The odd thing is I really can’t tell if he stuck on irrationality (I know many, many people that are) or if he’s BSing the general public.
    Given the simplicity of the Ukrainian debt-money fraud example and the way he avoided addressing it at all costs, I’m more inclined to believe that Mr. Keen chose his own comfort over the obvious truth that he actively conceals through inaction.

    At the end of the day, the people who don’t expose the root cause are just as important to the tyrants as those who actively impose the tyranny. Those who think they are helping are actually hurting because they didn’t quite do enough thinking up front before parroting some prepackaged narrative (financed by…. that’s right!).
    False solutions promote THE VERY REAL PROBLEM!

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