Stocks Drop On Awareness That A Transfer Union As Well As A Debt Union Has Formed In Europe

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I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes the failure of credit has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation.
Financial market report for October 3, 2011

1) … On the first day of trading in the 4th Quarter, Gold, GLD, and Silver, SLV, rose strongly, as the Euro, FXE, the European shares, VGK, Austria, EWO, Germany, EWG, Spain, EWP, Belgium, EWK, and the European Financials, EUFN, turned World shares, ACWI, and World Small Cap shares, VSS, lower, as investors recognized that the bailout of Greece and the establishment of the EFSF, is creating a transfer union, that is a debt union.

Yahoo Finance reports Savings and Loans were the among the loss leaders of the day falling 5.5% with HCBK, PBCT, and NYB falling strongly.

The US Dollar, $USD, traded by UUP,  rose strongly, as world currencies, DBV, and emerging market currencies, CEW, traded lower. Risk avoidance meant unwinding yen carry trades today, as the Yen, FXY, rose and the following currencies traded lower: FXA, FXE, FXM, FXB, FXS, SZR, FXF, BZF and BNZ.  

The 3.9% fall in the fertilizer ETF, SOIL, evidences a massive unwinding of carry trade disinvestment due to today’s currency sell off.

The awesome 6.0% fall in small cap pure value shares, RZV, communicates that debt deflation, that is currency deflation, is strongly underway.


Alcoa Aluminum, AA, and Noranda, NOR, fell strongly as The Motley Fool reported that analysts cited greater risks because of softness in the global economy and heightened risk aversion because of the European debt crisis, which may weigh on the demand for industrial metals like aluminum and as Reuters reports Global Economy - Manufacturing Shrinks For First Time Since 2009.

The 4.6% fall in the Russell 2000, IWM, reflects the concern of evaporating credit as well as the fall in the Financials, XLF, and Banks, KRE.  The WSJ reports Banks Crushed Again In stock, Credit Markets. These small cap stocks’ life blood is credit to meet payroll, cut accounts payable checks and stock inventory. Under Neoauthoritarianism, only those companies which are deemed necessary to the survival of a region will obtain lending and credit. South Korea Small Caps, SKOR, and Latin America Small Caps, LATM, Australia Small Caps, KROO, China Small Caps, HAO, Russia Small Caps, RSXJ, German Small Caps, GERJ, and Canada Small Caps, CNDA, fell strongly.

Emerging Market Financials, EMFN, were decapitalized by risk avoidance and competitive currency deflation.

China, YAO, China Financials, CHIX, China Infrastructure, CHXX, China Materials, CHIM, and China Real Estate, TAO, and China Small Caps, HAO, fell strongly as Business Inside reports China Is An Economy On The Verge Of A Nervous Breakdown.

Countries which had seen hot money flows, fell strongly IDX, EWS and THD.

Leveraged Buyouts, PSP, and Junk Bonds, JNK, fell strongly, but there was a renewed rush to perceived safety in longer duration US Government bonds, as the US Federal Reserve began purchasing longer duration Treasuries, as Bloomberg reports Fed starts buying longer-term maturities under Operation Twist.  The Flattner ETF, FLAT, rose near a former high, reflecting a flattening of yield curves, as the 30Y Treasury yield, $TYX, fell once again all the way back to January 2009 levels propelling the Build America Bonds, BAB, the  Zeros, ZROZ, the 30 Year US Government Bond, EDV, and its 300% ETF, TMF, higher once again. The 10 Year US Government Note, TLT, rose to a new high. On March 10, 2011, Mike Mish Shedlock gave six reasons for investing in US Treasuries, nothing has changed since that time.

Debt Deflation, that is currency deflation, drove world government bonds, BWX. The global  government finance bubble has burst.  

2) … Open Europe reports
A growing transfer union is perceived by many.
Labour MP Gisela Stuart said in the Saturday’s Time, “None of the proffered solutions to the euro crisis will work because they do not address the nub of the problem. Holding all this together requires transfers (‘gifts’) from countries with current account surpluses to those with deficits so that the latter are spared the (unsustainable) cost of attempting to restore competitiveness through deflation; this means transfers in perpetuity from Germany.”

And Bruno Waterfield in Saturday’s Telegraph reported that EU figures published last week show that the average British household paid £672 towards the EU budget in 2010, and got back only £373. And Euro Intelligence in its for fee newsletter reports Germany is the EUs paymaster as its net contribution to the EU budget has risen by over 10% last year.

