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.

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8 Responses to “Notes From Underground: LIES, DAMN LIES and THE SADISTICS OF AUSTERITY”

  1. whitewavetrader Says:

    To all you addled genius that can’t process what Yra has written over the past few weeks here are the highlights..

    Sunday Aug 28 when he called for the high in the Euro @ 145!

    Go back two weeks and read his call on the Kiwi..he called the top @ 82.50!

    This week he told all to look for a low in the Aussie..Risk On anyone?

    Who’s been Hot!!!!!
    Smoking Hot!!!!!

    Some people have substance!
    You need to actually read the words to hear!

    • RFRMDCNSMR Says:

      I agree whitewavetrader, I’ve only been following Yra for 3 weeks now but have become a devoted reader.

      Yra, I believe you when you say “I I have argued for almost two years in this blog that the housing problem needs resolution and the first step ought to be A MASSIVE REFI PROGRAM.” (11-Sep-11). I could not agree more; when? what is he waiting for? what’s his downside? I really think Obama needs to go all-in for 2012 and this seems like such a no-brainer. What am I not getting?

      Thanks for sharing.

  2. arthur Says:

    FT Lex, US economy: bullish Buffett. No recession “With more than a 250,000 employees engaged in utilities, railroads, manufacturing, finance and home furnishings, Berkshire Hathaway’s operating data are far more timely than nearly any government report.”,Authorised=false.html?

  3. yra Says:

    Arthur–may be true but I wouldn’t want to trade on it.

  4. yra Says:

    RFRM–the thing we are missing is that geithner and summers were sent in to protect the banks at all costs and Obama has swallowed that game plan hook line and sinker.I am always left wondering as to why Obama cut Daschle loose for tax reasons but held onto Geithner .He is a weak Secretary of the Treasury and if you read Geithner’s speeches from his time as head of the NYFRB he didn’t have a clue as to what was coming so why would Obama pick this guy—no matter what the occupiers of wall street think Obama has been the most devoted wall street president since Clinton and his clique of Bob Rubin


    I regret you may be right – where is the audacity we were promised? If wall street is standing in the way of an executive order to allow mega-refi, it’s holders of high-coupon RMBS… (China?) … the Reuters link I posted above above implies the FHFA has an issue with it but the only reference to the “friction” is that they object to the “high fees associated with refinancing” and hope “to clean up the appraisal process” – noble goals but, to my eye, unrelated to the fact that ‘current’ mortgagees should be entitled to refi regardless of their LTV ratio.

  6. yra Says:

    RFRM—The only thing that MAY BE holding back the massive REFI is the fact that JP MORGAN is the king of HELOCs and in a refi the issue of Home equity loans is very important and Jamie Dimon knows he has this problem

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