Project Europe is Over

SUBHEAD: Don't listen anymore to all those pundits who claim that anyone can or should save the euro.

By Raul Ilargi Meijer on 25 July 2012 for the Automatic Earth -  
(http://theautomaticearth.com/Finance/project-europe-is-over.html)

 
Image above: Detail of Pablo Picasso's "Geurnica" mural, created in response to the bombing of Guernica, Basque Country, by fascist German and Italian warplanes at the behest of the Spanish Nationalist forces, on 26 April 1937, during the Spanish Civil War. From (http://www.caribousmom.com/2008/09/15/guernica-book-review/).
 


I don't really know why it is, but as much as I see pundits and experts and everyone in between address the euro mudbath lately, nobody seems to have caught on to the two main events (inflexion points?!) that shape the latest reincarnation of said bath. So here's for them, and you, and anyone who's not yet tired of the story:

Event no. 1: it’s not so much that it's an entirely new notion, it's the realization that it has come to pass that is new. And even then it will take a while for most pundits and experts to understand the significance.

I'm talking about the fact that the EC/ECB/IMF troika's southern European austerity measures don't do anything to push existing deficits and debt loads lower; they are, instead, not even sufficient to offset the deteriorating economies they’re applied to. They just slow down the downfall a little. Moreover, of course there's the massive snake-eat-tail cross-pollination of austerity measures destroying the very economies they're allegedly purported to save.

I would venture that Brussels and Berlin et all must have by now clued in, but they make sure - in what seems to be their main objective in all this - that everyone's fed reality in bite-size chunks. Which is understandable, since if the Greeks and Spaniards on the one hand, and German and Dutch people on the other, would have been fed the whole thing in one go, they'd have gone apeshit. So would the markets.

It makes little difference from what angle you look at the issue: it completely negates the legal (if perhaps not the political) foundation for the entire set of bailout and austerity schemes that have been negotiated and executed over the past few years on the premise that they would make recipient economies whole in the short to medium term. In other words, the reasons provided for implementing the schemes no longer have any validity at all, legal, political or moral. And that, naturally, will have dramatic consequences.

Time and again, Europe's inner rescue missions have been overtaken by developments. Which, frankly, were - and still are - always quite easy to foresee, and, I would think, have been foreseen by Merkel and Lagarde and Monti etc. Thus far, Europe has been able to replace its failed policy measures with subsequent bigger and harsher rounds of measures. This time, that won't be nearly as easy to do. The article from Der Spiegel I quoted on Sunday (more below) makes it very clear: This much is already certain: the government in Athens will not be able to bring down its debt load to about 120% of GDP by 2020.".

That's all we need to know, really. That tells the whole story of why Greece will be let go. No future bailouts, other than perhaps a few fake ones. Still, we can add this: Just recently, the Greek central bank projected a 4.5% shrinkage in the economy for 2012. Today PM Samaras estimated it will be 7%.

Trick question: on what numbers do you think the bailouts and austerity schemes agreed to in the past were based? Here's a quote from Ambrose Evans-Pritchard (more on that below as well):

The Troika originally said that Greece' economy would contract by 2.6% in 2010 under the austerity regime, before recovering with growth of 1.1% in 2011, and 2.1% in 2012.

Time for new emergency meetings once more?! Round 826?! In light of the Spiegel quote, Samaras' suggestion this morning that Greece may return to growth by 2014 is the boldest lie of the day, and friend Antonios faces some stiff competition for that prize any day of the week.

Samaras has been in office for what, 6 weeks? I wouldn't put any money on him staying on for much longer. Either the people, the troika or the Germans will force him out, whoever comes first. The Greek people will soon become aware that the promise of an improving economy in exchange for their austerity is and always was empty. Sure, there'll be voices advocating even - much - more austerity, but I'd say the Greeks are about done with that by now. So is the IMF, according to that Spiegel article, albeit for different reasons. Moreover, the troika members have a few issues of their own.

In a nice sidenote, Gareth Jones for Reuters reports on a suggested alternative route for Athens:

Greece should pay wages in drachmas: German MP

Greece should start paying half of its pensions and state salaries in drachmas as part of a gradual exit from the euro zone, a leading German conservative was quoted on Monday as saying.

Alexander Dobrindt, general secretary of the Christian Social Union (CSU), the Bavaria-based sister party of Chancellor Angela Merkel's Christian Democrats (CDU), has long argued that Greece would be better off outside the euro zone.

 

"With Greece we have reached the end of the road. There must not be any further aid. A country which does not have the will to fulfil the conditions, or is not able to do so, must get a chance outside the euro," Dobrindt told the daily Die Welt.

The CSU has often been more critical of EU bailouts than Merkel's party, but his comments underline the degree of German frustration with Athens over its continued failure to meet reform targets under its 130 billion euro aid programs.

"Greece should start to pay half of its civil service wages, pensions and other expenditures in drachmas now," Dobrint added. "A soft return to the old currency is better for Greece than a drastic move. Having the drachma as a parallel currency would allow the chance for economic growth to develop."

Dobrindt did not explain how Greece could manage a partial return to its old currency without triggering turmoil in financial markets and a likely run on its banks.

Oh boy! Where to start? Why would the Greeks want to go back to the drachma at this point in time, where's their advantage in that? And who's going to make them? Why wouldn't they just print euros instead? And not "Greek euros", but German ones (German euro bills have a series of numbers preceded by an "X" printed on them, other countries have a different letter)! Who's giong to stop them from doing that? Germany? Really? What's Greek for "bite me"?

And who's going to force them out of the eurozone to begin with? There are no rules or regulations anywhere regarding the procedure for leaving. You can't leave, and you can't be forced out. If the IMF and/or the rest of the troika wants to stop payments, Greece will probably default on its debt, but it will still be in the eurozone. Sort of whether it likes it or not. Interesting matter for international and constitutional lawyers, for sure, but they don't tend to work very fast (for good reasons).

The bailouts and austerity schemes don't work (that is: not for the people; bankers are elated). The Greeks get miserable without having anything to show for it, the Germans and Dutch pay and pay and pay and never see anything improve. End of exercise. Once everyone sees the blinding light, that is. So please let it sink in: we're in the process of passing a watershed moment, slowed down as we are by the mental sloths among us.

Even without rising sovereign borrowing costs, even without the pressure applied by financial markets, austerity and bailouts would have to be much harsher and much bigger, respectively, to even significantly slow down the economic deterioration. Forget about a return to growth; it is a complete pie in the sky.

What goes for Greece also holds for Spain. Too much has been written about it already recently, perhaps, but here's some additional juicy input from Ambrose Evans-Pritchard:

Spain fights to ward off euro bail-out

Spain was battling last night (Monday night) to avert a fully-fledged sovereign rescue after borrowing costs spiralled out of control, with dangerous knock-on effects in Italy and Eastern Europe.

The yields on closely-watched two-year debt surged by 78 basis points to a modern-era high of 6.42%, leaving it unclear how long the country can continue funding itself. Italy's two-year yields vaulted to 4.6%. "We can't keep going like this for another 15 days," said Prof Miguel Angel Bernal from Madrid's Institute of Market Studies (IEB). "The European Central Bank has to bring out its heavy artillery."

Andrew Roberts, credit chief at Royal Bank of Scotland, said the dramatic spike in short-term borrowing costs marked a key inflexion point in the crisis, replicating the pattern seen in Greece, Ireland, and Portugal as they lost access to market finance. "We are fast approaching the endgame," he said.

Exchange clearer LCH Clearnet raised margin requirements on both Spanish and Italian bonds, a move that will automatically cause further selling by some funds. [..]

The Spanish newspaper El Confidencial reported sources close to premier Mariano Rajoy complaining bitterly that the crisis engulfing Spain was a "failure of the whole European Project and the incompetence of its leaders". There is deep shock in government circles that the €65 billion austerity package passed by the Spanish parliament last week amid bitter protests across the country - and imposed by the EU - has failed to make any difference.

El Confidencial said the Rajoy team was thinking of "putting on the table" a possible withdrawal from the euro, a dramatic escalation in the game of brinkmanship between the eurozone's Latin bloc and German-led creditor core. "We would have our own currency again and restore competitiveness. It would have some disastrous consequences at first, but we would regain control over our own policies and we would escape from the crisis sooner," a government source reportedly said.

Spain has enough funds to muddle through into the autumn, but it is under mounting pressure from the EU authorities to swallow its pride and accept rescue to halt contagion to Italy, where bond yields are testing danger levels.[..]