3) … Euro Intelligence in its for fee newsletter reports
(I recommend that one subscribe to this service).
The French government resists plan by Brussels to recapitalise the banking system.
Despite market pressure on the three big French banks BNP Paribas, Société Générale and Crédit Agricole, the French government is resisting attempts in Brussels to come up with a rescue schemes for European banks, Le Monde reports. The government favours a rapid implementation of the enhanced EFSF instead of mounting rescue schemes for European financial institutions. Paris fears that a European initiative would send “bad signals” to the market. The French procrastination is in contradiction with the appeals of IMF MD Christine Lagarde who called for rapidly recapitalizing European banks and with Nicolas Sarkozy’s behaviour as EU president in 2008 when he was strongly engaged in a European response to the Lehman bankruptcy, the paper points out. (I comment that it is only a short matter of time before banks are nationalized and that credit and lending comes via a stakeholder committee of business and government.)

Wolfgang Münchau says that turning the EFSF into a CDO is like putting explosives into a can, before kicking it down the road.
Wolfgang Münchau writes in his FT column that the latest gimmick pursued by desperate European officials was to turn the EFSF into a CDO. He says this is like putting explosives into the can before kicking it down the road. With a CDO the eurozone government’s total guarantees of €440bn would become the equity tranche of the CDO, which in turn would guarantee senior tranches of debt from outside investors. Münchau makes the point that the markets will not trust this structure. In the case of subprime CDOs, governments stood ready as a backstop once the system collapsed. That is not the case here as government themselves are already the equity holders. The last man standing is, once again, the ECB. It would be much better, therefore, to construct a system in which the ECB is involved in a better and more transparent way, than through an extremely dangerous toxic debt structure.

The Greek cabinet approved the draft budget for 2012
And it confirmed it will miss a budget deficit reduction target of 7.6% of GDP set by the troika for this year. The new estimate is 8.5%. The news spooked global financial markets on Friday, as the prospect of a Greek default seemed to be coming closer. Stock markets plunged on Friday afternoon, and investors took refuge in US treasuries, as a result of which the euro fell to $1.3322.
The Greek Growth forecasts are much worse than those implied by the bailout agreement in July, which assumed only a mild recession. GDP is now predicted to fall by 5.5% this year and the government expects the economy to shrink 2-2.5% next year, Reuters reports. The shortfall in the 2011 deficit target means Greece would need almost €2bn extra just to finance its expenses for this year.
The cabinet also adopted the controversial "labour reserve" scheme allowing 30,000 state workers to be placed on 60% pay and be dismissed after a year. But the government softened the blow and saved less money than troika inspectors initially sought with a decision to construct the scheme in such a way that two-thirds of the workers affected are near pension age and due to retire soon anyway. The rest would be from state firms that would merge or be closed down. There is no official declaration yet, but Kathimerini cites sources saying that troika representatives had accepted the proposal. The 2012 draft budget is to be presented in parliament on Monday. Euro zone finance ministers are expected to discuss Greece at a meeting in Brussels on Monday, but will be waiting for the troika inspectors' report before taking any new decisions.

Draghi is in favour of providing central bank liquidity to the EFSF.
Today’s paper edition of Der Spiegel has an interesting story on the argument about leveraging the EFSF and the argument within the ECB as to whether granting the EFSF with a bank license and giving it access to central bank liquidity is the right way. According to the magazine, Jean-Claude Trichet, Jens Weidmann and Jörg Asmussen, currently Wolfgang Schäuble’s state secretary and candidate to succeed to Jürgen Stark at the ECB board, are opposed. There are proponents however Der Spiegel reports. Among them are Ewald Nowotny, the Austrian central bank president, ECB vice president Vito Constancio and crucially Mario Draghi, who will succeed to Trichet in less than a month. The topic will be discussed at tonight’s eurogroup meeting in Luxemburg and the ECB’s governing council meeting in Berlin this Thursday.

