World (Central Banks) Braces for Greek Election on Sunday

Any insight on the possible or likely outcome, European readers?

From Bloomberg News (6/15/2012):

Greek Candidates Make Final Pleas Before Vote With Euro at Stake

Greek political leaders made their final campaign pleas before elections tomorrow that may determine whether the country becomes the first member of the euro to leave the currency union.

“The first thing we must determine in the elections on June 17 is to choose between the euro or drachma,” New Democracy leader Antonis Samaras told a crowd of flag-waving supporters in central Syntagma square last night. He faced the Parliament building in Athens, the site of protests against austerity measures demanded in return for 240 billion euros ($303 billion) of emergency aid pledges. A vote for the anti- bailout Syriza party “means Greece out of the euro,” he said.

The vote will turn on whether Greeks, in a fifth year of recession, accept open-ended austerity to stay in the euro or reject the bailout conditions and risk the turmoil of exiting the 17-nation currency. World leaders, who gather for a summit in Mexico June 18, have said they’d prefer a pro-euro result, underscoring concern over global repercussions.

Almost 10 million Greeks are eligible to vote for the second time in six weeks after a May 6 ballot failed to yield a government.

Exit polls will be released when voting ends at 7 p.m. in Athens, with a first official result estimate due around 9:30 p.m. The final polls, published on June 1, showed no party set to win a majority.

Syriza leader Alexis Tsipras, who promises to renege on Greece’s end of the bailout deal, and New Democracy ran even in final opinion polls. The socialist Pasok party, which won the 2009 election and led the country into the bailout, was third at about 13 percent.

...

Tsipras told Athenians June 14 that he was sending a message that nobody should bet on Greece leaving the euro area.

“Turn your backs on the two parties of bankruptcy,” Tsipras told supporters, referring to the Pasok and New Democracy parties which co-signed the rescue. They “lowered the Greek flag and surrendered it to Angela Merkel”-- the German chancellor who led the demand for austerity -- he said.

(Full article at the link)

With the rumor (or was it an announcement? or does it matter?) that the world's central banks (ECB, FED, BOJ, etc.) will intervene in case of a dire credit crunch that may happen depending on the result of the 2nd Greek election this Sunday, there seems to be nothing to lose for the Greeks to vote out the incumbent parties.

Judging by how the stock markets around the world fared toward the end of this week (particularly that of the US), the central bank intervention is very much priced in.

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OT: Egan Jones Downgrades Spain to CCC+, Lower than Uganda (Which Has B Rating), While Greeks Stock Up Non-Perishable Food

From Zero Hedge (6/13/2012):

And so, the little rating agency that could, just gave Spain the triple hooks, downgrading the country from B to CCC+, negative outlook. As a reminder, the Uganda credit rating is B: it sure is no Spain.
From EJ:

Synopsis: KINGDOM OF SPAIN EJR Sen Rating(Curr/Prj) CCC+/ CC Rating Analysis - 6/13/12 EJR CP Rating: C Debt: EUR805.9B EJR's 1 yr. Default Probability: 18.0% Spain continues to be weakened by high funding costs (6.75% for 10yr today), the gov. deficit of 9.6%, an estimated decline in GDP of 1.7% (per the Economy Ministry), the 24.4% unemployment, the IIF's recent estimate of additional bank loan losses up to EUR260B, and possible depositor withdrawals. Over the past four fiscal years, that is from 2008 to 2011, Spain's GDP declined from EUR1.09 trillion to EUR1.07 trillion. Meanwhile, its debt mushroomed from EUR519B to EUR806B. With the EUR100B infusion for Spain's banks, the debt to GDP will rise to 90% plus future additions for the government deficit, support for its regions and additional support for its banks. Social benefits are a major problem; while payments to the govt have been down EUR 3B (2008 to 2011), payments from the government have been up EUR 29B). As a result, Spain is short about EUR50B per year for social payments, EUR35+B per year for interest, and an additional EUR 30B for asset growth; hence the EUR110+B per annum increase in debt. As we expected, Spain requested support for its banking sector and will probably need cash for weaker provinces. Assets of Spain's largest two banks exceed its GDP. We are slipping our rating to " CCC+ " ; watch for more requests for support from the banks and money creation.

Just the reminder that the Greek election is on Sunday, June 17, and people are withdrawing money from the banks at a furious pace ($1 billion, or about 800 million euros per day). As CNBC reports, they are stocking up on non-perishable food:

...New Democracy has been telling voters they must choose between the euro or the drachma, while Syriza promises to end the austerity measures imposed by Greece's international lenders, such as salary and pension cuts, that have driven many Greeks into abject poverty.

Fears that Greece will collapse financially and leave the euro have slowly drained Greek banks over the last two years. Central bank figures show that deposits shrank by about 17 percent, or 35.4 billion euros ($44.4 billion) in 2011 and stood 165.9 billion euros ($208.1 billion) at end-April.

Bankers said the pace was picking up ahead of the vote, with combined daily deposit outflows from the major banks at 500-800 million euros ($625 million to $1 billion) over the past few days, and 10-30 million euros ($12-36 million) at smaller banks.

"This includes cash withdrawals, wire transfers and investments into money market funds, German Bonds, U.S. Treasuries and EIB bonds," said one banker, who spoke on condition of anonymity.

