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Philipp Bagus: Spain Can Thank The Euro for Their Issues
As ZH has reported time and time again, the natural signals that the market can send indicating that something is wrong have been corrupted. In this video, Philipp Bagus explains that Spain's use of the Euro currency has led to them being able to spend & spend, accumulating so much public debt without any real consequences. Now they are beholden to the Germans (see: Greece). He also touches on how Target2 is just a bailout for insolvent countries, masking deposit outflows as central banks print more to recapitalize their banks.
"the signal that something is going wrong, would have occurred much, much earlier"
"through the euro you get monetary redistribution, real resources from outside to finance your import surplus. Then, you can have more government spending than otherwise."
*1 minute into the video
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The Spanish voters were greedy. They wanted all the benefits that the corrupt politicians promised them. Maybe they were too dumb to know that no government can afford to have them retire at 60 and live at the tax payers' expense for another 20 years. When voters all over Europe were told the governments couldn't afford early retirement anymore they had tantrums like a bunch of spoiled children. It didn't matter if the money wasn't there. What mattered to them was what they promised.
joining the euro was like joining the ussr, I said so and no-one listened.
http://covert.ias3.com/expose/
Sigh. I agree with the first post. Blaming the Euro is an easy target, but hardly accurate. The US is having similar difficulties and is NOT part of the EU.
http://confoundedinterest.wordpress.com/2012/06/22/american-action-forum...
Some of you are missing the point. The point is that because they have use of the euro, (with the backstop of other countries goods & services) they were able to run up debt without their currency being devalued to the point where it was worth much less, and the credit markets didn't catch up to it all until just recently. Only now are the markets starting to demand more in return for their risky investment, whereas if they used their own currency they would have to stand on their own two feet, and the market would have shown that there were serious issues a long time ago.
the U.S. is the same story, except that for right now, the USD is the world's reserve currency, which keeps the USD propped up. The Fed is monetizing the Government debt, artificially keeping TSY rates low. Only a matter of time until this all catches up in greater magnitude in the U.S. You'll notice that even with all the EU's problems, the Euro is still nowhere near parity with the USD. That should tell you something.
"Spain Can Thank The Euro for Their Issues" - of course, as usual, people, even supposedly intelligent ones, repeat fallacies, that are commonly perceived as truths, without any understanding of the underlying reality.
If any country in Europe is going to blame Euro for their current problems, it is as for the US blame the Gold for not being flexible enough, to be devalued, in the beginning of the 70s. Of course, on contrary of what is now in Europe - impossible for the countries to devalue because of EMU, US devalued the dollar ( in Gold ), and started amassing trade deficits as there is no tomorrow, when the stupid Arab governments ( or I should say dynasties ), and the rest of the World, started accepting the dollar as it were Gold. Thus, de facto the Gold standard morphed in to an Oil one .
But, of course, there is A LOT more Oil then Gold. And this morphing, from one evaluation base (Gold) to another, more abundant one (Oil), is common term known as Inflation. I am wondering that soon the "wise" guys in the system would want to substitute the Oil with Carbon (Tax) because, of course there is a lot more Carbon then Oil. Well this at least, we may have some benefits in the Carbon offsets - in the ideal version - as to we MAY have to grow more trees to offset the Carbon we are pumping in the atmosphere all around us. But, of course, at the end, this is again Inflation ( that is not captured by the CPI, mmm ... but may be it should ), and continuation of the masking of the totally inefficient economic systems.
Finally the reality, is catching up with everyone, and the unproductive uncompetitive economic ( economic = do best with minimum resources ) systems, will have to pay somehow for the time when, they consumed more, under the protection of whatever overvalued/credited currency they have used, compared with the wealth that they give to the rest of the world, or even what is more important to the Mother Nature.
As a frequent visitor to the PIGS, I've noticed another problem. The Euro dramatically raised prices for the poorer countries as it attempted to clumsily level out the playing field. It was supposed to be: A French car sells for 15,000 Euros, a Spanish one for 10,000 reflecting their respective currencies. The French car was 15,000 but the Spanish slid in at 14,000. Thus the hue and cry from French vacationers that Spain and Portugal were no longer cheap.
Yeah, spend-spend-spend, blah-blah-blah.
Reality check:
How much was Spain's debt to GDP in 2008? 36,1%
How much was Germany's? 64,4%
And which of the two countries had a surplus back then? Hint: It wasn't Germany.
And which country has a higher debt to gdp ratio even this year? Hint: It isn't Spain!
http://www.tradingeconomics.com/spain/government-debt-to-gdp
http://www.tradingeconomics.com/germany/government-debt-to-gdp
http://www.economist.com/blogs/freeexchange/2010/05/debt_crisis_7
Exactly. Spain was running a surplus (as was Ireland).
