The European problems are made from the continued deception of the policy makers that meander from crisis to crisis. Eurocrats denied that there was a sovereign credit crisis even as the BOND MARKET was aggressively selling the debt of the PIIGS. A problem in Greece when rates went above 10% on 2-year Greek Bonds? No, just some speculators moving the markets in an attempt to make a quick EURO. There are no problems in the EU. Now that the lies have given birth to a major crisis and possible global DEPRESSION, the EUROCRATS are beginning to acknowledge that something is rotten in Brussels.
As the PIIGS have had to meet the requirements of bailouts by ending the profligate nature of their bloated bureaucracies, their economies have turned growth-negative. This has put even more pressure on budget deficits, a classic negative feedback loop. Today, the European Banking Authority announced they will be conducting new stress tests to determine which European banks will need to raise capital. This is a positive step for Europe because it means that Germany and other creditor nations are going to do a real assessment of how much money it will take to shore up the German and French Banks if the sovereign debt they hold at a genuine market value and not some make-believe level. It may also mean that there will be a day of reckoning for Greece and Portugal and, thus, end the game of EXTEND and PRETEND.
There is also no doubt that the IMF is going to be involved in a meaningful way. Antonio Borges, the IMF‘s European director, was very vocal in stating his support for the stress tests and the necessary response to bank capitalization levels, an issue in which Christine Lagarde has already taken the lead. A Financial Times’ article said, “In a sign of the IMF’s deepening concern, Mr.Borges suggested at one point on Wednesday that the FUND could step up its role by joining the EFSF in buying distressed Spanish and Italian government bonds in order to stabilize markets.”
MR.BORGES HAD TO RESCIND HIS STATEMENT AS THE IMF CAN ONLY LEND ITS RESOURCES TO OTHER COUNTRIES. Upon further review Borges also said “no such plan was being contemplated.” Lies and more lies, as the European-dominated IMF will look to aid the PIIGS and European banks to the full extent of its ability. IN THE WORLD OF DERIVATIVES ISN’T IT TIME THE IMF PUT ITS GOLD TO WORK BY CREATING A GOLD-BACKED BOND? Where are all the creative geniuses on Wall Street?
Quick Hitter: Tomorrow morning the BOE and the ECB announce their interest rate intentions. At 6:00a.m. CST, Mervyn King will report on the MPC‘s decision. Although rates will be held at 0.50%, it seems that there MAY be an increase in the ASSET BUYING PROGRAM. The present level is 200 billion POUNDS and it could be raised to 250 billion to increase the BOE‘s quantitative easing program. If the Brits raise the level it should weaken the POUND. (50 billion could already be priced in, so it will be important to give the market time to digest the news.) If the number were increased to 300 that would be a surprise and the FOOTSIE will then be the best guide as to the market’s view of such an aggressive ease.
The ECB follows at 6:45 and being that this is TRICHET’S farewell I will not even venture a guess as to what the ECB will do. consensus says for the ECB to hold rates at 1.50%. There will be a press conference at 7:30. Bidding a fond goodbye to an arrogant asshole such as President Trichet is just pure sweetness. Hey Trichet, ADIEU or maybe better yet for your hard money stance, AUF WIEDERSEHEN.