Most. Tragic. Species. Ever.

And a Happy New Year

"Family working in the Tifton Cotton Mill. Mrs. A.J. Young works in mill and at home. Nell (oldest girl) alternates in mill with mother. Mammy (next girl) runs 2 sides. Mary (next) runs 1,5 sides. Elic (oldest boy) works regularly. Eddie (next girl) helps in mill, sticks on bobbins. Four smallest children not working yet. Mother said she earns $4.50 a week and all the children earn $4.50 a week. Husband died and left her with 11 children. Two of them went off and got married. The family left the farm two years ago to work in the mill."

Lewis Wickes Hine, The Youngs January 22, 1909. Tifton, Georgia. 

By Nicole M. Foss

We're supposed to be celebrating the birth and the life of the man whose only ever act of aggression was he threw the money changers out of the temple, right? 

Just checking. 

It's just that I can't seem to find much of anything that reminds me of that.

Looks to me as if the money changers won after all, to be honest. Looks like they've made the man who threw them out of the temple just another pawn in their game. And his followers. All in good faith. Thirty pieces of silver for everyone. 

So what do we see happening in 2012? I'm going to have to say that I see a lot of credit downgrades, sovereigns, banks, and precious few upgrades. One or more countries leaving the Eurozone, which will then become very hard to keep intact. 

A lot of potential mayhem, and negatives, and tons of lies too. I know some will say that's what I see every year. Well, yes, I do. And it all gets worse every year. You just don't necessarily see it in your personal lives yet. Others do though. 

It sneaks up on them when they least expect it. And then they find themselves out of a job, a home, a pension. It will sneak up on you too. Unless you can safely count yourself among the 1%. Then something else will sneak up on you. That may take us beyond 2012, but it will come to pass.

A series of articles in this week's Daily Telegraph provides a good take on the topic, and leads us quite fluently into the next, and bigger, set of problems. First: what already has been and is being lost, according to Paul Farrow:

Average UK family household income falls 8.4% this year

The latest Asda Income Tracker has revealed that family spending power fell by £15 a week in November 2011, leaving the average UK family with £161 of weekly disposable income – 8.4 per cent down from this time last year.

If the average family(!) has only $250 per week to feed and clothe itself, we may just have a slight problem. 

Austerity measures are only now starting to kick in for real in Britain, and lots of people have bought homes at prices that won't last much longer. Hence, millions that have just £161 in weekly disposable income today will be further squeezed, and mercilessly so. You buy a home in a bubble, you lose it in the bust. 

Our societies are being increasingly gutted, cut to the bone. This is not something that will hit only some people, in some areas, it will affect everybody, and all over the western world. Japan, too, is on the verge of implosion. And China .. well, with home prices dropping dozens of percentage points in just one or two months, China may well be on the verge of an explosion.

2012 may be the year for increasing large-scale conflicts, such as another US attack in the Middle East. There's a lot of chest-thumping going on, and plenty of theaters to choose from. Iran, Syria, Egypt and more. I would be surprised though if it happens that soon, though I'm sure it will eventually. 

War is simply too good a way to deflect attention from domestic mayhem, and solidly proven, for politicians to ignore. But I don't really see Obama invading any country yet in order to save his career or his campaign. Not yet.

Don't see it in Europe either. 2012 looks too early there too, though that may change if things get out of hand, too fast. We will see a further run-up to what we at TAE call the Balkanization of Europe: the re-surfacing of age-old conflicts and prejudices. As a truly deeper political union looks completely out of reach, a truly deeper division looks all but inevitable.

Europe doesn't have either the political nor the financial means to "save" its periphery. It can sweep Greece, Portugal, Ireland under the carpet for a while, but that's about it. Handing out half a trillion euros to 523 banks in exchange for already shredded paper assets will prove to be nothing but counterproductive. 

It doesn't make any bank more solvent, it only puts more pressure on both the financial position of every European citizen, and on the ties that have bound their respective countries closer together for 50 years. Today, all major banks, and all countries too, are preparing scenarios for a Eurozone break-up. 

What may be worse than all of this is a conflict that is brewing, slowly simmering, and that will tear our societies apart from within. It happens slow enough to perhaps not be much noticed next year, but that is not a good thing: it would be better to put out the fire before it spreads. Unfortunately, there is no way in sight to put it out. It looks like it will have to burn it course before it fades. This one will pit parents against their own children and grandchildren. That's how you tear a society apart.

Again from the Telegraph, this time Ian Cowie:

Baby boomers with 80% of UK wealth shouldn’t feel guilty about younger generations' problems

Baby boomers shouldn’t feel guilty about being better-off than younger generations, because people aged over 50 today saved harder and spent less when they were young than is the case today.

