A report by Bruce Bennett and the RAND Corporation has brought attention to one of the most important issues for international politics. Ironically, despite being a region of vital interest within American foreign policy, there has been very little public discussion of what to do in the event of government collapse in North Korea. Bennett’s timely report provides a series of vital contributions to the discussion and further outlines the lack of preparation in political, social, economic and military terms. Yet beyond the critical end game for the Korean peninsula are deeper questions concerning how any international force might respond. Specifically, how can the U.S. and Republic of Korea effectively mobilize regional powers with their differing security and development goals? Preparing for the unthinkable is not a simple moral imperative, but responsible leadership in the twenty-first century.
Only a week ago, the consensus among most mainstream economic analysts and even some alternative analysts was that a government shutdown was not going to happen. The Republicans would fold in the shadow of President Barack Obama’s overwhelming drive for socialization, spending would continue to grow unabated, and the debt ceiling would be vaulted yet again to feed the bureaucratic machine with more fiat. Today, there is no consensus, very few people continue to be so blithely self-assured and even the mainstream is beginning to wonder if a much bigger game is afoot here.
The situation in Italy appears to be going from bad to worse. With a confidence vote pending for Tuesday as the government dissolves into chaos for the umpteenth time, and following the resignation of the CEO of one of Italy's largest non-financial corporations (Telecom Italia), the largest bank (by assets) in Italy - Intesa SanPaolo has announced - effective immediately - the resignation of its CEO and replacement with Carlo Messina. According to sources, the now former CEO had lost the confidence of shareholders (which is odd given the bank's stock is near 2-year highs). We can't help but wonder Ayn Rand-like at the devolution of the ruling class in Italy and what happens next (in light of the crumbling manufacturing and production data).
Italy’s Stability Program targets a 5%-6% primary budget surplus, and 3% nominal GDP growth. Both strike JPMorgan's Michael Cembalest as unrealistic in the context of post-crisis Italy. Italy ran a 6% surplus for a brief moment in the 1990’s but it didn’t last, as it was the result of a prior devaluation helping growth, some asset sales and some tax increases. Only asset sales seem feasible in Italy right now, if anything. If Cembalest's concerns are correct, Italy will remain a country with almost twice the debt/GDP ratio as the US; unbreakable interdependency of the government, the banks, and the ECB; and low GDP and employment growth. If history is any guide, he will be right as the last few years have seen the biggest collapse in Italian GDP since The Unification in 1861...
The high priests of academic and “official” history love a good villain for two reasons: First, because good official villains make the struggles and accomplishments of good official heroes even more awe-inspiring. And, second, because nothing teaches (or propagandizes) the masses more thoroughly than the social or political lessons inherent in the documented rise and fall of the world's most despicable inhabitants. We get shivers of fear and excitement when we discuss the evils and the follies of ancient monsters like Nero, Attila the Hun, Caligula, etc, or more modern monsters, like Mussolini, Stalin Hitler, Goebbels, Mao, Pol Pot, Idi Amin, and so on. We take solace in the idea that “we are nothing like them”, and our nation has “moved beyond” such animalistic behavior.
There are dates that go down in history and some will be remembered as landmark signals of changing times. Russia has the upper hand in Syria.
The lack of a centralized constitutional and monetary union has led to several years of inaction in the process of unification of the Euro-zone. While it was a "grand experiement" to run the Euro-zone under a single currency the underlying structure to make it effective long term was never achieved. There are currently many promises that have been made to the financial system by the ECB. The question is whether or not they can ultimately "cash the check." While we do not have certain answers as to the where, the who or the when - we are fairly confident that it will be sooner than many currently imagine. We do believe that the ECB will be able to skirt by the ratification of the ESM this coming week and get some limited funding into place, however, we still believe the bigger problem comes at the end of summer when the German voters begin to voice their concerns - after all it is their money that is being wasted.
The Belgian Central Bank said yesterday that about 25 tons of the European nation’s gold reserves have been lent to bullion banks according to Bloomberg. Nearly 10% or about 25 metric tons of the National Bank of Belgium’s remaining 227.5 tons of gold reserves are currently lent to bullion banks, Director and Treasurer Jean Hilgers told the central bank’s annual meeting in Brussels. The proportion of gold reserves on loan declined from 84.3 tons on December 31, 2011, and averaged 48.1 tons in 2012 as loans matured and some gold loans were reimbursed early. Hilgers said that the Belgian central bank sees gold lending decreasing further this year. During the 1990’s, Belgium sold some 1,000 tons of gold into the market - more than three quarters of its remaining holdings. The Belgian gold reserves, which had already seen sizeable liquidation in late 1978, fell from 33.7 million ounces on 12/31/88, to just 5.7 million ounces on 03/31/98, or a fall of 83% in less than 10 year.
Just Say Non To The New "Sick Man Of Europe" - Support For EU Plunges In France And Most European CountriesSubmitted by Tyler Durden on 05/13/2013 19:32 -0500
In some surprising news, and quite contrary to what its record low bond yields would indicate (for a key reason for said artificial demand for French, see The Greater Fool) today the Pew Research center released results from a poll of 7646 EU citizens in March 2013, showing that the new sick man of Europe is Europe itself, or rather the great unification project itself: the European Union. Perhaps most surprisingly, nowehere is this more evident than in France itself - the country where the idea of a European Union germinated in the first place - and where the decline in support for the EU has been the greatest in the past year, with just 22% responding affirmatively to the question whether 'economic integration strenghtened the economy', down from 36% a year ago, and the biggest drop of all surveyed EU member states.
