UK Banks Abandon Eurozone; Greek PM Seeks Constitutional Changes; Trichet Blames Everyone but Europe for Global Imbalances; Credit Crunch Coming Up?

"The Telegraph reports liquidity dries up as UK banks abandon eurozone over Greek default fears

Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system.

Standard Chartered is understood to have withdrawn tens of billions of pounds from the eurozone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.

Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.

Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a

seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more..."

at  http://globaleconomicanalysis.blogspot.com/2011/06/uk-banks-abandon-eurozone-greek-pm.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Der Spiegel Claims Merkel-Sarkozy Agreement Has Collapsed; Bloomberg Reports Europe May Withhold Half of Greek Payment

"Two interesting stories regarding Greece have hit the wires today. It´s difficult to know if they are related.

First, Der Spiegel claims the agreement negotiated between German chancellor Merkel and French president Sarkozy has collapsed; Second, Bloomberg reports Europe will pressure Greece by withholding half of the next tranche of money..."

at http://globaleconomicanalysis.blogspot.com/2011/06/der-spiegel-claims-merkel-sarkozy.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Moody's Warns May Cut Italy Credit Rating (On Friday Afternoon in Option Expiration)

"This announcement took the wind out of the equity market's sails and added a little more edge to the upcoming Sunday evening trade.

Watch the US-EUR and EUR-CHF crosses.

Even better if you are able watch the bond spreads since they are leading the currency moves these days.

The remainder of today's trade is a bit of a throw away because of the option expiration, but next week on Wednesday the Fed should announce some decision relative to son of QE2, and on Friday the Russell is rebalanced.

Plenty of volatility coming for the traders, and headaches for investors and producers seeking a stable income. That is the US casino economy..."

at http://jessescrossroadscafe.blogspot.com/2011/06/moodys-warns-may-cut-italy-credit.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

COULD THE EUROZONE BREAK-UP?

"...By Nouriel Roubini

The current “muddle through” approach to the eurozone (EZ) crisis is not a stable disequilibrium; rather, it is an unstable disequilibrium. Either the member states move from this disequilibrium toward a broader fiscal, economic and political union that resolves the fundamental problems of divergence (both economic, fiscal and in terms of competitiveness) within the union…
…or the system will move first toward disorderly debt workouts and eventually even break-up, with weaker members departing. Over a five-year horizon, the odds of a break-up are at least one-third.

The EMU Has Always Fallen Short…

The EMU has never fully satisfied the conditions for an optimal currency area: Synchronized economic activity and growth rates; a high level of labor and capital mobility; fiscal federalism allowing the fiscal risk sharing of idiosyncratic national shocks; and a significant degree of political union.

The hope was that the EMU’s lack of independent monetary, fiscal (the Growth and Stability Pact fiscal constraints) and exchange rate policies would lead to the acceleration of structural reforms that would in turn lead to the convergence of productivity and growth rates, rather than increased divergence.

The reality turned out to be different… Paradoxically, the early interest rate convergence became damaging as it allowed a severe lack of fiscal discipline in some countries (such as Greece and Portugal) and the build-up of asset bubbles in others (such as Spain and Ireland). Moreover the lack of market discipline delayed the necessary structural reforms and led to divergences in wage growth relative to productivity growth, and thus a rise in unit labor costs in the periphery and a loss of competitiveness that led to economic divergence between the PIIGS and the core. And the straightjacket of common monetary and currency policy exacerbated the real growth divergence at a time when structural and fiscal policies diverged..."

at http://pragcap.com/could-the-eurozone-break-up

Mad Scramble to Prevent the Unpreventable and Contain the Uncontainable

"EU and ECB officials are scrambling like fools to come up with a "voluntary" solution to the Greek problem that will not trigger a default and spread contagion.

Please consider Juncker warns of contagion

Contagion from the Greek debt crisis could spread to at least five other European countries - including Belgium or even Italy - if it is not cautiously managed, the head of the eurozone group warned Saturday..."

at  http://globaleconomicanalysis.blogspot.com/2011/06/mad-scramble-to-prevent-unpreventable.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Smart Money Europe - New Bold Prediction: By 2015, 10 percent of the S&P 500 will consist of Gold & Silver Stocks!

