Will The ECB Emerge As The Lender Of Only Resort?

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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.
Report on the Euro for the week ending 11-11-2011

1) … The Euro, FXE, and European Shares, VGK, traded unchanged for the week as Greece installs L-Pap as Prime Minister and  Italy’s senate passes the package of austerity measures.  
Rachel Donado of  NYT reports EU Insiders To Rule Both Greece And Italy.  Under the white-hot pressure of the bond markets and the glare of European leaders, both Greece and Italy snapped into action on Thursday, looking to technocratic leaders to pull them back from the brink of chaos.  Greece named Lucas Papademos, a former vice president of the European Central Bank, interim prime minister of a unity government charged with preventing the country from default. And The Telegraph reports that Momentum is building behind Mario Monti, a former European commissioner, to replace the once invincible Prime Minister Silvio Berlusconi..       

The question now, in both Italy and Greece, is whether the technocrats can succeed where elected leaders failed, whether pressure from the European Union backed by the whip of the financial markets will be enough to dislodge the entrenched cultures of political patronage that experts largely blame for the slow growth and financial crises that plague both countries.       

Greece is a far different, and far more challenging, situation. Greeks have greater antagonism toward the European Union, and, to date, greater antagonism to structural changes. Although the urgency of the debt crisis may yet change the picture, past efforts at unity governments have been unsuccessful in a volatile society still scarred by a civil war between right and left in the late 1940s and a military dictatorship from 1967 to 1974.

Some see the incoming prime minister, Mr. Papademos, as too beholden to the foreign lenders who helped bring Greece to its knees. Others say that as a technocrat, he will be less corrupt than the political class and may actually effect change.

The fear among members of the Greek political class is that if Mr. Papademos fails, they will take the blame, and if he succeeds — by laying off tens of thousands of public workers, cutting pensions and privatizing state properties — they will lose their power.

There is also skepticism about the extent of Mr. Papademos’s powers in the face of the country’s ills. “If unemployment is 20 percent at the end of the year, no politician, no political system, no technocrat can sustain such a mess, such a social burden,” said Stelios Kouloglou, the director of an independent news Web site, tvsx.gr, in Athens. “That’s the problem.”

Bloomberg reports Italy Senate Passes Budget Measures. Italy’s Senate approved debt reduction measures in an attempt to shore up investor confidence and pave the way for a new government that may be led by former European Union Competition Commissioner Mario Monti. The Senate in Rome voted today 156 to 12 to pass the package of measures promised to the European Union in a bid to boost growth and cut Italy’s debt of 1.9 trillion euros ($2.6 trillion), the world’s fourth biggest. Opposition lawmakers did not take part in the vote, allowing the bill to pass. The yield on Italy’s 10-year bond declined for a second day, shedding 43 basis points to 6.45 percent and narrowing the difference with German bunds to 456 basis points.

Philip Pullella and Michael Winfrey of Reuters report Italy To Vote On Cuts  Mario Monti, a highly respected international figure, has been pushed for weeks as the most suitable figure to lead a national unity government to push through painful austerity measures. Obama spoke with German Chancellor Angela Merkel and French President Nicolas Sarkozy late on Thursday and also called Italian President Giorgio Napolitano. A German government official said there was an "exchange of opinions," while Treasury Secretary Timothy Geithner demanded fast action from Europe. "The crisis in Europe remains the central challenge to global growth. It is crucial that Europe move quickly to put in place a strong plan to restore financial stability," Geithner said in a statement following a meeting with finance ministers from the Asia Pacific Economic Cooperation countries. The Italian upper house is due to vote on a package of cuts later in the day. The law should pass easily, as it should in the lower house on Saturday.

Voting for the first time in the Senate will be Mario Monti, the former European Commissioner who has emerged as favorite to replace Silvio Berlusconi as prime minister. Fellow technocrat and former European Central Bank policymaker Lucas Papademos will head a new unity government in Greece. If the votes pass smoothly, Napolitano may accept his resignation as early as Saturday night and formally mandate Monti to try to form a new government soon afterwards. Berlusconi had insisted early elections were the only option. But he has since softened his stance. Markets were calmed by the prospect of an interim government, rather than a three-month vacuum before elections are held.  Monti, a highly respected international figure, has been pushed for weeks as the most suitable figure to lead a national unity government to push through painful austerity measures.

