The Run On Europe Begins, As Global Investors Head For The Hills...

from Clusterstock:

Until recently, the concern about Europe was mostly theoretical--a potential train-wreck that would occur if/when the world's lenders decided that the continent's problems extended beyond the basket case known as Greece to Europe's "core."

Well, that concern is no longer theoretical.

It's happening.

The world's lenders are increasingly deciding that it's better to be safe than sorry, and they're pulling their money out of Europe.

As a result, the borrowing costs of many European countries are rising fast. And so are inter-bank lending rates, because the second huge problem with the Euro-train-wreck is that Europe's banks have Euro debts coming out of their ears.

(When bond yields rise, the market value of existing bonds drops, so any bank that owns the debt of any European country is suffering huge embedded losses. The banks don't mark these losses to market, so you can't see them on the balance sheet, but they're there.)

Last week, Italian borrowing costs soared over 7%, which has been viewed as a sort of Rubicon level. Spanish yields hit nearly 7%. And French "spreads" over German bonds expanded sharply.

Nelson Schwartz in the New York Times has some other details:

• The Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers of European sovereign debts in recent days.
• Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt this month.
• Vanguard let a $300 million CD with Rabobank expire earlier this month and pulled the money out of Europe
• European banks like SocGen and BNP Paribas cut exposure to Italy by 26 billion euros in Q3
• American money-market funds have cut their exposure to European bank paper by 54% ($261 billion) since May

And so on.

The interbank-lending problems, by the way, are exactly what happened in the United States in 2007 and 2008.

If the run continues, for banks and countries and companies that live on borrowed money, the effect will be similar to the oxygen being sucked out of the room.

And because of the absurd opacity of bank balance sheets, there's no way to tell when or if some critical threshold will be breached and banks and insurance companies (think AIG) will suddenly have to start handing over tens of billions of dollars of "collateral" to counter-parties, blowing huge holes in their balance sheets.

Importantly, once runs like this get started, they can accelerate fast. Recall how quickly Bear Stearns and Lehman Brothers went from angry denials and "exploring options" to bust. Recall how quickly, a month ago, MF Global went from confident to flailing to broke.

Check out these two charts of the "TED Spread," which shows the difference between LIBOR (London Interbank Offered Rate) and US T-bills.

The first shows the sharp rise in the TED since the summer. The second, which extends back 5 years, shows how quickly the spread exploded in 2007 and 2008. As the latter chart illustrates, you can go from "concern" to "crisis" overnight.

Right now, Europe's leaders are still denying that there's a problem, and market pundits are still talking about possible solutions.

But most of the possible solutions are still focused on the ultimate fate of the Euro--which, increasingly, is the least of the world's worries.

Whether the Euro survives, and how, is something that will likely take several years to work out.

The much more immediate crisis--and the way this week went, it may be a VERY immediate crisis--is whether the Eurozone can stave off a full-blown bank and sovereign debt panic.

The temporary solution that everyone is focused on is for the European Central Bank to step in and buy hundreds of billions of dollars of European sovereign debt to get rates down and keep them down.

Importantly, this solution it would not be easy or problem-free. It also wouldn't be permanent.  The Germans, and the ECB, are adamant that this solution is not even a possibility. And even the the ECB could marshal the support to start buying, it would have to keep buying, day after day, month after month, and display total resolve in its public statements. It would have to keep buying until the Euro-zone's problems are sorted out, which could take years. It would have to figure out how to deal with the "moral hazard" of funding the deficits of most European countries and, therefore, removing any incentive for the countries to get their deficits under control. And, eventually, it would have to deal with the extreme inflation this "money printing" would likely produce.

In other words, if the situation continues to deteriorate--and barring some miracle, it will--the only way to stave off disaster looks less like an inevitable move and more like a Hail Mary pass.

The next few months, as the Chinese might say, are going to be interesting.

SEE ALSO: Europe's Banks Begin To Panic As The Oxygen Gets Sucked Out Of The Room

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Related:

BCM Has Ceased Operations: " The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity."

JAMES TURK: “We’re Still Headed For The Cliff” (SGTreport Exclusive)

 

UK Climate Minister Buys a Castle With 16 Bathrooms… and a Massive Carbon Footprint

Daily Mail
18th November 2011
 

‘He is the climate change minister who pledged to ‘lead by example’ in the fight against global warming.