Wolfgang Schäuble argues in favour of a big transfer of fiscal and economic policies from the nation state to the European level.
In an op-ed for Welt am Sonntag and a speech on the occasion of today’s national unity holiday in Germany, Wolfgang Schäuble pleaded for “more Europe”, Die Welt reports. This did not mean abandoning the nation state. But it implies significant transfers to the European level in fiscal and budgetary matters and a stronger democratic legitimization of European bodies, Schäuble argued
There are important voices in France also warming up to the idea of more European integration, as Libération correspondent Jean Quatremer points out in his Coulisses de Bruxelles blog. In an interview with the TV channel France 2 foreign minister Alain Juppé said he was in favour of “a real European federation” underlining that “France’s future is Europe” and that an implosion of the euro would be “a catastrophe for France”. Quatremer underlines that it is the first time to his knowledge that a prominent member of the current government is on the record publicy in support of a European federation.

3) … WSWS reports that the G-Pap will abrogate the Greek Constitution and fire state workers in order to obtain continuing seigniorage aid.
Christoph Dreier reports Greece to miss deficit target, imposes more cuts on workers  to reduce the deficit back to the figure demanded by the IMF, the European Central Bank and the European Commission, the “troika” that now serve as financial overlords for the Greek working class.

This included a plan to transfer 30,000 public employees to a labour reserve pool where they will receive reduced pay, about 60 percent of their normal salaries, pending complete elimination of their jobs at the end of next year. The measure is a direct violation of the Greek constitution, which guarantees the jobs of civil servants. The Papandreou government took the measure in the face of mounting popular opposition, including a series of protests and blockades directed against visiting delegations from the troika. The timing of the cabinet action was driven by the need to reassure the finance ministers from the 17-euro countries, who meet in Luxembourg today. Papandreou declared, “We have a single and steady goal—to meet our commitments so that we guarantee our credibility.”

Representatives of the troika came to Athens last Thursday to oversee implementation of the previously announced savings measures. On October 13, the troika is expected to decide whether the last instalment of the first EU rescue package—€8 billion—is to be paid out to Greece. Otherwise the country could face insolvency within a few weeks, which would mean that no pensions, wages or benefits could be paid.

In early September, the representatives of the troika had demonstratively withdrawn from Greece, because they were dissatisfied with the progress made in implementing the social meltdown, and wanted to put more pressure on the government.

Further shortages in the state budget arose, because wide scale wage reductions and the increase in mass taxation had led to a deeper recession than was expected by the government and the Troika. State tax revenues decreased correspondingly, while social spending increased a little. The European institutions are now demanding further cuts.

Greece’s social-democratic government has since then done everything possible to meet these conditions and bring the troika back into the country. Last Tuesday, the Greek parliament approved a property tax increase, payable concurrently with electricity bills and affecting up to 80 percent of the population.
The government has also announced its intention to reduce pensions even further, terminate social benefits for families with numerous children, and impose wage cuts of up to 40 percent in the public service. This is in addition to the phased elimination of the 30,000 public service jobs.

Particularly this last demand was also hotly debated within the Greek cabinet, not only because it would destroy the ruling party’s base of support in the civil service, but also because of its constitutional implications. The Greek constitution stipulates that government employees are entitled to lifelong employment.

Following initial talks with Finance Minister Evangelos Venizelos on Thursday night, the EU representatives announced that a temporary leave of absence of 30,000 public servants did not go far enough. The government now had to put deeds to words and terminate the jobs in question. The cabinet accordingly took the action demanded by its creditors.

Representatives of the troika have also demanded that the privatisation of major state enterprises should be brought forward. They particularly referred to the sale of Athens’ Airport and the state OPAP Lottery Company, whose revenues are expected to offset the September budget deficit.

The rapid privatisation is expected not only to fill the budget gaps, but also to create conditions whereby companies from other European states can gain a foothold in Greece.

Roland Berger, the management consultancy firm, has even introduced a “rescue plan” for Greece, based almost exclusively on privatisation. Berger proposes the establishment of a central holding company, in which Greek state assets—i.e., ports, airports, motorways and property worth a total of about €125 billion—will be incorporated. It is claimed that the proceeds of these sales would reduce the country’s debt by a half
Last Friday, the troika wanted to talk to the transport ministry about opening the management of Greek transport facilities to foreign firms. Licenses for taxi and truck drivers are currently strictly limited, each costing up to €150,000. The plan is to expand the licensing by offering for them for €3,000. For most of the self-employed taxi and lorry drivers, who are often heavily in debt due to the purchase of licenses, this would mean nothing less than the expropriation of their livelihoods without the least compensation.
However, the meeting was postponed because of the transport ministry employees had occupied the building in protest against the government’s measures. Since their arrival on Thursday, the troika representatives have been confronted by huge protests from Greek workers.