With European leaders dithering over how to tackle the deepening crisis, pressure has mounted on the European Central Bank to act more forcefully, becoming a full lender of last resort as the Federal Reserve and Bank of England are. Three senior ECB policymakers on Thursday rebuffed arm-twisting from investors and world leaders to intervene massively on bond markets to shield Italy and Spain from financial contagion

Business Insider reports A Worrying Look At GE's Exposure To Italy. And Mike Mish Shedlock writes Greece Turns to Iran for Oil as Credit Shut Down Elsewhere; EU Considers Oil Sanctions on Iran  Greek suppliers concerned about the potential default of Greece have shut off financing for oil. In turn this has caused Greece to turn to Iran. However, the EU is now threatening to impose more sanctions on Iran over nuclear issues. If the EU acts that stupidly, the Greek economy will shut down.

Jim Silver of Bloomberg writes ECB As Last Resort Lender Will End Crisis, Portugal President Silva Says The European Central Bank can stop the spread of the Eurozone crisis with “foreseeable, unlimited” purchases of Italian and other government bonds,says Portuguese President Anibal Cavaco Silva. This, of course, means huge money printing by the European Central Bank.

“The European Central Bank has to go beyond a narrow interpretation of its mission and should be prepared for foreseeable intervention in the secondary market, not as the central bank has done up to now,” Cavaco Silva said yesterday in an interview at Bloomberg headquarters.  “It has to be able to be a lender of last resort,” said Cavaco Silva, who as Portugal’s prime minister presided over the 1992 signing of the Maastricht Treaty, which cleared the way for the euro common currency. “It has to be a foreseeable, unlimited intervention.”

2) … Might fiscal spending  come out of a diktat union? …  And might the ECB emerge as the lender of only resort?

The Milton Friedman Free To Choose floating currency regime provided Inflationism. But its economic, political and investment tectonic plates have shifted and Destructionism is now underway
. Bespoke Investment Blog reports  the average stock in the S&P index is down 23.3% from its 52-week high. The ongoing Google Finance chart of ACWI, VSS, EWX, and SPY suggests that greater disinvestment has come out of world stocks, world small cap stocks and emerging market small cap leading stocks.   

Milton Friedman established the prior economic paradigm, where one was free to choose. The regime was Neoliberalism, and was underwritten national sovereignty and provided the “seigniorage of freedom”, consisting of floating currencies, ponzi financing of all types, such as the China shadow lending on collateralized commodities scheme, carry trade lending by the Bank of Japan and banks in Austria, and Federal Reserve credit liquidity, ZIRP, and quantitative easing I, and II. Fiscal spending and economic growth came through the securitization of GSE and treasury debt by sovereign governments.

We are witnessing the destruction of one the engines of Neoliberalism, that is investment banking, with the Christine Harper Bloomberg report Goldman Sachs Group Inc, which relied on trading for 62% of revenue so far this year, recorded losses from that business on 21 days in the third quarter, the most since the fourth quarter of 2008.

Bespoke Investment Blog relates that investors are focusing attention on the spreads between sovereign debt yields of Italy, and now France as well as the fall in value in the France and Milan Stock exchanges.  

Doug Noland writes With $2.6 TN of outstanding sovereign debt (and a large financial sector), the market appreciates that Italy is too big to bail. A great amount of energy has been expended attempting to fashion creative mechanisms to “ring-fence” the Italian debt market. It’s now too late for what was always high-stakes poker. All the same, talk continues of leveraging the EFSF, of IMF Credit lines, of more aggressive support from the ECB and other measures to bolster confidence in Italian Credit. But the reality is that China and other non-Europeans have, understandably, no interest in assuming Italian Credit risk; the IMF has limited resources; and that France’s increasingly vulnerable Credit standing leaves little room for a transfer of resources to Italy.

John Glover and Elisa Martinuzzi of BusinessWeek write Invisible Bank Run Becomes Conversation With 7% Italy Yield. Italy’s highest bond yields since the birth of the euro are reverberating through the financial system of Europe’s biggest debt issuer, driving lenders to seek record amounts of central bank financing. Italian banks borrowed 111.3 billion euros ($152bn) from the European Central Bank at the end of October, up from 104.7 billion euros in September and 41.3 billion euros in June.

