From day one, immense challenges faced the coalition of international institutions that opted for a liquidity approach to address Greece’s debt solvency problems. Now that this coalition is stumbling and bickering publicly, the outlook for Greece has taken a significant turn for the worse. Even as George Papandreou, the Greek prime minister, prepares to reshuffle his cabinet, he must know his nation’s predicament is now extremely hard to reverse.

It is now commonly accepted that Greece’s predicament is due to two inter-related problems: the economy is unable to grow, and the debt burden is enormous. Yet neither has influenced sufficiently the approach that has been adopted by the crisis management coalition, consisting of the Greek government, its European creditors (namely other eurozone governments, the European Commission and the European Central Bank) and the International Monetary Fund.

Instead, the focus has been on dramatic austerity for Greece and massive loans from the official creditors. Not surprisingly, every economic, financial and social indicator for the Greek economy has deteriorated. This has happened both in absolutes term and, more alarmingly, relative to the coalition’s already grim expectations. Such failure naturally encourages a blame game, and sadly that is exactly what is now happening.

Judging from other crisis management episodes around the world, it is normal for both the Greek government and its people to feel let down by European neighbours who they feel under-appreciate the sacrifices made by its population, especially since these same creditors refused to lower interest rate on new loans. Equally, it is normal for the creditors to complain that it is Greece that is not doing enough to counter what is, after all, a home-grown problem.

In principle, these gaps need not be fatal. Yet the current attempts to bridge them are nowhere near enough. They would do little beyond, at best, prolonging for a few months an already unsustainable situation. More likely, they would be undermined rapidly by two recent developments that suggest that the current approach to crisis management in Greece is coming to its end.

First, and most importantly, the Greek government is losing control of the streets. As protests turn increasingly ugly, the pursuit of a national political consensus becomes even more elusive. This is especially true if all Mr Papandreou, or another leader, can offer is a step back to a discredited approach that involves sacrifices with no evidence of lasting benefits.

Second, even if Greece can deliver, European creditors fundamentally disagree among themselves as to how best to support the country — other than to push the IMF to lend more. Some, led by Germany, want fairer burden-sharing with the private sector, rather than to continue to fund both the needs of the Greek economy and full repayments to private lenders that are now exiting the country. But the ECB strongly opposes this, especially now that its balance sheet is contaminated by large holdings of Greek bonds.

Responding properly to all this is an engineering nightmare and a political headache. Critically, it now requires giving up on at least one, and more likely at least two, of the three principles that have underpinned the coalition’s approach to Greece: avoiding a debt restructuring, a currency devaluation and a change in the fiscal set up of the eurozone.

Europe faces a moment of truth. The sooner this is recognised, the greater the chance of shifting to a “plan B”. If not the prospects are stark: the already-difficult outlook facing the three bail-out countries (Greece, Ireland and Portugal) will surely be compounded by a decade of internal economic implosion. The task must now be to limit fundamental contagion to countries that are yet to be bailed out (notably Spain), and to maintain the integrity of the Euro. But the time for action is fast running out.

Prices in rare metals through the roof. Why? Because they are rare. Watch for those plasma screen price hikes…. Bloomberg reports;

Prices of the rare earths used in lasers and plasma televisions more than doubled in the past two weeks as China tightens control of mining, production and exports, according to market researcher Industrial Minerals.

The cost of dysprosium oxide, used in magnets, lasers and nuclear reactors, has risen to about $1,470 a kilogram from $700 to $740 at the start of the month, Industrial Minerals said in an e-mailed statement. Europium oxide, used in plasma TVs and energy-saving light bulbs, has more than doubled.

China, supplier of 95 percent of the 17 elements known as rare earths, has clamped down on rare-earth mining and cut export quotas, boosting prices and sparking concern among overseas users such as Japan about access to supplies. The government may further reduce export quotas, pushing prices higher, Goldman Sachs & Partners Australia Pty said last month.

“China has long said it will consolidate the industry but it’s moving more rapidly than many observers anticipated,” said Dudley Kingsnorth, a former rare earths project manager and now chief executive officer of Perth-based advisory Industrial Minerals Co. of Australia. “There might be an element of speculation but I think the price rises have been driven by people who are desperate for the product.”

