Meanwhile back in Athens ...

Greece plans orderly exit of the Eurozone

·         By Dominique Doms, International Trade Examiner, Jan 26^th 2012

Greece plans an orderly exit out of the Eurozone according to two sources close to Mr. Papademos, Greek Prime Minister, who spoke on condition of anonymity earlier today.

The sources confirmed that plans are ready to return to a legacy currency given the current circumstances and that such exit would be dealt with, quote “in as orderly a fashion as possible” unquote.

The plan does not come as a surprise but the timing may be surprising to most members and investors while negotiations about a severe haircut with the IIF are still ongoing.

The Demise of the Petrodollar

It's amazing that the petrodollar system has lasted this long

Rumors are swirling that India and Iran are at the negotiating table right now, hammering out a deal to trade oil for gold. Why does that matter, you ask? Only because it strikes at the heart of both the value of the US dollar and today's high-tension standoff with Iran.

by Marin Katusa
Tehran Pushes to Ditch the US Dollar

The official line from the United States and the European Union is that Tehran must be punished for continuing its efforts to develop a nuclear weapon. The punishment: sanctions on Iran's oil exports, which are meant to isolate Iran and depress the value of its currency to such a point that the country crumbles.

But that line doesn't make sense, and the sanctions will not achieve their goals. Iran is far from isolated and its friends – like India – will stand by the oil-producing nation until the US either backs down or acknowledges the real matter at hand. That matter is the American dollar and its role as the global reserve currency.

Egypt is running out of food

Failed treasury auction portends Egyptian disaster

Interest rate on Egyptian 9-month treasury bills

By Spengler

Investors bought less an a third of the 3.5 billion Egyptian pounds (US$580 million) worth of Treasury bills offered to the market on January 22, a red flag warning that Egypt's foreign exchange position is close to the brink.

Yields on Egyptian government debt maturing in nine months jumped to nearly 16%, but the government could not place its local-currency debt to Egyptian investors, even at that exorbitant rate.

This is a new and ominous decline in the financial position of the most populous Arab country. I have been warning since last May that "Egypt is running out of food, and, more gradually, running out of the money with which to buy it." How fast this may occur is hard to specify, but the government's inability to borrow on money markets suggests that the crunch is not far off. (See The hunger  to come in Egypt Asia Times Online, May 10, 2011.) 

Follow the money

No Need to Panic 

Signed by the 16 scientists listed at the end of the article

There's no compelling scientific argument for drastic action to 'decarbonize' the world's economy.

A candidate for public office in any contemporary democracy may have to consider what, if anything, to do about "global warming." Candidates should understand that the oft-repeated claim that nearly all scientists demand that something dramatic be done to stop global warming is not true. In fact, a large and growing number of distinguished scientists and engineers do not agree that drastic actions on global warming are needed.

Business as usual

The Greatest Threat

by Justin Raimondo

There’s always a Looming Danger, an Ominous Threat lurking somewhere – that’s the War Party’s bread-and-butter. Back in the day, it was the Germans, who were going to cross the Atlantic and meet their Japanese allies somewhere near the Mississippi. Then it was the Commies, who were not only in the process of swallowing Asia but supposedly had their Fifth Column right here in the US, ready willing and able to take the Capitol at a signal from the Kremlin. After that there was some hesitation in deciding just who or what would take the place of the Red Threat, but that was decided on September 11, 2001, when Osama bin Laden’s Global Caliphate emerged as the Bogeyman of the moment. It turned into quite a long moment, as we have seen, one that still lingers to this day, even after bin Laden’s death and the crushing of al-Qaeda: Americans, being sentimentalists, hang on to their villains long after their shelf life has expired. 

That’s because these dark eminences are alluring, in their way: the narratives we construct tell us a story we can be proud of, a tale of derring-do in which the American people are made of Heroic Stuff, holding aloft the Torch of Freedom lest it be extinguished by rampaging hordes of Orcs, sacrificing their pelf, their liberty – and, often, their lives – in the name of Saving the World. 