But Charles Hendry is facing accusations of hypocrisy after buying himself a 20-bedroom castle – with a potentially massive carbon footprint – as a second home.

Blair Castle in Ayrshire, which went on the market for £2.5million, has three storeys, 16 bathrooms and a heated outdoor swimming pool set in 260 acres of beautiful countryside.’

It is likely to rack up colossal energy bills during the cold Scottish winter if Mr Hendry plans to heat all 14 bedrooms, two kitchens and four reception rooms in the main castle.

Read more: UK Climate Minister Buys a Castle With 16 Bathrooms… and a Massive Carbon Footprint
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Related:

There IS a problem with global warming… it stopped in 1998

BEST OF THE WEB: Anthropogenic (Human Caused) Global Warming Debunked

BBC’s Mr Climate Change accepted £15,000 in grants from university rocked by global warming scandal

 

 

The Ongoing Imperialist Events - Lizzie Phelan

Face to Face with Lizzie Phelan an Independent Journalist who started covering the Libyan assault eight months ago, Superb Analysis – Beyond Libya.

http://youtu.be/sWDo0eUVf-Y

Proof: Top Eurocrats Are Certified Crooks And Felons

It's official. Look below. The official document testifies that "Super" Mario "Full" Gold-Monti (who has been just nominated Italian PM) was dismissed in advance with other top level eurocrats for an impressive list of malfeasances and abuses:

Santer Commission Report

Eurozone Doomsayer Got it Right

by Stephen Lendman

Eurozone economies are cratering. Every fix tried so far failed. Combining 17 dissimilar countries under one monetary/fiscal system assured disaster waiting to happen.

British economist Bernard Connolly knew it before the euro's 1998 introduction. His 1995 book titled, "The Rotten Heart of Europe: The Dirty War for Europe's Money" called it a harebrained idea doomed to fail.

Saying it cost him his job. Maybe he should be running failed economies to fix them one by one. Even laymen can do a better job than current and past officials who wrecked them and ordinary households to pay bankers. More on Connolly's book below.

On November 17, New York Times writer Landon Thomas headlined, "Words of a Euro Doomsayer Have New Resonance," saying:

Eurozone countries are "crumbling, just as he had long predicted, yet Bernard Connolly, Europe's most persistent prophet of doom, still" faces skeptics.

Addressing the Los Angeles-based Milken Institute last spring, he said:

"The current policy of lending plus austerity will lead to social unrest." Troubled Eurozone countries can't cut their way to recovery. "And one should not forget," he said, "that of the four countries (now six) we are talking about, all have had civil wars, fascist dictatorships and revolutions. This is history."

"And this is the future if this malignant lunacy of monetary union is pursued and crushes these countries into the ground."

In 1995, Connolly took leave from his job as EU monetary affairs department head for his book. It remains a powerfully persuasive account of the Eurozone's predicted collapse.

He argued that monetary union would lead to political unification dominated by Germany and France, Europe's two largest economies. As a result, it had to be pursued quietly because people and parliaments of other Eurozone nations wouldn't support it.

After publication of his book, Connolly was suspended, then sacked. He's regarded as the foremost expert on European economic, monetary, and political integration.

Months before the euro's 1998 introduction, he predicted that one or more of Europe's weakest countries would face rising budget deficits, troubled economies, and a "downward spiral from which there is no escape unaided. When that happens, the country concerned will be faced with a risk of sovereign default."

Introduced in 1979, Europe's Exchange Rate Mechanism (ERM) as part of the European Monetary System (EMS), was intended to propel the continent to one European currency unit (ECU).

ERM never worked. ECU is failing. At issue is duplicity, conflicts of interest, and trapping 17 dissimilar countries in the euro straightjacket, usurping their monetary and fiscal autonomy disastrously.

Connolly said in his book:

"My central thesis is that the ERM and the EMU (European Monetary Union, the mechanism which ultimately brought the Euro into technical existence) are not only inefficient but also undemocratic: a danger not only to our wealth but to our freedom and ultimately, our peace."

He also wrote:

"As we shall see, in France, the long arm of the authoritarian state pressurized dissident economists and bankers, deployed financial information programmes on international TV channels, threatened securities houses with loss of business if they questioned the official economic line, and shamelessly used state-owned and even private-sector banks, in complete contradiction with their shareholder's interests and Community law, to support official policy."