"...That’s why we believe that gold and silver stocks will make up for 10 percent of the S&P500 when gold will be crossing the barrier of $5000/ounce! As our modeling has shown, we should be reaching this price target for gold by 2015.
Currently, the sector ‘materials’, in which the 2 mentioned stocks are included, makes up for only 3.53% of the S&P 500.

Our newest bold prediction is getting support from respectable insiders.

Rob McEwen, an icon in the gold arena, recently called for a merger of two mining companies, in which he holds a significant stake. By merging, a powerful low-cost silver group would arise, but more importantly, McEwen sees a good change to enter the S&P 500 three years from now!..."

at http://www.zerohedge.com/article/smart-money-europe-new-bold-prediction-2015-10-percent-sp-500-will-consist-gold-silver-stock?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

48 Percent Of Americans Believe Another Great Depression Is Likely In The Next 12 Months - 19 Reasons Why They Are Not Completely Crazy

"So anyone that believes that we are headed for another depression is certainly not crazy. The following are 19 reasons why it is perfectly rational to be pessimistic about the U.S. economy right now....

#1 Today, 25 million Americans are either unemployed or underemployed. 6 million of those have been out of work for at least 6 months. The average duration of unemployment in the U.S. is now close to 40 weeks.

#2 The unofficial misery index, which is calculated by combining unemployment and inflation, is now at a 28 year high.

#3 Sadly, if unemployment and inflation were calculated the same way that they were back in the 1970s, the misery index would actually be much, much higher. According to John Williams of Shadow Government Statistics, the current "real" rate of inflation is approximately 11.2% instead of the 3.6% figure that the U.S. government wants us to believe.

#4 Greece is on the verge of complete and total financial collapse. The yield on two year Greek bonds is up to 28 percent. The European Central Bank and the German government have been fighting over what to do to solve the Greek crisis. The truth is that without a bailout the Greek government will default. If Greece defaults, it would be a huge nightmare for world financial markets.

#5 Neil MacKinnon, an analyst at VTB Capital, is warning that a Greek implosion could set off a 2008-style financial crisis....

"The risk of a 'Lehman moment' for the eurozone is increasing"..."

at  http://theeconomiccollapseblog.com/archives/48-percent-of-americans-believe-another-great-depression-is-likely-in-the-next-12-months-19-reasons-why-they-are-not-completely-crazy

Jim Rogers 2nd Recession would be even worse

"Jim Rogers : "...My goodness what are we wasting our time on some congressman about when the world is facing disaster here and abroad , we are the largest debtor nation in the history of the world Dylon we got to do something about it , Greece is banckrupt the rating agencies are right they will not be able to pay , somebody better getting prepared even if it is just the viewers of your network getting ready to protect themselves "..."

at  http://jimrogers1.blogspot.com/2011/06/jim-rogers-2nd-recession-would-be-even.html

Euro Crisis: Monitoring the Alarm Bells

"The European situation is increasingly deteriorating. While the events in Greece have been part of the broader conversation for why the stock market has been selling off in recent weeks, the relatively mild degree of the decline so far suggests that we have not even begun to price in the risk associated with the potential fallout effects from a Greece meltdown. The situation in Europe has the potential to become another episode like the Lehman collapse in September 2008. It could even become much worse. With a stock market that is already more than 30% above its long-term historical fair value, continuing to watch the indicators from Europe closely each and every day is critical to protect against swift and sudden downside..."

at  http://seekingalpha.com/article/275482-euro-crisis-monitoring-the-alarm-bells?source=feed