On Thursday, the ministries of finance, the economy, justice, health and labour, and social affairs were mainly occupied by employees from these departments. When the troika representatives wanted to enter the finance ministry, workers prevented them from doing so, chanting: “Take your emergency plan and clear out”. From the ministry’s balcony hung a banner with the inscription: “When injustice becomes law, opposition becomes a duty”. Taxi drivers at a demonstration outside the Greek parliament shouted: “We will not back down. Blood will flow”.

Workers wanted to expand Thursday’s protests, intending not only to give a show of opposition to the troika, but also to actually disrupt the functioning of government. However, they were restrained by the trade unions. With the exception of the finance ministry, the occupation of the buildings was abandoned after a few hours. Instead, the trade unions organised small, ineffective strikes and demonstrations.
The unions are doing everything to divert the immense anger and desperation of the Greek workers into channels of innocuous protest. Last week, they led one occupational group after another on strike, thus stifling the development of a broad movement against troika and government: first the railway workers, then the taxi drivers and eventually doctors and nurses. Only one general strike, scheduled for October 19 and limited to 24 hours, has been planned—a course of action that will not have the slightest effect on the savings proposals.

The trade unions have supported all the earlier cuts. They do not represent the interests of workers, and are only concerned about maintaining their own position in the state apparatus. That is why the international secretary of the Greek trade union federation (GSEE) declared that the current cuts posed a problem primarily because they had been implemented “under pressure from the financial markets, without any consultation with their social partners.” She regretted that “The process of constructive social dialogue has effectively stalled.”

4) … Gonzalo Lira relates Germany Will Never Leave The Eurozone, Because It Can't

5) … OurBroker relates
America's Big Banks, America's Financial Vietnam

6) … WSWS reports Occupy Wall Street protesters say,
The Whole System Is Broken.

7) … Tyler Durden relates that Bill Gross warns that both labor and capital suffer as a deleveraging household sector in the throes of a jobless recovery refuses, if only through fear and consumptive exhaustion, to play their historic role in the capitalistic system.
In his monthly newsletter “Six Pac(k)in” Mr. Gross  relates that this “labor trap” phenomenon – in which consumers stop spending out of fear of unemployment or perhaps negative real wages, shrinking home prices or an overall loss of faith in the American Dream – is what markets or “capital” should now begin to recognize" His conclusion: "A modern day, Budweiser-drinking Karl Marx might have put it this way: “Laborers of the world, unite, you have only your six-packs to lose.” He might also have added, “Investors/policymakers of the world wake up – you’re killing the proletariat goose that lays your golden eggs."

8) … Tyler Durden reports the fatal fall in Dexia shares.
Two months ago we said core European default risk is about to surge on risk transfer fears. This morning German CDS just hit a record. Yesterday, and on Friday, we said Belgium CDS is about to be monkey hammered. Sure enough, Belgium is the worst performed of all European sovereigns, +18 on the day and soaring and threatens to go offerless as we type on imminent Dexia, DEXB.EU,  nationalization fears. And Mr Durden relates Dexia Tumbles After Moody's Puts It On Downgrade Review Citing "Deteriorating Liquidity And Worsening Funding Conditions"

9) … Mike Mish Shedlock relates Schaeuble Claims German EFSF Contribution Has Maxed Out at 211 Billion Euros; Why Should Anyone Believe Him?
By supporting Merkel's "Domino Theory" and by refusing to rule out leverage, Schaeuble is clearly willing to go all in. Whether or not that happens depends on how fast Greece defaults.

10) …Bloomberg reports Cost of Swapping Euro Payments to Dollars Rises to 3-Week High
The rate banks pay to convert euro payments into dollars rose to a three-week high, according to a money markets indicator, as European finance ministers meet on resolving the region’s debt crisis. The three-month cross-currency basis swap was 109 basis points below the euro interbank offered rate as of 2:52 p.m. in London, compared with 105 basis points on Sept. 30. The cost was 112.5 basis points under Euribor on Sept. 12, when the swap was the most expensive since December 2008. The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, rose to 37 basis points from 35 at the end of last week. (Hat Tip To Between The Hedges)

11) … Between The Hedges relates the Bloomberg reports that credit is evaporating and credit risk is rising.
Loans Fall to Six-Month Low in Asia as European Banks Retreat. Asian loans slumped to the lowest level in two quarters as Europe’s sovereign debt crisis pushed up banks’ funding costs and lenders under pressure in home markets retreated. Syndicated loans in the Asia-Pacific region outside of Japan fell to $104.7 billion in the third quarter, the least since the three months ended March 31, when they totaled $96.8 billion, according to data compiled by Bloomberg. Lending climbed 12 percent from the same period a year ago, when it totaled $93.2 billion. European banks lost ground and Credit Agricole CIB dropped out of the top 20 arrangers for the first time since 2002, the data show.

