(1) Worth more than € 1,500 billion per year in 2011 and 2012, including of course the United Kingdom.
(2) The US municipal bond market (" Munis
") is used to fund the local transportation, health, education and sanitation infrastructure, ... It’s worth nearly 2,800 billion USD.
(3) Source : Reuters
(4) In a 11/20/2010 article Safehaven
indeed openly expressed surprise over the " omerta
" of the major financial media on the issue.
(5) The Financial Times, for example, has for the last month, begun to publish two or three articles per day on its website’s homepage on the so-called "Euro crisis" and to manipulate news, such as the statements of German leaders, to artificially create feelings of anxiety. Finally, even some of the French media are beginning to realize what an incredible political propaganda machine the Financial Times has become, as this recent article by Jean Quatremer
in the Libération shows.
(6) By way of comparison, no investor has lost money in the "Greek and Irish episodes" of the "Euro crisis", whilst tens of thousands have lost considerable sums in the recent US Muni crash... yet the media covers the first and not the second.
(7) LEAP/E2020 would like to remind readers of previous GEAB analyses that the discussion over the "Euro crisis" is of the same order as the Swine fever outbreak a year ago, namely a large-scale manipulation of public opinion to serve two purposes: first, to divert public attention from more serious problems (with Swine fever it was the crisis itself and its socio-economic consequences; with the Euro it is simply to divert attention from the situation in the United States and the United Kingdom), and secondly, to serve the goals of players with a major interest in
creating this situation of fear (as regards Swine fever it was pharmaceutical laboratories and other related service providers; as regards the Euro, financial players are earning a fortune by speculating on the public debt of the countries concerned (Greece, Ireland, ...)). But just as the Swine fever crisis ended in a masquerade with governments stuck with colossal stockpiles of now worthless vaccines and masks, the so-called Euro crisis is going to end up with players who will have to redeem their so “profitable” bonds for next to nothing whilst their dollars will continue to fall in value. The summer of 2010 has already shown, however, the direction of events. Source: Bloomberg
(8) Following the methodology of political anticipation
, in the past years our team has, of course, looked at the possibility that the Euro might disappear or collapse. Its conclusion is cut and dried because we have identified only one set-up where such a development would be feasible: at least two major Eurozone states must be headed by political forces wishing to revive intra-European conflicts. According to our team, this prospect has zero probability of taking place in the next two decades (our maximum anticipation span in political matters). So, exit this scenario, even if it makes some with nostalgia for the Deutschmark and Franc sad..., some economists who believe that reality pays little attention to economic theories, and some Anglo-Saxons who cannot imagine, without pain, a European continent which carves out its economic and financial path without them. According to Wikileaks even Mervyn King, head of the Bank of England, believes in an accelerated integration in the Eurozone as a result of the crisis, which recounts his conversations with US diplomats (source: Telegraph
, 12/06/2010). Our work on the Euro therefore focuses on the anticipation of the Eurozone’s laborious journey in adapting to its new status as Euroland in the context of the global systemic crisis. Incidentally, it is worth noting that this orgy of criticism and analysis that essentially the US and especially British media lavish has an undeniable value for Euroland leaders: it throws light on all the obstacles laid along the Eurozone path, a sine qua non for avoiding pitfalls. It's paradoxical, but it's an advantage not enjoyed by British or US leaders ... except when they read the GEAB.
(9) And not in relation to “made to measure” currencies as is the case for the Dollar Index
(10) The New York Times has posted a very informative game called "You solve the budget problem" on its website which allows each player to try and restore the state of federal public finances according to its socio-economic priorities and policies. Feel free to put yourself in the shoes of a Washington decision maker in and you will see that only political will is lacking to solve the problem. Source: New York Times
(11) Sources: CNBC
, 11/26/2010; Le Temps
, 12/10/2010; USAToday
, 11/30/2010; New York Times
(12) The United States funds its deficits by a huge daily grab of available global savings. The country’s diplomatic credibility and effectiveness are therefore two essential features for its financial survival. But Wikileaks’ recent revelations are very damaging to the credibility of the State Department, whilst the recent complete failure of the new Israeli-Palestinian negotiations illustrates a growing ineffectiveness of US diplomacy, already very sensitive at the last G20 in Seoul. See the more detailed analysis in this issue. Sources: Spiegel
, 12/08/2010; YahooNews, 12/07/2010; YahooNews
(13) Even Chinese officials consider that the US fiscal situation is markedly worse than Euroland’s. Source: Reuters
(14) Iceland, Ireland ... the United Kingdom, the United States, was the accursed follow-on of sovereign insolvency that LEAP/E2020 anticipated more than two years ago. Events are moving slower than we expected, but 2011 risks proving to be a "catch up" year. The United Kingdom is currently trying to save itself at the cost of huge and drastic socio-economic cuts of which student violence, including that against the Royal Family (a rare event), testifies to their unpopularity. But the size of its debt, its financial isolation and the State rescue of its banking debacles (as did Ireland) makes this headlong rush very dangerous, socially, economically and financially. As for the United States, their leaders seem to do everything (by "doing nothing") to ensure that 2011 is truly the year of the "Fall of the Dollar Wall
; as LEAP/E2020 anticipated in January 2006.
