The Euro Crisis - Debt By Design

Cameron made "bad" Euro deal, says Clegg

By Channel 4 News

The UK emerged from last week's Brussels summit with a "bad deal", says Deputy Prime Minister Nick Clegg, who fears Britain will now become "isolated and marginalised" within the EU.

Deputy Prime Minister Nick Clegg admitted today he was "bitterly disappointed" by the outcome of last week's European Council, when David Cameron wielded Britain's veto.

He warned that Britain could be left "isolated and marginalised" in the wake of the summit.

"I'm bitterly disappointed by the outcome of last week's summit, precisely because I think now there is a danger that the UK will be isolated and marginalised within the European Union," Mr Clegg told BBC1's Andrew Marr Show.

"I don't think that's good for jobs, in the City or elsewhere. I don't think it's good for growth or for families up and down the country."

He said he would now be doing "everything I can to ensure this setback does not become a permanent divide".

'Spectacularly misguided'

Mr Clegg spoke by telephone to the prime minister at 4am on Friday, as talks ended in Brussels.

The Lib Dem leader said: "I said this was bad for Britain. I made it clear that it was untenable for me to welcome it."

He said Tories welcoming the outcome of the summit were "spectacularly misguided".

At prime minister's questions last Wednesday, Conservative backbenchers urged David Cameron to show "bulldog spirit" in Brussels.

But Mr Clegg said today: "There's nothing bulldog about Britain hovering somewhere in the mid-Atlantic, not standing tall in Europe, not being taken seriously in Washington."

He warned the UK was "retreating further to the margins of Europe".

Read more: Will UK be left out in the cold?

'Not good for Britain'

Earlier, in today's Independent on Sunday, a source close to Mr Clegg said there had been "a spectacular failure to deliver in the country's interest" at the Brussels summit.

"Nick certainly doesn't think this is a good deal for Britain, for British jobs or British growth," the source said.

"It leaves us isolated in Europe and that is not in our national interest. Nick's fear is that we become the lonely man of Europe."

The source said Mr Clegg "couldn't believe it" when, on Friday morning, he was informed of the course of events and how Mr Cameron had sought to negotiate with fellow EU leaders.

'Reasonable requests'

Speaking on BBC Radio Nottingham, Conservative Justice Secretary Kenneth Clarke, a pro-European, described the outcome of the summit as "disappointing".

"There will be a big statement made by the prime minister on Monday, where I shall be sitting listening, and I shall be discussing what we are going to do now," Mr Clarke said.

Meanwhile, Foreign Secretary William Hague, writing in The Telegraph, gave his backing to Mr Cameron.

"Our requests were moderate, reasonable and relevant, given the potential spill-over from fiscal to financial integration," wrote Mr Hague.

"We did not go to Brussels seeking a row. We went in search of agreement. It is a matter of regret that no agreement that was acceptable to all 27 EU countries could be reached.

"But it is better to have no change to the EU treaties than a change that did not protect our interests."

Europe's central bankers spurn Cameron's debt advice

By Faisal Islam

Economics Editor

Channel 4 News

When David Cameron travels to Berlin to meet Chancellor Merkel, top of the agenda will be coaxing the European Central Bank in Frankfurt to act as last resort lender to the Eurozone’s troubled nations.

Today those nations include Spain, which was forced to borrow money in the markets at a fraction under 7%. That is, it actually paid 7% today, despite the likely arrival in government on Sunday of a conservative government with a thumping majority. Tough times which reflect concern that Frankfurt is falling short.

The Prime minister, a self-described “monetary activist” will no doubt be advising Frau Merkel of just how sensible it is to have a central bank that buys government debt by the bucket load. The policy would lower the unsustainable government borrowing rates of Italy and Spain at a stroke. For Washington and London it is the silver bullet, the bazooka, the easy answer to killing off this euro crisis.

But he will not just be fighting the tide of 20th Century German history which sees printing money as a dangerous precursor to hyperinflation, social collapse and political disaster.

In Germany they still cling to the idea that the ECB is totally independent of government interference, let alone that from a euro-outsider like the UK. There is an increasingly vocal backlash at the top of the European monetary system at unwanted monetary policy advice, particularly from Britain.

I was present at a recent talk by the Governor of the Banque de France, Christian Noyer, who sits on the Governing council of the European Central Bank. “We are paying the price for our virtue and our refusal to liquefy our debt through massive monetisation of our fiscal deficits,” said Governor Noyer in a clear reference to Britain, and to a lesser extent the US.