That’s the conclusion of analysis of more than 2,000 people by the Chartered Insurance Institute (CII). The study acknowledges that baby boomers – or those born within 20 years of the end of World War II – were fortunate to enjoy easy mortgage availability and decades of house price inflation plus final salary or defined benefit pensions denied to most young adults today.

As a result, about 80% of the Britain's net personal wealth of £6.7trn or £6,700bn is owned by people aged over 50 while younger folk often have no savings, substantial debts and little hope of becoming homeowners any time soon.

The average age of first-time buyers is now 37 or about 10 years later than two decades ago.

But the CII claims that 'generation rent' are partly to blame for their own misfortune because many fail to follow their elders’ example by starting to save early. They have come to expect regular foreign holidays, among other treats once regarded as luxuries, often funded by credit cards taken out earlier than their parents did.

A third of the people surveyed who are now in their thirties spent more than half their net income on leisure and entertainment when they were in their twenties, compared to a fifth of those who are now in their fifties and sixties.

Most of the younger generation now expect to holiday abroad an average of 2.5 times a year, whereas a quarter of baby boomers never travelled overseas in their twenties. [..]

"While some of this can be baby boomers received undeniable financial advantages during their working lives, there's no doubt that their financial security today is also due to a more frugal mentality in their youth. Today's generation spends more and saves less when compared to the baby boomers, and while people should enjoy their youth and live for today they should not do so at the expense of planning for their tomorrow." [..]

People who start to save young are far more likely to achieve an acceptable outcome than those who wait until later because of compound interest. Pensions are not the only way to save for retirement but they do enjoy substantial tax reliefs. Youngsters who say savings and pensions are boring should ask themselves how exciting poverty in old age is likely to be.

I'd say the numbers, and the opinion offered, speak for themselves. 

Let's see here. A generation is normally seen as covering about 25 years. So if we say the youngest baby boomer is now about 50, then we have another generation aged 25-50, and yet another aged 0-25. I know that this is playing with the numbers a bit, but that's not all that important. 

What is important is that these generations are set to blame each other for all manner of things. And I can't see how that will work out alright.

The baby boomers made one crucial and fatal mistake right from the start. They didn't have enough children. At least not to keep their pension systems going. The oldest are fine; but anyone now aged 50 has very little to no chance of ever getting a penny in pension money. 

Pensions plans are Ponzi schemes, pyramid games. They need fresh blood all the time, and always more of that than there was before. Well, those days are long gone. Moreover, the younger generations, in general and on average, make less money than their parents. And they have to pay a lot more to go to college and university. Ponzi schemes don't collapse slowly. They're here one day and gone the next.

Stories about frugality are cute, but comparing our societies from 30 or 50 years ago with today is real tricky. How much richer did the baby boomer generation get by letting their kids spend? How much did, and still do, they profit from real estate prices so high younger generations can't afford to buy a home?

That is an endless and useless discussion. Useless because the young will take over political power at some point regardless of any external circumstances. What's disconcerting is that this transition may take too long in the face of a rapidly collapsing economy. 

Wherever you look, unemployment amongst young people is far higher than the average. Still, the older generations think their children will pay to keep their pension money coming in anyway. With what, though? 

The baby boomer generation, willingly or not, it makes no difference, have accumulated a large part of their wealth at the cost of the future. And perhaps, but only perhaps, we would be able to keep that mirage of borrowing from infinity going a little longer if we could keep the economy growing at 5-6-7% annually. 

Thing is, we can't. We're stuck in the biggest and deepest credit crunch mankind has ever seen, and we haven't even started to see its true character. In fact, the only thing alleged to be a solution is more of the same: borrowing from the future. Which is what each and every bailout plan is. Nothing more, nothing less.

So we’re setting ourselves up for an epic fight that will tear our societies apart, rip them to shreds. Who's going to willingly give up their pension? Who’s going to volunteer to pay for other people's pensions when they can't even earn enough to feed their own kids? In the end, this will be decided by political power. Or rather, it would, provided we would be able to have our societies function more or less normally until then. What are the odds?

This is of course not all the whole coin, not all sides to it. Our major problems are seldom one- or even two-dimensional. E.S. Browning for the Wall Street Journal:

Oldest Baby Boomers Face Jobs Bust

Many older Americans fear they will be working well into their 60s because they didn't save enough to retire. Millions more wish they were that lucky: Without full-time jobs, they are short of money and afraid of what lies ahead. [..]

Older Baby Boomers are trying to postpone retirement, as many find their spending habits far outpaced their thrift. With U.S. unemployment at 8.6%, and much higher among people in their teens and 20s, younger members of the labor pool accuse Boomers of refusing to gracefully exit the workplace.

