Friday, 16 December 2011

Lagarde Sees A 1930s Depression on 'Escalating' Crisis

Take off the earrings and she looks like a French bloke I used to play Rugby with in the 80s, but, I digress.

The head of the IMF, former French Finance Minister, Christine Lagarde paints a sombre picture where NO COUNTRY (yoohoo Swanny, you listening?) will be immune, as the Euro crisis escalates.

IMF chief warns no country immune from crisis

IMF Managing Director Christine Lagarde, speaking at the U.S. State Department, said the outlook for the world economy is"quite gloomy" and warned that failure to act collectively could lead to protectionism and isolation reminiscent of the 1930s depression.

"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating," Lagarde cautioned.

"It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action."

The IMF has warned that it is likely to cut its 2012 growth projections, with the economy struggling with a worsening two-year euro zone debt crisis and sluggish U.S. growth. There are also signs from falling Chinese factory output that manufacturers are struggling with waning global demand and tighter credit conditions.

Credit is tightening and interbank spreads are going to the moon, expect a freeze on the first Euro bank failure in 2012.

Then this...

She cautioned, however, that democratic government processes often made quick fixes difficult, saying the collision of market expectations with political reality must be resolved.
Democracy, as in, "government by the people for the people" is making it difficult? Off course it is, looking at Greece and Italy, its by the banks and for the bankers, the peasants can wear austerity and suck it up.

Reality Will Jolt Australia

The National Australia Bank has fired a warning shot based on the rapid cooling of interbank lending.

NAB won't guarantee passing on future cuts

The National Australia Bank has warned that future official interest rate cuts might not be passed on in full to its customers. The NAB has cited the higher cost of sourcing money on global markets, and continuing uncertainty from the Eurozone debt crisis.

The Australian economy is based on a debt fuelled Property Ponzi, it needs cheap credit and lots of it or like all Ponzi schemes it collapses.

Switzerland Prepares

Meanwhile, the Swiss are under no illusions.

The Swiss Government Is Getting Ready For The Collapse Of The Euro

The Swiss government is preparing for a collapse of the euro, according to Swiss Finance Minister Eveline Widmer-Schlumpf.

She told parliament that a work group was studying the imposition of capital controls and negative interest rates to protect Switzerland from the capital flight that a euro collapse would engender (Handelsblatt).

A tidal wave of euros would drive up the Swiss franc, devastate Switzerland’s export economy, and devalue its vast wealth invested in other countries.

Signs of a Bank Run Starting

New Signs Of “Invisible” Bank Run in Southern Europe

The clients want their money, and they want it in cash. Whether it’s because they need it to get by, or because they fear the drachma will return, many Greeks are pulling their money out of their banks. The hemorrhage is so big it threatens to sink some banks altogether.

The situation looks critical in other euro zone crisis countries as well. So far, bank customers wanting to withdraw their money haven’t suddenly descended on the banks in droves. But in Ireland, Spain and Italy, an invisible – though no less threatening – bank run is ongoing. Statistics from national central banks show that billions of euros are flowing out of Irish, Spanish, Italian and even French banks.

The most flagrant example is Greece. There, since the end of 2009, deposits in commercial banks have dropped 25%, down 60 billion euros to 180 billion euros as of this past October. In Spain and Italy too, business clients in particular are turning away from their banks. "Companies have started withdrawing their funds from banks in Spain, Italy, France and Belgium," says Kinner Lakhani, an analyst at U.S. banking giant Citi.

At the two biggest Spanish banks, BBVA and Santander, deposits by businesses and institutional investors fell by more than 10% in the third quarter alone. Italy‘s Unicredit also lost 10% of its deposits, while rival Intesa suffered a whopping 16% loss. Also affected by lack of client confidence are some French banks, particularly Société Générale, but also market leader BNP Paribas.

For banks, the result has been serious liquidity problems. The drop in deposits is partly to blame, but the bank run is taking place on several other levels as well. Money market funds, struggling with high outflows, are no longer buying short term securities from the banks, and there are no takers for long-term bank bonds. Since the end of June, some 17 billion euros in unsecured European bank bonds have been sold. At the same time last year, that sum was 120 billion euros.

Many European credit institutions have been virtually squeezed out of the interbank market -- bankers are lending very little, whether it be in euros or dollars, to each other. That means the banks’ main financial sources have dried up. They are being drip-fed by the European Central Bank (ECB), which is generously keeping them going with short term credits.

Make no mistake, its now a  feedback loop. The panic has began but its whisper quiet...for now. There WILL be an Eurobank failure in 2012, then it won't be so quiet.

Maybe more than one bank.

20 Banks That Will Get Crushed If The PIIGS Go Bust


  1. Great post.

    I'm really torn. I despise the IMF, but I like Lagarde's frankness really. I'm sick of these politicians always mincing their words and telling us everything is great when it's not.

    I've really enjoyed these posts the last few weeks - particularly that Kyle Bass video, how good was that. As he said, Dec 19 is when Greece needs to roll over it's debt. Can it? That's a bit of a d-day right there.

    Plus, they've been smashing down gold real hard this last week. One person suggested it is because they want to keep golds gains for the calendar year to a minimum, so they just smash it down at xmas, a typically low volume period anyway. Personally I think they are smashing it down to prepare for some seriously bad shit coming, and they desperately dont want it to be viewed as a safe-haven or dollar alternative.

    The other day I also noticed you had a mobile version of the site up. Is that new? I often check it out on my phone (fairly new to the smartphone thing actually, but not IT illiterate by any means). It looked pretty good from what I could see. Wasn't working yesterday though (the normal website was showing).

    It still doesn't cease to amaze me at how insulated typical Australia economic thinking is... "interest rates changed .25% hooray" ... "debt is good" ... "China will save us from everything". Really!? Wait until interest rates move in whole percentages. Debt will be one of the things that makes us poor as a country. And China has plenty of it's own problems (especially local/state debt).

  2. Speaking of the NAB, they paid a fair whack for a debt rollover this week. Hard to lend cheap when you borrow expensive.


  3. Thanks for the comment and link Jimbo.

    Pete, you nailed it one. Quietly, around the world, many are preparing for a Euro bank or Sov failure in days, weeks or months (I'm thinking 1st half of 2012, but you don't know which banks are hanging by a thread). Even in Australia, the APRA are triggering bank stress tests.

    But, not our media, the Australia is 'different', 'insulated', 'property/stocks will recover in 2012' rubbish. Australia is locked in a debt binge fed ponzi based on everseas bank funding. What happens when global credit freezes ala 1930?

    Just shills and spruikers.


  4. Maybe we've caught the American disease - thinking that you're the centre of the universe, and everything outside is just theatre.

    We'll soon get a lesson in globalisation, at least the financial variety.

    On the plus side, we won't have to hear about Swan being world's best treasurer anymore. That'll calm my nerves a bit.