Sunday, May 13, 2012

Russian Roulette - Full Auto

"The man who wants everything, ends up with nothing"

The drama in Greece is getting to be very interesting.  It's a microcosm of the choices that EVERY major Western nation currently faces, whether our media propaganda machines will admit it or not.

All or nothing...All now, nothing later
Similar to the situation in Ireland after 2008 (watch this link !) , via fiscal austerity, the rentier class expects the Greek middle class to shoulder the entire burden of past decades' overspending.  However, the disintegrating middle class is becoming ever more disillusioned and desperate and no surprise is now turning to economic brinksmanship.

This is a fatal lesson that today's moneyed class somehow failed to learn - never leave a man with nothing left to lose.  Because in their relentless bid for more, it's now the ultra wealthy who stand to lose substantially everything.  For anyone who has studied game theory, it's not much of a game of brinksmanship when one side has everything to lose and the other has nothing left to lose.  I am not saying that things can't get worse for the Greek Middle Class (or what's left of it) - surely they will.  I am only saying that the Middle Class sees their standard of living being degraded constantly under fiscal austerity and yet there has never been any sense of shared sacrifice by the ultra wealthy.  Here in the U.S., it's no different.  Just a few weeks ago, Republicans in the Senate blocked the Buffett rule which was intended to get the mega-wealthy to pay their fair share of tax.  Amazingly, this bill was proposed by none other than Warren Buffett, one of the wealthiest men on the planet.  Yet the Captains of the Idiocracy decided to let it ride and hold out for everything.  They want it all baby !!!   So they need to learn a hard fucking lesson, and one is coming, because even the Kings of old were smart enough to know that you never go all in against the people.

Faustian Bargain
Still, the European establishment are calling the newly elected Greek socialists' bluff by calculating the risks of a "Grexit" from the Euro and saying that the costs and risks would be manageable.  Unfortunately, this article by Citibank indicates that a Grexit would be extremely messy and the costs are impossible to quantify - both for Greece and the rest of the world.  Ironically, the major achilles heel for the rest of Europe are the large European banks who foolishly gorged themselves on junk debt this past year, at the behest of the ECB and its LTRO monetary stimulus programs;  LTRO's (near free loans) were impossible for greed addled bankers to resist i.e. the ultimate bonus inflating trade.  Now, literally only months after putting on that trade - originally believed to have a shelf life of 3 years, deteriorating market conditions are moving against the banksters far sooner than they thought;  Now all of these banks hold massive amounts of 'periphery' debt (Greek, Spain, Portuguese, Italian) which would get instantly revalued leaving the multinational banks insolvent, under a Grexit scenario.  The irony is that it was U.S. Treasury Secretary Tim Geithner who pressured the Europeans to implement the LTRO - as in "we print money, you should too.  It's ok, it only hurts the first time...".  First they had to force Trichet out of the ECB because he was adamantly against monetization, but the minute Draghi was hired, the money printing started.  Essentially, that move cost the Europeans their bargaining position vis-a-vis the profligate periphery - and it's all thanks to a U.S. bankster!  Meanwhile, why do you think Citibank is so concerned about Greek exit i.e. they have skin in this game too and now their stock is collapsing like a cheap tent:

Comfortably Numb
Yet for the most part, here in the U.S., market speculators are still overwhelmingly sanguine about the European saga and for that matter all of the other escalating geopolitical risks.  As the chart below shows, they have been gorging themselves on Monetary Stimulus (now under the auspice of 'Operation Twist'); however that feed bag runs out in June.  As you can see from the far right side of the chart, the divergence between the 'VIX' (options fear index) and the stock market is now at its widest level in the past 5 years and showing signs of impending 'convergence'.

Once the stock market tanks, the 1% will come to realize that they are next in line and there is no one left to save them from the same fate that they imposed on everyone else.  Extreme global risk aversion will collapse the globalized ponzi scheme, leaving nothing but a massive smoking fucking crater.  At that juncture the standards of living of the ultra wealthy and the middle class, will themselves converge - albeit at a much lower level...