7 Reasons This September Should Scare The Crap Out Of You

Hyperinflation, Europe

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In addition to any unanticipated surprises from natural disasters or final straws for the EU, here are 7 known events that could really rock markets or even make history.Jews won’t be the only who should be praying harder in weeks ahead

4 Things That Could Cause Another EU Crisis – Or Collapse

  1. September 7th – Germany’s Constitutional Court Ruling On Legality of Assorted Bailout Policies: It’s been widely assumed that the court would present a problem for Germany’s prior or future EU bailout commitments. We’ve seen a lot of assumptions about the EU die over the past year.
  • No Bailouts: RIP Spring 2010: Ok, so the EU would have a little moral hazard issue.
  • The EU Stands Behind Member Debts: RIP July 21, 2011: Uh-oh, EU debt is riskier than we thought. Hey, do we have any Spanish or Italian bonds?
  • Germany Not Necessarily Behind The Bailouts? EU RIP
  1. September 23rd- German Parliament Votes On Greek Bailout: Germany has lead the bailout fight, has the strongest economy in Europe, and as the primary funding nation its full participation and leadership in any rescue scheme is non-negotiable for the EZ to survive.

However as The Telegraph’s Ambrose Evens-Pritchard reported last week, there is mounting evidence that assumptions of German support may not be justified.

He notes that German President Christian Wulff  warned that Germany is reaching bailout exhaustion and cannot allow its own democracy to be undermined the EU’s needs for German help. Here are a few quotes:

  • “I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable.” …”[The ECB had gone] “way beyond the bounds of their mandate” by purchasing €110bn (£96.6bn) of bonds, echoing widespread concerns in Germany that ECB intervention in the Italian and Spanish bond markets this month mark a dangerous escalation
  • President Wulff said Germany’s public debt has reached 83 pc of GDP and asked who will “rescue the rescuers?” as the dominoes keep falling. “We Germans mustn’t allow an inflated sense of the strength of the rescuers to take hold,” he said.”
  • “Solidarity is the core of the European Idea, but it is a misunderstanding to measure solidarity in terms of willingness to act as guarantor or to incur shared debts. With whom would you be willing to take out a joint loan, or stand as guarantor? For your own children? Hopefully yes. For more distant relations it gets a bit more difficult,” he said.
  • Wulff warned that German leaders “have to stop reacting frantically to every fall on the stock markets. They mustn’t allow themselves to be led around the nose by banks, rating agencies or the erratic media,” he said…..”This strikes at the very core of our democracies. Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies.”
  • Chancellor Angela Merkel has struggled all this week to placate angry critics of her bailout policies within the Christian Democrat (CDU) party. Labour minister Ursula von der Leyen said countries that need rescues should be forced to put up their “gold reserves and industrial assets” as collateral, a sign that rising figures within the CDU are staking out eurosceptic positions as popular fury mounts.
  • Marc Ostwald from Monument Securities said Germany is drifting towards a major constitutional crisis. “This has all the makings of the revolt that unseated Helmut Schmidt [in 1982], and indeed has political echoes of the inefficacy of the Weimar regime,” he said.

Evans- Pritchard concludes that these “carefully scripted comments are the clearest warning to date that Germany has reached the limits of self-sacrifice for Europe. The assumption that it will always – after much complaining – sign a cheque to keep the project of the road, no longer holds.”

However even if German support for the Greek rescue finally comes together, Germany will not vote on the Greek bailout agreement until September 23rd , and bad things can happen before then.


  1. Other EU Member Votes On The Greek Plan

Other countries could take even longer to agree to the plan, and any changes or special requests must be approved by all member states.

We have not even considered delays and failures to ratify the plan that could arise from new demands for collateral, now that the Greeks have inexplicably thought they could agree to provide Finland with cash collateral without risking a wave of similar requests from others. How can any other EU leader walk away without similar guarantees and not look like a sucker?

  1. Ongoing EU Sovereign Liquidity Crisis: As noted in PRIOR WEEK MARKET MOVERS: JACKSON HOLE DISTRACTS WHILE EU COLLAPSING, the EU banking system is hitting a worsening liquidity crises as failure to resolve the broader sovereign debt crisis is casting doubt on the banks most exposed to the questionable GIIPS sovereign bonds.

2 Threats From The US: Ongoing US Stimulus, Debt Issues

  1. September 21st- Fed Meeting Widely Anticipated To Bring New Stimulus: With global growth slowing the big hope for risk assets is additional stimulus. A decisively pro or anti stimulus stance from the Fed could easily send markets on a new rally or on the next leg down of the bear market that began in 2007

Throughout the week leading up to the Jackson Hole symposium, markets gyrated with sentiment about whether there would be new stimulus announced to support asset prices. The belief remains that the Fed will do something, only now announcement of that something has been deferred to the September 21st Fed meeting, which has been extended an extra day, prompting speculation that this will be the time new measures are announced.  However anything that remotely suggests additional deficit spending could spark another paralyzing battle in Congress.

  1. September 30th Deadline To Pass US Budget In Congress: If there is no US debt crisis in the wake of the Fed meeting, this coming budget battle could easily become congressional catfight that reveals political deadlock, paralysis, and undermines the belief in Washington’s ability to deal responsibly and decisively  with its deficits. As Bruce Krasting writes here:

The last time we went through a vote on a continuing resolution was just four months ago. That fight went down to the wire. At the time it was 50-50 that the government would be forced to shut down. In the end a deal was reached to extend things to the end of this fiscal year. That happens to be just six weeks from today.

The fight back in April was the opening salvo of the war between Democrats and Republicans. I think this was the first definitive evidence that our government was so deeply divided that it had become dysfunctional.

It was the debt ceiling catastrophe that drove S&P to cut the US credit rating. The seeds for that ratings cut came from the Continuing Resolution debacle.

To get a new Resolution through the house the Democrats and the WH will have to make concessions. We’ve seen where this takes us. Crisis.

  1. Too Much Damned Uncertainty: With so many landmines scattered throughout September, the sheer heightened uncertainty makes markets that much more prone to selloffss

In the Jewish calendar this week begins the month of Elul, its primary theme being reflection and repentance in advance of the New Year festivals which carry a more intense version of this theme. Here in Jerusalem it’s not hard to feel these themes hanging in air. Looks like we won’t be the only ones praying a little harder in the weeks ahead.