Standard & Poor’s Rains On Europe’s Parade

No sooner had Merkel and Sarkozy put the finishing touches on the latest bailout rumors than Standard & Poor’s was threatening to downgrade the debt of 15 of the 17 euroland nations.  Recall that as the week began, France and Germany were talking up the latest supposed solution to the debt crisis.  Bigger and better than their last supposed solution, it drew a rave from that man of discernment and cunning, Tim Geithner, who pulled out all the stops in making much ado about nothing. “The eyes of the world are very much on Europe now,” he told reporters in Berlin.  “[We should be] very encouraged by developments in Europe in the past two weeks, including reform commitments in Italy, Spain and Greece.”

Ahh, yes. Nothing like a little more austerity to resuscitate the economies of Europe’s deadbeats, right?  The prospect seems to have swayed no one at Standard & Poor’s, a firm that is out to prove to the world that it matters after having missed a hundred signs a few years ago that the banking system was in imminent danger of collapse.  The ratings agency has been doing its vengeful best to atone for the oversight, distancing itself from borrowers with whom it used to sleep around. The threatened downgrade would affect the long-term rating of Europe’s bailout fund, the European Financial Stability Facility. A decision reportedly is pending a review by S&P of the sovereign members’ books, and there’s a possibility that ratings could come down a couple of notches. That would put even more pressure on the ringmasters of Europe’s dog-and-pony show, including the U.S. Federal Reserve,  to counterpunch with sufficient easing to offset the increase in borrowing rates that would otherwise occur.

A Mere Formality

While an S&P downgrade would be a mere formality, it would explicitly warn private capital away from public debt. Not that any such warnings are needed, since no one actually believes that there are any sovereign borrowers left, even Germany, whose debt deserves to be rated as nearly riskless. In the meantime, the widening schism between the ratings agencies and sovereign borrowers can only heighten the public’s skepticism toward the latter. In time, this skepticism will harden into cynicism, which in turn will extinguish the last vestige of credibility the central banks may still possess. All of it rests with officialdom at this point, the public having long ago ceased to believe that the bankers can somehow save anything but their own necks.

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  • mava December 9, 2011, 8:41 pm

    Robert,

    Digital money is easier to inflate? Yes. But that is not and would never be the reason for Joe Six Pack to trade them for cash. One digital dollar is always equal one paper dollar. Both have zero value and work purely on hype. No matter how much more inflated the digital supply is, one digital dollar will be always equal one paper one. Recall, that this was the whole point of going away from the gold standard, – to be able to inflate without showing up the disbalance in the physical book!
    Therefore I decline this reason.

    To conduct activities without taxes? Yes. I agree this is a good reason. The only trouble is that it is a marginal one.
    There is more money to be made if you work with digital dollar than if you work without one, even though you may be able to lower your taxes.
    Thus, while I agree that this one is a valid reason, let me say this: take a look at how many people did withdraw to gold to disallow the feds to steal from their pockets. Precisely next to one in ten thousand. And this is given that gold does actually fix the problem immediately. Now, how many are going to withdraw from digital dollars to cash, because that would allow them to marginally save on taxes while still being robbed on specie dilution? I think people are too stupid, beyond the point of no return now.

    Digital dollar is easier to confiscate? Yes. But why? The goal of the game is going to be to insert the money into the people’s pockets, not confiscate! Even the famous bank robbers have had no reason to be afraid, if only the government officials were a bit more honest. Why confiscate something that cost you nothing? It’s like spending energy confiscating junk mail, while you can just get it for free anyway.
    I can think of only one reason to confiscate digital dollars, – to make them appear to be more scarce than they are. So, going along with that, let’s say the government decided to revalue the disrespected dollar up, by increasing it’s perceived rarity, by confiscating massive amounts of it. This would result in deflation, exactly the same thing that they all are afraid of. The revaluation of everything, and the removal of TPTB from power. They could achieve deflation today very simply by allowing the forces of nature to take their course, i.e. by simply stopping to inflate, and thus bringing about the deflationary withdrawal effect that Mises had warned us about. Simple. Why complicate things and inflate only to secretly deflate?
    Remember, that the whole reason Inflationistas are winning the argument is not because they disagree with deflationistas in mechanics, but because they understand that the whole goal of the game is to steal by inflation, not to give back by deflation, and that TPTB have installed the fiat system precisely because it allows them to be able to inflate at any speed, until the final collapse, which is going to be a hyperinflationary disappearance of money, and a consequent destruction of division of labor, which will immediately act to reduce the population (uh…say 10 to 1?), not a deflation.
    So, while I agree that the digital dollar is easier to confiscate, I doubt these confiscations will ever become widespread, and ever cause Joe Six Pack to move to cash.