There are times for dreaming big dreams, and there are times to wake up

The State of Our Union Is Broke By Mark Steyn Had I been asked to deliver the State of the Union address, it would not have delayed your dinner plans: “The State of our Union is broke, heading for bankrupt, and total collapse shortly thereafter. Thank you and goodnight! You’ve been a terrific crowd!” I gather that Americans prefer something a little more upbeat, so one would not begrudge a speechwriter fluffing it up by holding out at least the possibility of some change of fortune, however remote. Instead, President Obama assured us at great length that nothing is going to change, not now, not never. Indeed the Union’s state — its unprecedented world-record brokeness — was not even mentioned. If, as I was, you happened to be stuck at Gate 27 at one of the many U.S. airports laboring under the misapprehension that pumping CNN at you all evening long somehow adds to the gaiety of flight delays, you would have watched an address that gave no indication its speaker was even aware that the parlous state of our finances is an existential threat not only to the nation but to global stability. The message was, oh, sure, unemployment’s still a little higher than it should be, and student loans are kind of expensive, and the housing market’s pretty flat, but it’s nothing that a little government “investment” in green jobs and rural broadband and retraining programs can’t fix. In other words, more of the unaffordable same.

Drink Now, Pay Later

Explaining Modern Finance And Economics Using Booze And Broke Alcoholics
From reszatonline

Helga is the proprietor of a bar.

She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Helga keeps track of the drinks consumed on a ledger (thereby granting the customers’ loans).

Word gets around about Helga’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Helga’s bar. Soon she has the largest sales volume for any bar in town.

By providing her customers freedom from immediate payment demands, Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Helga’s gross sales volume increases massively.

The West is Desperate and Clueless

All that glitters is ... oil
By Pepe Escobar 

In his State of the Union address, United States President Barack Obama said, "Let there be no doubt: America is determined to prevent Iran from getting a nuclear weapon, and I will take no options off the table to achieve that goal." 

In the real world, this means Washington is willing to go to war - the economic war is already on - against a country that subscribes to the nuclear Non-Proliferation Treaty and is not seeking nuclear weapons, according to the International Atomic Energy Agency and the latest US National Intelligence Estimate. 

Obama also said, "The [Tehran] regime is more isolated than ever before; its leaders are faced with crippling sanctions, and as long as they shirk their responsibilities, this pressure will not relent." 

A low intensity civil war

Looking into the Syrian abyss

With the outbreak of violence in northern Syria's Idlib governorate in the spring and summer of 2011, cross-border Syrian tourist trade in Antakya's "Syria Bazaar" has come to a complete halt. In early December, Damascus suspended its free trade zone agreement with Turkey in reaction to economic and political sanctions announced by Ankara

By Derek Henry Flood 

ANTAKYA, Hatay province southern Turkey - Five weeks before the beginning of Syria's unarmed uprising against the rule of President Bashar al-Assad, Turkish Prime Minister Recip Tayyip Erdogan and his Syrian counterpart Prime Minister Mohammad Naji Otri laid a symbolic cornerstone for the so-called "Friendship Dam" that was to help control the course of the Orontes River (known as the Asi River in Turkey) that flows through what has traditionally been - and is once again - a bitterly divided Levant region. 

The Arab Winter

Democracy vs Diversity

by Steve Sailer

If the Arab Spring is good for democracy, then it has to be good for diversity, right? We know that democracy and diversity are virtually the same thing: Both words begin with a “d,” end with a “y,” and by definition are good. Who isn’t aware that minority protection (indeed, minority promotion) is the essence of majority rule?

American intellectuals are confident of this because the Nazis were against democracy and diversity. And if you’ve heard of Hitler, what more do you need to know about history?

Saving the Western Economies

Averting Financial Armageddon

After the near-collapse of the financial system in 2008, a growing number of people have come to realize that our monetary disease is terminal.  

by Keith Weiner
It seems self-evident.  The government can debase the currency and thereby be able to pay off its astronomical debt in cheaper dollars.  But as I will explain below, things don’t work that way.  In order to use the debasement of paper currencies to repay the debt more easily, governments will need to issue and use the gold bond. (Wherever I refer to gold, I also mean silver. For the sake of brevity and readability I will only say gold in most cases.

