Financial Market Report for November 3, 2011
1) … The Greek PM scraps referendum vote, putting the nail in the coffin to democracy, as well as to Neoliberalism, and the Milton Friedman Free To Choose floating currency regime.
Mike Mish Shedlock writes Eurozone's Waterloo; Papandreou Forced to Cancel Referendum; Democracy Dies to Protect Banks; Germany's Dilemma: The Eurocratic Nanny Zone Vote
The Eurozone is not fixable. Merkozy and the EMU ought to be spending time on developing a full blown Euro exit strategy for nations because there has never been a currency union in history that has survived without a fiscal union in place at the same time. Germany is last hope for sensible democratic referendum. EMU officials and political opportunists like Merkozy may have been able to ram through some sort of forced agreement in a majorly undemocratic fashion but fortunately the German supreme court has insisted on a referendum for major treaty changes.
Today, democracy died in Greece. The last hope for a sensible democratic action culminating in a relatively sanguine breakup of the Eurozone rests with Germany.
German voters will get their chance sooner or later. Here is the choice German voters will face: German citizens agree to join a full-blown Eurocratic Nanny Zone (NYSE:ENZ) giving up sovereignty on nearly everything that matters. Or, The Eurozone breaks apart. There are no other choices, only half way proposals to temporarily forestall the inevitable. Either way, there will be much pain for Germany.
Mr Shedlock presents an excellent article, and analysis. But I respectfully disagree with the perception that Germany voters will have an option to withdraw from the EU. While they may get a referendum vote; their vote will not count, even if upheld by the German Supreme Court, as fate is working to produce regional economic government as called for by the 300 elite of Club of Rome in 1974.
Greece was the cradle of democracy, but the socialist cabinet of the Greek PM told him to resign; thus putting democracy in the grave by cancelling the Euro Referendum. Reuters reports Greek PM ready to go, dump referendum, for euro deal. Greek Prime Minister George Papandreou bowed to cabinet rebels and agreed to step down and make way for a negotiated coalition government if his Socialists back him in a confidence vote on Friday. He was told that he must leave calmly in order to save his PASOK party, one source said on condition of anonymity. He agreed to step down. It was very civilised, with no acrimony.
Members of Greek Prime Minister George Papandreou’s Cabinet did him in. Neoliberalism was characterized by wildcat finance, a Doug Noland term. But Neoauthoritarianism, is characterized by wildcat governance, where leaders, bit, rip and tear at one another. Only the most fierce, leader will rule.
Mike Mish Shedlock writes Italy Threatened with Troika Surveillance; Merkozy Sends Inspectors to Italy to Verify the Italian Books; Berlusconi Under Intense Pressure to Resign. Flush with a Pyrrhic victory over Greece (but not recognized as such just yet), Merkozy is stepping up the pressure on Italy. Expect more pressure on Spain and Portugal as well. Please consider the LeFigaro report Europe puts Italy under surveillance. While outside the world has their eyes on Greece, Italy is to be found in the line of sight of the negotiators inside the palace in Cannes.
"The subject is no longer Greece: the real goal is to stabilize Italy," says one side of Brussels. European leaders were particularly incensed to see Silvio Berlusconi land at Cannes without any concrete steps to ensure the fiscal trajectory of his country, providing a return to balanced public accounts in 2013. At the summit of 27 October, the Italian Prime Minister promised to present to the G20 a new package of measures.
Greece, which weighs 2% of GDP in the euro area, is a manageable issue. However, an implosion of Italy and its 1.9 trillion of debt would be far more dramatic. To reassure the markets, it is imperative that each country meets its commitments attacked. To this end, several officials in Brussels would have gone to Rome to check the progress of previous reforms. And now, the Commission does more to go beyond, strengthening the role of the monitoring team. This would create a kind of troika, on the model of regularly examining Ireland, Portugal and Greece. With one difference: there is no question at this stage to lend money to Rome. Moreover, Berlusconi is under intense pressure from his own cabinet and he will likely be the next Prime minister to fall.
Thus the EU leaders have created a new Structural Reforms Troika to Italy. Diktat, not, treaty, is emerging as law in the Eurozone. In 1974, the Club of Rome in 1974 convened 300 of the world’s elite, and they proposed regional economic government as a solution to the disinvestment, derisking and deleveraging out of Neoliberalism, specifically the Milton Friedman Free To Choose Floating Currency Regime. Their call is clarion, that is clear, distinctive, and ringing. And it carries an authoritarian imperative. Angela Merkel and Nicolas Sarkozy called for a true European Economic Government in their August 2011 Joint Communique. Now, the EU leaders are trumpeting the Clarion Call of the 1974 for regional economic goverment by creating a new structural reforms troika, which is the forerunner of a fiscal union where regional leaders have fiscal sovereignty. As for Germany, the EU leaders will act to keep it in the Eurozone. USA Today reports Sarkozy said at a hastily called news conference shortly before midnight, on the eve of the Group of 20 summit, "We will not let the euro be destroyed, nor will we allow Europe to be destroyed or torn apart.” The EU leaders are effecting a political and economic coup, terminating national sovereignty in Europe; they are rising as sovereign leaders. Sovereign leaders are supplanting severing nations as sovereign authority.