  • Robert December 9, 2011, 7:05 pm

    I alluded above that data-money is more easily stolen via official channels (taxation) , but it is also more easily stolen in the criminal free enterprise as well:

    http://sfist.com/2011/12/08/lucky_supermarket_credit_card_scam.php

  • Robert December 9, 2011, 4:30 pm

    Oh, and data is easier to inflate…. 🙂

  • mava December 9, 2011, 1:32 am

    Agree again, Robert.

    What I don’t clearly see is why would anyone try to exchange digital dollars for paper dollars? What’s so bad about digital dollars as compared to paper?

    This would only make sense if one of capital control measures ends up being a restriction on an amount spent a day per person or otherwise. In that case, there will be a point to move to paper, so you can spend it before others. But, if that is enacted, then there would be no reason not to simultaneously limit the amount that can be converted to paper on the same basis.

    If:
    -TPTB do PLAN to super-inflate and,
    -they do hope to hold “hyper” inflation from occuring by restricting velocity, and
    -they somehow forget to restrict the conversion to paper,
    before restricting velocity

    then there is going to be the squeeze from digits to paper as a first stage. But, why would you do it otherwise? Who would accept paper while refusing digits?

    • Robert December 9, 2011, 4:29 pm

      “why would anyone try to exchange digital dollars for paper dollars? What’s so bad about digital dollars as compared to paper?”

      Data is easier to confiscate, extract tax from, and regulate the flow of.

      Data is the bureaucrat’s currency wet-dream

      Just look at rules of engagement in the drug war: Find a cartel chief’s bank account, and seize it.

      Finding a Cartel Chief’s pallets of Ben Franklin’s is more difficult…

      Cash is King? Not quite in my estimation… Cash is Crown Prince.

  • mava December 8, 2011, 5:35 pm

    “Weimar did not print because prices were going up…. prices went up because Weimar was printing.

    This government is prepared to destroy the dollar without reflection, without remorse, and without concern for anything or everything you have saved during your life…

    Bank on it.”

    Some people think that the vault space increase is indicating that our banks are preparing for massive allocated gold storage. That would be nice, but I don’t think so. I always assume the worst. Thus, I agree with you, and as I have pointed out to DO before, all that the bank needs to make you happy is to offer $105 on your credit card instead of $100 in cash. And it can easily be $200 or $10000, it doesn’t matter. All that needs to be rejected before a bank run has any effect.

    Too bad DO thinks he is better than everybody. He likes posting his nonsense, but he does not argue with that of others. Personally, I believe he doesn’t know what he is talking about as he never defined his “deflation”. Hey D.O., google is your friend!

    Hey, better to destroy the dollar than to lose Hillary!

    • Robert December 8, 2011, 6:57 pm

      “Some people think that the vault space increase is indicating that our banks are preparing for massive allocated gold storage. That would be nice, but I don’t think so. I always assume the worst. Thus, I agree with you”

      – Mava, the people that believe the banks are increasing vault storage for allocated Gold are indeed donning rose colored glasses.

      I know why the US Banks are increasing their vault space. I KNOW what they are storing in those vaults…

      Go look at that PDF I linked to above from the Bureau of engraving and printing- look at the outflows to suppliers, most notably the linen suppliers.

      The Fed can increase bank reserve assets using a basic journal entry to credit an account, but they know that every dollar that exists as data is nothing more than a claim on a piece of linen with green ink on it.