The world’s most populous nation will raise standards for exporters and won’t approve new project expansions in an effort to curb overcapacity, illegal mining and sales, the government said last month. The Ministry of Land and Resources said yesterday it wants to set aside some rare earth deposits.

http://www.bloomberg.com/news/2011-06-17/rare-earth-prices-double-on-china-industrial-minerals.html

Crack down on over the counter trading in silver, gold and other commodities. Dodd Frank prohibits dealing in various products as of 15th July.

Date: Fri, Jun 17, 2011 at 6:11 PM

Subject: Important Account Notice Re: Metals Trading

To: xxx

Important Account Notice Re: Metals Trading

We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.

In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.

We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.

We sincerely regret any inconvenience complying with the new U.S. regulation may cause you. Should you have any questions, please feel free to contact our customer service team.

Sincerely,

The Team at FOREX.com

Some additional views on the matter, although majority seem rather stunned and confused by this move.

As things currently stand, on July 16, when the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)[1] becomes effective, Securities and Exchange Commission (SEC)-registered broker-dealers (BDs) will no longer be able to enter into many types of foreign currency transactions for their retail customers.Although the law is not entirely clear, there is even a question as to whether BDs may purchase foreign currency for retail customers in connection with foreign securities trades if the settlement date for the currency transaction extends beyond two days.[2] The reason for these changes is that the Dodd-Frank Act included a requirement that the applicable functional regulator pass rules governing conduct of a regulated entity regarding retail forex in order for an entity to be able conduct such business. The Commodity Futures Trading Commission (CFTC) has passed rules[3] and the Federal Deposit Insurance Corporation (FDIC)[4] and the Office of the Comptroller of the Currency (OCC)[5] have proposed rules, but the SEC has done neither.

Conclusion

Section 4(a) of the CEA provides that contracts executed in violation of the CEA are illegal. As a result-notwithstanding that many of the retail forex transactions carried out today may in fact be outside of the class of transactions regulated by the CEA, as may be much of the advice on forex that is provided to retail customers by investment advisers-given the lack of clarity and the fact that transactions conducted in violation of the CEA pose risks regarding the enforceability of trades, BDs and investment advisers should examine their retail foreign exchange activities and consider moving their affected business to an FCM, Forex Dealer, or a bank. (Morgan Lewis, Lawfirm)

and some comments from Newedge;

Gary Alan DeWaal, senior managing director and group general counsel at prime brokerage firm Newedge, said most non-US FX hedge funds seemed unaware of these obscure, burdensome requirements. “Most hedge funds would not think that they are retail funds. However, all it takes is one US client, who fits into this bracket to make them a retail FX fund. I think a lot of hedge funds could be forced to either throw out these clients from their funds or change their counterparties,” added DeWaal.”

Tekoa speaks with Greg Hunter of USAWatchDog.com. Greg has nearly 10 years experience as an investigative reporter with news outlets such as ABC, CNN, Good Morning America and many more. Items are discusses are the growing likelihood of financial & currency collapse, major social unrest, gold and more.

Greg Hunter: Mainstream Press Missing Most Military & Economic Realities, Devastating Bank Losses Still to Come

Moody’s delivered an (almost) Italy downgrade, by putting the rating on downgrade review, just before market closed last night. Great expiration timing. Below from Moody’s and we attach The Economist’ last special piece on Italy and Berlusconi, “The man who screwed an entire Nation”.

Moody’s Investors Service has today placed Italy’s Aa2 local and foreign currency government bond ratings on review for possible downgrade, while affirming its short-term ratings at Prime-1.

The main drivers that prompted the rating review are:

(1) Economic growth challenges due to macroeconomic structural weaknesses and a likely rise in interest rates over time;

(2) Implementation risks surrounding the fiscal consolidation plans that are required to reduce Italy’s stock of debt and keep it at affordable levels; and

(3) Risks posed by changing funding conditions for European sovereigns with high levels of debt.

Moody’s review will evaluate the weight of these growing risks in light of the country’s high rating but also relative to some credit-strengthening trends that have been observed in recent years and are expected over the coming years, such as improved fiscal governance, lower budget deficits and a modest economic recovery.

The Economist 11 June 2011 – Italy-4