Category Archives: Economy and Meltdown

Greek Election Cheat Sheet

Information surrounding the Greek Election, Courtesy of Global Macro Leverage Sales:

  • 12:00 EDT/17:00 London                                                 Polls close
  • 14:00 EDT/19:00 London – 15:00 EDT/20:00 London       First official projection
  • 17:00 EDT/2200 London                                                  Updated projections
  • 19:00 EDT/24:00 London                                                 another updated projection
  • 1:00 EDT/6:00 London (Monday)                                      Final results expected

The outcome will be too close to call if the difference between the first two parties is less than 2%-3% with strong precedent of exit polls failing to predict the outcome when the race is tight.


Where can I follow the results?

  • Official results are to be streamed onto the Ministry of Interior website (
  • These results will NOT be an accurate representation of the final outcome. Numbers are fed through as they come in and this strongly biases the sample towards the rural regions in the early hours of counting.
  • The Ministry of Interior will be releasing more reliable estimates of the final result on Greek TV – this will not be available on the website.
  • The international press may also be reporting the unweighted “raw” results rather than the weighted sample – so, care needs to be taken in interpreting these results.


Who will win?

  • Polls released before the blackout period pointed to a moderate lead for New Democracy over SYRIZA, but with a large number of undecided.
  • The absence of a TV debate (talks on arranging that broke down one week ago) is likely to have worked in favour of New Democracy leader, Samaras.
  • The Spanish bank recapitalization package has not had a major influence on the strength of the political discourse of either SYRIZA or New Democracy, merely strengthening both parties’ calls for the need to re-negotiate.


What happens on Monday?

  • In Greece, coalition talks will begin immediately.
  • It is unlikely that any party wins a sufficient number of votes to form an independent government.
  • A combined 35-40% of the vote (depending on how many parties cross the 3% threshold to enter parliament) is required to have a sufficient number of MPs (more than 150) to form a government.
  • The party leader of the top three parties each has the right to attempt to form a government for three days.
  • If these attempts fail, the President of the Republic convenes all leaders to try and generate consensus.
  • If this fails, a third election will be called.

Will a government be formed?

  • If New Democracy comes first, a government with PASOK (and possibly Democratic Left) will be formed in a relatively short period. Participation from the Democratic Left would be a positive as it would broaden the new government’s democratic legitimacy and increase its stability.
  • If SYRIZA wins, formation of a government would be more difficult. This would likely involve support or “tolerance” from one or more of the Independent Greeks, Democratic Left, PASOK and the Communists, in roughly that order of likelihood.
  • Tolerance” would involve the parties abstaining from parliament during the confidence vote. Confidence vote can be obtained (subject to 120 being present in parliament) subject to a majority of MPs present voting in favour.

Via: Citigroup

Bill Moyers and James K. Galbraith Talk About the Financial Crisis and John Kenneth Galbraith

I'm listening to the part 1 now. Some great quotes (paraphrased), and this is just in the first five minutes. ~ Ilene 

James: The system that we live under is unstable. It's corruptible, it's endangered, and its destiny is our responsibility. It depends on us and cannot be entrusted to some ethereal, intangible force that we might call the market… 

The two forces are politics and law. Politics, to give us a coherent government in the interest in the large republic, and law to provide a discipline on the behavior of people who wield power, particularly financial power. And that's of course if you're thinking of the crisis we've been going through, it is fundamentally a consequence of the breakdown of law. It is a crisis of our legal system as much as our economic system…

What you had here is a propagation of a massive fraud…. Confidence in the entire system breaks down. 

Bill: [The inequality gap is getting greater.] What does that say to you?

James: A central lesson of my work is that inequality is associated with instability… Inequality and instability are symptoms of the same phenomenon… 

The kinds of inequalities that we have developed in our society distort every choice that people make in their lives, particularly that young men and women make in their lives…

An extraordinary concentration of wealth is an extraordinary concentration of power. Favorite Adam Smith quote (the only short sentence): "Wealth is power, as Mr. Hobbes says." 

Bill Moyers and James K. Galbraith Talk About the Financial Crisis and John Kenneth Galbraith

Courtesy of Jesse's Cafe Americain

Greece — What Matters And What Does Not

From Mark Grant, author of Out of the Box

Greece—What matters and What does Not

The bond market is heading East while the equity markets heads West because they have two totally different focuses at present. I have seen this often enough in my almost four decades on Wall Street and I am always amused when this differentiation takes place. It is really just a reaction to what either market is staring at that causes this phenomenon to take place and, eventually, one market proves to be correct while the other gallops along to catch up. The stock markets seem buoyed by the possibility of the more EU friendly government to win this Sunday’s election and they are taking comfort in the hope for support of the world’s major central banks and the possibility of more easing; a new or redefined QE3. The fixed income people are concentrating on the possibility of a systemic financial shock, the recession in Europe that will affect the United States and the plight of the European banks. In my experience the bond markets generally get it right and get there first and I expect nothing different this time.

