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News Link • Economy - International

Karl Denninger: Apparent Lehman Event On Deck

There are some very ominous rumblings coming from the European continent this morning. First, Greece has the mother and father of all inverted yield curves, with the 1 year now trading at or near an implied 100% interest rate. That's not really news though - it's been there for the last few days. The new news is that some of the T-Bill auctions they ran were technical fails, with failures to place the entire offering. This is no longer a liquidity event. It is now a "no money in the checking account" event. Greece's attempt to elicit "voluntary" rollovers is under doubt as well. The underlying error and problem is that authorities both in Europe and here have refused to take my counsel (and that of few other people, as the economic world seems to be prone before the banksters) on enforcing one dollar of capital with the banking institutions in question. Coupled with balance sheet lies this means that there is severe and imminent risk of a complete collapse initiating somewhere in the European banking system. That, in turn, is why the screaming from the IMF and others about the "need" to take various emergency actions to prevent a Greek default. But there is no preventing a Greek default. Greece passed that event horizon more than a year ago. The lesson in here is that the technical point where one passes beyond the event horizon and thus default is inevitable occurs quite a bit earlier than recognition of that fact in the markets, or among the governments in question. There is something we had better pay attention to here in the United States embedded in this episode, providing that the banking system in Europe survives this excursion and thus it matters to us in the intermediate term.

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