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Failure to save East Europe will lead to worldwide meltdown
The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.
By Ambrose Evans-Pritchard
Last Updated: 11:17PM GMT 14 Feb 2009
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.
Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the
ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.
"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.
Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.
Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.
Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.
"This is the largest run on a currency in history," said Mr Jen.
In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.
Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.
They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).
Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.
Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.
Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.
But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.
Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.
Officially “Out Of Control”
Posted: Feb 15 2009 By: Jim Sinclair Post Edited: February 15, 2009 at 4:23 pm
Filed under: General Editorial
Dear Extended Family,
I sent you a certain few emails that I consider to be the most important communications issued in my career that started in 1958.
I am the son of what I know to have been the greatest Lone Wolf trader in Wall Street history ever, Bertram J. Seligman. He was a past master at his business and believed to be a market sensitive. I apprenticed to him, learned from him and inherited some of his ability, not all however.
From this background of experience understanding and sensitivity the following flows.
The emails of note:
1. Said, "This is it."
2. Said, "It is now."
This communication is to inform you as of 2/13/09, "It is totally out of control." There is no longer any means of reversal of the beginning of the final phase of the downward spiral now solidly set in motion.
For your sake, protect yourselves immediately.
Be prepared for disruptions in distribution common to hyperinflation.
1. You should have already distanced yourself from your financial agents. If you haven’t you are headed for significant displeasure and strain.
2. Make sure you stay three months ahead on necessary items that could experience distribution delays such as prescribed medicine and preferred foods.
3. Even though real estate is far from a buy, if you can afford a second home outside of major cities it would serve a good purpose.
4. Own gold.
5. Consider that good gold shares of non-US companies incorporated in a non-US country operating in third country, traded on multiple exchanges are a means of money expatriation legally and in broad daylight if required.
6. For currencies, all you can do is own a spread held by a true custodial ship wherever that might be.
Simply said, as of Friday February 13th, 2009 the situation is in confirmed "Out of Control" mode as this well engineered downward spiral enters into a terminal phase.
The motive was profit and degree of the disintegration caused in the pursuit of this goal was not anticipated.
The key event was when Lehman was flushed - all hell broke loose. The hell cannot be contained in any practical manner.
I seek nothing of you, but the protection of yourselves.
A strange encounter at Costco
Friday February 13, 2009
Categories: Decline and fall, Economics
A friend I trust sent me the following e-mail this week. I offer it here with her permission, in hope that one of you can provide an informed explanation of this officer's mysterious behavior. I have slightly altered the text to conceal identities and the location of this encounter. I believe that this happened; what I don't know is what it means. Here's what she wrote:
My teenage son and I were grocery shopping this evening. There was a man, a [high-ranking officer] in his full uniform, who was clearly buying a food supply. He had 4 gallon size jars of pickles, 2, 25 lb bags of rice, stacks of cases of canned things and so on. We kept passing back and forth and picking up same items, having to wait on each other for things, like canned soup and so on. One time I said, "Wow! Are you feeding an army?" He laughed and said some smarty comment back about 'being' the army... you get the picture. It was friendly chatter.
Finally I asked him if he was buying a food supply. He clammed up. I would not have been surprised if he'd given me his name, rank, and serial # and then shut up. He was not acting embarrassed. My son even perceived his resolute lack of response. So I said, "Can I ask you yes or no questions? Are you buying all this food because of the economy?" He said, "No, it's not because of the economy. There are going to be some very interesting events in the next year."
So that loosened up conversation, but he told me he would not tell me more than that there would be these interesting events in the coming year, and that everyone would be wise to have a year's supply of food. So I told him some of the food sources my husband and I have found locally, and about how perilous the food supply and distribution network is. After that he told me that logistically it would be difficult to get sufficient food to us quickly in the event of a crisis. Huh? We parted, and then on the next aisle he wanted to know what church we went to. I immediately thought he might be Mormon, hence the food supply, but he turns out to be Evangelical.
So Rod, I have read about people advising food supplies, and a wealthy family member for whom money to buy food will never be an issue advising the same thing: stocking up food because its availability will be in doubt in the event of a serious crisis. I see all the bad news economically. I just haven't actually seen a high ranking officer in the military laying in a supply of food in anticipation of shortages! And saying that there is some mysterious, interesting event(s) coming as an explanation for his actions. And that we all should have food storages. It freaks me out honestly. I wish I'd asked him more questions, but I think I got as much information as I was going to get.
What do you think? Could he be an over-excited Evangelical preparing for the rapture who just happens to be a high-ranking officer in the military? Could he know about some coming domestic situation coming where supplies would be limited? Maybe he's a fearful Obama hater paranoid about what Obama may do as president. Or maybe he's in on logistics planning that has made him decide to protect his own family in the event said plans have to be executed. He did say something about trying to balance buying supplies so you don't start a panic, with having to put your family first. What do you think this was about?