U.S. Company Credit Risk Gauge Rises to Highest Since May 2009. A benchmark gauge of U.S. corporate credit risk rose to the highest level since May 2009 as Europe’s finance chiefs sought to prevent a Greek default and the cost of insuring German government debt climbed to a record. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 1.5 basis points to a mid- price of 145.7 basis points as of 8:53 a.m. in New York, according to index administrator Markit Group Ltd. The credit swaps index, which typically gains as investor confidence deteriorates and falls as it improves, has increased from 136.2 on Sept. 27 as concerns mount that Europe’s sovereign debt crisis is worsening. The region’s officials prepared to meet in Luxembourg today to consider how to shield banks from the debt crisis and boost a rescue fund after Greece missed a deficit target for 2012. Credit-default swaps on German debt climbed six basis points to an all-time high of 118.

12)  … The expansion of M2 likely reflects not traditional money printing, which is inflationary, but capital flight from Europe in response to the eurozone crisis.
The Automatic Earth relates the Larry Kudlow article in the National Review The Deflationary M2 Explosion. Amidst the financial flight-wave to safety, with stocks plunging, gold soaring, and Treasury bond rates collapsing, and all the European banking fears which go with that, there’s an important sub-theme developing: An almost-forgotten monetary indicator, M2, which is mostly cash, demand-deposit checking accounts, savings deposits, and retail money-market funds, has been soaring.

According to the St. Louis Fed, M2 is up 24.2 percent at an annual rate over the past two months. Almost out of the blue, that comes to a near $500 billion increase. In rough terms, the M2 explosion breaks down to $165 billion in demand deposits and $335 billion in savings deposits.

What’s going on here? There’s a flight to government-guaranteed accounts. Some people believe Europeans are withdrawing from their own banking system and parking their money in the U.S. banking system, guaranteed by Uncle Sam. Kelly Evans reports in her Wall Street Journal column of a $30 billion outflow from equity mutual funds that has probably gone into cash.

This is a very disconcerting development. Normally, big M2 growth would signal a faster economy, and maybe even higher inflation. But as economist Michael Darda points out, the velocity, or turnover, of money seems to be plunging.

"The recent pickup in broad money in the U.S. looks like a dash for risk-free cash assets," writes Darda. He also notes that widening corporate-credit risk spreads and shrinking government-bond rates signal a recession risk, not a coming boom.

So contrary to monetarist theory, the M2 explosion seems more closely related to a deflation/recession risk. Economist-blogger Scott Grannis writes, "The recent growth of M2 surpasses even the explosive safe-haven demand for money that accompanied 9/11 and the financial crisis of late 2008. Something big is going on, and it can only be the financial panic that is sweeping Europe as money flees a banking system that is loaded to the gills with PIIGS debt."

Grannis concludes, "In short, it looks like there is a run on the European banks and the U.S. banking system is the safe-haven of choice.“

13) … Credit and seigniorage, that is moneyness, in Europe will come via the diktat of a Sovereign, a Seignior, a Fiscal Union, A European Bank, And A European Treasury.
Today, October 3, 2011, marked the beginning of the 4th Financial Quarter, as well as a strong pivoting from Neoliberalism and into Neoauthoritarianism, as investors became aware that a transfer union as well as a debt union, has formed in Europe, and sold stocks, VT, and commodities, DBC, as well as currencies, DBV, and emerging market currencies, CEW.  

Bloomberg reports Commodities Drop to 10-Month Low as Slowing Global Growth May Crimp Demand. Commodities fell to a 10-month low on increasing concern that stagnant global growth will crimp demand for metals, energy and agriculture. The Standard & Poor’s GSCI Spot Index dropped 8.32, or 1.4 percent, to 582.68 at 1:39 p.m. in New York, after touching 580.22, the lowest since Dec. 1. The gauge tumbled 12 percent in the third quarter, the most since the final quarter of 2008.

