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Thursday, February 19, 2015

Detonating the EU

Greek has their finger on a bigger trigger than most people realize:
The political detonating pin for Greek contagion in Europe is an obscure mechanism used by the eurozone's nexus of central banks to settle accounts. If Greece is forced out of the euro in acrimonious circumstances - a 50/50 risk given the continued refusal of the creditor core to acknowledge their own guilt and strategic errors - the country will not only default on its EMU rescue packages, but also on its "Target2" liabilities to the European Central Bank.

In normal times, Target2 adjustments are routine and self-correcting. They occur automatically as money is shifted around the currency bloc. The US Federal Reserve has a similar internal system to square books across regions. They turn nuclear if monetary union breaks up.

The Target2 "debts" owed by Greece's central bank to the ECB jumped to €49bn in December as capital flight accelerated on fears of a Syriza victory. They may have reached €65bn or €70bn by now....

The Eurogroup insists that the primary budget surplus be raised from 1.5pc of GDP in 2014, to 3pc this year and 4.5pc next year. As Nobel economist Paul Krugman says, they want to force a country that is already reeling from six years of depression - with the jobless rate still near 50pc - to triple its surplus for no other purpose than paying off foreign creditors for decades to come. They are doing to Greece what the Western allies did to a defeated Germany at Versailles in 1919: imposing unpayable and mutually-destructive reparations on a prostrate nation.
Combined with the fact that ISIS is planning to flood southern Italy with "immigrant" invaders, it becomes readily apparent that the EU may not last another eight years. The difference between 1933 and 2023 is that the enemy is no longer defined as other Europeans, but Islamic and African invaders.

Italians are already demanding that the Italian navy start sinking boats coming across the Mediterranean and attacking refugee holding centers. The Spanish are looking at the Greek situation and wondering why they should not do the same. The Front National is rising quickly in France; the rise of PEGIDA has been arrested but it will resume soon enough, along with support for AfD once the news of Germany being on the hook for up to €515 billion penetrates the electorate.

No wonder Juncker, the unelected Head of the European Commission has turned openly anti-democratic. But he is as delusional as Hitler in the bunker. Gunnar Beck from London University makes an equally apt comparison: "Germany's leaders can't let Greece leave the euro, and the Greeks know it. They will die in a ditch to defend the euro. This is our Eastern Front, our Battle of Kursk, and I'm afraid to say that it will end in unconditional surrender by Germany," he said. 

Like gravity, economics always wins in the end.

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66 Comments:

Anonymous rho February 19, 2015 5:03 AM  

EU problems are EU problems.

Blogger Shimshon February 19, 2015 5:16 AM  

Regardless of whether or not GDP is a good measure of economic activity, it is a metric of something, and 3% is insane, especially if that money is intended to just be handed over to the banks. My understanding is that Greece has already agreed to continue at 1.5%, which seems to my mind a level that won't cripple the economy, while 3% (and higher!) would.

Blogger Shimshon February 19, 2015 5:20 AM  

This is as good a summary as any as to why I think that while Bob Wenzel's call that Syriza will fold is usually the correct one, in this case, he is more likely wrong.

Anonymous Rhys February 19, 2015 5:34 AM  

Could you do a post on how looks right now in Italy. Our press is trying their best to keep a lid on the islamic immigration problem since the Sydney terrorist, as well the two recently arrested for planning to behead someone, all came here on refugee visas.

I actually expected ISIS (or some other muslim group) to send in immigrant infiltrators, I just didn't expect them to announce it so openly. Talk about giving away the winning strategy before the pieces are in place.

Anonymous PhillipGeorge©2015 February 19, 2015 5:38 AM  

Vox, in my humble opinion economics is inseparable from culture-religion-science: it's one woven garment.
I think these are the most important words you've ever written:-
It is time to end the long and suicidal Western experiment with religious tolerance. Tolerance is evil. Tolerance is "the sin of Jeroboam". Tolerance is the death of civilization.

“As we mourn with the families of those 21 martyrs, we’d better take this warning seriously as these acts of terror will only spread throughout Europe and the United States,” warned Rev. Graham.

The 21st century is about to learn that far from being the epitomes of evil, the Crusades, the Reconquista, and the Spanish Inquisition were all right, necessary, and above all self-defensive reactions by Western civilization against aggressive Islamic expansion. The battle for the West will begin within the next two decades, and the Men of the West had better be ready for it.

The die is cast - so they say. The economics of it is but one metric.

Blogger Shimshon February 19, 2015 5:40 AM  

Vox, after reading the article, is it possible the creditor nations could or would go after the money that left Greece (and the other debtors) that is still in the banking system? In many cases, they must be able to trace the transactions.