Libertarians such as Austrian Economists perceive themselves to be sovereign individuals. They oppose government intervention. They long for free enterprise, where as Ludwig von Mises wrote, “the individual is in a position to choose the way in which he wants to integrate himself into the totality of society”. There are no sovereign individuals, there is only sovereign leaders who rule via diktat.
Yesterday, I wrote Is a diktat union forming in the EU? And the day before I wrote Will the EU be a union of choice? I present the major points from those articles in the following paragraphs.
In a world of collapsing sovereign authority, will Germany manifest as a sovereign nation state? Or will anarchy manifest, which will eventually enable sovereign individuals to fully become free to practice free enterprise. Or will EU leaders meet in summits and waive national sovereignty and appoint a sovereign leader and a banker to rule over a totalitarian collective? I perceive the latter is destiny.
As to the Greek Referendum, can democracy, provide the people of Greece, seigniorage, that is money? If the Greeks turn their back on the Troika’s seigniorage loans, will they be able to issue sovereign debt to support a New Lira? Of course not. The only money they have for fiscal spending is from continuing “loans” from the Troika. The nation of Greece, has no sovereign authority, and as a result has no debt sovereignty, and thus has to rely of decisions made in Brussels, Belgium, and Berlin for its fiscal spending? Greece was once the cradle of democracy, but now a eurocracy is rising to express its sovereignty, with it comes the seigniorage of diktat.
The global investment, economic and political tectonic plates have shifted, with the result that the Milton Friedman Free To Choose Floating Currency Regime, has perished, and is being replaced by the Beast Regime of Neoauthoritarianism. Choice and freedom are mirages on the Neoauthoritarian Desert of the Real.
The seigniorage, that is moneyness, of Neoliberalism came through freedom of investment choice. The seigniorage of Neoauthoritarianism, comes through diktat. Neoliberalism featured global expansion that came via leverage. But Neoauthoritarianism features global contraction that comes with disinvesting, derisking, and deindustrialization. Tyler Durden provides the Global PMI data and report from Markit Economics which relates "Conditions in the global manufacturing sector remain broadly stagnant in October. Levels of production & new orders fell slightly over the month, while new export orders declined at the quickest pace for almost two-and-a-half years."
I believe that fate is operating through the 1974 Clarion Call of the Club of Rome, which is clear, distinctive, and ringing for the regional economic government; it comes with an authoritarian imperative that cannot be resisted; it is coming to establish totalitarian collectivism, and statism, that is state corporatism. As for Greece, it may be a casualty of its referendum if held, and as a result it may become an outlier nation, existing much like North Korea, abandoned by all nations, to be left foundering on its own.
We are witnessing the beginning of the end of democracy in Europe, as Steven Erlanger of the NYT reports "They have to speak with one tongue, not 17, or so", says Kurt Hubner of European Studies at the University of British Columbia Vancouver. This will never happen, as Greeks cannot be Germans, One is industrious, and is of the industrious state. The other is club med, and is of the olive state.
Associated Press reports Papandreou as saying: "I felt that it was important that the Greek people make a decision on these important developments," Papandreou said. "It is their democratic right and the Greek people, I believe, are mature and wise to make the decision that is to the benefit of the Greek people and the country." G-Pap is very likely the EU’s last democratic leader.
Soon out of Sovereign Armageddon, a credit bust and global financial breakdown, One Leader, the Sovereign, and his banker, the Seignior, will arise to speak for and to the Eurozone, which will be transformed into a Federal Europe as leaders meet in summits and wiave national sovereignty, and implement a Fiscal Union, empower the ECB as a bank, which will also act to monetize debt, and develop a common European Treasury.
One leader will rise to power and will provide one way forward in a one euro government. The word, will and way of the Sovereign, and the Seignior, will replace sovereign nations and sovereign debt, to provide new sovereign authority. Diktat, austerity measures, and structural reforms will provide seigniorage, that is moneyness. The people having experiencing currency debasement, will be amazed by this, and place their faith and trust in it; they will give their full allegiance to it.
