Saturday, November 5, 2011

G-20 Demands German Gold To Keep Eurozone Intact; German Central Bank Tells G-20 Where To Stick It

Going back to the annals of brokeback Europe, we learn that gold after all is money, after the G-20 demanded that EFSF (of €1 trillion "stability fund" yet can't raise €3 billion fame) be backstopped by none other than German gold. Per Reuters, "The Frankfurter Allgemeine Sonntagszeitung (FAS) reported that Bundesbank reserves -- including foreign currency and gold -- would be used to increase Germany's contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion euros ($20 billion)." And who would be the recipient of said transfer? Why none other than the most insolvent of global hedge funds, the European Central Bank...There are three observations to be made here: i) when it comes to rescuing insolvent countries, Germany is delighted to sacrifice euros at the altar of the 50-some year old PIIGS retirement age; ask for its gold however, and things get ugly; ii) the Eurozone, the ECB and the EFSF are dead broke, insolvent and/or have zero credibility in the capital markets, and they know it and iii) due to the joint and several nature of the ECB's capital calls, while Germany may have had enough leverage to tell G-20 to shove it, the next countries in line, especially those which are already insolvent and will rely on the EFSF for their existence once the ECB's SMP program is finished, may not be that lucky, and in exchange for remaining in the eurozone, the forfeit could well be their gold. 

ECB Issues Ultimatum To Italy, Threatens To Halt Bond Purchases

Three months ago, in exchange for the ECB's expansion of its sterilized monetizations of bonds to include Italian BTPs, allegedly the only backstop that has prevented Italian bonds from experiencing an all out collapse to date, Italy was presented with a list of strict "austerity" demands, among which were spending cuts, higher revenues and labor reform. Since then none of these has occurred... or will occur, simply because Berlusconi has no control over the government, yet neither does anyone else, although everyone in the local government enjoys having a scapegoat for the total chaos. It appears that the ECB has just made it clear that the status quo is about to end, unless Italy does in fact push with something. And unlike other cases, where politicians on both sides of the table are happy to spout rhetoric while knowing well that nothing will change, in this case, courtesy of Italy largely untenable debt profile in which €166 billion in debt and interest are due in 2012, the ECB will have no choice but to play hard ball. Reuters has just confirmed that, reporting that  The European Central Bank often discusses the possibility ending the purchase of Italian government bonds if it concludes Italy is not adopting promised reforms, ECB Governing Council Member Yves Mersch said. "If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect," Mersch said according to extracts of an interview with Italian daily La Stampa to be published on Sunday. In other words on Monday the market will have to not only digest the implications of what the implications of the Greek vote of confidence are (last we checked G-Pap is still PM, and likely will be for quite a while), but also what happens now that the ECB has issued an ultimatum to Berlusconi to get his house in order. The problem is that he can't. Not without stepping down, that is. At that point the Italian pseudo stability that everyone has been taking for granted knowing full well it is nothing but an illusion, will fall and expose all the rot underneath. At that point we will truly see just how "hedged" all those Primary Dealers are, who have perfectly offsetting short positions to all their longs.

ICE Follows In CME Footsteps, Lowers All Initial Margin

And so another exchange decides to follow in the CME's (clarified) footsteps, and lowers Initial Margins for all in order to facilitate the onboarding of just clients with orphan MF exposure. Probably more important is that the ICE demonstrates how this can be done in a way that does not generate speculation and confusion, and avoids follow up clarifications, due to the counterintuitive nature of increasing initial leverage in the aftermath of an exchange filing bankruptcy due to excess leverage. And as usual, the real question is what would happen in the counterfactual? Would the market really tumble and would liquidations truly be pervasive on Monday is the contract transfer price is not lowered? Is liquidity in the market (and hence leverage) really that low (high)?

Bullion banks, CME try to hobble CFTC, Maguire tells King World News

China Business News notes Chilton, GATA, Butler on silver market manipulation



Europe. Is. Finished. 

Phoenix Capital...
11/05/2011 - 15:54
Europe is finished. The region’s entire banking system is insolvent (with few exceptions). European non-financial corporations are running massive debt to equity ratios. And even EU sovereign states...

11/05/2011 - 15:11
We are at a critical point as the worlds' economies continue to decline. Continued high unemployment and a stagnant economy will put pressure on the Administration and the Fed to do something. The...

11/05/2011 - 15:23
Yes, times are going to get harder and an economic collapse is coming.

Please consider making a small donation, to help cover some of the labor and cost for this blog. 

Thank You

I'm PayPal Verified


No comments:

Post a Comment