Retailers said consumers were stocking up on non-perishable food while almost all other goods were seeing a huge drop in sales as cash-strapped Greeks have no money to spare in the country's fifth year of recession.

"People are terrified by the prospect of returning to the drachma and some believe it's good to fill their cupboard with food products," said Vassilis Korkidis, head of the ESEE retail federation.

"It's over the top, we must not panic. Filling the cupboard with food doesn't mean we will escape the crisis," he said.

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Greek Pensioner Hangs Himself In Protest That "Greece Will Be Wiped Off The Map"

From Zero Hedge (5/30/2012):

Two months ago, an elderly Greek took his life in broad daylight in Athens' central square while decrying the country's traitors in government, and who preferred to take his own life than to defer his debts to his children or "fishing through garbage cans for his sustenance." Hours ago, another tragedy struck.
From Athens News:

A 61-year old pensioner was found hanging from a tree on Wednesday, in the Agios Filipos park of the Nikaia area. The lifeless body of the pensioner was discovered by a park attendant, who also found his suicide note which read as follows:

"The police does not know me. I have never touched a drink in my life. Of women and drugs I have never even dreamed of. I have never been to a kafenio (coffee house), I just worked all day! But I commited one horrendous crime: I became a professional at age 40 and I plunged myself in debt. Now, I’m an idiot of 61 years and I have to pay. I hope my grandchildren are not born in Greece, seeing as there will be no Greeks here from now on. Let them at least know another language, because Greek will be wiped off the map! Unless of course there was a politician with Thatcher’s balls so as to put us and our state in line.

Signed, Alexandros 29/5/2012”

His neighbours described the pensioner – a father of two- as a hard working man. He had been employed in ship repairs and construction sites and up until recently, he had been working as an electrician on a merchant ship.

He was facing sizeable financial problems and it was these that pushed him over the edge.

According to neighbours, prior to taking his own life, he was seen wearing his work overalls, carrying his tools and sitting on a bench in the park.

Tragic.

===================================
The Maastricht Treaty was signed in February 1992, around the time when this pensioner took on debt.

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Spiegel Interviews Tsipras: "If Greece Is Destroyed, Angela Merkel Will Be Guilty"

Mr. Alexis Tsipras, the Syriza leader, promises Greece will stay in euro, and no he won't abide by the austerity diktat. If anything goes wrong in Greece, it will be Angela Merkel's fault, and other European forces.

He probably scoffs at IMF Chief Christine Lagarde too, who told the Greeks to "pay up".

In the interview below, the Spiegel reporters don't sound too happy.

From Spiegel Online International (5/28/2012):

Greek Leftist Leader Alexis Tsipras 'It's in Europe's Interest to Lift the Austerity Diktat'

Alexis Tsipras, head of the leftist Syriza party, wants an end to austerity in Greece. Ahead of Greek general elections in mid-June, he speaks with SPIEGEL about the dangers his country poses to the euro, the failure of economization measures thus far and why Chancellor Angela Merkel would be to blame if the Greek economy collapses.

Tsipras, the 37-year-old rising star in Greek politics, lays his Ray-Ban sunglasses on the table. It's Tuesday afternoon, and he looks exhausted. Indeed, he has a packed schedule: first Paris and then Berlin, where he met with Gregor Gysi and then with Jürgen Trittin and Sigmar Gabriel, senior officials in Germany's Left Party, Green Party and Social Democratic Party, respectively. Tsipras was the surprise victor when his Radical Left (Syriza) party took second place in May 6 general elections in Greece. Because leaders were unable to form a coalition government, a new election will be held on June 17. Most believe that Tsipras will attract even more votes in this second election.

Tsipras' tour through "Europe's two most important capital cities," as he put it, was primarily about cultivating his image. The civil engineer, already politically active in high school as a member of the Communist Youth of Greece, numbers among the strongest critics of the EU-International Monetary Fund (IMF) strategy for Greece, which calls for radical budget cuts and austerity in return for international aid. Should he win the June 17 election, Tsipras plans to ditch the terms of the bailout agreements struck with its creditors. On the campaign trail, one of his slogans has been that Greece is in danger of becoming a "German colony." But he toned things down in Berlin, saying: "We want to persuade, not blackmail."

SPIEGEL: Mr. Tsipras, is Berlin really as bad as you always say back home in Athens whenever you rail against the evil Germans?

Alexis Tsipras: Berlin is my favorite capital city in Europe. It's too bad that I'm always here only briefly. I'd like to have more time.

SPIEGEL: You might be Greece's prime minister the next time you come to Berlin. If that happens, will Greece still be a member of the euro zone?

Tsipras: Of course. We'll do everything we can so that Greece can retain the euro. We're trying to convince our European partners that it's also in their interest to finally lift the austerity diktat. We need policies that don't destroy the Greek economy but, rather, allow for renewed growth. If the austerity course isn't changed, it will result in the complete destruction of the Greek economy. That would indeed be a danger to the euro.

SPIEGEL: But even some parts of Syriza, the leftist alliance you lead and which came in second place in the May 6 election, have been calling openly for a return to the drachma.

Tsipras: That's only a minority. In each party, no matter whether big or small, there are different orientations, different opinions. Then there will be a vote, and the majority decides. What's more, this minority among us isn't in favor of an exit from the euro, for example; it just wants to ensure that Greece can also survive, with the help of another currency, for example, if others have completely ruined our national economy.

