Jean Claudes Face Off Over Greece

One thing you do not expect to read about in the midst of a global sovereign-debt crisis is the chief of the IMF’s penis. Yet here it is, in all its glory. (The article, not the… article.)

But don’t say Dominique Struass Kahn didn’t warn us that ‘his enemies would use his proclivity for promiscuity against him.’

According to his own admission, his three weaknesses are ‘The money, women and my Jewishness.’ We should add that he leads the French socialist party (and is French). The perfect man to leave in charge of the IMF then. Although, perhaps he is when you consider his replacement.

In Dominique Strauss Kahn’s absence, the IMF will be run by a former JP Morgan Chief Economist. The same JP Morgan that, it is whispered, manipulates the silver market. The same JP Morgan that set up the Federal Reserve. The same JP Morgan that the US relied upon to quell stock market crashes during the Great Depression (one of their unsuccessful campaigns). The same JP Morgan that has more police than bankers at its annual shareholder meetings – police who mace elderly protesters.

Familiar faces, coincidences, sex scandals and conspiracy theories – just another day in finance. Add to the list Bin Laden’s porn stash and our own PM living in a state of sin ‘with her hairdresser’ and you get some great newsletter material.

But wait. Did we say global sovereign-debt crisis?

Yep. The Americans have reached their statutory debt limit and the PIIGS have passed the point of no return. But who’s worse off? Well, according to the new party line, growth is the key issue. ‘If we can just get back to some economic growth, our debt will be manageable’ the economists and bureaucrats think to themselves. What they are missing is that the economic growth they take as the norm (and assume in their models) was fuelled by debt in the first place. You cannot expect that kind of growth in a deleveraging cycle.

For those of you who consider that to be too theoretical and prefer to be bamboozled by numbers, consider the figures: Europe’s GDP grew by 0.8% in the first quarter of 2011 and US GDP grew 1.8% in the first quarter of 2011. But here is the important part: Europe grew more.

Because the Americans can’t count.

When they say ‘The Gross Domestic Product (GDP) in the United States expanded 1.8 percent in the first quarter of 2011,’ you have to go to the fine print to find out it’s an annualised rate. The economy actually grew by a quarter of 1.8%, underperforming Europe substantially. PIIGS or no, Europe is the tortoise beating the hare. Austerity is beating stimulus, except for those countries the bond markets have deemed a lost cause.

If you don’t believe that Americans would be quite so misleading with their figures [chuckle], open these two links side by side and see for yourself.

So we know that the Europeans are a little better on the growth side of things. What about their sovereign’s balance sheets? As mentioned, those worth saving are suring up their positions. Those doomed to restructuring are resorting to ‘shoot the messenger’ policies. Both Greece and Portugal are investigating anyone who states the obvious regarding their finances. Even when it’s their job to do so. Whether it’s the ratings agencies or the press, even brokers acting in their clients’ best interests, you just can’t mention the elephant in the room.

Things in Greece haven’t been this bad since a German radio host made a prank call offering to put double glazing into the Acropolis to make it livable again.

Out of the blue comes a solution to Europe’s debt woes. At least a temporary one. Max Keiser suggested it on Greek TV recently: Why don’t the PIIGS just set up a debt ratings agency and classify US debt to be junk and their own debt to be AAA. Banks would have to dump their US treasuries and buy PIIGS debt to make their balance sheets conform to Basel capital adequacy standards. In doing so, they would fund the likes of Greece for quite some time.

The Greeks seem to think it’s a good idea. But who is Max Keiser? Well, apart from being a rather odd rogue economics guru, he is also interested in a political career. And despite being American, he has set his sights on the Greek Presidency. And 97% of Greeks polled (in a highly dubious poll) want Max Keiser as their Finance Minister or President. But he would have one hell of a mission on his hands.

Consider the following from Die Bild Zeitiung, translated by yours truly.

[Even after all their austerity,] the Greeks are still blowing money. This is why they will never crawl out of their crisis:

  • State employees receive bonuses for punctuality, washing their hands, going to work on days when it’s cold outside (between 0 and 8’c), and for having to operate a copy machine. One managed to more than double his monthly income based on such provisions.
  • Bus drivers are deemed to begin work from when they leave home.
  • Priests receive bonuses for each service they conduct.
  • Every fourth Greek employee works for the government.
  • Monks have been caught evading taxes
  • The government guarantees chemists a 35 percent profit on drugs they sell.