It was over-leverage by the banks, mainly on real estate mortgages and derivative instruments, that got Spain into trouble, not government spending.
We need more regulation of the banks. There's a mindless anti-government religion in America, that cheers statements like Bagus's without checking to see if there is any basis in reality. Meanwhile, the banking lobbyists fight to water down, and de-fund, even the weak Dodd-Frank bill.
The problem with suggesting that the government was running surpluses is that those surpluses may have been based upon bloated tax receipts from the very thing you mentioned - inflated real estate and derivative instruments. The same thing happened here in the US and occurs whenever some financial bubble appears. And guess what? Government is always late to see or address the problem because they too are benefiting from the bubble before it bursts in the form of tax reciepts.
Spain and Ireland were running phony 'surpluses' based on the massively inflated real estate bubble. And were significantly understating their real debt levels, as most western countries do today. Just like the phony Clinton 'surplus' which was 'achieved' by looting the social security fund.
"Just like the phony Clinton 'surplus' which was 'achieved' by looting the social security fund."
Oops, another weakly-sourced GOP talking point. Factcheck.org: "Even when the accounting excludes the Social Security surplus, Clinton delivered two balanced budgets, including one with an $86.4 billion surplus (with Social Security included, that would be $236.2 billion)."
Clinton cut the number of federal employees to it's lowest number since the Eisenhower administration. Bush? Largest expansion of the federal workforce in history, including a whole new cabinet-level department to snoop on Americans.
Who and what branch of the government controls the budget?
Congress. In fact democrats are complaining the republicans are refusing to fund Obamacare since now republicans control the house. I guess factcheck.org missed that one. And yes, it was a republican controlled legislature during most of clinton's years.
But I digress. I don't like republicans so I hate defending them. Maybe it shows just how skewed your view is.
Governments are guilty for blowing the banksters and turning the whole economic and legal system upside down in the process. Don't fool yourself by thinking politicians have no idea of the dangers derivatives and overleveragedness pose, they've simply been muted by bribes and favors. You named it yourself, if anything needs to be banned forever, that is corporate lobbying in high politics. That's how you eventually create oligarchies with a government of the corporations, by the corporations and for the corporations (btw, corporaions are people too nowadays, how strange).
Why do you think Corzine was never brought out in front of a court of law? You think POTUS' financiers would be happy to hear Jon testify that he was playing the same game as every other big bank out there and that he's just a small fish in the pond? That's a rhetorical question, you don't need to answer it...
<rant over>
It takes a strange, twisted 'logic' to equate less regulation and Corzine walking free with too much govt.
You think size of government matters? I say it doesn't matter how big it is, but how you use it... i.e. whom it represents and whose interests it's protecting.
Also, I never mentioned too much govt. in the comment above, although downsizing it's role and making it accountable would be a good start. Bring back the fucking rule of law and abrogate lobbying!
In fact, there has not been a single year in the EZ era where Spain had a larger government debt to gdp ratio than Germany. Not one! But let's not let the facts ruin this wonderful story about the "profligate" sinners vs "responsible", frugal Germany.
Here are the facts historically:
1) "Historically, from 1980 until 2011, Spain Government Debt To GDP averaged 47.2300 Percent reaching an all time high of 68.5000 Percent in December of 2011 and a record low of 16.6000 Percent in December of 1980."
2) "Historically, from 1995 until 2011, Germany Government Debt To GDP averaged 65.2500 Percent reaching an all time high of 83.0000 Percent in December of 2010 and a record low of 55.6000 Percent in December of 1995.
http://www.tradingeconomics.com/spain/government-debt-to-gdp
http://www.tradingeconomics.com/germany/government-debt-to-gdp
And let's not even begin to compare all this with the US or the UK!!!
Very good post.
Let's also not forget that fact that 22 other countries besides Spain use the Euro and are not in such trouble. If the Euro was the problem, then all 23 would be in such trouble, not just Spain, Italy, Greece, Portugal, Ireland and soon to be France.
One might say that well Spain is a much larger nation and has more impact, well then that doesn't account for Greece. Mismanagement is mismanagement no matter what currency you use.
But the reality is not 1980 or 1993 or 2002. The reality is 2012. What gave Germany a few more years (her demographics dooms her) was the restructuring in the 90's after unification. Spain survived not by production but because she was not yet a total social welfare state like France. Her pensions were held in check, government assistance was relatively low and then she became ensnared in the debt trap of buying for future inflation. "We can borrow forever and THEY will pay it back when everything is hunky dory."
