John Taylor On The Transition From "Win, Win" To "No Free Euro Lunch"

Tyler Durden's picture

Who Pays for the Euro?
November 18, 2010
By John R. Taylor, Jr.
Chief Investment Officer, FX Concepts

One of the most popular American sayings between the 1940’s and the 1970’s was “there is no such thing as a free lunch.” Somehow that phrase and the pithy concept behind it seemed to have dropped from common parlance in the last twenty years to be replaced by the idea of “win, win.” Win, win still has many adherents but its days as the global credo are dwindling down toward zero. During the next few years ‘no free lunch’ should roar back in vogue, especially in the Eurozone. The euro brought tremendous benefits to almost all Europeans over the past decade, but there is no free lunch, and now someone has to pay for all the good times. The question is: who? This simple query is behind the millions of man/woman hours of meetings and writing that has been, is, and will be spent trying to parcel out the costs. Remembering that hundreds of millions of people gained a great deal for many years, the costs will be huge and they will be drawn out for at least a decade as well. All those who are in the markets’ sight as likely payors will pose as victims with much gnashing of teeth, at a minimum, and violence at a maximum. The scene is only just being set and there will be many plot twists before we reach the denouement, but we can sketch an early draft of those groups that will struggle mightily to avoid the brunt of the previous euphoria.

The candidates that the world leaders seem have chosen to pay this bill are the common people of the countries that are in trouble. At first blush this seems a very logical idea as they look like the most obvious beneficiaries of the good times. The value of houses in Ireland quadrupled in the 10 years up to 2006, jobs were very plentiful (often building houses) and everyone was wealthier than they had ever been. As these people were the winners, now they should pay for this privilege. Although this is happening in Greece and in Ireland, these people do not have the money; at best it is in their houses but more likely it is just gone. They are suffering mightily but can’t pay. The argument then goes that the leaders of these countries – Greece, Ireland, Portugal, Spain, and also the Baltics – let the boom go on uncontrolled when they could have stopped it by raising lending standards and by running large government surpluses to slow the growth of private incomes. So, it’s the local politicians’ fault. 

This is appealing except for the fact that every single ‘slightly’ lesser developed country that joined the Eurozone, no matter what its strategy, suffered the same fate. When capital is re-priced from the teens to the low German levels and then becomes almost universally available, there is almost no way to stop a boom from occurring. It is not just houses that are the problem, it is factories, shopping malls, and developments of all sort. That a government would be so anti-growth is just not practical.

Maybe the agents who financed the boom should pay. The banks, the investors, and the entrepreneurs that made the loans, bought the bonds, and invested in projects would be the losers. Actually, some are already paying for the good times, but others are shielded by the ECB and their governments. Although bonds that had a face value of 100 now trade at deep discounts as their principal might be lost, European banks that own them have not recognized this major risk. Because Angela Merkel grew up in East Germany, she knows how the authorities can fabricate a false front, a Potyomkin village. She knowsthat the investors must accept their losses to give the euro legitimacy. But, how can that be done when the European banks are holding most of the questionable assets? The last candidates to bear the cost of this ‘lunch’ are countries that ran current account surpluses with the countries in trouble. The more successful the German export machine is, the worse the problems of Greece and the others. They can’t compete, so they are the victims and the exporters are the victors who have enjoyed the ‘free lunch.’ The burden should fall on everyone, but the battle to allot the blame will be ferocious.

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ZeroPower's picture

Have you met Germans? They are not going to suddenly stop exporting or being as efficient just to help their poor foreign brethren out.

Ideally, the EUR is replaced by a EURx and EURy - a stronger currency for the more export-oriented and traditionally strong countries, the weaker currency for countries where they traditionally had lower exports and lower growth. This makes perfect economic sense and removes the whole 'the EU will not survive' mentality. 

VK's picture

Even better we could have a EurX1, EurX2 and EurY1 and EurY2 to further differentiate between the winners and losers. Or better yet, every country could get their own currency!!

ZeroPower's picture

Sure, but my original point was missed.

In times of great cooperation and various economic cooperation among countries, a single currency makes sense. What doesn't make sense is having that currency encompass completely different economic boundaries like letting the Greeks use a the same unit of purchasing power as strong as the Germans, or even encompass vast geographic boundaries i.e Ireland to Poland. In those cases, i agree their own currency makes sense. 

Sudden Debt's picture

So you feel like people don't understand your points of view he?

How is your relation to your mother and your father?

ZeroPower's picture

Oh you gonna be pulling Freudian shit on my ass?

Gordon Freeman's picture

Well, you know, tough shit.

Many were the thinkers who pointed out just this kind of flawed assumption, when the Euro was being created.  They were brushed aside.

The Euro boosters have made their bed, and now they must lie in it.

ZeroPower's picture

I agree it was their bed to make, however they won't simply lie in it without thinking of some solutions to the current unsustainable single currency for (potentially) 27 nations.

Charley's picture

Dollarization, bitchez

The hunger for a new source liquidity to satisfy outstanding debts will grow, and only dollars will be there to quench the thirst. The Bernanke Bankster Mafia Krewe sets up the planet for the final denouement...

Dan Duncan's picture

A great post.

I remember Bill Clinton touting abook by  Robin Wright called  Non Zero.  

"Win-Win" was the maxim.  It was in every faddish business book of the day.

With religious fervor, the acolytes of Non Zero touted complexity, specialization and interdependence.  "Grow, Baby Grow...because, in the end, we all benefit!"

And Even though this paradigm has evolved into something grotesque, the banks and GSEs just won't let it go. 

But instead of focusing on the "win-win" element, they focus on the interdependence aspect, ie, "We're all in this together.  Do the moral, responsible thing, Greece and Ireland and pay your debts.  Do the moral, responsible thing, homeowner and keep paying on that upside-down mortgage."

Meanwhile, behind the curtain, these moralizing protheletizers of  interdependence employ every scheme and artifice possible to turn the "nonzero"game into a zero sum, "gotta do what's best for the shareholders", winner take all beat down of the lower classes.

Who defected first?  The Strategic Defaulters?  Please.

In 2006 there was not a single Strategic Defaulter on this planet.  There were, however, plenty of banks defecting by pimping out NINJA LIAR Loans on a massive scale and blending this shit into toxic cocktails, while reaping the huge rewards.

The myth that these wizards could bundle hundreds of distinct zero sum mortgages into a single non zero securty, where "everybody wins" has been shattered.

Now it's back to the Square One of Zero Sum.  Here, the Strategic Defaulters are channeling Janis Joplin (who channeled Chris Kristopherson) and are simply going "Me and Bobby McGee" on the banks:

"If you win, I lose.
But I already lost, so you got nothin to win.
So, here are the keys

And now I am free.

Freedom really is just another word for nothin' left to lose.
And nothin' aint worth nothin...
But it's free
And it's good enough for me and Bobby McGee."


DollarDive's picture


There once was firm called GM,

It's balance sheet was sort of a "BM",

So they sold lots of stock,  amongst all the talk

And it closed in the red in the PM.


"Can't Short 'Dis - It's POMO Time"


snowball777's picture

This reminds me of the time I saw MC Hammer...on a SouthWest flight to Burbank.

Arius's picture


Donald Trump the American TITAN embodies the Win - win phrase and unfortunately its fallout...

we have became a nation loving the  "you are fired" mentality...what do you expect...

all lies...until all falls out.. and people call for more gold

greenewave's picture

To find out more about the Imminent Collapse of the Global Economy, watch this video "Wall Street Thieves, Bailouts Galore, Broken America" at (

by Anonymous

The United States economy is rotten at the core and has been stolen from the American people by the Wall Street Thieves that drove the Titanic into the iceberg in the first place!!

Douglasnew's picture

Let's not lose sight of the fundamentals. Win, win is always possible when a people follow the constructs of sensible growth and expansion without the overzealous borrow and spend by both the people and government. The U.S. and Europe ended up where we are because Banks made loans to people that had no means to pay it back, short of the greater fool theory. When Real Estate appreciates double digit year after year, someone in Government should have put the brakes on with the Banks underwriting then and there.

Chartist's picture

The Germans build the best, most desireable brands of cars in the world....Nothing is going to encroach on that success....Germany can handle this but to bail out other countries, they need to have serious input on how these bailed out nations run their finances going forward.....Are we about to witness a ruling Germany in Europe again?

Yardfarmer's picture

the illusion of freedom as the result of planned economies is a most dangerous one indeed. it is the madness of expecting endless material gratification with little cost that underlies the folly of such collective addictions. the financial confidence men who have quite consciously baited the hook with get rich quick schemes now have their prey quite hopelessly ensnared and prepared for evisceration. however this particular food chain is quite an involved and complex one and many of the vultures coming to roost will be torn to pieces by larger and more clever predators.

"Oh horrible vulturism of earth! from which not the mightiest whale is free!" Herman Melville

"What has always made a state of hell on earth has been precisely that man has tried to make it his heaven" Holderlin

Sudden Debt's picture

I seem to get the feeling that your post contains a form of pessimism about the apparatus Comrad!

Mercury's picture

There really isn't any such thing as a 'free lunch' and there may be no such thing as a mathematically pure 'win-win' but there are certainly situations where the upside far outweighs the downside  (such as literacy and many advances in medicine and agriculture).  Neither lavish welfare states nor perpetual increases in asset prices nor always-easy credit are one of those situations however.  Those things are more akin to naked put selling (Hey! look at this steady stream of premiums I'm collecting!).

In addition to being unavoidable its also not necessarily a bad thing to be mugged by reality and reminded once in a while that no, really,...there is no free lunch.  The danger is that the State or it's proxy, in an effort to maintain the illusion, tries to eat your bought and paid for lunch.

