Sol Sanders | Follow the money No. 80 Daddy’s sugar bowl empties

rcwhalen's picture

Latest from Uncle Sol.  A version of this column is scheduled to be published Monday, Aug. 22, 2011, in The Washington Times. -- Chris


It's our tradition to control,
like Erich Honecker and Helmut Kohl,
remember him
from the Ukraine to the Rhone.
Sweet home uber alles,
Lord, I'm coming home.yah
Come on, Sugar Daddy, bring me home.

-- 'Hedwig and the Angry Inch'

George Soros isn’t the only sugar daddy whom former beneficiaries accuse of turning tightwad faced with rollercoaster stock markets and interminable debt debates.

German taxpayers all along were wary of becoming the only teat on the EC’s udder for what Winston Churchill once called Europe’s soft underbelly. There is nostalgia, too, for the once high-flying DMark which few wanted exchanged in 2002 for Euros. Now those feelings are exploding with Germany’s vaunted economy going south – but not just for bailouts for Greece, Portugal, Ireland, and possibly Spain, and even Italy.

German growth collapsed to near zero over the early summer which could take Germany, Europe [and the world] into recession by winter. That would mean abandoning hope Europe's biggest industrial engine would salvage the EU common currency.

Many usual suspect talking heads called all this totally unexpected. Hello! Sixty percent of the German template for an export-led economy went to other EU countries. True, profligate Greeks, Portuguese, Spaniards and Irishmen should not have bought those Mercedes they couldn’t afford. But if they hadn’t, how would German auto plants have pumped out cars, keeping German unemployment relatively low!

The Germans, like everybody else with dreams going back to Marco Polo, turned to China [and Russia] for new markets. Trouble is the jerry-built Chinese “world factory” is in deep doo-doo too, cutting back on what its “Communism with Chinese characteristics” leaders thought was a foolproof, permanent formula for stability: unlimited infrastructure expansion, subsidized exports for super growth rates with corruption for the elite .

But more than one little piggie didn’t go to market. Chinese inflation [or should we use new Obama Administration’s gobbledygook, “core inflation”] is rising, particularly food where 80% of Chinese subsist. [Incidentally Chinese shortages mean huge US corn purchases lifting American prices.] And there are still Chinese who remember in 1949 the Communists installed that ogre Mao Tse-tung mostly because of rip-roaring inflation on Shanghai’s counting house tables, not battlefield valor.

Russia? There, increased German dependence on Soviet gas, even encouraging Moscow government monopolies to buy into Western distribution, was all well and good during the halcyon days of unlimited credit and rising consumption. But now Moscow bleeds; an incredible $30 billion capital outflow in the first six months of 2011. [No oligarch dares leave money lying around in Petersburg or Moscow lest the new Rasputin grab it]. Some 1.2 million professionals immigrating in the last three years carried part of it out. And with diving fossil fuel prices, the Russian economy is hanging by one energy thread. That’s why a half million small and medium sized German firms in Russia, ”highly leveraged” with government export credits, are sweating.

As the Euro stumbles from crisis to crisis, “solutions” boil down to two proposals: full-steam ahead toward economic integration permitting a unified fiscal and monetary strategy, or refinancing bankrupt southern members using a Eurobond guaranteed by the 17 members of the common currency and anybody else Brussels could seduce into signing on.

German Chancellor Angela Merkel and French Pres. Nicolas Sarkozy stumbled back from sacrosanct European summer holidays in mid-August to find a “solution”. But while their vague statement more or less endorsed the first approach, it offered not a clue how problematical negotiations could go forward as quickly as needs be – especially amidst crumbling economies gaining downward momentum.

They didn’t rule out the second solution. That’s because the last straw has been the rising cost of refinancing national bonds – more threatening even than bailouts’ size and conditions. But the Germans are more than aware any such new “credit instrument” has to be backed proportionately by Europe’s largest economy. Nor is it clear from its most enthusiastic sponsors, how rates would be set if they ignored/avoided the current race to the top for interest in a rocky market.

Of course, the 500-pound gorilla in the room is the option letting debtors drop back into their old national currencies to balance their books. But dismantling the oversold Euro [pun intended] might be the death of the European Union itself.

Keep tuned: the tragicomedy is still unfolding.


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chinawholesaler's picture

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Dingleberry's picture

Screw the Germans.  They helped cause this mess.  

Snidley Whipsnae's picture

"Prospect of New Core Euro Gains Traction"... from BBerg...

"The euro area may need to shrink to survive.

As its sovereign-debt crisis nears a third year and rescue efforts fail to stop the rot in financial markets, economists from Pacific Investment Management Co.’s Mohamed El-Erian to Harvard’s Martin Feldstein say ensuring the euro’s existence may require members to leave the 17-nation currency region.

The result would be what El-Erian, Pimco’s Newport Beach, California-based chief executive officer, calls a “smaller, much better integrated, fiscally strong euro zone.” While leaders such as German Chancellor Angela Merkel consistently rule out that option, El-Erian told “Bloomberg Surveillance”with Tom Keene on Aug. 17 that they eventually may embrace it over the fiscal union required to maintain the status quo. "

tom's picture

Less Sol Sanders!! More Chris Whalen!! Pleeeeeeaaaase!!!!!

DaBernank's picture

+1 you should follow Whalen on twitter.

