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The End of Europe?

January 14, 2012

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Solving the Mayan Code
To Solve the Crisis You Must Solve Three Problems
Getting Simple About Europe
How Much Risk Do You Want in a Government Bond?
Do You Have a Spare €1.5 Trillion?
Singapore, Cape Town, and Thoughts on Hong Kong

One of the interesting things about being in Hong Kong is that I get to see the weekend edition of the Financial Times 12 hours early. And the headlines were not all that pleasant. As I promised last week, we will cast our eyes to Europe and ponder what is in store for Europe for the year and the next five years. And what do we read on page 2? The "ECB raps revisions to draft a fiscal pact." Seems they feel there are too many loopholes, which will make the document meaningless … somewhat like the treaty they have now. And we further learn that "Greek default threat grows as talks falter." Seems there is a lack of agreement on how much of a haircut the investors ought to take, and the Greeks don't want to guarantee any future debt, just in case they need to default some more in the future. But they do want the €15 billion they need to keep the debt machine running for a few more months.

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jar jarwik

Jan. 15, 6:07 a.m.

The problem with the currently proposed solution is that Mrs Merkel is a German and thinks like a German - draft a set of Regulations and everyone will obey them - the peripheral countries have a different approach - the Rules are there to be circumnavigated - only fools obey the rules - that is why
we are not even approaching a solution to the €zone problem just yet

Luciano Zanfrini

Jan. 15, 3:15 a.m.

@Peter Connor “Socialist Europe has a poor work ethic outside of Germany” Do you really mean it? Have you read the International Labour Org. statistics that show that, for an example, we Italians work something like 10% more hours than the Germans? Do you know that, in a 50 years timeframe, we have one of the most balanced pensions system IN THE WHOLE WORLD? And what about the public, pensions, and trade deficits of UK and USA? I’m sick and tired of this racist and ignorant way of thinking of you anglosaxons. Let’s talk about REAL numbers, not about some isolationist rant.

Robert Watson 34060

Jan. 15, 12:32 a.m.

Dear John,

I agree with your analysis as far as it goes but I am unclear just how competitive devaluation of the US$, the £ sterling… makes them less vulnerable, less of a threat… (in extremis devaluation…) In my reading the 1930s crisis was only really “solved” (the NYT Nobel-Prize-winner notwithstanding) by WWII and the consequential forced cut in living standards; Schacht’s (?) public works expenditure, a directed economy and German rearmament also contributed initially. Are you aware that you could really be advocating (indirectly?) a solution of this kind and if so how would the political consequences be different in today’s Europe (or in the US for that matter) from that in the 1930s?

“Prior to the euro, the imbalances would be handled by currency exchange rates. The value of the drachma would go down relative to the value of the deutschmark. Things would balance over time. Now, all of the eurozone countries are effectively on a gold standard, with the euro standing in for gold this time. Britain, the US, and Japan print their own currencies. Their currencies can rise or fall over long periods of time, based on national accounts and the desires of foreigners to buy goods or invest in their countries.”

My second point is that a very large part of the world’s debt is theoretical, bumped up by “purely speculative options, CDS…” and the like and has little to do with the “physical” economy. Why do you appear to exclude a massive haircut, or even a simple cauterisation (repudiation? call it consolidation if you like!) of such debt. The US appears to be in an infinitely worse position as concerns its debt and the % of its economy that is purely speculative (and off-shore?). US competitive money printing may well have reached the point of diminishing returns, in particular as concerns the Fed’s ability to create employment…? Even the pump-prlming impact of US military expenditure appears to have run out of steam? The “capture” of US legislators by a variety of “speculators” (banks, hedge funds, off-shore SIVs of all kinds…) appears to make the US response to its “real” economy less flexible rather than more? What price some sort of directed economy? If so, who will be in charge?

ROBERT DECELL

Jan. 14, 11:20 p.m.

Myron Martin

Jan. 14, 10:09 p.m.

Great work in laying out the consequences of Keynesian solutions to debt. I have to wonder whether all the highly educated functionaries who are manipulating the fractional reserve banking system to try and keep this Ponzi scheme alive failed mathematics in school.

The basic foundational truth is that long term interest is mathematically impossible for the simple reason that our debt based fiat currency is brought into existence as DEBT requiring the payment of interest, yet only the principal is ever created. Since it requires a specific amount of currency in circulation for an economy to function the bleeding off of interest means the only way it can be paid as the pyramid of debt accumulates is if ever larger and numerous loans are contracted to keep the system liquid.

As with any pyramid eventually you reach the limits of willing players (borrowers as well as viable collateral) and then deflation sets in as the debt can no longer be serviced as John as so ably pointed out. The problem is structural, and reform of the system is desperately needed, yet it is not likely to happen until the system simply breaks down as it is much too profitable for the elite bankers running this scam with the connivance of the political class that also benefits by getting elected on promises they can’t keep without in-debting the citizens they are supposed to serve and selling generations into debt slavery.

There is no way out of this debt trap without a lot of pain and chances are the elite will start another a war as a distraction (Iran) with an appeal to patriotism and justification for more printing of fiat currency.

scott grider

Jan. 14, 4:39 p.m.

they print n try to extend the piigs[how do u get ANY austerty then?] .....or they let ‘em leave [thru paralysis probly] and print to bail the banks on the ‘hook’ out.

DOW tanks, ben doesn’t wait in an election year[i can hear the midnite phone calls now].......gets in the helicopter w/tee-shirt shooters full of 100$ bills.

thats how they get out of this….as usual…...

the script has already been written:

http://www.safehaven.com/article/23974/deadly-dow-36000-and-the-secret-history-of-a-70-market-loss

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jar jarwik

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