Blogger Rantor February 19, 2015 5:58 AM  

While I believe that Greece has no choice but to renounce most if not all of their debt and flee the Euro, the fact that it will be an international socialist party doing this is hilarious. They understand the numbers enough to know that their debt is unaffordable but can't see that their brand of socialism is also unaffordable. They are a government growth party in a country with no ability to pay all of their employees. If they were to reestablish the drachma, it would suffer from rampant inflation. It certainly couldn't go 18 months without a major devaluation.

The EU knew when they let Greece join that they did not meet the requirements of membership. They were given some loan restructuring and som EU banker shouted abracadabra and Greece was declared fit for monetary union. It was a lie, and so it was with the rest of the PIGS. Now the bankers are going to pay for their lies, along with many Europeans who trusted their leadership. I can't remember how many time I told my German in laws that a marriage of the mark to the lire and drachma was doomed to fail. I may not be an economist, but the equations they used were obviously unbalanced.

Blogger Rantor February 19, 2015 6:03 AM  

@Shimshon

I think that you will find that of the money they poor in to refinance debt, little is used to retire debt. It is used to extend the payment period. So they can poor billions in to Greece debt and it goes to the creditors restructuring efforts, the creditors make mo ey off transaction fees and the ability to leverage the debt instruments in other areas. So the bailouts are not much different than the indebted person using credit card checks or payday loans to service their mortgage, car loan and credit cards. They end up owing more at a higher interest rate.

Blogger Robert What? February 19, 2015 6:21 AM  

There is really no side to cheer for in this standoff. On one side are the criminal EU banksters who - like the US banksters - get to privatize profits and socialize losses. On the other are the Greeks who, on the verge of insolvency, cannot cut a hair from public sector spending.

Blogger Shimshon February 19, 2015 6:40 AM  

@Rantor, what I am talking about is sort of retroactive capital controls. They money that leaves Greece is mostly leaving Greek banks for non-Greek banks, with some small portion as cash. Can the Germans trace the Greek outflow to specific destinations and thus seize it in an effort to reduce their Target2 liability? Can they do this? Would they? And would it be enough to make it worth the trouble?

Blogger James Dixon February 19, 2015 7:08 AM  

> Can the Germans trace the Greek outflow to specific destinations and thus seize it in an effort to reduce their Target2 liability? Can they do this? Would they? And would it be enough to make it worth the trouble?

Can they? Yes. Would they? They may try. Whether it would work depends on the cooperation of the other banks and governments, who may have little interest in helping.

Anonymous bw February 19, 2015 7:13 AM  

the enemy is no longer defined as other Europeans

The battle is still ultimately white vs white.

Every alpha game or SJW post defines it perfectly. White enablers who would rather be equal in chains than unequal in liberty and individualism and tribe and separatism - and sound money. How could they evah be somebody without telling you how to live, sans evidence?
Damn religious nut job collectivist Lying totalitarians.

Anonymous zen0 February 19, 2015 7:13 AM  

"Germany's leaders can't let Greece leave the euro, and the Greeks know it.

If what Varoufakis writes is indeed the Greek position, what Syzra wants is for Germany to become a hegemon.

All it will take is a German resolve to shift from panicky authoritarianism to a hegemonic, to an enlightened self-interestedness.

I have a feeling the Germans will be too pig headed however.

Some one needs to do a hitler parody on this.

Blogger James Dixon February 19, 2015 7:14 AM  

> I actually expected ISIS (or some other muslim group) to send in immigrant infiltrators, I just didn't expect them to announce it so openly.

They believe two things: That the western countries are two weak and foolish to act against them, and that their victory is ordained by Allah and therefore any resistance will fail.

Anonymous Luke February 19, 2015 7:16 AM  

Fah. I still say that the most fitting outside "solution" to Greece's financial problems would be for them to sell Crete in its entirety to Germany in exchange for forgiveness of all external debt AND loss of all ability in the future to incur any. All nonGermans would have to be evacuated from the island, of course...

Blogger YIH February 19, 2015 7:22 AM  

The ECB is pushing Greece to implement capital controls like Cyprus went through two years ago.
Of course the EU is officially denying this as one would expect because ''if it's important you must lie'' (to the goyim).

Anonymous Peter Garstig February 19, 2015 7:43 AM  

They'll get another 6 month extension. Then probably another one....and so on. The can can still be kicked for some time.

It will culminate together with the big cultural crash. In fact, I think the cultural crash will bring down the EU/EURO. So it might be still a decade off.

