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XMFSinchiruna (27.70)

Challenging the Wolfpack of Debt

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May 10, 2010 – Comments (9)

As usual, Jim Sinclair hits the nail on the head with his reaction to the "nuclear option" employed by Europe over the weekdend to combat the present phase of the global crisis:

A nuclear solution to Europe’s debt problems is simply another way of saying "Quantitative Easing to Infinity."

All national debt will be bailed out. All states of the USA will be bailed out.

Paper currencies are headed to dust.

Regardless of the first knee jerk market reaction, gold is going to $1650 and beyond due to nuclear suggestions of adding more debt to entities failing because of debt. This is the EU Helicopter Drop coming up.

Credit default swaps are herein called the "Wolfpack." About that they are totally correct.

Now that they have challenged the "Wolfpack," whatever additional funds might be required will have to be provided or the "Wolfpack" will slaughter the EU.

 http://www.businessweek.com/news/2010-05-09/eu-preps-645-billion-fund-to-fight-wolfpack-debt-crisis.html

EU Preps $645 Billion Fund to Fight ‘Wolfpack,’ Debt Crisis

May 10 (Bloomberg) -- European Union finance ministers moved toward agreement on an unprecedented loan package worth at least $645 billion to prevent Greece’s fiscal woes from triggering a broader sovereign-debt crisis and shattering confidence in the euro.

Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, the 16 euro governments sketched out plans to make 440 billion euros ($570 billion) available, with 60 billion euros more from the EU’s budget, according to three officials at the talks in Brussels. An additional, unspecified sum may come from the International Monetary Fund, the officials said.

“We are going to defend the euro,” Spanish Economy Minister Elena Salgado told reporters as she arrived to chair the meeting yesterday. “We think we have a duty for more stability for our currency. We will do whatever is necessary.”

That last statement captures the underlying problem in a nutshell, and it is no different from the strategy still in play on this side of the pond.

“Europe is getting its act together,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

So, that's what "getting your act together" looks like these days. Can you see the inconsistency in that line of thinking? Quantitative easing does not represent a financial house that's in any semblance of order or strength.

Perhaps now Europe will continue to follow the U.S.'s lead and will follow up this massive measure with additional, ineffective stimulus spending. Or better yet, perhaps they'll choose this moment in history to grapple with some multi-generational challenge with a multi-trillion-dollar program for "change we can believe in".

Those in charge of sovereign spending within the old-guard economies have flown completely off the handle. The closest thing to payment that will ever be collected on these debts will be paid in blood, sweat, and lots of tears.

 

We'd have been better off to let the wolfpack devour us while they were still relative pups. The rabid, bailout-fed pack can not be repelled, but by making it stronger we only further sealed our economic fate.

 

9 Comments – Post Your Own

#1) On May 10, 2010 at 7:48 AM, cbwang888 (25.80) wrote:

Is this a money printing race going on?

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#2) On May 10, 2010 at 8:32 AM, MstrGold (30.54) wrote:

How long does this Ponzi scheme is yet to endure? :-/

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#3) On May 10, 2010 at 8:35 AM, portefeuille (99.60) wrote:

time to get rid of that stupid shiny metal and buy European equities, hehe ...

a slightly better time was when I wrote this post.

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#4) On May 10, 2010 at 8:53 AM, catoismymotor (41.70) wrote:

Does anybody else have I Will Survive by Gloria Gaynor running through your head?

I recommend researching strategies of how to tread water, if not thrive, from this mess. I think it is a better way to spend your time and money besides lubing up, assuming the position and waiting for the inevitable.

 

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#5) On May 10, 2010 at 12:34 PM, cdulan (90.24) wrote:

You are missing something. The Greece debt purchases are meant to be "sterilized", meaning that they are going to issue ECB debt to buy Greek debt.  So there is no net expansion in debt outstanding, just a transfer of risk.

So although I am long gold too, and for similar reasons. Don't mislead people with your blog post because the details give a false impression.  I do believe that all of this new found "fiscal austerity" will lead to greater deflation for the honest ones and funny instruments to back door the debt for the not honest ones.  In any case, gold is a good hedge and should appreciate to the levels you mention, IMHO.

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#6) On May 10, 2010 at 3:36 PM, XMFSinchiruna (27.70) wrote:

cdulan

I fail to see how anything in my post is contradicted by your caveat.

Speaking of misleading, I think the word "sterilized" is about as appropriate in that context as it would be within a vat of heavily fermented CDS derivatives. :)

No change in the modus operandi ... the Treasury issued (and will continue to issue) U.S. debt so the Fed could (can) buy up Fannie Mae debt (for example). This may cause no net expansion of Fannie's debt burden, but that transfer of risk sure holds structural implications for the currency underlying the new custodian.

I will scrutinize the details of the bailout when I have a moment, but of course the move serves to substantially increase the debt of the ECB as an economic consortium, as well as the U.S. (via our proportionate funding of the IMF). The reinstitution of the Fed's inter-central-bank currency swaps is also not without its own set of risks.

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#7) On May 10, 2010 at 3:39 PM, catoismymotor (41.70) wrote:

I see where gold is down a skosh (-0.005%) and silver is up a smidge (-0.0032%). It is interesting that on a day where the market is up 3.5% that silver is not down at all and gold is not down more.  I think this is very telling.

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#8) On May 11, 2010 at 3:55 AM, SnapDave (56.99) wrote:

cdulan has a point but in any case money will be shifted from potentially productive uses to this French bank bailout.  The Fed meanwhile will print to prop up the EUR.  Theoretically that will be extinguished at some point.  The Germans are likely to remain resistant to printing euros.

But still, “We are going to defend the euro,”  has to be the most hilarious line of the weekend.

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#9) On May 12, 2010 at 4:29 PM, fockewulf (< 20) wrote:

Living as an ex-pat in Germany, I can tell you that the current government is without a doubt "all-in", and they will print, promise, cajole and even lie, to defend the euro.  Those with any means here see the writing on the wall, and they are buying physical gold and silver for all its worth.  Many of the german on-line PM handlers are sold out of silver in bulk.  Silver bars here are taxed at 19%, (silver coins are only taxed 7%) so there are still plenty of them available, but who wants to buy a one ounce silver bar for €31, 60?  Gold is still around at €1040 per ounce (no tax), but even at this price, they are flying off the shelves.  I talked to an owner of a prominent german PM dealership and he told me he has been so swamped with orders, he had to shut down his customer service department and put them to work processing orders.  The panic is real, and trust in the markets and the euro is eroding with each passing day.  We are living in interesting times. 

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