Greek Default And The Markets

"-Bloomberg – Greenspan Says Greece Default ‘Almost Certain,’ May Trigger U.S. Recession
Alan Greenspan, former Federal Reserve chairman, said a default by Greece is “almost certain” and could help drive the U.S. economy into recession. “The problem you have is that it’s extremely unlikely the political system will work” in a way that solves Greece’s crisis, Greenspan, 85, said in an interview today with Charlie Rose in New York. “The chances of Greece not defaulting are very small.” Greek government bonds slumped, pushing the yield on the two-year note above 30 percent for the first time, as Prime Minister George Papandreou’s failure to win support for more austerity fueled speculation the European country will fail to meet its obligations. More than 20,000 people protested in Athens this week against wage reductions and tax increases, with police using tear gas on crowds and strikes paralyzing ports, banks, hospitals and state-run companies. The chances of Greece defaulting are “so high that you almost have to say there’s no way out,” said Greenspan, who ran the central bank from 1987 to 2006. That may leave some U.S. banks “up against the wall.”..."

at http://www.ritholtz.com/blog/2011/06/greek-default-and-the-markets/

Shiller: Risk of a Double-Dip Recession ‘Substantial’

"Yale University economist Robert Shiller sits down with Simon Constable to discuss the global economy — which he says is at a tipping point — the “substantial” risk of the U.S. falling back in recession and reforming the financial markets..."

at http://blogs.wsj.com/deals/2011/06/17/shiller-risk-of-a-double-dip-recession-substantial/?mod=WSJBlog

IS THIS THE MOST IMPORTANT CHART IN THE WORLD TODAY?

"The European debt crisis continues to cause turmoil in the European economy and great uncertainty for the global economy. Investors are beginning to wonder if we’re on the verge of a Lehman 2.0 type event. Of course, if we’re due for a Lehman then we have to first serve up our Bear Stearns, right? And that’s exactly the fear here. The fear is not necessarily that Greece will default, but that Greece will lay the foundation for even larger defaults. And that’s where Spain comes in. Spain, in my opinion, would pose a bailout so large that it could very well become politically untenable. Greece and Ireland and Portugal are one thing, but Spain is twice the size of these three countries combined!
In the end, I still think that the Europeans have but one choice – suck it up, bail everyone out, and kick the can until you make the EMU a viable currency system. In the meantime though, keep an eye on this chart. Bond vigilantes in Europe could push Spain to the brink of disaster. And that could make everyone involved in this currency system reconsider its existence. In the end, it could very well push this crisis into a phase that no one wants to experience (again)..."

at http://pragcap.com/is-this-the-most-important-chart-in-the-world-today

Bond Market Rejects Greek Solution Already

"If the "Vienna-Style" Agreement between Trichet, Sarkozy, and Merkel was a genuine solution to the crisis in Greece, sovereign debt yields would be falling sharply across Europe.

Instead, yields in Portugal are up, and yields in Spain, Italy, and Ireland are only slightly lower...

After falling as "low" as 27.52% 2-year Greek bonds closed at 28.79%.

Market Laughs at "Solution"

The bond market laughs at the proposed solution to the Greek crisis, and so do I..."

at http://globaleconomicanalysis.blogspot.com/2011/06/bond-market-rejects-greek-solution.html

The Euro system contains a serious design flaw

"I recently sat down with Dara McHugh, Co-ordinator of Dublin-based Smart Taxes, to discuss Ireland's debt problems and the economic prospects for the Irish economy. The interview appears in the June-August issue of Ireland's Village Magazine.

Dara McHugh (DM): Can you discuss the fundamental features – and the fundamental flaws – of the design of the Euro system?

Stephanie Kelton (SK): The Euro is premised on a philosophy that is best characterized by the slogan, “One Market, One Money.” At the core of the Euro system is the European Central Bank, an institution that was given a limited but ostensibly critical role: keep a tight lid on inflation by strictly controlling the supply of euros. Because they could not conceive of an event that would trigger a breakdown in the payments system itself, the authors of the Maastricht Treaty did not give the ECB the statutory mandate to act as a ‘Lender of Last Resort’ in times of crisis. And, because a group largely composed of bankers (the Delors Committee) had written the blueprint for the Euro, it contained no systematic framework for regulating and supervising Europe’s financial institutions. Instead, the ECB was given a sole mandate: maintain price stability. These are significant departures from the customary modus operandi for a central bank.

