A befitting headline for this year´s Bilderberg conference in Sitges should be: THE WORLD IS OUT OF TIME-OUTS.

From the Chinese real estate bubble about to blow, to an eminent housing crash in Canada, from the more than expected Treasury bubble collapse in the United States to the meltdown in Spain, Greece, Hungary, Portugal, Ireland, Iceland and Italy, the battle lines are being drawn. They will define the direction of humanity in the next several years.

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GREECE

It’s now apparent that Europe has exhausted its allotted “time-outs.” In a carefully orchestrated game of confusion, European officials tried for as long as they could to distract speculators and to manage fears of a Greek and euro-zone crisis.

From Bilderberger discussion, it is now apparent that the global investment community is not receiving this plan well. In early April, Moody’s downgraded the five biggest Greek banks. Since then both the banking sector and the general stock market in Greece have gone into a tailspin.

As one U.S. Bilderberger pointed out, “As a result, more impetus is being given to believe the sovereign debt contagion is building.”

In a very tense debate, one question was posed to the audience: Is it enough to reduce the risk premium associated with investing in Greek debt?

The early indication: Apparently not.

An influential European Bilderberger remarked that European officials tried to regroup back in February hoping to stem the heavy wave of selling against the euro and the speculative pressures on sovereign debt risk.

And when they re-grouped they brought enough cross signals to confuse market speculators, to break their rhythm and confidence. As such, the euro stabilized, and the bets against Greek debt subsided a bit.

• EC announced support for Greece; but they didn’t provide any details,

• EC leaked rumors of a financial aid package; then denied any notion of transferring taxpayer money from a fiscally responsible country to a fiscally irresponsible country, and

• They talked about creating a European Monetary Fund to support ailing countries in the monetary union; then denied the viability of such an idea.

Yet, based on the structural flaws of the monetary union, the likelihood of actual intervention resolving the problems — in Greece, the other weak spots in Europe, and the resulting damage done to the euro — was nil.

“The risk for European economies is to be in the second league and not in the first, with the United States and Asia,” added one American Bilderberger.

Europe’s Exit Strategy … on hold?

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The markets are also starting to recognise the monetary policy impact that the struggling euro-zone constituents will have on the ECB’s ability to reverse ultra-easy money conditions. With aggressive austerity plans facing Greece, Spain, Portugal and Ireland, a risk of a double-dip recession for the euro zone rises dramatically, just as I accurately predicted immediately following Bilderberg 2009 meeting in Greece.

AT Sitges, during Bilderberg 2010, all attendees agreed that with these euro economies under the gun to rein in deficits now in order to bring deficits back toward treaty limits set forth by monetary union guidelines, the outlook is grim.

Greece’s GDP contracted by 2 percent in 2009, while running a 12.7 percent deficit. Now under its austerity plan it’s attempting to cut the deficit (relative to GDP) by 4 percentage points this year … while growth is expected to contract again in the neighbourhood of 1.7 percent.

Several US Bilderbergers agreed that the possibility of that plan succeeding seems highly unlikely.

This creates a policy divergence between the U.S. and all three of its leading, developed market competitors … the UK, the euro zone and Japan. So with interest rate prospects widening in favour of the U.S., and the continued uncertain outcome in the euro zone, look for the euro to continue its decline.

Think Greece Is Alone? Think Again!

Bilderbergers admitted that the pain isn’t confined to Greece. Portugal’s benchmark 2-year note yield just blew out to 4.82 percent from 1.58 percent. That’s a tripling in interest rates in less than a month. Ireland? Its 2-year yield rocketed to 3.83 percent from 1.62 percent in 23 days. Spain´s yields recently shot up to 2.08 percent from 1.36 percent.

Bottom line: A virulent sovereign debt contagion is spreading like wildfire throughout the euro zone. But, as another Bilderberg admitted, “if the Greeks get bailed out, who’s next? And where the heck is all the bailout money going to come from? Policymakers may need to cough up almost $800 billion to “save” everyone.”

“The problem,” said one French Bilderberger “is that nobody has that kind of money laying around. So it’ll have to be borrowed. And if it has to be borrowed from a European bond market that’s already falling apart at the seams what’s likely to happen?” All agreed that even more selling, which would drive bond prices down and interest rates up!

Also, the newly anointed Czar of Europe, Herman Von Rumpey and company know they got away with a very illegal operation in Greece when EC approved this bailout of a euro member state is a breach of the monetary union’s guiding principles, according to 1992 Maastrich Treaty. But, they won´t be able to do this again.

