Markets shun debt of rescued nations … Europe's bailed-out economies saw their borrowing costs hit fresh records on rising concerns they will not be able to pay their debts. The crisis surrounding the finances of the euro bloc's weaker nations flared up this week after German officials made more noise about a potential restructuring of sovereign debt. – UK Telegraph
Dominant Social Theme: Scurrilous EU policies much be staunched, even if WE put them in place.
Free-Market Analysis: Just yesterday we wrote about a potential American double dip recession and today we review two Telegraph articles that bring the same situation closer to Europe. The first one entitled "Markets shun debt of rescued nations," points out that bond markets remain "nervous" about the ability of countries like Greece to service their debts. Indeed markets should be as it is seemingly a mathematical certainty that Greece cannot pay down its debts, especially with recent revelations that the Greek indebtedness is even worse than has been previously revealed.
This informative little article in the Telegraph gives us a glimpse into the market itself as regards the three PIGS that are in the worst trouble. "The yield on two-year Greek debt passed 25pc for the first time, while yields on 10-year debt climbed further over 15pc." What that means basically is that the price of the Treasury paper of these countries is ever cheaper compared to the rates the paper offers. The same goes for Portuguese and Irish debt.
Apparently the sell off was generated by German trial balloons over a "restructuring" of certain debt, presumably Greece's. There are only two ways to do this – cut the interest rate or extend the payment terms. Either one is a default of sorts as the entity taking the haircut is the lender.
We've also pointed out that the Eurocrats have seemingly backed themselves into a corner with their latest stance regarding elite dominant social themes. One such theme is that the EU is inviolable and that its break up will not be allowed. This is part of a larger stance that is supposed to emphasize the inevitability of the EU's eventual triumph. No matter what happens, Eurocrats want to point out to Europe's miserable masses that the EU is here to stay.
But investors, the article points out, are not so convinced. Greece's phony numbers continually reveal more weakness, which makes staunching the bleeding even harder. "Data released this week," the article tells us, "showed Greece's deficit – the shortfall in its annual budget – was bigger than expected at 10.5pc of GDP, despite its harsh austerity programme to slash its debt." And what has been the reaction of the EU: A top German official recently compared a potential default to the collapse of Lehman Brothers and stated that what would be unleashed would be equivalent to the 2008 financial crisis with which the world is still grappling.
This is likely hyperbole as the structural weaknesses of the larger world economy have already been somewhat addressed by the current retrenchments. The balloon, to a degree, has already been popped. What has NOT been popped is the bubble called the EU. The Germans especially have taken no steps to shore up their banks, which hold a good deal of PIGS debt and especially Greek debt. What this means is while Germany is industrially strong (so far), German banks are not. Main Street is solvent. But the financial sector is not.
In Britain the situation is somewhat in the reverse. A Telegraph article entitled "Britain 'on the edge of a double dip recession'" informs us that "Britain is teetering on the edge of a double dip recession after official GDP numbers confirmed that the economy has stagnated for the past six months … GDP growth in the first three months of the year was 0.5pc, the Office for National Statistics revealed, but the figure merely offsets the 0.5pc contraction in the final quarter of 2010."
Here's the important quote: "Excluding the impact of the snow in December, the preliminary GDP figures suggest that the economy has flatlined over the past six months, with no underlying growth in output since the third quarter," John Hawksworth, chief economist at PricewaterhouseCoopers, said. "The figures show that the UK is still teetering on the edge of a double dip recession." There were some bright spots, the article concludes, but overall, even the manufacturing industry, which has staged something of a comeback, remains 8.5 percent smaller than before the 2008 financial crisis.
The gloomy news about Western economic performance justifies the continued "solution" of aggressive IMF austerity, which has overtaken the PIGS and is currently aimed at both Britain and America. The idea presumably is to brutalize the middle classes through cuts in government services, firesale sell-offs of public properties and, of course, the IMF's favorite proscription when faced with out-of-control government spending – raising taxes.
It is hard to tell how the Eurocrats are going to jump when it comes to the larger issues with which the EU grapples. It may be that the dire forecasts are something of a ruse to invoke austerity and to head off a catastrophe. But from our point of view, Europe is going to blow up one way or another. It's almost inevitable.
Central banks have dumped something like US$10 trillion into the larger markets, worldwide, according to recent reports (we think it's at least closer to US$20 trillion) and increasingly economists are apparently speculating that the entire "recovery" of the past year (if you can call it that) was merely the result of monetary stimulation. (Welcome to the club!)
We've been propounding this view ever since the crisis began and we saw the response was more Keynesian nonsense. Yes, it is possible to reflate a bubble but what happened in 2008 was not the collapse of bubble but the collapse of the dollar reserve system itself. We've been remarkably consistent about our sentiments in that regard and see no reason to revise them.
Is the EU in throes of a real breakup – and therefore the expressions of foreboding are actually legitimate ones? Or is the crisis itself something that the powers-that-be merely wish to take advantage of to continue their endless, ridiculous efforts at further centralizing the monetary system worldwide.
At this point we wonder if it is not both. The power elite did not expect the Internet Reformation to trigger things to get this bad this quickly but at the same time it is determined to take advantage of the continually eroding economy to continue building one-world government. As we have pointed out previously, this seems to us a dangerous game.