SPIEGEL: Which "others" do you mean? The Greek economy is already in a shambles.

Tsipras: What I mean by that is if our economic foundation is completely destroyed and the decisions of an elected Greek government are not responsible for it but, rather, certain political forces in Europe. Then they too will be guilty, for example Angela Merkel.

SPIEGEL: Are you seriously claiming that the reforms which Europe is demanding as a precondition for loan assistance are the reason for Greece's miserable situation?

Tsipras: If we are once again pushed and blackmailed into an austerity program that has so obviously failed, then it won't be long before Greece is in fact no longer capable of paying its creditors. The result will be a halt in payments, one into which we were practically forced. This would not only be dangerous for Greece, but for the entire European economy. These days, the financial systems of all countries are so closely intertwined with each other that one can't limit the crisis geographically. It's a problem of all countries and of all national economies.

SPIEGEL: If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?

Tsipras: I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit. The fact that there is financial assistance is the principle of European solidarity and a mark of being part of a community. That's good. But we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts.

SPIEGEL: For you, other people are always the scapegoat. It's other people's fault that the economy is languishing, so other people also have to rescue it …

Tsipras: That's not correct; we naturally also take a critical look at ourselves. We bear significant responsibility for our situation. We've accepted politicians who have destroyed our country's manufacturing base and created a corrupt state. We have elected the very people who have stashed their money away abroad and not only allowed tax evasion to occur, but also fostered it. Of course we are responsible for that; we allowed it all to happen. But we also have the responsibility to change exactly that right now.

SPIEGEL: Given your dependence on financial support and your rejection of vital structural reforms -- such as that of the public administration -- already agreed on, how do you propose doing so?

Tsipras: We're not opposed to reforms. We're only saying what so many economists, what many German newspapers and what even former German Chancellor Helmut Schmidt are saying -- and what the OECD has now reconfirmed in a study: The austerity policies we've been implementing for two years -- the policy of solely relying on drastic belt-tightening -- have failed. We now find ourselves in the fifth year of the recession. This year too, our economy will once again contract by at least 6 percent.

SPIEGEL: Is that the complete truth? Even Alekos Alavanos, your old mentor and the former Syriza floor leader in parliament, has called on you to finally be honest with your fellow Greeks.

Tsipras: Alavanos left the party some years ago because he didn't share our conviction about remaining within the euro zone. It's fairly odd that I now have to justify myself for the fact that we -- like the vast majority of the population, incidentally -- want to stay within the euro association.

The political reality is simple: The austerity programs, as constructed thus far, have failed, partly because they've been based on a false model, namely, that of domestic devaluation. But we're not an exporting country. It is much more the case that most of what we produce, we consume. Our ability to compete doesn't only depend on labor costs, as so many people say; they also depend on other parameters, such as the infrastructure and the mind-set of people and politicians. We really do long for a bit more meritocracy …

SPIEGEL: The concept of merit-based remuneration hasn't made it all that far in Greece. Instead, there's widespread corruption, cronyism and clientelism -- not exactly an advantage when it comes to competitiveness.

Tsipras: I am aware of the problems the Greek state has. It was systematically run down by the politicians of ours who were in power. And many Greeks share in the blame: They've supported this system; they've sustained it by continually electing the same politicians. But this can't be the cause of the crisis but, rather, at most it is a symptom. The financial and debt crisis isn't purely a Greek problem -- otherwise, there wouldn't be high government deficits in other countries, as well, such as in Italy, Spain, Portugal and Ireland. So there must be other causes. That's why we have to analyze the structure of the community, its architecture. Also that of our common currency, the euro.

SPIEGEL: Do you see in François Hollande, France's newly elected Socialist president, a new ally in the battle against the austerity diktat coming out of Germany?

Tsipras: Hollande is clearly a great white hope for us. Now, ideas and arguments that haven't been listened to will once again be heard and discussed, such as a stronger role for the European Central Bank or the introduction of euro bonds. We can't just treat symptoms, or we really will stumble over Greece. That doesn't help anyone. If our country exits the euro zone, all of Europe is in danger. We mustn't fool ourselves about that.

SPIEGEL: The most recent talks in Athens aimed at forming a government failed because you refused to join in any coalition. At the moment, opinion polls indicate that your Syriza alliance is running neck and neck with the conservative Nea Dimokratia (New Democracy) party. Who would you like to partner with after the new elections on June 17?

Tsipras: We would, of course, like to have a left-wing coalition. And we'll do everything we can to make things add up in our favor this time.

Interview conducted by Julia Amalia Heyer and Manfred Ertel

Translated from the German by Josh Ward

Zero Hedge, where I took the link to Spiegel article, says "Well, in the US, it is all Bush's fault".

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Germany's ZDF Poll: "Solt Griechenland Weiter Am Euro Beteiligt Bleiben?"

November 2011:
Ja: 41%
Nein: 49%

Jetzt:
Ja: 31%
Nein: 60%

(ZDF, via Zero Hedge)

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UK Home Secretary: "We'll stop migrants if euro collapses"

From UK's Telegraph (5/25/2012):

Theresa May: we'll stop migrants if euro collapses

The Government is drawing up plans for emergency immigration controls to curb an influx of Greeks and other European Union residents if the euro collapses, the Home Secretary discloses today.

