Debt Rattle February 3 2015
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DPC City Hall subway station, New York 1904 • US Consumer Spending Declined in December by Most in Five Years (Bloomberg) • US Household Spending Tumb
[See the full post at: Debt Rattle February 3 2015]Regarding the story about Canada and oil (Canada Mauled by Oil Bust), there’s a similar report about the tar sands industry in today’s NYT:
Lower Oil Prices Strike at Heart of Canada’s Oil Sands Production
But, not to worry, the NYT also tells us that the Slump in Oil Prices Brings Pressure, and Investment Opportunity. Of course, the banksters will make money which ever the way the market bounces…
Karl Denninger on Greece:
“Greece is a tiny little nation. It has roughly $240 billion in GDP; a minuscule ~0.4% of the world’s economic output.
So how does this little nation become the greatest threat to the world economic outlook?
There’s only one way this can possibly be true: The rest of the world, specifically, the rest of the European Union, must have levered themselves at some obscene multiple (like 100:1 or more) such that if those bets go bad they’re unable to be covered and the creditor is not part of the EU or the creditor’s funds were fictitious.
Remember, for every buyer there is a seller and derivatives are supposed to be a zero-sum game. That is, if I buy a derivative and “win” someone elses “loses” in exactly the same amount. The net between the two of us is zero; for each of us that is impoverished by that action, another becomes rich(er) in exactly the same amount.
For this reason the so-called “inability to cover” a derivative sucks for both the buyer and seller (the person who is short the instrument is bankrupted and the person who is long doesn’t get paid as much as he expected, or at all) but the net economic impact is zero because that which one does not pay, the other does not receive. Likewise, if the bet can be covered the net economic impact is also zero!
There is only one way this is not true: The person who wrote the derivative did so with fictitious funds; that is, they not only can’t pay (which would be a zero-sum event as well since if you can’t pay I don’t receive, again, in exactly the same amount) but their failure to pay exposes their insolvency without making me rich at the same time.
This is the “cascade failure” fear that Paulson and Bernanke had in 2008.
The problem wasn’t that people couldn’t cover their derivative bets; that simply would mean that while some people didn’t pay everything they owed, others didn’t receive everything they expected. The sum of the two was still zero.
No, the problem was that they had entered into those bets with fictitious funds and as a result their bet was not a zero-sum game, it was one in which they were literally stealing from the other side of the transaction because the funds they wagered were fictitious!
In other words the risk is that the fact underlying the “world of finance” — that it’s all founded, at least in the derivative space, on fraud — would be exposed.
Got it?”
Humm, consumer spending down, while oil revenues collapse?
One might think consumers getting the same amount of fuel for half the price could result in a bit lower spending number?
Of course, todays oil price surge and the surge in gas prices recently might reverse all that, if TPTB can keep the floor under oil to prevent a financial implosion brought on by the oil patch?
I wonder if they aren’t beginning to realize they blew it in their effort to punish Putin? I guess we’ll soon find out, if oil trends up from here.
I’ve found Vani’s blog and find it very interesting. While I’m not entirely clear about some of his economics, he actually has some very interesting ideas.
https://yanisvaroufakis.eu/euro-crisis/modest-proposal/
His conclusion and comments are worth cc’ing here. These were with two other
by Y. Varoufakis, S. Holland and J.K. Galbraith (July 2013)“Version 4.0 of the Modest Proposal offers immediate answers to questions about the credibility of the ECB’s OMT policy, the impasse on a Banking Union, financing of SMEs, green energy and high tech start-ups in Europe’s periphery, and basic human needs that the crisis has left untended.
It is not known how many strokes Alexander the Great needed to cut the Gordian knot. But in four strokes, Europe could cut through the knot of debt and deficits in which it has bound itself.
In one stroke, Policy 1, the Case-by-Case Bank Programme (CCBP), bypasses the impasse of Banking Union (BU), decoupling stressed sovereign debt and from banking recapitalisation, and allowing for a proper BU to be designed at leisure
By another stroke, Policy 2, the Limited Debt Conversion Programme (LDCP), the Eurozone’s mountain of debt shrinks, through an ECB-ESM conversion of Maastricht Compliant member-state Debt
By a third stroke, Policy 3, the Investment-led Recovery and Convergence Programme (IRCP) re-cycles global surpluses into European investments
By a fourth stroke, Policy 4, the Emergency Social Solidarity Programme (ESSP), deploys funds created from the asymmetries that helped cause the crisis to meet basic human needs caused by the crisis itself.At the political level, the four policies of the Modest Proposal constitute a process of decentralised europeanisation, to be juxtaposed against an authoritarian federation that has not been put to European electorates, is unlikely to be endorsed by them, and, critically, offers them no assurance of higher levels of employment and welfare.”
What especially intrigues me is his “decentralised europeanisation, to be juxtaposed against an authoritarian federation” .
Decentralizing is a key to better management and that goes with localizing too.
I’ll be interested to hear other peoples takes on him.
France, and now Obama saying that the Greeks can’t possibly pay their debt. Hmmm. One commenter said:
“They must have successfully offloaded the Greek debt to the public (from the private banks). Time for haircuts.”
Time for the taxpayers to give them haircuts. Was this what all the bailing out since 2010 was about? Simply providing time until the banks could offload the worst of their paper onto the public and thus avoid insolvency?
David Stockman had a good piece today:
“The true evil started with the bailouts themselves and the resulting usurpation by the EU politicians and apparatchiks of both financial market price discovery and discipline and sovereign democratic prerogatives. Accordingly, the terms of Greece’s current servitude can’t be tweaked, “restructured” or “swapped” within the Brussels bailout framework.
Instead, Varoufakis must firmly brace his interlocutors on the true history and the condition precedent that stands before them. Namely, that the Greek state was effectively bankrupt even before the 2010 bailout, and that the massive amounts of debt piled upon it thereafter was essentially a fraudulent conveyance by the EU.
Accordingly, Greece’s legitimate debt is perhaps $175 billion based on the pre-crisis euro debt outstanding at today’s exchange rate and the haircut that would have occurred in bankruptcy. Greece’s new government has every right to repudiate the vast amount beyond that because it arose not from the actions of the Greek people, but from the treachery of EU politicians and the Troika apparatchiks—-along with the unfaithful stooges in the Greek parliament and ministries which executed their fraudulent conveyance.”
History In the Balance: Why Greece Must Repudiate Its “Banker Bailout” Debts And Exit The Euro
Varoufakis is probably THE economist to broker a format of “new deal” that will give the best average outcome for all Europeans, and by implication, for the reset of western finance.
That puts him at VERY high risk of sudden accidental death, doesn’t itJohn Day – VERY high risk! That’s what I said the other day. Brake lines cut, plane crash, whatever. If the banks unloaded most of their junk onto the taxpayers, he may be safe. If they’re still holding a lot, he had better watch his back. They will try to get something on him, just like Assange, Spitzer, Strauss-Kahn (who might have been set up).
@ Raleigh,
Thanks for the opportunity to compliment you on this thread.
Good stuff. No disagreement from me.It is amazing to see the headlines of some of these items, and then to click thru to see the spin that Bloomberg, or whoever, are putting on them, to make it seem like light and airy news. Spending is on a little holiday after working so hard, it will be back to pull us all out of our little doldrums, have no fear! Atomic workers were busy with the finishing touches on the upcoming fireworks exchange over Ukraine, to the delight of onlookers and armchair general everywhere!!!
Someone is in serious need of context adjustment, but that may be too macro for the press.
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