The surge in Spain's short-term yields adds another twist to the banking crisis, a cost that now falls on the state. Spanish banks borrowed €315 billion from the ECB under the long-term refinancing operation (LTRO) and "parked" a large chunk in Spanish two-year to five-year sovereign bonds until they need the money to cover their own debt rollovers.

While this so-called "carry trade" helped to stabilise the Spanish bond market for a few months during an exodus by foreign investors, it has now backfired badly. The two-year bond has shed 9pc in face value since the second LTRO in February, leaving the banks heavily under water. "This has turned into an unmitigated disaster. They will have to crystallise these losses when they sell," said Mr Roberts.

The latest Fiscal Monitor by the International Monetary Fund has pencilled in public debt to GDP of 96% in Spain by next year, up from 84% just two months ago - a sign of how quickly the situation is snowballing out of control.

Nice try, Ambrose, and a pretty good read, but you miss out on the one single thing Spain needs to do most urgently, the only thing that matters. Spain, like every country in the western world, must restructure its banking system, force defaults and bankruptcies and mansize haircuts. Which it won't under Rajoy, but then how much longer will he be around?

The ESM won't be able to operate before September 12 at the earliest, if at all, and even then it will take at least another two years before it possesses its full potential firepower of some €500 billion. And who's going to volunteer to wait for that? Not those that stand to profit from not doing so. So Madrid and Rome's answer is to ban short selling, right?!

Forget about a full troika bailout for Spain. Not in the cards. Not going to happen. There's not a party that would potentially be involved that wouldn't risk losing most if not all of its credibility. Moody's lowered its outlook for Germany and Holland already. Where do you think they would take that outlook if such a bailout would materialize? Mind you, there will be attempts at "pretend" bailouts for Spain. Which will arrive a lightyear too late and come up a mile and a half short. Just following MO here.Ambrose covers Greece as well today:

Who will hold the Troika to account for asphyxiating Greece?

Who will be held responsible for what has happened to Greece? Germany has clearly taken the decision to expel Greece from the euro, whatever the new Greek government does. 

Vice-Chancellor Philipp Roesler says the "horror" of Greek exit has worn off. The markets will hardly miss a beat when the day comes.

Greece has already failed to complete 210 targets imposed by the EU-IMF Troika. 

"Unfortunately it is likely that Greece will not be able to fulfil the requirements. And I say quite clearly, if Greece fails to comply, there should be no more payments to Greece. I have to say I am more than sceptical," he said.

Before we all join together to kick the Greeks when they are down, let us be clear why the country has kept missing the targets. The Troika originally said that Greece' economy would contract by 2.6% in 2010 under the austerity regime, before recovering with growth of 1.1% in 2011, and 2.1% in 2012. In fact, Greek GDP has been in an unbroken free-fall. It did not grow last year. It contracted a further 6.9%, and is now expected to shrink 6.7%this year.

This was entirely predictable – and was predicted by many critics – since Greece faced an IMF-style austerity package without the usual IMF cure of devaluation. The Troika's ideology of "expansionary fiscal contraction" – which the IMF has to its credit since abjured, but the fanatics in charge still swear by – is breaking a whole society on the wheel.

The result of this Great Depression – as the Greek prime minister calls it – is in implosion in tax revenues. The budget deficit has remained stuck near 9% of GDP despite draconian wage cuts and hospital closures. Roughly speaking, the Troika has misjudged the scale of economic decline over three years by 12% of GDP. "That is a massive miscalculation," said David Bloom, head of currencies at HSBC. "The collapse has been exponential. Greek GDP is contracting faster than they can reduce debt. The Troika really has a duty to give Greece the next tranche of money," he said.[..]

What Mr Roesler really means is that Germany is not willing to spend any taxpayer's money on Greece. Not one euro. Previous losses were entirely concentrated on pension funds, insurers, banks, and other private holders who took a 75% haircut – punished for their loyalty – but there is not much more to be squeezed out of them.

Any further aid puts creditor governments directly at risk. That's what this is all about. OK, but please cut out the humbug, the rhetoric about Europe's unshakeable will to hold EMU together, the flowery promises to uphold the cause of peace and comity in Europe. It is all just squalid calculation, and a lot of lies.

I wrote everything above before I saw this last piece by Evans-Pritchard. Nevertheless, my point stands. While Ambrose sees the issue, "GDP is contracting faster than they can reduce debt", "The collapse has been exponential", he doesn't seem to get it.

So event no. 1, ignored across the board, is economies that deteriorate faster than bailouts and debt reduction measures can be pushed through. It will play a huge role in what happens going forward.

On to event no. 2: the EC/ECB/IMF troika is crumbling and will soon fall to pieces.

The letter by IMF official Peter Doyle I referred to in Spiegel bombshell: The IMF plans to dump Greece ("After twenty years of service, I am ashamed to have had any association with the Fund at all..."), was published a few days ago. But it is dated June 18.

Granted, the fact that it took over a month to become public could be due to all kinds of innocent factors. Then again: mere days, maybe even just hours, later, the Spiegel article I translated in that same piece was posted. It talks about IMF officials telling Brussels brass that their fund will no longer support Greece. It's not clear if the anonymous source is IMF or EC. And that is not all that important for my point. since either there are internal issues inside the IMF, something Doyle's letter would seem to bear witness to, or there are issues between the two organizations. In both cases, walls are crumbling.

The troika has outlived its usefulness, from the point of view of its participants, in the same way that, as I wrote at the time, sometime last year the German-French united stand in the eurocrisis came apart. And for the same reasons too: the respective interests of the participants are growing apart too much and too fast to hold it all together.

The European Commission (EC) has no real power; it can't go against German wishes. The same goes for the ECB. There are European institutions in which a - Latin - majority could outvote Germany, but it would have paper value only. There are a lot of entities in Europe, in Brussels, Frankfurt, Strasbourg, that have looked mighty shiny and powerful so far in the good times. Now the good times are over, so is their power. They'll take the entire European project down with them.

The IMF wants Europe to agree to such measures as QE, eurobonds, fiscal union, direct bank bailouts and - "preannounced over a given period of time, buying a representative portfolio of long-term government bonds" -. While some of the poorer nations would obviously agree with most of this, Germany will not - and probably legally cannot - let that happen.

And why should it? What good would it really do to have the ECB buy trillions of euros more in government bonds, or any sort of debt, if nobody dares look at the debts that still exist within the financial system? Chances are, the money would just be thrown away and squandered, just to keep up appearances a while longer. Before one more penny goes to Spain, Europeans should demand to see the books of its banks. Yeah, the same ones that got a €100 billion bailout last week. Which they will transfer to Wall Street and the City of London. What a wonderful world.

The people of Europe, like their American peers, still live under the illusion that they can exert their political influence in the ballot box. They will all find out that this influence can be fought for, gained and exerted in one place only: the street. And that is where we will find the people.

So there's a third defining event coming to the surface as we speak: like the troika, the European project itself, or the eurozone if you will, is dissolving.

Things might have worked out differently if Europe would have been a union along the lines of the US. But there was never even a glimmer of a chance of that happening. Too much history, too many differences, too many languages. And now less than ever. Everybody will go home to their own piece of land, and hopefully stay home, and not go fight over who's to blame for the failure and the misery, and that’ll be it for the European union. Whether the tighter US union is a blessing remains to be seen, there's no going home there when things go wrong, but that's another story.

There will be efforts to keep the rich core of Europe together, but respective diverging interests in that group will cause a fatal rift there too. To understand why, you might want to read this from Thomas Pascoe, for instance: Why France is on the road to becoming the new Greece. Or ponder that Holland has the perhaps highest personal debt per capita in the entire world.

Don't listen anymore to all those pundits who claim that Merkel or Draghi or anyone else can and should save the euro by buying this or purchasing that. They can't. Project Europe is over.

The best we can hope for is a peaceful withdrawal. I don't know if that hope is all that realistic. No promises here.
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The Upside of Default

SUBHEAD: Is the financial industry providing anything to the rest of us commensurate with its immense income and profits?  

By John Michael Greer on 25 July 2012 for the Archdruid Report - (http://thearchdruidreport.blogspot.com/2012/07/the-upside-of-default.html)

 
Image above: A crying American eagle going out of business. Boo hoo! From (http://www.graffitiresearchlab.com/blog/the-us-dept-of-homeland-graffiti-liquidation-sale/).
 
Writing The Archdruid Report has its pleasures, and one of them is the wry amusement to be had when some caustic jab of mine turns into an accurate prediction of the future. Longtime readers may recall a comment of mine late last year to the effect that ordinary investors would surely find some way to pile into the shale gas bubble before the next year was out. Thanks to an anonymous reader and the August 2012 edition of SmartMoney Magazine, which arrived from said reader in yesterday’s mail, that comment can now be moved over into the "confirmed" category.