The Sovereign may be Herman Van Rompuy, and the Seignior might be Mario Draghi. Associated Press reports Draghi urges speedy reforms to spur growth, or Italy will be swept into debt crisis. And Bloomberg reports Draghi urges Italy to implement austerity to avert spiral. And The Telegraph reports Mario Draghi fears Italy risks a debt spiral without drastic steps to cut spending and restore confidence in public finances.
Structural reforms will be made to national labour law. The Constitutional right to not be terminated from a state job in Greece will be abrogated. Renee Maltezou of Reuters write Constitutional Crisis Looms: Greece to tackle difficult task of firing state workers.
Bank reorganization will be the order of the day: banks will be nationalized, that is integrated with the government and be known as the government bank or gov bank for short.
Under Neoliberalism, fiscal sovereignty came from sovereign nations issuing sovereign debt. But under Neoauthoritarianism, where nations have lost their sovereign debt authority, the Sovereign and the Seignior will have fiscal sovereignty. Credit will not come from the securitization of debt; but rather from the diktat of sovereigns and stakeholders appointed from industry and government. Lending will only go firms that are key to the region’s security and prosperity. Moneyness, that is seigniorage, will come via diktat.
I’ve consistently recommended that one buy and take personal possession of gold bullion as a means of wealth accumulation and preservation. Frank R. Suess writes in Mountain Vision Beware Of Big Brother Tantrums. What we are observing today is a flood of government bureaucracy and intervention that, while offered under a cloak of ‘economic rescue and consumer protection´, is but an increasingly aggressive drive for tax money and power by fundamentally socialistic and desperate politicians. They will not be stopped by any constitution or law. If need be, they will ignore or change the law to achieve their goals. As a free individual and as an investor, you must be aware of and considerate of this trend.
In summary, the 300 elite leaders of the Club of Rome in 1974, called for a Ten Toed Kingdom of regional economic government. Their call is clarion, that is ringing, clear and distinctive. It comes with authoritarian imperative. Angela Merkel and Nicolas Sarkozy have heard and headed its trumpeting, and in August 2011, called for a true European economic government. In October 2011, leaders van Rompuy, Merkel and Sarkozy, announced and enforced a fifty percent write down in Greek Debt, and the markets roared, completing a five week rally. And in November, the EU leaders have mandated a structural reforms troika be sent to Italy. Diktat and gold will soon be the only money good; these are rising as sovereign wealth. Diktat will rise to be the world’s most common currency. Diktat is rising to be the new currency. Diktat is the new money. The unveiling of the seigniorage of diktat is imminent. Diktat will be the glue that binds the Eurzone together. The EU will soon be known as the diktat union; and diktat will be the currency of the Eurozone, which will exist as a Totalitarian Collective. Democracy, freedom and choice, are experiences of the bygone era of Neoliberalism. Fate is coming like a terminator, which can't be bargained with and can't be reasoned with. Fate is coming to destroy national sovereignty, as well as all current forms of economic life, such as Greek Socialism and European Socialism. In the age of leverage, Europeans benefited from their common currency. But in the age of deleveraging, no one wants to bear responsibility for past excesses. So the new currency of diktat must arise and will arise, to address conflict. Diktat will establish a new political, economic, and social order. New money is coming from new sovereign authority, and it will be known universally as diktat. In the new order of diktat, credit will come via a European Bank or the ECB empowered as a bank. Tyler Durden relates liquidity evaporation. “The liquidity in the market now from a European point of view, contrary to what broken indicators may show, is the worst it has ever been with nearly $1.6 trillion in liquidity removed from broad circulation and parked with either just the Fed or the ECB. Translated: as goes democracy, so goes confidence”. In the age of deleveraging, confidence and trust will be reside in diktat.
Peter Schwarz of WSWS writes The way Papandreou was forced to retreat, and possibly to resign, has all the hallmarks of a political coup. It demonstrates that the austerity measures implemented by the European Union to save the euro and the banks are incompatible with democratic principles.
Papandreou himself has implemented the EU’s austerity measures with brute force against the massive resistance of the Greek people for two years. He decided on a referendum for tactical reasons. He wanted to compel the opposition and the unions to openly admit their support for the austerity measures, and he wanted to make the electorate support his austerity measures by threatening them with an impending state bankruptcy.
But in the corridors of the European banks and governments the sheer idea that the Greek people could have a say on the austerity measures was met with horror. The international press denounced Papandreou’s plan as “madness” and described him as a “lunatic”.
The main task of a government of national unity—no matter if it is led by Papandreou, another PASOK politician or a technocrat—is the exclusion of any political opposition. Inside parliament there will be no more opposition, and those who oppose the austerity measures outside parliament will be prosecuted, oppressed and criminalized as enemies of the “national interest”. Elections will only be held after the austerity measures are implemented.
