by Ambrose Evans-Pritchard: Europe’s
Fiscal Fascism Brings British Withdrawal Ever Closer
know that the eurozone money markets seized up violently in early
May as incipient bank runs spread from Greece to Portugal and Spain,
threatening the first big sovereign default of our era. Jean-ClaudeTrichet,
the president of the European Central Bank (ECB), talked days later
of "the most difficult situation since the Second World War,
and perhaps the First".
ECB’s latest monthly bulletin gives us some startling details.
It reveals that the bank’s "systemic risk indicator"
surged suddenly to an all-time high on May 7 as measured by EURIBOR
derivatives and stress in the EONIA swaps market, exceeding the
strains at the height of the Lehman
Brothers crisis in September 2008. "The probability of
a simultaneous default of two or more euro-area large and complex
banking groups rose sharply," it said.
This is a unsettling
admission. Which two "large and complex banking groups"
were on the brink of collapse? We may find out in late July when
the stress test results are published, a move described by Deutsche
Bank chief Josef Ackermann as "very, very dangerous".
And are we
any safer now that the EU has failed to restore full confidence
with its €750bn (£505bn) "shock and awe" shield,
that is to say after throwing everything it can credibly muster
under the political constraints of monetary union? This is the deep
angst that lies behind last week’s surge
in gold to an all-time high of $1,258 an ounce.
The World Gold
Council said on Friday that the central banks of Russia, the Philippines,
Kazakhstan and Venezuela have been buying gold, and Saudi Arabia’s
monetary authority has "restated" its reserves upwards
from 143m to 323m tonnes. If there is any theme to the bullion rush,
it is fear that the global currency system is unravelling. Or, put
another way, gold itself is reclaiming its historic role as the
ultimate safe haven and benchmark currency.
It is certainly
not inflation as such that is worrying big investors, though inflation
may be the default response before this is all over. Core CPI in
the US has fallen to the lowest level since the mid-1960s. Unlike
the blow-off gold spike of the Nixon-Carter era, this rally has
echoes of the 1930s. It is a harbinger of deflation stress.
calculates that the M3 money supply in the US has been contracting
over the past three months at an annual rate of 7.6pc. The yield
on two-year Treasury notes is 0.71pc. This is an economy in the
grip of debt destruction.
from Societe Generale says the Atlantic region is one accident away
from outright deflation – that 9th Circle of Hell, "abandon
all hope, ye who enter" . Such an accident may be coming. The
ECRI leading indicator for the US economy has fallen at the most
precipitous rate for half a century, dropping to a 45-week low.
The latest reading is –5.70, the level it reached in late-2007 just
as Wall Street began to roll over and then crash. Neither the Fed
nor the US Treasury were then aware that the US economy was already
in recession. The official growth models were wildly wrong.
from Gluskin Sheff said analysts are once again "asleep at
the wheel" as the Baltic Dry Index measuring freight rate for
bulk goods breaks down after a classic triple top. The recovery
in US railroad car loadings appears to have stalled, with volume
still down 10.5pc from June 2008.