One US Bilderberger stated matter of factly that it was woefully ignorant to assume that something similar can’t or won’t happen in the US. “After all, OUR deficits are out of control! OUR debt level is through the roof! OUR politicians are burying their heads in the sand, just assuming they’ll be able to keep funding their profligacy at rock-bottom rates forever. Those are precisely the same problems that built up in Greece for months on end.”

WILL THE EURO SURVIVE?

“Not too long ago,” said one French Bilderberger, “anyone who suggested that the eurozone was fatally flawed was branded as a Europhobe. But, the global recession changed everything.” Another Bilderberger noted that the massive credits mobilized to support Greece and other weak eurozone countries, totaling almost €750bn ($1 trillion), have failed to convince the markets that Greece can repay its debts. “It also doesn’t help to have Sarkozy openly threaten Germany,” he added. He was referring to a threat by France´s President Nicolas Sarkozy to pull out of the Euro altogether if Germany did not sign up to further guarantees of other countries’ debts.

Meanwhile, fears that a eurozone country could default are threatening the entire economic recovery, for a default would put huge strains on banks that hold eurozone debt. The Independent of London reported that “Greece has become the new Lehman Brothers: a potential collapse that would undermine the global banking system.”

In the long run, said one German Bilderberger, market calm can and will be restores because governments and central banks working together always win.

Still, the question remains, will the eurozone survive? And, more importantly, will the euro survive? There is a growing concern amongst senior Bilderberg members that the euro may brake up. One Scandinavian Bilderberger pointed out that survival would require for Europe to become both fiscal as well as a monetary union with much tougher controls over the budgets of the member states. Another Bilderberg suggested that in these tough economic times, a status quo, simply won’t do. “Europe requires forward looking strategies.” One of these strategies would force weaker, financially challenged members to temporarily forfeit their European membership, because as a German Bilderberger pointed out, “that if it becomes obvious that a Greek euro is not monetarily equal to a German euro, then the monetary union cannot survive.” In other words, what is being hotly debated is a multi-tier membership of the EU and a mechanism for entering and leaving the single currency.

This harsh reality may be considered “shocking” to some, but this “is the nature of the times we are living in,” said another Bilderberger.

Several voices were raised to that proposal, and were immediately hushed down by a Chairman who pointed out that there is a huge political will to make the eurozone survive. Still, a lot is at stake. The travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor Angela Merkel’s acknowledgement that the currency is facing an “existential crisis”, have radically shifted opinion. The political decision of how to present this option in society, is being discussed as we speak in a secluded area somewhere in Gerona, where a hardcore nucleus of Bilderberg insiders is meeting in secret.

What is becoming clear is that, at least, privately for now, Bilderberg agreed almost unanimously that Greece will most likely default on its sovereign debt. As one Bilderberger added, “”The political implications [of euro disintegration] are likely to be far-reaching – German public is opposed to paying for others and may well quit, especially if political fall out becomes untenable.”

Flaws of the Euro …

The monetary union in Europe consists of a common currency and a common monetary policy. But fiscal policy is determined by each individual country. And to patrol those fiscal decisions, the European Union established its Growth and Stability Pact that, among other things, sets two criteria for member countries:

1) Deficit spending by its member countries cannot exceed three percent of GDP, and

2) Total government debt cannot exceed 60 percent of GDP.

However, those limitations have been completely ignored by the majority of the sixteen countries in the monetary union, exposing the structural flaws of the monetary union.

Under the euro, weak member countries are helpless. Italy, for example, has a history of competitive devaluation of the lira during hard economic times. Now, stuck within the euro, its economy is left flapping in the wind.

The cornerstone of the euro, Germany, has rejected the notion of big spending to bail-out troubled countries. German Bilderberger admitted that the effort to impose on Germany the costs of bailing out not only Greece, but next Spain is too much, even for a nation too often prone to surrender sovereignty under blackmail. “And,” he continued, “German citizens are in a protectionist mode.”

Germany’s resistance received support from a top French official, Secretary of State for European Affairs, Pierre Lellouche. In the May 28 issue of the Financial Times, he stated bluntly that “the €750 billion bailout package for the Eurozone, and in particular the €440 billion guarantee fund, is a violation of the Lisbon Treaty. “It is expressly forbidden in the treaties by the famous no-bailout clause,” Lellouche said.

What Bilderberg finds worrisome is that the German Constitutional Court may stop the Greek bailout package, in which case it could free not only Germany but all European nations, from the dictatorial EU system. Executive Intelligence Report sources had confirmed that “fighting against financial speculation, both Merkel and German Finance Minister Wolfgang Schäuble stood firm against U.S. Treasury Secretary Tim Geithner who flew to Europe on May 27 for the sole purpose of pressuring Germany into lifting the ban on naked short sales.”