Because they assumed that a sharp decline in output and employment would be rectified through emigration or a depreciation of the euro, the authors of the Maastricht Treaty saw no reason to create a fiscal analogue to the ECB, an institution that would bear responsibility for promoting growth and employment in the Eurozone. Instead, the political intention of the Treaty was to subordinate the role of fiscal policy, leaving it to the individual member nations to cope with a downturn by permitting only a modest increase in their deficits..."

at http://www.creditwritedowns.com/2011/06/us-currency-sovereign-ireland-currency-user.html#ixzz1PVXr2Wyw

Stephen Roach: America is a Zombie Nation just like Japan

"Stephen Roach has written an Op-Ed in today’s Financial Times that is worth reading. He outlines his version of Richard Koo’s Balance Sheet Recession theorem, opining that “the global economy is being hobbled by a new generation of zombies – the economic walking dead.”
His main points are:

• American consumers are retrenching. In the 3 1/4 years since 2008 began, real consumption growth has averaged 0.5% on an annualised basis, the lowest since World War II. That data point certainly rhymes with the consumer deleveraging of Koo’s balance sheet recession.
• Zombie companies remain on life support. Roach says the antecedent to this is Japan where Japanese banks extended credit to effectively insolvent companies, postponing a full recovery for two decades. Roach calls this the “Japan disease”. This data point is at odds with Richard Koo’s prescriptions.

Roach’s conclusion:

Washington policymakers are doing everything they can to forestall rational economic adjustments. The Federal Reserve has conducted two rounds of quantitative easing in an effort to get consumers to start spending the wealth effects of a policy-induced rebound in equities. Congress and the White House have embraced home-foreclosure containment programmes and other forms of debt forgiveness.
The aim is to get zombie consumers to ignore their festering problems and start spending again – irrespective of the wrenching balance sheet damage they suffered in the “great recession”. The subtext is Washington condones a revival of reckless behaviour.

This is certainly the conclusion I have drawn both regarding Japan and regarding the US..."

at http://www.nakedcapitalism.com/2011/06/stephen-roach-america-is-a-zombie-nation-just-like-japan.html

THE TRUTH ABOUT THE ECONOMY IN 2 MINUTES

"Robert Reich describes what’s wrong with the economy in 2 minutes. His bullet points (thanks to Stephanie Kelton):

• The economy doubles since 1980, but wages flat. Where did the money go…
• All (or most) of the gains went to the super rich. And…
• With money comes political power. Taxes on super rich slashed, revenues evaporate. This leads to…
• Huge budget deficits. Middle class agitated, fights for scraps…
• Middle class divided. Buying and borrowing slow. Resulting in:
• Anemic recovery/economy.

I would add one very important point that Mr. Reich misses here. The real destruction has come in the growth of the financialization of the US economy. Since the 1970′s when the financialization of the USA began we have seen an increasing number of would-be entrepreneurs leave productive positions for Wall Street jobs where they largely help devise ways to help separate the middle class from their savings. As the country grew more and more wealthy in the 1980′s and 1990′s (thanks to entrepreneurs like Bill Gates) the problem compounded because the demand for Wall Street’s services expanded (higher wealth meant higher demand for protecting that wealth). Wall Street convinces Main Street that the best way to protect their wealth is by giving it to them (2% at a time) and Main Street doesn’t know any better because they don’t (and still don’t) understand how the monetary system or the economic system in the USA actually works so they give their money to a trusted “expert”..."

at   http://pragcap.com/the-truth-about-the-economy-in-2-minutes

Guest Post: The Countdown To Sovereign Debt Write-offs Has Started

"Don’t be fooled by the IMF’s announcement that Greece will get a new round of money. This bailout is merely to give a couple of months for the parties to seriously negotiate what haircuts and debt extensions investors need to take in Greece, and Ireland and Portugal. Virtually all the comments made by the parties involved fit in with the view that we are now in a phase where people are negotiating how much they will write off and what else they will do. Almost none of the comments indicate that anyone is really trying to put together a plan that is going kick the can down the road for a long time. I am fading this rally as only the most optimistic investor can believe that this problem doesn’t lead to real default/restructuring with haircuts in the next couple of months.

Why do banks waive covenants?

