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Relying on Fake German Strength
Wolf Richter www.testosteronepit.com
While we’re sitting on the edge of our chairs, waiting breathlessly for the Greek election, or for Fate to swallow Greece and send financial Armageddon over the Eurozone, stock markets rallied. Not because of a sudden plethora of good economic news, but in anticipation of how central banks might react to the Greek vote—that’s how far this farce has come! As if sheer artificial liquidity could wash away the putrid odor of decomposing debt.
They lined up on Friday to give their spiel. ECB President Mario Draghi would “continue to supply liquidity to solvent banks where needed.” Bank of Japan governor Masaaki Shirakawa was “prepared to take all possible measures” but denied rumors that central banks around the globe would take coordinated action. The Bank of England spoke up. The Swiss National Bank confirmed its iron determination to keep the flood of euros at bay, with capital controls, if it had to; its currency peg would hold, come hell or high water.
To calm the credit markets, it was leaked earlier that Draghi, European Council President Herman van Rompuy, European Commission President José Manuel Barroso, and Euro Group President Jean-Claude Juncker were feverishly bent over a grand plan to convert the beleaguered monetary union into some sort of federal state governed by unelected EU bureaucrats.
So, while waiting for the vision to appear, I skyped with a friend in Germany who owns two restaurants. They’re doing well, he said. 2011 was a record year, and this year looks good too. He’d redecorated, his new menu was a hit, and he was excited, though it was a day-to-day struggle, in a jungle of regulations, with taxes out the wazoo. And what about the debt crisis? He didn’t pay much attention to it, he said.
Indeed. The debt crisis has been good to Germany, formerly the “sick man of Europe.” After Reunification, Germany was marked by high unemployment, stagnation, and lacking innovation. The dotcom euphoria bypassed it. Inflation surged and real wages declined. Industry restructured, ditched unprofitable operations, axed workers. But countries around it boomed. Spain and Greece were riding high. The Celtic Tiger was cleaning everyone’s clock. And Germans became morose. Eventually, the internal devaluation, insidious as it was on the middle class, paid off for industry. Exports took off, and Germany was showing signs of growth.
Then the financial crisis hit. Export orders fell off a cliff, causing GDP to plunge 2.1% in the fourth quarter of 2008 and a horrid 3.8% in the first quarter of 2009. Annualized, those two quarters printed a double-digit decline in GDP. The worst two quarters in the history of the Federal Republic. The German economy lives and dies by its exports.
But as the financial crisis morphed into the Eurozone debt crisis and began infecting the periphery, Germany recovered. Exports to Asia skyrocketed, exports to European countries did well, and a good part of the US stimulus money made its way to German enterprises, such as Siemens and its suppliers. They produced and hired. Exports last year exceeded €1 trillion for the first time ever. Unemployment dropped to a two-decade low. Its budget is nearly balanced, and yields on its debt probed zero. Euphoria set in.
Short lived, it seems. According to a slew of recent data, Germany is backsliding. Its banks are highly leveraged and packed with who knows what kinds of decomposing assets. Its debt, at 81% of GDP, is high for a country that can’t print its own money, and is higher than that of Spain. If China implodes and the US enters a recession, while the Eurozone continues to teeter, German exports will once again collapse. The savior of Europe will find itself in a deep recession, with large deficits, rising unemployment, spiking yields....
“Germany’s strength is not unlimited,” Chancellor Angela Merkel told the Bundestag on Thursday. She was committed to the euro, she said, but would eschew counterproductive quick fixes, such as Eurobonds and other forms of debt sharing. She was addressing President Obama, French President François Hollande, and her European counterparts who have been demanding that the German taxpayer pick up the tab for the profligacy of others.
The same day, the French government drove a wedge into the rift between the two countries, the core of the Eurozone. Without it, nothing will work. Hollande, while in Rome to form an anti-Merkel triumvirate with Italy and Spain, presented his plan to save the Eurozone: institute “euro-bills” (his word for Eurobonds) and use ECB funds to recapitalize banks (via the ESM).