The prediction, to be sure, didn’t require any particular clairvoyance on my part. Its sources are, first, a decent grasp of the history of economic stupidity, and second, a keen sense of the levels of desperation in what we might as well call the investmentariat, the people who have a little money and are looking for a safe place to put it. The investmentariat has been told for decades that their money ought to make them money, but nobody told them that this only works in an economy that experiences sustained real growth over the long term, and nobody would dream of mentioning in their hearing that we don’t have an economy like that any more.

All the investmentariat knows for sure is that the kind of safe investment that used to bring in five per cent a year is now yielding a small fraction of one per cent, and the risks you need to take to get five per cent a year are those once associated with the the kind of "securities" that make a mockery of that title. The resulting panic is SmartMoney’s bread and butter. Smart money in the old sense—that is to say, the people who know what’s going on in the sordid and scam-ridden world of investment—wouldn’t waste five seconds on such a magazine; they know you can’t get any kind of advantage from something that a couple of million people are also reading.

No, this is strictly for the investmentariat: as glossy, glib, and superficial as a teen fashion magazine, and just as unerringly aimed at the lowest common denominator of contemporary thought. It will thus come as no surprise that the cover story on the August 2012 issue of SmartMoney is "The Return of Fossil Fuels," and that it rehashes the latest clichés about vast new gas and oil reserves without asking any of the the inconvenient questions that a competent practitioner of the lost art of journalism, should one be wakened from enchanted sleep by the touch of a 1940s radio microphone, would ask as a matter of course.

The article trumpets the fact that America is importing less oil than last year, for example, without mentioning that this is because Americans are using less oil—unemployed people who’ve exhausted their 99 weeks of benefits don’t take many Sunday drives—and it babbles about natural gas for two largely fact-free pages without mentioning that claims about vast supplies far into the future rely on assumptions about the production decline rate from fracked shale gas wells that make professionals in the gas drilling industry snort beer out their noses.

All this, inevitably, is window dressing for suggestions about which stocks you should buy so you can cash in on the fracking boom. Last I heard, it was still illegal for journalists to take payola for pimping individual companies, or to speculate in the stocks they promote.

Still, I trust my readers will already have realized that one set of professional market players will get copies of the magazine the moment it hits the newsstand, snap up shares in the companies promoted in each issue, and dole them out at inflated prices to SmartMoney readers who get their magazines later, while another set of professional market players will take out short contracts on those same stocks as they peak, wait for the rush of buyers to crest and recede, and cash in on the inevitable losses.

Those are among the ways the game is played—and if this suggests to you, dear reader, that the readers of SmartMoney are not going to get rich from shale gas by following this month’s tips, well, yes, that’s what it means. This is business as usual in the financial industry, which has made a lucrative business out of extracting wealth from the investmentariat in various ways.

This is part and parcel of the broader and even more lucrative business of extracting wealth from everywhere by every available means. The question that might be worth asking here, and is rarely asked anywhere, is whether the financial industry provides anything to the rest of the economy commensurate with its immense income and profits. Any economics textbook will tell you that companies raise capital by issuing stock, selling bonds, and engaging in a few other kinds of transactions in the financial markets, and that this plays a crucial role in enabling economic growth.

Well and good; there are many other ways to do the same thing, but we’ll accept that this is the way modern industrial societies allot capital to new and expanding businesses. How much of the financial industry’s total paper value has anything to do with this service?

Let’s do some back of the envelope calculations. In 2010, the latest year for which I could find figures, the total value of bonds issued by nonfinancial businesses was $1.3 trillion, and the total net issuance of stock by all companies was $387 billion—that includes stock issued by financial businesses, but since this is a rough estimate we’ll let that pass. Total stock and bond issuance in 2010 to support the production of real goods and services was thus something less than $1.7 trillion; let’s double that figure, just to leave adequate room for other ways of raising capital that might otherwise slip through the cracks, for a very rough order-of-magnitude figure around $3.4 trillion.

In 2010, the total stock of debt and equity potentially available for trading in financial markets was $212 trillion, and the total notional value of derivatives that same year was estimated at $707 trillion. Exactly how much of this was traded in the course of the year on all markets is anybody’s guess—some stocks heavily traded by computer programs may change hands dozens of times in a day, while other assets spent the whole year sitting in a safe deposit box; still, this is back-of-the-envelope stuff, so we’ll use the total value just listed as a very rough measure of the size of the financial economy.

We can round up a little here, too, to make room for forms of wealth not included in the two categories just named, and estimate the total paper value of the world’s financial wealth at $1 quadrillion, of which the fraction directed into the productive economy in one year amounts to around a third of one per cent.

Now of course providing capital to the productive economy is only one of the things the financial industry does that’s arguably useful to someone other than financiers. Local and national governments use the financial industry to raise funds for public works, individuals borrow money for the occasional useful purpose, and so on.

Let’s be generous, and assume that the amount of money that flows from the world of finance for these purposes is double the total input of capital into nonfinancial businesses via stocks and bonds. That means that in any given year, maybe one per cent of the financial economy has anything to do with the production of real, nonfinancial goods and services.

The rest? It consists of ways to make money from money. That seems innocuous enough, until you remember what money actually is. Money is not wealth; it’s a system of abstract, culturally contrived tokens that we use to manage the distribution of real goods and services. A money system can simplify the process of putting energy, raw materials, labor, and other goods and services to work in productive ways; that’s the reason we have money, or rather the reason most of us are prepared to discuss in public.

That’s not what the other 99% of the world’s financial assets are doing, though. They are there to ensure that the people who own them have disproportionate, unearned access to real, nonfinancial goods and services. That’s the other reason, the one nobody wants to mention.

Not that many centuries ago, across much of the world, usury—lending money at interest—was considered a serious crime, more serious than robbery, and was also classed as a mortal sin by Christian and Muslim religious authorities; it’s no accident that Dante consigned usurers to the lowest pit of the seventh circle of Hell.

That’s been dismissed as a bit of primitive moralizing by modern writers, but that dismissal is yet another example of the way that contemporary industrial culture has ignored the painfully learned lessons of the past. In a steady-state or contracting economy, usury is a parasite that kills its host; since the total stock of real wealth does not expand from one year to the next, each interest payment enriches the lender but leaves the borrower permanently poorer.

Only in an expanding economy can usury be tolerated, since interest can be paid out of the proceeds of economic growth. Periods of sustained economic expansion are rare in human history, since most societies live close to the edge of the limits to growth in their bioregions; the exceptions, such as the late Roman Republic and early Empire, usually involve the expansion of one society at the expense of others.

The late Roman Republic and early Empire, it may be worth noting, had a large and very successful moneylending industry, which fed on the expanding Roman state in much the same way that the Roman state fed on the accumulated wealth of the Mediterranean world. Only after Roman expansion stopped did attitudes shift, in favor of a religion that was violently opposed to usury.

During the three centuries of their power, the world’s industrial nations looted their nonindustrial neighbors with as much enthusiasm as the ancient Romans looted theirs, but they had another source of plunder—half a billion years of fossil sunlight, stored up in the form of coal, oil, and natural gas. In effect, we stripped prehistory to the bare walls so that we could enjoy an age of gargantuan excess unlike any other.

One consequence was that our moneylending industry was able to metastasize to a scale no previous gang of usurers has ever been able to attain. The basic arithmetic remains unchanged, though: usury is only viable in an expanding economy, and as the global economy enters its post-peak oil decline, the entire structure of money that makes money, is going to come apart at the seams. I’d like to suggest, in fact, that the unspoken subtext behind the financial crises of recent years is precisely that the real economy of goods and services is no longer growing enough to support the immense financial economy that parasitizes it.

The current crisis in Europe is a case in point. Since the crisis dawned in 2008, EU policy has demanded that every other sector of the economy be thrown under the bus in order to prop up the tottering mass of unpayable debt that Europe’s financial economy has become.

As banks fail, governments have been strongarmed into guaranteeing the value of the banks’ worthless financial paper; as governments fail in their turn, other governments that are still solvent are being pressured to fill the gap with bailouts that, again, amount to little more than a guarantee that even the most harebrained investment will not be allowed to lose money.

The problem, as the back of the envelope calculations above might suggest, is that you can cash in the whole planet’s gross domestic product—that was a little under $62 trillion in 2010—and not come anywhere close to the value of the mountain of increasingly fictive paper wealth that’s been piled up by the financial industry in the last few decades.