But their long-held grip is slipping, as employers look past older Americans to younger, cheaper workers. The Labor Department counts people as unemployed only if they have looked for a job in the previous month. By that definition, 6.5% of workers aged 55 to 64 were unemployed in October, below the national average but more than twice the jobless rate for the group five years earlier.

Taking into account the number of older people who want full-time work but are unemployed, working part-time or need a job but have quit looking, the percentage jumps to 17.4%, or 4.3 million Americans ages 55 to 64, according to the government data. The number has grown from 2.4 million in October 2006. This group without full-time work now accounts for more than one in six older Americans seeking positions. [..]

Older people have more trouble finding new jobs. Among unemployed workers older than 55, more than half have been looking for more than two years, compared with 31% of younger workers, according to the Heldrich Center. Among older workers who found a new job, 72% took a pay cut, often a big one, the Rutgers data show.

The problem has been building for decades: Inflation-adjusted, middle-class incomes have stagnated in parallel with a free-spending culture of indebtedness that has left many Americans with too little saved. Over the same time, many U.S. companies cut pensions and shifted to less-generous retirement-savings plans such as 401(k) accounts that have stagnated or diminished in the market tumult of past years.

Older families aren't just failing to save, they are increasingly draining accounts that were supposed to help finance retirement.

The median household headed by someone aged 55 to 64 has $87,200 in retirement accounts and other financial assets, according to Strategic Business Insights' Macro Monitor database. If each of the 4.3 million unemployed or underemployed people in this age group runs through half the family savings, that will, in theory, total $188 billion in lost retirement money. [..]

The trouble spreads across generations. Older people hang on to jobs or, out of desperation, take lower-level jobs for which they are over-qualified. Either way, they displace younger workers. [..]

At an age when they should be generating peak incomes and savings, many unemployed and underemployed Americans are applying for early Social Security benefits and spending what's left in their retirement accounts.

Yes, it's not just generation versus generation, not just parents against their children. The problem is much more perverted. We no longer have a functioning financial system, a functioning banking system, or a functioning political system for that matter. All these systems died on the same battlefield. Credit.

When Richard Nixon threw out the gold standard in 1971, the younger baby boomers were getting their first jobs and buying their first homes. Happy Days! It took an entire generation, actually a bit more than 25 years, for the inevitable outcome of that decision to reach the high point of its devastating glory. 

But here we are now. We've all been had. All but 1% of the people. When it's no longer the fruits of his labor that determine a man's wealth, but the fruits of his wagers, when our leaders are those who are best connected to the moneylenders in the temple, instead of those that throw them out, there is no way we could not have ended up where we have.

Still, pitted against each other we will be. Whether in our own countries, or in skirmishes between countries -Europe-, or a WWIII over energy resources that keep the cattle at home docile, we will fall for it all again. We haven't learned much. But then again, maybe it isn't about learning after all. 

We are ready and willing to destroy our societies, and eventually our planet, over a few scraps falling off the big table, like a Mac Mansion, an iPod, an SUV, because that is who we really are. Because we can make ourselves believe those are not scraps, that we are indeed kings now, seated at the table, and heaven knows we have lived better than ancient kings of any age over the past decades. 

And most of all because we are no good at all at planning long-term. We can pay into a pension plan, that seems long-term, but at the very same time we can't figure out that if at some point there's less new contributors than older ones, that plan must and will implode.

We all will swear we love our children above anything in the world, and most would give their lives for their kids. And we honestly mean it when we say it.

The reality, however, is that we leave our children with a world that is polluted beyond recognition, in which species disappear at a rate 1000 times faster than before, and in which everything we’ve trained our kids for is vanishing right before their eyes.

Our "leaders" are psychopath lackeys of a long bankrupt financial system that uses its servants to gobble up the yet to be earned wealth of our progeny, and we just sit by and watch it happen. 

We never noticed what happened to our financial systems when Nixon pulled his trick in '71, after all, we got richer, right, so who's to complain? We never noticed how the increasing fake wealth drove our societies and families apart, we wanted more space, more individualism, more things to buy and possess. We never noticed how our energy supplies started to run out; hey, we're driving more than ever, so there must be more oil than ever...

We have done exactly the same that any primitive life form would do when faced with a surplus, of food, energy, and in our case credit, cheap money. We spent it all as fast as we can. Lest less abundant times arrive. It's an instinct, it comes from our more primitive brain segments, not our more "rational" frontal cortex.

It's not that we're in principle, or talent, more devious or malicious than more primitive life forms. It's that we use our more advanced brains to help us execute the same devastation our primitive brain drives us to, but much much worse. 

That's what makes us the most tragic species imaginable. We’ll fight each other, even our children, over the last few scraps falling off the table, and kill off everything in our path to get there. And when we're done, we’ll find a way to rationalize to ourselves why we were right to do so. 