In an interview in The Daily Telegraph, Theresa May says “work is ongoing” to restrict European immigration in the event of a financial collapse.

People from throughout the EU, with the exception of new member countries such as Romania and Bulgaria, are able to work anywhere in the single market.

However, there are growing concerns that if Greece was forced to leave the euro, it would effectively go bankrupt and millions could lose their jobs and consider looking for work abroad.

The crisis could spread quickly to other vulnerable countries such as Spain, Ireland and Portugal, although Britain is regarded as a safe haven because it is outside the single currency.

Details of the contingency plan emerged as the euro crisis deepened further yesterday.

Catalonia was forced to turn to the Spanish government for a bail-out and speculation mounted that Bankia, the troubled Spanish bank, would need £15  billion in state support. European markets fell again as the euro dropped in value against other major currencies.

The Home Secretary says that the Government is already “looking at the trends” to determine whether immigration from beleaguered European countries is increasing. While there is no evidence of increased migration at present, she adds that it is “difficult to say how it is going to develop in coming weeks”.

On the subject of whether emergency immigration controls are under consideration, Mrs May says: “It is right that we do some contingency planning on this [and] that is work that is ongoing.”

The introduction of immigration controls within the EU would undermine a key part of the single market. However, it is allowed in “exceptional” circumstances under European law.

Controls are most likely to include restrictions on people seeking to work in Britain, who could be made to apply for visas.

Several European governments introduced temporary immigration controls when countries such as Poland and the Czech Republic joined the EU, to stop an influx of workers. France also threatened to reintroduce passport controls at the Italian border following an influx of Libyan and Tunisian refugees during the Arab Spring.

David Cameron has already said that Britain has made contingency plans to deal with the break-up of the single currency.

They involve preparations to evacuate Britons from Greece if civil disobedience spirals out of control, and for banks to take steps to protect

The last paragraph looks incomplete, but that's what is there at The Telegraph.

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ECB Has Been Secretly Propping Up Greek Banks

From Financial Times, via CNBC (5/21/2012):

There has been no official announcement. No terms or conditions have been disclosed. But Greece’s banking system is being propped up by an estimated €100 billion or so of emergency liquidity provided by the country’s central bank — approved secretly by the European Central Bank in Frankfurt. If Greece were to leave the eurozone, the immediate cause might be an ECB decision to pull the plug.

Extensive use of “emergency liquidity assistance” (ELA) to help banks in the weakest economies has been one of the less-noticed features of the eurozone crisis. Separate from normal supplies of liquidity and meant originally as a temporary facility for national authorities to use when banks hit problems, ELA proved a lifesaver for the financial system Ireland and is now even more so in Greece. As such, it has given the ECB — which has ultimate control over the facility — considerable power to determine countries’ fates.

Whether that power would ever be exercised is unclear. ELA is a subject on which the ECB is deeply reluctant to provide information — even on where or when it is provided.

“You don’t say when you are in an emergency situation, because then you make the situation worse. So I really don’t see the usefulness of being more transparent,” Luc Coene, Belgium’s central bank governor, explained in a Financial Times interview this month.

The ECB’s guard slipped a little late last month. Its weekly financial statement published on April 24, showed an unexpected €121 billion increase in the innocently titled heading “other claims on euro area credit institutions,” the result of putting all ELA under the same item. By definition, €121 billion was the minimum amount of ELA being provided by the “eurosystem” — the network of eurozone central banks.

By scouring ECB and national central bank statements analysts, have since pieced together more details. Analysts at Barclays, for instance, reckon Greece is now using €96 billion in ELA, with Ireland accounting for another €41 billion and Cyprus €4 billion. If correct, total ELA in use has exceeded €140 billion — more than 10 per cent of the amount lent to eurozone banks in standard monetary policy operations.

Because of the risks of extra liquidity creating inflation, ELA in excess of €500 million requires approval by the ECB’s 23-strong governing council: its use can be stopped if two-thirds of the council oppose an application.

(Full article at the link)

On this reassuring news, the stock futures for the major European bourses are up right now. Stock markets in Asia are all up, with Korea's KOSPI up more than 1.7%.

In an separate, related article at CNBC, Mr. Alexis Tsipras is quoted:

In Greece itself, the head of the county’s radical left party traveled to Paris on Monday to try to consolidate support from political allies for rejecting the terms of the country's bailout package, ahead of general elections that could decide the destiny of Greece in the euro zone.

"I don't know if we have scared Europe, but judging by your presence here today, we have surprised it," Alexis Tsipras, the 37-year-old leader of Syriza, told journalists at the French National Assembly.

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Greek Citizens Withdrew 700 Million Euros from Banks Recently

CNBC couldn't say exactly when.

From CNBC (5/15/2012; emphasis is mine):

Stocks faded in the final hour of trading Tuesday to finish lower following news that Greek depositors withdrew 700 million euros from the nation's banking system and after Greece's leaders failed to agree on a coalition government.

The S&P 500 closed at 3-month lows, while the Dow logged its ninth loss in the last 10 sessions. Major averages are on pace for their biggest monthly losses since last September.

According to a transcript, Greek depositors recently withdrew 700 million euros from the nation's local banks, said President Karolos Papoulias, though the exact timing of the transfer was unclear.

...

