Europe is imploding. Today S&P cut Belgium's credit rating to AA:
S&P projects Belgium will end 2011 with general government debt at around 93% of gross domestic product in net terms, and at around 97% of GDP in gross terms.
The Italian Treasury paid 6.504 percent to auction 8 billion euros ($10.6 billion) of the debt, almost twice the 3.535 percent a month ago and the highest since August 1997. Italy’s two-year bonds yielded a euro-era record 7.83 percent, almost 50 basis points more than 10-year notes.
Yesterday Moody's cut Hungary to junk status. Junk means not ready for prime time, or investment.
The foreign- and local-currency bond ratings were cut one step to Ba1, the highest junk-level score, from Baa3, the company said today in a statement. Moody’s, which awarded Hungary its investment grade in 1996, assigned a negative outlook. The country is rated the lowest investment grade at Standard & Poor’s and Fitch Ratings.
Germany’s 10-year borrowing cost dropped to a record 1.64 percent on Sept. 23 as bunds offered a refuge from the debt crisis. The rate now exceeds 2 percent, driving the gap with U.S. Treasuries to a 30-month high, after bids at the sale of securities repayable in January 2022 fell 35 percent short of the 6 billion euros ($8 billion) offered yesterday.
It's so bad, Paul Krugman got up from his Turkey to write about the apocalyptic German trade:
I really wasn’t planning on blogging on Thanksgiving Day. But what’s going on in Europe deserves a mention.
So, the big story: German bonds are now being priced as a risky asset — what the FT calls the “apocalypse trade“. The interest rate on bunds, at 2.21% as I write this, is still very low by historical standards. But it’s above the rate on UK bonds (2.17%) and way above the rate on US bonds (1.88%).
The way to see this is that the market is in effect pricing in a real possibility of eurozone collapse.
Right before Thanksgiving, there were more events pointing to a tsunami from the Eurozone.
Bunds are losing the haven status they share with Treasuries as Germany rules out common bond sales to solve the debt crisis.
The canaries in the coal mine are dying in mass. Earlier Lativa and other smaller European countries cancel their bond auctions:
Latvia cancelled an auction of ten-year bonds on Tuesday after regulators suspended operations at Latvijas Krajbanka, a small bank owned by the troubled Snoras Bank of Lithuania, taken over by authorities last week.
So that’s two failed banks and a bond strike, soon after yields on Slovenia’s ten year bonds hit new highs. The smaller countries of peripheral Europe are beginning to look like canaries in coal mines.
Instead of economic stability, we now see analyses of an Italian default if the ECB doesn't cut that bail out check. A new research paper, Global Banking Glut and Loan Risk Premium, by Hyun Song Shin, shows the inter-dependencies of the European banking system to the United States and it ain't good news. We'll let Kevin Drum sum it up for you:
The European segment of the shadow banking system was indirectly providing about $5 trillion in credit to U.S. borrowers. This was about as much as U.S. banks provided directly.
The European banking sector provides about as much credit to the U.S. as the American banking sector does. So when the European banking sector deleverages, as it must, it will have a very substantial effect on credit conditions in the U.S.
Europe's problem is our problem and to make matters worse, none of us regular folk had anything to do with this. It's all the shadow banking system, where intermediaries issued derivatives, securitization of claims. Even conservatives are calling the global financial securitzation system a giant scam.
All of this points to contagion, or a spreading of the Euro zone crisis to the globe.
Today Canada's finance minister screamed Uncle and demanded the crisis being stopped before it brings down the entire global economy:
Ongoing uncertainty stemming from the European sovereign and banking crisis is leading to broader contagion outside Europe and global credit markets,” Flaherty, 61, said today. “If European authorities move aggressively and with decisiveness to address the crisis and restore financial market stability and confidence, the situation can be stabilized.”
Citizens in many countries face “dire consequences” without a quick solution, including more social unrest and major tax increases, Flaherty said.
Let's stop this before we're all staring at the abyss. Problem is, don't ya know, it's only the abyss, a crisis of apocalyptic proportions, which allows special interests and lobbyists to push their their latest agendas through governments' parliamentary procedures. Austerity is just another word for bringing back the proletariat. Societies be damned, come hell or high water, that's the real agenda, beyond the great derivative, shadow banking, financial sector gambling casino, Russian roulette wheel going off it's hinges, collapse.