We can be aware of watching ourselves do what we do, but we can't help ourselves from doing it. 


Most. Tragic. Species. Ever. 

The unholy marriage

How protest became a prisoner of the media

Once, radicals used the media to try to spread their ideas. In 2011, the media class used radicals to spread its ideas.

by Brendan O’Neill 

2011 was the year in which protest became a prisoner of the media. Many end-of-year commentaries have gushed about the fact that, in contrast to the ‘complacency and apathy’ of the 2000s, 2011 was a year of political tumult everywhere from Tunisia to Manhattan. Yet while some of these protests were refreshing, there was something weird about them, too: the extent to which they were dependent on the media. Modern protest is increasingly reliant upon the media not only for impact, but also for ideas, and this gives the media extraordinary power to create political possibilities today.

It is fitting that 2011 ended with Time magazine naming ‘The Protester’ its Person of the Year and using a photoshopped image of an Occupy protester crossed with an Arab Spring protester on its cover. Because in many ways, these protesters are creations of the media; certainly they are creatures of the media, their complaints of the past 12 months having been sanctioned and, more importantly, shaped by the media class.

The Occupy movement was set in motion by the media, by one of the most elitist magazines on the market: the ‘anti-capitalist’ Adbusters. Having spent the past 22 years railing against the‘army of zombies’ that makes up modern Western society, with our ‘glazed eyes, blank stares, faces twisted into ugly masks of want’, Adbusters decided to kickstart a live-performance version of its disgust for the masses. It published a one-page advert in its July edition saying, ‘What is our one demand? Occupy Wall Street, 17 September. Bring tent.’ The non-brainwashed sections of society, those good people who aren’t a part of what Adbusters brands the ‘billions and billions’ who have been ‘disfigured’ by consumerism, heeded the call and headed to Wall Street.

It is remarkable how much the outlook of Adbusters, which is only a more quirkily stated version of the anti-consumerist, anti-wealth sentiment rife amongst the respectable media classes, has infused the now-global Occupy movement. Occupy Wall Street complains that ‘the working class of [America] has been brainwashed’. A placard at Occupy London says capitalism has turned the masses into ‘chumps and tarts’. Here, the supposedly radical occupiers faithfully ape the political posturing of their founders and patrons in the cliquish liberal media. And they have the temerity to call themselves ‘the 99%’.

The Occupy movement wasn’t only founded by the media - it has been sustained by it, too. Occupy has continually sought legitimacy and traction, not in the public square, with its unpredictable hordes, but in the media square. The absence of any clear constituency for these self-styled voices of radicalism to engage with means they increasingly see the media as their key, perhaps only platform. And their dearth of a political alternative, their absence of an overarching ideal, means they’re extremely prone to having their agenda set for them by others. It is striking that influential voices in the media have implored the Occupy movement to ‘resist the pressures to clarify [its agenda]’ and to stick with its ‘lack of concrete demands’ - because it is the very amorphousness of Occupy that allows media practitioners to project their concerns on to it, to influence the political agenda through treating the occupiers almost as ventriloquist dummies.

So when a supportive columnist says the great thing about Occupy’s ideology-lite, goal-free protesting is that it opens up a space for ‘creating new possibilities’, you can’t help feeling that the only class ‘creating possibilities’ today is the media class. They continually project their own politics and prejudices on to the Occupy movement, claiming it’s all about social inequality, the problem of greed, the need for higher taxes, or whatever their social set’s bugbear happens to be. It’s notable that Time magazine’s end-of-year issue congratulated Occupy for its role in ‘shifting the national conversation’, by which it meant rejuvenating chattering-class debates. Apparently, ‘the Nexis news-media database now registers almost 500 mentions of “inequality” each week’, compared with only 91 a week before Occupy started.

How fitting that a movement founded by the media, sanctioned by the media and crowned ‘Person of the Year’ by that most respectable media outlet should have its success measured in terms of newspaper word-counts rather than real-world shifts. Time is really pleased that Occupy has acted as a kind of willing conduit for the arguments of the respectable media class, boosting the standing of today’s cultural elites.

Of course, radicals have always had a relationship with the media. French revolutionaries published propagandistic pamphlets. The street-fighters of 1968 loved having their protests photographed and written about, while civil-rights protesters from the American South to Northern Ireland chanted ‘The whole world is watching!’ when there were TV cameras around. Yet in the past, radicals used media outlets to communicate their own ideas and demands. Today, we have an almost perfect inversion of that scenario: now, the media class uses radicals to push its own narrow political agenda.