What shocked Bilderberg was the spectre of collapse in Hungary on June 4, 2010, which helped sink the Dow by 323 points on Friday. Why? Because in the UK and the US, federal deficits and total debts, as a percent of GDP, are similar to — or even larger than —those of Greece, Spain, Portugal, or Hungary.

USA

However, Greece isn´t the only nation that finds itself in the throes of death. U.S. delegate stated candidly that his government might not be in the position to help Europe out. U.S. official national debt now stands at $12.68 trillion — an amount equal to about 88.5% of all the goods and services our economy produces in an entire year. State, county and local governments are nearly $3 trillion in debt. “Many can’t pay and will ultimately demand that Washington assume responsibility for that debt as well,” something that this official admitted was more than likely with the US Presidential elections a bit over two years away.

This record-shattering borrowing by the Treasury has resulted in mind-boggling Treasury obligations being dumped onto the market, which naturally depresses bond prices and drives interest rates higher. In a desperate attempt to keep interest rates low, the Bernanke Federal Reserve has created $1.25 trillion out of thin air to buy mortgage-backed securities … another $300 billion to buy U.S. Treasuries … and yet another $170.6 billion to buy other government bonds — a total of nearly $1.7 trillion in all.

But, as European member of the IMF pointed out, “Despite this massive money-printing, the yield on the benchmark 10-year Treasury note has STILL risen by more than one-fifth — from 3.2% to 3.86% — since December,” a bad omen for the United States economy.

Japan

As was recently discussed during last month´s Trilateral Commission meeting in Dublin, Greece’s debt problems may currently be in the spotlight but Japan is walking its own financial tightrope, with a public debt expecting to hit 200% of GDP in the next year. The country´s debt is bigger than that of any other industrialised nation.

Japan “can’t finance its record trillion-dollar budget passed in March for the coming year as it tries to stimulate its fragile economy,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. “Without issuing more government bonds, Japan would go bankrupt by 2011.”

Agence France Presse reported recently that “Despite crawling out of a severe year-long recession in 2009, Japan’s recovery remains fragile with deflation, high public debt and weak domestic demand all concerns for policymakers.” The article further added that “Its huge public debt is a legacy of massive stimulus spending during the economic “lost decade” of the 1990s, as well as a series of pump-priming packages to tackle the recession which began in 2008.”

Someone then pointed out that “It’s hard to predict when the bond market might collapse, but it would happen when the market judges that Japan’s ability to finance its debt is not sustainable anymore.”

“And when that happens, the yen will plummet and a capital flight from Japan’s government bonds to foreign bonds will occur,” added another Bilderberg. But while the Bilderberges all agreed that while Japan’s risk of a Greek-style debt crisis is seen as much less likely, the question is how long the government can continue its dependence on issuing public debt.

Iran-Israel

Israel’s lethal confrontation with pro-Palestinian activists in the Mediterranean is complicating United States strategy toward Iran and undermining the likelihood of a solid sanctions victory at the United Nations.

US officials sought on Tuesday to separate the two issues and said they are still actively pursuing a fourth round of punitive measures against Iran in the UN Security Council.

However, the incident in the Mediterranean, in which Israeli commandos killed at least nine activists, has overshadowed the Iran question and made it less likely that the US will gain broad support for more sanctions.

With Israel’s attack on the aid convoy, however, Iran is now in the unusual position of being able to lecture Tel Aviv about rights abuses.

Treasury Bond Market

Just as we thought we were out of the financial bubble woods, a new bubble is starting to burst. The Treasury Bond Market and the corresponding surge in interest rates. The very latest data suggests the day of reckoning is fast approaching. This is no longer some theoretical, potential future event. It’s a crisis that could strike with deadly force at virtually any time.

As of year-end 2009, there were $34.7 trillion of U.S. government, corporate, municipal, and other bonds outstanding. By comparison, the entire market capitalization of the broad Wilshire 5000 Total Market Index for stocks is just $13.9 trillion.

Translation: The U.S. bond market is two-and-a-half-times the size of the U.S. stock market! Among the categories of bonds outstanding, the U.S. has $2.8 trillion of municipal securities and $2.4 trillion of bonds backed by credit cards, auto loans and similar assets.

