Martin Armstrong to Europe: "You Are Doing It Wrong "

From Martin Armstrong, August 5th, 2011
Copyright Martin A. Armstrong all rights reserved 
If you want to save Europe
Consolidate the debt now!
it may be your last bloody chance


This is maybe  the last chance to save Europe. I have stressed numerous times that if you are going to create a single currency, there has to be a single national debt! Alexander Hamilton did precisely that relieving the debt burden of the individual states consolidating that debt into a NATIONAL DEBT on the premise that all the colonies contributed to the national defense. Virginia, the most fiscal responsible of the lot, got in turn the agreement to move the capital to its border. That is why the capital is where it is today.


I will explain this ONE LAST TIME, when you adopted the Euro, the national debts of the member states were converted to Euros. This actually  INCREASED the net debt burden of the weaker states. If the United States stupidly converted to a gold standard, the debt would then be convertible into gold and it would be the greatest way to destroy the United States overnight. Every foreign holder of US debt would suddenly be given the greatest value gift in history. They would have to be brain dead NOT to cash in their bonds and take the gold home. The US would be without any gold just as it was in 1896.


By converting the outstanding debts into the more valuable euro,  you increased the debt burden of Greece, Italy, Portugal, Spain, and Ireland. Where their currencies naturally depreciated devaluing their debts as is the case in the USA, suddenly they created debt that APPRECIATED in value for the bondholders. HELLO! Is anybody home?


It is the DEBT that is tearing apart the global economy. You cannot do bailouts and bridge loans and any other hair brain scheme intent upon keeping the shell game in motion. There is NO nation capable of repaying their debts! It is time to revise the monetary system of the world. 


Do not wait until the last moment. Forget your damn political careers just for once and think about society! People just might vote for a politician who for once stands up like statesmen use to do. People are tired of politics as usual. This can be fixed in 30days or less! I will not publish the solution in advance for fear of market anticipation. It’s just time to do the right thing before there is nothing left. If you think this is going to be business as usual waiting for the disaster and then lock up everyone you can blame, the public may rise up against you. When they lose their future that is when revolution unfolds. You are playing with fire.

Explaining How The Just Announced ECB Market Rescue Pledged 133% Of German GDP To Cover All Of Europe's Bad Debt

From Zero Hedge:

Two weeks after Zero Hedge readers were informed about it, slowly the sell side is coming to the realization that not only will the EFSF have to be expanded (that much was known), but that Germany, and specifically the outright economy, will be on the hook by an unprecedented amount of money. And expanded it will have to be: not by two, not by three, but by a cool four times, to a unbelievable €3.5 trillion which according to Daiwa's Head of Economic Research, Grant Lewis, is an act which will be necessary to convince financial markets of euro area resolve to save Italy and Spain. Says Lewis: "France, Germany contribution to EFSF’s capital would increase to 80% if Spain, Italy had to drop out of guarantee structure.  France, German contingent liabilities would be > 50% of GDP if EFSF expanded; added to France, Germany current debt may trigger downgrades to both countries." Yes... and no. As we explained when we referred to a far more accurate and complete report by Bernstein, merely a €1.5 trillion expansion in the EFSF, would mean that Germany is on the hook to the tune of €790 billion or 32% of German GDP. If France is downgraded, Germany essentially becomes the sole backstopper of the entire Eurozone, to the tune of €1.4 trillion or 56% of its GDP. Now let's assume Daiwa is correct, and the full amount under the EFSF has to increase to €3.5 trillion. That means that Germany "contin[g]ent liabilities", in the worst case scenario where France again gets downgraded, and it likely will eventually, would surge to about €3.3 trillion, or an insane 133% of German GDP!
Now let's put today's events in perspective.
Basically what just happened an hour ago, is that the ECB gave a green light to use the SMP program to buy Italian and Spanish bonds: the two countries which recently put themselves into a self-imposed capital markets exile as we reported earlier. The problem is that the SMP's unsterilized purchasing capacity is de-minimis and it is merely a stopgap until the sterilized EFSF is enacted in its final form. The question is precisely what this final form will be: will it be €1.5 or €3.5 trillion. Nobody knows yet which is why Rehn refused to answer the question twice already today.
Either way, let's assume EFSF gets clearance. At that point the SMP gets deactivated, and EFSF takes over.
And here is where Germans get angry, because explicitly they end up backstopping everyone in europe! And the cost to them becomes 133% of their entire economy in a worst case scenario, which of course in this centrally planned world, is now guaranteed.
So the ball is now basically in Germany's court: will the German export sector be ok with leaving the country on the hook to a complete implosion once the final European house of cards implodes, or, will German practically once again take over, and tell the ECB, the bureaucrats and every other insolvent European country to go shove it, in the process bringing back the D-Mark and returning to a life of quiet contentment without a customs, cultural or monetary union.
Oddly enough, our money is on the latter.
PS. In the meantime, short Bunds (or to borrow a Gartmanism, go long gold in Bund terms) ahead of the market's realization that peak risk transfer from the periphery to the core is now in process.
PPS. A fully funded EFSF will need to issue €3.5 trillion, or $5 trillion in debt. Repeat: $5 TRILLION.

CHART OF THE DAY: The Brand New Scariest Jobs Chart Ever

From Clusterstock :

We used to say that the chart showing the pace of this jobs "recovery" vs. all other jobs recoveries was the scariest jobs chart ever (see here for example).
But we've since changed our mind.
It's the average duration of unemployment -- which surges without any sign of slowing down -- that's really scary right now. Not only is this number taking off like a rocket, but it potentially represents people permanently and structurally kept out of the jobs market.
Be afraid.

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U.S. Eats Up Most of Debt Limit in One Day

From Silverdoctors:
US Debt increased by $239 Billion on Tuesday.
Who is going to PURCHASE $3 Trillion in Treasuries over the next year?
The Fed. Period.
GLOBAL QE 3 is here.
QE to Infinity...AND BEYOND!!

By Stephen Dinan
The Washington Times
5:05 p.m., Wednesday, August 3, 2011
U.S. debt shot up $239 billion on Tuesday — the largest one-day bump in history — as the government flexed the new borrowing room it earned in this week’s debt-limit increase deal.
The debt subject to the statutory limit shot way past the old cap of $14.294 trillion to hit $14.532 trillion on Tuesday, according to the latest the Treasury Department figures, which are released on the next business day.
That increase puts the government already remarkably close to the new debt limit of $14.694, which means one day’s new borrowing ate up 60 percent of the $400 billion in space Congressgranted the president this week.

Debt numbers go up and down regularly, depending on what the Treasury Department is redeeming or issuing on any day, but have been on a steep upward trend for the past decade as spending has ballooned and revenues have fluctuated.
For the past 2½ months, though, the number essentially was frozen as the government was poised to reach the borrowing limit set by law. TheTreasury Department used extraordinary means to stall, but was about to run out of room on Tuesday.
With little time to spare, Congress and the White House managed to cobble together a deal to grant new borrowing authority: an initial increase of $400 billion, coupled with future increases.
Read more:
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