Sophisticated Ignorance Or Just A Very, Very Short Term Memory? Foolish Talk of German Bailouts Once Again

Reggie Middleton's picture

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falak pema's picture

It all involves two things along the line :

1° If no real growth, then debt will have to be reduced from books. Over time. Haircuts all along the next thirty years. But this means that interest rates are NOT dictated by ponzi markets but by central banks. So markets have to be regulated to keep investment alternatives aligned. Is this possible ? Big question. According to RM and BK : No! ...So lets see but if historically markets always win then the hair cuts will have to come soon. Austerity faster!

2° Try and create real first world growth to generate new revenues. Tough in current situation. Will the BRICS buy first world debt to kick start first world? Big question....Most likely not! Structural asymmetry big problem.

3° Can the first world create growth by paradigm change? It'll not be before five years at best! Can we hang in there and withstand the debt strain? I think the Eurozone is in better shape than the USA...But I may be wrong. What is the real debt including derivatives unwind in USA 15T or 200T?...And in Eurozone? 13T or 25T?


OC Money Man's picture

I value Reggie's research, but I believe there is method in the Germany's madness.  


The concept that seventeen independent rich and poor European countries could come together in a monetary union and perpetuate the “euro” currency has always been a fraud.  The real story behind the formation of the euro was the “Grand Bargain”.  The governments of the PIGS (Portugal, Italy, Greece, and Spain) receive colossal bribes in the form of the ability to borrow unlimited amounts of money at the same low interest rates the Germans pay; for agreeing to buy enormous amounts of German goods.  The PIGS generously performed their side of the bargain.  It is the Germans that after running-up vast surpluses are now economically destroying the PIGS by terminating the bargain.         

The European sovereign debt crisis did not start 18 months ago when Greek borrowing costs began rising from 3% to the current 75%.  The crisis began in 2009 when German politicians passed a constitutional balanced-budget “Golden Rule” at the height of the global credit crisis.  The Golden Rule prohibits German politicians from passing a budget with a deficit of more than 0.35% of Gross Domestic Product (GDP).  This was a radical departure from the unenforceable “Stability and Growth Pact” of the seventeen nation euro that limits deficits to 3% of budgets. 

For a monetary union to be sustainable, it must be operated on the basis of ‘symmetrical obligations’ among the members.  Germany’s decision to cut-off spending of its trade surpluses to finance the PIGS trade deficits has created a deflationary spiral in Europe.  Over the last two years there have been numerous incremental European bail-out programs aimed at stopping the Greek debt crisis from spreading to the other PIGS.  Each successive program forced deeper “reform” cuts to PIGS spending.  “No reforms, no bond purchases” has been the message of the German controlled European Central Bank (ECB) and the German controlled European Financial Stability Fund (EFSF).  Following periods of short term relief, each program failed.

Every year there are a numerous countries that get into financial trouble.  The usual answer is to devalue their currency to become more competitive.  This creates lots of pain for holders of country’s debt; but quickly the nation becomes a “cheap” tourist venue and eventually businesses start relocating to the country to enjoy “cheap” labor.  The PIGS have lost this option.  It still costs virtually the same amount to stay in a nice hotel and enjoy a cold beer in Athens as it does in Berlin.  Without the ability to devalue their currencies; the PIGS are being forced to increase “austerity” reductions in government spending to satisfy the next ECB or EFSF bail-out. 

The introduction of the euro currency was sold to the citizens of the PIGS as an opportunity for economic “convergence”; whereby Portugal, Italy, Greece, and Spain would benefit from learning how to be as competitive as Germany.  But in the nine years since the euro launch the PIGS have suffered 30% losses in competitiveness to their northern neighbors.  This has destroyed hundreds of thousands of private sector jobs.  The increasing austerity requirements of the bail-outs in Greece have resulted in an addition 20% cut in public sector jobs. 

With job shrinkage accelerating in the PIGS; it is only a matter of time before rising protester violence forces these nations to quit the euro and bring back the Portuguese “escudo”; Italian “lira”; Greek “drachma”; and Spanish “peseta”.  In the perfect world of an orderly devaluation, the losses to bondholders and banks would be approximately $3.5 trillion and make 70% of European banks insolvent.  But the history regarding devaluations has been one of chaos and violence.  In a disorderly devaluation the losses will run closer to $6 trillion and 85% of European banks will be insolvent.

The euro was never sustainable concept and the German Golden Rule has now accelerated the destruction of the Portuguese, Italian, Greek, and Spanish economies.  There is a lesson for Americans to learn from this European wipe-out.  Those who live on borrowed money; will eventually die by borrowed money!        