Panic attack, it was called in Germany: the French mega banks, chock full with rotten assets, were teetering, and to avoid having to beg Germany to help bail them out, Hollande wanted to change the rules so that he could ask the ECB instead.
Then, Prime Minister Jean-Marc Ayrault suggested that Merkel shouldn’t “sink into simplistic formulas.” And Arnaud Montebourg, Minister of Industrial Renewal, accused her of “ideological blindness.”
Friday, Merkel hit back. “Pooling the debt may be of interest to some, but in Germany, it would lead to mediocrity,” she said. “And mediocrity must not become the standard in the Eurozone”—thus slapping the M-word on the French.
“If Greece doesn’t get its next loan installment, the Eurozone will collapse the following day,” scowled Alexis Tsipras, leader of the left-wing SYRIZA. By threatening the entire Eurozone with its demise, if he won the election, he ratcheted up the bailout extortion racket a few more notches. The run on Greek banks turned into panic. Eurozone heads of state, already on edge, threatened Greece in return. Everything is coming to a head. Read.... Greece in Panic ... um, Wait!
And here is the hilarious video from down-under comedians Clarke & Dawe that in 2.5 minutes summarizes with superb accuracy the entire Eurozone debt crisis.
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Ultimately it becomes a matter of who has the means to collect from whom. Historically this is done through violence or the threat of violence. Lawyers and accountants don't do well in gun fights. The US is the only country that no other country can collect from. The banksters know the street rules and the pecking order of who can collect from whom. I'm surprised the US's rating wasn't lowered long ago because it should reflect not only an ability to pay debt but also an ability to not pay debt; that should have made us junk.
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Running an extortion of the weak, farming of the poor business...
The US military should be enough to give the US a 'AAA'.
The US military should be enough to give the US a 'AAA'.
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Does not work this way.
US ciitzens build models without accounting for all dimensions.
In that model, all nations are supposed equal in repoing. Untrue.
The model gives that the US is in bad shape. But as it does not account for the fact that nobody will repo from the US, the model has no predictive value for the US.
To mitigate that point, US citizens weighs between the credibility they need to perform repoing acts and the fact that the US is not subjected to the model as it is described.
US of A will keep a poorer grade. In reality, the model does not apply to the US and the US does not care about the grade they've got.
The models are quite needed because it gives justification and makes easier repoing on people/nations that can be repoed.
If the US gets AAA to close on reality, it would destroy the credibility of the model and therefore make looting countries on ground of poor debt grades more difficult.
US citizenism at work.
If the U.S. keeps a AAA rating when it becomes even more obvious to everyone that they can't repay it without resorting to ever rising inflation, the rating agencies will lose even more credibility with bond investors.
Other countries holding our debt are already publicly complaining about it, and those like PIMCO who are shaking hands with the (crooked) government are picking up their profits in front of the steamroller with the implicit understanding the Fed driving the steamroller will go slow enough to let them do so in safety.
That strategy, of course, relies upon the assumptions that the Fed is reliable and will retain control of their steamroller despite the fact that they have dual goals (aka mandates) that can be and often are contradictory, and despite indications that pressures are building and they could lose control as so many others in the drivers seat have in the past.
yeah, the military can do anything. Just send a SEAL team or whateverthehell to the ratings agencies, or maybe it would be enough to have a gaggle of drones circle the buildings and follow the CEO home at night - the U.S. will be "AAA" forever! Hell, even "AAAA".
Oh, and I hope the aliens get here soon, so we can really kick their asses like in the movies (if they have asses).
/sarc
They probably should have been downgraded when Nixon renegged on the promise to redeem dollars for gold.
That was a default in my mind, and a staking out of the right to print whatever they felt they could get away with.
Would anyone loan money to an individual who acted in that way? At very low rates?
Germany's engineering is the best and people want their products, but the people have no money.
Yes, the US economic model is seemingly broken as well.
But as for the US ....... they have the biggest, baddest military on earth, including thousands of troops and several airforce bases in Germany. I believe we are in the middle of the US "post-bubble" economy right now. It may also not work, but they seem hell bent on giving it a go.
Exactly bike boy, the US owes the world but the world can't collect. That's what happens when they lose the ability to fight. Witness Argentina's nationalization of Spain's assets. Spain's Navy (non-existent) couldn't even cross the Atlantic to make a protest. The rest of the world gave up their Navies and banksters know you aint a threat if you can't make a house call.
Oh man! we are really stooping low if our military is seen as a prized asset for preventing other countries from collecting debts that are rightfully owed to them.
Could we maybe return to America as a shining beacon of Freedom?
Could we maybe return to America as a shining beacon of Freedom?
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US citizen ways have not changed one bit. No return to anything as it has been the same from inception.
What has changed is that people who thought they had an inborn right of being on the right side of US citizenism are now pushed on the wrong side of it.
US citizen ways have not changed though.
"Could we maybe return to America as a shining beacon of Freedom?"
Get real - as in realpolitik. First of all, America was only ever a shining beacon of Freedom in some fairy tale or third grade history book. Americans are free from external threats because we have a great military that keeps other countries from seriously fucking with us. Our biggest threat is from within- you know NYC banksters and their DC pawns. Finally, there are no nations that are shining beacons of Freedom; not a fucking one. Although I do kind of like how Iceland told the banksters to fuck themselves.
You've inadvertantly lurched into the truth, vet4ronpaul-boy.
Which is exactly how the rest of the world views the US, a hypocritical bully.
....Yet are jealous because they do not have large military forces of their own.
Human nature.
If US was not powerful, some other outfit would gladly take its place.
Indeed because it is human nature to be a US citizen.
When it is not, it means you are a sub human or a non human. US citizen style.
Because human nature can not express itself other than through US citizenism.
'Sticks and stones', philipat, 'sticks and stones'.
You hit it right on the head, right on the head. But I think that Germany sold that debt to other European countries to get rid of it. Because if they had those loans backed by dodgy collateral and it was sitting on Germany pension and other accounts, they would know and wouldn't be fighting the printing of the money.
You guys think too much. There was no thing like a German plan. And the "plan" you describe would be just too stupid, as the catastrophic end is evident for everyone. We give credit to bankrupt people to buy our products - and that's the dirty little plan (for world domination, I suppose)?
The German export boom is mainly due to markets outside the EU.
"Saving Greece" and the others is for the NWO agents (in Germany and elsewhere) to gain time. They want to keep the EU and the Euro alive, as these are important corner stones for the NWO.
The German people will be completely ruined quite soon. That's sufficient. We don't need the role of the scape goat in addition to that.
I agree Otto
you can see where people get the idea there's rich-Europe culpability when you see large loans going to Greece for example to then buy un-needed submarines etc
but this is the normal rotten process of Govt and its public-private scams... look at foreign loan aid from the US Govt to finance GE and Haliburton crony contracts abroad
but let's not get bogged down in details, it's not about how the deckchairs are/were arranged, the Big Problem is Govt, that most corrupt and destructive institution that is the conduit to wrecking Greece and other nations
I see. I had, apparently incorrectly, assumed that Merkel wanted to get re-elected.
Her policy makes her popular in Germany.
Bank Guy in Brussels
you're saying it takes two to tango yes?
Greece couldn't possibly got in the mess it has without the 'help' of those nasty German folk seducing them to take lots of money
Greece joined the EU 10 years ago by fraud committed by Greek politicians and banking frauds, Goldman Sucks, cooking their books
previous to joining the EU the "Birthplace of Democracy" was averaging bankruptcy every 14 years all by its rotten self, a direct result of that most wonderful institution, Govt, and those most wonderful people, politicians (the socialist Papacockupalot political family dynasty)
you want to blame the Germans for the dasterdly Masterplan of ruining Greece do ya?
oops
Quite a US citizen song but here:
new member to EU is subjected to veto power of already members of the EU.
Any country member of the EU could have vetoed the entry of Greece.
The fox is the doorman of the EU henhouse.