Thus the EU’s strategy is guaranteed to fail. EU officials are already talking about "haircuts" for bondholders—that’s financial jargon for investors not getting paid as much as their holdings are theoretically worth. Not so long ago, that possibility was unmentionable; now it’s being embraced frantically as the only alternative to what’s actually going to happen, which is default.

There’s been a lot of talk about that in the blogosphere of late, and for good reason. No matter how you twist and turn the matter, Greece is never going to be able to pay its national debt. Neither are Spain, Italy, or half a dozen other nations that ran up big debts when it was cheap and convenient to do so, and are now being strangled by a panicking bond market and a collapsing economy. This isn’t new; most of the countries on Earth have either defaulted outright on their debts or forced renegotiations on their creditors that left the latter with some equivalent of pennies on the dollar.

The US last did that in a big way in 1934, when the Roosevelt administration unilaterally changed the terms on billions of dollars in Liberty Bonds from "payable in gold" to "payable in devalued dollars," and proceeded to print the latter as needed. That or considerably worse will be happening in Europe in the near future, too.

A good deal of the discussion of these upcoming defaults in the blogosphere, though, has insisted that these defaults will lead to a complete collapse of the world’s financial economy, and from there to an equally complete collapse of the world’s productive economy, leaving all seven billion of us to starve in the gutter.

 It’s an odd belief, since sovereign debt defaults have happened many times in the recent past, currency collapses are far from rare in economic history, and nation-states can do—and have done—plenty of drastic things to keep goods and services flowing in an economic emergency. Partly, I suspect, it’s our old friend the apocalypse meme—the notion, pervasive in modern culture, that the only alternative to the indefinite continuation of business as usual is some unparallelled cataclysm or other.

Still, there’s another dimension to these fantasies, which is simply that the financial industry has done a superb job of convincing people that what they do is important to the rest of us. It’s true, to be sure, that having currency in circulation makes economic exchanges easier.

The kind of banking services that people and ordinary businesses use are also very helpful, but governments used to produce and circulate currency without benefit of banks until fairly recently, and banking services of the kind I’ve just mentioned can be provided quickly and easily by a government that means business; in 1933 it took the US government just over a week, at a time when information technology was incomparably slower than it is today, to nationalize every bank in the country and open their doors under Federal management.

The other services the financial industry provides to the real economy can equally well be replaced by hastily kluged substitutes, or simply put on hold for the duration of the crisis.

So the downside of any financial crisis, however grandiose, can be stopped promptly by proven methods. Then there’s the upside. Yes, there’s an upside. That’s the ultimate secret of the financial crisis, the thing that nobody anywhere wants to talk about: if a country gets into a credit crisis, defaulting on its debts is the one option that consistently leads to recovery.

That statement ought to be old hat by now. Russia defaulted on its debts in 1998, and that default marked the end of its post-Soviet economic crisis and the beginning of its current period of relative prosperity. Argentina defaulted on its debts in 2002, and the default put an end to its deep recession and set it on the road to recovery.

Even more to the point, Iceland was the one European country that refused the EU demand that the debts of failed banks must be passed on to governments; instead, in 2008, the Icelandic government allowed the country’s three biggest banks to fold, paid off Icelandic depositors by way of the existing deposit insurance scheme, and left foreign investors twisting in the wind. Since that time, Iceland has been the only European country to see a sustained recovery.

When Greece defaults on its debts and leaves the Euro, in turn, there will be a bit of scrambling, and then the Greek recovery will begin. That’s the reason the EU has been trying so frantically to keep Greece from defaulting, no matter how many Euros have to be shoveled down how many ratholes to prevent it.

Once the Greek default happens, and it will—the number of ratholes is multiplying much faster than Euros can be shoveled into them—the other southern European nations that are crushed by excessive debt will line up to do the same.

There will be a massive stock market crash, a great many banks will go broke, a lot of rich people and an even larger number of middle class people will lose a great deal of money, politicians will make an assortment of stern and defiant speeches, and then the great European financial crisis will be over and people can get on with their lives.

That’s what will happen, too, another five or ten or fifteen years down the road, when the United States either defaults on its national debt or hyperinflates the debt out of existence. It’s going to do one or the other, since its debts are already unpayable except by way of the printing press, and its gridlocked political system is unable either to rationalize its tax system or cut its expenditures.

The question is simply what crisis will finally break the confidence of foreign investors in the dollar as a safe haven currency, and start the panic selling of dollar-denominated assets that will tip the US into its next really spectacular financial crisis.

That’s going to be a messy one, since the financial economy is so deeply woven into the fantasy life of the average American; there will be a lot of poverty and suffering, as there always is during serious financial crises, but as John Kenneth Galbraith pointed out about an earlier crisis of the same kind, "while it is a time of great tragedy, nothing is being lost but money."

It will be after that, in turn, that the next round of temporary recovery can begin. We’ll talk more about that in the weeks to come. .

What does space smell like?

SUBHEAD: Not a void or the ether. For those coming back from space-walks it has a distinct, familiar smell.  

By Staff on 20 July 2012 for Life's Little Mysteries -  
(http://www.lifeslittlemysteries.com/2696-space-smell.html)
 
 
Image above: Astronaut Mike Fincke, Expedition 9 NASA ISS science officer and flight engineer, wearing a Russian Orlan spacesuit, participates in the third of four spacewalks performed by the Expedition 9 crew during their six-month mission. From (http://www.nasa.gov/mission_pages/station/main/iss009e29620_feature.html).

Astronauts who have gone on spacewalks consistently speak of space's extraordinarily peculiar odor.

They can't smell it while they're actually bobbing in it, because the interiors of their space suits just smell plastic-y. But upon stepping back into the space station and removing their helmets, they get a strong, distinctive whiff of the final frontier. The odor clings to their suit, helmet, gloves and tools.

Fugitives from the near-vacuum — probably atomic oxygen, among other things — the clinging particles have the acrid aroma of seared steak, hot metal and welding fumes. Steven Pearce, a chemist hired by NASA to recreate the space odor on Earth for astronaut training purposes, said the metallic aspect of the scent may come from high-energy vibrations of ions.

"It's like something I haven't ever smelled before, but I'll never forget it," NASA astronaut Kevin Ford said from orbit in 2009. [Space Sights and Smells Surprise Rookie Astronauts]

But astronauts don't dislike the sharp smell of space, necessarily. After a 2003 mission, astronaut Don Pettit described it this way on a NASA blog:

"It is hard to describe this smell; it is definitely not the olfactory equivalent to describing the palette sensations of some new food as 'tastes like chicken.' The best description I can come up with is metallic; a rather pleasant sweet metallic sensation. It reminded me of my college summers where I labored for many hours with an arc welding torch repairing heavy equipment for a small logging outfit. It reminded me of pleasant sweet smelling welding fumes. That is the smell of space."

The interior of the International Space Station smells a little more mundane. Pettit, who recently returned from a second six-month-long mission on the ISS, told SPACE.com,

"The space station smells like half machine-shop-engine-room-laboratory, and then when you're cooking dinner and you rip open a pouch of stew or something, you can smell a little roast beef."

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Oops! I mean "Who knew?"

SUBHEAD: Former CEO, who put Citigroup together, now thinks biggest banks should be broken up.  

By Donal Griffen on 25 July 2012 for Bloomberg News - 
  (http://www.bloomberg.com/news/2012-07-25/former-citigroup-chairman-weill-says-banks-should-be-broken-up.html)
  
Image above: Ex Citigroup CEO Sandy Weill in interview. From original article.

 Sanford “Sandy” Weill, whose creation of Citigroup Inc. (C) ushered in the era of U.S. banking conglomerates a decade before the financial crisis, said it’s time to dismantle the nation’s largest lenders.

“What we should probably do is go and split up investment banking from banking,” Weill, 79, said today in an interview on CNBC. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

Former chairman and chief executive officer of Citigroup Inc. Sandy Weill said, “The world we live in now is not the world we lived in 10 years ago.” Photographer: Hannelore Foerster/Bloomberg

Weill helped engineer the 1998 merger of Travelers Group Inc. and Citicorp, a deal that required repeal of the Depression-era Glass-Steagall law that forced deposit-taking companies backed by government insurance to be separate from investment banks. The New York-based company became the biggest lender in the world before almost failing and taking a $45 billion taxpayer bailout in 2008.
Sheila Bair, former chairman of the Federal Deposit Insurance Corp., said she was “flabbergasted” by Weill’s reversal.

“He and his institution were in the lead in pushing for the repeal of Glass-Steagall and then, of course, Citigroup is the poster child for too-big-to-fail in the bailouts during the 2008 crisis,” Bair said in an interview on CNBC. “It is truly ironic.”

