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Thread: weekend commentary - Greek 'Austerity' turns Real in a Huge Hurry

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    Banned Melonie's Avatar
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    Default weekend commentary - Greek 'Austerity' turns Real in a Huge Hurry

    from

    (snip)"
    Greece Turns to Iran for Oil as Credit Shut Down Elsewhere; EU Considers Oil Sanctions on Iran


    Greek suppliers concerned about the potential default of Greece have shut off financing for oil. In turn this has caused Greece to turn to Iran. However, the EU is now threatening to impose more sanctions on Iran over nuclear issues. If the EU acts that stupidly, the Greek economy will shut down.

    Please consider Greece turns to Iranian oil as default fears deter trade

    Nov 11, 2011 Traders said Greece has turned to Iran as the supplier of last resort despite rising pressure from Washington and Brussels to stifle trade as part of a campaign against Tehran's nuclear program.

    The near paralysis of oil dealings with Greece, which has four refineries, shows how trade in Europe could stall due to a breakdown in trust caused by the euro zone debt crisis, which is threatening to spread to further countries.

    More than two dozen European traders contacted by Reuters at oil majors and trading houses said the lack of bank financing has forced Greece to stop purchasing crude from Russia, Azerbaijan and Kazakhstan in recent months.

    Greece, with no domestic production, relies on oil imports and in 2010 imported 46 percent of its crude from Russia and 16 percent from Iran. Saudi Arabia and Kazakhstan provided 10 percent each, Libya 9 percent and Iraq 7 percent, according to data from the European Union.

    "They are really making no secret when you speak to them and say they are surviving on Iranian stuff because others will simply not sell to them in the current environment," one trader in the Mediterranean said
    "(snip)

    (snip)"Economic Insanity

    Banning Iranian oil would be the kiss of death for the Greek economy and economic insanity in general for Europe. Given the oversupply of economically insane ideas lately, it is difficult to predict the outcome.

    Mike "Mish" Shedlock "(snip)


    From a purely economic standpoint, there are lots of very instructive take-aways from this article ...

    - Greece, like the vast majority of countries, isn't 'vertically integrated'. This means that it lacks domestic capability at some stage of the production chain and must depend on imports to fill the gap. The specific topic of this thread is no Greek crude oil production to feed Greek refineries, but in a larger view this could also apply to strategic minerals, to food, to certain manufacturing processes etc.

    - Because of a lack of 'vertical integration' ( i.e. having all of the necessary domestic capabilities to get from supplying a raw material to manufacturing a needed end product ), Greece and the vast majority of countries are extremely dependent on continuing global trade to fill their gaps.

    - Global trade, with certain limited exceptions, depends on the participation of the world's major banks and gov't financial institutions to 'broker' such trades ... from supplying credit to effecting currency exchange to insurance against potential losses ( i.e. that the purchased oil / food / minerals / whatever will actually be delivered as promised)

    - Because Greece has failed to get their 'act together' re gov't spending cuts, tax increases, etc. mandated by the EuroZone as condition of the Greek bailout, the world's major banks and gov't financial institutions have now begun to balk in terms of providing Greece / Greek businesses the necessary additional credit and other services to execute international trades. As pointed out in the article, one immediate effect is 'depriving' Greece of it's normal imported crude oil supply. The repurcussions of this will be major and quick ... a widespread shortage of gasoline, diesel fuel, heating oil, propane gas, and other refining products etc. throughout Greece, and vastly increased prices for whatever gasoline, diesel fuel etc. remains available in Greece from whatever source.

    - The resulting fuel shortages and major energy price increases will quickly force Greek industries to shut down ( throwing remaining Greek workers in the unemployment line ), and Greek businesses will attempt to enact massive price increases in an effort to recoup their suddenly increased costs of operation.

    - In the midst of this, one and only one crude oil supplier to Greece, Iran, has stepped up and agreed to enter into direct transactions for the sale of crude oil to Greece. This circumvents the world's major banks and gov't financial institutions.

    - From a standpoint of everyday priorities for Greek individuals, Greek businesses, Greek industries etc., making sure that a continuing direct flow of available Euros to Iran continues ( translating into a continuing flow of Iranian crude oil thus a continuing flow of gasoline, diesel fuel etc. also continues ) will have a FAR higher immediate priority than directing available Euros to Greek bondholders / the world's major banks / gov't financial institutions etc. This in turn greatly increases the near term risk of Greek default ( thus investor / bank losses )

    - While the stated reasons may indicate otherwise, Greek bondholders, the world's major banks, gov't financial institutions etc. who hold / guarantee large amounts of Greek debt CANNOT accept the setting of this precedent ... i.e. that the limited number of Greek Euros will first be spent purchasing crude oil, food, and other basic necessities, directly from global suppliers -, with Greece's financial creditors then relegated to a 'second tier' repayment priority ( if there are in fact enough remaining Greek Euros to make payments towards Greece's financial debts at all )

    - Greece's financial creditors may be forced to go to EXTREME lengths in order to halt this 'bypassing' of international financial 'controls' of Greece's foreign trade.