It looks like Greece has failed to meet the criteria the IMF had set out to provide more money, yet the IMF seems intent on releasing the next tranche. Banks typically waive covenants and release more money only when they truly believe the borrower will turn around, or when they extract enough value from the borrower that they feel safe making the new loan, or when they aren’t prepared to deal forcing the borrower into default.

Does anyone really believe that Greece is going to get turned around? I don’t. In fact I am highly confident that Greece will still not meet the criteria the IMF has set out when it is time for the next tranche. That will be the deadline for the default/restructuring. The IMF can waive the covenants this time because shortly they get to review the progress again and can fail them at that time.

The IMF, which allegedly has some collateral for the loans it is making, be receiving even more collateral on this latest tranche? Could they have perfected their security interests making their own loans extremely safe? That is a real possibility. If this next tranche only includes IMF money, or lending that is collateralized very specifically it would be another clear sign that the game has changed and the lenders are protecting their new loans at expense of existing bondholders.

Are the IMF, or the EU, or the ECB, or the banks prepared to deal with a default or real restructuring right now? The answer clearly seems to be no, but it is also clear that over the past month, the EU in particular has realized restructuring, possibly with losses needs to occur. Talk about the ‘Vienna accord’ and ‘voluntary private restructuring’ has become louder. That will take time. How do you easily pressure a bank into taking a loss, particularly while were still hopeful for a painless solution just a few weeks ago. These ‘voluntary’ decisions won’t be so voluntary, but it will take time for the governments to convince their banks en masse to reach an agreement..."

at http://www.zerohedge.com/article/guest-post-countdown-sovereign-debt-write-offs-has-started?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

The Second Dot Com Bubble Has Now Burst

"It is hard to believe that the first dot com bubble, so vivid to most semi-veteran traders, occurred over a decade ago. What is even harder to believe is that courtesy of the record liquidity bubble created by the Central Planning mafia, 2011 has already seen not only the second dot com bubble, but as the table below demonstrates, its bursting. Of all the dot com 2.0 IPO to hit the market in the past 3 months, the average return is now down 20%, but that has not prevented an underwriting syndicate comprised of the TBTFs to make billions in underwriting fees. Luckily, the fervor that previously had gripped some of the more volatile precious metals, and since spilled over into new public issues, has popped. Incremental cash will now be nearly impossible to get. To all companies that managed to take advantage of momo traders who have a memory of 15 minutes or less, congratulations. To everyone else: get in line for QE3. Wink, wink Groupon..."



at http://www.zerohedge.com/article/second-dot-com-bubble-has-now-burst?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

Gold Prices to Hit $5000 says Yan Chen

"Gold prices may hit $5000, says Yan Chen, head of metals and mining at Standard Chartered. He foresees potential production shortfalls as more central banks turn from being net sellers to buyers of gold, pushing the supply-demand balance out of kilter.there will be a lot of gold buying going on in China cause the Central Bank in China has less than 2 percent of foreign exchange reserves are actually held in gold they want to be a real world central bank and for this they need to buy a lot of gold , China central bank may need 6000 tons of gold to bring its gold holding to the world average and that's more than two years of mined production in the world..."

at  http://goldbasics.blogspot.com/2011/06/gold-prices-to-hit-5000-says-yan-chen.html

Prof Steve Keen : the global debt collapse

"Dr. Steve Keen is one of 12 economist who predicted the Global Economic Crisis. He said this is due to the excessive levels of debt to GDP ratio.Prof Steve Keen is Associate Prof of Economics & Finance at The University of Western Sydney . Prof Steve Keen identifies himself as a post-Keynesian, He is highly critical of both modern neoclassical economics and (some of) Marxian economics as inconsistent, unscientific and empirically unsupported. Steve Keen looks at the rising national debts in Australia and the United States, paying particular attention to their historical relationship with recessions, growth and unemployment. He suggests that the levels of debt in both countries have reached a point which virtually guarantees a very difficult economic road ahead in the long term..."

at http://marcfaberchannel.blogspot.com/2011/06/prof-steve-keen-global-debt-collapse.html