Weill joins regulators, investors, analysts, former bankers and lawmakers in calling for the break-up of too-big-to-fail banks to unlock shareholder value and prevent another financial crisis.

Taking Advantage

“Sandy was largely responsible for the rollback of Glass- Steagall, he fought very hard for it, and really what Sandy did was to take advantage of regulators who weren’t and still aren’t doing their job,” said Arthur Levitt, a former business partner of Weill’s who was chairman of the Securities and Exchange Commission when Citigroup was created. Weill’s reversal is “very significant,” said Levitt, who is a member of the board of Bloomberg LP, the parent of Bloomberg News.

Levitt said he regrets supporting the bill that overturned Glass-Steagall, and didn’t realize “how weak a job as regulators the Fed and Comptroller’s office were doing,” referring to banking oversight by the Federal Reserve and Office of the Comptroller of the Currency.

David Knutson, an analyst with Legal & General Investment Management, said it was hard to believe Weill, “the shatterer of Glass-Steagall,” has now changed his mind. “He enjoyed the benefits of the demise of Glass-Steagall and only now has he become remorseful? Where was he five years ago?” said Knutson, whose firm owns bonds sold by Citigroup and JPMorgan (JPM) Chase & Co., now the biggest U.S. bank by both deposits and assets.

Weill’s Pay

Directors of Citigroup paid Weill about $1 billion, including stock, during his 17 years as CEO, as he assembled a behemoth with operations across the world that offered investment banking, trading, commercial banking, insurance and consumer finance. He left the board in 2006.
Taxpayers rescued Citigroup in 2008 after losses tied to subprime mortgages threatened the financial system. Bank of America Corp. also accepted a $45 billion bailout while JPMorgan and Wells Fargo & Co. (WFC) each took $25 billion. Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) were given $10 billion apiece.

“We can have size and scale but it doesn’t have to be connected to a deposit-taking institution,” Weill said in the interview. “Have banks be deposit-takers, have banks make commercial loans and real estate loans.”

Citigroup Shares

Banks would be even more valuable if they heeded his advice, Weill said. Citigroup’s shares, which traded as high as $564.10 at the end of 2006, plummeted to $10.20 during March of 2009, six months after Lehman Brothers Holdings Inc. filed for bankruptcy protection. They were up 2.7 percent to $25.91 at 1:21 p.m. in New York.

Jon Diat, a spokesman for the bank, declined to comment on the remarks by Weill, who held the positions of chairman and chief executive officer of Citigroup after the Travelers merger. He retains the title of chairman emeritus.

Richard Parsons, who earlier this year ended a 16-year tenure on Citigroup’s board, said in April that the repeal of Glass-Steagall made the business more complicated and ultimately helped cause the financial crisis. Former Citicorp CEO John Reed apologized in 2009 for his role in building Citigroup and said banks that big should be divided into separate parts.
Subsidiary Growth

The four most complex U.S. financial holding companies -- JPMorgan, Goldman Sachs, Morgan Stanley and Bank of America -- each contain more than 2,000 subsidiaries, with two of those controlling more than 3,000 subsidiaries, according to a research paper published this month by three employees of the Federal Reserve Bank of New York. Citigroup has 1,645. Just one firm exceeded 500 subsidiaries in 1991, the report shows.

Weill said he hasn’t spoken with Citigroup CEO Vikram Pandit, 55, or JPMorgan’s Jamie Dimon, 56, about his change of heart. Dimon is a former protege of Weill’s and helped build Travelers before the merger with Citicorp.

Wall Street chiefs have resisted calls to break up their companies. Morgan Stanley CEO James Gorman, 54, described the debate as a “knee-jerk discussion” in a June 27 interview.
Dimon said he disagreed with a shareholder who asked on a July 13 conference call whether the bank had become too big to manage.

“I beg to differ,” Dimon said. “There is huge strength in this company that the units get from each other.”

Book Value

Breaking up the banks into different parts would be “much” more valuable, Weill said. The stocks of five of the six biggest U.S. banks -- Citigroup, JPMorgan, Bank of America, Goldman Sachs and Morgan Stanley -- are languishing at or below tangible book value. That means different pieces of the banks are worth more than the whole, fund manager Michael F. Price said last month.
Citigroup’s shares trade at 50 percent of tangible book value and New York-based Morgan Stanley’s are at 47 percent.

“Now you have the preeminent creator of the large financial-conglomerate model agreeing that large banks should be broken up,” said Michael Mayo, an analyst at CLSA Ltd. in New York who has covered the largest U.S. banks since before Glass- Steagall’s repeal. “It’s going to make some people pretty upset, since he’s the one who created the current Citigroup model, and now he’s saying, ‘Look, we messed up.’”

Alan Greenspan

Even Alan Greenspan, who fought for the repeal of Glass- Steagall when he was chairman of the Federal Reserve, said in 2009 that breaking up the banks might make them more valuable.
“In 1911, we broke up Standard Oil -- so what happened?” Greenspan said at New York’s Council on Foreign Relations. “The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

Weill altered his view about the industry because “the world changes,” he said, adding that he’s “been thinking about it a lot over the last year.”

“The world we live in now is not the world we lived in 10 years ago,” Weill said. “Good things are simple.”

Former President Bill Clinton said when he signed the repeal of Glass-Steagall in 1999 that it was “no longer appropriate” for the economy.

“The world is very different,” Clinton said at a White House signing ceremony.


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Embrace the Change

SUBHEAD: Considering the alternatives, there really isn't that much choice.  

By Juan Wilson on 24 July 2012 for Island Breath -  
(http://islandbreath.blogspot.com/2012/07/embrace-change.html)


Image above: These Bhutanese monks wear brightly-colored robes, ornate headdresses and masks, and dance the Cham that is performed during Tsechu, annual religious festivals held throughout the country that draw remote villages together for communal celebration and socializing. They visited Honolulu in 2008. From (http://www.hawaiimagazine.com/blogs/hawaii_today/2008/2/27/The_Dragons_gift).

If it weren't so damn important we wouldn't keep repeating what you think is doomster porn. You might better think of it as an invitation to the rest of your life - and the lives of your progeny. But first, let's state the problem in a nutshell.

• We humans have discovered a magic substance - fossil fuel. It has done to us, as a culture, what crack cocaine (or meth-amphetamines) do to us as individuals. It makes us hopped-up raging tweakers. We are enjoy burning the stuff so much we've spawned another six billion of ourselves to share the fun with us.
• And don't talk to us about ending the party anytime soon. We're willing to kill anybody in our way to keep this buzz going. Just ask anybody in the Middle East.
• What is that buzz? Some call it "progress", some call it "growth" others call it "civilization". But if you could ask the fauna and flora we share Earth with they'd call it "extinction".

All this wouldn't be so big a problem for the world if we humans had just overdosed while amped up snorting gasoline. But, no, we've survived and even flourished burning our way through about half of the easily found supply. That alone has got us to the beginning of catastrophic climate change.

Already baked into the cake is more chaotic weather, moderate ocean rise, many extinctions and harder times ahead. This is stuff we cannot avoid that will linger for a long time - certainly past the natural life of those alive today. But, unfortunately, there's enough of the fossil left to toast the planet five-times over. And it seems we are intent of smoking every last gallon. Well before we get there we will have sealed the deal on going over a cliff at the bottom of which will be many bad things that we have yet to imagine.

Bill McKibben has an article in Rolling Stone that illustrates or dilemma precisely. The Earth can take a total 565 gigatons of carbon into the atmosphere and that's it before we break the bank. However, the carbon to be released in our known reserves of coal, oil and gas is 2,795 gigatons. That means we can only burn a fifth of that supply without committing suicide.
 
So, what to do?
Don't burn it. Or at least burn it so slowly (over centuries) so that the Earth can absorb our insults. I know, I know! Easier said than done - after all we're tweaking crystal freaks. But even a tweaker can see their face in the mirror. Some will see the rotting teeth, open sores and do something about their condition - namely stop using. What will happen if we curtail our use of fossil fuels by a factor of five? It would mean reducing world consumption to levels last seen in the 1950s. For America that would mean consumption levels of the Great Depression. Of course in those previous decades human population was a third of today's.

So on a per person level of consumption we would need to reduce fossil fuel use to levels lower than a century ago. To get there we need to anticipate a quick reduction in industrial activity and transportation use. Expect worldwide economic contraction and population reduction for decades - at least until we reach a plateau where we won't fry the planet. The sooner we embrace this idea, the more we will be able to save of our culture.