There are three problems with the unholy marriage between protest and the media that was consummated in 2011. First, it nurtures a nasty elitist outlook, where those who fail to join in the media-celebrated protesting - the vast majority of people - are denounced as uncaring or dumb. Where Adbusters labels us ‘zombies’, Time prefers to fret about those who are still in an ‘internet-induced fugue state, quietly giving in to hopelessness’. Second, it allows for the undemocratic setting of political agendas, where small groups of cut-off hacks and activists claim to speak on behalf of ‘the 99%’ and claim to have a special insight into what are the big problems facing the world (Time says the biggest problem is ‘hellbent megascaled crony hypercapitalism’ - expect to see that on an Occupy placard soon).

And third, it gives rise to a very shallow, contradictory form of solidarity. One of the reasons modern protesters are so drawn to the media, seeing it as a tool for ‘globalised action’, is because they feel they have more in common with other middle-class ‘creators of possibilities’ overseas than they do with the everyday people who inhabit their own streets. This is not internationalism, but rather a means of escaping the disappointing masses at home by creating media-enabled links with like-minded people abroad. Sadly, the largely educated protesters of the Arab Spring have also played this game, preferring to link up with decadent Occupy movements in New York and London rather than engage with and enthuse and potentially lead the people of their own nations.

The media has won its new political authority by default rather than design: it is the corrosion of the old political constituencies and the crisis of political thinking that created the space for the smart set to wield such influence. Consequently, we’re obliged to ask of 2011: was it really an historic year of political upheaval, on a par with 1848, or the year when the undemocratic, pious media class successfully conquered and colonised the world of protest?

The muffled sound of clothes rubbing against each other

Quick Love

By Yoani Sánchez

“To the warm shelter of 214…” began a song by Silvio Rodriguez which — in my adolescent naivete — I listened to as if it were a riddle. So it was until a friend, who’d lived a little more than I had, unblushingly clarified the phrase. It was simply the address of a well-known Havana motel, where couples could find a place for quick love in a country already gripped by housing limitations. Waiting outside those places were women who covered their faces with scarves and sunglasses, while the men paid the desk clerk and got the key to the room. An insistent knock on the door would warn them that their time was over and others were waiting to enter.

Havana’s inns, scenes of so many infidelities, sudden passions, and even innumerable passions that led to formal matrimony with several children. These places, once flourishing, faced a long period of stigma and then a precipitous decline. They passed from sites of ardor to become cramped housing for victims of building collapses. Put like that, it sounds fair: substituting necessity for pleasure, the rapture of the flesh for the pressing needs of a family. One after the other, the city’s motels were closed to the public and their small rooms were taken up by people who lost their homes to the winds of a hurricane or the ravages of a fire. Informal love began to move to the bushes, dark corners, or, quietly, to the same room where Grandma was sleeping. Those with hard currency could, in turn, seek out private homes that rented rooms for 5 convertible pesos for several hours.

Now, passing through Fraternity Park late at night, it’s not uncommon to hear to a groan in the shadows, the muffled sound of clothes rubbing against each other. The majority of people my age and younger have never had their own roof under which to caress their partner, or a private bed where they can lie wrapped in each other’s arms. People who haven’t known what it is to live in a city where there are motels with neon signs and tiny rooms where you can make love for at least an hour. Nor do they understand the song — outdated now — of that singer-songwriter, and names such as Hotel Venus, 11th and 24th, The Countryside, or Ayestaran Cottages do not awaken any pleasant memories.

The numbers will make you speechless.

The End of the Euro

By Ilargy
Oh, sure, don't get me wrong, there may still be a Euro a year from now. And there’ll certainly be some investors left.

But the Euro, if it manages to survive, will have to do so in what can only be characterized as a radically different form and shape. At the same time, small mom and pop stock investors will be few and far between; there's no money in the "traditional" stock markets, as they've found out - once more - in 2011. Many will also need what money they still have in stocks to pay down various kinds of other obligations.

As for the stock markets, it is greatly ironic that on December 23, the S&P 500 was up for the year. Yesterday’s markets plunge did away with that irony, but given the psychological importance, I wouldn't be surprised if, in the slim trading volume between Christmas and New Year's, one party or another will make sure the number comes in positive anyway.

What strikes me in all this is the disparity between the S&P and financial stocks. It’s unreal. If mom and pop hold bank stocks, they're not very likely to have turned a profit. If pension funds are anything to go by (they lost big time this year), mom and pop had lean turkey at their holiday family parties.

Here's a little overview of the year-to-date performance of some of the major global banking stocks on December 29, 2011, before the opening bell:

• BofA: -60.38%
• Citi: -44.76% 
• Goldman Sachs: -46.41% 
• JPMorgan: -23.03% 
• Morgan Stanley: -45.24% 
• RBS: -50% 
• Barclays: -34.32% 
• Lloyds: -63.02% 
• UBS: -29.33% 
• Deutsche Bank: -28,55% 
• Crédit Agricole: -56.04% 
• BNP Paribas: -37.67% 
• Société Générale: -59.57%

These are just some of the Too Big To Fail institutions. And while your governments have enough faith in them - or so they want you to believe - to prop them up with trillions of dollars of your money, investors are fleeing them, even if they can expect them to be propped up further. 