And Mike Mish Shedlock writes Slovenian Bond Yield Breaks 7%, First Time Since Euro Entry in 2007; Might Slovenia Exit the Eurozone First?

There are now three insolvent nation states in the EU. Sovereign insolvency is the issue of the day. The nations which have lost their debt sovereignty are Greece as it is receiving seigniorage aid, Italy as its interest rate rose popped above 7%, and Slovenia as its interest rate is now trading above 7%.  Some suggest that the only real solution is bankruptcy for the governments that can't pay their debt.

Credit evaporation, that is credit destruction is occurring at an alarming rate. Aaron Kirchfeld and Fabio Benedetti-Valentini of Bloomberg report BNP Paribas SA and Commerzbank AG are unloading sovereign bonds at a loss, leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis. BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22% to 13 billion euros this year. Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses.

Andrew Reierson of Bloomberg reports The cost for European banks to fund in dollars kept within one basis point of a three-year high, according to money-market indicators.

Henny Sender and Robert Cookson of Financial Times report Stuart Gulliver, chief executive of HSBC, warned that Asia is facing the threat of a potential slowdown in the flow of credit to the region, especially from beleaguered European banks. Many Asian nations depend on foreign banks for a large chunk of their funding, raising the prospect of a credit crunch as cash-starved foreign banks either retrench or raise the price of their loans. Continental European banks were responsible for 21% of the $2,520bn of international bank loans outstanding in Asia excluding Japan as of the second quarter of 2011. ‘The strong increases in credit availability in Asia that has supported demand growth cannot continue indefinitely,’ said Mr Gulliver.”

Esteban Duarte of Bloomberg reports The European Central Bank has started buying covered bonds under its new 40 billion-euro ($54bn) program to support the bank funding market, according to two people familiar with the matter. ECB purchases of the securities typically backed by mortgages and public-sector loans started yesterday.

Bloomberg reports on ponzi credit in China. Hours after a creditor and his gang of tattooed thugs hustled Zhong Maojin into a coffee shop in Wenzhou, he says he wouldn’t yield to their demands. They wanted to take over one of the pharmacies in a chain he’d built by borrowing from private lenders. Instead, he made an offer of traditional retribution in this eastern Chinese city, known for loan sharks who have sometimes meted out violence to bad debtors. ‘If you like, you can cut off one of my fingers instead,’ Zhong, 42, says. Giving up the store would have made it impossible to pay back another 130 creditors, Zhong said. He’d borrowed 30 million yuan ($4.7 million) at interest rates as high as 7% a month to expand the business. Many of the lenders were elderly neighbors who’d mortgaged their homes.

Bloomberg reports “China’s Wenzhou city plans to open 120 lending companies in the next three years to ease financial difficulties facing small firms, Xinhua News Agency reported, Wenzhou, a city in eastern China’s Zhejiang province that’s a hub for small exporters, will develop its financial industry and channel private funds, Xinhua reported. The local government will also increase the number of rural financial institutions to 30 and introduce strategic investors to the Bank of Wenzhou to boost its capital. The measures are being taken after a credit crisis broke out in August, hurting small businesses and private lending, Xinhua said.”

Angela Merkel and Nicholas Sarkozy are sovereigns. In August 2011, they called for “true European economic government”. They are effecting a European coup by exercising their sovereign authority in a EU ECB and IMF Troika by sending an fiscal inspections team to Italy.

Might it be that Angela Merkel is working through the 1974 Clarion Call of the Club of Rome to establish a new economic paradigm, where sovereign leaders and bodies rule via diktat? The new regime that is emerging is Neoauthoritarianism, and is underwritten sovereign leaders providing the “seigniorage of diktat”, that is the moneyness of diktat.

Neoauthoritarianism is literally rising from the governments located in the Mediterranean Sea
. The beast system will have seven heads, that is it will occupy in all of mankind’s seven institutions. And it will have ten horns, that is, it will govern in all ten world region. Fate is working to establish a ten toed kingdom of regional economic government, as called for by the Club of Rome to provide economic and political order, to deal with the Destructionism that is coming out of the Neoliberalism’s Inflationism.