My thinking is that the longer we wait to reduce consumption the farther back we'll be driven in time. Going back a century would be a easy compared to going back a millennium. However, if we choose to "Burn baby burn!" we will either go extinct, or if we're lucky, end up as a small band of hunter/gatherers around the rim of a tropical Arctic Ocean (as James Lovelock has envisioned).  

How to cope?
Adjust your cultural preferences.That means accepting things that may have seemed below your "station" like local food, local music. It also means rejecting things once dear (like cable TV and cell phones). It also means re-evaluating the things that are close as if they were cut off from the things far away like your car and gas (or your work and the internet) Ouch!

Learn to perceive the virtues of re-using and fixing what you have. Develop an aesthetic that embraces home-made solutions to problems. Train yourself as an artisan capable of using hand tools. Practice making music with acoustic instruments.

I have made some progress in this respect. Increasingly I see the emergence of a Third World culture in my neighborhood. I am not horrified seeing a car permanently up on concrete block if I know that in a few decades it will eventually rust into the forest like a wet Oreo cookie.

See also:
Ea O Ka Aina: Global Warming's unused reservoir 7/24/12
 Ea O Ka Aina: The Hero's Way 1/13/12

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Global Warming's unused reservoir

SUBHEAD: Three simple numbers that add up to global catastrophe — and that make clear who the real enemy is.  

By Joe Romm on 23 July 2012 for Think Progress - 
  (http://thinkprogress.org/climate/2012/07/23/565751/mckibben-must-read-global-warming039s-terrifying-new-math)


Image above: Iluustration for McKibbon Rolling Stone article by Edel Rodrigeuz. From (http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719).

Climate hawk Bill McKibben has a terrific new piece in Rolling Stone, “Global Warming’s Terrifying New Math.”

It is getting monster social media numbers of the kind usually reserved for pieces on HuffPost about Kim Kardashian in a bikini: 66k FaceBook likes and an astounding 6300 retweets. That means millions of people have likely been exposed to at least the headline and probably some of the opening text:

If the pictures of those towering wildfires in Colorado haven’t convinced you, or the size of your AC bill this summer, here are some hard numbers about climate change: June broke or tied 3,215 high-temperature records across the United States. That followed the warmest May on record for the Northern Hemisphere – the 327th consecutive month in which the temperature of the entire globe exceeded the 20th-century average, the odds of which occurring by simple chance were 3.7 x 10-99, a number considerably larger than the number of stars in the universe.

Meteorologists reported that this spring was the warmest ever recorded for our nation – in fact, it crushed the old record by so much that it represented the “largest temperature departure from average of any season on record.” The same week, Saudi authorities reported that it had rained in Mecca despite a temperature of 109 degrees, the hottest downpour in the planet’s history.
Not that our leaders seemed to notice….

The three key numbers are:

• The First Number: 2° Celsius [3.6° Fahrenheit]: The temperature rise we need to work as hard as possible to limit total warming to if we want to have our best chance of averting multiple catastrophes and amplifying carbon cycle feedbacks.
• The Second Number: 565 Gigatons “Scientists estimate that humans can pour roughly 565 more gigatons of carbon … into the atmosphere by midcentury and still have some reasonable hope of staying below two degrees. (‘Reasonable,’ in this case, means four chances in five, or somewhat worse odds than playing Russian roulette with a six-shooter.)”
• The Third Number: 2,795 Gigatons “This number is the scariest of all – one that, for the first time, meshes the political and scientific dimensions of our dilemma…. The number describes the amount of carbon already contained in the proven coal and oil and gas reserves of the fossil-fuel companies, and the countries (think Venezuela or Kuwait) that act like fossil-fuel companies. In short, it’s the fossil fuel we’re currently planning to burn.

The figure above from James Hansen yields a moderately lower number, but the point is if we don’t we don’t leave most of the proven reserves in the ground — and all of the “potentially recoverable resource” — we are boiled brainless frogs.

McKibben writes too thoughtfully to summarize — and too eloquently to paraphrase. You should read the whole thing, which ends:

The three numbers I’ve described are daunting – they may define an essentially impossible future. But at least they provide intellectual clarity about the greatest challenge humans have ever faced. We know how much we can burn, and we know who’s planning to burn more. Climate change operates on a geological scale and time frame, but it’s not an impersonal force of nature; the more carefully you do the math, the more thoroughly you realize that this is, at bottom, a moral issue; we have met the enemy and they is Shell.

 Meanwhile the tide of numbers continues. The week after the Rio conference limped to its conclusion, Arctic sea ice hit the lowest level ever recorded for that date. Last month, on a single weekend, Tropical Storm Debby dumped more than 20 inches of rain on Florida – the earliest the season’s fourth-named cyclone has ever arrived. At the same time, the largest fire in New Mexico history burned on, and the most destructive fire in Colorado’s annals claimed 346 homes in Colorado Springs – breaking a record set the week before in Fort Collins. This month, scientists issued a new study concluding that global warming has dramatically increased the likelihood of severe heat and drought – days after a heat wave across the Plains and Midwest broke records that had stood since the Dust Bowl, threatening this year’s harvest.

You want a big number? In the course of this month, a quadrillion kernels of corn need to pollinate across the grain belt, something they can’t do if temperatures remain off the charts. Just like us, our crops are adapted to the Holocene, the 11,000-year period of climatic stability we’re now leaving… in the dust.

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Pro Big Wind signs come down

SUBHEAD: After Larry Ellison buys Lanai pro Big Wind signs have come down from public spaces. By Sophie Cocke on 23 July 2012 for Civil Beat - (http://www.civilbeat.com/articles/2012/07/23/16566-pro-wind-signs-come-down-on-lanai/) Image above: Pro Big Wind sign that had been on Lanai auditorium. From original article.

For months, it's been a battle of the Big Wind signs on Lanai. Both pro and anti wind farm factions have draped banners on buildings and placed signs in front yards that read, "No Windmills on Lanai!" or "Wind Power - To Keep Lanai Green."

But now that the island has a new owner, Oracle CEO Larry Ellison, most of the pro-wind signs have come down, according to local residents.

"The ones that remain are the ones people have put on their personal property — their homes and fences," said Butch Gima, president of Lanaians for Sensible Growth, a community advocacy organization that opposes the wind farm. "The public ones have been taken down."...

(more at Civil Beat)

See also: Ea O Ka Aina: Larry Ellison - Oracle 6/21/12

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IMF plans to dump Greece

SUBHEAD: Der Spiegel reports bombshell that International Monetary Fund will no longer fund Greek recovery. By Raul Ilagi Meijer on 22 July 2012 for the Automatic Earth- (http://theautomaticearth.com/Finance/the-imf-plans-to-dump-greece.html) Image above: IMF President Christine Lagarde looking worried after "bombshell". From (http://business.financialpost.com/2012/07/23/the-imf-published-this-cryptic-statement-on-greece-following-der-spiegel-bombshell/).

German magazine Der Spiegel dropped a bombshell this morning in an article which is for now available only in German. My German is quite decent. Here's the original and my translation:

IWF will Griechenland-Hilfen stoppen IMF wants to stop Greek help

Griechenland könnte schon im September pleitegehen. Der Internationale Währungsfonds hat nach Informationen des SPIEGEL der Brüsseler EU-Spitze signalisiert, dass er sich nicht an weiteren Hilfen für das Land beteiligen werde.

Greece could go bankrupt as early as September. Spiegel has obtained information that the IMF told the Brussels leadership it would not make more money available for help to Greece. [..]

Derzeit untersucht die Troika aus EU-Kommission, Europäischer Zentralbank (EZB) und Internationalem Währungsfonds (IWF), wie weit das Land seinen Reformverpflichtungen nachkommt. So viel steht schon jetzt fest: Die Regierung in Athen kann den Schuldenstand des Landes nicht wie vereinbart bis zum Jahr 2020 auf rund 120 Prozent der Jahreswirtschaftsleistung drücken.

At the moment the EC, ECB and IMF troika is investigating to what extent the country lives up to its reform obligations. This much is already certain: the government in Athens will not be able to bring down its debt load to about 120% of GDP by 2020.

Erhält das Land mehr Zeit, seine Ziele zu erfüllen, würde das nach Schätzungen der Troika zusätzliche Hilfen zwischen zehn und 50 Milliarden Euro erfordern. Viele Regierungen der Euro-Zone sind jedoch nicht mehr bereit, neue Griechenland-Lasten zu schultern. Zudem haben Länder wie die Niederlande und Finnland ihre Hilfen daran gekoppelt, dass sich der IWF beteiligt.

The troika estimates that giving Greece more time to achieve its goals would cost an additional €10 billion-€50 billion. Many eurozone governments, however, are no longer prepared to shoulder new Greek burdens. Moreover, countries like Holland and Finland have made their help contingent on IMF participation.

