by Bill Holter, Miles Franklin
It’s PEACE! Russia and Ukraine have reached another cease fire agreement (maybe their 5th?) which will begin Sunday. Let’s see if this one holds? Ukraine cannot continue hostilities without the U.S. supplying them. What will U.S. reaction to this agreement be? The U.S. was specifically not invited to these talks, when has that ever happened before? The big question in my mind is, do continue to arm them? And if we do, what will this look like to the rest of the world? To Europe? I view this agreement as one more well thought out move by Russia, how can they be called the “bad guy” after this deal? We will either have peace …or the U.S. will be seen in a very poor light by Europe and it may spur more rapid movement Eastward, we will see! Is this for real or merely more propaganda? My guess is yes, it is for real, whether it stays for real without U.S. meddling is another question.
“Propaganda” has been standard “financial” operating procedure for years. What I am alluding to is a major league push to downplay Greece (and of course Ukraine) and the insolvency ramifications. First thing Monday morning, while we continued to get the game of “deal or no deal”, we were also being barraged with “Greece is not such a big deal”. Greece IS a big deal and very well may be THE deal which exposes the insolvency of the entire system.
As mentioned before, Greece in total may be $3 – $5trillion total exposure, or more. This is a very large sum, just think back to 2008 where if Congress did not approve the “measly” (huge at the time!) sum of $700 billion for TARP, we were told we would be thrown into the dark ages and martial law. Already, Spanish and Italian yield spreads and CDS have begun to widen. This is front running to the contagion that will take place and spread from market to market. While Greece itself in a normal world without CDS and other levered derivatives really would not be such a big deal…it is now, because there is zero margin (pun) left for error.
When, not if Greece defaults, triggers everywhere will be pulled. Please do not tell me “but their debt can be extended 60-70 years into the future” because this in and of itself is a default. Greek bonds will need to be marked to market at only a few cents on the euro. Even assuming a markdown of “only” 50% will destroy the balance sheets of banks, central banks and the ECB itself. Losses will actually have to be “booked” and capital ratios will be destroyed. In normal times these capital shortfalls could be plugged with either debt or equity raises, these are not options now and surely won’t be in crashing and illiquid markets. To illustrate just how precarious the situation is (and not even in “crisis” yet), central banks across the globe are ALREADY monetizing more than 100% of debt issuance. Yes, this “is” currently working, has outright monetization ever worked before? And now on nearly a global scale? Monetization will work until one day it does no longer, what will markets look like then? What will have value?
We are already seeing the contagion to Spain and Italy, both in the same fiscal and monetary vice Greece is in. Unemployment, as in Greece is rampant in Spain and Italy while both have debt ratios in banana republic zones. I mention this because of the contagion factor. Once Greece either quits, declines to pay or is kicked out of the Eurozone, …or agrees to an unlikely restructuring, the euro itself will collapse (again) in purchasing power. The Swiss may have kicked off the devaluation, it very well may be the Greeks who finish it off. This very well may end in a north and south euro or with a Eurozone with several southern entities not included. A much stronger euro may be the ultimate result should excess and bankrupt baggage be shed. Please understand that the ECB itself holds Greek debt, at par, which supports the value of the euro. Isn’t this is like two drunks trying to hold each other from falling down?
Just as with the Swiss reset, trade all throughout Europe will be thrown into disarray with huge overnight losses taken and business models rendered obsolete. I believe some very big and long term business decisions will need to be undertaken. Greece, Spain and Italy, as well as the rest of Europe will need to decide “who” they will trade with going forward. This is where Russia enters the picture and why European alliances with Russia/China are so important. After a collapse of the euro and during the thought process of “where to now?”, European industrialist will have a decision to make. Do they continue to trade with the U.S., accepting dollars for trade …or do they turn their attention East and probably toward a gold ratio’d currency? In my opinion there will be a very large deciding factor. Will Europe choose to do business with a region who’s hey-day is behind them and who’s consumers are leveraged to the gills …or, will they prefer to do business with a region who’s future is bright and has well over 1 billion potential consumers who are not in debt and still saving for their first big screen TV? Do you see? Do you see how “natural” any pivot of Europe toward the Russia/China alliance is?
This thought process is of utmost importance to you as an individual because the answer to the above question(s) will affect you directly. Will the status quo hold? Will it snap? If it snaps, which way will the world “lean”? The last two+ years have been designed (choreographed) to show you the new world will lean West, toward the dollar and away from gold. It is so important at this junction to ignore the trees and see the forest for exactly what it is. We are on the cusp of a New World Order, only not the NWO the neocons had envisioned. The vast majority of the world, 135 nations or more are already preparing for a turn from the dollar’s hegemony, away from false and lopsided trade, away from ugly financial and diplomatic deals …and toward real and fair weights, measures and business dealings.
Today’s juncture of time is very close to the equivalent of 1944 where nations met in Bretton Woods, New Hampshire to decide on a new monetary, financial and trade arrangement. A new “arrangement” is undoubtedly coming. By agreement, by default (pun intended), peacefully or forcefully. Gold by default, will be a very central pillar of whatever new system arises, the rest of the world’s actions are plainly telling you this. Know this and you have already won more than half the battle! …The rest of the battle may not be quite as easy.