The authoritarian imperative of the Club of Rome’s clarion call is compelling and working to establish a diktat union out of Neoliberalism’s currency union. Although some nations may be ejected form or leave the EU, Germany will rise to leadership within the EU, and mold the union to be a type of revived Roman empire, where a New Charlemagne, will rise to political power. Europe’s political leader, the Sovereign, will be accompanied to power by an economic leader, the Seignior, literally meaning top dog banker who takes a cut.  Perhaps Herman van Rompuy, may be the Sovereign, and Olli Rehn or Mario Draghi, may be the Seignior. The word, will and way of these two will provide moneyness, that is seigniorage for all, and the people will be amazed, and give their trust to it, yes give it their allegiance.  

ABC News reports Italy Moves Toward Economic and Political Change. Von Rompuy held previously scheduled talks with Berlusconi on Friday night, though no statement was released afterward. He also called on President Giorgio Napolitano, a sign of the EU's keen interest in the next steps of Italy's transition. The hope is that politically neutral governments will have the strength to push through deeply unpopular and painful economic reforms needed to reduce the two countries' massive debt. It’s very much the End of an era: Italy's Berlusconi resigns. A Future of legal and business woes awaits the former Italian Premier

Landon Thomas in NYT Italy Bond Market as Euro Proxy relates James Savage, a fellow at the United States Institute of Peace and author of a book about the creation of the euro zone, says, "When Italian interest rates go above 7 percent, that turns a liquidity crisis into a solvency crisis," he said. In other words, if rates continue to increase, Italy might have to exit the debt markets as Greece and Ireland did, and resort to a bailout. "Europe either stands united and survives," he said, "or stays divided and falls."

An inquiring mind asks, might fiscal spending will come out of a diktat union where soveign leaders provide dole to residents living in regional alliance?  And might the ECB emerge as the lender of only resort? Will European financial institutions be nationalized, as well as the leading banks seen in this Finviz screener, be nationalized, and known as the government bank, or gov bank for short?

Peter Spiegel in FT questions What happens next? The scenarios for Italy  Some worry that even the bottomless pockets of the ECB may not be enough to stop the panic if it were to grip the €1,900bn Italian bond market by the throat. "The situation has deteriorated so dramatically a large-scale asset buying by the ECB would not necessarily be a panacea," RBS analyst Alberto Gallo said in a conference call with investors on Wednesday. "I do not think the ECB on its own could bring back the market to the point before Italy succumbed."

Peter Bofinger, Lars P Feld, Wolfgang Franz, Christoph M Schmidt, and Beatrice Weder di Mauro writing in VOX, relate that in In the annual report released on  November 9, 2011, the German Council of Economic Experts, put up for discussion the idea that European leaders consider one such potential mechanism, a European Redemption Pact. A mechanism is needed that allows for combining these two principles. It should be able to calm markets by demonstrating convincingly that solidarity will prevail. This can only be reached by strong countries lending their reputation, ie their low risk premia in the bonds market, to member countries facing a liquidity crisis. At the same time a credible commitment is required to ascertain accountability, with all member countries adhering to the European Stability and Growth Pact at least in the long run. It would then be possible to discuss suitable avenues to design the future governance structure of the Eurozone in calmer weather, without the gun-to-the-head urgency of the current situation.

I believe the European Sovereign Debt Crisis is coming to a climax. Out of Sovereign Armageddon, a world wide credit and banking bust, that a new economic, political and social order will emerge. At the current time, technocratic government, leadership of finance ministers and bankers, is being installed in the periphery, at the behest of the EU ECB and IMF Troika. This Euracracy will put an end to the patronage and pork of Greek Socialism, where by constitutional law, one can be terminated from a state job. The largess of the PIGS will no longer be tolerated. The accumulated debt of the Eurozone will be will be applied to every man woman and child therein: austerity measures, structural reforms, pension overhauls, and debt servitude will be de rigueur. Greeks cannot be Germans, the former are of the olive state, and the latter are of the industrious state. One is club med, and the other industrious; yet both will be one, living in a New Europe, featuring a Federal Government, a Fiscal Union, a Common Treasury, and the ECB empowered as a bank.

3) … The US Dollar traded unchanged for the week.
The US Dollar, $USD, traded unchanged this week to close at 76.94. The Japanese yen, FXY, increased 1.4%, upsetting carry trades globally as is seen in DBV:FXY, CEW:FXY, CCX:FXY and FXF:FXY.
Currency loss leaders for the week were the Swiss franc, FXF, 1.7%, the South Korean won, 1.4%, the  the New Zealand dollar, BNZ, 1.1%, the Australian dollar, FXA, 1.0%.