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    Default Re: weekend commentary - Greek 'Austerity' turns Real in a Huge Hurry

    with this response from Germany, with commentary by our old friend Karl Denninger ...

    from


    (snip)"Sieg HEIL! Kneel Before The German Banksters!

    Damn we don't learn, do we?

    Merkel has suggested she would like to see the EU have the right to interfere in national budgets in extreme cases where euro zone stability is put at risk. But Germany has stopped short of that in its proposals and asks rather for sanctions for those that breach deficit rules to be written into the treaty.

    This would involve the right to challenge states at the European Court, to have their budgets declared void, without meddling further in the details.


    Uh huh. Void a budget eh? So what can you spend without a budget? That would be.... nothing, right?

    So what is the fundamental function of a government? Why it is to provide services to the people that enable it (remember, all governments exist with the consent of the governed.) What Merkel and the rest of Germany proposes is nothing less than the arrogation to themselves of the sovereign right of other nations.

    That's what happens in a war ladies and gentlemen, and whether its done with a briefcase or a gun it is in fact the same thing.

    The inevitable outcome of this action will be the same too, just as it was in the early 1900s and then again in the 1930s."(snip)


    I would point out that 'extreme cases where Euro Zone stability is put at risk' would involve situations where the indebted gov't in question chose to spend whatever money they had available to do 'something foolish' like purchasing imported food and fuel or providing social welfare benefits to its citizens, instead of doing 'the responsible thing' i.e. making mandated repayments to Euro Zone creditors before spending money on anything else.

    Also, following in Greece's footsteps, Italy has now also ousted their leader ... has now voted to implement austerity measures ( i.e. reduced gov't spending / benefits to Italian citizens ) ... and is arguably going to wind up in the exact same position as Greece a few months down the road, when they also find it a practical impossibility to seriously cut gov't spending / social welfare spending without precipitating riots in the streets. This in turn may very well lead to the situation that Greece is rapidly approaching ... promised gov't spending / social welfare spending cuts could not be implemented as promised because voters and politicians would not accept such spending / benefit cuts, thus no more bailout money / credit is being provided by Euro Zone creditors, thus the gov't is quickly running out of funds to continue cutting gov't checks or to continue buying 'luxuries' like imported food and fuel ( reputedly Greece will be at this point in mid December absent a fresh injection of Euro Zone bailout money ). And for better or worse, the amount of Italian debt is vastly greater than the amount of Greek debt ... i.e. enough to easily bankrupt the German and French banks holding Italian gov't bonds if the Italians do default on their gov't bond payment obligations.

    !
    Last edited by Melonie; 11-13-2011 at 06:48 PM.

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    Default Re: weekend commentary - Greek 'Austerity' turns Real in a Huge Hurry

    update on the 'domino effect' ... with additional commentary by Karl Denninger ...

    from

    (snip)"It's happening folks...

    Italian bond yields continue up.

    That's not particularly news.

    But now yields are going up in France, Spain and Belgium.

    One downgrade to France and it all goes up in smoke for the EFSF.

    Political movement no longer works. You need fiscal resolution and you can't get there from here. Don't believe for a minute that this isn't going to blow up in people's faces, because it both can and will.


    “It’s a confidence crisis,” said Elwin de Groot, a senior market economist at Rabobank Nederland in Utrecht, Netherlands. “Investors have no confidence that the euro zone can solve its problems. They will look for the most safe place they can store their money, which is Germany. Everything else is suffering.”


    This is not going to end well and so far there is nobody talking about what has to actually happen either here or there -- that is, whatever services people want from government they must be willing to pay for them with current tax revenues.

    That's the beginning and end of it and the time to take this action is quickly coming to a close. The market is going to enforce prudence whether the wonks in The Fed, in the ECB and in all of the governments involved like it or not.

    Eurostat says that GDP in the Eurozone was 0.2% for the third quarter. This means that the Euro zone as a whole cannot run any fiscal deficit whatsoever without continuing an attempt to build the Ponzi.

    I repeat: NOBODY is yet speaking to the truth of the matter. Not central bankers, not governments, not politicians in either party here and nobody over in Europe.

    The market is calling "BS!" on the games; the banksters and governments, having gotten away with bailing out the crooks in 2008 and then refusing to put a stop to the abuses, smugly thinking they could just go on their way and leave everything alone (including the asset-stripping and lying schemes of the banksters) are discovering that the market is refusing to play along and is going to force the truth into the open. (snip)

    Again folks, the bottom line is simple: You cannot continually borrow and spend more than you make, yet this is the game that governments have continually played for 30 years, and private businesses have attempted to "lever up" to "take advantage" of this without regard to the mathematical inevitability of this strategy's failure."(snip)

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