The European Union has shown its real face as well. It does not embody the unity of Europe, but the dictatorship of the most powerful European financial interests. During the dispute over the failed European constitution, much ado was made over the question of whether European decisions should be decided by unanimous consent or by a simple majority. Now, nobody cares about such subtleties.
Merkel and Sarkozy unabashedly dictate the line. Important decisions are taken within two-party summits, while insubordinate heads of government are summoned and disciplined like school-boys.
Greece is the preparation for similar attacks on workers all over Europe and around the world. From the standpoint of the banks, the financial and debt crises can only be resolved by driving back the living standards of workers by decades. Presently, the ruling elites rely mainly on the support of Social Democratic parties like PASOK, trade unions and various pseudo-left organizations, who reject the overthrow of capitalism and oppress any form of international solidarity. Should they lose control, the ruling elites will not hesitate to use more violent methods of oppression.
The Automatic Earth writes Only Chaos Is Certain. I relate that out of chaos will come order, the order of regional economic government. Neoliberalism saw financial leaders waiving magic wands such as the repeal of the Glass Steagal Act, securitization of ponzi debt, credit liquidity, and Swiss franc Japanese yen carry trade lending. Under Neoauthoritarianism, here are no magic wands, only sovereign leaders swinging diktat clubs, mandating structural reforms, overseeing pension overhauls, an enforcing debt servitude: the debts of Neoliberalism, cannot be forgiven, they will be applied to every man woman and child on planet earth. The age of democracy featured freedom and choice; but the age of diktat features diktat and regional economic governance.
2) … Earlier in the day, media reports related the following news.
Open Europe reports Merkel: “Euro stability more important than Greece” Following a tense meeting yesterday with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Greek Prime Minister George Papandreou confirmed that the referendum he surprisingly announced on Monday would effectively decide on whether Greece would remain in the eurozone. The possibility of Greece leaving the euro was explicitly mentioned by Merkel and Sarkozy for the first time, with the German Chancellor saying, “The referendum…in essence is about nothing else but the question, does Greece want to stay in the eurozone, yes or no?” The leaders also made it clear that Greece would not receive its next tranche of emergency aid until the referendum had passed, leading to speculation about how long the Greek government can remain solvent in the absence of the planned €8bn cash injection from the EU.
Open Europe’s Raoul Ruparel appeared on the BBC’s Today programme and Sky News this morning, discussing the situation in Greece and the possible consequences of a ‘no’ vote in the referendum. Open Europe’s Pieter Cleppe was interviewed by Polish Radio on the G20 summit and the Greek referendum.
The Greek cabinet is holding an emergency meeting today as some ministers, including Finance Minister Evangelos Venizelos, distanced themselves from Papandreou’s decision to push ahead with referendum plans. Venizelos rejected the idea of a referendum on Greece’s membership of the euro, arguing that “Greece's place in the euro is a historical conquest by the Greek people that…cannot be made dependent on a referendum.” The target date for the referendum is 4 December, although it will only take place if the government survives a confidence vote, expected to be held late on Friday.
Greece’s decision to hold a referendum has continued to attract criticism, with French Europe Minister Jean
Leonetti saying that “Greece is…something we can do without.” Eurogroup Chairman Jean-Claude Juncker said that Papandreou’s behaviour had been “disloyal”, and also that “we would like to think that Greece will remain a member [of the eurozone], but not at any price…we are absolutely prepared for a Greek exit”, reports Die Welt.
