Another must read hmmmm report, courtesy Grant Williams.
Now we reach the part where the truth finally dawns that the words spoken long ago by JP Get- ty are actually not just an amusing motif fit for the front of a t-shirt or a fridge magnet:
“If you owe the bank $100 that’s your prob- lem. If you owe the bank $100 million, that’s the bank’s problem”
The sum total of bailouts offered to Europe’s prodigal offspring is mounting daily, but the Achilles Heel of the entire construct continues to be the Target2 payment system which has been so assiduously ignored by most observers yet followed so closely by my friends at Zerohedge for many months now.
This problem remains below the radar of most observers but, I suspect, will turn out to be the straw that breaks the camel’s back
Some insight and implications regarding the Target2. From PIMCO;
- The large TARGET 2 positions developing among national central banks in the eurozone reflect capital flight from the periphery to the core and de facto introduce transfer and burden sharing elements of a common fiscal policy.
- Monetary policy ends up substituting for fiscal policy without going through the same democratic channels that governments’ expenditure and taxation decisions entail. Taxpayers in the eurozone are contingently liable for eventual losses incurred by the Eurosystem’s monetary policy operations.
- Three discernible consequences will likely come out of this cheap money and capital flight mix: inflation in Germany will increase, the internal devaluation process underway in southern Europe will proceed slowly and it will strain the political foundation of the euro.
(Full article here).
Interview with Bundesbank President Weidmann. Full Der Spiegel interview here.
SPIEGEL: It’s just that it doesn’t do any good. The two German members of the ECB Council are opposed to buying up the bonds of deeply debt-ridden euro countries like Greece, Portugal, Ireland and Italy, but for months now representatives from southern Europe have outvoted you on this issue.
Weidmann: Just because you don’t have a majority for your position at all times doesn’t mean you should stop defending it.
SPIEGEL: But the number of your allies is constantly shrinking. When the ECB Council debated the purchase of Italian bonds in early August, only you and ECB chief economist Stark reportedly voted against it.
Weidmann: One of the customs of the euro system is not to discuss voting behavior. Nevertheless, my position on the purchases of government bonds is sufficiently known. As a result of many of our monetary policy measures, we helped prevent the crisis from escalating. However, the euro system added substantial risks to its balance sheet as a result. The necessary distinction between fiscal and monetary policy is being blurred, and individual measures are associated with special risks. That’s why these risks have to be reduced.