Das Risiko eines Austritts Griechenlands aus der Währungsunion wird mittlerweile in den Ländern der Euro-Zone für beherrschbar gehalten. Um die Ansteckungsgefahr für andere Länder zu begrenzen, wollen die Regierungen den Start des neuen Rettungsschirms ESM abwarten. Dieser kann jedoch nicht vor dem Urteil des Bundesverfassungsgerichts am 12. September in Kraft treten.

Meanwhile, a Greek departure from the eurozone is seen as manageable in eurozone countries. In order to limit the risk of contagion, governments want to wait for the new ESM emergency fund to start. Which can't happen before the German constitutional court delivers its verdict on September 12.

Um Griechenland über den Monat August zu helfen, könnte ein letztes Mal die EZB einspringen. Eigentlich müsste Athen am 20. August 3,8 Milliarden Euro an die Zentralbank zurückzahlen. Die Lösung könnte eine Art Kreislaufgeschäft sein, bei dem die Euro-Notenbanken selbst die Kreditablösung übernehmen: Der griechische Staat könnte neue kurzfristige Staatsanleihen herausgeben - sogenannte T-Bills - und sie an die griechischen Banken verkaufen. Diese wiederum reichen die Papiere bei der griechischen Notenbank ein - als Sicherheit für neue Nothilfen.

To help Greece survive the month of August, the ECB could jump in one last time. Athens must pay back €3.8 billion by August 20. The solution could be a kind of circular deal, in which eurozone central banks take over credit payments. Greece could issue new short-term bonds and sell them to Greek banks. They could then submit them to the Greek central bank as collateral for new emergency help.

It’ll be a lot of fun seeing the IMF, and European leaders, try to deny the article and its implications. From what I understand, they want to wait until the ESM is effective, and then dump Greece. The article may trump any such intentions. Some things only work in secret, and once Pandora's box is open, they no longer do.

I still think it would be curious that the ESM, supposedly good for €700 billion or so (if not more), would be used to "save" Spain and perhaps Italy, but not Greece. For countries like Portugal and Ireland, dumping Greece would mean they need to get very nervous about being the next one thrown under the wheels and off the back end of the wagon.

The message might become that any and all reform and austerity measures demanded must be adhered to very strictly or else. Politicians in these other "borderline" countries might go along with it all, but will the people? Do the Irish really enjoy the idea of being strangled into submission? And will Spain really be "saved" once real debt numbers are known?

It seems far more likely that getting rid of Greece will be merely the first step in dissolving the entire eurozone. The rest of the dominoes can then fall in rapid succession.

PS: For more entertainment, here's a link to a letter by Peter Doyle, former division chief in the IMF's European Department, who, upon resigning, shared a few of his thoughts on the fund: "After twenty years of service, I am ashamed to have had any association with the Fund at all..."

Doyle accuses the IMF of a terrible mishandling of the European crisis, something he says is due to the fact that information received well in advance about the European crisis was internally suppressed. He places responsibility for the suffering of the Greek people squarely on the shoulders of the IMF and the "fundamental illegitimacy" of the selection process inherent in its hierarchical structure, which has led to the appointments of people such as Dominique Strauss-Kahn and Christine Lagarde.

UPDATE 1: Dutch political parties have demanded their government clarify the Spiegel article. They suggest parliament break off their holiday recess and convene next week to discuss the matter at hand. The government wants to wait for a troika report.

UPDATE 2: Bloomberg reports that German Economy Minister and Vice Chancellor Philipp Roesler says he's "very skeptical" that European leaders will be able to rescue Greece and the prospect of the country’s exit from the euro had "lost its terror."

Roesler says "Greece is unlikely to be able to meet its obligations under a euro-area bailout program as its international creditors hold talks this week in Athens. Should that be the case, the country won’t receive more bailout payments".

"What’s emerging is that Greece will probably not be able to fulfill its conditions. What is clear: if Greece doesn’t fulfill those conditions, then there can be no more payments."

IB Editor's UPDATE 3: From (http://business.financialpost.com/2012/07/23/the-imf-published-this-cryptic-statement-on-greece-following-der-spiegel-bombshell/).

The IMF has said that it will meet with Greek officials later this week to get the country’s economic program “back on track.”

This statement comes in the wake of Sunday’s bombshell Der Spiegel article alleging that the IMF will not dole out any more aid to Greece.

Here’s the entire statement, which was released just moments ago:

The IMF is supporting Greece in overcoming its economic difficulties. An IMF mission will start discussions with the country’s authorities on July 24 on how to bring Greece’s economic program, which is supported by IMF financial assistance, back on track.

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What the Summer Breeze Said

SUBHEAD: It will be less like Midnight in Paris and more like Riot in Cellblock D meets Quest for Fire.

By James Kunstler on 23 July 2012 for Kunstler.com - 
(http://kunstler.com/blog/2012/07/what-the-summer-breeze-said.html)

 
Image above: Painting titled "Kayakers on the Hudson River at Thurman" by James Kunstler. From (http://www.kunstler.com/paintings%207.html).

Europe is giving new meaning to the term "bootstrapping," the age-old (virtuous) idea of picking oneself up off the floor after some blow or reversal of fortune has laid you low. The new method might be called "skyhooking" in which a massive rescue apparatus secured at some mysterious point unseen in the clouds lifts whole exhausted nations from their knees in order to get them to summer vacation. Hence: the interesting spectacle of an entire continent headed for vacation despite facing utter financial ruin, revolution, and civil war.

No one who has been to Europe in our time can doubt that it is a lovely place to stage human existence. The towns and cities are in immaculate condition, even the ones bombed to gravel in the receding unpleasantness of the 1940s. The trains, trams, and subways run cleanly and on-time. The citizens, though well-fed, maintain normal physiognomies and wear dignified adult costumes out in public. Everything along the streets broadcasts the notion, central to civilization, that grace and beauty matter -- even the handwriting on the bistro chalkboards. What a wonderful place. I'd like to go back. But events suggest that this sweet period of history is drawing to a close and whatever happens there next will be less like Midnight in Paris and more like Riot in Cellblock D meets Quest for Fire.

This skyhooking procedure has been both fun and sickening to watch, like any great public stunt of seemingly impossible derring-do. Here you have a whole bundle of nations, all up to their chins in the quicksand of debt, pretending to catch lifelines of new credit dropped mysteriously from the clouds by hidden central bank airships, only to find that the lifelines are a kind of collective hallucination coming over them like a fever dream in their hour of desperation. Seems rather cruel, actually. Especially since they have lately sunk deeper in the quicksand from their chins to their eyeballs.

No one on the scene -- or watching from a remove for that matter -- can conceive a happy ending to this chapter of history, which might be remembered on some distant clear-skied day yet to come as the age of government-by-check-kiting. Or the Chinese fire drill banking model -- no offense to that great nation of diligent workpersons. Yet, reports from even the most anguished Euro nation du jour (Spain) say that the restaurants are bustling and there is no shortage of nearly naked nubile beauties along the beaches of the Costa Brava. And over in Italy, of course, a squirrel could make the journey from Monterotondo to Lago Maggiore by leaping from one outdoor luncheon table to the next with its knobby little knuckles never touching the ground.

The question is: what happens when the recognition finally hits that the money just isn't there? That the whole circus of alphabet soup bailouts and skyhook rescue operations was a fraud? Well, my guess is that things fracture and splinter and there commences a great scramble for the table scraps of the incredible banquet that this congeries of nations put on its Master Charge card. And when the table scraps are all gone, the members of some nations, or regions within nations, set out pillaging around the place where their neighbor sat at the banquet, and pretty soon you get such a disorderly scene in the lovely old banquet hall of Europe that even diligent Chinese tourists will not venture there for a while.

None of this is to say that the action I describe is not following similar lines in other corners of our sore beset planet. For instance, those diligent Chinese I aver to have been running a set of banking rackets at least as shoddy, careless, and plumb crazy as the Eurolanders. And don't get me started on the Anglo-American clusterfuck, which has left the rest-of-the-west with a future as ingeniously booby-trapped as the Aurora cineplex shooter's apartment (and to a strikingly similar note of destructive insanity).

But in these dog days of summer (and the horse latitudes of the spirit), isn't it easier to just mix another vodka and tonic, kick off your flip-flops, and enjoy the feeling of cool sand between your toes? Rest up all y'all. Events will be pinging around the reality-scape good and hard in a few weeks. Me: well, I'm just keeping the fruit trees watered out back for now.

Enjoy your vacation..

Fukushima Unit 4 Danger

SUBHEAD: What are the current world-threatening problems at Fukushima Daiichi?

