Bernanke terror bankrupts US Fed Reserve
Events in Italy and the US are suggesting that the end of the road may be near
If you ever felt like 1929 is about to happen again, only this time without the laughs, last night’s news from Monte Paschi Bank might represent the final conviction that we have time-warped back to the past: David Rossi, the head of communications at the bank, committed suicide by jumping off the building yesterday afternoon. While I understand that these days, the words ‘banker’ and ‘suicide’ are strangers to each other (suicide requires remorse) Rossi wasn’t a banker, he was an adman. It’s the business I emerged from, and yes, people in it do shows signs of having a conscience here and there. Personally I can’t see conscience catching on, but that’s not important to David Rossi any more because he’s dead.
The suicide note (I’m serious) said something along the lines of ‘bullsh*t’, but whether it was ‘my bullsh*t’ or ‘it’s all bullsh*t’, I have to observe that Rossi – by all accounts a very bright man – was clearly of sound mind when he went.
In last night’s post, you may have detected that a strong whiff of bullsh*t had affected my tone of voice. It’s clear that the lunatics intend to leave the asylum they’re burning only at the very last minute, but events like Rossi’s jump show that sometimes events evade their control. ‘Unforeseen’ is easily the most inaccurately and over-used word in the spin lexicon in 2013 so far, but this tragic end to a high-achiever’s life really wasn’t on anyone’s radar. What it does do, however, is underline the fact that Italian scandals aren’t going away, Spanish bank insolvency isn’t going away, and she in Berlin who snaffles the fridge when leaving home faces some pretty unedifying choices at the moment when it comes to Spain and Italy.
The last few weeks in those two countries have come close to making the terms PIIGS and ClubMed redundant: from here on, the fate of the euro in general (and the CDU in particular) lies entirely in the hands Manuel and Luigi. Neither has any intention of being pushed around any longer, and as the Left gains ground across the region, the battle lines are reverting to the traditional ones of exploiters versus exploited.
The man who might be thought most likely to grow his power as a result of this is the French Socialist President Francois Hollande, because he has far more credibility for the ClubMed Left. But he too faces an insoluble problem: default would solve the EU debt, but exacerbate France’s. It’s exposure to Greece and Italy is massive, and not far off being critical re Spain as well. As Merkel must also be mainlining imodium at the thought of Spanish default (Germany’s exposure to empty cajas is mind-boggling) once again the two founder-nations find themselves pulled together by adversity. And once again, it seems to me, the floodlight turns enticingly towards the young leader of the Greek Syriza leftists, Alexis Tsipras.
Tsipras’s hour, one senses, is coming. He speaks fluent Italian, would be sympathetic to Italian rejection of Brussels lunacy, and is widely admired by the Left in Spain. But perhaps more important than any other factor, he should – all things being equal – wind up in the right place at the right time once the Dollar-euro contagion becomes a two-way street.
The signs that the US Federal has run out of road are now, I think, near-impossible to deny. And while those in charge didn’t jump off the ledge yet, they seem to be heading for a suicide so multiple, only the larger jumping-windows will suffice. On February 26th last, Bloomberg ran a story of complete factuality. It reported that the top risk assessment company MSCI had just completed a stress test on the U.S. Federal Reserve System itself. The test found that the market losses incurred from QE would be some $547 billion over three years. That is many times the value of the Fed’s capital, and thus technically, the US Federal Reserve is bankrupt.
It would be the job of only a minor-league spin doctor to rubbish the report, were it not for the fact that MSCI is the company used exclusively by the Fed itself to undertake stress tests on the Big League U.S. banks. I’m afraid there just ain’t no wriggle-room for Ben Barberbeard here, and this will make his next appearance before Congress a less than happy one. GOP Senator Bob Corker did indeed fire off a public corker to Valium Ben the following day, asking him to rate the chances of avoiding Fed insolvency on a scale from zero to minus fifty-four. To the best of my knowledge, that is completely unprecedented.
So too is the crazy existence of a $1.5 quadrillion derivatives Thing sitting out there somewhere. Most of it – around 80% – isn’t real derivative use at all, but rather the use of derivatives for borrowing after other bets already went bad. Bill Gross of Pimco is now calling this “the creation of a hyperinflationary firestorm with no end in sight”. That’s an odd way to end his thoughts on the subject, given that such things mean, in the end, everyone is flat broke and burned to a crisp; but you can see where he’s going with it. This is the world’s biggest bond trader opining that we’re in Dresden, and the RAF is twenty minutes away.
It is in the face of all this horrendous outlook that values and stock prices and gold falls and libor rates have been manipulated to such an extent, there isn’t a single fundamental left on the planet that has any meaning….and the smart rich are piling into top-end glitz brick property as being the only physical asset whose worth isn’t a negative or positive sham. It is because of all this that Italian big-hitters are jumping off banks and the Fed has rendered itself technically skint. And it is because of all the insane and increasingly desperate attempts to hide the truth, that within two years only those leaders capable of showing clean hands to the populace will be taken seriously.
Alexis Tsipras is a man shaping up for that destiny. I’d love to hear his thoughts on it. In a few months I want to go to Greece and get an interview with the bloke, because he looks to me like the nearest thing we have to a potential Wise Man. If you’re in a position to do so, I’d be grateful if Greek readers of The Slog could get this piece in front of him. Mainly, I’d like your help in getting me in front of him.
If you can help in this regard, please contact me at email@example.com.