This morning’s key headlines from GenerationalDynamics.com.

* Wall Street stocks surge 3% while governments are paralyzed

* Munchau: The eurozone really has only days to avoid collapse

* Moody’s: Euro crisis threatens all of Europe

* OECD: Euro (and American) financial crises threaten the whole world

* Paralysis continues to grow in Washington and Europe

* First day of polling in Egypt better than expected

* Evidence grows that Dominique Strauss-Kahn was set up

* U.S. military reviews supply routes after Pakistan debacle

* Israel to release $100 million to the Palestinian Authority

* Debka: Nato and Turkey prepare for military intervention in Syria

Wall Street stocks surge 3% while governments are paralyzed
A party to celebrate the introduction of the euro in the Paris Bourse in January 1999 (AFP)

Wall Street traders, deep into some kind of drug-induced state of denial, pushed stocks up 3% on Monday, when one mainstream analyst after another was predicting everything from a series of financial shocks in Europe to a total collapse of the euro zone. This includes Wolfgang Münchau, the leading, well-respected European financial analyst, Moody’s Investors Services, and the Organization for Economic Cooperation (OECD).

Munchau: The eurozone really has only days to avoid collapse

“In virtually all the debates about the eurozone I have been engaged in, someone usually makes the point that it is only when things get bad enough, the politicians finally act – eurobond, debt monetisation, quantitative easing, whatever. I am not so sure. The argument ignores the problem of acute collective action.

Last week, the crisis reached a new qualitative stage. With the spectacular flop of the German bond auction and the alarming rise in short-term rates in Spain and Italy, the government bond market across the eurozone has ceased to function. …

I have yet to be convinced that the European Council is capable of reaching such a substantive agreement given its past record. Of course, it will agree on something and sell it as a comprehensive package. It always does. But the halt-life of these fake packages has been getting shorter. After the last summit, the financial markets’ enthusiasm over the ludicrous idea of a leveraged EFSF evaporated after less than 48 hours.

Italy’s disastrous bond auction on Friday tells us time is running out. The eurozone has 10 days at most.” Wolfgang Münchau, Financial Times (Access)

Moody’s: Euro crisis threatens all of Europe

“The continued rapid escalation of the euro area sovereign and banking credit crisis is threatening the credit standing of all European sovereigns. …

While Moody’s central scenario remains that the euro area will be preserved without further widespread defaults, even this ‘positive’ scenario carries very negative rating implications in the interim period. The rating agency notes that the political impetus to implement an effective resolution plan may only emerge after a series of shocks, which may lead to more countries losing access to market funding for a sustained period and requiring a support program. …

However, over the past few weeks, the likelihood of even more negative scenarios has risen. … Alternative outcomes fall into two broad categories: those involving one or more defaults by euro area countries (in addition to Greece’s PSI program); and those additionally involving exits from the euro area.

Moody’s Investor Services

OECD: Euro (and American) financial crises threaten the whole world

“The euro area crisis remains the key risk to the world economy…. Concerns about sovereign debt sustainability are becoming increasingly widespread. If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption. Pressures on bank funding and balance sheets increase the risk of a credit crunch.

Another serious downside risk is that no action would be agreed to offset the large degree of fiscal tightening implied by current law in the United States. This could tip the economy into a recession that monetary policy could do little to counter.

‘Prospects only improve if decisive action is taken quickly,’ said OECD Chief Economist Pier Carlo Padoan. ‘In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet. Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard,’ he said.

Improved prospects would also depend on the enactment of a credible medium-term fiscal programme in the United States.” Organization for Economic Cooperation (OECE)

Paralysis continues to grow in Washington and Europe

The story goes that when the Ottoman Muslims were approaching the center of Constantinople for the final conquest of the Byzantine Empire in 1453, the people of the Senate spent their last few days having a lengthy political debate about whether angels were male or female. Thus, the major news stories on Monday were lengthy analyses and debates about the effect on Herman Cain’s campaign about a possible love affair that he had years ago.