The problems for the South were created by the equivalent of a fixed exchange rate, with the Euro being too strong for them, while at the same time it was too weak for Germany. What economists call systemic imbalances. So the South kept losing competitiveness while it couldn't devalue. Germany had on the other hand an export boom. Germany also had the ECB accomodating its needs (see provided link) at the expense of the South. At the same time, this created the situtation where huge flows of exports-earned money from the North (mostly from Germany) entered the South looking for yield, inflating bubbles. We are talking almost a trillion here! In any case, it wasn't government spending that got them into trouble. Even Greece had the same debt/gdp ratio since 1994, even though it had other problems and is a special case obviously.
ECB Bailout Of Germany:http://www.businessinsider.com/richard-koo-the-entire-crisis-in-europe-s...
B.I.S. data on German banks' exposure to periphery and how they offloaded all risk on European taxpayers using the "bailouts" of the "sinners":
http://www.bloomberg.com/news/2012-05-23/merkel-should-know-her-country-...
"...a total social welfare state like France."
Nonsense. Mindless, fact-less, blather, pushed out by right-wing media outlets to support their corporate sponsors' agendas: zero regulation, and capture of the SS and medicare tax streams (they got the 'trust funds' already).
The French are not irresponsible spenders; the FACT is the the French have amongst the highest personal savings rates in the world.
http://www.reuters.com/article/2012/01/09/us-france-savings-idUSTRE80808I20120109
Reuters) - French savers are squirreling away their spare cash at the fastest rate in nearly 30 years, putting a drag on consumer spending in the euro zone's second-biggest economy while helping its banks' balance-sheets.
Even in the best of times France is among the most thrifty nations in the developed world, but the threat of Europe's debt crisis spreading to France has savers running for the perceived safety of bank accounts and becoming more wary of life insurance policies exposed to volatile markets.
----
Oops - guess Limbaugh and Fox have been lying to you, eh?
The right wing has been chanting "The French economy is going to die any minute now!" since the 1960s. Instead, France has continued on as the world's 5th-largest economy, while having an outstanding govt-run healthcare system (including housecalls!), free world-class university education, pension at age sixty, and six weeks of vacation. During the same period, America has gone from one parent-working families that were pulling ahead, to two working-parent families that are falling behind.
Had enough 'trickle down' yet?
Sorry, have to disagree with you. Each nation including the US is under a welfare state when you have in excess of 100% debt to GDP. Pure logic. It doesn't matter the current savings rate when it gets eaten up by future debt costs. And trickle down is certainly better then Chris Matthews "thrill up my leg."
BTW - the misuse of "trickle down" is a bogus liberal talking point. If you really think about it, it is government itself that creates "trickle down" poverty.
I am not forced to by products by large corporations, therefore enriching them - something liberals use to say "trickle down economics" does not work.
I am, however, forced by government to pay taxes for things I don't even use. I am forced on the local level to pay annual property taxes whereas any other property I buy, I pay a single sales or consumption tax and its mine with no more taxes. It is government that "trickles down poverty."
Whether govts should ever deficit spend (Keynes) is a separate discussion. What I was pointing out was Bagus's bogus claim that Spain's troubles happened because they (Bagus's words) "spent and spent". It's simply not true. Spain was running a surplus. What got them into trouble was overleveraged banks - a symptom of overlax bank regulation, a problem that Europe and America have STILL not fixed.
And this is prebailout
Spain (gov) has $36 B budget deficit through May, just 5 months. It doesn't include regional gov debt. Taxes going up, over 400 prescriptions planned to be dropped. If approved this measure, the state will cease to provide 60% of these medications as usual and the citizen has to bear the full amount.
But of course we'll just hear about the bank bailout (which I wish wouldn't occur), but probably will.
Sources
http://www.eleconomista.es/economia/noticias/4073838/06/12/El-Estado-tuv...
http://translate.google.com/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&i...
The notion of a surplus was already dispelled. Stop running your wheels because you are going nowhere.
Can you simply not use a little logic. Let's see you spend and spend regardless of your revenue and let's see where it gets you? Come back to me in 5 years without your hat in your hand looking for a bailout like Spain.
But if course if your thought were correct, then no government should have deficits because "what got them in trouble was overleverage banks"
http://online.wsj.com/article/SB1000142405270230443270457734762222470175...
Spain Warns Regions on FinancesSpain's regions accounted for the bulk of the government's large 2011 budget overrun and are one reason why the country's borrowing costs soared in recent days.
http://wallstreetexaminer.com/2012/05/25/spains-catalonia-says-regions-n...