The paper currencies will not survive too much longer.  Most governments now owe as much or more than the annual GDPs of their nations (typically far more, under GAAP accounting).  But the total liabilities in the system are much larger.

The shining city upon a hill

Who Gave Us the Right to Remake the World?

By Patrick J. Buchanan 

U.S. Ambassador Michael McFaul, Obama’s man in Moscow, who just took up his post, has received a rude reception. And understandably so.

In 1992, McFaul was the representative in Russia of the National Democratic Institute, a U.S. government-funded agency whose mission is to promote democracy abroad.

The NDI has been tied to color-coded or Orange revolutions such as those that dethroned regimes in Serbia, Ukraine, Kyrgyzstan, Georgia and Lebanon. The project miscarried in Belarus.

The NDI is one of several agencies, dating to the 1980s, that were set up to subvert communist regimes. With the end of the Cold War, however, these agencies were not decommissioned, but recommissioned to serve as something of an American Comintern.

Where the old Comintern of Lenin sought to instigate communist revolutions across the West and its empires, post-Cold War America decided to promote democratic revolutions to remake the world in the image of late 20th century America.

In 2002, McFaul wrote a book: Russia’s Unfinished Revolution.

Vladimir Putin’s men are not unreasonably asking if he was sent to Moscow to finish that revolution. Putin has already accused Hillary

Sayonara net creditor country

Japan's first trade deficit since 1980 raises debt doubts

By Kaori Kaneko and Tetsushi Kajimoto

Japan's first annual trade deficit in more than 30 years calls into question how much longer the country can rely on exports to help finance a huge public debt without having to turn to fickle foreign investors.

The aftermath of the March earthquake raised fuel import costs while slowing global growth and the yen's strength hit exports, data released on Wednesday showed, swinging the 2011 trade balance into deficit.

Few analysts expect Japan to immediately run a deficit in the current account, which includes trade and returns on the country's huge portfolio of investments abroad. A steady inflow of profits and capital gains from overseas still outweighs the trade deficit.

But the trade figures underscore a broader trend of Japan's declining global competitive edge and a rapidly ageing population, compounding the immediate problem of increased reliance on fuel imports due to the loss of nuclear power.

Only four of the country's 54 nuclear power reactors are running due to public safety fears following the March disaster.

Being practical isn't what revolutions are about

Egypt’s Revolutionary Narrative Breaks Down

With Hosni Mubarak long gone, a heavily Islamist parliament in place, and the military in uneasy command of the country, who speaks for the revolution?

BY LAUREN E. BOHN

On the first anniversary of Egypt's revolution, the Semiramis InterContinental, a five-star luxury hotel overlooking Cairo's central Tahrir Square, offered an espresso-stained postcard of the deep political and social divides that have emerged since Hosni Mubarak's downfall.

As hundreds of thousands Egyptians converged on the square on Jan. 25, the hotel's café became the locus for discordant symposiums among Egyptians of diverse political and social backgrounds. Protesters, clad with stickers and signs that urged Egyptians to press forward with the revolution, shuffled in for a coffee (and, for some, an alcohol) break. In another part of the café, Egyptian businessmen discussed the construction of new resort hotels on Egypt's glimmering Red Sea with their colleagues from the Gulf. Still, others sought refuge from what one 38-year-old Egyptian restaurant owner described as "the never-ending noise of the revolution."

The long and painful road to deleveraging

Working out of debt

The efforts of developed countries to work out from under a massive overhang of debt shows how uneven progress has been. US households have made the greatest gains so far.

By Karen Croxson, Susan Lund, and Charles Roxburgh, McKinsey Global Institute

The problem

The deleveraging process that began in 2008 is proving to be long and painful, with many countries struggling to reduce debt during a sluggish economic recovery.

Why it matters

National economic prospects depend on how deleveraging plays out. Historical experience suggests that excessive debt is a drag on growth and that GDP rebounds in the later years of deleveraging.