That doesn't just say something about confidence in the individual banks; it shouts loud and clear from the rooftops on confidence in the banking system as a whole, and indeed on governments' ability to continue bailing them out. In other words: bailouts don’t build confidence, they are taken as a sign that trouble's on the way.

Mom and pop will finally clue in to this in 2012, and get -their money- out of harm's way. Well, either that or lose it. Their money, that is. Perhaps their minds too. And their homes. Their jobs. 

Of the banks above, the European ones are in even deeper doodoo than their US counterparts. Gordon T. Long, in a report called Collateral Contagion, lifts a hitherto little known part of the veil:

There are approximately $55 trillion of banking assets in the EU. This compares to only $13 trillion in the US. Bank assets in the EU are 4 times as large as in the US.

In the US, debt held by the bank is smaller because retail deposits are a primary source of funds. EU banks use wholesale lending and, as a consequence, the debt held by banks is close to 80% versus less than 20% by US banks.
Wholesale bank lending in the EU approximates $30 trillion versus only $3 trillion in the US, a 10 X differential.

Wholesale lending is fundamentally borrowing from money market funds and other very short term, unsecured instruments. The banks borrow short and lend long. It all works until short term money gets scarce or expensive. 
Both have occurred in the EU and this recently placed Dexia into bankruptcy, forcing it to be taken over by the Belgian and French governments. The unsecured bond market fundamentally closed in the EU in Q3 2011, as fears mounted that an EU solution was not forthcoming.
Assuming $30 trillion of loans is spread over three years, EU banks have a requirement for $800 billion a month of rollover financing for wholesale lending outstanding.

If those numbers don't render you speechless, please read them again. $800 billion a month of rollover financing, every single month for three years.

The ECB recently passed out €489 in three-year loans at 1%. Nobody was impressed for more than a few hours. Gordon T. Long's report reveals at least a part of the reason why. Moreover, the ECB is now accepting the proverbial toilet paper as collateral for the loans, but guess what, banks are running out of toilet paper! David Enrich and Sara Schaefer Muñoz touch on the same topic for the Wall Street Journal:

Europe's Banks Face Pressure on Collateral

Even after the European Central Bank doled out nearly half a trillion euros of loans to cash-strapped banks last week, fears about potential financial problems are still stalking the sector. One big reason: concerns about collateral.

The only way European banks can now convince anyone—institutional investors, fellow banks or the ECB—to lend them money is if they pledge high-quality assets as collateral.

Now some regulators and bankers are becoming nervous that some lenders' supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low.

 

If banks exhaust their stockpiles of assets that are eligible to serve as collateral, they could encounter liquidity problems. That is what happened this past fall to Franco-Belgian lender Dexia SA, which ran out of money and required a government bailout.

"Over time it is certainly a risk," said Graham Neilson, chief investment strategist for Cairn Capital Ltd. in London. "If banks don't have assets good enough to pledge as collateral, they will not be able to tap as much liquidity...and this could be the end-game path for a weaker bank."

The market for unsecured bonds issued by banks is dead. And they no longer have any collateral left to issue secured bonds. So what will they do? 

Saw this Guardian headline yesterday: Liquidity crunch fears stalk markets. I’d say that should have read Solvency crunch fears stalk markets. The ECB has taken care of short term liquidity. But to no avail. 

Collateral equals solvency. The ECB loans equal liquidity. And liquidity means nothing if you're insolvent. Inevitably, banks will start to fall by the wayside. Even some of the Too-Big-To-Fail ones.

As will countries. There is no chance - well, I’ll give you 1% or 2% - that Greece will still be part of an unchanged Eurozone a year from now. Chances for Portugal, Ireland, Italy and Spain may be a bit higher, but certainly not by much. France will face huge market pressure. And presidential elections.

The road going forward has become completely unpredictable. For you and me, and also for our "leaders". They don’t like that, even less than we do. That's why we saw this report from Philip Aldrick in the Telegraph a few days ago:

UK treasury plans for euro failure

The Government is considering plans to restrict the flow of money in and out of Britain to protect the economy in the event of a full-blown euro break-up.[..]

Officials fear that if one member state left the euro, investors in both that country and other vulnerable eurozone nations would transfer their funds to safe havens abroad. [..]

Under European Union rules, capital controls can only be used in an emergency to impose "quantitative restrictions" on inflows, [..]

Capital controls form just one part of a broader response to a euro break-up, however. Borders are expected to be closed and the Foreign Office is preparing to evacuate thousands of British expatriates and holidaymakers from stricken countries.

