Debt Rattle Dec 19 2013 – E/U in 2014?

@ilargi:

“And that’s not even half the story. The banks that buy the sovereign bonds with ECB money/credit turn right around and offer those same bonds, which are listed as “safe”, or “cash good collateral”, to the ECB the next day as collateral in exchange for more loans. With which they proceed to buy more sovereign bonds, which provides wiggle room to their governments etc. It carries the strong odor of a scam, if not a Ponzi scheme. “

When a central bank makes unsecured loans it is instantly and permanently insolvent for the same reason as its clients … too much leverage.

What matters at that point is who notices whether the central bank is lending in this way?

One insolvent bank cannot bail out another insolvent bank => there is no effective lender of last resort => incentive for Southern Europeans to open accounts in Germany => bank runs, run in euros toward a near-certain deutschmark. The central bank making unsecured loans is fatal as no central bank hold more than the tiniest amount of capital.

If the central bank is insolvent its reserves are worthless, that is reserves created upon the ledger of the central bank. The ‘collateral’ for these are securities of the state in this case the entirety of the European Union. Because there is no coherent state what is ‘real’ collateral is the implied guarantee of Germany (and its ability to borrow).

However, Germany is unwilling to borrow …

It is common sense that reserves are inadequate to make whole the entirety of claims that can be lodged against them by depositors. In a panic, the depositors will not accept bank money nor will they have any repository for it, they will want cash-currency and it will not be had.

Instead of stability, the act of unsecured lending is incentive for depositors to be ‘the first out the door’.

In a world where automobile rules over all and is supreme in all things, money is priced @ gas pumps everywhere including Europe. Priced in crude, the euro has great worth: the central bank is irrelevant, it cannot fix anything even as its desperate hunt for legitimacy drives it to act in destructive ways … it can only make things much worse.

Relax, none of these problems involve money. They are all denominated in bank “notes.” ie; Credit.

And Credit is worth whatever the producers of it decide. Solvency and insolvency are moot.

Kinda like, we are all working for the company and must shop at the company store, using company credit…only on a grand scale.

Things will remain this way as long as State command and control remains the order of the day.

@jal “I wonder how the Spanish people, with their high unemployment, are managing to survive without the bankers? Maybe they found a way to get food into all the needy mouths.”
All of the needy mouths? Doubtful long term. However, something that Michael Hudson said does stick in my mind (my paraphrase of what I think he said “the financial system has become a parasite. It makes you think that you will die without it.”)
If our only problem were the parasitic financial system we could talk about solutions with a straight face. But, as we know, resource scarcity is for real. And, as SFV says, currencies are priced with respect to crude oil. The parasite is being allowed to kill the host and it is probably too late. Until the world wakes up to its real problem there are all sorts of work-arounds for feeding a lot of the people. Afterwords we shall have to see what can be done.