4) … The baton of sovereignty has passed from national leaders meeting in national capitals to leaders meeting in summits.
Leaders now announce regional framework agreements, which waive national sovereignty, and establish working groups and edicts. These establishes regional economic government. Freedom and choice are mirages on the Neoauthoritarian desert of the real. Silvio Berlusconi’s People of Liberty party, also known as People of Freedom party, is an anachronism in the age of diktat. A totalitarian collective is forming in the Euro zone: totalitarian collectivism is the EU’s future. Ron Paul’s agenda for freedom and the Austrian economic philosophy of free enterprise, are dead on arrival in the age of diktat.

The citizens of Greece were not given an opportunity to vote and the citizens of German will not be given a choice to leave the EU and print a new New Deutsche Mark. Greeks are not Germans, yet under all may very well be one living in a Federal Union and Fiscal Union.  EurActiv in article Eurozone Breakup No Longer Taboo, relates that Angela Merkel, speaking at the “Falling Walls” argued that it was time for “a breakthrough to a New Europe”, in which member states would integrate further.

EurActiv quotes Merkel saying, “A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply can’t survive.” and quotes her saying, “Because the world is changing so much, we must be prepared to answer the challenges. That will mean more Europe, not less Europe.” I believe there will be no Austrian economic theory fix of Europe’s sovereign crisis. A new economic, political, and social order is emerging, it is a totalitarian collective. Totalitarian collectivism is the EU’s future.

As for Libertarians, such as Lew Rockwell of the Mises Institute, and Nigel Farage, Leader of the UK Independence Party, UKIP, whose central aim is the UK's withdrawal from the European Union and to regain control of this nation's governance through our own Parliament at Westminster. Nigel was a Conservative activist from his schooldays until the overthrow of Margaret Thatcher; John Major's signing of the Maastricht Treaty brought his membership to an end. He co chairs the Eurosceptic Europe of Freedom and Democracy group. and was ranked 41st in The Daily Telegraph's Top 100 most influential right-wingers poll in October 2009. Mr. Farage, as seen in this YouTube video, spoke to European Parliament saying, I Want You All Fired.  After the speech of Herman Van Rompuy on February, 24, 2010, in the European parliament, Farage, to protests from other MEPs, taunted the first long-term President of the European Council by saying he has the "charisma of a damp rag and the appearance of low grade bank clerk", and asserted that Van Rompuy's "intention is to be the quiet assassin of European democracy and of European nation states.”  Libertarians are are likely to feel increasingly estranged as world events unfold.

A EU ECB IMF Troika is rising to power at the Euro Core. The Telegraph asks Eurozone Crisis: Who is Pulling the Strings in Europe? As the escalating eurozone crisis has toppled governments in Italy and Greece, decision-making is increasingly being driven by France, Germany and a powerful group of Brussels officials. And Dean Baker in The Guardian relates EU ECB IMF Troika Crushes Greece. Greek Prime Minister George Papandreou touched off a firestorm last week when he proposed putting the austerity package designed by the “troika” (the I.M.F, the European Central Bank and the European Union) up for a popular vote. The idea that the Greek people might directly be able to decide their future terrified leaders across Europe and around the world. Financial markets panicked, sending stocks plummeting and bond yields soaring.

However, by the end of the week things were back under control. The leaders of France and Germany apparently laid down the law to Papandreou and he backed off plans for the referendum. While the government is in the process of collapsing in Greece, the world can now rest assured that the Greek people will not have an opportunity to vote on their future. This is unfortunate since it means that Greece’s future will likely be decided by politicians who may not have the interests of the Greek people foremost in their minds. By their own projections, the austerity package designed by the troika promises a decade of austerity, with high unemployment, falling real wages and sharp reductions in public services and pensions. And, their projections have consistently proven to be overly optimistic. The chance to bring the Greek people into the discussion was quickly nixed. We are back to a conversation among the bankers and the politicians. There is not much room for democracy in this story

Stefan Steinberg of WSWS reports Favorite Of European Banks Appointed To Head Greek Government Lucas Papademos is regarded as a safe pair of hands by his banking colleague, a man who takes his orders directly from the major financial institutions of Europe.

