Greeks Mount Civil Disobedience, Scorn Taxes

Raising taxes has been one of the major proposed elixir of “growth” by mainstream analysts for resolving the crisis in the Eurozone. More inflationism and more deficit spending as the other nostrums.

Unfortunately, economic reality and intentions by politicians and their institutional backers don’t seem to square. Greeks have mounted a civil disobedience campaign against paying taxes.

Here is the Financial Times (Alphaville) Blog,

The desperate cunning scheme to get Greeks to pay property taxes by bundling them with electricity bills didn’t last long. You guessed it, people stopped paying their electricity bills and now it looks like the power company – which had to be bailed out last month – has stopped even trying to collect the levy.

From Ekathimerini, the Greek daily (emphasis ours):

“Public Power Corporation (PPC) has already disengaged itself from involvement in the payment of the special property tax that had been incorporated into electricity bills.

“Well-informed sources suggest that the new bills the company is issuing do not include the property levy despite the law providing for the first installment concerning 2012.

The decision, the same sources say, appears to have the acquiescence of the Finance Ministry.

“Judging by the fact that unpaid bills in the first quarter of the year totaled some 1 billion euros, PPC believes it has become clear that households cannot afford to pay electricity bills that are burdened further by the extraordinary property tax in the current recession conditions.

The government had hoped to raise €1.7bn-€2bn from the levy in the fourth quarter of last year. But a massive unions-led civil disobedience movement against this “injustice” scuppered that and a ruling that it was illegal to disconnect people’s electricity supply for non-payment sent the collection rate even lower.

However, the memorandum of understanding with the IMF-EU signed in March demands that Athens collects a range of back taxes, such as the property tax from 2009 which was essentially never collected. So it will be interesting to see how the Troika reacts to these most recent developments.

Again, more signs of the ongoing self-liquidation process of Europe’s embrace of the Santa Claus principle.

Updated to add:

Greece banks reported a surge in deposit withdrawals last Monday, and capital flight or "buy orders received by Greek banks for German bunds" to the tune of € EUR800 million.

Also, tax revolts have also become apparent in Italy.

A recent report from the Telegraph.co.uk (hat tip: Cato's Dan Mitchell)

In the last six months there has been a wave of countrywide attacks on offices of Equitalia, the agency which handles tax collection, with the most recent on

Saturday night when a branch was hit with two petrol bombs.

Staff have also expressed fears over their personal safety with increasing numbers calling in sick and with one unidentified employee telling Italian TV: “I have told my son not to say where I work or tell anyone what I do for a living.”

In another incident last week Roberto Adinolfi a director with arms firm Finmeccanica was wounded by anarchists in Genoa. The group later said in a letter claiming responsibility that they would carry out further attacks.

Annamaria Cancellieri, the interior minister, said she was considering calling in the army in a bid to quell the rising social tensions.

“There have been several attacks on the offices of Equitalia in recent weeks. I want to remind people that attacking Equitalia is the equivalent of attacking the State,” she said in an interview with La Repubblica newspaper.

US Federal Reserve Admits Bailout of the Eurozone

The US Federal Reserve finally admits or officially confirms of their bailout of the Eurozone

The Bloomberg reports,

Federal Reserve Bank of New York President William Dudley said that the central bank holds a very small amount of European sovereign debt and that he sees a “high bar” to additional purchases.

The standard for buying more European sovereign debt “is extraordinarily high for the U.S., for the Federal Reserve, to actually go out and buy foreign sovereign debt for its own portfolio, apart from the very small foreign exchange holdings that we have,” Dudley said today to a House Financial Services subcommittee hearing.

And US intervention in the EU has been no dollop, they consist of nearly hundred of billion of dollars of which ups the stake of US taxpayers on the EU. Well, billions in a bailout world of trillions does look like a "very small amount", but this would be linguistic misrepresentation.

The US has been expanding its ‘imperialist’ interventions formerly limited in the scope of foreign policies (military and geopolitics), which now seems to be swiftly expanding to cover finance and banking aspects.

In other words, the US is not just a policeman of the world, but also the world’s lender or banker of last resort.

