EU Willing to Let Greece Default Under New Plan: Draft

Europe is willing to let Greece default under a proposal that would involve a bond buyback and debt swap, EU sources said Thursday, as euro zone leaders began a crucial emergency summit.

S&P Says Likelihood US Is Downgraded To AA As Soon As Early August Is 50-50 

A rather sobering report out from S&P, which has no other function than to tighten the screws even more on those who prudently are holding out against extending the debt ceiling. As for S&P: please explain to US how 120% debt/GDP is better than 100% debt/GDP, and thus more worthy of a AAA rating? Please. Because we must be bloody stupid: "In our view, the need for an agreement to raise the debt ceiling before it is breached--which the government has said would occur on or around Aug. 2--remains a major risk to the U.S. economy, in our view. Because we see a real risk that efforts to reduce future deficits may meaningfully miss the targets that Congressional leaders and the White House have discussed, we put the likelihood that we would lower the long-term rating on the U.S. within the next three months and potentially as soon as early August--by one or more notches, into the 'AA' category--at about 50-50."

John Taylor's Must Read Op-Ed Calling For The Great Reset 

John Taylor, the "Fed Chairman who should have been", has penned a terrific op-ed in the WSJ. Advocating nothing short of a great reset, this is one of today's must read pieces: "If government interventions are the economic problem, then the solution is to unwind them. Some lament that with the high debt and bloated Fed balance sheet, we have run out of monetary and fiscal ammunition, but this may be a blessing in disguise. The way forward is not more spending, greater debt and continued zero-interest rates, but spending control and a return to free-market principles. Unfortunately, as the recent debate over the debt limit indicates, narrow political partisanship can get in the way of a solution. The historical evidence on what works and what doesn't is not partisan. The harmful interventionist policies of the 1970s were supported by Democrats and Republicans alike. So were the less interventionist polices in the 1980s and '90s. So was the recent interventionist revival, and so can be the restoration of less interventionist policy going forward. " 

 

 

 

 

 

Citi Pours Water On EUR Rally, Sees Knee Jerk Covering To 1.45, Longer-Term Issues Still Unresolved 

Citi, whose Steven Englander has been bearish on the EUR for a while, and with good reason although when faced with central planning, and Chinabot of course, it is tough to remain rational, sane, and certainly solvent, when the market can remain idiotic and socialist for far, far longer, has just released another note bashing the kneejerk reaction in the EUR. Bloomberg's terrific new All News service summarizes. 

 

 

 

 

 

Goldman's Take On Europe's "Marshall Plan" Newsflow 

As news comes fast and furious out of Europe, here is Goldman's take on the so far unconfirmed details of the latest Marshall Plan in Europe, which unlike last time comes before the war. Incidentally, Europe just approved debt monetization, only unlike in the US, it will do it off balance sheet, via the EFSF "CDO" SPV. "EFSF empowered to buy in secondary markets with input from ECB; BETTER THAN EXPECTED, PENDING clarification on SIZE and ACCOUNTABILITY; EFSF able to recapitalize banks in non-program countries through loans to governments; BETTER THAN EXPECTED, ditto. IF ALL OF THIS IS CONFIRMED, VERY positive relative to expectations. Particularly the systemic stuff is a big step forward to unconditional mutual help. If sovereign cross-correlation of default is low, ex ante risk sharing helps everyone participating" 

 

 

 

 

 

A Quick Take On The European "Marshall Plan" 

So far all the news out of Europe is based on changes to EFSF. Greece will be able to borrow for 15 years at 3.5%. French bonds with a 15 year maturity trade at 3.8%. So the EFSF will have to pay more on its debt than it receives? Interesting. Have the rating agencies signed up to rate the new EFSF as AAA? From deals I've worked on, things that always hurt ratings were i) extending maturity, ii) including banks in addition to sovereigns, iii) allowing trading, iv) vague rules as opposed to written rules. The headlines all indicate the new EFSF has all of these components. I am sure the agencies have been involved in these discussions, but I remain dubious how happy the market will be to finance the EFSF at rates that are remotely in line with the rates the EFSF plans to provide financing at. Lots more details likely to come out during the day, but watch for the details. The headlines sound great, but can they be executed. I also noticed somewhere that new lending would be collateralized. If that is true, has anyone asked the borrowers if that makes sense for them? 

 

Raising The Debt Ceiling Does Not Fix The Problem

July 20, 2011, at 1:20 pm
by Jim Sinclair in the category General Editorial |  Print This Post |  Email This Post

 

My Dear Friends,

The idea that an increase in the debt ceiling is a solution to anything is nonsense. The event would be simply a can kick forward for a very short period of time. Increasing debt is not a solution to a debt problem. It actually makes the problem worse It is an act of extending your Federal credit card borrowing line so you can use it to pay your mortgage.
Calling increasing the debt ceiling a solution to a debt problem is too stupid to be stupid. The unwind is deeply entrenched since the failure of OTC derivatives in 2008. There has been no meaningful intervention in this economic downward spiral at the level of the cause. The downward spiral therefore continues unabated.
All downward spirals go to zero unless an intervention takes place at the level of the cause of the problem in the first place. OTC derivatives are what turned a four year correction into the greatest economic accident in human history.
OTC derivatives only go one way in size and that is up. Changing the way nominal value is determined does not solve the problem. All that does is add camouflage to the problem. It does not solve it.
$1600 in gold is simply another round number which will create drama, but no opposition to the increasing price.
Nothing additional is required for a higher price of gold. The damage is done. The debt of the entire Western world is beyond out of hand. The so called solution, just like raising the debt ceiling, will be acts of kicking the can down the road.
We have come to the end of the road. The result of no financial discipline anywhere in the Western world is unfolding.
Gold will challenge $1764 where a hyperbolic price appreciation will start.
Respectfully,
Jim





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Commentary No. 380: June Housing Starts and Existing Home Sales, Liquidity, GDP Outlook
- Housing Starts Boosted by Apartment Starts
- Existing Home Sales Suffer From Liquidity Crunch
- Solvency Crisis: Banks Are Not Increasing Aggregate Lending
- Downside GDP Revisions Loom
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