Thomas Klau of the European Council on Foreign Relations is an evangel of European integration. ABC News reports Monti has won kudos from across Italy's political spectrum and abroad because he has defied being affiliated with the right or the left, said Thomas Klau of the European Council of Foreign Relations. "The first thing he can bring to Italy at this juncture is his deep understanding of both the economic dynamics and political dynamics in Europe," he said. "His intellectual leadership and authority are recognized across Europe", a contrast to Berlusconi, he said.  And Stephen Kinsella relates that in The Irish Times, Thomas Kla argues that Ireland and other nations must accept a further transfer of sovereignty to Europe to save the Eurozone.

End Of The American Dream questions, Out Of The Ashes Of The Collapse Of The Eurozone Will A "United States Of Europe" Arise?   I relate, destiny seems to say most assuredly so.

5) … Doug Noland relates that time is running short
Doug Noland writes The Friday Perspective and the Wednesday Perspective.  Increasingly, the backdrop is reminiscent of previous financial collapses, with the not too distant fiascos in South East Asia, Russia and Argentina coming to mind.

In all cases, policymakers for months fought resolutely to thwart the forces of Credit Bubble collapse. And, in the end, policy measures contributed greatly to the severity of the eventual financial crashes. Without exception, central banks used valuable reserve resources (and credibility) to finance capital flight, while supporting their currencies and general marketplace liquidity. Later, the atrophied status of central bank balance sheets proved critical to the implosion of financial and economic systems. And, importantly, policymakers’ headstrong battle to delay the day of reckoning ensured only greater financial and economic imbalances and contagion risk. Market intervention fomented destabilizing speculation, which tended to incite volatility while subverting the marketplaces’ capacity to effectively discount deteriorating financial and economic conditions. In the end, policies ensured catastrophic “non-linear” breakdowns.

It’s my view that derivative markets have played an instrumental if less than fully appreciated role in the series of crises over the past two decades. I would further posit that policymaker determination to thwart market forces works to increase, likely dramatically, the scope of derivative positions; position both to hedge against market and systemic risk as well as to seek profits from faltering markets. And when policymakers inevitably lose their battle against Credit and market breakdown, the marketplace is left with an unsupportable financial structure: in particular, massive derivative positions that were supposedly to protect investors (and potentially reward speculators) from myriad Credit, currency, equities and market risks. A large portion of outstanding derivative exposures required trend-following (“dynamic hedging”) selling into collapsing markets by financial institution counterparties themselves jeopardized by rapidly escalating financial and economic crisis. It is in the end an untenable situation, although it appears to work until it doesn’t work at all.

Continuing with uncomfortable parallels, there is today’s highly speculative marketplace for now content to bet on the necessity of unrelenting aggressive policy measures. At the same time, I’ll assume that already astronomical outstanding derivative exposures grow only more briskly, as market participants seek protection against escalating Credit and currency risk throughout the region (and beyond). Moreover, much of this derivative protection has been written (sold) by financial institutions and market operators that won’t fare all so well in the event of a market breakdown.

And it’s worth noting that, at $93bn, October Chinese bank lending was stronger-than-expected, supporting the view that easing measures have already commenced. Bank loans growth is on pace for another Trillion-plus year. In Brazil, the government is said to be contemplating removing Credit controls, while the market positions for imminent rate cuts. One is left to ponder to what extent Brazil’s Credit growth will accelerate from the recent 2.1% monthly – and 19.6% y-o-y – rate of expansion. With the “developed” world ready to respond to heightened global financial stress with another round of quantitative easing and the “developing” poised to further accommodate overheated Credit systems, today’s almost $100 crude and near $1,800 gold are reminders of percolating inflationary pressures (which, thus far, have little impact on bond yields while working to keep the speculative juices flowing generally). Of late, it seems as if “Risk On vs. Risk Off” has morphed into “Italy Risks Breakdown of Euro as Catalyst for Global Crisis vs. Synchronized Global Policy Response to Grave Systemic Fragility Ensures Ongoing Liquidity and Speculative Excess.” Way too much “money” chasing too few real investment opportunities, one could aptly argue.