Elsewhere in his talk Noyer singled out the Bank of England’s £275 billion purchase of UK government bonds which have contributed to the UK’s record low funding costs. He compared Britain’s record unfavourably with that of the ECB. “Those purchases amount to 51% of the total debt issued since 2009 in the UK, 21% in the US and 7.6% in the euro area,” he said. A version of the same speech was given in Tokyo last month, and can be read in English here.

The Bank of England denies that it has engaged in a “massive monetisation” of Britain’s debt pile, specifically because it has promised to resell this debt back into the market at some point in the future. Many in the markets share Governor Noyer’s doubts that this will actually ever happen.

When I recently mentioned to Mr Noyer that it was great to interview a central bank Governor, because in the UK we only seem to get an interview when they are printing money, he burst out laughing with a rather knowing look. My joke was not that funny.

Other senior European Monetary officials speaking privately, struggle to hide their irritation at Britain.

They point to the fact that the balance sheets of both the Bank of England and the Federal Reserve have more than doubled during the crisis. They point to the fact that ECB’s purchase of sovereign debt amount to 1.6% of eurozone GDP. For Britain it is 16%. An amazing statistic.

Markus Kerber, the German economist who has led the constitutional charge against the ECB’s existing Italian and Spanish bond purchases, puts it clearly.

“German sovereignty is not compatible with any piece of advice by the US president or the British PM, who have already printed a lot of money. They should know that Germany will resist this piece of advice, [because] mega-inflation is the nightmare consequence, the unavoidable consequence of printing money,” he said.

British inflation is by far the highest of the major European economies, and the Bank of England acknowledges that its quantitative easing policy has contributed.

I put some of these points to Sir Mervyn King yesterday. He backed up both the ECB and the Bundesbank. He rightly suggested that trying to transfer German taxpayers money to the PIIGS through the backdoor of the ECB was just a means of avoiding a political question. “The euro area has the resources to deal [with the crisis] itself… it is why the ECB thinks it is not the job of a Central Bank to do the job of government”.

So perhaps, after Mr Cameron namechecked the ECB repeatedly last week, Number 10 will be reined in by Threadneedle Street.

For now, Europe has begun to notice Britain’s monetary record. But as an example to avoid, rather than to follow.

ECB Preparing Italy Bailout, Massive Inflation Coming

By the NIA

Italy's 10 year bond yields rose above 7% on Wednesday and economists from around the world are now proclaiming that these interest rates are unsustainable with Italy's national debt now 120% of its GDP. NIA believes the ECB is currently working on their largest bailout in history where they will commit to purchasing over €1 trillion of Italian bonds and bonds of other eurozone countries that are at risk of becoming insolvent. Despite the signals currently being given by the ECB, they will not allow Italy to fail because it will cause a Great Depression throughout the European Union, which will lead to the destruction of the eurozone.

Economists today fail to realize that 10 year bond yields of 7% are normal for not just Italy, but the rest of the eurozone and the United States. If it wasn't for the ECB holding their benchmark interest rate at artificially low levels for over a decade, Italy and other eurozone countries wouldn't have the high levels of debt they do today and they would be able to withstand yields of 7% or higher. The ECB is entirely at fault for the European Debt Crisis and they are about to follow in the footsteps of the Federal Reserve by abandoning their objective of maintaining price stability and keeping inflation low.

German 10 year bond yields declined again today to 1.72% and the spread between Germany and Italy is at a new record of 553 basis points. Germany is benefiting from safe haven buying from investors selling Italian bonds and buying German bonds, but investors will soon realize that German bonds are no better than Italian bonds and the world will dump all Euro denominated bonds.

Bond investors currently expect very little inflation in the eurozone, as seen by Germany's low bond yields. The sole reason for the large spread between German and Italian bonds is Italy's greater risk of default. However, a default by Italy would lead to the failure of Germany's largest banks. Germany knows this but they don't want to raise inflation expectations by making the world think that the ECB will be monetizing Italy's debt. Therefore, Germany is now telling Italy to request aid from the European Financial Stability Facility (EFSF) if needed.

Unfortunately, the EFSF doesn't have the financial resources to rescue a country the size of Italy. Last week, the EFSF had to cancel a €3 billion auction of 10 year bonds due to a lack of investor interest. On Monday, the EFSF finally had the bond sale, but was met with subdued interest that barely covered the €3 billion in bonds being offered. So far the EFSF has only raised a total of €13 billion through bond sales, but has received €440 billion in guarantees from eurozone countries. If Italy becomes a recipient of EFSF funding, the EFSF will lose one of their largest contributors.

The EFSF is looking to leverage up its €440 billion in funding to over €1 trillion. The European Debt Crisis was caused by too much leverage and debt. It is complete insanity to believe that the EFSF is going to solve the debt crisis when it too is getting deeply into debt and planning to use huge leverage to increase their funds available for bailouts.

