Greek Tragedies, Bursting Bubbles, China and the AIIF

Editor’s Note – Is another Greek Tragedy about to rock the European Union? Has the United States lost its ‘Superpower’ status in the universe of global economics? Is there another bubble about to burst in the U.S. stock Market?

If you say yes to all three, we have much more than a Greek Tragedy; we could have a melt-down of epic proportions say several leading economic voices. In Greece, they have a hefty payment due Thursday to the International Monetary Fund that may cause another political crisis in their government:

The worsening Greek debt crisis has reanimated talk within the ruling Syriza party of a snap general election if discussions with creditors fail, as the country faces a Thursday deadline to repay a €450m (£330m) loan to the International Monetary Fund.

The Greek finance minister, Yanis Varoufakis, during a parliamentary session in Athens on Thursday. He was scheduled to meet the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday. Photograph: Alkis Konstantinidis/Reuters
The Greek finance minister, Yanis Varoufakis, during a parliamentary session in Athens on Thursday. He was scheduled to meet the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday. Photograph: Alkis Konstantinidis/Reuters

The Greek finance minister, Yanis Varoufakis, held informal talks with the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday, and Lagarde said he confirmed that the repayment would be made on Thursday.

Meanwhile, warnings of early elections underscored the political unrest in Athens. (Read more here at the Guardian.)

Their decisions and negotiations could ripple across the globe just as a bubble is about to burst here and some are calling it inevitable.

In addition, Larry Summers, the person once considered to take the job now held by Janet Yellin is telling us that he believes the U.S. has been surpassed by the likes of China already.

In his recent article entitled: “Time US Leadership Woke Up To New Economic Era,” he explains why he thinks the left and the right, and collectively all in Washington have really isolated the U.S. from global economic system and the ability to sway policy:

This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system. True, there have been any number of periods of frustration for the US before, and times when American behaviour was hardly multilateralist, such as the 1971 Nixon shock, ending the convertibility of the dollar into gold.

Larry Summers, former Secretary of the Treasury under Bill Clinton and former President of Harvard is now the President Emeritus and Charles W. Eliot University Professor of Harvard University
Larry Summers, former Secretary of the Treasury under Bill Clinton and former President of Harvard is now the President Emeritus and Charles W. Eliot University Professor of Harvard University

But I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out of it.

This failure of strategy and tactics was a long time coming, and it should lead to a comprehensive review of the US approach to global economics.

With China’s economic size rivalling America’s and emerging markets accounting for at least half of world output, the global economic architecture needs substantial adjustment.

Political pressures from all sides in the US have rendered it increasingly dysfunctional.

Largely because of resistance from the right, the US stands alone in the world in failing to approve the International Monetary Fund governance reforms that Washington itself pushed for in 2009. By supplementing IMF resources, this change would have bolstered confidence in the global economy. More important, it would come closer to giving countries such as China and India a share of IMF votes commensurate with their new economic heft.

Meanwhile, pressures from the left have led to pervasive restrictions on infrastructure projects financed through existing development banks, which consequently have receded as funders, even as many developing countries now see infrastructure finance as their principle external funding need. (Read more here at Zero Hedge.)

Now read this take on that darn bubble:

Disaster Is Inevitable When The Two Decade-Old Stock Bubble Bursts

By Jesse Colombo – Forbes

Six years after the Global Financial Crisis, the U.S. stock market continues to soar to new heights with nary a pullback or correction. In this piece, I will explain why the stock market is experiencing a new bubble that is actually another wave of the bubble that has existed since the mid-1990s.

A two-decade old bubble? Yes, you’ve read that correctly. Most people will consider this assertion preposterous, but the facts don’t lie. Though the U.S. stock market has been experiencing a bubble for two decades, it will not last forever. I believe that the ultimate popping of this bubble will have terrifying consequences for both investors and the global economy that is tied so closely to the stock market.

The SP500 stock index has more than tripled since its low in 2009, but that doesn’t mean that we are out of the woods. On the contrary, this is the calm before the storm.

BubbleCoveryChart1

Source: St. Louis Fed

Since the mid-1990s, the U.S. economy and stock market has experienced three different bubbles: the 1990s Dot-com bubble, the mid-2000s housing bubble, and now another bubble that includes stocks, bonds, tech startups, certain segments of the housing market, higher education, and much more. I believe that this new bubble is creating what I call a “Bubblecovery” or a bubble-driven temporary economic recovery that will end in another crisis.

