In answer to that question, Noam Scheiber has acquired a major piece of the puzzle. While reporting his new book, The Escape Artists, which chronicles the administration’s response to the crisis, he got his hands on the fabled original version of Obama’s economic team’s 2008 memo, sort of the economic policy equivalent of the Blade Runner original cut. In the first version, Romer argues that a $1.8 trillion stimulus would be needed to fill in the anticipated output gap (which, in any case, turned out to be larger than anybody knew at the time.) But Larry Summers considered that figure unrealistically high — they would be laughed at by the political team — so the memo that reached Obama’s desk described an $850 billion stimulus as the largest possible option.

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The most actively traded platinum contract, for April delivery, was recently $29.70, or 1.8%, higher, at $1,714.60 a troy ounce on the New York Mercantile Exchange.

Platinum prices have swelled due to supply disruptions at Impala Platinum Holdings, the world’s second-largest producer of the metal. An ongoing labor dispute at Rustenburg, the company’s largest mine, has already resulted in two deaths and accounted for the loss of about 80,000 troy ounces of platinum output.

The production disruptions come as many South African platinum producers continue to struggle with a shortage of electrical power, which also curtails operations. South Africa is the world’s largest producer of the metal as a nation, which is most widely used in automotive catalysts.

“As long as there are labor issues [in South Africa] and as long as they have continuing power concerns, it’s going to be very bullish for platinum and, to a lesser extent, palladium,” said Graham Leighton, director of precious metals trading at Newedge.

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PG View: Gold has actually recouped overseas losses and is now steady on the day.

It said Greece would be designated as having technically defaulted after the bond exchange is formalized, but the new bonds would be given a new rating.

All three big ratings agencies — Fitch, Moody’s and Standard & Poor’s — downgraded Greece in July when an initial debt swap plan was unveiled and have warned that losses for private creditors would trigger a temporary default.

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Financial market cynics have assumed all along that Dodd-Frank did not end “too big to fail” but instead created a charmed circle of protected banks labeled “systemically important” that will not be allowed to fail, no matter how badly they behave.

That may be, but there is one bit of bad behavior that Uncle Sam himself does not have the funds to underwrite: the $32 trillion market in credit default swaps (CDS). Thirty-two trillion dollars is more than twice the U.S. GDP and more than twice the national debt.

CDS are a form of derivative taken out by investors as insurance against default. According to the Comptroller of the Currency, nearly 95% of the banking industry’s total exposure to derivatives contracts is held by the nation’s five largest banks: JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs. The CDS market is unregulated, and there is no requirement that the “insurer” actually have the funds to pay up. CDS are more like bets, and a massive loss at the casino could bring the house down.

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At 1035 GMT, the benchmark Stoxx Europe 600 index was down 0.6% at 265.27. London’s FTSE 100 index was down 0.3% at 5909.68, Paris’s CAC 40 was 0.3% lower at 3455.03 and Frankfurt’s DAX was down 0.7% at 6856.55.

Although Greece has, in principle, secured a second bailout deal, questions remain on its implementation and effectiveness.

The next step is to see how willingly private sector creditors will participate in the deal. The Institute of International Finance has negotiated a deal on behalf of private holders of Greek debt that will see a 53.5% reduction in the nominal value of their holdings. IIF Managing Director Charles Dallara said on Tuesday it is up to individual investors to decide whether or not to accept the deal, although he expects a big take up.

…Contagion risks are also a worry. Indeed, Portugal’s 10-year government bond yield didn’t paint a pretty picture. At 1040 GMT, Portugal’s 10-year government bond yield was up 8.20 basis points at 12.038%, according to Tradeweb.

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To understand why, begin with a world plagued with massive unpayable debt at the individual, corporate, and government levels. There are only three solutions to this much debt—default, inflation, and growth.

…For large sovereign debtors, the preferred solution is inflation.

…The Fed is doing everything possible to promote this inflationary outcome including holding rates artificially low, printing money, buying up bonds, and cheapening the dollar in foreign exchange markets. Of course, the Chinese will not be the only victims of this policy. Anyone relying on a stable dollar will suffer also. This includes savers, pensioners, and those holding insurance policies and annuities among others.