Ron Paul recently wrote to expose on this central banking legerdemain

Essentially, beginning late last year the Fed provided U.S. dollars to the European Central Bank in exchange for Euros-- sometimes as much as $100 billion at a time. The ECB then funneled those dollars to European banks to provide liquidity and prevent crises from bank insolvencies. Since the currency swap was not technically a loan, the Fed did not have to embarrass itself by openly showing foreign bank debt on its balance sheet. The ECB meanwhile did not have to print new Euros and expose the true fragility of big European banks.

The entire purpose of this unholy arrangement was to obscure the truth: namely that the Fed was bailing out Europe with U.S. dollars.

But why is it the business of the Federal Reserve to bail out European banks that find themselves short of dollars to pay their dollar-denominated contracts? After all, those contracts often were hedges taken to protect banks against weakness of the Euro. Hedges are supposed to reduce risk, but banks that miscalculate should suffer their own losses accordingly. It’s not our business if the ECB chooses to create moral hazards by providing liquidity to European banks, but why should the Fed prop up Europe’s bad decisions!

The Fed has promised to provide unlimited amounts of dollars to the ECB, should circumstances require it. It boggles the mind. Of course when Fed officials first entered into these swap agreements with the ECB last September, they did so quietly. The American public only found out via websites of the ECB, the Bank of England, or the Swiss Central Bank.

The Fed already has pumped trillions of dollars into the economy since 2008, and US banks currently hold $1.5 trillion of excess reserves. So why don't American banks lend those excess trillions to European banks if they really need dollars? If US banks could earn 1 or 2 percent on those loans, they might just be interested. But they can't compete with the ½ percent interest rate charged by the Fed to the ECB. That's one glaring example of the harm caused by the Fed's ability to create money and loan it at below-market interest rates.

The Fed argues that these loans will be temporary, merely providing a little boost to get Europe over the hump. But that's what they thought a few years ago when such lines of credit to the ECB were set to expire, only to see the Fed reauthorize them. What happens if the European financial system collapses? Will the Fed be left holding a bunch of worthless Euros? Will the ECB simply shrug and turn over the collateral it received from European banks, maybe in the form of bonds from Ireland, Italy, or Greece? Have the 17 individual central banks backing the ECB pledged their gold holdings as collateral?

The Fed has placed a hundred-billion dollar bet on the future of the Euro, with the strength of the dollar on the line. This is absolutely irresponsible, and directly contrary to market discipline. Let private banks, European or otherwise, take their own risks. Let foreign central banks inflate their own currencies and suffer the consequences. In other words, it’s time to apply market principles to banks and money.

Clearly, Fed policies have not been designed to "devalue" the US dollar, which many in the left alleges as meant to promote exports (putting lipstick on a pig), but to survive the incumbent the crumbling unsustainable welfare-central banking and banking cartel based political institutions.

The world operates in a de facto US dollar standard or a banking system whose currency reserves have been built mostly on US dollar holdings. This means that Fed policies does not only expose US taxpayers to undue burden from policy risks, Fed policies has far reaching consequences which needlessly exposes the world to destabilizing financial and monetary risks that could ripple throughout national economies.

This also shows how centralized actions engender systemic risks.

This is just one fundamental reason to abolish the FED.

End the Fed. End central banking and the politicization of money.

Buy Low, Sell High the Euro Crisis

Daily Reckoning’s Chris Mayer opines that the Eurozone crisis is a golden opportunity for investors because it represents “the biggest firesale in history”

Mr. Mayer writes,

Europe’s banking sector holds 2½ times as many assets as the U.S. banking sector. It’s huge. And it’s in big trouble. Europe’s banking sector needs cash — mountains of cash.

As a result, it will have to sell more than $1.8 trillion of assets, which will likely take a decade to work through. For perspective, it sold only $97 billion from 2003–10. “The list of asset sales is the longest I’ve seen in 10 years,” says Richard Thompson, a partner at PricewaterhouseCoopers in London. Knowing how these things work, the final tally could well be double that. The world has never seen anything this big before.

Where will the cash come from?

This is our opportunity. There is no better, more-reliable way to make money than to buy something from someone who has to sell. Bankers are the best people in the world to buy from. Believe me, I know.