      What we are living in is indeed like the early 1930’s all over again, only instead of everyone redeeming their paper coupons for the backing instrument (Gold) what we are seeing today is everyone redeeming their electronic data for the backing instrument (printed paper)… In this respect, people like divergent opinion are correct- dollars as data are deflating against the “real” paper instrument that the data represents.

      Where most people fail is that they think this is the end of their analysis. E-currency is failing, so people are going to rush to the government paper backingstopping the E-currencies; and since there is over a Quadrillion in data form, and 800 times less in paper form, then the squeeze will be for paper… The logic is sound, but it is incomplete.

      If the deleveraging that is already underway really does go into overdrive, and the “data dollars” keep getting dumped and redeemed for “real” dollars, then the supply of printed paper will ABSOLUTELY increase…

      You must understand that 800 “data dollars” to one physical printed dollar, is NOT an insurmountable global ratio. All the Bureau of Engraving has to do is add a couple zeros to the notes, and flip the switches into high speed; and remember, they already have a 4 year head start on the paper production and inventory building.

      The banks are not increasing vault space to store Gold. They are storing green ink and linen. Why? Because bankers are cheap and lazy by their nature- Gold does not jump out of the ground by itself.

      So, as the printed paper supply increases, the amount of paper trading hands in the “real” markets (aka the dark pools) is also going to rise speactacularly.

      You have to be able to rationalize HOW the increasing supply of ANYTHING can portend higher exchange ratios vis-a-vis any other thing before you can be proven right…

      If a decade from now, when the amount of physical cash in circulation is orders of magnitude higher than today, and people are not exchanging it for an ounce of Gold at a ratio of 2000:1 or higher, then I will gladly make a post in Rick’s forum about how wrong I was, and how humanity truly has crossed the threshold into an amazing new era where printed paper has indeed claimed the peak of Exter’s pyramid.

  • Robert December 8, 2011, 8:15 am
  • mava December 7, 2011, 10:34 pm

    In a world of fiat money, what is the meaning of risk on government debt? Governments can print any amounts of money they may need to pay their debts. So, there is zero risk of your money not being paid back. At their nominal value, of course.

    Real return is a different story and there is virtually 100% guarantee that you will lose every time you hold government debt, as the governments always hide true inflation and always keep printing money, so you will always receive back less of real purchasing power than you have given to the government. So, the real risk always exist, but is never rated.

    Rating agencies simply ignore real risk, and rate only the nominal risk. This works just fine if you are a bureaucrat, and you invest someone else money, knowing for sure that this someone else will have a real loss. You, in the meantime, will receive a nominal gain, which is a real gain for you, since your leverage was 0 to infinity. Same for fund managers which is why they are everywhere, they simply steal their client’s money, and rightfully so, as the clients are too stupid to think of real losses.

    The only scenario where government debt will not be paid back in nominal terms is when that currency can no longer be printed by that government. For instance, if Greece leaves or gets thrown out of EU, then they can no longer print Euro (under the disguise of ECB), and will begin to print their own counterfeit.

    Thus, what this risk rating really measures, IMHO, is how likely is the event that the rated government will change their counterfeit of choice. This is why, before the crash, everybody was rated high. Rating agencies did not made any mistakes. They correctly rated the likelihood of counterfeit switch to low to nonexistent.

    It is our job to understand, what exactly are they rating, as opposed to what they say or appear to imply to be rating.

  • mava December 7, 2011, 10:18 pm

    D.O.,
    Like Carol, I fully allow for corrections in gold. In fact I pray for a deep one, that would allow me to buy at, say $1400 an ounce. That would be great.

    Thanks for warning, D.O., but I have a very strong hand here, and all bullion will be mine, no matter what. I don’t play with “gold you can fold” anyway.

    D.O., I would still like to hear how you define “Deflation”, if, of course, you have a definition of it at all.

  • gary leibowitz December 7, 2011, 8:55 pm

    According to Tom Demark we should have a final rally this month, perhaps on the 21st. He sees a sharp drop after that.

