Mish's Global Economic Trend Analysis

Germany Rules Out Eurobonds for 104th Time; Damned if They Do, Damned if They Don't
Gold Does Not Pay Interest (Neither Do Dollars in Your Wallet); Questions On Swapping Gold For Silver; Gold and Gold Shares Bottoming?
Greek Voters Need to Look Beyond the Lies of Bloomberg, Merkel, ECB, IMF, Ekathimerini; Greece Nightmare Coming or Already at Hand?

Germany Rules Out Eurobonds for 104th Time; Damned if They Do, Damned if They Don't

Posted: 22 May 2012 02:21 PM PDT

I have no idea what the actual number of times Germany Has ruled out Eurobonds. It could be 504 or even 1004. I Made up the number 104 which simply means "a lot".

Nonetheless, the Eurobond idea resurfaces every other week or so, and every time, someone from Germany (typically Merkel, the Bundesbank, or the Finance Minister) rules them out.

Once again, this time under pressure from French president François Hollande, Germany rules out common euro bonds.

Germany refused to share the debt burden of stressed eurozone peers on Tuesday, ignoring two of the most influential international economic bodies which offered support for proposals championed by Paris, Rome and Brussels ahead of a summit.

Angela Merkel, Germany's chancellor, has argued that any co-mingling of eurozone debt would remove incentives for southern economies to adopt structural reforms. The calls from the International Monetary Fund and the Organisation for Economic Co-operation and Development came on the eve of Wednesday's EU summit.

François Hollande, France's new president, has strongly backed common eurozone bonds – which would ease funding constraints for the eurozone's stressed periphery but potentially raise German borrowing costs by diluting its creditworthiness across the currency union.

German officials made clear the idea was a non-starter in Berlin.

"There is no way of introducing them under the current [EU] treaties. Indeed, there is an explicit ban on them," one senior German official said, adding Berlin would not drop its opposition in the foreseeable future. "That's a firm conviction which will not change in June."

Diplomats said the summit, which just last week looked like it would be a highly scripted affair on European growth, had become increasingly unpredictable, with leaders struggling with how to respond to the havoc wreaked by political instability in Greece. Officials emphasised that no formal decisions would be taken.

The euro bonds debate could produce fireworks between Mr Hollande and Ms Merkel – a possibility that has captivated officials involved, given the comparatively harmonious Franco-German relationship in the latter years of Nicolas Sarkozy's tenure. But most diplomats believe Ms Merkel would succeed in blocking any proposal, producing more smoke than fire.

Damned if They Do, Damned if They Don't;

"They say that when Germany and France don't co-operate, we have a problem," one senior diplomat from a smaller EU country said. "And when they do, we have a problem, too."

The paragraph from the article sums up the situation nicely. Europe is scrambling madly for a solution acceptable to everyone, but the only solution that works is the one no one wants to hear: a breakup of the eurozone.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Gold Does Not Pay Interest (Neither Do Dollars in Your Wallet); Questions On Swapping Gold For Silver; Gold and Gold Shares Bottoming?

Posted: 22 May 2012 09:37 AM PDT

Please consider an interview with Adam Fleming and James Turk on precious metals and mining. James Turk is founder of GoldMoney.

Interview Synopsis

Adam Fleming, Chairman of Wits Gold and Fleming Family & Partners, discusses the gold bull market with GoldMoney's Chairman James Turk. Topics include metal price action, the eurozone's debt crisis, and mining in South Africa.

Adam points out that gold bull markets usually result in a 1:1 Dow/Gold ratio, something that he expects to see happen in the coming years. In other words, it is still a great time to buy gold.

Adam is pessimistic about the eurozone, and thought plans for European Monetary Union were delusional, on account of the differences in culture and political economy between different European Union countries. He also discusses his mining experience in South Africa, and why – contrary to much negative press the country gets – it is actually still a great place to live and work. He expects companies to increase their mining investments in the Witwatersrand Basin, and thinks that this region will remain the world's premier gold mining location.

This video was recorded on May 18 2012 in Jersey, British Channel Islands.

Relationship With GoldMoney

Once again I need to point out I have a relationship with GoldMoney.