I was a vice president of corporate banking for 10 years before I started writing newsletters in 2004. I would get at least three or four requests every year from some investor group asking if we had any assets we were looking to unload. Why? Because they know banks are stupid sellers…

But institutionally, banks can’t really hold bad debts for long. As soon as they report a big bad debt on a quarterly financial statement, some annoying things happen. It means they have to put aside more capital for this particular loan, which they hate to do, as it lowers profitability and requires a lot of paperwork. It can raise the attention of regulators, which banks hate. It can raise shareholder suspicions about lending practices, which banks hate. So the usual way to deal with bad debts is to clear ’em out as fast as possible. (Unless you’re swamped with bad debts in a full-blown crisis, in which case you try to bleed them out and buy time to earn your way out, and/or patch them up as best you can to keep up appearances while you pray for a miracle — or a bailout.)

With the EU banking sector loaded with trillions of stuff it must sell, the mouths of knowing investors drool with money lust.

The fundamental universal concept discussed above is “buy low, sell high”.

And bursting bubbles or bubble busts have presented as great windows of opportunities to acquire assets at bargain basement prices or at fire priced sale that should signify best value for one’s money (whether for investment or for consumption).

But it takes tremendous self-discipline to go against the crowd, to shun short term temptations, and to patiently wait for opportunities like these. And it also takes prudence and emotional intelligence to adhere to Warren Buffett’s popular aphorism of “be fearful when others are greedy and greedy when others are fearful”.

There is another major or important implication from the article above. The Euro crisis is far far far from over. And so with the US banking system (although to a much lesser degree relative to the Eurozone)

Euro banks have only sold a speck or a fraction of what has been required ($97 billion of $1.8 trillion) to cleanse their balance sheets to restore a sense of normalcy in their banking system.

This only means that the political path will come from one of the two options:

One, central banks, particularly the ECB, possibly in conjunction with the US Federal Reserve, will have to persist in massively inflating the system in order to prevent the markets from clearing. The policy of deferment (as seen today) allows for the banking system to gradually dispose of their assets at artificially inflated prices…

Otherwise, the second option means facing the consequence of a banking system meltdown, which should ripple to the welfare state—an option, which so far, has been sternly avoided by incumbent political authorities.

Of course, politicians and the vested interest groups have been hoping that economic growth will eventually prevail that would help resolve the crisis.

But this is wishful thinking as the direction of political actions, purportedly reform the political economies of crisis stricken nations, has little to do with promoting growth but to transfer resources from the public to the politically protected banking system.

Austerity has been a fiction peddled by the left.

chart from Bloomberg

Central bank assets have soared to uncharted territories, as taxes and numerous restrictive trade regulations have been imposed, while price inflation has been percolating through the system.

chart from tradingeconomics.com

In short, the fire sale of assets from Eurozone’s crisis afflicted banking system has yet to come.

And we should first expect more central banking interventions that would amplify such an outcome.

And I’d further state that the boom bust cycle fostered by global negative real rates environment will lead, not only to fire sales of financial assets to the Eurozone, but across the world—in the fullness of time.

The Swiftly Unfolding Political Drama in Greece

Last week the ECB’s Bazooka deal seems to gotten the financial market upbeat.

Yesterday, positive sentiments suddenly evaporated on the bizarre twist of events unraveling in Greece.

Greek Prime Minister George Papandreou unexpectedly called for a referendum on the Euro bailout measures that heightened the risks of a default. A default could trigger a derivatives meltdown, as well as, jeopardize the recent agreement.

This from Bloomberg,

Greek Prime Minister George Papandreou called a referendum and a parliamentary confidence vote, raising the prospect of derailing the European bailout effort and pushing Greece into default. Stocks and the euro tumbled.

Papandreou’s gambit risks pushing the country into default if rejected by voters, and raises the ante with dissidents in his own party. Papandreou’s popularity has plunged after a raft of austerity measures cut pensions and wages, increased taxes and sparked a wave of social unrest. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.

“Papandreou could lose the referendum, which means that new elections would have to be called,” Thomas Costerg, European economist at Standard Chartered Bank in London, said in an e-mail. “Heightened Greek uncertainty could propagate to other fragile euro-area countries, in particular Italy.”…

Separately, the International Swaps and Derivatives Association said that the euro-area proposals for Greek bonds appear to involve “a voluntary exchange that would not be binding on all holders,” according to an e-mailed statement.

“As such, it does not appear to be likely that the euro zone proposal will trigger payments under existing CDS contracts,” the statement said. “However, whether or not it does so will be decided by the Determinations Committee on the basis of specific facts, if a request is made to them.”