Times Independent Telegraph Guardian Guardian 2 Guardian 3 Guardian 4 Mail ExpressBBC BBC 2 BBC 3 BBC: Robinson EUobserver EUobserver 2 EUobserver 3 EUobserver 4 FT FT 2 FT 3 FT 4 FT 5 FT 6 FT 7 FT Alphaville CityAM CityAM 2 CityAM 3 WSJ WSJ 2 EurActiv European Voice European Voice 2 Irish Times Irish Times 2 Irish Times 3 Irish Times 4 IHT Irish Independent Irish Independent 2 Irish Independent 3 Le Figaro Le Monde Le Monde 2 Le Monde blogs: Leparmentier DPA Handelsblatt Handelsblatt: Berschens FTD FTD 2 Der Spiegel Welt Welt 2 Welt: Held Bild Bild 2 Bild 3 Süddeutsche Süddeutsche: Winter Elsevier SvD FT Editorial FT: Kalyvas CityAM: Heath BBC: Hewitt BBC: Peston BBC: Flanders Coulisses de Bruxelles Le Figaro: Editorial Times: Cavendish Times: Manolopoulos Telegraph: Werner Handelsblatt: Berschens Spectator: Leader Spectator: Forsyth Polish Radio: Cleppe
Open Europe’s Director Mats Persson is quoted by Reuters warning against a ‘eurozone caucus’, and arguing that, should the eurozone achieve greater political integration, “The risk would be that eurozone ministers might meet in the weeks of some financial turmoil and decide to beef up, say, a ban on short-selling and agree a common position, and then they get the Romanians and the Bulgarians on board and effectively outvote the Swedes and the British [under the qualified majority voting system].” Reuters
FT writes that the referendum should be about whether to stay in the eurozone, not whether the Greek people would accept the bailout package and Bloomberg reports Greece to determine Euro membership in vote as EU cuts aid. European leaders cut off aid payments to Greece and said a referendum in five weeks will determine whether the debt-strapped nation becomes the first to exit the 17-country euro area. Crisis talks ended in the French resort of Cannes late yesterday with German Chancellor Angela Merkel and French President Nicolas Sarkozy withholding 8 billion euros ($11 billion) of assistance and warning Greece it will surrender all European aid if it votes against a bailout package agreed upon only last week. “The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?,” Merkel told reporters
Beyond Brussels relates While George Papandreou seems to have accepted that the referendum will be on the eurozone membership his finance minister Evangelos Venizelos is opposing this idea. ”Greece’s place in the euro is a historical conquest by the Greek people that cannot be placed in question … this cannot be made dependent on a referendum,” he said in a statement after returning from the meeting in Cannes. Professor of Economics in Athens, Yanis Varoufakis, has in his blog called for Papandreou to resign.
3) … Mario Draghi chills sovereign debt bond rescue hopes
Ambrose Evans Pritchard relates ECB's Teutonic Mario chills bond rescue hopes
Mr Draghi issued a categoric warning that the ECB would not act as final guarantor of the system, or step in to rescue feckless states. "It would be pointless to think that sovereign bond rates can stably be brought down for a protracted period by outside intervention. The first and foremost responsibility lies with national economic policies. Put your public finances in order. News that Greece had scrapped its referendum on the EU summit deal lifted Club Med bond markets late Thursday, but only after yields on 10-year Italian bonds first hit 6.39pc – their highest point since the ECB first began buying Italian debt in August.
Italian premier Silvio Berlusconi – already facing four sets of criminal charges – appears to have exhausted the country's patience after failing to meet EU demands for an austerity decree before the G20 meeting in Cannes. His majority in parliament was crumbling on Thursday night after rebel deputies urged him to leave, and rumours circulated that a salvation government would soon be appointed.
Just as worrying, the spread between French bonds and German Bunds reached a post EMU-high of 130 basis points earlier in the day. France has been hit by a trifecta of worries: French banks' €400bn exposure to Italy; a recession that will almost certainly cost the country its AAA rating, and perhaps two notches according to Standard & Poor's; and plans to leverage the EU's bail-out fund EFSF to €1 trillion by using it as a "first loss" insurer. "What people are worried about is the contingent liability for France of bailing out the eurozone," said Jacques Cailloux from RBS.
Mr Draghi was at pains to stress the bank's intervention to buy southern European bonds could be justified only if it was "temporary", "limited in amount", and undertaken with the strict purpose of "restoring monetary transmission" rather than propping up states. The language is code for what amounts to a German veto on further bond purchases. Two German ECB members have already resigned in protest over the policy, and German president Christian Wulff has accused the bank of going "far beyond its mandate", subverting the Lisbon Treaty.
4) … It has been a year since China has begun its credit tightening
Bloomberg reports China steels itself over policy tightening. After a year of credit tightening and efforts to cool the property sector, Beijing’s restrictive policies are starting to have a visible impact on the real economy. Nowhere is this clearer than in raw materials like steel, cement and copper, which are linked to construction and the cooling property market. China’s steel production dropped in mid-October to its lowest daily level since January, and global prices for iron ore, a key steelmaking ingredient have dropped more than 30 percent in the last month due to weak Chinese demand. “We feel like winter is already here,” said Zhang Changfu, vice-chairman of the China Iron and Steel Association, a government-linked industry body. “There has been a big shift in the market. Order books are drying up.” Mr Zhang points to plummeting new orders for shipbuilding yards, down 43 percent in the first nine months of this year from the same period last year, as evidence of the deteriorating climate. Yahoo Finance chart of SEA, HAO, CHIX, CHIM, CHII suggests that the Chinese stocks are prime for short selling, especially China Materials, CHIM.