Earlier, Greek politicians failed to form a coalition government during their final talks, pushing the Athens Composite Index to a new 22-year low. A caretaker government is likely to be formed pending a new election next month. The euro fell below $1.28 following the announcement and European closed at new 2012 lows.

“The fundamental structural issues in Europe are still there and they’re not going to go away…they’ll continue to kick the can down the road because they’re only doing just enough to get by,” said Matt Lloyd, chief investment strategist at Advisors Asset Management.

(Full article at the link)

22-year low. Ouch...

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The Birth Of Barter: How One Greek Town Dropped The Euro And Moved On

This BBC News segment was posted on Zero Hedge (4/18/2012), by Tyler:

Greece was the first country to defect from the non-default game theory regime of the European Union (a move which ultimately will be in its great benefit, as it is forced, very shortly, to default higher and higher into the 177% of GDP secured debt, until finally even the Troika's DIP loan is impaired). It has also become the first country to demonstrate that people can, contrary to apocalyptic claims otherwise by the global banker consortium which realizes oh too well it will be its death if people stop playing by the broken rules, exist under a barter regime. The video below shows how the Greek town of Volos develops its own bartering system without the aid of the euro. Yes - it can be done, especially since one is forced to produce in order to consume, and borrowing infinitely from the future becomes impossible.

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Extend and Pretend Greek Version: Greece says debt 'absolutely sustainable'

Not just in the US or Japan, but a truly global phenomenon. And always blame greedy foreign bankers for everything.

From AP (4/20/2011):

ATHENS, Greece (AP) -- Greece's finance minister said the crisis-hit country can deal with its mountain of debt and insisted that renewed access to bond markets is still possible in 2012 despite spiraling borrowing costs.

"I believe that Greece's debt is absolutely sustainable ... But that is based on the implementation of the (2011-2015) adjustment program," George Papaconstantinou said Wednesday.

Papaconstantinou spoke as the country's borrowing costs remained high on speculation that Greece will have to restructure its debts. The difference between the interest rates on Greek and German 10-year bonds is over 11 percentage points, a staggering difference given the two countries use the same currency and operate in the same interest rate regime.

The Greek government has repeatedly denied it is considering such a move and has promised to forge ahead with an ambitious privatization program worth euro50 billion ($71.5 billion) through 2015 that has already run into strong union opposition.

Union are planning a general strike May 11, while a powerful electricity workers' union warned Wednesday it was considering rolling strikes ahead of that date.

Papaconstantinou again denied that restructuring is on the cards.

"It is a very interesting debate but we don't care to join in," he said. "(Restructuring) would carry great dangers for the economy, (pension) funds and households."

The spike in Greek borrowing rates, he argued, was due to a "cacophony" of conflicting statements by European finance officials on the restructuring issues. High borrowing costs have locked Greece out of bond markets.

The finance ministry later said it had asked prosecutors to investigate whether brokers for an unnamed foreign investment bank bear criminal liability in connection with market movements Wednesday at the Athens Stock Exchange -- which dropped 2.62 percent -- and the Greek bond market.

The article continues.

More on Greek debt from Zero Hedge:

Greek 2 Year Bonds Now Yielding Record 22%, Price On 10 Year Bonds 59 Of Par

Just a quick reminder that the world continues to burn: the yield on the Greek 2 Year bond has just climbed to 22%, an all time record. The actual price is 74.25%. And far more jarringly, the 10 Year is 59 cents on the euro. A 40% haircut is now effectively priced in by the market.

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Jim Willie: Greece Is China's US$ Swapping Facility

Greece is used as a conduit by China to dump US Treasuries to buy Euro, with which to by the Greek debt which will be backed by the mightly Germany. Thus the rapid and unwarranted appreciation of Euro, and politicians in Berlin and bankers in Frankfurt were caught flat-footed.

The Jackass, aka Jim Willie, made this observation in his latest free newsletter on October 20, 2010 [emphasis is mine]:

NEW DOLLAR SWAP WINDOW (MADE BY CHINA)

China is dumping USTreasurys by way of the Europe, using a back door whose design was handed to them. Their support of the Greek Govt debt jammed that door wide open. Thus the rising Euro currency without justification, one of a few factors. Usage of the window has led to an indirect Chinese forced devaluation of the USDollar, an extremely clever action. China has never appreciated being repeatedly called a currency manipulator. From 1999 to 2005, the USGovt gave full support to the Chinese Govt, as the Yuan currency was pegged to the USDollar. The USGovt saw the policy as providing stability to the USDollar at a time when foreign investment by US firms in the Middle Kingdom was brisk and strong. In a three-year period, the US multi-national firms invested $23 billion in Chinese industrial plants, like the 160 Wal-Mart plants. The misguided USGovt and hapless US economists eagerly awaited the great bounty from Low Cost solutions that exploited cheaper Chinese labor, lower tax structure, even absent regulations. A decade wave of corporate profits evaporated, amidst growing debt and the housing bust. Meanwhile, the Chinese Govt would accumulate $2.5 trillion in savings, held as USTreasurys for over $800 billion. Suddenly, China is a currency manipulator. However, the vast monetization initiatives enacted by the USGovt and its partner USFed with $1.5 trillion in freshly printed money to support the US$-based bonds which few foreign creditors wanted, that action is highly manipulative to currencies!!

