Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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