Let us calmly consider the facts as we can ferret them out and change our focus to reality and not what we are spoon fed by the Europeans. Greece has a total debt of about $1.3 trillion. This is composed of their sovereign debt, which Europe counts, and then their $90 billion in derivatives, their Federally guaranteed regional debt, their sovereign guaranteed bank and corporate debt, their obligations to the EU and finally their loans at the other central banks. It is just simple addition and not my opinion; I am just counting all of the liabilities while Europe does not. Then if you take their GDP and divide it by their total debt you get a debt to GDP ratio of around 453%. You may claim, and somewhat correctly, there is value in some of their assets which would be an off-set in case of actual default but the problem here is that they are a sovereign nation so how one would lay claim to any Greeks assets would be quite problematical.

In any event the amount of money that Greece owes cannot be paid back. They do not have enough assets, they certainly do not have enough cash flow or revenues and the situation was manipulated by Greece and allowed by the European Union as other factors were more important and overshadowed the burgeoning deficit. So now Greece is stuck and Europe is stuck and it matters very little really who will be elected on Sunday as there is no way out of this trap except continuing cash payments from the other European nations. Because the charity that has been given comes with strings attached there is one group that is more friendly to Europe and one that is less friendly and the reality is that Greece will try to soak up as much money as they can from the EU and when the money is stopped then Greece will default because there is no other choice regardless of anyone’s politics. It is then the default that is the real issue, the only important issue really, because the size of the debt will cause ripples and possibly large waves all across the financial landscape. It will hit the ECB, the banks on the other side of the derivatives contracts, all of the Greek banks who are really in default at present and being carried by Europe as well as the nation and the Greek default will spread the infection in many places that we cannot imagine because so much is hidden and tucked away in the European financial system. There is only one way out of this mess and that is if Europe keeps handing Greece money like one does to some aged aunt that cannot support herself but that is a family decision while Greece requires 16 other family members to support here jointly and the politics in many of these nations, including Germany, is making it difficult for the charade to continue.

The countries in Europe cannot call it charity because various governments would be thrown out of office and so the “loans;” continue. Both pending political winners in Greece want to re-negotiate the loans so that a friendly group or a less friendly group is possibly something at the margin but that would be all. The debt cannot be repaid. Then the calculation is made by Europe as to the potential damage and more money may be offered, any changes in terms will make very little difference, as Greece sinks further into its financial sinkhole. Consequently it will either be debt forgiveness (charity) or Europe refusing to pay any longer and default. The bond markets are getting the joke while the equity markets don’t understand the sentence leading to the punch line and hence the different reactions. Again; it is all a matter of focus.

So the Greek elections come and go and someone takes over or there is no government and new elections are called. In the meantime either Europe hands Greece more money or Greece defaults. It is at the point of default where consequences require central bank action and where even the best made plans may careen out of control because so much information has been hidden and not accounted for so that their consequences were not considered. Dealing with incorrect facts leads to incorrect conclusions and this is my greatest fear at present for all of the financial markets; that the pending default, it will most likely come, will not have been assessed in the manner that was needed because Europe did not allow all of the necessary data to be correctly appreciated.

Greek Defaults

  • 366 B.C.
  • 1826 (50% of the time since independence Greece has been in defualt)
  • 1843
  • 1860
  • 1894
  • 1932

So the most likely scenario is not debt forgiveness, which would cure the problem but is not politically feasibly in many European nations but default and default within the Eurozone initially. Then Greece will be forced to return to the Drachma and devalue and the default will cause bank runs and money flowing into Germany and the United States as the only viable safe haven bets. Central bank intervention will help in the short term but will not cure the longer term solvency issues and the European banks, at 300% larger than their sovereign nations that support them, may well overcome the European Union’s capacity including their ability to print money which will become of less and less value given what supports it. It won’t be Doomsday and it won’t happen overnight but there will be more than enough shocks to wake-up the casual observer.

This is where I think we are heading and I do not think the arrival date is too far off now!

