Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Leider Mein Liebste; Its Spelt TALF Not TARP: Next ECB Will Print A Trillion Euros

Interest-Rates / Credit Crisis Bailouts Sep 30, 2011 - 07:17 AM GMT

By: Andrew_Butter

Interest-Rates

Best Financial Markets Analysis ArticleHere’s an idea, if the Euro doesn’t exist anymore then the Greeks can pay back their Euro-denominated debts in imaginary money and everyone can live happily ever after?

Meanwhile; trust the Eurocrats to come up with a mind-baffling plan to kick the can down the road. It’s written in Deutchlitz which is what you get when you use a computer to translate a document originally written in German into French and from there you use another computer to translate that into an approximation of English. The words all spell on an English spell-checker but in aggregate anyone who speaks English hasn’t got a clue what they mean. For example, from the ECB Data Warehouse we are provided with:


Dataset name: Balance Sheet Items; Frequency: Quarterly; Reference area: Euro area (changing composition); Adjustment indicator: Neither seasonally nor working day adjusted; BS reference sector breakdown: Credit institutions; Balance sheet item: Loans; Original maturity: Total; Data type: Outstanding amounts at the end of the period (stocks); Counterpart area: Euro area (changing composition); BS counterpart sector: Unspecified counterpart sector; Currency of transaction: All currencies combined; Balance sheet suffix: Euro
 
I think that’s a timeline of total outstanding loans made by European banks, which are sometimes called “assets” when there is a remote chance they will get paid back, but I’m not completely sure, whatever it is, IT’S NOT ENGLISH!

So how about:

Euro area (changing composition), Outstanding amounts at the end of the period (stocks), Credit institutions reporting sector - Securities other than shares, Total maturity, All currencies combined - Euro area (changing composition) counterpart, Unspecified counterpart sector, denominated in Euro, data Neither seasonally nor working day adjusted.

The way I read that the Euro-zone banks are currently declaring assets of 17.8 Trillion Euros in loans they wrote, plus 4.2 Trillion of securities, like PIGGY bonds, total a cool 22.00 Trillion….I’m just wondering, is there anything else? And I’m also wondering what “BS” stands for, that wouldn’t have anything to do with Bull Manure would it?

Come to think of it, that data is public domain but the economic and financial media didn’t do the math, neither did the LSD Lap-Dancer Appreciation Society who don’t want anyone to stress them out; not that they are particularly good at math. And evidently the Eurocrats were too busy stuffing down five-course luncheons with wine on First-Class, to notice that anything was brewing.

Remember this one, eighteen months ago:

On Friday (5th February 2010), European monetary affairs commissioner Joaquin Almunia declared; “There is no bailout and no "plan-B" for the Greek economy because there is no risk it will default on its debt”.

My daddy always told me, “Never trust anyone who doesn’t have a Plan-B”. Rght now the way I’m counting, the Eurocrats are on about Plan-F; I’m not sure if that’s “F” for “Failure” or whether that proves the European monetary affairs commissioner (a) is not very smart (b) got confused by the Deutchlitz (c) knew what was happening but he thought it best not to tell anyone until his index-linked pension got straightened out?

Not that what was going on was a secret although in the true Bastiat principles of the blessed-bureaucrats there are things that “sometimes are better not seen”; which is probably why if you put “How much are the morons into a hole for” on a Google Search you won’t get to see this chart:

Big picture, US private sector outstanding debt went down by 4% in their “crunch” i.e. by about $1.4 trillion, which co-incidentally is about how much TALF sanitized; but  the Euro-zone debt hasn’t gone down since 2008; if in reality it had a similar problem, then it needs to go down by about $1 trillion from where it is now if the same amount of “healing” is going to happen.

Looking at that another way, in 2008 the nominal GDP of America was $14.37 trillion and the private sector banks had “assets” of $13.847 Trillion on their books which included $1.299 Trillion of Mortgaged Backed Securities, plus there were $24 Trillion of bonds excluding US Treasuries and Municipal bonds (that’s part of government in my book), add that up and be careful not to double-count the MBS you get to $36.5 Trillion excluding the “assets” of the shadow-banks, which so long as they are worth the same, or more than their liabilities, are “counted” in the $36.5 Trillion.

So that says in America that portion of private-sector “assets” was 260% of nominal GDP, plus or minus.

By that measure the Euro-zone looks pretty similar, their GDP was about $12 trillion (taking out the non-Euro-zone countries and I’m talking round numbers here), so their private sector banks hold “assets” worth 260% or so of nominal GDP…SNAP!!

