Fear and greed are both getting a serious workout lately, but Monday will be even more fun than usual because of two big stories that hit over the weekend. First, Greece decided to put the draconian demands of its European creditors to a popular vote, to which the creditors responded by cutting Greece off from new bailout money. Greek citizens, now staring down the barrel of capital controls and/or bank failures, are busily emptying their bank accounts:
Greeks Line Up at Banks and Drain ATMs as Tsipras Calls Vote
Greece’s banks may need an injection of fresh emergency funds to operate Monday as people rushed to pull out money after Prime Minister Alexis Tsipras called a referendum that could decide his country’s fate in the euro.Two senior Greek retail bank executives said as many as 500 of the country’s more than 7,000 ATMs had run out of cash as of Saturday morning, and that some lenders may not be able to open on Monday unless there was an emergency liquidity injection from the Bank of Greece. An official with Greece’s Capital Markets Commission, the markets’ regulator, also warned that the Athens Stock Exchange may be unable to operate on Monday without a cash injection into the banking system. A Greek central bank spokesman said it was making efforts to supply money.
The European Central Bank’s governing council was expected to hold a conference call on Sunday to review the banks’ liquidity condition, said a Greek official, who asked not to be named in line with policy. The Frankfurt-based central bank said in a twitter post that it’s closely monitoring developments and would review the situation “in due course.”
Some banks were placing limits in daily cash transactions. Yiota Kardogianni, a manager at a branch of Piraeus Bank SA, said cash withdrawals were limited at 3,000 euros ($3,350) daily and ATM withdrawals at 600 euros. Alpha Bank AE had set a daily limit of 5,000 euros for most of its branches since last week.
After withdrawing more than 30 billion euros as the anti-austerity Coalition of the Radical Left, or Syriza, took power, depositors are now reacting to the latest twist in the five-month standoff with European leaders and creditors. One banker said 110 million euros had been withdrawn from his institution as of 11:30 a.m. Athens time on Saturday.
Capital Controls
“Greek legislation allows either the Bank of Greece governor or the finance ministry to impose capital restrictions,” George Saravelos, foreign exchange strategist at Deutsche Bank AG, wrote in a note to clients. “The extent to which this materializes will depend on the ECB decision over the next 48 hours as well as depositor behavior.”Some branches of Alpha Bank in central Athens that normally open for business on Saturdays remained shut and one carried a sign that it wouldn’t open. Only a few banks near central shopping and tourist areas are usually open on Saturdays.
That’s the fear side of the story. China, meanwhile, has enjoyed an epic stock market bubble over the past few months which, inevitably, seems to be bursting. In response the government is cutting interest rates and lowering reserve requirements in an effort to support stock prices. Markets love easy money and usually respond to such policy changes with panic buying. This, then, is the greed:
China Cuts Interest Rates to a Record Low After Stocks Slump
China’s central bank cut its benchmark lending rate to a record low and lowered reserve-requirement ratios for some lenders after stocks plunged and local government bond sales drained liquidity.In the fourth reduction since November, the one-year lending rate will be reduced by 25 basis points to 4.85 percent effective June 28, the People’s Bank of China said on its website Saturday. The one-year deposit rate will fall by 25 basis points to 2 percent, while reserve ratios for some lenders including city commercial and rural commercial banks will be cut by 50 basis points, according to the statement.
The easing follows the biggest two-week plunge in the stock market since December 1996 and a four-week rise in money-market rates as lenders hoard cash. While industrial production and retail sales stabilized in May, investment slowed further — a sign of weakness in infrastructure spending that policy makers are keen to reverse.
“The central bank doesn’t want a panic caused by the stock rout to spread,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “That would lead to financial instability.”
These stories are related in a number of ways, the most important being that they’re examples of governments messing with markets that they don’t understand and therefore have no business trying to manipulate. Greece would be fine (or what passes for fine for a Mediterranean country) if it had kept its own currency and managed its own affairs. Instead it joined a currency union dominated by Germany (!) and now, surprise, can’t function in that environment. But rather than letting market forces sort out the value of various pieces of sovereign debt, a bunch of bureaucrats in Brussels are making things up as they go along, piling mistake onto mistake and bringing the global markets to the brink of crisis over a country that could literally be bought out with a couple of years of ECB quantitative easing funds.
China, meanwhile, has spent the past couple of decades directing an infrastructure build-out that in retrospect was maybe twice as big as it should have been. Now it’s fiddling with all kinds of imperfectly-understood fiscal and monetary levers, trying to maintain a 7% growth rate that is looking more and more fictitious. Here again, the best way to deal with a bubble is to not let it happen in the first place. The second best way is to let it pop and allow the market to clean up the mess. The absolute wrong way to manage a bubble is to intervene from the top to keep it going. Look where that has gotten Japan and the US.
Anyhow, Monday will be interesting because Greece is scary and China is exciting, and traders will have to decide which to fixate on. This has meaning beyond the market open because most news can be interpreted in various ways. So the real story is not the event but how the markets respond to it. When investors and traders are optimistic they interpret everything as a reason to buy, and when they’re worried everything is a sell signal. Monday’s open will therefore say more about market psychology (and the direction of asset prices in the next few years) than about whether Greece or China are doing well or badly.