The Ministry of Defence has been consulted about organising a mass evacuation if Britons are trapped in countries which close their borders, prevent bank withdrawals and ground flights.

Every government, in Europe and in the US, is busy working on contagion plans, just like this one, over the holidays. Bank holidays are considered, capital controls, travel restrictions. 

In order to keep the basics of their economies going in case of financial disaster, governments will need to make sure they have the means to cover basic necessities. In a world where most of the energy and food is imported, that is a herculean task. 

Who's going to issue the letters of credit that make imports possible? And what will they be covered with? Will Saudi Arabia, Russia, China and the US still accept euros when the defection of Greece and/or others makes the future of the Eurozone and the entire EU highly uncertain? No, they will probably want guarantees in US dollars. 

As we speak, the euro is getting hammered, as is sterling, as is gold. Or are they? Or is it perhaps that the USD is rocking, in anticipation of near-future demand?

The risks for Europe come from all sides now, and at some point, which I think could be very close, one of these risks will not be -fully- covered. Because of the close interconnectedness between EU countries, as well as that between European and global financial institutions, one single domino may set in play a chain of events that will be beyond governments' control. 

And, as I said, they don't like that. They may opt to pre-empt any such possible events. In the Eurozone alone, we're looking at 17 different governments who may decide to do so, in whatever way. Leave the Eurozone, leave the EU, stall decision making, refuse to pay debt. 17 different governments, many of whom will change during the course of the year, have multiple options that would derail the entire EU project as it was intended to be.

While sovereign and private debt is certain to keep on rising, and willingness to lend in order to stave off defaults is disappearing. 

No, I don't know what the euro will look like next Christmas, but it won't be what it looks like today. It could be the return of the drachma and lira, or the return of the mark and guilder, or all of the above. But not a 17 countries' Eurozone.

Europe is rotten at the core too, not just the periphery

Another one down the drain

Holland has already officially confirmed it is in recession. And this at a point in time when its gigantic housing bubble hasn't even started popping yet. With mortgage debt at anywhere between €650 billion (official government number) and €1 trillion (Ernst & Young, unconfirmed by me) for its 16.7 million citizens, and taking into account that only an estimated 50% of Dutch are homeowners to begin with, it should be obvious that a "mere" 10% or 20% drop in prices would be devastating. 

If 9 million (well over that 50%) Dutch men, women and children bear that €650 billion debt, each and everyone of them carries over €72,000. A typical family of 4 is then €288,000 ($375,000) in debt. On average! The huge popularity of interest-only mortgages has undoubtedly contributed strongly to this debt proliferation. And most will still feel fine, because the inevitable fall in prices hasn't materialized yet. And, admittedly, there are substantial savings.

Any drop in prices beyond 20% would mean unmitigated disaster. A huge part of private savings would be wiped out, and the banks that hold the mortgages would be pushed further into their already bankrupt status. Given the near inevitability of one or more countries leaving the Eurozone, even after trillions of euros were spent to prevent just this from happening, it's hard to see what the government could do to stave off widespread financial mayhem.

That same government did launch one idea last week: it seeks to force the country's "home-building corporations", a left-over from post-WWII state building projects aimed at offering affordable rental homes to everyone, to sell 75% of their rental homes to present occupants (at "reasonable" prices...). That’s a lot more potential debt slaves in one fell swoop. Whether or not a government, any government, should aim for just that is quite another matter. 

This is one of Europe's richest countries. Or so everyone seems to think. Europe is rotten at the core too, not just the periphery.

Living for today

If Tomorrow Comes

By Richard Fernandez

Der Spiegel tells the story of a man who sells of pews and furniture from dying churches.  And he is doing a land-office business. “Some 4,400 church buildings remain in the Netherlands. But each week, around two close their doors forever. This mainly affects the Catholics, who will be forced to offload half of their churches in the coming years. ‘And that’s just the beginning,’ says de Beyer.”

For years the number of faithful has been declining. The trend has swept across all of Western Europe, with churches forced to close in France and Belgium too. But in the Netherlands, Christianity’s retreat from society has been particularly drastic.

The Protestant Church alone loses some 60,000 members each year. At this rate, it will cease to exist there by 2050, church officials say.de Beyer thinks of himself as a rescuer of temples. He wants to preserve their value. His instructions are meant to help distinguish between the valuable and the worthless.

He often personally shows up to the churches to provide guidance and support. Pews and Bibles are usually sold to members of the congregation.

“Altars often find new places in Eastern Europe,” says de Beyer. “There’s a big demand there because new churches are always being built.”

But it isn’t just the churches that are dying. Mark Steyn writes that Europe itself is racing its old churches to the graveyard. It isn’t just the churches that boarding up the windows. It’s the factories, the schools and the families.

