Eric Sprott: Ministry of [Un]Truth

From Zero Hedge:

We have no doubt that everyone is tired of bad news, but we are compelled to review the facts: Europe is currently experiencing severe bank runs, budgets in virtually every western country on the planet are out of control, the banking system is running excessive leverage and risk, the costs of servicing the ever-increasing amounts of government debt are rising rapidly, and the economies of Europe, Asia and the United States are slowing down or are in full contraction. There's no sugar coating it and we have to stop listening to politicians and central planners who continue to downplay, obfuscate and flat out lie about the current economic reality. Stop listening to them.

NOTHING the central bankers have done up to this point has WORKED. All efforts have simply been aimed at keeping the financial system from imploding. QE I and II haven't worked. LTRO I and II haven't worked, and the most recent central bank initiatives are not even producing short-term benefits at this stage of the crisis. Just take Spain, for example. Following Rajoy's announcement of the $125 billion bailout loan for the Spanish banks on June 10th, Spanish bond yields were trading back over 7% one week later - the same yield level at which other eurozone countries have been forced to ask for further international aid.¹²

The smart money is finally waking up to the dimension of the problem here and realizing that it's really a banking issue. Deposit flight has revealed the vulnerability of the European banking system: when depositors make withdrawals, the only assets the banks can sell to raise liquidity are sovereign bonds, which creates the vicious downward spiral that up to this point has always resulted in some form of central bank bailout. Many eurozone authorities still have trouble understanding this.

If you want to know what's really going on, listen to the executives of companies that actually produce and sell things. On May 24, Tiffany & Co cut its fiscal-year sales and profit forecasts blaming "slowing growth in key markets like China and weakness in the United States as shoppers think twice about spending on high-end jewelry."¹⁸ On June 8th, McDonald's surprised the market with lower than expected same-store sales growth in May, following a lacklustre April sales report that the company stated was "largely due to underperformance in the United States, where consumers continue to seek out very low-priced food."¹⁹, ²⁰ On June 13th, Nucor Corp., the largest U.S. steelmaker by market value warned that its second-quarter profit will miss its previous guidance after a "surge" in imports undermined prices and "political and economic uncertainty affect buyers' confidence".²¹ On June 20th, Proctor and Gamble lowered its fourth quarter guidance and profit forecast for 2012. Factors that drove the company's challenges included "slow-to-no GDP growth in developed markets", high unemployment levels, significant commodity cost increases and "highly volatile foreign exchange rates".²² Other companies that have recently lowered guidance include Danone, Nestle, Unilever, Cisco Systems, Dell, Lowe's, and Fedex. It's ugly out there, and many companies are politely warning the market about the type of environment they foresee ahead in both the US and abroad.

The G6 central banks are out of conventional tools to solve this financial crisis. With interest rates at zero, and the thought of further stimulus rendered politically unpalatable for the time being, we cannot see any positive solutions to this problem other than debt repudiation. We continue to note the contrast between the reporting companies who by law cannot lie about their fiscal realities, versus the central planners who admit that they MUST lie to preserve calm and control. We'll leave it to you to decide whose version of the truth you want to believe.

http://www.zerohedge.com/news/eric-sprott-presents-ministry-untruth