Perhaps we’re still some distance from a major financial crisis. From the Friday Perspective, my analysis seems more than Chicken Littlish. Thank God it’s Friday! And in reading numerous accounts from the long litany of past financial fiascos, I am invariably struck by market participants’ voracity for continuing to play despite what should have been rather obvious indications that time was running short.

6) … News reports communicate that Destructionism is replacing Inflationism
Simone Meier of Bloomberg reports The European Commission cut its euro-region growth forecast for next year by more than half and said it sees the risk of a recession as leaders struggle to contain the fiscal crisis. Gross domestic product may grow 1.5% this year and 0.5% in 2012

Jeff Black of Bloomberg reports German industrial production fell three times more than economists forecast in September as Europe’s debt crisis damped confidence and growth. Output dropped 2.7% from August, when it fell 0.4%”

Dow Jones reports Portugal's statistics agency said Friday inflation in the euro zone's poorest country soared in October as local energy prices continued their recent climb. Portugal's consumer price index rose to 4.2% in October from 3.6% in September. And Agence France-Presse reports Portugese Parliament Approves Portugal Austerity Budget

Kate Gibson of MarketWatch reports Molycorp, MCP, shares fell 14% after the producer of rare-earth minerals late Thursday reported a third-quarter profit below Wall Street’s estimates.

7) … Utilities rose on Friday, November 11, 2011, holding their safe haven rally strength.
Utilities, XLU, rose 1.4% with many of these stocks rising seen in this Finviz Screener rising to their rally high ...  DTE, WEC, D, SO, DUK, GXP, XEL, CEG, PGN, AEP

8) … Which is better short selling or investing in gold?  Are money market funds safe?
In as much as it is practically the end of the earning season, which is more sensible, short selling or investing in gold? One could go short any number of things such as these 200% and 300% ETFs, URTY, EET, UYM, XPP, TNA, MATL, EDC,YINN, seen in this Finviz Screener, or thes small tool manufacturers, LECO, SNA, SSD, SWK, seen in this Finviz Screener. But I believe the better investment is gold bullion.   

Be aware, the FT reports SEC signals money market shake-up. Regulators fear that money funds remain prone to the equivalent of a bank run, as investors can pull their money out at the first sign that a fund might “break the buck “ and return less than its stable $1 per share price.

9) … Ben Bernanke seeks to set the record straight.
Ilene relates in Zero Hedge that US Federal Reserve Chairman Ben Bernanke is taking his show on the road to state that Any Criticism Of The Federal Reserve Is Based On Misconceptions

10) … A Global Eurasia War is coming
Global Research reports Presidential Candidate Romney: "Prepare For War Against Iran"   And Global Research reports Iran Seeks To Become A Full Member Of The Shanghai Cooperation Organization, SCO, Iranian Supreme National Security Council's Secretary Assistant Ali Bageri said, Interfax reported. "We have already submitted a relevant application," Bageri said at a news conference in Moscow. Currently, Iran, India, Mongolia and Pakistan have an observer status in the six-nation SCO. Representatives of Afghanistan and Turkmenistan participate in the organization's meetings as guests. Belarus and Sri Lanka have a dialog partner status at the SCO. Afghanistan also applied for an observer status in 2011. The SCO is a regional international organization established in 2001 by the leaders of China, Russia, Kazakhstan, Tajikistan, Kyrgyzstan and Uzbekistan.

11) … The 1974 Clarion Call Of The Club of Rome is for regional economic government. Eventually there will be a North American Union, perhaps it will be called CanMexAmerica.
Dana Gabriel writes on globalization, trade, sovereignty and security relates North American Integration and the Ties That Bind.

After a two year hiatus, the leaders of the U.S., Canada and Mexico are set to meet for a trilateral summit. While the push for further North American integration continues incrementally, at this time, it is unlikely that discussions will yield any grand new initiatives that involve the participation of all three NAFTA partners. Instead, the meeting could be used to build off of bilateral discussions already underway. This includes negotiations between the U.S. and Canada on a North American Security perimeter deal designed to accelerate the flow of people and goods across the border.

In an article from several months back, Robert Pastor, who has been a leading proponent of continental integration, emphasized that Obama’s jobs strategy should be a North American one. He explained how the U.S. can expand trade faster by focusing on its neighbours and also pointed out that few Americans realize just how dependent the U.S. is on Canada and Mexico. In order to facilitate this approach, Pastor recommended, “We should eliminate restrictive ‘rules of origin,’ which add a tax as high as the tariff that was eliminated by NAFTA, and combine, rather than duplicate, customs’ forms, personnel and frequent-traveler programs.” He also called on President Obama to, “expand his infrastructure fund to be a North American one, with contributions from all three countries.” Pastor went on to say, “The leaders of each nation should then instruct their transportation ministers to develop a North American plan for transportation and infrastructure that would include another trade corridor from the busiest transit point in Windsor, Ontario, to southern Mexico.” This sounds a lot like plans for a NAFTA superhighway.
In his op-ed, Robert Pastor also stated, “In 2009, the three leaders of North America pledged to meet the next year, but that still hasn’t happened. Obama should invite his counterparts to address the full North American agenda, beginning with a strategy to lift the continent’s economy and then addressing transportation, immigration, education and borders.

The goal should be to forge a North American community.” Pastor may have gotten part of his wish as President Barack Obama will host the North American Leaders Summit in Honolulu, Hawaii on November 13, 2011 which will include the participation of Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon. The meeting is expected to focus on economic, energy, environmental and security issues. The setting could also provide an excellent opportunity for the U.S. and Canada to release an action plan that stems from bilateral trade and security perimeter talks that were launched back in February. Both countries could also further discuss the pending Keystone XL oil pipeline which would span from western Canada to Texas. President Obama has now indicated that a final decision on the project may not take place until sometime next year.

In their article, Sad but true: Canada and Mexico have no clout in Washington, Stephen Clarkson and Matto Mildenberger argued that both countries are more valuable to the U.S. economy than most people realize. They pointed out that, “although Canada and Mexico make extraordinarily large contributions to America’s economic strength, homeland security and international effectiveness, they have virtually no influence in Washington’s corridors of power.” One of the reasons given deals with the way, “the U.S. has shaped the governance structures within which continental policy processes play out ‒ including disempowering any institutions that could give the continental periphery a voice in affecting American policies.” When it comes to Canada’s lack of influence, they contend that it centers around its willingness to, “make almost any concession in order to get access to the U.S. market. Their resulting limp bargaining culture causes Ottawa’s negotiators to back off from confrontations, then claim the resulting compromises as victories.” There are fears that the same could happen with negotiations on a perimeter security agreement with the U.S., resulting in Canada giving up more than it gains.

When it comes to foreign policy matters, Clarkson and Mildenberger also noted that even though at times Canada and Mexico have proven to be an essential support for achieving U.S. aims, it still doesn’t translate into political influence. They added, “When it comes to security, Canada’s and Mexico’s land masses are a potential menace, since they could be used by terrorist organizations to infiltrate the United States. But this proximity also turns the Canadian and Mexican governments into Washington’s prime associates in its war on terrorism, as they are in its war on drugs.” In many ways, both of these wars have morphed together and are being used as the pretext for a North American security perimeter. Growing drug violence and insecurity have allowed the U.S. to assume more control over Mexican security priorities and intelligence operations. The Merida Initiative which promotes a perimeter security strategy continues to deepen U.S.-Mexico relations. At some point, Mexico could join the U.S. and Canada as part of a formal, common security perimeter arrangement.

There is no doubt that protectionist measures, along with other factors have put a bit of a damper on the pending U.S.-Canada security perimeter agreement. If the Beyond the Border action plan is not announced by the end of the year, the whole effort could collapse. From the Canadian government’s perspective, it is essential to get some sort of deal done before the election year primaries begin in the U.S. or risk possible failure. Despite all the delays and obstacles, it is believed that the overdue action plan will soon be released. Having said that, it is now expected that it will be more modest than what was initially envisioned and for the time being will avoid some of the more contentious issues. It is also likely to include built-in structures to ensure that things happen on schedule with a list of items that both countries will pursue over the coming years. This will result in a constant implementation process making the move towards a North American security perimeter an incremental one.

When it comes to continental integration, much of the focus has shifted to greater convergence bilaterally which over time could move back to a more trilateral approach. There is an overwhelming sense that one way or another, the U.S. is going to get a North American security perimeter on their own terms, one that its NAFTA partners will have to conform to, whether they like it or not.
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