The U.S. Federal Reserve also created a Bubblecovery in the early-2000s to recover from the Dot-com bust, which led to the housing bubble. After the housing bubble burst, the Fed inflated the post-2009 Bubblecovery. After each bubble/Bubblecovery ends, the Fed simply inflates another bubble to recover from the last one. In essence, the U.S. economy and stock market has been in a bubble cycle for the past two decades. Each time, the bubble gets larger, and the Fed has to keep re-inflating it to avoid the economic Depression that would occur if asset prices were allowed to find their true value.

The incessant push to inflate our economy and financial markets has created an unprecedented situation in which stocks have been trading at overvalued levels for a record length of time. Nearly every stock market valuation indicator is giving the same reading: stocks are currently at levels that preceded other major historic busts.

For example, look at the Cyclically Adjusted P/E Ratio (CAPE), or the price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years. The 1929 Stock Market Crash and 1970s stagnation occurred after the CAPE rose over 20 – a level that indicates stock market overvaluation. Incredibly, the CAPE has remained over 20 for much of the past two decades, aside from a few short months during the Global Financial Crisis. Without constant Fed intervention, there is no doubt that the U.S. stock market would have corrected violently like it has in the past.

BubbleCoveryChart2

 

Source: VectorGrader.com

Eurocrats leading the way, to lost autonomy, democracy

Editor’s Note – SUA and MG Vallely have been warning America for years on the ramifications that proposals akin to the European Union would affect our way of life if it were mirrored here. NAFTA is, and has been a stepping stone along this trail, and the now common, open talk of a North American Union is well underway.

In each case, here or in Europe, these efforts are a stepping stone to the New World Order that un-Americans are striving to achieve, including the current administration and many in the beltway, and certainly at the UN.

MG Vallely tells us:

This article from British MP Daniel Hannan (a hero in my estimation) should stand as a stark warning to us in America, against those who want a similar union with Canada and Mexico.

If such a union ever happens here, soon enough we would have all the drug problems and pathologies of our neighbors to the south, and the socialist practices and anti-Second Amendment policies of our neighbors to the north.

NO THANKS! People living in the various nations of Europe now have very little say in anything, their own governments are beholden to the unelected, nameless bureaucrats of the EU in Brussels.

Suicide is NOT a good business plan, nor does it achieve liberty.

The European project is now sustained by coup

By Daniel Hannan

Daniel Hannan is a writer and journalist, and has been Conservative MEP for South East England since 1999. He speaks French and Spanish and loves Europe, but believes that the European Union is making its constituent nations poorer, less democratic and less free.

Even the outward forms of democracy are being shed.

What we have witnessed is a coup d’état: bloodless and genteel, but a coup d’état none the less. In Athens and in Rome, elected prime ministers have been toppled in favour of Eurocrats – respectively a former Vice-President of the European Central Bank and a former European Commissioner. Both countries now have what are called ‘national governments’, though they have been put together for the sole purpose of implementing policies that would be rejected in a general election.

Italy and Greece are satrapies of Brussels, just as surely as Bosnia or Kosovo. In its Balkan protectorates, the EU overtly favours technocracy as the antidote to ‘populism’ (ie, democracy). Left to themselves, the locals have a tendency to vote for parties that want ethnographic frontiers. The EU’s solution is to rule through a series of appointed governors – diplomats (and the odd retired politician) in Bosnia, generals in Kosovo.

Now, like many previous empires, the EU is applying lessons learned through colonial administration to its metropolitan core. Politicians who lean too closely to what their voters want are removed. I don’t mean, of course, that the EU sent in agents provocateurs on a secret mission to destabilise the Italian and Greek regimes. Nor am I suggesting that Brussels was the sole factor in their downfall. Like Margaret Thatcher in 1990, Silvio Berlusconi and George Papandreou already faced strong domestic opposition; in all three cases, the EU simply gave the final shove.

If this sounds like fanciful, read Fraser Nelson in the current Spectator. Fraser reveals the meetings between bankers and federalist leaders who identified the Italian premier as an obstacle to holding the euro together, and quotes oficials boasting that ‘we’re on our way to moving out Berlusconi’. If this is a conspiracy, it’s what HG Wells called an ‘open conspiracy’.

We are watching the culmination of the European scheme. The EU has always been an anti-democratic project. Lacking popular support, rejected in referendum after referendum, it depends on a tight-knit group of functionaries in the Commission and in the member states. Now, in a crisis, the democratic appurtenances and fripperies are discarded. Technocrats in Brussels deal directly with technocrats in Rome and Athens. The people are cut out altogether.

What’s terrifying is that these ‘technocrats’ caused the disaster in the first place. They decided that the survival of the euro mattered more than the prosperity of its constituent members; they presided over the rise in spending and debt; they deliberately overlooked the debt criteria when the euro was launched so as to admit Italy and Greece. Indeed the new Greek prime minister, Lucas Papademos, was running his country’s central bank at the time.