The debate rages... Soros: "The euro crisis has already transformed the European Union from a voluntary association of equal states into a creditor-debtor relationship from which there is no easy escape. The creditors stand to lose large sums should a member state exit the monetary union, yet debtors are subjected to policies that deepen their depression, aggravate their debt burden, and perpetuate their subordinate position. As a result, the crisis is now threatening to destroy the EU itself. That would be a tragedy of historic proportions, which only German leadership can prevent." Sinn: "Soros is playing with fire... Many investors echo Soros. They want to cut and run – to unload their toxic paper onto intergovernmental rescuers, who should pay for it with the proceeds of Eurobond sales, and put their money in safer havens... Soros does not recognize the real nature of the eurozone’s problems. The ongoing financial crisis is merely a symptom of the monetary union’s underlying malady: its southern members’ loss of competitiveness... His accusation that Germany is imposing austerity is unfair. Austerity is imposed by the markets, not by those countries providing the funds to mitigate the crisis."
Europe's dual problems of low growth and weak profit margins combined with this week's vote in Italy are likely to usher in another period of European underperformance, but as JPMorgan's Michael Cembalest notes, that is the least of it as Italy overtook Japan with the worst real GDP growth of all advanced economies since 1991. In fact, other than wartime, the last few years in Italy have been the worst for growth since Italian unification in 1861. But, before the rest of Europe gloats that 'they are not Italy, or Greece', he reminds us that the slowness of French GDP growth in recent years is the slowest in over 80 years. As he warns, all things considered, from an investment standpoint, caution continues to be warranted as problems appear to be taking their toll on EU profitability.
"The European Union is a horrible, stupid project. The idea that unification would create an economy that could compete with China and be more like the United States is pure garbage. What ruined China, throughout history, is the top-down state. What made Europe great was the diversity: political and economic. Having the same currency, the euro, was a terrible idea. It encouraged everyone to borrow to the hilt. The most stable country in the history of mankind, and probably the most boring, by the way, is Switzerland. It’s not even a city-state environment; it’s a municipal state. Most decisions are made at the local level, which allows for distributed errors that don’t adversely affect the wider system. Meanwhile, people want a united Europe, more alignment, and look at the problems. The solution is right in the middle of Europe — Switzerland. It’s not united! It doesn’t have a Brussels! It doesn’t need one."
99 years ago the Fed was born. Then there was a world war. Two decades later, Keynesian economics (in a somewhat mutated form than that envisioned by the author, much like the Taylor rule) became the gold standard (pardon the pun) of the status quo, as it gave the political establishment a "scientific" justification to spend and accumulate gargantuan debt loads without fear of backlash by the public. Then there was another world war. Then the gold standard was obliterated, allowing the same establishment to dilute the instrument used as money and to cross the "gargantuan" barrier in spending and debt issuance. Then the world came to the verge of complete socio-economic and systemic collapse after a ponzi pyramid of $1 quadrillion in credit money nearly imploded in on itself. Then the final chapter of the corporate takeover of the sovereign model established by the Treaty of Westphalia arrived, as private deleveraging at the terminal expense of public debt took place at a record pace. This is a nutshell is the world history of the past century. And to summarize where we currently stand, we present the chart below. In the entire "developed" world, there is only one country that runs a budget surplus, even as the entire "developed" world is now, according to the Reinhart and Rogoff definition of sustainable public leverage, insolvent.
When jawboning is stuck on max, and mere talking and exortations to just "believe" lead to no incremental benefit for PIIGS bonds and the leve of the Dax, what is a central planner to do? Why start, er, fingerboning, and write extended missive on the future of one doomed utopian vision or another. Sure enough, the former Goldmanite has just released the following Op-ed in German Zeit, titled, "The future of the euro: stability through change", which contains this piece of sheer brilliance: "The ECB is not a political institution. But it is committed to its responsibilities as an institution of the European Union." The European Union which is first and foremost a... political institution.
With Vacation Over, Europe Is Back To Square Minus One: Merkel Backs Weidmann, Demands Federalist StateSubmitted by Tyler Durden on 08/26/2012 12:04 -0500
Earlier today we showed for the nth time that with insanity and insolvency ravaging the old continent, at least one person has the temerity to avoid sticking his head in the sand of collectivist stupidity and denial. That person is Bundesbank head Jens Weidmann, who until now may or may not have had the backing of Germany's elected leader, Angela Merkel. Moments ago it became clear whose side Merkel, who recently came back from vacation and is set to spoil the party that the (insolvent) mice put together in her absence, is on. From Reuters, who quotes Merkel in her just released interview with German ARD: "I think it is good that Jens Weidmann warns the politicians again and again," Merkel said. "I support Jens Weidmann, and believe it is a good thing that he, as the head of the German Bundesbank, has much influence in the ECB."