Foreign creditors own roughly 60 percent of all US marketable debt outstanding. The biggest buyers of US bonds are countries like China, Japan, Russia, and the OPEC block of Middle Eastern nations. And now, all the signs are pointing to the fact that the Chinese are fed up. China has been America´s largest foreign creditor for a long time. But in December 2009, it dumped more Treasuries than in ANY month since the government started tracking in 2000! Specifically, China sold a net $34.2 billion in Treasuries. That left it with just $755.4 billion.

One US Bilderberger said that we couldn’t count on foreigners to bail us out forever.

The point is that the whole western world and Japan are over indebted. And if you use the implicit government debt to GDP ratio, the picture is much bleaker. Look for yourself: Germany: 255%; France: 255%; UK: 530%; U.S.: 570%.

Explicit debt leaves out important obligations like pensions and social security. If you add these in, you get what economists call the implicit government debt.

These obligations are unbearable. Which means governments all over the world will have to break many of the promises their predecessors have made to get elected.

There are ways to get out of too much debt. The first is by Default. Another way out is to Print Money. Unfortunately, at the end of this global meltdown of historical proportions, the bond market and the currency will be destroyed.

Even though governments around the world paint a rosy picture, back in April, IMF released its Global Financial Stability Report:

“The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries. Shrinking economic activity has put further pressure on banks’ balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending. Thus, credit growth is slowing, and even turning negative, adding even more downward pressure on economic activity.”

According to the conclusions of Bilderberg 2010: We are nowhere near the bottom of this economic downturn. And there will be significantly more pain to be felt in the financial sector. As one Bilderberg said: ”Europe is up to its eyeballs in problems” because Western European banks have dangerously high credit exposure to their neighbouring emerging market economies.

Another key area of concern is deflation. And it’s widespread. Spain, the fifth largest economy in the European Union, reported a fall in consumer prices for the first time in 50 years. The UK reported the first annual fall in retail prices since 1960. Ireland experienced its first drop in consumer prices since joining the euro in 1999. Germany’s wholesale prices dropped the most in 22 years. And Switzerland is so concerned about deflation that its central bank has intervened in the currency markets to weaken its own currency and has begun buying up its own debt to increase the supply of Swiss francs.

But deflation is not a problem confined to Europe. Deflation is a global problem.

Broad commodity prices are down 54 percent since July of last year. U.S. consumer prices declined year over year for the first time since 1955. The Baltic Dry Index (the cost of shipping raw materials around the world) has lost a colossal 84 percent of its value in less than a year. And producer prices, wholesale prices all have trended lower and have now hit sub-zero levels in most major countries.

Sovereign Debt Crisis Paving the Road for the Currency Crisis

We are witnessing a sovereign debt crisis, which is putting the world’s largest collective economy, the euro zone, in jeopardy.

One of the key messages to come out of Bilderberg: Greece’s troubles have not only exposed the structural flaws of the European Monetary Union, but have also exposed the structural problems in the global economy.

Government officials around the world have responded to the debt problem by adding more debt. And that “crisis response” has only exacerbated a dynamic that created the crisis to begin with: Easy credit … i.e. debt. Historically, financial crises typically lead to sovereign debt crises. And sovereign debt crises typically lead to currency crises. All this is a recipe for tough economic times ahead.

The sovereign debt crisis is still unfolding. And a currency crisis is now upon us. When Europe chose to go all-in by pledging backstops for the downward spiralling weak countries within the euro zone, they made a conscious decision to devalue the euro and to inflate away the debt.

For those like the euro zone, which are backed into a corner, a currency and debt devaluation become the only option.

And with economies around the globe burdened with debt, addressing problems through currency devaluation becomes highly competitive.

You see, currencies are only valued on a relative basis, that means someone’s currency has to win the least ugly contest, and as a result appreciate against world currencies … in this case, it’s the U.S. dollar.

Meanwhile, three out of four of the most liquid currencies in the world — the euro, the pound and the yen — will likely be dramatically devalued before it’s all said and done.

Can we turn the tide?

That’s debatable. An enormous show of strength from both the Eurozone and IMF may have stemmed the previous Eurozone credit rout, but it seems that its effects are fading. As one Bilderberger poited out, “It seems the market has now deemed Europe’s tough talk and enormous bailout plan as insufficient.”

1) At the time of writing this report, credit default swap spreads exploded higher for Europe’s periphery ‘PIIGS’ economies, approaching the dangerous record highs pre-Eurozone bailout. Those spreads continued to expand today, reflecting even higher default risk.

2) Moreover, the Wall Street Journal reports today that ECB overnight deposits have hit a record high. Usually banks just park a few hundred million euros with the Central Bank using this facility, since they get subpar interest on their capital. They have now chosen to place 316.4 billion euros in ECB deposits, as perceived counterparty risk (the risk between banks) is soaring.