Blogger Nate February 19, 2015 7:52 AM  

Wait... why are we acting like 70 billion... or even 515 billion matters? During the debate I pointed out the EU central banks drop 40 billion in a quarter like its nothing.

This is literally just moving money around in accounts.

I agree there is a ticking time bomb and things are gonna go whacky when Greece leaves... and they will leave...

But not because of this. This is not a significant amount of money in central banking terms.

Blogger Salt February 19, 2015 7:56 AM  

One problem here, when it comes to Greece staying in the EU/EURO as a trough slurper (the only way Greece can remain in the EU/EURO). It was recently calculated that there is zero remaining available credit, globally. That leaves one avenue; monetization of debt can allow Greece to continue the slurp, but monetization will have a severely detrimental effect.

I don't see how the EU/EURO has ten years. The piper is here, now.

Blogger Nate February 19, 2015 7:59 AM  

"It was recently calculated that there is zero remaining available credit, globally."

I would like to see how someone calculated such a thing.

Blogger Salt February 19, 2015 8:17 AM  

I would like to see how someone calculated such a thing.

IIRC, it was at ZH. May have been David Stockman saying it. But I remember reading it.

Blogger Rantor February 19, 2015 8:19 AM  

When debt available truly reaches zero, you have monetary collapse. Agree with Nate that you can't calculate such a condition... It will just become self evident.

Blogger Rantor February 19, 2015 8:20 AM  

Monetary collapse is perhaps the wrong phrase... Let me go with central bank collapse...

Anonymous Stilicho February 19, 2015 8:26 AM  

To EU or not to EU, that is the question.
Whether tis more prudent in the fisc to suffer the slings and arrows of an outrageous debt,
Or to take a vote against a sea of creditors and, by defaulting, end them.

Blogger Nate February 19, 2015 8:36 AM  

"When debt available truly reaches zero, you have monetary collapse. Agree with Nate that you can't calculate such a condition... It will just become self eviden"

how exactly can you run out of credit? I mean... the zero keys stop working on all keyboards... everywhere?

Blogger Nate February 19, 2015 8:37 AM  

It is not possible to run out of credit in a fiat/credit money hybrid system.

Anonymous Salt February 19, 2015 9:09 AM  

This was the article at ZH.

My bad, the article used the phrase, "there is no more net supply of debt left in the world." Not exactly the same.

Blogger Student in Blue February 19, 2015 9:09 AM  

Well, if you run out of borrowers you'd run out of credit. Can't increase credit if no one's willing to take it.

Anonymous Peter Garstig February 19, 2015 10:11 AM  

Well, if you run out of borrowers you'd run out of credit. Can't increase credit if no one's willing to take it.

Running out of demand doesn't mean running out of supply. As Nate said, in our fiat money system, there is always credit. It's dumb to assume otherwise.

You can always print money (supply). You can't print borrowers (demand).

It was recently calculated that there is zero remaining available credit, globally.

Then how did my neighbour just got half a million CHF yesterday? That's pretty much bullshit and is typical monetarist/econometric non-logic.

Anonymous Porky February 19, 2015 10:14 AM  

Well, if you run out of borrowers you'd run out of credit. Can't increase credit if no one's willing to take it.

How would you like to refinance your home at -1% for 30 years?

Anonymous Roundtine February 19, 2015 10:17 AM  

That's pretty much bullshit and is typical monetarist/econometric non-logic.

Did you click the link? They're talking about issuance of new securities, including sovereign debt, minus central bank interventions. The supply is for the market, the central banks are gobbling everything up, which is why interest rates are less than zero out to 10 years. Due to demographics and whatever other factors you want to mix in, there is a large demand for financial assets, but the world is creating less than the central banks alone are buying. People look at the central bank intervention and see inflation, but the truth is the supply of credit is not meeting demand for assets, which is why there's deflation. Money is trying to hide in a shrinking pool of "safe" assets.

Blogger Nate February 19, 2015 10:23 AM  

"Well, if you run out of borrowers you'd run out of credit. Can't increase credit if no one's willing to take it."

i keep hearing this... its cute. Its like you guys think Governments are going to up and decide to stop borrowing money.

OpenID cailcorishev February 19, 2015 10:39 AM  

Its like you guys think Governments are going to up and decide to stop borrowing money.

I don't see why they couldn't say, "Hey, if you borrow $1M, we'll throw in the second $1M for free!" Maybe you run out of borrowers at 0% interest, but that's not actually the floor. As long as you're printing money, you can always sweeten the deal, at least until the point where people start to notice prices jumping before they get their next paycheck.