In appointing these two Euro-apparatchiks, our masters are signalling in the clearest possible way that nothing will change. Closer integration matters more to them than freedom, more than prosperity, more than the rule of law, more than representative government itself.

Geithner Euro money tour failure – fear topped off with disgust next

Editor’s Note: Beware of Monday’s opening in the markets here in the USA. The way things occurred in Europe for Geithner and the Obama Administration over the past couple days may send shock waves through the markets across the globe.

Even the NYT is actually reporting the Geithner money tour failure. This will not bode well for all world markets on Monday. Stocks will likely sink but most eyes will be on commodities. No new terms were revealed, and the previous EU bailouts by Geithner proved to be of no success, for that matter, the domestic bailouts proved feeble as well. No one will be honest and talk about confidence or the lack thereof in leadership, especially here. The fiat game is now revealed, no more trump cards can mystify the masses. The price of gold, oil, business investment, and controlled growth comes from emotions, and those emotions are best defined as “fear topped off with disgust”.

Meetings on European Debt Crisis End in Debate, but Little Progress

 

New York Times

By 

WROCLAW, Poland — European finance ministers ended a two-day meeting here Saturday without making substantial progress toward solving the region’s debt crisis, or any pledge to recapitalize Europe’s banks.

Geithner in Europe - facial expression tells volumes

The meetings were highlighted by the appearance by Timothy F. Geithner, the United States treasury secretary, whose advice, and warnings, drew a tepid reaction from the euro zone’s finance ministers. And Mr. Geithner’s rejection Friday of a European idea for a global tax on financial transactions prompted a debate about whether Europe should go ahead on its own.

Meanwhile, with an October deadline looming for international lenders to agree to the release of around 8 billion euros, or $11 billion, of aid to Greece, without which it could default on its debt, George Papandreou, the Greek prime minister, canceled a trip to the United States.

“The coming week is particularly critical for the implementation of the July 21 decisions in the euro area and the initiatives which the country must undertake,” Mr. Papandreou said in a statement on Saturday.

The attendance of an American official at Friday’s meeting was unusual, and Jacek Rostowski, the finance minister of Poland who invited Mr. Geithner, said it showed “unity within the transatlantic family.”

That glossed over the grumbling about Mr. Geithner’s comments from several European ministers Friday, including Maria Fekter of Austria, who publicly said she was unimpressed with Mr. Geithner’s contribution.

Yet the American plea for urgent decisions to shore up the euro zone was echoed Saturday by two European ministers whose nations have stayed outside the single currency.

“The euro zone leaders know that time is running out, that they need to deliver a solution to the uncertainty in the markets,” said George Osborne, Britain’s chancellor of the Exchequer, who told the BBC he wanted action over Greece and the “weakness” in Europe’s banking system.

“The problem is that the politicians seem to be behind the curve all the time,” added Anders Borg, Sweden’s finance minister. “We really need to see some more political leadership,” he said, citing a “clear need for bank recapitalization.”

Almost two months after a deal was struck on a second bailout of Greece, Finland is holding up its implementation by requesting collateral for new loans — a demand that has complicated the negotiations.

Meanwhile, the Greek government must still convince international lenders that it has done enough to justify the release of the next round of aid.

One European official, not authorized to speak publicly, said the ministers “seemed to come to no operational decisions at all.” The only positive news was an outline agreement on new laws to tighten the rulebook for the euro — though that was struck in Brussels.

Saturday’s meeting ended promptly around noon, allowing ministers to leave before a demonstration in Wroclaw against austerity measures in Europe.

But Mr. Geithner’s contribution continued to reverberate after his departure on Friday. Though there was no discussion of it in detail, his idea of increasing the firepower of the 440 billion euro ($608 billion) bailout fund through leverage — as the United States did in some programs in 2008 — prompted debate, but not consensus.

Some European countries consider such a financial transaction tax a way of ensuring that the financial sector contribute to ending the crisis, but others oppose it.

After Mr. Geithner’s comments, Belgium’s finance minister, Didier Reynders, called for Europeans to press ahead.

“I’m sure that if it’s impossible at the worldwide level, we’ll need to organize that in the E.U. and at least in the euro zone, but of course with a lower level of taxation in one jurisdiction than on the worldwide level,” he said.

Mr. Borg ruled out Swedish participation. “We have substantial experience in Sweden,” he said. “Basically most of our derivative and bond trading went to London during the years we had a financial transaction tax, so if you don’t get a solution that is universal, it is very likely to be detrimental for European financial markets.”