I have no comment on the relative value of South Africa miners or any set of miners from any country vs. another country. Instead, I suggest in general that miners and gold are undervalued here.

The interesting part of the interview is where James Turk and Adam Fleming discuss interest rates and currencies.

Gold Does Not Pay Interest (Neither Do Dollars in Your Wallet)

The knock on gold is that it does not pay interest. However, as Turk points out, the US dollar bears no interest either. Nor does the Australian dollar, the Loonie, the Euro, or any other currency.

Currencies only bear interest if you loan the money out, thereby converting the currency into a financial asset. Financial assets have risk as we have seen with corporate defaults, bankruptcies of GM, Lehman, Worldcom, and especially the collapse of the housing market in the US.

A collapse of the housing market in Australia and China is underway now as well. In short, the only way to collect interest is to take risk.

Please note that aFull-Fledged European Bank Run is underway now and the reason is fractional reserve lending.

In the above link I explain ....

Why ECB Deposit Insurance is Not the Answer to a Run on the Bank
How FDIC Played a Part in the US Real Estate Bust
That Monetarist Fools are Everywhere
Why People Believe in Gold

As noted previously: For the sake of full disclosure, my physical precious metals holdings are now entirely at GoldMoney and I have an affiliate relationship with them.

If anyone wants information about GoldMoney or investing in physical gold and silver in general, please Email Mish

Questions On Swapping Gold For Silver

Numerous people have asked about my post on May 1, I'm Swapping Some Gold for Silver.

There is little to tell. I decided for a portion of my assets I was willing to take the risk-reward setup of silver vs. gold.

While gold is money, I do not know if the free market would turn to silver as money or not.

Silver certainly has a major industrial component, while gold does not, and that makes silver more vulnerable than gold to a global slowdown.

After swapping all my silver for gold (See Taking Silver Profits - Swapping Silver for Gold April 27, 2011) I simply decided to take a little more risk in silver.

Clearly I was early. Should silver get to my original target of the low $20's I will swap more gold for silver. Perhaps silver gets to that price, perhaps not. I do not know, nor does anyone else. At least I do not pretend to.

There is little more that I can add other than silver is more volatile than gold and I still believe overweighting gold vs. silver substantially is a good idea.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Greek Voters Need to Look Beyond the Lies of Bloomberg, Merkel, ECB, IMF, Ekathimerini; Greece Nightmare Coming or Already at Hand?

Posted: 21 May 2012 11:14 PM PDT

A half-baked editorial on Bloomberg, full of one-sided distortion, warns Greek Voters Need to Look Beyond Syriza's Dangerous Lies.

Tsipras and his Syriza party are selling the Greek people a falsehood: namely, that Greece can renounce the terms of its bailout agreements with the euro-area governments and still receive their money. If voters believe him, and he attracts enough votes in elections on June 17 to follow through with his threats, then his country, Europe and the global economy will live for years with the consequences.

Tsipras hardly has a mandate -- he won 16.8 percent of the vote on May 6, and may increase that to 20 percent or more in June. But polls suggest Syriza is now fighting for first place with the center-right New Democracy party. In Greece, that matters, because the top party gets an extra 50 seats in the 300-seat parliament.

Europe's politicians, across the political spectrum, need to make clear the distinction between Syriza and other parties that disagree with Europe's austerity strategy. They need to say, repeatedly, that they want to help Greece, but they cannot, and it cannot remain in the euro, if its leaders simply abandon the commitments the country signed.

Greeks need to know that when they vote on June 17. And they need to know that what Syriza and its young leader are telling them is a lie.

Snakeoil vs. Lies

It's certainly true that it is highly unlikely for Greece to stay in the eurozone if it defaults on debt.

I am not a fan of lies (and I have pointed out lies by Tsipras). However, I am not a fan of snakeoil, thievery, and one-sided analysis either.

Snake Oil and One-Sided Analysis

Check out the Bloomberg hypocrisy in this statement: "Other Greek politicians say they'll seek to renegotiate the austerity package, and Europe may now listen."

Bloomberg knows full well those are blatant lies. Bloomberg could have and should have blasted the New Democrats and Pasok leaders for those lies (but chose not to).

