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Liquidity Floodgate Set to Backfire; Transmission Broken; Shutting Down the Liquidity Spigot

From Mish’s Global Economic Trend Analysis

The ECB’s LTRO was a stunning success. Or was it? Certainly rates dropped in Italy and Spain. However, all that really happened is the ECB became the buyer of first resort in which banks front-ran the trade, buying sovereign bonds for sure profit, plowing back into the same problem that created the European mess.

The ECB’s balance sheet skyrocketed in the process, and banks that plowed into those 3-Year LTROs (long term refinance operations) at cheap rates will face a huge rollover problem when the program ends, if not substantially before then.

Should something go wrong (and it will), then the ECB (or rather EMU member countries, especially Germany) will be on the hook for losses.

Consider the enormous mess over the past few weeks caused by a measly 40 billion euro holding of Greek debt by the ECB. Now take a look at the ECB’s Balance Sheet expansion recently.

ECB Balance Sheet

Since July 8 2011, the ECB’s balance sheet has expanded from 1.92 trillion Euros to 2.66 trillion Euros, a rise of 740 billion euros. €489 billion of that that was taken by 523 banks in the ECB’s long-term-refinance-operation LTRO.

Round two is scheduled for February 29, and the ECB is rightfully getting nervous.

ECB Transmission Mechanism is Broken

FT Alphaville explains in the “Diagram Du Jour” How the ECB Transmission Mechanism is Broken

Courtesy of Nomura’s euro area economics and strategy team:

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The Market Ticker – I Lost My Job, Now I’m Crazy!

From The Market Ticker

Uh huh….

The New York Post reported Sunday that as unemployment checks run out, many jobless are trying to gain government benefits by declaring themselves unhealthy.

More than 10.5 million people — about 5.3 percent of the population aged 25 and 64 — received disability checks in January from the federal government, the Post wrote, a 18 percent jump from before the recession.

Provide a public tit and the public will suckle on it.

Folks, I know I’m a broken record here, but if we don’t cut this crap out and force people back into the workforce (including entrepreneurship) we’re screwed.  The labor participation rate makes this “hand out disability payments because someone’s crazy over losing their job” an utterly unsustainable practice, and one that must be cut off.

If you believe that 5.3% of the working-age population are totally disabled — that is, unable to do any sort of productive work of any kind — you’re certifiably insane.

Oh, 43% of those are making the claim alleging mental illness.

Their illness is, quite simply, that they can’t have their free iFraud any more.

8 Reasons Why The Greek Debt Deal May Not Stop A Chaotic Greek Debt Default

From The Economic Collapse

The global financial system is not a game of checkers.  It is a game of chess.  All over the world today, news headlines are proclaiming that this new Greek debt deal has completely eliminated the possibility of a chaotic Greek debt default.  Unfortunately, that is simply not the case.  Rather, the truth is that this new deal actually “sets the table” for a Greek debt default.  When I was studying and working in the legal arena, I learned that sometimes you make an agreement so that you can get the other side to break it.  That may sound very strange to the average person on the street, but this is how the game is played at the highest levels.  It is all about strategy.  And in this case, the new debt deal imposes such strict conditions on Greece that it is almost inevitable that Greece will fail to meet some of them.  When Greece does fail, Germany and the other northern European nations may try to claim that they “did everything that they could” but that Greece just did not “live up to its obligations”.  So does this mean that we will definitely see a chaotic Greek debt default?  No.  What this does mean is that the chess pieces are being moved into position for one.

The following are 8 reasons why the Greek debt deal may not stop…

9 Day Race to Ecstasy; Only Way Greece Can Win Is To Lose

From Mish’s Global Economic Trend Analysis

Hold your horses on that “finalized” deal. There are still numerous austerity measures to implement, details to wrap up, ribbons to cut, and bows to tie. Thus, the Greek Race to Unlock Bail-Out is on.

The Greek government is racing to complete a lengthy checklist of reforms demanded by international lenders before the end of February to unlock a €130bn bail-out agreed in the early hours of Tuesday morning after months of high-stakes bargaining.

The latest demands include dozens of “prior actions” that Greece must deliver as a condition of the rescue – from sacking underperforming tax collectors to passing legislation to liberalise the country’s closed professions, tightening rules against bribery and readying at least two large state-controlled companies for sale by June.

Andrew Balls, head of European portfolio management at Pimco, one of the world’s largest bond investors, said: “It is all an exercise in make-believe. Does anybody really believe any of the Greek debt sustainability numbers?”

In addition to the sheer volume of legislation the Greek government needs to pass, it will also be working against a backdrop of social unrest that has brought thousands of demonstrators on to the streets of Athens. Leftwing politicians, who have risen in the polls, have already vowed to challenge the deal ahead of expected April elections.

In what could set a precedent for future European Union rescues, the new deal gives the lenders extraordinary powers to monitor Greece’s policies and

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The Market Ticker – Here It Comes (Oil Prices — Again)

From The Market Ticker

There are times I have to chuckle, although this is not likely to be very funny.

The world’s top oil exporter, Saudi Arabia, appears to have cut both its oil production and export in December, according to the latest update by the Joint Organizations Data Initiative (JODI), an official source of oil production, consumption and export data.

If you remember just days ago Saudi Arabia said they “would not allow” the price of oil to rise over $ 100.

Well, it’s $ 105 this morning, and that’s definitely over $ 100.

Just a week or so back I was in Orlando and paid $ 4.03 for diesel on the way home, and that sucked.  A good part of the state is right near or at $ 4, and while we’re 15 cents or so cheaper (if you look closely enough) that’s up bigtime over just a couple of weeks ago.