"The economic profession in Europe organized literally hundreds of conferences, seminars and colloquia to which only conformist speakers were invited; and the Commission's 'research' programmes financed large numbers of economic studies to provide the right results from known believers."

In other words, a system doomed to fail was reengineered fraudulently to look workable.

Now consulting for private clients, Connolly has many admirers. Hedge fund manager Nicolas Carn said he "shaped my views on Europe and contributed significantly to my investment performance."

Chicago Mercantile Exchange trader Yra Harris called him "like no one I have ever met," adding:

"Each time I talk to him, it's like I've been to Harvard for four years." He was right way ahead of his time. Today, the Eurozone is slowly collapsing. Connolly may one day write its epitaph, saying I told you so, but you wouldn't listen.

Global Europe Economic Anticipation Bulletin's (GEAB) Latest Assessment

GEAB calls America "the epicenter of the global systemic crisis." On November 23, Congress' Super Committee must agree on $1.2 trillion of budget cuts or face mandatory 2013 ones. Either way, purchasing power lost means less spending, fewer jobs, and greater public anger than today's high levels.

Both sides are deadlocked. Failure is assured. Washington's political system is paralyzed. As a result, expect US debt downgrades and higher borrowing costs with predictable economic consequences.

China's Dagong Global Credit Rating agency fired the opening shot, confirming another downgrade if Super Committee members fail.

GEAB calls America's private debt worse than Greece's. It believes Western banks will be decimated. Crisis conditions are deepening. Rising bond yields signal trouble. Core European debt is being abandoned. France may lose its AAA rating. America's been overrated for years. So have many European countries.

Compared with rigged higher ratings from S&P, Moody's and Fitch, Weiss Research rated nine sovereign countries as follows:

• 
  
• Belgium: C-

• France: C

• Germany: C+

• Greece: E

• Ireland: D-

• Italy: C-

• Portugal: D+

• Spain: D+

• USA: C-

For private firms, the lowest investment grade debt is BBB- or Baa3. For Weiss, it's C-.

Their highest junk grade is BB or Ba1. Weiss' is D+.

Lower Weiss ratings than C- signify red flags. Notoriously, S&P, Moody's and Fitch grossly overrate public and private debt because paying clients demand it.

Progressive Radio News Hour regular, economist Jack Rasmus, discussed eight reasons for America's deficits and debt. He explained that from 2000 - 2011, federal government debt rose from $5.6 - $14.8 trillion, according to Federal Reserve Flow of Funds figures that exclude trillions more from Fannie and Freddie.

Eight reasons stand out, including:

(1) $2.1 trillion in Iraq and Afghanistan war spending. Rasmus calls the figure very conservative as it doesn't include other war costs related to military construction, department of energy costs, veterans benefits, intelligence, Homeland Security, huge black budgets, off budget secret weapons programs, and other costs plus more for inflation.

(2) $3,150 trillion in Bush administration tax cuts for super-rich Americans already with too much.

(3) $900 billion in Wall Street bailouts. Excluded are trillions of Federal Reserve dollars for troubled banks. The Fed keeps separate books, excluded from US deficit and national debt totals.

(4) $1,896 trillion in Bush and Obama administrations tax cuts and stimulus spending from 2008 - 2011.

(5) $450 billion in unfunded Medicare Part D expense.

(6) $180 billion in "excess inflation costs for Medicare-Medicaid."

(7) $225 billion in "lost tax revenue (from) 18 million (new) unemployed.

(8) $270 billion in interest.

(4) "(P)rice gouging by health insurance companies and health services providers."

In other words, Social Security, Medicare and Medicaid aren't responsible for America's debt problem. Imperial war spending, bank and other corporate bailouts, tax cuts for the rich, failed fiscal stimulus, and "price gouging by health insurance and health services providers" take full blame.

Nonetheless, American households, working poor and unemployed get strapped with the full burden.

Wall Street crooks, war profiteers, and other corporate scoundrels, including price gouging healthcare providers, got off scot-free to steal again.

No wonder OWS protesters rage against a corrupted system they want changed.

Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

http://www.progressiveradionetwork.com/the-progressive-news-hour/.