IMF’s Dominique Strauss-Kahn Calls For A Comprehensive Solution To The Eurozone Sovereign Debt And Banking Issue

I … Open Europe in Press Summary relates that The Telegraph in article Eurozone debt fears infect German bonds, reports that on December 7, 2010, German government bonds saw yields rise to the highest in seven months, as anxiety over policy differences fuelled bond market doubts about the 16-nation eurozone.

“The yield on the 10-year German Bund, the benchmark for all eurozone debt, topped 3pc for the first time in seven months on Wednesday and the euro weakened again.

The head of the International Money Fund, Dominique Strauss-Kahn said: “The eurozone has to provide a comprehensive solution to this problem … The piecemeal approach, one country after another, is not a good one.”

II … Mr Strauss-Kahn criticised Europe’s disjointed response to the eurozone sovereign debt banking crisis after Germany and other states resisted his calls for bolder action on Tuesday December 7, 2010. 

Philip Aldrick of the Telegraph reports that “Germany and France are pushing for an EU summit next week to approve a proposed treaty change that would allow debt-stricken euro zone states to make an orderly default, with private sector bondholders sharing losses on a case-by-case basis.

However eurozone finance ministers did not agree on any new action this week to stop the crisis, making investors wary.”

III … Ireland’s finance minister Brian Lenihan applies austerity measures and says projected loan losses on Ireland’s domestically owned banks “are unforgivable”.

“Concern for the wider eurozone even led to rise in borrowing costs for Ireland, despite the country taking the first step to pass its austerity budget.

The €6bn (£ 5 bn) package of tax rises and spending cuts cleared a vital parliament vote late on Tuesday night opening the way for the release the €67.5bn of aid pledged by the European Union and International Monetary Fund.

Ireland’s public sector workers are to bear the brunt of next year’s austerity measures with cuts to their pensions, pay and staff numbers as the government tries to grapple with the scale of the nation’s debts.

Irish civil servants are facing a torrid 2011, with the pay of new recruits to be slashed by 10pc, the pensions of working age individuals reduced by up to 8pc, and 18,500 staff – 6pc of the entire public sector – to be made redundant.

In addition, income taxes across the spectrum are set to rise to bring in an extra €900m of revenues next year after Brian Lenihan, the Irish finance minister, said: “Our income tax system is no longer fit for purpose.”

Members of government will lead by example, with the Prime Minister’s office taking a €14,000 pay cut to €214,000 – lifting the total salary reduction since the austerity began two years ago to €90,000. Ministers’ pay has been reduced by €60,000 in that time.

Under Mr Lenihan’s plans, €4bn of the austerity plan will come from spending cuts – including an €873m reduction in welfare support, €1.4bn will come from tax rises and the balance from asset sales. Mr Lenihan claimed that the budget was “progressive”, hitting those who could afford it hardest.

The measures will reduce the budget deficit to 9.4pc of GDP, Mr Lenihan said, from the 12.2pc without any fiscal consolidation.

Pressing ahead with the programme has been a condition of receiving the EU and IMF portion of Ireland’s €85bn rescue package – €17.5bn of which is coming from the state’s own public pension fund coffers. EU ministers on Tuesday officially “adopted a decision providing financial assistance and a recommendation setting out the conditions” that Dublin must meet in exchange for financial aid.

Front-loading the programme is a key demand. A further £9bn of austerity measures are planned over the following three years. The €15bn package comes on top of €14.6bn of consolidation already undertaken since 2008.

Mr Lenihan said that were it not for the previous raft of cuts, “our underlying deficit would already have ballooned to more than 20pc of GDP”.

He reserved particular bile for the banks that plunged Ireland into its present crisis. “Over the period 2008 to 2012, the total loan losses of the domestically owned banks are expected to reach €70bn-€80bn, equivalent to about half of this year’s GDP. Loan losses on this scale are unforgivable.”

IV. Irelands’ Legislature submits to the IMF’s and Eurozone’s Leaders fiscal sovereignty in hopes of getting a seigniorage aid bailout.

The passing of the first in a series of resolutions underpinning the 2011 budget in Ireland’s parliament last night marks the first step in a lengthy approval process.

The International Monetary Fund board of member countries will meet on Friday to approve Ireland’s €22.5bn loan, according to the IMF Website.

Ireland’s final Finance Bill is expected to be voted on in February, paving the way for Brian Cowen, the prime minister, to call an early parliamentary election.

V. Commentary

I find it interesting that Brian Lenihan is working to apply austerity measures; and I am particularly interested in his statement that the projected loan losses on Ireland’s domestically owned banks “are unforgivable”. If they are seen as “unforgivable”, this means to me that at some time in the future the bond holders will be taking a haircut, and also that the debt will be applied to every man woman and child living in Ireland, who will then serve out their lives in debt peonage. 

I note that Dominique Strauss-Kahn has given “the clarion call” for a comprehensive solution to the European Financial Institution, Sovereign Debt Symbiosis Crisis. 

I believe the Strauss-Kahn call for a comprehension solution will go unanswered.  

A catastrophe is coming out of rising sovereign debt interest rates, as well out of further global competitive currency devaluations at the hands of the currency traders, resulting in a financial market place implosion, where the European Financial Institutions, EUFN, will fall quickly falling in value, taking the entire global financial system down, resulting in Götterdämmerung, an investment flame out, bringing forth a new age.
 
And the accompanying rise to power of a Sovereign-Chancellor, Revelation 13:5-10, such as Angela Merkel or  Herman van Rompuy or John Redwood;  and also a Seignior-Banker, Revelation, 13:11-17, such as Wolfgang Schäuble, or Olli Rehn, or Jean-Claude Trichet, or Gordon Brown, with fiscal sovereignty to control deficit spending, enforce internal country devaluations, provide a common EU Treasury for both taxation and transfer payments, assure mutual guarantees of the EU debt, and as Timothy Geithner called for, implement unified regulation of banking globally. All seigniorage, both credit and fiscal will come and go through the Seignior who will make decisions on where money is spent.

I foresee national sovereignty passing away throughout the world, as Leaders’ Framework Agreements establish ten regions of global governance as called for by the Club of Rome in 1974; hence people will no longer be citizens of sovereign nation states, rather residents living in a region of global government.

Many writes that government debt must be restructured. However this cannot be done, as any new debt issue will not be auctionable … that is the new government treasuries will find on buyers, due to the risk that the new issue, will itself, at some time be restructured.

And other write that bank debts be converted to equity, will simply be sold short by short sellers.

Others suggest mortgages debt be written off; but then there will be a run in mortgage-backed mutual funds; and the write off will preclude the issuance of new debt issue.

Other suggest that toxic and inefficient banks be eliminated; but this is not possible as all banks in Europe are integrated with each other and with governments.

Debt deflation is the future. Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”

As most are painfully aware banks will need to revive, that is renew their balance sheets soon with new debt issue. No one, nada, absolutely no one, is going to buy bank debt. Investors are short selling European bank debt and buying credit default swaps on the banks.

I see a strong down draft in world stocks, ACWI, and in European Financial Institutions, EUFN, in particular; as well as increasing sovereign debt interest rates such as the Interest Rate on the 30 Year US Government Bond, $TYX, and the Interest Rate on the 10 Year Us Government Note, $TNX, and thus a decrease in Treasury Bonds, such as EDV and BWX.

The 30 Year US Treasuries entered an Elliott Wave 3 Down on September 28, 2010.

I present similar thought in my article A Leader Will Emerge Soon To Rule The World.

Keywords:

debtdeflation

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