Nationally, we’re also up about 20 cents on gasoline over the last month, and that’s not good either. But heh, we’re constantly told that this won’t matter to the broader economy.

In a word: Nonsense.

Look, 20 cents a gallon doesn’t sound like a lot.  But the average commuting car get around 25mpg combined cycle in actual use (despite the claims otherwise) and a whole lot of people commute 50 miles a day (both directions.)  So this is about a half-a-buck a…

Gold: Is this 1980 All Over Again? Not Even Close. (Micro Doc)

From SHTF Plan – When It Hits The Fan, Don’t Say We Didn’t Warn You

Over the last half decade or so, as the price of gold and silver have steadily risen, financial experts, advisers and pundits have often argued that gold is a bubble. They said it in the spring of 2008, as gold approached $ 900 per ounce. Likewise, as gold surpassed its nominal 1980′s high and went above $ 1000, those same analysts were screaming sell recommendations. To this day, with gold nearing $ 2000,  they are still all marching to the same tune.

Headlines for the last three years have been heavily weighted against gold, with every price spike being met with bubble talk. When George Soros said in January of 2010 that gold was the ultimate bubble, the media pounced on it as evidence that precious metals were through. Of course, Soros had been acquiring millions of dollars worth of gold assets (and continues to do so today). His message was completely misconstrued. Gold, like any other asset that involves a buying frenzy, will eventually become a bubble. And given the reasons for why people buy gold – inflation protection and as a hedge against the loss of confidence in government stability – we can be fairly certain that gold and precious metals in general will eventually reach exorbitant levels and “pop.”

But, as Daniel Ameduri of Future Money Trends points out in the following micro-documentary, we’re nowhere near bubble territory…

10 Signs That America Is Decomposing Right In Front Of Our Eyes

From The Economic Collapse

The decay of society is so much harder to quantify than economic decline is.  The government keeps lots of statistics on things like unemployment and inflation, but it really does not keep track of how sick and twisted people are becoming.  Most of us recognize that the character of the American people has changed dramatically over the decades, but unlike the national debt, you can’t easily point to a chart or a graph to show exactly how bad things are getting.  In this article, my approach will be to point you to various “signs” of social decay.  Signs tell us where we are at now and where we are headed.  Some of the signs that I will use will be statistics while others will simply consist of anecdotal evidence.  Yes, anecdotal evidence is not perfect, but when you put enough of it together it starts to paint a pretty clear picture of what is going on out there.  America is becoming a truly frightening place.  Our cities our decaying, thieves are becoming bolder, you never know who you can trust and everyone seems depressed.  America is decomposing right in front of our eyes, and it is time that we all admitted it.

In the old days, if you met a stranger out on the streets you knew that you could almost certainly trust that person.  But these days if…

Why Greece Must Exit the Eurozone, How it Will Happen (and Why Portugal and Spain Will Follow); Does the Euro Act Like a Gold Standard?

From Mish’s Global Economic Trend Analysis

Several people have asked me about statements I have made that “Greece is in a hopeless situation until it exits the Eurozone.”

Actually Greece is in a horrific condition whether or not it exits the Eurozone as the Troika literally destroyed Greece (perhaps purposely to protect French and German banks), by dragging this mess out the way they have.

A Primer on the Euro Break-Up

To understand why Greece (then Spain and Portugal and perhaps even Italy) must exit the Eurozone, one must first understand the flaws of the European Monetary Union.

In general terms, the question at hand is “what makes good and bad currency unions?” The best answer I have seen written anywhere is also in the same article that explains in depth how sovereign defaults and currency devaluations happen.

Please consider some pertinent snips from A Primer on the Euro Break-Up by Jonathan Tepper of Variant Perception.

THE NEED TO EXIT: A ONE SIZE FITS ALL MONETARY POLICY

Europe exemplifies a situation unfavourable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe.

Professor Milton Friedman, The Times, November 19, 1997

Before the euro was created, Robert Mundell wrote about what made an optimal currency area. It is a groundbreaking work that won

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The Market Ticker – Iceland Erects Middle Finger, Wins

From The Market Ticker

Funny how this is getting scant attention….

Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.

Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

Their anger, if you remember, including the very-explicit threat to burn the government to the ground — literally — with road flare protests and pelting Parliament with rocks.

Remember this?

It worked.  The people won, and the banksters lost, at least for now.

Banks were closed and reorganized, depositors protected and external creditors told to stuff it.  Despite claims at the time of “dire consequences” they never materialized — oh threats were made, but in the end nobody invaded and nobody did a damn thing about it, because they couldn’t.

As for handcuffs, we might get those too….

Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.

That would be a great thing indeed.

The lesson here is that you don’t have to put up with the banksters and the world will not end if you…

The Price Of Gas Is Outrageous – And It Is Going To Go Even Higher

From The Economic Collapse

Does it cost you hundreds of dollars just to get to work each month?  If it does, you are certainly not alone.  There are millions of other Americans in the exact same boat.  In recent years, the price of gas in the United States has gotten so outrageous that it has played a major factor in where millions of American families have decided to live and in what kind of vehicles they have decided to purchase.  Many Americans that have very long commutes to work end up spending thousands of dollars on gas a year.  So when the price of gas starts going up to record levels, people like that really start to feel it.  But the price of gas doesn’t just affect those that drive a lot.  The truth is that the price of gas impacts each and every one of us.  Almost everything that we buy has to be transported, and when the price of gasoline goes up the cost of shipping goods also rises.  The U.S. economy has been structured around cheap oil.  It was assumed that we would always be able to transport massive quantities of goods over vast distances very inexpensively.  Once that paradigm totally breaks down, we are going to be in a huge amount of trouble.  For the moment, the big concern is the stress that higher gas prices are going to…