There was recently a report that a proposal was made at the G20 summit last week in Cannes for Germany and other leading countries in the eurozone to pool together their foreign currency reserves including their gold reserves to back the EFSF, which would allow it to easily leverage up their funds and raise more money through bond sales. As soon as this report surfaced, Germany immediately announced to the world that they will not be using their gold reserves to boost the EFSF and that their gold reserves are "untouchable".

Germany's unwillingness to use their gold reserves clearly shows that gold is the real safe haven where individuals should store their savings if they want to keep their purchasing power. Investors buying German 10 year bonds with a yield of only 1.72% should ask themselves why Germany is willing to fund the EFSF with Euros but not their gold. Maybe investors will come to their senses and change their mind about buying any Euro denominated bonds.

For the past decade there has been a bond bubble in both Europe and the U.S. where we have seen bond yields at artificially low levels for an unprecedented amount of time. This has caused modern economists to believe that low bond yields are the new normal. When central banks interfere in the free market by manipulating interest rates to artificially low levels, it creates asset bubbles that eventually burst. When asset bubbles burst, the free market takes over and attempts to correct the damage by raising interest rates to extremely high levels, which encourages consumers to reduce their consumption and increase their savings.

NIA believes that over the next five years, 10 year bond yields will reach double digit territory throughout the eurozone and the U.S. The free market wants countries like Greece and Italy to default on their debts and restructure them, which is why their bond yields are rising so high. Although Greece and Italy have the highest debt levels in the eurozone as a percentage of GDP, the whole entire eurozone borrowed too much and has too much debt. Germany and France both know that the failure of Italy will spread to them when German and French banks with Italian debt begin to fail. The EFSF will soon be exposed as a failure itself when it is unable to attract the funding necessary to rescue eurozone countries in need of bailouts. Unless the ECB decides to bailout eurozone countries through the EFSF by buying their bonds, the ECB will be forced to directly monetize debts across the entire eurozone.

Even though the destruction of the eurozone seems imminent, NIA believes it will take time to play out. Most likely, in about two or three months from now the media will begin focusing its attention on the U.S. crisis. When the spotlight is off Italy, their bond yields will temporarily dip back down, but U.S. bond yields will skyrocket. The U.S. national debt is very close to breaking 100% of GDP, which will likely be a catalyst for investors to begin dumping their U.S. dollar denominated assets. The U.S. has unfunded liabilities many times the size of Italy's unfunded liabilities. Including unfunded liabilities, while Italy's total debts are approximately 300% of their GDP, the U.S. has total debts equaling about 600% of its GDP.

Austerity cuts are becoming very common in the eurozone and although citizens still protest them, it has become politically acceptable for politicians in Italy and other eurozone countries to support them. Italy's cash budget deficit as a percentage of GDP is currently only 3.9% and their national debt has been barely growing. The U.S. cash budget deficit as a percentage of GDP is currently 8.7%, more than double Italy, and the U.S. national debt has been growing at a record rate. Americans are used to stimulus over austerity. Members of Congress are too afraid to make necessary spending cuts. The U.S. has a budget deficit from entitlement programs and interest payments on the debt alone.

The supercommittee created by Congress to recommend $1.5 trillion in deficit reductions by November 23rd, so far hasn't agreed to make reductions to any entitlement programs. The Democrats and Republicans have so far only reached consensus on changing the way the government calculates inflation for Social Security cost of living adjustment (COLA) increases. They want to calculate inflation by using a new chain weighted CPI, which will understate inflation even more than the current CPI they use.

Based on how the current CPI has been miscalculating inflation for decades, Social Security recipients today should be receiving approximately triple their current payments. All Americans should be outraged that the government is planning to once again reduce the deficit through deception, when they should be eliminating wasteful government agencies like the Department of Energy, the Department of Education, and the Department of Homeland Security, while bringing our troops home from the middle east and immediately cutting overseas military spending in half so that we have the resources to better protect ourselves at home.

The extremely high levels of debt in both Europe and the U.S. need to be liquidated as soon as possible. If Italy can't sustain itself with 7% interest rates, which is only average on a historical basis, think about how large the crisis will be in the U.S. when interest rates here reach 15% as price inflation spirals out of control. Less than three months ago Italy's interest rates were below 5%. Fundamentally, Italy's economy is the same as it was three months ago, but perceptions in the marketplace change quickly. Today, U.S. treasuries are still perceived to be a safe haven, but this will change 180 degrees in no time.