Greenhead's picture

It is hard enough to envision our other states bailing out the likes of California or Illinois.  To imagine the citizens of Germany bailing out other countries with different languages, cultures, and degrees of profligacy is really hard to imagine.

Widowmaker's picture

You aren't bailing out states or countries, you are bailing old fashioned lies and fraud from thieves and crooked markets.

Governments are the mere helpless proxies, complimentary only where they cross - the intersection of money street and power blvd.

Try them and lynch them all for corrupting both paths.

MFL8240's picture


Ahmeexnal's picture

They still haven't learned how to prepare Kimchi.

Centuries have passed and they still forget to add the hot peppers.

DaBernank's picture

This bothers me to no end... It's just red sauerkraut here in Austria too. Have Sri-ra-cha will travel.

Soul Train's picture

Dust in the wind.
Many investors have been expecting euro disintegration for some time.
Old hat.

smiler03's picture

This is from Reuters By Annika Breidthardt BERLIN | Sun Aug 21, 2011 5:02pm BST 




In line with that Schaeuble said in a newspaper interview he still had hope the euro could lead to a political union.

He was personally prepared to pass national sovereignty to Brussels to secure the long-term stability of the euro zone but conceded that the currency bloc was not ready for it yet.

"As a private person, Wolfgang Schaeuble would already be ready to (delegate sovereignty to Brussels). I have no problem with the idea of a European finance minister," he told Welt am Sonntag newspaper published on Sunday.

I'm flabbergasted. The German Finance Minister is prepared to "delegate sovereignty to Brussels"? Is this man insane? I can't see that idea getting support from any German ever. Or am I misunderstanding something?



Azannoth's picture

Those types have been in power/politics for decades, the European Union is their life's work(and their succession guarantee, so that they can appoint another generation of apparatnics into power), they ain't gonna give it up easy

IQ 145's picture

Yes; he is insane. There's a cult of life-long out front declared Socialists, (big government people), who are completely out of touch with the citizenry.

Ahmeexnal's picture

All hail Emperor Herman Van Rompuy, master of all Europe.

Dick Fitz's picture

The upcoming week should be interesting. The fact that a major crisis in the EU (or Japan, or China, or the US) could bring down the whole house of cards is invigorating!

Tic tock's picture

On the other hand, the Dmark would attract serious Capital to German markets: as it is, Germany produces some pretty high-end capital equipment. Flush with capital, the banks could easily finance the difference in exchange rates..,

Joy on Maui's picture

A reinstated German Mark would face the same problem the Swissie is currently facing.  Both countries are heavily export-dependent, and a strong currency therefore a big problem.  The  SNB has been fighting a loosing battle to keep the Swissie from rising against other currencies due to it being perceived as a safe haven.   The German Mark would likely be viewed in at least as favorable a light as the Swissie, at least temporarily.  As a former German citizen, I feel for Angela Merkel... It seems she is screwed whichever way this thing goes.

Implicit simplicit's picture

How are the percentages for individual liabilities for ECB purchases figured in their union charter? Everyone talks about the failure of the currency, however what would stop them from changing the charter to please the Germans prior to the next big restucturing of debt? The Germans are holding the sttrong hand.

Fuh Querada's picture

This is sensationalist crap.  A pot-pourri of meaningless buzzwords.

Fred Hayek's picture

Germans might want the d-mark back but wait till they see what happens to their export industries when all their goods are priced in a currency not chained to the greeks, portuguese, italians and spanish? Any german company making money selling to those countries will have a hard time dealing with the new lira etc.

Snidley Whipsnae's picture

Germany flourished with a strong Dmak in the past because they are extremely hard working and have management that cooperates with labor.

Germany will continue to be a strong exporter when the world decides on a new reserve currency.

disabledvet's picture


IQ 145's picture

Both the Danish and the Dutch people are significant payees in this scheme, also; and they don't like it either. The "people" are never consulted, the leaders make the decisions. There was never any one day when a majority of German Citizens wanted a Euro instead of a D-Mark; but nobody asked them. It was a socialist program engineered by the French; the Fiat currency experts who utterly destroyed their own currency twice in the same century. The eighteenth century. The second time around the minutes of the currency committee say, "well, we're all grown up now and we know all about these things so we'll just print a little bit". The Euro was doomed from day one; it was never a rational plan.

Azannoth's picture

"The "people" are never consulted, the leaders make the decisions" - That is why it's called a Democracy no?

Snidley Whipsnae's picture

"The Euro was doomed from day one; it was never a rational plan."

All fiat currencies are 'doomed from day one'... None of them are 'rational plans'.

Europe was tired of the US exporting it's inflation in the form of dollars into Europe. Europe decided that two could play at the game...

European timing was Waaay off. Had they introduced the Euro in the 1960's they might have had a greater distribution of Euro currency (including settlement for oil) and not have counted on dollars to such a great extent. Now the Euro banks are liquidity constrained and must count on the Fed for swap lines to provide dollars. Suicide for the Euro...

Now it is too late for the Euro currency to survive... too few Euros introduced to the world too late...

The dollar to follow the fate of the Euro. Once one of these phony currencies fall the rush into commodities, and the rush out of soverign paper, will accelerate... hold onto your PMs, buy plenty of popcorn...Watch Ben print!