(15) As Liam Halligan pointed out in The Telegraph
of 12/11/2010, this development on interest rates does not bode well for US debt, expressing what LEAP/E2020 anticipated over two years ago now: we are reaching the moment of truth when available global savings are insufficient to meet the needs of the West, particularly the gargantuan need of the United States.
(16) A factor emphasized by the GEAB team for over four years.
(17) European Financial Stabilization Fund, hedge fund regulation, strict limits on bank bonuses, strict regulation of rating agencies, budget monitoring, next reinforcement of the whole of the European internal market financial regulation, first Euroland rating agency, … Sources: European Voice
, 10/26/2010; Deutsche Welle
, 11/05/2010; Reuters
, 07/13/2010; ABBL
, 12/08/2010; BaFin
(18) Wolfgang Schauble
, the German Finance Minister, is currently the only politician who dared to clearly show his colours in his recent interview with Bild magazine
, in which he states that during the next ten years, Euroland countries will have accomplished a genuine political integration. Karl Lamers, his colleague in charge of European affairs at the core of the CDU, identifies the crisis as an opportunity for Europe and Germany, as wel as as the too rarely heard American voice of Rex Nutting in the Wall Street Journal
of 12/08/2010. On the technocratic side, the ECB President, Jean-Claude Trichet, called for a "budgetary federation" in Euroland. Sources: EUObserver
, 12/13/2010; DeutschlandFunk
, 12/09/2010; EUObserver
(19) For over a decade, public opinion in the Euroland countries has been, in effect, much more "integrationist" than their élite. Thus, rejection of the draft European Constitution in 2005 in France and the Netherlands would not have happened without some "pro-Europeans" voting "No", rejecting a draft that they considered too timid, politically, democratically and socially.
(20) European leaders are like the tortoise in the Jean de La Fontaine fable "The Hare and the Tortoise
" ... but the race would be described by hares!
(21) By the way, the Eurozone’s future political leaders would be well advised to practice, as quickly as possible, how to manage Euroland through two interactive games, Economia and Inflation Island
, that the European Central Bank has made available to the public.
(22) As LEAP/E2020 has repeated for nearly two years, European austerity is politically viable only if accompanied by unquestionable social and fiscal equity and the implementation of major democratic and social projects throughout Euroland. It is here that the real medium to long term weakness of the Eurozone can be found, not in the sovereign debt of the peripheral countries. To illustrate this point, it is useful to watch the very interesting video coverage made by the New York Times during the summer of 2010, called "The Austerity Zone: Life in the New Europe
(23) Given the obvious difficulty of the American élite to understand the developments taking place in Europe, LEAP/E2020 wishes to contribute to the debate currently raging on US college campuses where budget austerity has led to heavy cuts in language teaching. As always, behind budgetary justifications, several "hidden agendas" can be identified as well as candid lack of understanding of what's going on in the rest of the world regarding languages. A perfect example of both trends seems to be Richard N. Haas
, former key official of the US State Department in the G.W. Bush administration, and now the president of the influential Council of Foreign Relations
, who strongly advocates pushing French, German and Russian languages out of US campuses. With such 'enlightened and fair' advisers (qualified as having « an intellectual deficit » to understand the 21st century world at the GlobalEurope seminars
in The Hague and Washington in 2004/2005), US students are doomed to be less and less able to understand tomorrow's world. Therefore, LEAP/E2020 finds it timely to circulate its 2007 anticipation entitled ' Which languages will the Europeans speak in 2025?
(24) These will be the bonds used by all Euroland countries and other EU member states who wish to participate as the other countries, except the United Kingdom, did in May 2010 for the European Financial Stabilization Fund.