The missing piece is that the Wall Street helm has ignited the currency bonfire by not pursuing a multi-lateral agreement by USGovt creditors. They have never been consulted on monetary inflation, debt monetization, and austerity measures. The United States acts unilaterally with great privilege, as they claim some of sort of glorified mission, a Manifest Destiny ridden atop bond wagons. The Chinese apparently have a plan to swap their USDollars for Euros, using the Greek back door.

A well placed banker source in Europe passed an opinion along. The Jackass was aware of the Chinese nibbling with purchases of Greek debt. However, the initiative had a clever motive for an expanded role. The German Euro supporters have been caught flat-footed, inattentive to guard the door. By refusing to permit a default in Southern Europe of sovereign debt, the Euro Central Bank and EU leaders have exposed a vulnerable pathway soon possibly to turn into a highway. The banker source wrote, "After having de-facto bought Greece, the Chinese are now members of the Euro system or Greece is now a member of two currency systems, to be used at will. So China will now use its USTreasury Bonds to buy Euros, which will be used to buy Greek Govt bonds. These bonds will be guaranteed by Germany. This is very clever and no one saw the dual usage of the system, except a few very clever people. The politicians in Berlin and bankers in Frankfurt were sleeping at the wheel as usual and now will pay a heavy price." It goes deeper. Greece has agreed to support EU recognition of full market economy status for China, while China has agreed to support the call by Greece for UN mediation over Cyprus.

The Chinese have essentially created a Dollar Swap Window, a small one admittedly. It will grow over time. Attempts to rein it in will be difficult. Imagine runaway traffic at the window, the galloping process of the Greek Dollar Swap Window. The Europeans eagerly opened the window for China to invest money in Greek Govt debt, which European nations did not want to commit to. So China has a small pipeline in which to shove USTreasurys, to convert them to Euros will full blessing and approval of the Euro Central Bank, and to buy a stake in Greece. Beijing could not give a dragon's big toe of concern for Greece. They wanted a window to dump USDollars. Next look ahead, and remain objective. The Chinese might be motivated to invest in Spanish Govt debt, some Portuguese Govt debt, and later some Italian Govt debt and even some French Govt debt. Leave Ireland alone, a lost cause, after a foolish decision to adopt the suicidal IMF austerity plan. They are headed toward systemic failure.

So China has found a clever back door Dollar Swap Window. So far it only has a Greek label on the glass with Greek trucks on the dock, with Chinese standing in line. Soon the Latin debt will open up adjoining windows in an expanded Dollar Swap Window facility. The USFed and USDept Treasury were not invited to this planned project. The key point upcoming is not the volume of European sovereign debt to be covered by China, even at discount in implied writedowns. The key point is other broader usage of the window. Watch and observe how the Chinese will eventually be accused of swapping far more USTreasurys through the window than purchased Greek Govt debt, or any other sovereign debt. The Chinese will attempt to dump as much USTreasurys as they can before the window closes, shut under pressure by the USGovt. In the meantime, the Euro currency rose to touch 141 per greenback unit two weeks ago. That is a rather impressive run from 127 in early September. The European fundamentals do not justify such a big 11% move. At 140 the exchange rate is still lofty. If the Chinese expand the usage of their clever new Dollar Swap Window, the Euro could rise to 150. Such is the heavy price paid by the EuroCB and EU leadership for refusing to permit a Greek Govt debt default. The Open Door Policy to China found a back door !!!

For the full newsletter, go here.

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News That Has Gone Very Quiet Very Quickly

In no particular order...

H1N1 swine flu
Now the reports say WHO exaggerated the threat, influenced by the pharmaceutical industry. Oh really? What a surprise.

Global 'warming' and Climategate
The Gores are splitting, and CBS blames George W. Bush.

Panty-bomber on Christmas Eve last year and terrorists from Yemen (and US military's involvement in that country)
CIA later admitted he was allowed to board the plane under CIA's order. No matter. No one paid attention to that part. All we got out of this shady affair is the pornographic total body scan, thanks in part to the peddling by Michael Chertoff, former Homeland Security chief.

Greece sovereign debt crisis
While Greece decided to sell off national assets to pay the bankers, evil 'speculators' have moved on to the next target, Spain. Italy next? Or France next? I guess they'll need a break before attacking a major country. Maybe take a detour in Hungary?

Heath care insurance "reform" bill actually passed and signed into law
Remember that one, which will force you to purchase insurance you don't want under the threat of fines because it is your right? ('Newspeak' at its best.) Doctors sure seem to remember that well, as an increasing number of them will be calling it quits. Canadians are finding out that the government-mandated health care is not really 'free' of charge. Duh. (Why do they think Newfoundland's minister came to the US for his heart surgery?)

Times Square non-bomber (if you can call that a bomb, you are scientifically challenged)
The news died off even quicker than the panty bomber. As a reward, Pakistan will be targeted by the Obama administration for "unilateral military action".

Second wave of mortgage default due to ARM reset
I don't think that even compares with the much bigger subprime disaster that's coming, via almost insolvent FHA and Ginnie Mae, both of which are fully backed by the US government (i.e. taxpayers).

Goldman Sachs civil and criminal charges
How can they be blamed for what everyone else was doing? By the way, according to Goldman, today's job number was going to be 700K. I guess they were just following the Obama administration's lead (that Friday's job number would be great). How can they be blamed for following Obama?