    I agree with his analysis. January should be very ugly.
    I also see a deflation scenario as a given. The problem I have with Gold replacing cash is the world governments concerted effort to prevent such a scenario. If you thought fighting the Fed was a losing battle, try fighting the world bankers.

    While gold might hold its own against other assets it will not rise like most here think.

    An initial drop to 1400 or so is very likely. If Gold breaks much below that than the trend would be broken.

    Gold had a great run. In an environment where the EU is in total disarray, no matter how bad the US equity market does the dollar will hold up just fine. Can’t see any scenario where gold takes off from here.

    I suspect the EU meeting on the 9th and carried thru the weekend will give us that final rally. If it turns out posivitve watch out for another 1,000 DOW points higher.

  • Buster December 7, 2011, 8:25 pm

    Far too much time spent looking at the distractions while the real changes that matter most are swept through.

    http://www.goldstockbull.com/articles/senate-passes-bill-allowing-for-indefinite-detention-of-u-s-citizens-without-trial-or-attorney/

    America is lost.
    Next the World, through a global currency & government. Fait accompli!
    Hitler would be proud.

  • Larry D December 7, 2011, 6:13 pm

    DO –
    Whaddya mean there’s no Santa Claus?

    • fallingman December 11, 2011, 4:56 am

      Yeah, if there’s no Santa, who puts the presents under the tree?

  • Rick Ackerman December 7, 2011, 5:33 pm

    Don’t despair, Just. The deflationary collapse you’ve waited so patiently for cannot be averted. However, to understand why the “printing press” solution will not work to counteract it, and why this is NOT Weimar, circa 1921, read Fergusson’s “The Day Money Died”.

    D.O. is bound to be right about one thing: When the bank holiday we’ve all been expecting finally hits, credit cards will cease to function. Cash will still “work” — just that there won’t be much of it around. Gold and silver will have a role to play in the barter economy that ensues, and their command over goods and services will grow regardless of the prices quoted for bullion on Comex (although it is doubtful Comex will even exist by then).

    But don’t expect gas stations and grocery stores to except “junk” silver from Day One, and don’t think anyone will be eager to sell you farm land for a mere handful of gold coins. We’ll be fortunate if those coins buy us the privilege of sharecropping for our daily bread.

    • Robert December 8, 2011, 8:02 am

      There will be plenty of printed cash around. There are pallets of it sitting in warehouses in every major US city… the preparations for US bank runs have been ongoing since March 2007…

      Remember the “new” 100 bill that was supposed to be issued in 2007, then was recalled because of a “printing flaw”, leaving Billions worth of the new bills sitting in warehouses?…

      Use your brains, people.

      The premise that the US Banks can not stop a bank run with a ready supply of printed coupons is not well formed.

      Between 2006 and 2010 the net capital expenditures by the Bureau of Engraving and Printing rose from 34M to 66M, and 2011 is forecast to be in the 80M range.

      Net property and equipment increased by
      $38.4 million in 2010 to $346.4 million.
      The increase was related to the purchase
      of currency manufacturing equipment
      as part of the retooling effort and investments in the Bureau’s technology infrastructure.

      All the preceding is from the BEP’s own website:

      http://moneyfactory.gov/images/2010_BEP_CFO.pdf

      JP Morgan Chase has purchased an astronomical amount of warehouse space in the midwest at firesale prices, and they are paying to keep these warehouses staffed with security 24 x 7 x 365.

      Wells Fargo already owned the 2 largest cash vaults in the western US in 2008, and yet for some reason they determined that they did not have enough capacity so they doubled their floor space again in 2010.

      But that’s ok… I’m sure all of this only means that the gov’t is making sure to have adequate supply when it introduces it’s surprise Ron Paul commemorative $3 Gold coin to celebrate Easter 2012…

      Use. your. brains.

      Weimar did not print because prices were going up…. prices went up because Weimar was printing.

      This government is prepared to destroy the dollar without reflection, without remorse, and without concern for anything or everything you have saved during your life…

      Bank on it.

  • Divergent Opinion December 7, 2011, 4:33 pm

    Final Warning, heed this:

    Last chance, RIGHT NOW, to get out of gold and silver, and primarily, gold and silver stocks, that are about to get CREAMED. Or at least, HEDGE your longterm bets.

    This $1735 area is a most probably THE BIG FAST turnaround area, with MIN. downside target of low $1500’s, possibly even into the $1300’s, in a panic move. And nothing will stop silver, from returning to 26 bucks, or even lower, maybe even $23’s, in similar panic move, in synchronity with spx low 1000’s.

    There is an EXPRESS train down, for ALL markets, other than CASH (T-bills).

    DO NOT listen to central bankers, they are ALL LIARS. The world debt is so huge, totally unmanageable and unstoppable, it will EASILY dwarfs all EXISTING fiats, at approx. 300-1 ratio.

    Just pray even 1 bankruns starts. Because not even ONE multinational world bank, can handle even 1 FULL day of it—then, all others, kaput, likewise. Then, failure of worlwise system of 30-day credit payments. World comes to a halt.

    It is depressionary DEFLATION you should fear, folks, for the hyper-inflation scenario, is just a ruse for baby rubes, just for finalwave suckers—like most of the cane-carrying members, of this pathetically sorry, easy-sucker site, always believing in santa claus gold and silver, no matter the TRUE circumstances.

    Final warning. Caveat Emptor.

    • Just saying December 7, 2011, 5:05 pm

      DO – you prophesied a month ago that it was the last time to sell gold above $1700 and you told us the markets were going to crash “any minute” and now after 500 point rally in the Dow and gold holding above 1700 we are suppose to beleive your prognostications??

      While I agree with your deflationary stance, I have been expecting such for oh I don’t know 10 years now and it has yet to materialize. I don’t think it ever will happen even though it SHOULD happen; the masters of the universe have a printing press and I guess its use has kept what SHOULD happen from happening. We will see I guess but I doubt it will be quick or anytime soon.

    • Rich December 7, 2011, 5:55 pm

      Re “most of the cane-carrying members, of this pathetically sorry, easy-sucker site”:

      DOA might leave a better impression if he were kinder and gentler, and might make more profits if he were long gold, RUT and silver,
      currently targeting 1706 to 1930, 732 to 915 and 32 to 46 respectively…

    • Carol December 7, 2011, 7:40 pm

      DO “MIN. downside target of low $1500’s, possibly even into the $1300’s, in a panic move. And nothing will stop silver, from returning to 26 bucks, or even lower, maybe even $23’s, ”

      Lol I would hardly categorize a 20% – 25% drop in gold and/or silver as getting “CREAMED”. Heck in any bull market you can expect up to 50% drops or even more and still be in a bull market. In the 1970s bull run gold dropped at least 50% at one point and then turned around and shot to new highs. Anyone on the PM bulls back would be an idiot to try to time the bull and exit to avoid a potential 20% pull back.

  • Dan December 7, 2011, 2:29 pm

    The answer to all of this is simple. The Bernank should declare 2012 the Year of Jubillee. All debts, public and private will be cancelled on Jan.1. He then pushes his magic button and 7000 Trillion dollars are created and divided among the serfs.

    • John Jay December 7, 2011, 3:23 pm

      Dan,
      It is much more likely Bernanke will declare all of the serfs bank deposits, stock holdings and Treasury holdings null and void. I think they are getting increasingly desperate. Why else would they topple stable dictatorships in MENA after decades of using them as allies, just to create chaos. We are getting kicked out of Iraq, Afghanistan, and Pakistan after wasting trillions of dollars and making lots of new enemies. They are not going to prosecute the Wall Street guys, or dismantle the MIC, they need an army at their back to maintain power. That leaves the powerless to prey upon. That would be you and me.

  • Seawolf December 7, 2011, 1:49 pm
  • John Jay December 7, 2011, 3:09 am

    World finance is in Fantasyland. None of that debt has any chance of being paid back. The Greeks are taking their money out of the banks. The jig is up. Back here in the USA the police state is all set up to control the mob when SS/Medicare/Section 8 housing/Food Stamps/Welfare etc. get big cutbacks. The only question is the one of the timing of the rude awakening for the US masses.