Just like how the U.S. government understates inflation when calculating COLA adjustments, they also understate inflation when calculating GDP growth. The U.S. recently reported 3Q GDP growth of 1.62% on a year-over-year basis, which used a price deflator of only 2.52%. If they used the real rate of price inflation, they would have reported negative GDP growth. The Federal Reserve just lowered forecasts for U.S. GDP growth in 2012 to between 2.5% and 2.9%, down from a forecast in June of between 3.3% and 3.7%. In order to ensure that we even meet the Fed's new projections, the Fed will soon be launching QE3. NIA predicts that the Fed will use fears of contagion from the European Debt Crisis as their excuse for launching QE3 in the near-future. Combined with massive inflation from Europe as the ECB monetizes debt to save banks with exposure to Italian bonds, gold will soon skyrocket to new all time highs with silver likely beginning to once again outperform gold.

If you would like your friends and family members to be among the first to see NIA's 'Occupy Wall Street the Documentary' coming soon, please tell them to become a member of NIA for free immediately at: http://inflation.us

European Debt Crisis Facts and Truth

By the National Inflation Association

The mainstream media as of late has been focusing its total attention on the sovereign debt crisis in Europe and seemingly has forgotten that we have a much larger debt crisis in the U.S. that hasn't gone away and is only getting worse. Many global economists have been saying in recent weeks that if the European Central Bank (ECB) only went the way of the Federal Reserve, eurozone nations wouldn't be in the desperate situation they are in today. NIA believes that the ECB has already been acting just like the Fed, just not to the same extent.

Mario Draghi just took over as the new President of the ECB and as his first act in office, Draghi lowered the ECB's benchmark interest rate by 0.25% to 1.25%. The ECB's interest rate of 1.25%, while not quite as low as the Fed Funds Rate of 0% to 0.25%, is still very inflationary. The ECB's primary stated objective has always been maintaining price stability and containing inflation. However, with all of the rioting and civil unrest that took place in Greece in response to major austerity cuts, public officials in countries like Spain have been putting pressure on the ECB to abandon their objective to maintain price stability and instead focus on helping fuel growth.

In May of 2010, eurozone countries along with the International Monetary Fund (IMF) agreed to rescue Greece from default by giving them a €110 billion loan. Of the €110 billion loan, eurozone countries agreed to contribute €80 billion of the funds, including Germany providing €29.3 billion and France providing €22 billion. The IMF agreed to contribute the remaining €30 billion.

Unfortunately for Greece, their bond yields have been skyrocketing and they have been finding it difficult to raise money on their own. Greece is now in need of additional rescue funds. In July of 2011, after Greece's two year bond yield rose as high as 40.46%, European leaders negotiated in Brussels a deal to provide Greece with a new bailout of €109 billion in rescue loans. After this deal was announced, Greece's two year bond yield declined to 25.66% in just two days.

In August, Greece's two year bond yield started to surge once again, surpassing July's high of 40.46%. In mid-September, Moody's downgraded the credit ratings for the eight largest Greek banks, sending the two year bond yield to a new high in September of 84.52%. In early October 2011, Greece raised their 2011 budget deficit estimate as a percentage of GDP to 8.5%, well short of the 7.6% target that Greece promised to meet as a condition of the bailout package agreed to in July.

In late-October, European leaders abandoned their proposal from July and announced a new shocking bailout plan for Greece. Not only did they agree to give Greece new rescue funding of €130 billion, but in an additional part of the agreement, banks holding Greek bonds have agreed to accept a 50% haircut on the money they are owed by Greece. Greece Prime Minister George Papandreou, instead of accepting the deal on his own, announced that he was going to hold a referendum so that Greek citizens can vote on the deal.

Papandreou's proposed referendum infuriated leaders of Germany and France, who expressed their frustrations with Papandreou and threatened to pull the plug on the bailout deal. Greek bond investors once again panicked, sending the two year yield all the way up to a new high of 107.26%. Papandreou later announced that he was canceling the referendum, but still faced calls from the opposition to resign. Papandreou survived a confidence vote this weekend but is planning to soon step down to allow the creation of a new national unity government.

NIA believes that the best decision for Greece and its citizens would be to turn down the new bailout deal and declare bankruptcy. Greece would be best off leaving the eurozone and creating their own fiat currency. The bailouts are doing nothing to help the citizens of Greece, they are only helping the German and French banks that recklessly purchased Greek bonds at artificially low interest rates. If Greece declares bankruptcy, the country won't self-destruct. All of their infrastructure will still exist, but their debts will be eliminated and Greek citizens will enjoy a higher standard of living.