 Although quite a lot of that is owed to them by governments, so it’s not apples for apples. Plus Europe as a whole owes minimal amounts to what the Americans fondly call “aliens”, which is another-story.

But the question remains, about how much money “someone” is going to have to print to resolve the current banking crisis in Europe?

What “solved” America’s banking crisis was TALF, that involved printing $1.6 trillion or so which equated to 4% of the total privately held debt, and buying up toxic assets to get them out of the system (and posting those as collateral with the Federal Reserve Agent (a government employee) who presumably turned a blind-eye to the valuations).

So, the Euro-zone has $31 trillion of private sector debt x 4% you need about $1.24 trillion to play the same trick, that’s a trillion Euros plus or minus.

What’s the difference between TARP and TALF?

I always think of “treating” a fiat-banking crisis is a bit like treating diarrhoea which is a common “unexpected” consequence after you over-indulge at Ravi’s, as in you know there is a “risk”, but you figured it was manageable, and you can’t resist.

You got two choices, you can drink a lot of ISOSTAR and flush the problem away, which is how nature designed the physiological response, and in the analogy, that’s how the “natural” free-market would deal with the problem.

There are three potential problems there, the first is that it’s embarrassing particularly when you get caught short, interesting that in the analogy you get the “runs” and in finance you get a “run”, plus it’s often quite painful, here’s a tip, keeping the toilet paper in the freezer can help with that phase. The other potential problem is if the dose is so bad you can’t drink down ISOSTAR fast enough and you end up more or less locked in the lavatory, worst-case you get seriously dehydrated and then you need to go on a drip.

The second option is to pop a couple of IMMODIUM which basically forms a solid dam of partially digested “manure” in your colon, and you hope you get better. You normally do except that the sickness is extended because you are keeping the poisons inside, plus the next thing that happens is chronic constipation with the risk of getting (or exacerbating) piles, which long-term can be extremely painful; colonic irrigation can help you get over that phase.

The first reaction to fiat-inspired fiscal diarrhoea is normally to pump in liquids (drink ISOSTAR), if that fails, what you do is get the central bank to print $1.6 Trillion or so and buy up the toxic debt and put it in cold-storage; and wait for things to “heal”.

The downside of that policy is that the “toxic” wasn’t allowed to flush through, and you get economic constipation, which is what is happening in USA. So now the next delight to look forward to is the colonic irrigation part (when the toxic are released back onto the market), once that’s all cleared away, hopefully the piles will subside, and Ben Bernanke will be able to sit on a chair and not look so uncomfortable.

Europe is behind the curve, the reason for that, intriguingly, is probably because a much smaller proportion of the private-sector “assets” were re-packaged into structured debt (10% in Europe compared to 70% in USA), and the reason that was important is that there are “triggers” in structured debt that have to be pulled, by law; whereas with ordinary debt you can work with your auditors and friendly regulators to extend and pretend (kickbacks help “smooth” that road), which is what is happening in Europe.

The Bastiat consensus in 2008 and 2009 was that the European model was “safer” than the American model, but there is a growing realization that European banks which are even less well-capitalized than American banks (if that’s possible), are just as susceptible to getting blind-sided by “Liar-Loans” and greed-driven denial.

What if European bankers are stupider than American bankers?

That estimate of one-trillion Euros is a pretty crude number, but I’m not sure anyone else has even got a number or a line of logic to arrive at one, either-way in this game, you need a number.

And you know that the rating agencies are worthless and they haven’t got a clue how to value toxic debt, the auditors are worse than worthless (and whether either of those professions are run by crooks with massive conflicts of interest, is let’s say “debatable”) and in any case accountants also haven’t got a clue about valuation, the CDS “market” is rigged, and the Basel idea of “risk-weighting” is simply childish and takes no account of the valuation of the assets, so how else do you come up with a “number” to save your pretty little fiat currency, if you decide it’s worth saving?

Anyone got a better suggestion?

The core assumption in my calculation is that IQ and the ethics of European Bankers is similar to that of American bankers, if it turns out that’s not correct, or if the Eurocrats let the disease progress too far without “treatment” well perhaps when they get around to administering the IMMODIUM “cure” they will need all of the Two-Trillion they are muttering about if their “latest version” fiat currency is not going to end up as the shortest surviving fiat currency in history.

The issue in Europe is that the ECB can’t easily print and buy “toxic” like the Federal Reserve did, and also that in Europe things move rather slow; yet history teaches us that when your pretty fiat currency gets sick, you need to move quickly, or the disease just festers.

I’m pretty sure that quite soon there will be a Euro-TALF and that at least one-trillion Euros will be needed to create the “necessary” level of economic constipation.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2011 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Andrew Butter Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules