First Was A Head Fake—–Now Comes Einen Shitschturm, by David Stockman

David Stockman, at davidstockmanscontracorner.com, on the coming turmoil in Europe and beyond:

If you don’t believe financial markets are well and truly broken Monday’s tepid response to the Greferendum should be dispositive. The house of cards known as the Eurozone is about to hit the wall, unleashing financial contagion and turmoil far and wide. So any investor or trader in their right mind should have been slamming Jim Cramer’s triple sell button early and often.

For lack of doubt, consider what Merkel’s Vice-Chancellor and leader of the German socialists had to say on Monday. Recall Herr Gabriel is purportedly the voice of the enlightened left and the politician hoping to soon relieve Angela Merkel of her job:

Sigmar Gabriel, the German vice-chancellor and economy minister, said there could be no question of writing off Greek debt because other countries that have had loans such as Ireland, Portugal and Spain would demand equal treatment.

‘I really hope that the Greek government – if it wants to enter negotiations again – will accept that the other 18 member states of the euro can’t just go along with an unconditional haircut,’ he said.

‘How could we then refuse it to other member states? And what would it mean for the eurozone if we’d do it? It would blow the eurozone apart, for sure.’

Oh, yes, he used the “conditional” word, meaning that if Greece signs up for a permanent regime of reform, austerity and depression its paymasters in Brussels and Berlin might be open to an accounting double shuffle. That is, to having Greece’s crushing loans extended to 40 years from 25 years, its grace period on interest and principle repayments stretched beyond the current 2023 time frame and its interest rates pared to something less than 1.5%. On an NPV basis, this is supposed to be some big deal concession.

But who do these clowns think they are kidding? Some day all of this debt will have to be rolled over, and eventually the monetary mountebanks running the ECB and other central banks will be unable to prevent interest rates from normalizing.

So put an honest interest rate—–say 6% on a country that has been a chronic deadbeat for two centuries——-on its current $350 billion of fiscal debt and the pro forma interest computation rounds out to 10% of GDP. It is doubtful that even Art Laffer would claim Greece could grow out from under that kind of financial albatross.

So the real red line is very simple. Above all else, 61% of the Greek public voted for relief from the onerous debt that has been imposed upon them by the troika and faithless Greek politicians in Athens. If they don’t get an outright haircut in excess of $100 billion, Greek democracy will remain permanently indentured to its troika paymasters.

Yet is there an iota of chance that the other 18 Eurozone nations plus the IMF will agree to a meaningful and honest “haircut” during the next 48 hours that Angela Merkel has allotted for reaching a new deal or a Grexit? Well, for starters, her iron- fisted finance ministers has just averred that a discount on the ESF debt is actually “prohibited” by the EU treaties.

End of discussion.

To continue reading: Now Comes Einen Shitschturm