But at least we have the wherewithal to better our respective conditions. It could be worse! - like having to exit purely by the laws of thermodynamics which essentially state (as summarized by Allen Ginsberg): "You can't win, you can't break even, you can't get out of the game."

sgorem's picture

the game plan is to replace the Euro(u-owe) with the "universally accepted fiat dollar", ie., shoved down their throats, since our dollar is universally infested in the world economy. We should quit talking about millions, billions, or trillions anymore and just how many TONS OF PAPER DO WE NEED TO SHIP TO WALL STREET OR EUROPE. What a dark farce being played out...........

shortus cynicus's picture

Because Angela Merkel grew up in East Germany, she knows how the authorities can fabricate a false front

There is more to say: she was a clerical worker for agitation and propaganda at FDJ - some sort of communist brainwashing scouts organisation.

Than she was a physician. Physicists were always suspected of making braking through discovery and therefore specially monitored and treated. Many of them ended up in insane asylum to be neutralized. But some not, especially those actively making reporting to authorities.

She just knows how a system works:

  • do what is requested from you without complaining
  • have no own opinion and mind
  • stay loyal
  • be secretive, take no clear position on any issue
  • don't do anything new, so nothing can be your fault
  • take care only about yourself, if neceserry sacrifice other people
  • and so on....


gwar5's picture

"Win-Win" ----->   "No Free Euro Lunch" ----->   "Let Me Help You Pack"


"All You Need is Love" -- Beatles, 1967.

"What's Love Got to do With it?" -- Turner, 1993.

"Don't Touch My Junk" -- Tyner, 2010.

Quinvarius's picture

All this anti-Euro nonsense.  I think some deep introspection is required.  You guys just want the Dollar to go up and crash the markets.  A dead Euro is the easiest path because it is so much of the Dollar Index.  Dudes.  It ain't gonna happen in your lifetime.  If you keep betting against the Euro, you will be in serious pain.  Step back.  Remove bias.  Rethink.  Stop watching CNBC for brain poison and propaganda.  At worst, the Euro is as bad as the Dollar.  But the reality is, we spend twice as much every week to bail out our banks as it would take to bail out all of Ireland.

I don't know guys.  Part of trading is introspection.  Don't lose sight of the chain of reasoning that put you where you are.

Quinvarius's picture

I say QE is required and will continue incrementally for a very long time.  I say the Euro is far better than the dollar.  I say the Republicans are purposely trying to wreck the economy for political gain and have been since the Summer.  I say that if the Republicans ever take the Presidency, the USA will collapse.  I say buy as much gold as you can carry.  I get junked repeatedly.  Your junks are an admission that the truth is unpopular.

Drunken Paddy's picture

Forgive me if I'm wrong but I'm not too sure the below is correct?

"The argument then goes that the leaders of these countries – Greece, Ireland, Portugal, Spain, and also the Baltics – let the boom go on uncontrolled when they could have stopped it by raising lending standards and by running large government surpluses to slow the growth of private incomes. So, it’s the local politicians’ fault.

Surely government surpluses would not have stopped this boom. They would have either stuck the money into a bank, whose "lending standards" would have ensured that more and more loans were made to reckless borrowers (property developers) or they would have invested it. If they had invested outside the EUROZONE, then whoever bought their EUROs might have also moved the cash into the periphery banks to be lent. Idem if they had invested the cash into the EUROZONE capital markets. Also, the Irish government would have just asked the local banks to run their sovereign wealth fund, and we know how bad at allocating wealth they are.

In the end, the fault lies 100% with the competency of the bankers...little wonder we're in insolvent/bankrupt.

Canucklehead's picture

What you are seeing is the slow train wreck that was the EU. By 2013 you will have Greece, Ireland, Portugal, Spain and possibly Italy backstopped by the ECB.

By 2013 you will have a few years of austerity measures experienced by those country’s electorates. Some of those nations will be at the point where they can default as they have an operational surplus but continue to run their budgets at a deficit due to payments to the ECB. It doesn’t take a genius to figure out how the politics will work in that environment.

Greece likely will default at that time. Do you think Greece can default without causing second thoughts to wander through the minds of Ireland, Portugal, Spain, and possibly Italy? How would the discussion go down in the EU when Greece looks to bolt? Would politicians from those other forlorn countries go to bat for the EU, or sit silent?

Greece is in the drivers seat. The cancer within the EU will grow to a point where it is obvious that Germany must bail. France will see the writing on the wall.

There will be no EU by 2017. Too many dumb decisions are being made today by their sub-prime ministers.

litoralkey's picture

American Airlines commercial 'Win-Win'


The historical divide of the high and low German peoples is going to be interesting to watch here.

Very well could see Anschluss again as it would seem to bolster both countries political and economic elites.

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