The only good news to come out of the European debt crisis so far is that the banks are willing to accept a 50% haircut on their Greek bonds. If the U.S. is going to survive its debt crisis without creating hyperinflation, it will need to convince its creditors to take an even larger haircut on U.S. treasuries. Unfortunately for Americans, the U.S. will never admit that it can't pay back its debts. The U.S. debt crisis is even worse than Greece, but the U.S. has a printing press that it will use to pay back China, Japan, and our other creditors, which will steal the remaining purchasing power of American citizens who don't have their savings in gold and silver.

The uncertainties and fears surrounding Greece are now spreading to Italy, which saw its 10 year bond yield skyrocket in recent days to a new Euro-era high today of 6.66%. Greece's liquidity problems began last year after their 10 year bond yield rose above 6%. Many people believe that Italy is becoming the next Greece and is now at risk of defaulting on its debt.

Even though Italy's debt to GDP ratio is 120%, the second highest out of eurozone countries behind Greece, Italy's budget deficit as a percentage of GDP is among the lowest in the eurozone at only 3.9%. It is insane for Italy's 10 year bond yield to be 6.66% with the U.S. 10 year bond at only 2.04%. The U.S. has no chance of ever balancing its budget and will likely see its deficit explode to new highs in the years ahead. Italy, on the other hand, could realistically balance its budget if it implements reform measures to cut spending.

NIA believes that Italy's 10 year bond yield is near a short-term peak because everybody has become negative on Italy all at once. It will likely decline back below 6% in the near future as Italy implements more austerity cuts. America's strategy to grow its way out of its own debt crisis will only create massive price inflation without any real economic growth. Before long, U.S. bond yields will surge faster than anybody has ever seen in history. In a few months, the media will forget about Italy and focus their attention on the U.S.

Although a 10 year bond yield for Italy above 6% may be a new high for the Euro-era, Italy's 10 year bond yield averaged well above 6% for many decades before the eurozone was created. Italy made a major mistake by joining the eurozone. Before joining the eurozone, Italy was able to survive even when their 10 year yield reached a high of 13.75% in 1995. After joining the eurozone, Italy was able to borrow money at interest rates that were manipulated to artificially low levels by the ECB. If Italy's bond yields were still being set by the free market this past decade, they would have no where near the level of debt they do today.

Many investors selling Italian bonds are now buying German bonds, because Germany has a low debt to GDP ratio and one of the world's largest manufacturing bases. German 10 year bond yields are now 1.78%, a record 488 basis points below Italy. This huge spread will not last and NIA believes investors are making a mistake by buying German debt over Italian debt. There is no chance of Italy being allowed to default on its debt. If Italy ever gets to the very edge of insolvency, Germany and France will allow the ECB to monetize Italy's debt. If Italy went bankrupt, many of the largest banks in Germany and France would fail. The ECB will not allow this to happen.

As bad as things are in Europe today, with the media making it seem like Euro Armageddon is fast approaching, you would expect the Euro to currently be collapsing on a daily basis. The Euro, which ended last year at $1.34, has risen so far in 2011 to $1.38. This shows that even with all of the inflation being created by the ECB, it is nothing compared to the inflation being created by the Fed. The U.S. is lucky for the European debt crisis because it is taking attention away from our problems and allowing the Fed to secretly prepare QE3 while our bond yields are still near record lows.

If you would like your friends and family members to be among the first to see NIA's 'Occupy Wall Street the Documentary' coming soon, please tell them to become a member of NIA for free immediately at: http://inflation.us

Gerald Celente: Let's stop this façade of democracy

The Greece drama continues. The Greek bailout proposed by the Eurozone has the possibility to bring the world economy to its knees. It has been proposed to have Greece removed from the Eurozone. This many say is a frantic attempt to help save the drowning currency. Many believe Greece is the scapegoat for a much larger problem. Gerald Celente, publisher at The Trends Journal, gives us his take on the messy situation.

Gerald Celente on Alex Jones TV

Trends for 2011. More crime, more protests, "off with their heads", more unemployment, increased demand for good quality food, Wikileaks, Germany may be leaving the Euro, booming business for security companies, less benefits, etc.

Gerald Celente interview

Gerald Celente (Trends Research Institute) interviewed by "Alles Schall und Rauch"

Link:

The link to the original site and the text of the interview in German:
http://alles-schallundrauch.blogspot.com/2010/12/interview-mit-gerald-celente-2010.html

Russia ditches the dollar, Germany for next superpower

Russia ditches the US dollar and Putin suggests the Euro to be the next world reserve currency. Max Keiser predicts Germany to be the next superpower.

Gerald Celente: This is the beginning of the end of the Euro