Audit the Fed
Senator Sanders blinked and watered down his bill in the last minutes to just a slap on the wrist, if that. He blinked on the day of 'flash crash'. Oh it's just a coincidence, isn't it?

'Flash crash' and (unwanted) attention on high frequency trading
Boy this story disappeared so quick. Nothing to see here (which is very true of the stock market - nothing is supporting it but algo bots working in milliseconds), move right along. Nonetheless, the SEC is implementing a new circuit breaker system starting next week, which I suspect will only benefit the high frequency traders more. (More on this later.)

Euro crisis and $1 trillion bailout plan
Remember this? It was announced on May 10 before the markets in Asia opened. The effect of the announcement lasted about 12 hours for euro. The currency closed at about 1.28 (against USD) on May 10. It closed today at 1.1964, the level last reached in 2006, despite incessant central bank intervention in the last 3 weeks.
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North Korea's threat to go on all-out attack
I think it made the headline for a day or two. Poor Kim Jong Il, upstaged by the Israeli navy commandos only days later.

This must be the "new normal", in which one crisis every few days makes a peaceful, easy week. We would only panic when we have more than 3 or 4 reported crises per day. If they are not reported by MSM, we don't care, do we?

Move along, nothing to see here.

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Greece to Sell Assets to Pay the Bankers

This is not much different from AIG having had to post a cash collateral to Goldman Sachs, isn't it?

(It was Goldman Sachs, as now widely known, who arranged the derivatives deal on Greek sovereign debt so that Greece could join the euro zone.)

It's a shakedown, and the bankers, particularly the large, multinational ones, always win partly because they have the central banks to backstop them, and partly because they hold (still-)sovereign nations hostage by exposing them to a huge potential liability by the sheer size of their balance sheet. Therefore, the governments scramble to come up with the bailout plans so that these bankers don't lose. Just like the US government did by effectively nationalizing AIG, Fannie and Freddie, and having the Federal Reserve print so much digital money to provide liquidity.

I don't blame if Greeks start a new wave of protests and riots. In fact, I would be surprised if they didn't. They are literally being sold down the river by their own government. It's not that 'privatization' itself is bad; the private sector generally runs things more efficiently and profitably than the pubic sector does. However, it should be done for that very purpose - to run them better. Greece is going to sell ('privatize') the assets in order to pay the bankers and receive the promised bailout money, which is also to be used to pay the bankers.

Greece to Sell Assets to Help Pay Down Deficit
(David Jolly, 6/2/2010 New York Times)

"Greece announced Wednesday its plans for a big sale of state-owned assets, as the struggling government moved to shrink its huge budget deficit and fulfill the terms of an international rescue package.

"The government will sell 49 percent of the state railroad, list ports and airports on the stock market, and privatize the country’s casinos, the Finance Ministry said after a cabinet meeting in Athens. The government will also sell minority stakes in water utilities serving Athens and Thessaloniki, sell 39 percent of the post office, and combine its vast real estate assets into a holding company to be listed on the stock market.

"The sales are intended to help raise 3 billion euros, or about $3.7 billion, from 2011 to 2013. The government agreed to raise a billion euros a year over that time as a condition of the 110 billion euro aid program it received from the European Union." [The article continues.]

I am just wondering when Chinese and Japanese start demanding part of the US debt they hold be actually repaid.

Never say never...

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Greeks Are Paying $1,700 Per Ounce for Physical Gold

so reports Zero Hedge, citing an article on Coinupdate.com.

Greek Scramble For Physical Brings Gold Price To $1,700 Per Ounce (5/26/2010 Zero Hedge)

"And there are those who wonder how Sprott's PHYS could have traded at "ludicrous" NAV premium of over 20%. Coinupdate.com reports that prices at which the Greek Central Bank is selling one ounce gold equivalents are as high as $1,700 (40% over spot), and prices on the black markets are even higher. The punchline, as Athens slowly returns to a forced gold standard: " A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds." That's good - downtown Manhattan close to the NYSE has some free space for gold vendors to set up shop as well, they just need to push some of the frontrunning/collocation boxes off to the side. And in other rhetorical ruminations, is it safe to say that the last days of the fiat experiment are among us now that people themselves are bypassing the government and enforcing their own gold standard?" [The article continues.]

Greeks are buying British Sovereigns with gold content .2354 oz for $409, which translates to over $1,700 per ounce of gold.

In crisis, Greeks are turning to the real money throughout the ages. It was their mathematician who discovered how to assess the purity of irregular gold crown while taking a bath, jumped out and ran naked on the streets of Syracuse screaming "I've got it!".

Gold ended today at $1211.50. On the spot market, it is currently $1,213, but it is actually being sold more than bought. Weakened US dollar gives it more boost to overcome selling pressure. (See Kitco's Gold Index.)

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Gold Is Also Crashing Today - Carry-Trade Unwind

thanks to Germany's ban on naked shorting (bank shares and CDS on eurozone sovereign debt).

Gold Prices Dip as Investors Go for Cash (5/20/2010 The Street)

"NEW YORK (TheStreet ) -- Gold prices Wednesday were falling as investors sold gold for cash to cover losses as Germany's ban on naked short-selling spooked markets.

"...Germany's sudden ban on naked short-selling was weighing on the euro, which sunk to a low of $1.21 in Asia. Traders worried that the midnight ban signaled impending disaster and without the ability to short European bonds and stocks, investors were left few choices but to bet against the euro.