 By Gayla Groom on 21 July 2012 for Fukushima FAQ -  
(http://www.fukushimafaq.info/)

 
Image above: Workers from Hitachi-GE help remove unused fuel-rod assemblies from Unit #4 at Fukushima Daiichi From (http://photo.tepco.co.jp/en/date/2012/201207-e/120719_01e.html).

On June 11, 2012, Japanese diplomat Akio Matsumura wrote:

Let me clarify briefly why Fukushima Daiichi remains an enormous danger for which no scientists can recommend a solution at the moment….
In reactors 1, 2 and 3, complete core meltdowns have occurred. Japanese authorities have admitted the possibility that the fuel may have melted through the bottom of the reactor core vessels. It is speculated that this might lead to unintended criticality (resumption of the chain reaction) or a powerful steam explosion – either event could lead to major new releases of radioactivity into the environment.

Reactors 1 and 3 are sites of particularly intense penetrating radiation, making those areas unapproachable. As a result, reinforcement repairs have not yet been done since the Fukushima accident. The ability of these structures to withstand a strong aftershock earthquake is uncertain.

The temporary cooling pipes installed in each of the crippled reactors pass through rubble and debris. They are unprotected and highly vulnerable to damage. This could lead to a failure of some cooling systems, causing overheating of the fuel, further fuel damage with radioactive releases, additional hydrogen gas explosions, possibly even a zirconium fire and fuel melting within the spent fuel pools.

Reactor No. 4 building and its frame are seriously damaged. The spent fuel pool in Unit 4, with a total weight of 1,670 tons, is suspended 100 feet (30 meters) above ground, beside a wall which is bulging outward. If this pool collapses or drains, the resulting blast of penetrating radiation will shut down the entire area. At the Fukushima Dai-ichi nuclear power station, the spent fuel pools alone contain an amount of cesium-137 that is 85 times greater than at Chernobyl.

The likely result of any one of Fukushima’s problems getting out of hand is that no one can then get close enough to keep the other problems under control, so everything goes; all the problems manifest their worst.

Radiation levels at the complex are so high that many areas are not accessible to people — they would receive a fatal dose within seconds — nor even to robots, whose circuitry is destroyed by the radiation. Experts say that technology to solve Fukushima’s problems does not yet exist.

Recent Events at Fukushima Daiichi M4.5 quake hits Fukushima — Third over 4.o in last 24 hours.

Title: Earthquake Information Source: Japan Meteorological Agency (http://www.jma.go.jp/en/quake/quake_local_index.html)

01:16 JST - 01:11 JST 20 Jul 2012 Fukushima-ken Oki M4.52
19:44 JST - 19:39 JST 19 Jul 2012 Fukushima-ken Oki M4.02
05:43 JST - 05:38 JST 19 Jul 2012 Fukushima-ken Oki M4.01

TEPCO finishes trial removal of unused fuel from Unit No. 4 see (http://english.kyodonews.jp/news/2012/07/170461.html):

Tokyo Electric Power Co. said Thursday (July 19th, 2012) it has finished the trial removal of two unused nuclear fuel assemblies from a fuel storage pool at the badly damaged No. 4 reactor unit of its Fukushima Daiichi power plant without any major trouble.

The operation is part of a process toward scrapping the damaged Nos. 1 to 4 units at the six-reactor plant. The utility will first remove fuel from the No. 4 unit, because its pool stores the largest number of fuel rods and its building has no roof due to a hydrogen explosion in March 2011.

The utility known as TEPCO will carry out a more detailed inspection of the two assemblies, which are bundles of fuel rods about 4 meters long and each weighing some 300 kilograms. But spokesman Junichi Matsumoto told a press conference that no major deformation or corrosion had been observed so far.

Some reports say the relatively less radioactive "fuel units" are being removed not as a test preparatory to removing more fuel, but in order to see how damaged the fuel units are are, and that no large-scale fuel removal is being contemplated until December 2013 or later.

According to the New York Times, the reactor 4 building contains 1,331 spent and 204 unused nuclear fuel assemblies, and each assembly contains approximately 50 to 70 rods, meaning there are at minimum 66,550 fuel rods in Reactor Building #4.

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Degraded Unit #4

SUBHEAD: Tepco's Reactor 4 at Fukushima Daiichi is in structural danger of collapse.
By Yoishi Shimatsu on 7 July 2012 for Rense -
  Image above: Recent photo of Fukushima Daiichi Unit 4 building shows some of the damage to structure. From original article.

A few years ago, I had to make a decision to either restore an old school building in Hong Kong for an environmental center - or demolish it. The long concrete structure was built atop a garbage dump, and the final decision was demolition due to uneven sinkage. Whenever heavy buildings are not foursquare and level, massive internal stresses build up and rip the structure apart. In a recent helicopter photo of Reactor 4, seen from the east (ocean side), there are similar signs of building sinkage.

Along the middle-to-northeast corner (right side), cross beams have fallen out, and at least two adjoining pillars are of different height. The outer wall panels cracked and fell off as a result. (Plus one can see clear through from the east to northeast through a gaping hole.) Cross beams snap off due to the displacement of pillars in opposite directions

What the combination indicates is that the footing of the structure has cracked completely, with two-thirds of the building sinking at a slight angle into the broken edge, while the smaller north side, relieved of load, gradually rises with a series of popping noises. This springboard effect is audible whenever a column lurches upward, like the two pillars o n the right-hand side lifting the floor above it and breaking out. (The pincher-clawed back-hoe is parked on a pad that spreads the weight over the precarious structure.)

 It is very probable that the reactor below is tilting as well. The concrete footing for the structure is too thick to crack under weight alone or even in a major quake, and so the cleavage was probably caused by the corium searing along a line. Once burned, the concrete and rebar lose their strength and can buckle and crack under seismic vibrations and weight from above - especially if the ground is unstable.

The March 11 quake probably caused liquefaction that opened an empty pocket below the footing, and water seepage from the tsunami, rainstorms and coolant leakage subsequently eroded the soil. Since the spent fuel pools are on the south side, the strongest end of the broken structure, one metal tank still appears to be intact, judging from the corner that can be seen. The twisted, overheated metal leaning out of the holes around the spent fuel pool indicate the framework under the pool is wrecked. If the pools are still level, it would be nothing short of miraculous.

Odds are that the pools are tilting, adding massive stress to the whatever remains of the supporting frame. The steel plate over the now-exposed floor/ceiling could be there to prevent people from seeing that the spent fuel pool is tilting and lower than its former position due to the bending of the metal frame below. A tarp would have been melted by the heat released from the jostling of the pool and loss of water in the two series of 2012 quakes that further degraded the structure. Two sheets of steel plate could resist temperature build-ups of up to about 1,000 C or around 2,000 F before bending. Notably, open space is left on either side of the plates to allow heat escape.

The presence of the plates point to flaring temperatures on occasion since the spent pool fires of March 14 and 16, 2011. The demolition work of June 26 had to be done to remove the weight of the upper walls. This is consistent with what must be done when the footing is cracked and lower floors are tilting inward, causing stress buildup throughout the entire fabric of the structure. That old school building rocked like a boat whenever a bus or truck passed by on the adjoining road. For Fukushima workers, it would be terrifying to be on top of a fractured structure that amplifies seismic waves.

The ongoing self-destruction is inexorable and cannot be repaired or reversed. When I checked the foundation of the old school structure, the concrete was broken clean through in many places along roughly parallel lines. Fixing a broken foundation is impossible, especially when it is on uneven landfill, since the rubble below will firmly not hold up an injection of concrete or jacking. Our team considered the possibility of artificial support for that school building but quickly gave up the idea as unfeasible. The far heavier Reactor 4 structure is following the same pattern of step-by-step degradation, or phased collapse, in which the stress factors are so complex that there is no way to predict when or what part will be the next to go.

The rate of soil loss under the structure is still the determining factor leading to a final collapse, and this problem of soil sinkage effects the entire Fukushima No.1 plant site, which rests on landfill compromised by quake-caused liquefaction, erosion by the tsunami, incessant water leakage and melt-through of escaped nuclear fuel. Engineers therefore had to push back the TEPCO plan to remove two fuel rods from Reactor 4 in this month of July. For the same reason of soil instability no attempt has been made to set up a scaffolding or crane along the south wall to lift rods into a casket. Instead of an apocalyptic moment, as most observers had anticipated, the ongoing degradation of Reactor 4 remains one of nerve-racking suspense, of waiting for the next beam to drop.

 • Yoichi Shimatsu is an environmental writer and consultant based in Southeast Asia.

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