Do you still think the Germans will be bailing out the Greeks? Even within the German government, there is dissent.

The Americans still have the luxury of thinking that the deficit issue is a political game. Perhaps because the debt ceiling is a political pawn. Eventually though, economics will come into it. To quote Peter Schiff, ‘Remember, the debt ceiling is a self imposed limit on borrowing. At some point we will have a limit imposed by our creditors… It won’t be that we don’t want to borrow, it will be that nobody wants to lend.’

More on that next week.

One thing the US and EU, more specifically Ireland, have in common is their temporary solutions to the debt problem: Raid the pension funds! The Irish will tax private pension fund contributions and the US will borrow from theirs.

At least we now know why governments were so pro-pension fund…

Zimbabwe is way ahead of the rest of the world on all these issues. Having gone through the stages the US and EU are experiencing, Central Bank Governor Gideon Gono is now leading the way back to a gold standard. That puts Zimbabwe about five years ahead of the US according to Jim Rogers, who predicts a return to the gold standard in the US in that time frame.

And just to be spiteful, the Zimbabweans are sticking it to the US dollar: ‘[The] days of the US dollar as the world’s reserve currency are numbered.’

Ironically, their own currency is so trashed that the country is currently using US dollars.

Back in Europe, it seems the ideal of avoiding conflict has ended in creating it. Instead of tanks rolling across borders, it’s the war of the Jean-Claudes. Trichet vs Juncker. The European Central Bank vs its political elite. The battlefield is the bond market. At stake are the banks of Europe.

Even though he has called it anything but, restructuring is now being considered by the man leading the political efforts to save Greece – Jean Claude Juncker. And we really mean he has called it anything but. ‘Re-profiling’, ‘soft restructuring’, ‘extension’ and so on.

At the ECB, Jean-Claude Trichet is at odds with Juncker, knowing full well that the ECB would be expected to pick up the tab for any banks that go under when their capital structure takes the hit of defaulted bonds.

Australia’s big four banks fit in nicely here. As even the debt ratings agency Moody’s knows, Aussie banks rely on wholesale markets for funding. And it’s just those markets that get into trouble when banks’ capital structures look shaky. Not that you should be giving credit to Moody’s for being aware of the connection. Still, they did downgrade the Aussie banks.

In perhaps the best display of ‘trust me, I’m from the government’ since the insulation debacle, it seems the solar power suckers are following the first-home-buyer suckers into financial difficulty. To save some dough, the government has decreased how much it will pay solar panel owners for selling power back into the grid by 1/3. ‘The decision, announced by the Energy Minister, Chris Hartcher, on Friday as part of a solution to a looming cost blowout, will leave Mr Rejto an estimated $6000 out of pocket.’ There are an estimated 110,000 others like him.

As always, it only gets better:


‘Worse, when an expected 18 per cent jump in electricity prices occurs, Mr Rejto says he will be paying EnergyAustralia more for power generated largely through burning coal than he is paid for producing it from his solar panels.’


Whether the 18% jump in electricity prices factors in talk of a doubling in the carbon price is unknown.

And for the lawyers amongst you, the ‘contract with EnergyAustralia guaranteed a rate of 60¢,’ not the 40c he will be getting. ‘People entered into a contract. If they can’t trust the government to honour a contract why would they trust anything?’

We keep mentioning the book Atlas Shrugged. If you want to know where we’re headed with this sort of nonsense we suggest picking up the 1169-page ‘fiction’ novel.

Or turn on the TV.

In perhaps the best piece of television ever, morning show Sunrise‘s coverage of the news was interrupted at the exact moment that it showed our Prime Minister and her minion pushing the big red button that launched the national broadband network (which has more staff than customers). The outage lasted but a split second, but the picture told a thousand words. To complete the story, don’t forget the uncovered corruption of the NBN boss.

One more thing: is it telling that Dominique Strauss Kahn resigned from the IMF, but not the French socialist party (as far as we know)?

Nick Hubble
Markets and Money Australia

Nick Hubble
Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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“If you don’t believe that Americans would be quite so misleading with their figures [chuckle], open these two links side by side and see for yourself.”

They’re the same link? Or is that the joke?

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