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Powerful members of the central bank’s 23-man governing council are privately hoping demand at the February 29 auction will fall well short of the 1 trillion euros some expect, backing their view that it should be the last.

Central bank sources say they are worried that banks will become too reliant on ECB funds, removing the incentive to restart lending between themselves.

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PG View: Seems like indicating the 29-Feb LTRO may be the last is just the kind of thing that might prompt an aggressive uptake. Plus, despite what the ECB wishes, the banks and markets are already addicted to cheap and unlimited liquidity. If the ECB cuts them off, either the markets will correct, or some other central bank is going to have to pick-up the slack. Hello Fed?

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The 10-page debt sustainability analysis, distributed to eurozone officials last week but obtained by the Financial Times on Monday night, found that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170bn bail-out.

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PG View: Looks like they’re queuing up bailout-3 even before bailout-2 has been finalized.

The deal reportedly hinges on private bondholders “volunteering” for a larger haircut than the one they agreed to back in October. German Finance Minister Schäuble went as far to say that “all is still pending” on how the private sector reacts to this change in terms. Additionally, EU chief Junker and Christine Lagarde of the IMF pointed out that Greece still had to contend with some “prior actions” by the end of the month before the deal is really a done-deal.

Implementation risks abound and there are still understandable concerns that if a new Greek government comes to power in April, they wont honor the commitments of the current government. If that happen, this whole farce could begin anew.

While gold is rising, a retreat in European stocks and a softer tone on Wall Street suggest it’s not because of an improvement in risk appetite. Rather a ‘sell the fact’ theme seems to be dominating, and yet there doesn’t really seem to be any “fact” yet at all. The high in gold from 2-weeks ago at 1751.63 has been breached, but the more important level to watch is the late-January high at 1763.15.

• Canada retail sales -0.2% in Dec, below market expectations of -0.1%; ex-autos flat.
• Canada wholesale trade +0.9% in Dec, above market expectations of +0.5%, vs -0.3% in Nov.
• Switzerland trade balance slips in Jan to CHF1.6 bln, below expectations of CHF2.6 bln, vs CHF2.0 bln in Dec.
• Eurozone Flash Consumer Confidence ticked higher in Feb to -20.2, in-line with expectations, vs -20.7 in Jan.
• Japan All-Industry Index (sa) +1.3% m/m in Dec, vs -1.1% in Nov.
• Hong Kong unemployment rate (sa) ticks lower to 3.2% in Jan.
• Taiwan export orders -8.6% y/y in Jan, vs -0.7% y/y in Dec.
• Taiwan current account $12.10 bln in Q4, vs $10.19 bln in Q3.

Although Greek bondholders agreed in October to accept a 50 per cent cut in the face value of their bonds in face-to-face negotiations with Nicolas Sarkozy, France’s president, and German chancellor Angela Merkel, they will now be offered a “voluntary” deal with a haircut of 53.5 per cent, eurozone officials said.

…Both Jean-Claude Juncker, chairman of the eurogroup of finance ministers, and Christine Lagarde, managing director of the International Monetary Fund, stressed that Greece still had to live up to a series of “prior actions” by the end of the month before eurozone governments or the IMF can sign off on the new programme.

In addition, the bail-out comes with tough new terms, including a permanent team of monitors in Greece to ensure Athens lives up to the terms of the bail-out deal and an escrow account which Greece will ensure always holds three months worth of debt payments. The escrow account will be temporary, however, and Athens has agreed to change its constitution to make debt repayment the top priority in government spending.

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The agreement revolves around a debt exchange that calls for private investors to waive 53.5% of their principal under a massive debt swap that will cut Greece’s outstanding debt stock by €107 billion. That goes beyond a 50% haircut agreed upon at a summit in October.

Speaking after the conclusion of more than 12 hours of negotiations, Eurogroup chairman Jean-Claude Juncker said the agreement “provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing, and hence for safeguarding financial stability in the euro zone.”

The deeper private sector haircut will help bring Greece’s debt as a proportion of gross domestic product to 120.5% by 2020 from over 164% currently.

…”All is still pending what the reaction of the private sector” will be, German Finance Minister Wolfgang Schäuble said.

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PG View: The market is nonplussed. Perhaps because investors have heard this song before; and as the German FinMin said, “all is still pending.”