"The European Commission reportedly wants all European Union nations to follow Germany and restrict naked short-selling of certain assets. Any unilateral move could put continued pressure on the euro and support higher gold prices over the long term as investors buy gold as paper money loses value. The U.S. dollar is currently seen as one of the safest fiat currencies. The yield on U.S. 10-year bonds fell to 3.38%, which means that investors are more willing to lend the U.S. money." [Emphasis is mine. The article continues.]

It looks like a dumb bomb exploded over Europe.

As the article says later, the world today is more uncertain than yesterday, and fund managers think it is a good opportunity to buy gold "at a discount", thanks to this unwind.

In case you haven't heard, it's not just about Germany's stupid ban; there's a rumor that Greece may leave the EU, which has caused euro to jump.

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Sarkozy Threatened to Pull Out of Euro If Germany Refused to Help Greece - So What?

was my first reaction. Go ahead was my second reaction.

President Nicolas Sarkozy 'threatened to pull France out of euro' (5/14/2010 Reuters Madrid, via Telegraph UK)

"President Nicolas Sarkozy slammed his fist on the table and threatened to pull France out of the euro at a meeting of European leaders deciding Greece's aid package last Friday, according to Spain's El Pais newspaper.

"The newspaper cited comments by Spanish Prime Minister Jose Luis Rodriguez Zapatero to members of his party on Wednesday as relayed by people present at that meeting.

"...Sarkozy demanded a "commitment from everyone to support Greece...or France would reconsider its position in the euro," according to one source cited by El Pais.

"Another source present at the meeting between Zapatero and his party members and cited by the paper said: "Sarkozy ended up banging his fist on the table and threatening to leave the euro...This forced Angela Merkel to give in and reach an agreement."" [The article continues.]

That's not even a remotely credible threat - that France would pull out of euro. For what?

Here's the French share of PIIGS sovereign debt:

Greece: $75 billion (or 32% of Greece's debt)
Italy: $511 billion (or 37% of Italy's debt)
Portugal: $45 billion (or 16% of Portugal's debt)
Spain: $220 billion (or 20% of Spain's debt)
Ireland: $60 billion (or 7% of Ireland's debt)
Total: $911 billion
France's share of PIIGS debt ($3.89 trillion): 23%
France's GDP: $2.86 trillion
Exposure to PIIGS debt as percentage of GDP: 32%

Here's the German share:

Greece: $45 billion (or 19% of Greece's debt)
Italy: $190 billion (or 14% of Italy's debt)
Portugal: $47 billion (or 16% of Portugal's debt)
Spain: $238 billion (or 22% of Spain's debt)
Ireland: $184 billion (or 21% of Ireland's debt)
Total: $704 billion
Germany's share of PIIGS debt ($3.89 trillion): 18%
Germany's GDP: $3.65 trillion (2008)
Exposure to PIIGS debt as percentage of GDP: $19%

(PIIGS debt numbers taken from "Europe's Web of Debt" May 1, 2010 NY Times)

Now who's in worse shape?

Germany's share of the bailout plan is bigger than France's, even though the exposure is smaller than France.

Merkel probably relented because she didn't want to be accused of breaking up the eurozone and endangering the EU collapse. She should know better, as France cannot possibly afford to go it alone. She should have called Sarkozy's bluff.

But acting like a madman seems to work well...

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Large Explosion Outside Athen's Prison

From Reuters.

Explosion outside Athens' main prison: police (5/13/2010 Reuters via Yahoo News)

"ATHENS (Reuters) – There was a large explosion outside the main prison in Athens on Thursday, Greek police said, but there were no immediate reports of injuries or damage.

""It was a really strong explosion that was heard kilometers away," said a police official, who requested anonymity.

"The top security Athens prison is in the Korydallos suburb, west of Athens."

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$1 Trillion "Nuclear Bazooka" Euro Rescue Plan Buoyed Euro

for about 12 hours. Or even less.

Now Euro is back to where it ended last Friday.

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Stock Market Futures Jump on Euro Rescue

I don't think I have ever seen the stock index futures this high. According to Bloomberg as of 3:47 AM EST:

Dow +346.00
S&P 500 +45.80
Nasdaq 100 +75.00

The stock markets around the world are going to celebrate the massive rescue plan of euro, the plan that will backstop, to the tune of nearly $1 trillion, the public and private bad debt in the EU, particularly eurozone. The ECB is going to print money and buying up those bad debts, just like the US Fed has done. European taxpayers are on the hook, so are American and Asian and just about anyone in the world (through IMF), to keep EU governments from defaulting and keep the bankers paid.

In this global celebration, Dow's 1000-point free fall last Thursday will be soon a distant memory. Move along, there's nothing to see here. Just join the crowd and start buying. Anything. High-Frequency Trading bots will make sure you will be given the best price.

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Nearly Two-Thirds of Germans Want Deutsche Mark Back

In an AFP article discussing the possibility of euro parity with US dollar,

"The majority (52 percent) of Germans fear that inflation could result from the Greek crisis, according to an Emnid poll published Sunday, compared to 45 percent that saw no such danger.

"Moreover, nearly two thirds (59 percent) of Germans think Berlin should consider a return to its pre-euro currency, the deutschmark, with one in three believing the euro will no longer exist in 10 years."

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