What to do about it

Companies active in countries that are experiencing deleveraging should closely monitor progress toward targets that historically have coincided with economic improvment. These include banking-system stabilization, structural reforms, growing exports and private investments, and housing-market stabilization.

The deleveraging process that began in 2008 is proving to be long and painful. Historical experience, particularly post–World War II debt reduction episodes, which the McKinsey Global Institute reviewed in a report two years ago, suggested this would be the case. And the eurozone’s debt crisis is just the latest demonstration of how toxic the consequences can be when countries have too much debt and too little growth. (The full report, Debt and deleveraging: The global credit bubble and its economic consequences (January 2010), is available online at mckinsey.com/mgi.)

44 caliber persuasion

Which Countries Will Be Forced To Bail Out The Developed World

by Keith Weiner

Update: literally seconds after this article was posted, we receive news that the IMF will seek Saudi contribution to the European bailout fund. There you have it - you enjoy that implicit US protection Saudi emirs? It is about to cost you.

While it is best to pray that NASA will find some very rich and not so intelligent life on Mars so it can bail out the world as it sinks deeper and deeper into a untenable debt hole (which somehow can be "filled" only by issuing more debt at least according to tenured economists at ivy league institutions), a strategy of planning for a realistic outcome may not be a bad idea. The question then is who in the world has some/any spare leverage capacity to incur even more debt and use the proceeds to fund a Eurozone-American-Chinese collapse. Enter the Economist's "wiggle-room index." The publication, best known for recently introducing the "shoe thrower index" (remember the Arab Spring and how Fed induced runaway inflation generated a "democratic" revolution across MENA?) has

Go to Jail, do not pass through Go, do not collect your Votes

Goldman swap shows Greece was Europe’s sub-prime nation

By Nick Dunbar

All the talk about Greece trying to persuade its creditors to swap some once-valuable bonds for new ones worth much less reminds me of another Greek swap that I wrote about in 2003. That deal with Goldman Sachs, designed to conceal part of the country’s ballooning debt-to-GDP ratio in order to conform to the rules for Europe’s single currency, was analysed by EU statistics agency Eurostat in a report published last year.

An innocent victim of the blind Justice

The Greek/Goldman 2001 deal, overlooked aspects, and open questions

Former prime minister Costas Simitis lost in 2001 a timely opportunity to tackle the Greek Debt Crisis in its infancy, using Goldman Sachs cheap tricks, allowing the Debt Crisis to explode during the reign of New Democracy prime minister and expert PS3 player Costas Karamanlis  

By The ECB Watch

In 2001 the Greece ministry of finance hired Goldman Sachs to enhance its books using derivatives. This became known in 2003. Two noticeable events occurred in  2010. 

First, the EU mandates audits into Greece’s national accounts, uncovering huge irregularities, including those related to the 2001 deal. This received financial media coverage (Wall Street Journal…). It was suspected, then, that, in addition, Goldman Sachs shorted Greek debt which, on the face of it, is a market abuse. The final audit, however, came at a time when the media coverage had dissipated: we will see that it's unfortunate. 

Second, Goldman Sachs’ wrongdoing in the subprime crisis was made official by the SEC and congressional investigations. The EU authorities and the UK (Gordon Brown) declared that they would carry out due diligence checks on this issue, in cooperation with the US.

What were the consequences?

One right thing at exactly the right time

Eventually, Will Come a Time When ....

by Mike "Mish" Shedlock

Inquiring minds note that French presidential candidate Le Pen calls for France to quit euro

Marine Le Pen, the leader of France’s far-right National Front, has made abandoning the euro one of the pillars of her presidential election campaign, launching a powerful attack on the ailing single currency as she seeks to bolster her already strong showing in the opinion polls.

Presenting her “presidential project”, Ms Le Pen said Europe should give up the euro, which had “asphyxiated our economies, killed our industries and choked our jobs” for years, as well as causing France to accumulate “Himalayan” debts. In any case, she added, the country should prepare a planned exit from the currency union. “We need to anticipate the collapse of the euro rather than suffer from the collapse of the euro,” she said in a television interview on Sunday.

