The Center of the Universe

St Croix, United States Virgin Islands

MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT

Posted by WARREN MOSLER on October 26th, 2011

Looks like Merkel is speaking purely for political effect, which may be all she’s capable of, unfortunately.

Fact is, from the beginning, without the ECB ultimately writing the check, it’s all been in ponzi.

And like all ponzi’s, it seems to work on the way up, and disintegrates on the way down.

With the ECB writing the check, deficits can be determined by further political/public purpose, without concern of ‘market forces’ undermining finance.

Without the ECB writing the check, it all probably keeps disintegrating, as none of the member nations can be inherently solvent without some form of ECB support.

MERKEL SAYS GOAL OF TONIGHTS DISCUSSIONS MUST BE TO HAVE A SOLUT ION WHICH PUTS GREECE AT A DEBT TO GDP RATIO OF 120 PCT BY 2020
MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT
MERKEL: GERMAN EFSF CONTRIBUTION WON’T EXCEED E211 BLN
MERKEL: BANK RECAP NECESSARY TO PREVENT CONTAGION
MERKEL: NEED PERMANENT SUPERVISION OF GREECE
MERKEL: TROIKA SUPERVISION DOESN’T SUFFICE
MERKEL: GREEK BOND HAIRCUT ALONE WON’T SOLVE PROBLEMS
MERKEL:PSI MUST BE MUCH HIGHER THAN AGREED ON JULY 21
MERKEL: NEED SIGNIFICANT PSI IN GREEK RESCUE

12 Responses to “MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT”

  1. Walter Says:

    European financials seem to agree to a 50% ‘voluntary’ haircut.
    But what about others (hedgefunds, private individuals, China etc)? If they do not ‘voluntarily’ agree to any haircut – Will they be forced? Then we have a credit event and cds will be triggered.
    Or will they still get 100% at maturity?

    Reply

    WARREN MOSLER Reply:

    thinking it was with 90% approval the others are forced, or something like that.

    looks like a credit event to me, but that’s just me…

    Reply

    Walter Reply:

    @WARREN MOSLER,

    Looks like it’s going to be disorderly for sure.

    Looks like kind of Pyrrhic victory for Germany c.s.

    Reply

    WARREN MOSLER Reply:

    agreed. and markets are reading it as a positive initially, which isn’t good either

    beowulf Reply:

    @WARREN MOSLER,

    There’s always the Joseph Gagnon solution (remember he suggested that the US reduce its current accounts deficit by taxing China’s T-bond interest income).
    http://www.foreignaffairs.com/articles/67810/joseph-gagnon-and-gary-hufbauer/taxing-chinas-assets

    A 60% haircut could be achieved, in real terms, by Greece imposing a 60% tax on the bonds’ interest income, or to make the force even more majeure, the ECB could impose a 60% transaction fee on the Euro payments from Greece to its creditors and rebate fee revenue to Greek central bank.

    If levying a tax on interest income is a credit event then anytime Congress increases ordinary income tax rates (like when Congress raised top rate from 31% to 39.5% in 1993) would also be a credit event since T-bond interest is taxable income (excepting tax treaty bondholders like, per Gagnon article, China).

    Reply

  2. Neil Wilson Says:

    What’s amusing is that this must all sheet home to Germany and the Netherlands since they are the ones with the intra-eurozone net-export surpluses.

    So Germany suggesting that the ECB shouldn’t step in is the same as deleting all those ‘unearned’ German savings.

    Germany really does like aiming the gun at their foot.

    Reply

  3. Walter Says:

    A few weeks ago Merkel loudly announced she did not want any default adventure. She now thinks to have potential consequences under control?
    Germany was supported by ECB and EC to rule out ECB involvement. They referred to the Treaty. Amazing to see how everybody incl Germany violates this treaty, but when it suits them they refer to it.

    What do you think will be the consequences of this Greek default?
    - investors will run to buy bonds from other member states? (IT, SP etc)
    - other member states also would apply for default?

    Reply

    WARREN MOSLER Reply:

    I’m waiting a few days to see what comes next first. No point wasting a lot of thought on transitory statements?

    Reply

  4. Alex Says:

    Why can’t the member stats simply return the “keys” to the bondholders and walk away from the debt?

    Answer: Because the global banking monopoly lent out trillions WITHOU ANY COLLATERAL behind the loans and they stand to lose 100%, not simply a 60% haircut.

    The lenders (bondholders) MUST lose 100% to ensure moral hazard and break the global banking monopoly the Mr. Mosler identifies in his “myths” but then seeks to support and perpetuate.

    The answer is to END THE CURRENT FINANCIAL SYSTEM. Not to describe how it works in order to perpetuate the same.

    People the world over are awaking to this fact, hence “Occupy Wall Street” is the most important undertaken that you as a citizen of the world can take.

    Do NOT support the Euro “Blank Check” bailout the bondholders and inflate the poor into bankruptcy apporach.

    Reply

    Gary Reply:

    @Alex,

    Protests are important, bringing to light the suffering, the corruption, the injustice, the brutality – all extremely important. Demanding changes and following up the demands are even more important.

    Ending current financial system – fine. But there must be an alternative. Where is organization to build the alternative?
    Do you imagine that people will just survive on their own if society was destroyed? Maybe some would. But the outcome of that would be – as history had shown over and over again – the rule of warlords. Not general assemblies.

    Reforming is what we need – not destruction.

    My opinion, anyway.

    Reply

    WARREN MOSLER Reply:

    banks *are* govt and can be treated accordingly by being utilized only for public infrastructure for public purpose

    see http://www.moslereconomics.com/?p=8968

    Reply

  5. Adam (ak) Says:

    My bet is that the ECB will continue buying bonds. “I will quit smoking – tomorrow”.

    —–

    “Mr Draghi delivered the message that financial markets have been waiting for about ECB intentions as leaders of the 17-nation single currency area struggled to agree a convincing comprehensive plan to resolve the bloc’s sovereign debt woes.

    “The eurosystem (of central banks) is determined, with its non-conventional measures, to prevent malfunctioning in the money and financial markets creating an obstacle to monetary transmission,” he said in typically coded ECB language in a speech text released in Rome.

    Mr Draghi, who will succeed Jean-Claude Trichet on November 1, made clear that measures could only be a temporary expedient and said it was up to governments to tackle the roots of the debt crisis that began in Greece two years ago. ”

    http://www.telegraph.co.uk/finance/financialcrisis/8850773/Draghi-says-ECB-will-continue-buying-bonds.html

    —–
    The seizure in the European banking system would hurt the real economy. The violation of the “unbreakable principles and axioms” doesn’t hurt anybody – it only alters the state of a database on a computer in the basement of the ECB. I could fix in a minute knowing the admin password.

    The money has already been spent and contributed to the aggregate demand so any further impact of whether banks hold Greek bonds or cash on inflation is negligible. But when these bonds lose value the banks go belly up.

    But I may be naive. Humans are not rational and especially in the German culture madness of the rulers and pedantic attention to irrelevant detail are very distinct features.

    The Japs have their national and state obsession with killing whales in the Antarctic. What for? This is patently idiotic and inhumane. The Germans have the anti-”moral hazard” masochism inbuilt into the political process. Don’t know what is worse.

    Reply

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>