The problem with the advanced West is not that it’s broke but that it’s old and barren. Which explains why it’s broke. Take Greece, which has now become the most convenient shorthand for sovereign insolvency — “America’s heading for the same fate as Greece if we don’t change course,” etc. So Greece has a spending problem, a revenue problem, something along those lines, right? At a superficial level, yes. But the underlying issue is more primal: It has one of the lowest fertility rates on the planet. In Greece, 100 grandparents have 42 grandchildren — i.e., the family tree is upside down. In a social-democratic state where workers in “hazardous” professions (such as, er, hairdressing) retire at 50, there aren’t enough young people around to pay for your three-decade retirement. And there are unlikely ever to be again.

The New York Times featured the town of Laviano in Italy.  Only half its houses were occupied.  But any closures of its churches were the least of its problems.  It’s problem was even worse: it didn’t have enough kids to keep the schools open. The newly elected mayor “racked his brain and came up with a desperate idea: pay women to have babies.”

Laviano is not unique in Italy, or in Europe. In fact, it may be a harbinger. In the 1990s, European demographers began noticing a downward trend in population across the Continent and behind it a sharply falling birthrate. …For the first time on record, birthrates in southern and Eastern Europe had dropped below 1.3.

For the demographers, this number had a special mathematical portent. At that rate, a country’s population would be cut in half in 45 years, creating a falling-off-a-cliff effect from which it would be nearly impossible to recover. Kohler and his colleagues invented an ominous new term for the phenomenon: “lowest-low fertility.”

What happened? The problem as Steyn succinctly puts it, is that socialism not only “runs out of other people’s money”, as Margaret Thatcher once put it. It simply runs out of people. Future historians, if there are any left, will puzzle over how this came about. The economists will have an easier time explaining it. Through some process, socialism has apparently increased the discount rate to the point where the future is consumed for the sake of the present. Not only is investment taxed to feed consumption, tomorrow is hocked to pay for today.

If the fiscal deficit is the direct monetary expression of this high discount rate, the collapsing population is its equivalent demographic expression. Both are saying the same thing, in different terms. In incentives terms, the future is no longer real; so people don’t save up for it nor do they have any incentive to sacrifice for it.

Steyn points out that one feeds into the other. By failing to provide for the next generation to feed present consumption, the present West has also reduced its capacity to service the debt when tomorrow rolls around.

As Angela Merkel pointed out in 2009, for Germany an Obama-sized stimulus was out of the question simply because its foreign creditors know there are not enough young Germans around ever to repay it. The Continent’s economic “powerhouse” has the highest proportion of childless women in Europe: One in three fräulein have checked out of the motherhood business entirely. “Germany’s working-age population is likely to decrease 30 percent over the next few decades,” says Steffen Kröhnert of the Berlin Institute for Population Development. “Rural areas will see a massive population decline and some villages will simply disappear.”

If the problem with socialism is, as Mrs. Thatcher says, that eventually you run out of other people’s money, much of the West has advanced to the next stage: It’s run out of other people, period. Greece is a land of ever fewer customers and fewer workers but ever more retirees and more government.

Ironically this outcome was baked into socialism from the beginning. It was suspicious of “tomorrow”– that place where the worker would enjoy his benefits — and preferred to consume things today. The most hated tomorrow in socialist opinion was the Christian heaven. It was the “opiate of the people”; the object to which they lifted their eyes the better not to see the miseries of the present. The sooner man was rid of heaven and its earthly equivalents, the nation or the country, the better the new man would be. As John Lennon knew, the best way to understand socialism is to imagine a world without tomorrow.

Imagine there’s no heaven. It’s easy if you try. No hell below us, above us only sky. Imagine all the people living for today.

And that is precisely what the welfare state consisted of. Living for today. Social security is a perfect example. It was never a “fund”; it was never anything more than a payroll tax moving money from young workers to old workers. For it while it seemed to work, but only because the West was running on the legacy of a generation that believed in tomorrow and had sacrificed its life and youth in World War 2 to secure it. The “living for today” lifestyle resulted in the spectacular party some may remember at the end of the 20th century: an era that valued unlimited sex, unlimited welfare, and sacrifice for God and country not at all.

Imagine there’s no countries.
It isn’t hard to do.
Nothing to kill or die for.
And no religion too.

And then the music stopped.  This was the silent scene where we came in at the beginning of the screening: the churches closing at the rate of two a week; the factories closing even faster. What Lennon failed to grasp was that any society that had nothing it would sacrifice for would find nothing worth investing in. And so here we are, dragging on the end of our smokes, tipping over any bottles that still might contain some wine. Because the vineyards are barren and will stay that way. The ultimate problem with “living for today” is that tomorrow eventually comes.