There are first things: a first communion, a first kiss, a first investment, and a first sour grape. And there are last things: a last meal, and a last sunset.  There are things which abide, a baptism for example. Today was the baptism of fire of authoritarian rule, where all peoples were immersed into regional economic government, austerity and debt servitude, by the plea of Wolfgang Schäuble for “more government” as   Die Welt reports.

Greeks are not Germans; but they all will be one in debt servitude, all the debt of the sovereign and banking crisis will be applied to every man, woman and child in Europe.   

Larry Elliott of the Guardian writes its a Mad Hatter’s Tea Part as he provides insight into the current crisis. Predictably, the stresses and strains inherent in a monetary arrangement that involved yoking together countries as diverse (not just economically but culturally) as Germany and Greece, Portugal and Finland, Austria and Spain quickly manifested themselves. The weaker countries on the periphery saw their costs of production rise more rapidly than those at the core, and gradually became less competitive as a result. Although Europe as a whole saw its trade balance remain close to zero, Germany ran a hefty trade surplus at the expense of Italy, Spain and Greece.

Just as China recycled its trade surplus into the global economy through the purchase of US treasury bonds, so Germany's surplus headed south to fuel property bubbles in Spain and to finance excessive borrowing by Greece. The actions of China and Germany kept the speculative orgy going for a while, but only by making the eventual hangover worse.

In the days before monetary union, a country that had seen its competitiveness eroded had an easy, if not painless, remedy. It would devalue its currency, making its exports cheaper and its imports dearer. Inflation would go up and structural weaknesses would be ignored, but it was a way of rubbing along. Inside the single currency, there is only one way a country such as Greece can compete with Germany and that is to lower the cost of the goods and services it produces.

That means lower wages, smaller pensions and deep cuts in public spending. And not just for one or two years: the adjustment process within monetary union involves decades of austerity. For the Greeks and the Italians, the message is jam tomorrow and jam yesterday but never jam today.

The climax of Alice in Wonderland is the courtroom scene in which the issue is "Who stole the tarts?" In the case of the eurozone, the easy answer is that it is Greece, which failed to play by the rules, borrowing too much and cooking the books so that the rest of the members of the single currency club were ignorant of the dire state of the Hellenic public finances.

In fact, the real culprit is Germany, which has failed to appreciate that for monetary union to work, the big creditor nations have a responsibility to help the debtor nations by expanding domestic demand. The German political class appears to believe both that every country in the euro area can be as competitive as Germany and that Germany, in those circumstances, will continue to run a massive trade surplus. That's a logical absurdity the Reverend Dodgson would certainly have appreciated.

The idea was that member states would pool their monetary sovereignty to form one currency that would have one interest rate set by one central bank. Architects of the grand design argued there would be multiple benefits from the new arrangements: Europe would grow closer together, it would become more stable and it would grow faster.

Of note Bloomberg reports Schaeuble Seeks to Stifle Debate Over Euro Rescue Fund as Pressure Mounts. Germany sought to stifle debate over boosting the firepower of the euro rescue fund, damping speculation of a breakthrough in talks to quell the European debt crisis. German Finance Minister Wolfgang Schaeuble opposed moves to further scale up the European Financial Stability Facility until the final three countries approve the fund’s latest upgrade. Slovakia, the Netherlands and Malta have yet to ratify an earlier decision to expand the fund to 440 billion euros ($584 billion). “Speculating makes no sense,” Schaeuble told reporters before a meeting of European finance ministers in Luxembourg tonight. “We will wait until the other countries that haven’t ratified it also do so.” European stocks and the euro fell today and investors shunned riskier countries’ bonds amid growing international impatience with 18 months of muddling through marked by clashes among Germany, France and the European Central Bank. Europe’s financial leaders are fighting on multiple fronts, trying to extinguish the Greek crisis while insulating Italy and Spain and coming up with a formula for banks that the International Monetary Fund says face as much as 300 billion euros in credit risks. The meeting, chaired by Luxembourg Prime Minister Jean Claude Juncker, started at 5 p.m. No time was set for the concluding press conference.