Europe’s Dilemma: "Probability Vs Impact"


When it comes to the future of Europe, one simply has to look at the foundations or the so called “euro-architecture” which as the past two years have shown us, are in dire need of strengthening lest everything topples over. Mere talk will no longer cut it. Simplifying things further, one can distribute the potential outcomes facing Europe along two axes: Impact, or an event’s likelihood of actually doing something to change the current “sinking ship” status quo, and Probability, i.e., how much resistance, mostly political, will a given plan face, primarily from Germany which over the past year has fallen into its rightful place – that of Europe’s fiscal, and monetary – because even the ECB will not move without German approval – paymaster. Obviously the two are inversely correlated. Whether or not the European crises ends, will depend on precisely which of the 9 listed outcomes below Europe decides upon (or all). However, as is well-noted on the chart, There are “No obvious game changers.” Which is why anyone hoping for a Deus Ex, before much more pain is first experienced, as Deutsche Bank explained earlier, will be bitterly disappointed.

The scenarios are as follows, via DB:


1. Roadmap to fiscal union, long-term vision for euro to present/explain to markets the path to crisis resolution


  • Strenghten banks to protect financial system, maintain credit to the real economy;

2. ECB liquidity to ease bank funding

3. Direct recapitalization of banks (ESM/EFSF)

A. EU-wide deposit guarantee/banking union – end game, not short-term measures


  • Support countries with difficulties accessing markets

4. ECB bond buying, liquidity for banks to buy sovereign bonds

5. Extension of existing bailout programs

B. Eurobonds/redemption bunds – end game, not short-term measures


  • Increase firepower to reassure markets that we can credibly deal with deeper crisis (e.g. Spain, Italy)

6. Larger ESM

7. Banking license to ESM at ECB (increases lending capacity)


  • Support growth in short-term to mitigate negative impact from austerity

8. EU structural funds/EIB Capital increase/Project bonds

9. Policy rate cut by the ECB


Finally, and again from DB:

We think uncertainty will prevail over the months ahead. The most likely
path, in our view, is that European leaders will continue with the
incremental approach that has thus far failed to contain the crisis.
While enough may be done to convince the ECB to step up its
intervention, volatility and concern over Europe are likely to remain
for the foreseeable future.

We agree.

Guest Post: What Peak Oil?


Submitted by John Aziz of Azizonomics

What Peak Oil?

Is peak oil imminent? Lots of people seem to think so.

The data (released by BP a company who have a vested interest in oil scarcity) don’t agree. Proved reserves keep increasing:

The oil in the ground will run out some day. But as the discovery of proven reserves continues to significantly outpace the rate of extraction, the claims that we’re facing immediate shortages looks trashy.

Some may try to cast doubt on these figures, saying that BP are counting inaccessible reserves, and that we must accept that while there are huge quantities of shale oil in the ground, the era of cheap and readily accessible oil is over. They might cite the idea that oil prices are much higher than they were ten years ago. Yet this is mostly a monetary phenomenon resulting from excessive money creation beyond the economy’s productive capacity. Priced in gold, oil is still very cheap — almost as cheap as it has ever been:

The argument that the vast majority of counted reserves are economically inaccessible is fundamentally flawed. In the long run there is only one equation that really matters in determining whether oil is extractable, and that is whether there is a net energy gain; whether energy-in exceeds energy-out. If there’s a net energy gain, it’s feasible. Certainly, we are moving toward a higher cost of energy extraction. Shale oil (for example) has a lower net energy gain than conventional oil, but still typically produces five times as much energy as is consumed in extraction.

But the Earth’s extractable hydrocarbons will eventually dry up, whether that’s in 500 years or 200 years. If we want humanity to have a long-term future on Earth, we need to move to renewables; solar, hydroelectric, thorium, synthetic hydrocarbons. And the market will ensure that, eventually — as the cost of renewable energy continues to fall, more and more of us will adopt it. I don’t buy the myth that markets are stupid — if humanity needs renewable energy (I believe we do) the market will see to it (I believe that is slowly happening). Markets are just the sum of human preferences.

According to the International Renewable Energy Institute:

Power from renewable energy sources is getting cheaper every year, according to a study released Wednesday, challenging long-standing myths that clean energy technology is too expensive to adopt. The costs associated with extracting power from solar panels has fallen as much as 60 percent in just the past few years.The price of  from other renewables, including wind, , concentrating solar power and biomass, was also falling.

So no. I’m not lying awake at night worrying about imminent peak oil. There’s plenty of extractable oil, and renewable energy will eventually supplement and replace it. But will politics get in the way of energy extraction? The United States has huge hydrocarbon reserves, yet regulation is preventing drilling and shipment, leaving America dependent on foreign oil. And the oil companies themselves are largely to blame — after Deepwater Horizon, should anyone be surprised that politicians and the public want to strangle the oil industry?

If there’s an imminent energy crisis, it will be man-made. It will come out of the United States’ dependency on foreign oil. Or out of an environmental catastrophe caused by mismanagement and graft (protected cartels like the energy industry always lead to mismanagement). Or out of excessive red tape. Or war.