Spain’s Catalonia Says Regions Need Debt Guarantee – Wall Street Journal Wall Street JournalBy JONATHAN HOUSE MADRID—The head of Spain's Catalonia region said Friday that the country's regions need the central government in Madrid to guarantee their debt because they are encountering increasing difficulties in financing themselves, …
Source: And there are additional stories not generally covered. For example, many pharmacies across these regions are due payments from the state so peoples prescriptions are being cut off. Same thing in Greece. Socialism, got to love it.
Governments only run deficits and surpluses because they make one fatal mistake. They extrapolate that they can always tax their way out of the problem. Not so as liberals are learning the hard way.
Trickle down economics refers to the idea that tax-cuts for the rich and corporations will trickle down to you, leaving everone better off. It's a manipulative lie. You should worry about tax-rates. For example, did you know that in the 50s the top tax-rate was 90%? We are talking about Ike's America here! This was also long before the million loopholes of today and tax havens that make sure the super-rich pay almost nothing. Forget the liberal-conservative paradigm, this is the plutocracy against you. Wake up!
Take a look at this:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213
http://taxfoundation.org/article/us-federal-individual-income-tax-rates-...
Age, I was pointing out Pulps misuse of it. I know what it means. If you are up on current politics, it is now used by liberals to suggest trickle down doesn't work, meaning lowering taxes only benefits the rich which isn't true.
I am not the one that needs to learn that. In fact I took your point. Reread if you need to.
...said the pot to the kettle.
Spain never ever dealt well with free money spigots.
Even when they were extracting huge amounts of gold and silver from Americas, their government was a serial defaulter.
In that respect the warning signs were there: Colonial gold and silver was spent on building big castles and cathedral and on buying imported goods from other European countries (with which Spain was even at war). There was no artesan class because the catholics kicked them out of Spain. That coupled with spending on religious wars led to the downfall of the Spanish empire. Transpose that situation to current times. Spain has an influx of 'cheap' Euros and spend it on building a gigantic real estate sector. There is not a big enough industrial base and the economy relies too much on agriculture and tourism. Lesson here is that countries do not change their behaviours.
You are so right. Nations acquire certain characteristics over time. Germany - hard working and frugal. The PIGS - sun-loving spenders. The US - practical problem solving individualists. Russia - backward. China - industrious and contained.
Spain is proof that mere possession of PM does not lead to wealth. Her problem was that she was forced to unload in Italy (the Armada tried to clear up the north and failed) and Italian city-states demanded huge percentages. It's no secret why Florence or Genoa became such enormous powerhouses.
Still nations with agriculture and resources almost always come out on top eventually. Despite our obsession with debt, we all have to eat, use things and require energy.
There were at least as many "cheap" dollars flowing into the country.
Behind some of the biggest real estate projects were American investors.
Did you all forget how tightly knit Bush and Aznar were? Did you really think Aznar's support of the war in Iraq was out of goodwill? Hell no. It was about billions of $$$. The Spanish people didn't want any of this, they were perfectly happy until Aznar and his buddies flooded the country with concrete and made the Spanish people believe that manna fell from heaven.
The Euro was not the problem, greed and lies were.
This Bagus guy is suspect, I'd care to know where his financing comes from?
The Euro is something palatable and easily made into an enemy just because.
Salesman, as they all are now.
http://philippbagus.com/archivos/CV-english.pdf - I dug out his CV and he seems credible; a young libertarian too stuck in his science to have time or interest to rent his ass out to some TBTF or such... BTW, he's won Ron Paul's 'Liberty in Media' award in 2003 and he's a supporter of Mises, even has the Institute's motto "Tu ne cede malis, sed contra audentior ito" on his website.
That presumes a correct identification of 'evil'. A claim that they cannot make in my opinion.
You need to look from a longer term perspective.
Sir, on a long enough timeline we are all obsolete...
Here, read one of his publications - http://www.cobdencentre.org/2011/01/the-day-the-ecb-lost-its-last-credibility/#
Overthrow the Governments thats the only thing you can do.
He said it not me.
Each state of the US shall become its own Nation (sorry Hawaii.) And, Washington DC (District of Columbia) shall become a monument to what does not work. And, further, the 50 US Nations of North America shall have the right to coin thier own currency and the Federal Reserve, along with their ChairSatan shall be returned to Hell.
So let it be written so let it be done.
Spain... here is your Future!
in this scene you are the car wreck ironically a VW bus...
http://www.youtube.com/watch?v=KcosvnoQPPc
the Caddy is driven by the Germans and the yellow cab
belongs to, of course the French!
Assholz Inc.
Great find!