The ISDA statement late yesterday follows a review of whether the proposal would constitute a “credit event” for holders of credit-default swaps linked to the securities.

The deteriorating political events has even led to an abrupt reshuffling of their key military officers.

From the Telegraph,

In a surprise development, Panos Beglitis, Defence Minister, a close confidante of Mr Papandreou, summoned the chiefs of the army, navy and air-force and announced that they were being replaced by other senior officers.

Neither the minister nor any government spokesman offered an explanation for the sudden, sweeping changes, which were scheduled to be considered on November 7 as part of a regular annual review of military leadership retirements and promotions. Usually the annual changes do not affect the entire leadership.

To my perspective, the Greek political drama (or tragedy) has now diffused to the military hierarchy which implies of increased risks of a mutiny or a coup d'état.

Additionally, Papandreou’s grip over the Greek government appears to be crumbling

According to the Business Insider,

Meanwhile, turmoil seethes within Papandreou's ruling PASOK party. One PASOK MP has already resigned over the referendum decision and six more have called for Papandreou's resignation, according to eKathermirini.

The opposition has even stepped up calls for a snap election instead of a referendum where the referendum “was putting Greece's EU membership at risk”.

Again, political events in the Eurozone has been unfolding real fast. Uncertainty clouds the marketplace.

US Federal Reserve Acts on Concerns over Europe’s Funding Problems

The whack a mole strategy being applied by officials of crisis stricken doesn’t seem to work.

Now the US officials are getting increasingly concerned over the escalating banking problems at the Eurozone.

Reports the Wall Street Journal (bold highlights mine)

Federal and state regulators, signaling their growing worry that Europe's debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to people familiar with the matter.

The Federal Reserve Bank of New York, which oversees the U.S. operations of many large European banks, recently has been holding extensive meetings with the lenders to gauge their vulnerability to escalating financial pressures. The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S. and, in some cases, pushing the banks to overhaul their U.S. structures, the people familiar with the matter say.

Officials at the New York Fed "are very concerned" about European banks facing funding difficulties in the U.S., said a senior executive at a major European bank who has participated in the talks…

Regulators are trying to guard against the possibility European banks that encounter trouble could siphon funds out of their U.S. arms, these people said. Regulators recently have ramped up pressure on European banks to transform their U.S. businesses into self-financed organizations that are better insulated from problems with their parent companies, a senior bank executive said.

In one sign of how European banks may be having trouble getting dollar funding, an unidentified European bank on Wednesday borrowed $500 million in one-week debt from the European Central Bank, according to ECB data. The bank paid a higher cost than what other banks would pay to borrow dollars from fellow lenders. It was the first time for that type of borrowing since Feb 23.

Anxiety about European banks' U.S. funding comes amid broader concerns about whether Europe's struggling banks will be able to refinance maturing debt in coming years. Investors, wary of many European banks' holdings of debt issued by troubled euro-zone governments, are shunning large swaths of the sector. While top European banks already have satisfied about 90% of their funding needs for 2011, they still need to raise a total of roughly €80 billion ($115 billion) by the end of the year, according to Morgan Stanley.

Part of the $500 million loan was said to have been funded by the US Federal Reserve via $200 million currency swap lines to the Swiss National Bank (!), according to Zero Hedge. There goes another stealth QE.

This partly validates my earlier suspicion that SNB’s intervention in the currency markets has been mostly about providing liquidity to the distressed equity markets which has been symptomatic of the banking sector’s woes.

I would suspect that part of this intervention, aside from publicly wishing for a weaker franc, is to flood the system with money to mitigate the losses being endured by European equity markets.

Nonetheless the wild swings in global markets seem to suggest that the recent measures undertaken by the US Federal Reserve or the ECB have been deemed as ‘inadequate’.

Remember, since 2003, global financial markets have increasingly been dependent on central bank policies, where the 2008 crisis has made financial markets essentially stand on the crutches of the Fed’s money printing policies. In short, global equity markets have been mostly dependent on the combination of QEs and an extended low interest rate environment.

And as stated earlier, given Europe’s funding problems which may spillover to the US, it is very likely to expect that the US Federal Reserve will eventually conform to the desires of markets addicted to central bank steroids with aggressive dosages.

And this is being signaled by record gold prices.