Friday, February 12, 2010
Beware the Trojan Hoax
Let me get this straight...
The country of Greece, where a third of the economy is underground, where over the last 175 years the country has been in default about half the time, will now be monitored by the EU to insure that all future government statistics are accurate, will give the EU the power to audit its' books, and will have to follow the austerity measures laid out by the EU?
Are you kidding me?
There is no chance in Hellenic that Germany will support anything other than a Potemkin bailout.
Oh and might you suppose that the EU, once follow up reports from Greece show that there are -harumph- still ongoing 'discrepancies', will fine Greece for its' transgressions?
Other EU members probably won't be too terribly willing to gnaw at the horsehair holding the Damocles sword dangling above them also.
The canaries are chirping this morning as Dubai CDS, measured by bps, explode by over 17%.
And the dominoes are being set up as witnessed by the Spanish consortium scurrying to London to meet with its' 'bondholders'.
As mentioned on this blog in December of 2008 :
'A bank holiday where the Federales liquidate insolvent banks' capital structures (with the burden of proving solvency emphasized) per a crazy concept called price discovery is in the national security interest of the United States.
Fiscal initiatives that mandate and hold steadfast to the goal of increasing incomes on a generational basis are the greatest challenge in front of us.
Although it grieves me to say it, both given the implications for human suffering and the rapscallions throughout history that have parroted such a view but ... sometimes to solve a problem you have to make it a bigger problem.
If we can accomplish the Houidini-esque stunt of funding this debt at manageable levels it will only be by literally defining AAA as anything American (i.e. if America becomes AA then literally AA is the new AAA, with the assumption that the reasons for our 'downgrade' would serve as deleterious to all others, except maybe Mr. Gold.)'
I believe this vision is playing out. We are the last canary, and the biggest domino. But given the magic of our reserve currency, our 'downgrade' will only occur within the context of the world being downgraded first.
I've always held firm to the thesis that deflation is the midwife to hyperinflation. A real deflation, not just disinflation, requires liquidity evaporation due to multiple sovereign crises, where the backstop is called into question.
Deflation is the dollar bid, hyper-inflation is the downgrade of American's citizenry commensurate with a currency devaluation .
Would suggest that the quantity of liquidity evaporation will very much define the quality of any hyper-inflation.
We have a free skate while there are troubles in Euroland (should stretch over months not weeks) and then we'll find out just how thin our ice really is.
Beware the Trojan Hoax.