Anonymous Aquila Aquilonis February 19, 2015 10:41 AM  

Is it 1861 in Europe? Is is possible that they will fight this out?

Blogger Josh February 19, 2015 10:43 AM  

This was the article at ZH.

My bad, the article used the phrase, "there is no more net supply of debt left in the world." Not exactly the same.


Yeah it's about sovereign debt, which has essentially been bought up by other central banks.

Add to that the news that the largest buyer of equities has been corporations, we have a situation where central banks are borrowing to buy their own securities and corporations are borrowing to buy back their own stock. That's the new aristocracy.

Blogger Geoff February 19, 2015 11:10 AM  

Nate, money is created when banks lend, i.e. loans create deposits. Banks don't lend directly to governments. Governments borrow money that is already in existence. No new money is created when governments borrow.

Blogger Bard February 19, 2015 11:14 AM  

Why is it bad when companies buy their own stocks back? Using borrowed money to do it or removing the shares from private investors?

Blogger Josh February 19, 2015 11:17 AM  

Banks don't lend directly to governments.

Explain the primary dealer system then.

Governments borrow money that is already in existence.

What definition of money are you using?

No new money is created when governments borrow.

What's your definition of new money?

Blogger Josh February 19, 2015 11:18 AM  

Why is it bad when companies buy their own stocks back? Using borrowed money to do it or removing the shares from private investors?

Because it signals that they can't find anything better to do with that money.

Blogger Nate February 19, 2015 11:19 AM  

"Nate, money is created when banks lend, i.e. loans create deposits. Banks don't lend directly to governments. Governments borrow money that is already in existence. No new money is created when governments borrow."

/facepalm

we really do need to publish The Debate.

Blogger Bard February 19, 2015 11:19 AM  

I read an article that is was a very circular tax avoidance loop.

Blogger Bard February 19, 2015 11:21 AM  

Makes sense. Thanks josh. No new real investment then no new jobs and infrastructure

Blogger Geoff February 19, 2015 11:25 AM  

Nate, Vox cleaned your clock in The Debate.

For how many years now have you been predicting inflation?

Blogger thimscool February 19, 2015 11:31 AM  

Because it signals that they can't find anything better to do with that money.

Josh slices, Josh dices.

Josh, will you loan me money?

Blogger Josh February 19, 2015 11:33 AM  

Josh, will you loan me money?

Maybe

Blogger Nate February 19, 2015 11:35 AM  

"Nate, Vox cleaned your clock in The Debate.

For how many years now have you been predicting inflation?"

I predicted the tech bubble in 96... the housing bubble in 99... and the bursting of the housing bubble in 02. in 2013 I predicted hyperinflation in the US between 2015 and 2016.

I note that we haven't reached that time frame yet.

As for the debate... its certainly up to the readers... but "cleaned my clock" is certainly a lonely opinion out there.

As for you... well little one... I note you're idiotic claim doesn't even line up with Vox's debate position.

Blogger Geoff February 19, 2015 11:53 AM  

Nate, my view is indeed a bit different than VD's but I generally agree with his stance on deflation.

Anonymous liljoe February 19, 2015 11:57 AM  

Italian navy...is that really a thing? from what i gather from Fox news the US Navy is a universal force for good,abdthus should be at the beck and call of every threatened nation 'round the globe.

Blogger Nate February 19, 2015 11:59 AM  

"Nate, my view is indeed a bit different than VD's but I generally agree with his stance on deflation."

Given the ignorance displayed in your initial comment... I can't imagine why anyone would give a damn.

Blogger Geoff February 19, 2015 12:16 PM  

Nate, the fact that you consider my comment to be "idiotic" and "ignorant" probably means I'm on the right track. Thanks for the feedback.

Blogger Josh February 19, 2015 12:23 PM  

Nate, the fact that you consider my comment to be "idiotic" and "ignorant" probably means I'm on the right track. Thanks for the feedback.

Dude your opening comment was completely wrong.

OpenID cailcorishev February 19, 2015 12:27 PM  

My takeaway from the debate was that they could both be right: we could have deflation for a while, with credit deflation preventing the inflation (and "heating up the economy") they'd expect from printing money -- until the point where they print enough money that people don't trust it anymore, resulting in hyper-inflation.

In other words, you can't have deflation and inflation at the same time, but you can have deflation rolling directly into hyper-inflation, because one is based on the actual money supply while the other is more about faith.

I'm no expert, so is that way off base?

Blogger Josh February 19, 2015 12:38 PM  

I'm no expert, so is that way off base?

Not necessarily, although Hegelian synthesis for the sake of synthesis isn't always going to be correct.

