6-May-10 News -- Deadly riots in Athens shock the world

[John]

6-May-10 News -- Deadly riots in Athens shock the world

** 6-May-10 News -- Deadly riots in Athens shock the world
** http://www.generationaldynamics.com/cgi ... 06#e100506

Contents:
"Three die in violent 'anti-austerity' riots in Athens"
"Officials fail to halt meltdown of euro currency"
"Additional links"

[mannfm11]

John, this is deflation in action. The US money supply isn't growing, but is shrinking. The world has run on US demand for the last 65 years and that is a thing of the past. If the ECB created credit on Greek bonds, it would be in essense a back door bank bailout, just as the Fed did in the US. My best guess is the Fed is insolvent right now, which is why they don't want an audit of any kind. Denninger seems to think the Fed is going to dump the mortgages on FNM and FRE and the losses will be $500 billion. Central banks have little to do with private credit other than to provide funds for banks to shift between themselves. The banks of the world were running on paper exchanged between them, determined by who needed funds to balance their accounts and who had it. Once this system failed, mainly due to the insolvency of Citicorp, there was a huge hole in the system. Banks that received the excess credit produced by the other banks had money to lend, but the problem was they were in danger of not getting it back. If you read Minsky's "stabilizing an unstable economy", you will find he wrote the story in minature nearly 25 years ago. What he wrote about was the 1970's and how big government was able to stop problems, but the problems in the 1970's were minature compared to the huge bubble we have today. The banks actually failed and you could see how big the hole in credit was. In this crisis, the big banks in the US are insolvent, the big banks in Europe are insolvent, the big banks in China are insolvent as are those in Japan. Also, the debt load of most countries are not sustainable in light of the huge stimulus that must be added to the pie.

The last boom involved lending money to people that had no way of ever extinguishing the debt they took on. In order to recreate demand, this risky lending has to be re-ignited, which means that whomever issues the paper has to find a buyer. Who is going to buy CDO's made out of liar loans this time? Who is going to buy junk credit card paper? With interest rates at Chase and Citi at 30%, who would ever pay it back if they got in debt? The capacity for additional credit is broken.

In the meantime, the government and Wall Street are trying the just think positive con one more time. Wall Street and phony demand in China are driving commodity prices. We are about to see a huge bust. It is still the US that has to provide the credit to float the rest of the world, not the other way around. The dollar is used to collateralize money in other countries and in that fashion, the receiver gets to lend it back to us and spend it too.

Trade balances have little to do with exchange rates and plenty to do with how much credit is available in a country. American money is impounded by the governments and central banks in a lot of countries and loaned back to the treasury. This goes on as long as the US consumer has credit to continue buying. Obama has put credit out there in the form of transfer payments, but he is spending the country broke in order to prop the banking system and keep the perception that all is okay. In the meantime, 40% of those unemployed have been out of work for over 26 weeks, 3 times the normal average and by far the worst ever, at least since world war II. That is merely the first wave up, as we are going to see it reach a point where someone either keeps their job or they might not get one.

Greece should be a shot across the bow for the US government and for others running huge deficits. If it becomes apparent the US is going to ruin the dollar beyond recognition, we can kiss the import of oil good bye and we will know crisis like none has been known before. Greece is beyond help as far as staying solvent and is quite likely to suffer a revolution. Once it becomes apparent that once a point is reached, there is no turning back, austerity will sink in around the world. Then we will see not only defaults, but bankruptcy filings which will wipe out much of the savings pool around the world. Then there will be people who think they are rich now that will have to pull in their horns. In the end, the gold bugs will be right as credit will consume the credit machine.