Le Pen supports misguided policies on trade and numerous other issues. However, protectionists and isolationists will eventually win the way, on one issue and one issue alone.

Last April, in Finland, the "True Finn" party soared from obscurity based on one simple idea: stopping bailouts of euro-zone member states. The rest of the "True Finn" platform was cancerous, yet meaningless. Voters everywhere are fed up with bailouts.

My Point

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.

Le Pen may be too early, and France may not be that country, but the time will come.

Greece, Finland, Germany, Belgium, and even France are possibilities. All it will take, is for one charismatic person, timing social mood correctly, to say precisely one right thing at exactly the right time. It will happen.

The central lesson of the financial crisis is ignored

Why the Fed Slept
By R. Samuelson 

The recent release of the 2006 transcripts of the Federal Reserve's main policy-making body stimulated a small media frenzy. "Little Alarm Shown at Fed at Dawn of Housing Bust," headlined The Wall Street Journal. The Washington Post agreed: "As financial crisis brewed, Fed appeared unconcerned." The New York Times echoed: "Inside the Fed in '06: Coming Crisis, and Banter."

Comments from members of the Federal Open Market Committee (FOMC) now seem misguided. The first 2006 meeting was the last for retiring Fed Chairman Alan Greenspan. Janet Yellen -- then president of the Federal Reserve Bank of San Francisco and now Fed vice chair -- said "the situation you're handing off to your successor is a lot like a tennis racket with a gigantic sweet spot." Treasury Secretary Timothy Geithner -- then head of the Federal Reserve Bank of New York -- called Greenspan "terrific" and suggested his already exalted reputation might grow even more. There was no sense of a gathering crisis.

All true, but it begs the central question: why? The FOMC members weren't stupid, lazy or uninformed. They could draw on a massive staff of economists for analysis. And yet, they were clueless.

It wasn't that they didn't see the housing boom or recognize that it was ending. At 2006's first meeting, a senior Fed economist noted "that we are reaching an inflection point in the housing boom. The bigger question now is whether we will experience (a) gradual cooling ... or a more pronounced downturn."

Doublespeak

Opposing Imperialism Is Not "Isolationism"

By Sheldon Richman

When pundits and rival politicians call Ron Paul an “isolationist,” they mislead the American people — and they know it.

They know it? How could they not: Ron Paul is for unilateral, unconditional free trade. He believes any American should be perfectly free to buy from or sell to any person in the world. In that sense — the laissez-faire sense — he favors globalization, which, applied consistently, would require a worldwide free market. He’s such a strong advocate of free trade that he objects to the world’s governments, led by the U.S. government, setting up international bureaucracies, such as the World Trade Organization, to manage trade. He thinks trade should be a totally private matter. That’s a solid classical-liberal, or libertarian, position.

So why is Paul repeatedly called an isolationist?

Apparently in today’s political world, being an isolationist means opposing the U.S. government’s policing the rest of the world through invasion, occupation, and war — that is, militarism. The word “isolationist” has always suggested a fear of foreigners, and no doubt those who apply the word to Paul want to cash in on that sense. So we are left with the daffy conclusion that Ron Paul is a xenophobic, head-in-the-sand isolationist precisely because he prefers peaceful trade with foreigners rather than invasion, occupation, and demolition of their countries.

If that’s what it means to be an isolationist, count me as one too.

The Monster of Jekyll Island

The Fed’s Men Behind the Curtain

by Jeffrey Tucker

The debate about the Fed is under way, and thank goodness. But as with many policy debates, there really shouldn’t be a debate at all. That’s because, if you think about it, the idea of central banking makes no sense.

We don’t have a government-created central repository that plans and manages shoe distribution. The market takes care of that. We don’t have one for cabbage, keyboards or curtains. Somehow, we get books, clothes, tree-cutting services and everything else we need and want without a central planning agency that manages the quantity available, fixes the prices of the products and bails out the firms when they overextend themselves.