3) At the time of writing this report, the euro was breaking below $1.22.

What is truly worrisome is that Europe might already have pulled the biggest rabbit out of its hat. Which means that every subsequent rabbit will be getting smaller and more insignificant, economically speaking. In which case, what does it have left to use?

Germany

One German Bilderberger admitted that the Budestag´s rubber-stamping of the 750 billion euro rescue package for Greece has accelerated the dynamic of disintegration of the global financial system – whether by a chain-reaction domino effect or by global hyperinflation.

Another Bilderberger reminded the attendees of what happened on May 6, 2010 when Dow Jones collapsed 10% in 16 minutes, wiping out $700 billion. It was not a fluke. “The partial rebound” may not happen next the time and the whole world financial system could disintegrate overnight.

In fact, we are witnessing the disintegration of the entire world financial system. The first phase came in the wake of the great Housing and Debt Crisis of 2008-2009, wiping out as much as HALF of America’s stock values. The second phase has struck with the Great Sovereign Debt Crisis of 2010, and as Bilderberg attendees agreed, “it’s just now getting under way in Spain, Hungary, Italy, Ireland and Portugal.” All of these countries are running massive budget deficits, many have huge debt burdens and all have muted prospects for growth.

In private, several Bilderberg reported that “measures being promoted and debated internationally are a joke and full of hot air” because they do not address the root of the problem itself, which means no matter what final measures are adapted, they won´t solve the long term effect.

Hotly debated was Angela Merkel´s initiative of banning naked short sales of stocks and government bonds. Even though in private, many Bilderberg members agreed that Merkel was absolutely correct, Bilderberg was shocked and dismayed that Germany would act unilaterally on such a sensitive issue. Aside from reasserting national sovereignty and regulating financial market, Merkel´s initiative would protect German taxpayer from having to pay the consequences of these short sales. Expect Bilderberg controlled mass media, such as Financial Times, the Economist and Wall Street Journal to give its own particular spin to Merkel´s initiative, painting it as irresponsible in light of the current financial crisis.

For now, German government is defending itself well. In a May 20, Financial Times article, German Finance Minister, Wolfgang Schauble explained that “we need new financial instruments to cope with the huge financial tasks that we face. “But,” he added, “minimum profits of 25% are simply unimaginable in the real economy.”

One of the alarming conclusions to have come out of Bilderberg 2010 is that European Finance Ministers attending Bilderberg have decided on a genuine currency reform, which changed the euro into an inflation-prone soft currency and made all European member states collectively responsible. “By purchasing government bonds of bankrupt states, ECB has lost all credibility,” reported one Bilderberger.

Another Bilderberger warned that a combination of the mega bailout package, the ECB´s easing of monetary policy, draconian austerity measures and the European debt, means a disastrous combination of hyperinflation putting in danger the entire world’s financial system.

Derivative trading

At the root of the problem, are the super banks and the dramatic increase in derivative market trading. Derivatives are highly speculative, high-risk financial instruments, which combined with unchecked regulatory safeguards, have contributed the most to the destruction of the world’s economy. At the end of 2009, there were $294 trillion in derivatives at the US banks, according to OCC, Office of the Comptroller of the Currency. Few government institutions will admit that the financial bailout has been intended to protect those derivatives. Neither are they willing to admit that the current debt can never be repaid. Bilderberg, ECB, EU, Federal Reserve and the rest of the global financial institutions and governments know this and feel extremely vulnerable. As one of them admitted at the conference: “If European public finds out, we are screwed.”

He was explicitly referring to the Federal Reserve’s participation in the European bailout, by flooding Europe with dollars. It makes sense. Derivative contracts are settled in dollars and the ability to cancel, settle or restructure derivatives contracts is of utmost importance to the banking speculators, the Fed´s actions are a give away of their game plan and the nature of the crisis.

In the United States, there are four MegaBanks, which dominate lending, in what amounts to a financial cartel. These banks make their money by trading, not investment. These four Mega Banks are: Bank of America, JP Morgan Chase, Citigroup and Wells Cargo. Their combined assets amount to $7.7 trillion, more than 10 times their assets fifteen years ago. The big four banks now control over 40% of all the deposits in the US banking system, half of the mortgage loans, and two thirds of the credit cards issued in the United States.

What we are in fact witnessing is an early XX century consolidation-like of the US banking system. Given the system meltdown of the system itself, of the remaining 8,000 banks perhaps half will survive the carnage, further consolidating the banking system into the hands of the largest banking houses.

End Part 1 of the report

Author: Daniel Estulin

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