EU-DIGEST

This year's World Economic Forum in Davos marks a clear shift in the global power structure. "Bankers Are On Run", headlined the Wall Street Journal in its weekend edition, describing an atmosphere of, quote, "First, kill all the bankers." Its ramblings went on to forecast the worst is yet to come, elaborating on a bet that even Goldman Sachs CEO Lloyd Blankfein would be out of his job within 2 years. Witness the biggest shift in editorial sentiment ever seen when the WSJ starts comparing bankers to terrorists,

What Davos failed to address is the necessary new regulatory shape for an industry gone too wild with the utmost help from central bankers that now ends up on the wrong side of all trades. Minefields of OTC derivatives and "asset" positions saddled with high default rates need yet to be cleared as the next financial Tsunami gains speed. Seeing all asset bubbles from the FIRE (finance, insurance, real estate) economy deflate at different speeds, now again engulfing stock markets, banks worldwide have an 800-pund gorilla in their vaults that may run amok in 2010.
I am talking government bonds where prices and resulting yields will no longer be derived from ratings and macroeconomic outlooks but from market reactions to the coming flabbergasting revelations how bad the economic outlook for the Western world really is.

"As I have not yet come across the example of a major economy that really shows a will to at least consolidate its budget deficits I stay with my opinion that hyperinflation is on the way as was always the case after bubbles built on debt. Hyperinflation, the inevitable end of all fiat currencies in history, will ironically have one positive effect. According to Austrian historian Eugen Maria Schulak, co-author of a recently published (German language) book on the Austrian School of Economics, no rulers have ever survived hyperinflation, leading to many radical political changes."