Circling The Drain Hole

June 15, 2015

stock-vector-balloon-pop-vector-drawing-of-a-hand-popping-a-red-balloon-with-a-pin-147460817Congrats to Greece, who now, as predicted in this blog, are demanding an Icelandic type default, who’ve withstood pummeling by international creditor coalition led by Germany.

Congrats to Syriza not selling out their people as our government have. Incompetence and greed unfortunately have won the day in Ireland, see growing list of current failures of FG/LB end of this blog:

Ambrose Evans Pritchard in the Guardian:

“The radical wing of Greece’s Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system, deeming it pointless to continue talks with Europe’s creditor powers.

Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma.

The confidential plans were circulating over the weekend and have the backing of 30 MPs from the Aristeri Platforma or ‘Left Platform’, as well as other hard-line groupings in Syriza’s spectrum. It is understood that the nationalist ANEL party in the ruling coalition is also willing to force a rupture with creditors, if need be.

“This goes well beyond the Left Platform. We are talking serious numbers,” said one Syriza MP involved in the draft.

“We are all horrified by the idea of surrender, and we will not allow ourselves to be throttled to death by European monetary union,” he told the Telegraph.

http://www.telegraph.co.uk/finance/11673989/Syriza-Left-demands-Icelandic-default-as-Greek-defiance-stiffens.html

The consequences for default are far reaching and contrary to the snake oil bond salesman frequently brought on to RTE to talk down the crisis, who argue every bank in Europe has already written off Greek Debt, such is not the case.

Lets look at Deutsche Bank http://notquant.com/is-deutsche-bank-the-next-lehman/:

June 9: S&P lowers the rating of Deutsche Bank to BBB+  Just three notches above “junk”.  (Incidentally,  BBB+ is even lower than Lehman’s downgrade – which preceded its collapse by just 3 months)”

“The trouble for Deutsche Bank is that its conventional retail banking operations are not a significant profit center.  To maintain margins, Deutsche Bank has been forced into riskier asset classes than its peers.

Deutsche Bank is sitting on more than $75 Trillion in derivatives bets — an amount that is twenty times greater than German GDP.    Their derivatives exposure dwarfs even JP Morgan’s exposure – by a staggering $5 trillion.

With that kind of exposure, relatively small moves can precipitate catastrophic losses.   Again, we must note that Greece just missed its payment to the IMF – and further defaults are most certainly not beyond the realm of possibility.”

The chain of dominos that will fall if DB defaults is anyone’s guess and DB is but one bank in Europe. Banks in France and Germany are highly exposed to Greek style default.

Highly inflated tyres come with increased risk of puncture and it looks like Greece is one tyre that cannot be mended without default.

QE in the US, EMU, Japan and UK patched the burst tyre of the fiat monetary system debased by taking it off the gold reserve Breton Woods system in 1971. Since then the money supply has inflated the divide between rich and poor. Austerity has made the poor poorer and the rich, richer. In order to unwind the out-of-control path of our current monetary system, Breton Woods should be revisited.

Financial engineering concealing losses due to adjusted profit accountancy tricks will not hide the effects of Greek default.

A super inflated stock market rich only on the gambled investments of central banks printing money spent on stocks and shares not in real investment awaits the pin of Greece and a burst DB.

Omens are not good and parallels exist with the past:

“In 1715, France was insolvent. It had just lost its king, Louis XIV, and the Duke d’Orléans was named regent until the late monarch’s great-grandson came of age to rule. Familiar with Law and his unorthodox ideas, the duke established him as head of the Banque Générale in hopes that he might reduce the massive debt Louis XIV left behind.

To this end, Law began printing banknotes—lots of them—and flooding the economy with easy money. Doing so, he believed, would expand employment, boost production and increase exports.

It indeed had those effects—for a time. Paris was booming. The number of millionaires multiplied.

Unlike Palmstruch, Law made no claims that the notes could be converted back into gold or any other metal. He believed that a currency, whether gold or paper, had no intrinsic value other than as a government-sanctioned medium of exchange. Instead, his notes were “secured,” vaguely, by French land, including its colonies in the Americas. There was also no limit to the amount of money that could be pumped into the French economy. Like many of today’s central bankers, Law was of the opinion that if 500 million notes were good, a billion were even better.

But to make it all work according to plan, he had to take extreme measures. Law outlawed the hoarding of money, the use of coins and the possession of more than the minimalist amount of gold and silver.

The system turned out to be untenable and the paper money became worthless. After only four short years, the currency bubble burst. Law was not only removed from office but exiled from the country. Until his death in 1729, he roamed Europe heavily in debt, making his way by his former occupation, gambling.

The incident had long-lasting effects. It sustained the country’s economic woes for years and contributed to the start of the French Revolution later in the century, as it stoked working class disenfranchisement.”

There are parallels between 1715 in France, The Central Bankers, QE, the  international shadow banking system and the bubble of QE printing money for the rich while printing austerity and debt for the poor.