And Laura Gitschier, Peter Muller, Christian Reiermann and Michael Sauga of Spiegel question  Is Germany's Finance Minister Going Rogue?  He used to be regarded as Germany's safest pair of hands when it comes to the euro crisis. Now, criticism of Finance Minister Wolfgang Schäuble is growing within the government parties. Some believe that Schäuble wants to exploit the crisis to push through his vision of a United States of Europe. The CSU is still trying to pin Schäuble down. "It's still unclear to me what the German finance minister is angling at," says Georg Nüsslein, the economic policy spokesman for the CSU parliamentary group. "If Schäuble wants to realize his European dreams in this crisis, then he is no longer doing his job justice." Schäuble's fellow cabinet member, German Interior Minister Hans-Peter Friedrich, who is also a member of the CSU, has clearly distanced himself from the finance minister. "Anyone who concludes from the current debt crisis that European centralism now has to be bolstered has embarked on the completely wrong path," he says. All across Europe, even in Germany, there is a growing sense of euroskepticism, he adds. "This cannot be countered by stripping even more powers from democratically elected national parliaments and governments." The government may have survived yet another vote last Thursday, but the hurdles will be even higher next time around.

Given that Greece has lost its debt sovereignty and is not sustainable as government, it is inevitable that European leaders will meet in Summit and announce regional framework agreements that waive national sovereignty, and in the case of Greece abrogate its Constitution, for the security and prosperity of the Eurozone as a whole.

A collective future was foreseen by the 300  elite of Club of Rome, as they proposed regional economic government for the time when the Milton Friedman, Free To Choose, Floating Currency Regime would fail through the deleveraging of competitive currency devaluation, derisking out of yen carry trade investing, disinvestment out of stocks, and the termination of credit and lending with high interest rates.  The former regime, Neoliberalism, which was characterized by leverage, choice, and wildcat finance, a Doug Noland term.  It is now being replaced by Neoauthoritarianism and State Corporatism, and is characterized by deleveraging, diktat and wildcat governance where leaders rip, tear and bite at one another as is seen in the DW-World report Euro Debt Crisis Sets Off Round Of Squabbling in German Government.  Economic life in the former regime came via the securitization of debt of all types by Wall Street investment bankers, KCE, as well as mortgage backed bonds, MBB, by the too large to fail banks, RWW, and by GNMA, that is GSE debt by mortgage REITS, such as Annaly Capital Management, NLY; this underwrote prosperity for many. Tyler Durden believes there will be Zero Bonuses At Goldman.  Economic life in the current regime comes from the diktat of leaders and enforces debt servitude on all.

As for freedom, it is now an epitaph on the tombstone of Neoliberalism, as well as a mirage on the Neoauthoritarian desert of the real. Libertarians perceive themselves to be sovereign individuals, that is they perceive to be their own persons; that they cut their own path, and make their own destiny. One thing is for certain, Occupy Protests and Occupy Protestors will be arrested.

And as for free enterprise, one may want to consider moving to Chile, otherwise I relate, we ain’t in Free Land no more, as a whole new economic and investment regime and experience is at hand. Like in movie The Matrix, where just before the red pill takes effect upon Neo, Cypher warns him, “Buckle your seatbelt, Dorothy, ’cause Kansas is going bye-bye!”.  

Fate is operating. The 1974 Call of the Club of Rome is clarion, that is ringing, clear and distinctive, and carries an authoritarian imperative for regional economic government. The global tectonic political and economic plates have shifted and a global authoritarian tsunami is on the way.

This new age is marked by global trade wars as Mike Mish Shedlock reports Trade War Threat Looms Once Again. And Ambrose Evans Pritchard writes Protectionism Beckons As Leaders Push World Into Depression.

Credit, and seigniorage, that is moneyness, in Europe will come via a Fiscal Union, a European Bank, and a Common European Treasury, with an investment banker being a seignior, that is a top dog banker who take a cut, rising to power.  Robert Wenzel of EconomicPolicy Journal in article Goldmanite Being Pushed for Head of the Financial Stability Board writes Canada wants its central bank governor, Mark Carney, to head the Financial Stability Board. "I would hope that that would happen," Finance Minister Jim Flaherty told reporters when asked if Carney would replace Italy's Mario Draghi as chairman of the FSB, a body comprised of global financial regulators, reports Reuters. Carney spent thirteen years with Goldman Sachs in its London, Tokyo, New York and Toronto offices. His positions included co-head of sovereign risk. The FSB was established to coordinate at the international level the work of national financial authorities. It brings together national authorities responsible for financial stability in international financial centers, international financial institutions, sector specific international groupings of regulators and supervisors, and committees of central bank experts.  If Carney gets the FSB position, it would mean that Goldmanites control two of the most powerful global financial organizations. Carney at FSB and Mario Draghi as head of the European Central Bank.

14)  …Charts of the day,


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