Blogger CarpeOro February 19, 2015 12:38 PM  

"They are a government growth party in a country with no ability to pay all of their employees. If they were to reestablish the drachma, it would suffer from rampant inflation. It certainly couldn't go 18 months without a major devaluation. "

The current Greek government will win this fight if they decide to go ahead. It will collapse in the aftermath because of this. Most revolutions or major political changes collapse in the long run.

Greece won't cause the collapse of the Euro, they will simply light the match. Italy, Spain, and Portugal will be the oil on the fire. As things get worse nationalists further north in Europe will gain power and steer their countries out of the EU also.

Blogger Nate February 19, 2015 12:41 PM  

"Nate, the fact that you consider my comment to be "idiotic" and "ignorant" probably means I'm on the right track. Thanks for the feedback."

Mate... everything you said in that comment was blatantly false. And if you don't believe me... email Vox and ask him what he thinks of that statement.

Just be prepared to learn why you're ignorant.

Blogger Nate February 19, 2015 12:45 PM  

'
In other words, you can't have deflation and inflation at the same time, but you can have deflation rolling directly into hyper-inflation, because one is based on the actual money supply while the other is more about faith."

That's not us both being correct. That's me being right and Vox being wrong.

Both of us being correct would be like... deflationary collapse in Europe and Asia and hyper inflation in the US... at the same time.

Anonymous Stilicho February 19, 2015 1:07 PM  

There are already effectively negative interest rates on loans to banks that can borrow from the Fed. Banks borrow at low rates and put proceeds into treasuries that pay higher. I don't think a lot of them are doing this right now but it would be interesting to see who is accessing the discount window. With record levels of excess reserves parked at Fed, it's probably not the big US banks, but the Fed has been known to loan money to foreign banks too.

The only way banks will ever make neg rate loans to consumers is if the Fed will purchase those loans from them. At a profit.

Blogger Nate February 19, 2015 2:12 PM  

" I don't think a lot of them are doing this right now "

Mostly right now the banks are leveraging up and using the money to buy stock rather than to loan.

Blogger Geoff February 19, 2015 3:13 PM  

"banks are leveraging up"

If anything, US banks are currently over-capitalized as they try to prepare for Dodd Frank, which is even more onerous than Basil III

Anonymous Peter Garstig February 19, 2015 3:31 PM  

Mostly right now the banks are leveraging up and using the money to buy stock rather than to loan.

Because they can't loan or to accumulate assets?

Blogger Student in Blue February 19, 2015 3:40 PM  

@Peter Garstig
From personal experiences, the former is true.

Anonymous Steve February 19, 2015 3:41 PM  

"The difference between 1933 and 2023 is that the enemy is no longer defined as other Europeans, but Islamic and African invaders."

And the traitorous Jews who crafted,promoted, and supported policies of unfettered non-White immigration to every single White country on Earth and only to White countries. The jews,who imposed these conditions on us without even so much as a vote,because they know that every White country opposes replacement-level non-White immigration by an overwhelming majority of 75-85% and if we were allowed a vote, we would vote a resounding "NO".

But we are not allowed to vote with ballots because these jews have dug themselves into our government like a skin parasite.That's why we must vote with our feet, our fists, and whatever else we have that we can use to voice our opinion on the jews and their massive non-White immivasion schemes.

Death to the jews.

No more jews,no more depressions,recessions,inflation,invasions or anti-White discrimination.

Blogger Geoff February 19, 2015 3:46 PM  

"Because they can't loan or accumulate assets?"

Because the US regulators are mandating that US banks carry more capital than they once did. It's an effort to strengthen the banking system and avoid another financial crisis.

BTW, it's Basel III, not Basil III. My bad.

OpenID cailcorishev February 19, 2015 4:44 PM  

Both of us being correct...

Thanks, Nate. Maybe I need to read through it again.

Blogger Nate February 19, 2015 10:29 PM  

"If anything, US banks are currently over-capitalized as they try to prepare for Dodd Frank, which is even more onerous than Basil III"

/facepalm

Sure... if you believe their bullshit asset numbers... the phrase Mark to Fantasy exists for a reason.

Anonymous Jack Amok February 19, 2015 11:53 PM  

My takeaway from the debate was that they could both be right

I tend to side with Vox, but I also believe it could go either way, depending on which direction the Banksters and their government flacks panic in last.

As far as running out of credit or borrowers, no, not really, governments can always manufacture more of both. What you can run out though of are people willing to take payment in credit-backed monetary units. Which is just as good as running out of the first two.

Then we get to see which governments are willing to convince people to take payment for goods and services in the currency of not-getting-shot-in-the-head.

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