We should know by June 30 if Grexit is to be.

Grexit will not end the euro’s woes.

In a badly designed monetary union the treatment of the outer core debtor nations such as Ireland, Portugal and Greece, has been appalling.

Austerity is not leading to growth in Europe. It has crippled Greece and done serious damage to Ireland attacking democracy, health and education services and the development of public infrastructure.

The EU has morphed into a dangerous hegemony controlled by Germany leading serf nations into the unknown.

Global currency led by the dollar in the US has turned its economy into a rentier financial paper led system destroying the middle class, destroying the possibility of property ownership for young people, burdening the young with impossible debt.

Is this a true model for human development and growth in a civilization tasked with developing a positive future for humanity, or a recipe for disaster dragging the world into the past.

Arguments made against Greece refer to its large shadow economy.  International creditors have pitted an international shadow banking system against Greece’s own shadow economy under the radar of taxation.

“As of 2013, academic research has suggested that the true size of the shadow banking system may have been over $100 trillion in 2012.”

“Based on estimates, Prentice notes that “given US GDP of $14.26 trillion, the world’s largest, that could still be as much as $1.2 trillion in taxable income that slips through Uncle Sam’s fingers each year”. Prentice quotes Austrian economist Friedrich Schneider, “Taxation and regulation increased in most countries over the past 10 years…reducing the tax burden is the best policy measure to reduce the shadow economy, followed by a lessening of fiscal and business regulation.”

Negotiations between Greece and its creditors have followed a rocky road. A large shadow economy in Greece unwilling to face taxes against a band of creditors wanting taxes to pay extortionate and unconscionable debt of no benefit to  Greek people innocent in driving up such debt.

Let’s hope in return to the Drachma or some parallel currency, responsible and competent government can bring Greece into a better place; where taxes will be levied to support services in education and health and infrastructure for the Greek people.

Meanwhile its time to rethink the very basis upon which our deregulated and dive-to-the-bottom global currency system works.

Humanity can come up with better than the pretence the global monetary system has clothes on.

Hats off to Greece in defending democracy against  rampant shadow bankers who’ve won out in Ireland and Portugal.

Grexit and Greece may yet to be a lesson for us all.

 

Local news:

Kathleen Lynch must have been joking on the radio. When asked about possible tsunami of parents with children under 6 wishing to avail of the free GP scheme flooding doctor surgeries, she replied, that she had taken this into consideration, working mothers would not be taking time off work to take their babies to the doctor when they are sick!

Perhaps she should sign an edict requiring doctor’s surgeries to be relocated to creches to avoid having whole creches descend on doctor surgeries? In a world where the completely daft and ludicrous becomes commonplace, I must point out I jest for sake of parody.

Those who are seriously ill will find it increasingly difficult to attend the doctor.

Kathleen Lynch has a favorite turn of phrase she uses to describe this policy, “this is part of the future”. The irony is its not, our health service through austerity is being dragged back to the middle ages.

The notion free health care for the under 6’s should equally be distributed to those who can well afford to pay for this strikes at incompetence of ludicrous proportions in a society that cannot provide hospital beds only trollies.

Along with Irish Water, the abysmal failure to address mortgage arrears, extortion of those on variable rate mortgages, absurd efforts to abolish the Junior Cert, and current proposals to hide the IBRC investigation under the umbrella of a commission of investigation they hopefully will anaesthesise the downside of negative findings of political incompetence, the mess grows by the day.

FG/LB have ensured the investigation will not be brought into the Public arena with no danger of the PAC getting hold of it as they did with the charities. Dirty washing will only be done in private.

Property mess, notices of intent to startup have dropped by up to 25% this month in Dublin due to the Central Bank’s loading of 20% deposit requirements for first time mortgages in spite of rearguard action to soften this blow to first time house buyers.

Huge landmarks of zoned land in Dublin are sat on by developers tax free in spite of emergency requirements to address homelessness and increase stock of available housing to avoid rentier and bank mortgage scalping.

Environment minister Kelly and Junior minister Nash have just circulated a document to local authorities in Dublin requesting that regulations on builders be softened to avoid impacting developers in such a way they may be deterred from constructing houses. I kid you not. Regulations eg such as minimum insulation standards. All this coming from Celtic tiger years where sub standard housing was built all over Dublin city.

Over 400 Clery’s workers given 30 minutes to vacate the premises with summary notice of liquidation and loss of their jobs, with many more feeder jobs from suppliers to be lost, no sign of blinkered Richard Bruton or Enda Kenny, hidden from it all.

 

Till again

 

http://www.investopedia.com/terms/c/creditdefaultswap.asp

http://notquant.com/is-deutsche-bank-the-next-lehman/

http://news.goldseek.com/GoldSeek/1434038487.php

https://en.wikipedia.org/wiki/Shadow_banking_system

http://www.forbes.com/sites/benzingainsights/2011/11/07/rise-of-the-shadow-economy-second-largest-economy-in-the-world/2/

 

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