Long-time readers of my web site have known for a long time that this crisis was coming with 100% mathematical certainty. The paralysis affecting Europe is the same paralysis that affected the Congressional “Super Committee” and the rest of Washington. If any solution existed to the massive collapse of the real estate and credit bubbles, then it would be tried. Since no solution exists, all the politicians can do is bicker and point fingers at each other.

It’s still possible that the crisis will be postponed a little longer. The euro leaders are meeting on December 9, and perhaps they will make a “big bazooka” announcement, such as agreeing that the European Central Bank (ECB) should “print” unlimited amounts of money to prevent Italy, Spain and France from going bankrupt. However, from the point of view of Generational Dynamics, not only will that not prevent the crisis, but it won’t even prevent the accelerating deflationary spiral, as deleveraging continues and the velocity of money plummets to zero.

People keep asking me for investment advice. I’m an analyst, not an investment counselor, but from the point of view of Generation Dynamics, you should focus on preserving your assets, and NOT on getting one or two extra percentage points of interest. The best investment advice now is to keep some cash hidden in your basement, and the rest (for Americans) in FDIC insured bank accounts — preferably more than one. These appear to be the safest “investments” today.

First day of polling in Egypt better than expected

Although there were a few “thuggish acts” in some polling stations on Monday, the first day of parliamentary elections was almost completely non-violent and was widely cheered by the huge numbers of voters standing in line to vote. The fears of widespread violence from the now-defunct National Democratic Party (NDP) to rig elections did not occur. However, the Muslim Brotherhood’s Freedom and Justice Party (FJP), which is widely expected to win the election, was found by reporters to be violating Egypt’s election laws by passing out campaign leaflets near polling stations. Al-Ahram

Evidence grows that Dominique Strauss-Kahn was set up

Thanks to extensive research by Edward Jay Epstein, writing for the New York Review of Books, evidence is growing that the sexual assault charges brought by a hotel maid against former IMF chief Dominique Strauss-Kahn earlier this year were a setup. If a setup is confirmed, it would not surprise me in the least. Guardian

U.S. military reviews supply routes after Pakistan debacle

Alternate supply routes to Afghan war (Washington Post)

Pakistan’s decision to close NATO’s resupply routes into Afghanistan is forcing the U.S. and NATO military forces to reexamine their strategy for supplying everything from food to tanks. The army will have to rely much more heavily on the Northern Distribution Network (NDN), which comprises rail and truck routes traversing several countries in Europe and Central Asia, including Russia, Uzbekistan and Kyrgyzstan. It already accounts for about 40 percent of U.S. cargo deliveries into Afghanistan and 52 percent of all coalition cargo. One route from the north, established in 2010, starts with long-haul trucks that leave from Germany. As of October, truck drivers made about 2,000 deliveries to Afghanistan. During that time, only two trucks failed to reach their destination. Stars and Stripes

Israel to release $100 million to the Palestinian Authority

Israel’s Prime Minister Benjamin Netanyahu indicated on Monday that he favored releasing some $100 million owed to the Palestinian Authority. This is money from border and customs fees that Israel collects on behalf of the Palestinian Authority. However, Israel has frozen these payments to punish the Palestinians for their attempts to join the United Nations. Netanyahu says that the Palestinians appear to have suspended their efforts at the U.N., though the freeze would be reinstated if the Palestinians revive those efforts. AP

Debka: Nato and Turkey prepare for military intervention in Syria

A group of military officers from NATO and Persian Gulf nations, including the United States, France, Canada, Qatar, Saudi Arabia and the United Arab Emirates, have quietly established a mixed operational command in Turkey on the border of North Syria Their mission is to set up “humanitarian corridors” inside Syria to serve the victims of Bashar al-Assad’s crackdown. Commanded by ground, naval, air force and engineering officers, the task force aims to move into most of northern Syria. Debka