Fighting like cats in a sack

SUBHEAD: There are age-old issues in every nook and cranny of Europe that are set to rise up once again like so many zombies.  

By Raul Ilargi Meijer on 9 November 2011 for Automatic Earth - (

Image above: Cats fighting at dinner. Number 4915 from Alfred Mainzer postcard collection. Scanned from original by Juan Wilson.  

That’s the -very appropriate- highest level I saw the Italian 10-year bond interest rate achieve in the early morning today. Skyrocketing, baby. For all we know, Italy may plead with Berlusconi to come back even before he's left if this goes on. Just to be clear: this rate puts Italy in urgent need of a bailout. Even the 2-year yield soared above 7%.

There is supposed to be a €5 billion bond sale tomorrow; it could be ominous. Looking at the trouble Europe has dealing with Greece, one has to wonder what Italy's drama will bring to the EU. The ECB is certainly buying Italian debt as we speak, which makes one wonder where the yield would stand if it didn't.

That’s how much Cao Jianhai of the 'prestigious' Chinese Academy of Social Sciences sees home prices falling in China -perhaps even within the next year- if and when the government continues its current policies of "economic cooling", i.e. lending restrictions and capital requirements for banks.

This will lead to even more power for loan sharks, and to cut-off fingers, bankruptcies and down the line inevitably to mass social unrest. China as an economist's wet dream is over. 50% This is also the threshold that Diana Olick at CNBC says America's underwater mortgages have passed. She quotes analyst Mark Hanson:
Half of US Mortgages Are Effectively Underwater
On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10% down to buy in addition to the 6% Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out. Based on that, over 50% of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time.
Laugh all you want at the Greek and Italian antics, America, your turn will come, and it won't be long now. Numbers like these are certain to push home prices down further. A lot. The housing market is effectively dead, and it won't come back until prices are back where they become affordable. Which is at a far lower level than they are now. And that leads straight to the next number: $7.8 billion Which is what Fannie Mae has asked the US government for as a next bailout.

No end in sight. $112 billion Is what Fannie Mae has cost the taxpayer so far. $169 billion The tally for Fannie Mae and Freddie Mac combined to date. $220 billion The number the US government claims baling out the pair may cost you by 2014. I'm thinking that's still off by a factor or so (be creative). And here's what Michael Williams, Fannie's president and CEO, has to say about the situation:
"Despite these challenges, we are making solid progress."
Yeah; some progress, alright. But let's get back to Europe. What we see happening there lately is that politics starts trumping economics, i.e. numbers. This makes a lot of sense; the numbers are so bad that the power hungry among us need to try a different tack. And they have plenty of that. Hence the difficulties Greece has in forming a new government, national unity or not.

The frontrunner for prime minister until this morning, but no longer -or so it seems-, is/was Lucas Papademos. Ol' Luke is one of the boys: Harvard, Columbia, Boston Fed and ECB are on his proud resume. He's what we call a technocrat. Someone all too eager to follow the directions "offered" by the financial status quo. They wanted him in order to be sure all austerity and budget cut measures would be save.

But some Greek politicians refuse to play along. And Papandreou is probably all too glad that he can leave, and not carry the blame for what is to come, and which will be much worse, however it plays out, than what has already happened. (Note: I just read that parliament speaker Petsalnikos has been put forward, and a cabinet has been formed. I’ll give it till Christmas, and that's just because I’m in a generous mood.) Italy after Berlusconi -he's still there, mind you- is a similar story. the technocrat pushed forward in Rome is Mario Monti.

Resume: Yale, European Commission, Trilateral Commission, Bilderberg Group, Spinelli Group. Neoliberal, technocrat. Not everyone in Italy will love him as a prime minister, to put it mildly. It’ll be quite the fight. But then, that’s what Italy is up for anyway. An utterly corrupt political system has been simmering for years in quests for power while Berlusconi tightened his grip and issued bonds like confetti. He’ll soon be gone, the debt will not.

And Italy may well go the way of Belgium: a fast succession of short-lived cabinets, followed by a Mexican stand-off stalemate that can last for years, while Rome is burning. Italian private debt is low, but that only means taxes will rise through the roof, as the various governments will see no other way than to claim the wealth of their citizens. The citizens of Europe are just the last link in a chain in which every higher link tries to crush the lower ones into submission. The result will be something akin to the Balkanization of Europe.

Merkel and Sarkozy try to crush the Greeks into submission, and they'll soon do the same with Italy. Then Sarkozy, if he lasts that long -which is a big question mark-, will find Germany -with Holland, Finland etc.- trying to make him bend over. Meanwhile, Ambrose Evans Pritchard hollers that China and the US should crush Germany into submission.

Meaning Berlin should fund the ECB with trillions of euros of its taxpayers' money and fork it all over to Greece, Italy, Spain, you know the drill by now. Germany will undoubtedly already have told Obama and Wen Jiabao that in its view, it's not the ECB that should do the next round, but the IMF. That way the US can pay its fair share of the bailout. Merkel will argue that it's very much in the American interest to save Europe's banks and countries, and American banks are responsible for a large part of the EU crisis. So pay up, guys! All these leaders are watching what happens to Papandreou and Berlusconi and thinking: what's going to happen at my own next election? Will I even last that long?

What if the big boys want me out? In Europe, daily power has now shifted to the Frankfurt group, in which the core leaders (Merkel, Sarkozy, European Commission, ECB) try to take the decisions without having to listen to parliaments and such. Even as Merkel's own courts have recently ordered all major financial decisions to go through the Bundestag. This will not go well. It's hard to say where and when exactly such a chaotic system will snap, but snap it will. Once politics takes over, it's very hard to make it take a step back. There are age-old issues in every nook and cranny of Europe that are set to rise up once again like so many zombies.

Perhaps that's simply the inevitable consequence of an economic system based on and held together by zombie money. It won't be pretty. It makes me think of what George Monbiot once wrote about limits to cheap energy: we’ll end up fighting like cats in a sack.


1 comment :

Dharma Sanctuary said...

Great reading of the situation, Juan. Keep up the good work. Times are finally interesting, eh?!

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