Moreover, Bloomberg knows full well nearly all of Greece is dead set against more austerity measures. Bloomberg also knows full well if New Democracy and Pasok came flat out and said the deal will not be renegotiated they would be trounced to smithereens in the next election.

Bloomberg Hypocrisy

Bloombeg ignores the lies of Pasok and New Democracy while blasting a similar lie made by Syriza.

In essence Bloomberg wants to decide which set of lies is acceptable and which isn't.

In contrast, I have pointed out the lies made by all of them.

If Not Now When?

Merkel, the IMF, the ECB, and all the eurocrats in Brussels know another election is coming up. If terms of the bailout were to be renegotiated ever, logic would dictate now is the time.

Are we supposed to believe there will be a significant change of heart in Germany and Brussels after another Troika-clown is Prime Minister?

The rest of Europe is not doing anything to help Greece.

Lending Greece money in which most of the money goes straight back to the lenders to pay interest is not going to help Greece. Nor are hikes in the VAT and other taxes.

Certainly the Pact With the Devil Over Gold is not in Greece's best interest.

Simply put, Tsipras is correct in his desire to tell the Troika to go to hell. The rest of his message is clearly a lie, but at least Tsipras has the essential idea: The only way Greece can get out of its odious debt is to default.

Greece Nightmare Coming or Already at Hand?

The Greek website Ekathimerini is on a major fearmongering campaign as evidenced by Nightmare foretold if Greece heads for euro exit

In Athens, the homeless are on the streets in growing numbers, soup kitchens feed twice as many people as a year ago, and the poor are diving into garbage bins in search of scrap they can sell.

Greece is close to breaking point as it struggles with austerity targets set by creditors, but this is just a foretaste of the nightmare of unrest, hunger and even anarchy that could engulf the debt-crippled nation if it is forced out of the euro.

If the exact economic impact of such a move is hard to nail down - newly issued drachmas devalued by up to 70 percent, runaway inflation, a banking meltdown, a collapse in trade - the implications for ordinary Greeks crushed by the debt crisis are even harder to predict.

Without international bailout cash, salaries and pensions would go unpaid and violence, political extremism and uncontrolled emigration could quickly follow.

Dose of Reality

Let's stop right there for a little dose of reality. The first paragraph alone shows Greece is already in a nightmare scenario.

Greece would have been better off defaulting three years ago, two years ago, and last year.

Yet here we are with Bloomberg and Ekathimerini (among numerous others) fearmongering about a Greek exit.

They should have been equally adept at raising issues why Greece should not be in the Eurozone in the first place.

Since that is water over the dam already, the pertinent question is what is best for Greece going forward. I propose that another 10 years of austerity and depression is not the answer. I also believe that is what Greece is doomed to if it manages to stay in the eurozone that long.

Fearmongering by Ekathimerini Resumes With Intensity

Let's return now to Ekathimerini for some massive fearmongering.

Provopoulos warned as long ago as December that a return to the drachma would be «real hell», with Greeks forced to resort to barter during the transition period between the two currencies, «trading a kilo of olive oil for three kilos of flour».

"NIGHTMARE SCENARIO"

"There will be shortages in basic staples. Without fuel, the army and the police would not be able to move their vehicles.

A former finance minister, Yiannos Papantoniou, saw trouble ahead nearly a year ago: «Greece would not be able to support 11 million people so there will be huge emigration flows,» he told Reuters Insider television last July.

«Disruptions, social disruptions will come. I would say a regime of total anarchy."

What's Best for Greece

Greece needs to do what is best for Greece.

Short-term there will likely be intense breakup pain in Greece if it exits the eurozone. However, if Greece manages its cards correctly, Greece will recover far faster by telling the Troika to go to hell than by living the nightmare for 10 more years.

Icelandic Solution

Greece and Iceland are not the same. Iceland has exports and a work ethic. However, the facts show that Iceland recovered far faster because it had the courage to default, telling eurocrats where to go.

Simply put, Greece has nothing to lose and everything to gain by exiting the euro, the exact opposite of what Bloomberg and most of mainstream media would have you believe.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Tuesday, May 22, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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