(25) Despite the denials of French and German officials, these Eurobonds are on the agenda of all the informal discussions of Euroland leaders. Source: Euroinvestor
(26) It is also probable that the rise in strength of the political renewals expected in France from Spring 2012, and perhaps also in Germany at that time, will make these issues real campaign topics from the end of Summer 2011.
(27) Liam Halligan, definitely one of the best British watchers of the global crisis, is thus completely right to stress in The Telegraph
of 11/27/2010 that Angela Merkel (and other Euroland leaders as well) has every intention of making investors pay for significant share of their Irish and Greek bets. But that will happen in an organized manner, as an effective and forceful strategy which the strong States are used to; not in a panic, in the context of a mini-crisis.
(28) And we repeat that, according to our anticipations, they will probably be the political leaders most independent from banking lobby since the 1990s.
(29) This will also take place in an organized manner of “forcibly” cutting back the damaged balance sheets of the major European banks.
(30) The head of the Fed, Ben Bernanke, is in fact the person to whom this task fell: print dollars to buy US Treasury Bonds which no one else wants, also highlighted by the recent sharp rise in interest rates on US debt, much more significant for global issues to come than speculation on interest rates of Greek and Irish mini-debts.
(31) Here, the example of the law on financial institution supervision is striking. With 1,408 pages of text (source: US Senate Committee on Banking
, it is certain that all the lobbies involved were able to have the text that suited them included. And, anyway, as a people who had the intelligence to write an eight-page constitution well know, a statute of more than 1,000 pages is totally unworkable: "Too big to read”! But we can also note more recently the compromise on tax cuts handed down by G. W. Bush: without a decisive majority, Obama has finally agreed to extend those tax cuts to all categories including the richest households. At a time when deficits are becoming unsustainable, confirmed by the ad hoc committees SET up by Barack Obama himself, US leaders refuse to raise taxes on anyone, even billionaires, many of whom are asking for it. This Washington paralysis now takes on a tragic aspect because it takes place on the edge of a chasm that is widening day by day. For example, the extension of tax cuts will add more than 850 billion USD to the federal debt. Source: Bloomberg
(32) The federal State has been the States’ main source of income for the last two years.
(33) Numerous large US companies are in the same situation. Sources: GlobalEconomicAnalysisBlogspot
, 11/29/2010; Denver Post
(34) Keep in mind that behind the “Munis” there are now federal "Buy America Bonds" ("Babs") which have served to support US local authority finances for the last two years. Yet the future of these "Babs" is subject to the whims of Congress especially Republicans who are hostile to them, knowing that, without these federal bonds, the market for Munis is doomed to collapse abruptly. Sources: Seeking Alpha
, 11/25/2010; ContraryInvesting
(35) The Economist
of 11/25/2010 also drew a parallel with the “subprime” market. Besides, even though this market is clearly on the verge of complete collapse, major U.S. financial institutions continue to stuff the general public with these securities (including foreigners of course), which just goes to show that the "subprime" parallel is very relevant. Sources: MarketOracle
, 12/06/2010; Bloomberg
(36) And much criticized in the country, as already analyzed in GEAB No. 49, and shown by the Bloomberg
survey published on 12/09/2010, indicating that a majority of Americans believe that the Fed should be placed under political control or abolished.
(37) Ron Paul
has just been elected as head of the House of Representatives sub-committee that deals with the Federal Reserve. His goal: to audit the Fed, Ben Bernanke’s worst nightmare according to much of the US media. Source: Examiner
(38) In both senses of the term, including the type of fraud (cavalry
(39) Which, in particular, will push the United Kingdom, which guaranteed its banks, into a similar situation as Ireland.
(40) We are thus approaching the beginning of the “tragic” scenario of the 2010-2020 decade described in Franck Biancheri’s book “The World Crisis: the Path to the World Afterwards
(41) See GEAB N°32
(42) Their value has risen for the last year because of the massive injection of liquidity that has temporarily recreated bubbles.
(43) Thomas Hoenig
, the current Chairman of the Federal Reserve Bank of Kansas City, won’t complain because he has just issued a heartfelt plea to drastically reduce the size of major US financial institutions. If rout of the Fed in its current format is born out in 2011 as we anticipate, he is a prime candidate to succeed Ben Bernanke which could turn out to be faster than statute provides. Source: New York Times
(44) Banks’ senior notes are now in the crosshairs. Source: EasyBourse
(45) According to Zillow, in 2010 US real estate will have lost 1,700 billion USD in value (against “only” 1,000 billion USD in 2009). At this rate, the Fed will have to triple its QE II to simply avoid a recessionary spiral. Source: Zillow