Why, oh why, would we ever trust the ‘free market’ to determine prices and readjust for mal-investment when we have Central Banksters ready, willing and able to ‘come to the rescue’? That they themselves created the mess never occurs to them any more than that of an unreformed alcoholic seeing they are the root cause of all the disasters in their lives.
This is going to be EPIC in just so many ways when it all unwinds…
I agree that Monday will be interesting, but I actually think Greece is exciting and China is scary. I’ve got my fingers crossed on both hands that Greece defaults and that the EU and IMF continue to reveal their true colors. They have probably already permanently lost their veneers of being helpful and concerned for Greece’s wellbeing, and by extension every other eurozone country, but there’s still potential for even greater damage that even the most pro-euro citizen can’t ignore. More importantly, looking forward, I would like to see how a Greek default actually plays out. My bet (and the EU’s fear) is that Greece may recover quickly and be fine (for a Mediterranean country…). My bet is that all the fear mongering will prove overblown and wrong, and THAT could be some of the best evidence to date that the financial authorities and economists of the world don’t know as much as they think. Yes, I’m routing for a crisis in confidence in the status quo.
I don’t know much about China because it just doesn’t interest me, but I’m quite sure “they” will not be able to manage things much longer. China may end up like Japan did in the ’90s, only much worse, but I hope whatever happens goes global and the heads of bankers’ and politicians’ roll again like it’s 1789.
Couldn’t have said it better.
Thanks.
Well it will certainly be interesting to see where they get the money to pay for all the spending their “anti-austerity” government has been promising to protect. The country that invented democracy is about to see what it really means to vote yourself a free lunch
That’s probably why most Greek’s supposedly want to stay with the euro, thinking that somehow cushions them or extends their day of reckoning. However, since those same Greeks know how corrupt Greek government has been in their recent past, and that most Greeks try to evade taxes, everybody probably has a “Plan B” that assumes Greek government/pensions won’t really be there.
The bigger issue, however, is national sovereignty and a push back against political-economic globalism. Think of the US’s “federalism” concept applied to countries. It’s best to keep governments as “small” and local and accountable as possible.
you and I will be sold off into slavery to pay off U.S. debt, breaking big rocks into little rocks in Guangzhou. Retirement is when you die.
Just like the U.S slaves of long ago, I guess payback is a monster.
If you “don’t know much about China because it just doesn’t interest” you how could you be ‘quite sure’ “they” will not be able to manage things much longer? Go figure.
I mean I don’t know all the gory details, just the basics, one of which is that China has a centrally controlled (planned) economy. That is never sustainable and always fails. It’s just a question of when, but as the truth is getting out about what’s really going on there (debt levels, out of control “shadow banking”, corruption, falling housing prices, its falling stock market, etc.) I just think (“am quite sure”) that the central planners are losing control.
the U.S. has a centrally “planned” economy as well. SNAFU…
Buy SILVER
Early indications are that Greece wins: http://tinyurl.com/p7hafrp .
One has possibly 20,000 tons of gold and the other got IMF’ed, my bet is on the gold holder.
Its a savey political move to let the people vote…(after the default date!) let them feel the panic the closed banks, the stores without goods for a week… then they’ll run back to the nanny state in the ballot box, even if nanny beats me and partially starves me its better than terror /chaos/famine. That way Tsipras can claim it was the mandate of the people, not him chickening out….I say Greece sticks in the EU, cuts a deal, becomes a debt slave state of germany. Too bad, I thought we were going to see the first honest esclaimation of the fact “we can pay back this debt, its too big…defaulting OK? Bankrupt OK? start over please,we’re argentina/ecuador/venizualia OK. Then we’d see the triggered waves of default- swap -derivitive -contageon- also known as truth sweep over europe and from there out into the world….Greece ain’t Iceland
The irony is that the Greeks will have to cut pensions now anyway. Which is what the ECB/IMF bstrds wanted. Still, though. Better to default and then cut pensions then go deeper into debt that they can’t already pay. The entire southern bottom of Europe will split off from the EU. Greece will be invaded by ISIS and Rome sacked. Oh, the Carthaginians revenge! Take it, its YOURS!
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Well. Its already Tuesday and nothing close to apocalyptic happened in Greece and China. The latter has a US$4 trillion foreign reserves to craft a soft landing and Greece is a small nuisance compared to the coming crash of the $900 Trillion Derivatives casino. For a start here the Derivatives exposure by the 6 biggest banks in the United States of America:
1 JPMorgan Chase
Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)
Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)
2 Citibank
Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)
Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)
3 Goldman Sachs
Total Assets: $856,301,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)
4 Bank Of America
Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)
Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)
5 Morgan Stanley
Total Assets: $801,382,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)
6 Wells Fargo
Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)
Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)
Source : The OCC’s quarterly report, Table 2.
The total Derivatives exposure for the 6 US banks is US$278.8 Trillion backed by only US$9.8 Trillion in assets. A 3.5% meltdown in the above Derivatives will wipe out the 6 too big to fail US banks.
If that is not bad enough there are another US$600 Trillion in Derivatives accidents waiting to happen as the regulators have fallen asleep. Watch out for Deutche Bank if Greece defaults. The two CEOs have resigned a few weeks ago.
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