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Börjesson's picture

Whatever are you talking about? This whole post is a big charge at a self-built strawman. The German vote today had nothing to do with the absurd bailout talks of the last few weeks. It was just a passing of a bill suggested back in July. (Democracy works slowly.) The extra EFSF funds now approved by the Bundestag are (semi)real money gathered from various EU governments (mostly Germany, as usual), and not newly printed QE-style fairytale money. Nobody, and least of all the Germans, expect these paltry 440 billion euros to save the world. Now, if the Bundestag were to actually go along with the mad new scheme to leverage this money up to 2 trillion by creating the missing 4/5ths out of thin air, then this post would be relevant.

Volaille de Bresse's picture

And let me restate the obvious : Reggie's (and his puppeteers) plan is to tear the Euro apart to save the USD. This plan is both hopeless and childish...

Do you REALLY thnik the Chinese and the Arabs of the Gulf will run to D.C. and say "here are our savings"...?

AnAnonymous's picture

So cheap propaganda. So this negro would have enough credibility to tear the Euro to save the USD in this US world order?

US world order rule:

A blue eyed blond man spitting cheap propaganda is extremelly more likely to be believed than a negro coming with his well prepared, hard fact based analysis.

Why would so called US puppeteers waste their time on that pure blooded negro? If anything, if hired, they have hired him to discredit factual analysis as in this US world order, US citizens would turn away from him and his message on the mere assumption of his skin colour, not bothering to know if the message makes sense.

This is a US world order and if indeed, there were puppeteers, they would have picked better choice to try and destroy the Euro.

Zero Govt's picture

Brilliant Reggie

I'd like to join the Short-Banks, Laugh & Profit from their Deserved Demise Strategic Investment Fund you're running but I'm still having a retarded time trying to get through compliance issues (the red tape produced by morons/lawyers behind Govt desks that the Western World is drowning in) to get a fuking stockbroking account open!

Note. if anyone knows of a jurisdiction where compliance (hate that weasel word) for a company trading account is eazy peazy please let me know. Many Thanks

Politicians are throwing good money after bad (the bad mistakes of dumb/corrupt bankers and politicians). You cannot 'solve' past mistakes/frauds/bankers bonus/ponzi schemes by throwing new money at it. It changes nothing, certainly not the mistake or its costs. 

Nor does printing more currency (money is a measure of productive wealth and a unit to exchange it) change anything except to devalue each currency unit already in circulation. Central Banksters and politicians 'QE' program (a program to print counterfeit wealth) are in effect robbing/defrauding the productive of their held value in order to bailout the destructive acts of the unproductive (bankers and politicians consume others wealth/productivity) and indeed keep them in business

..the stupidity of 'throwing good money after bad' is made real in Govt every day. It is the biggest institution for productive wealth to be destroyed ever devised in history. The parasites (is Rothchild around?) have got a stranglehold on our units of exchange and are robbing us which is precisely what the monopoly money system was designed to do.. the Bank of England, ECB and US Federal Reserve are designed from the get-go to suck

...there will be no end to this socio-economic thieving and robbery by politicians and banksters and continual rape and impoverishment of nations by these cheatering crimnals of society until we rid ourselves of 2 monopoly institutions ...Government and Central Banks (global monopolists Visa and Mastercard will fall shortly thereafter)

Volaille de Bresse's picture


So Ponzi schemes are a European thing *because* Mr Ponzi was Italian? Brilliant...

How about the "August 1971 Nixon" scam (a 100% American name btw). We print USD till we puke, and we give the monkey money to you saying "the dollar is our currency but it's YOUR problem". 


A reminder : the US debt is 200 000 Bil, not the 14 000 you see on TeeVee...

Outlaw Of The Wasteland's picture

when will moody's be told to downgrade germany and france? 

That info will be worth billions to the headline printers.

Steroid's picture

I find it strange that you show "0" for the number of defauls for the US.

The financial history of the US during the XXth century was a string of defaults.

My feeling is that when one is at the bottom of the cesspool it doesn't really matter what is going on at the surface until all the liquidity dries up.

Winston Smith 2009's picture

They're all smoking Hopium.  That leads to short term memory loss. They already have a permanent case of long term memory loss.

MarketTruth's picture

Reggie, you are WRONG! Solving debt problems with more debt is logical. Just like telling all fat people that to lose weight they need to eat more donuts.

/sarc (obviously)

Years old video, yet still relavant
Fred Thompson on the Economy

stev3e's picture

Actually, it is more like telling fat people that they need larger clothes and a new attitude in order to deal with their obesity.

And it works - just take a stroll around the US.

disabledvet's picture

Let's be clear what doesn't work first: directly transferring what's on the bankrupt bank's balance sheet to the government ala Ireland. That didn't involve a single penny in Irish euro's and it bankrupted Ireland INSTANTANEOUSLY. So now let us imagine in "in the universe of OH SHIT!" what options there are. Hmmmmmm. Don't overthink this! That's right: there are only two. One is "let that bank phuckin' eat it." that solves a LOT of problems because "all that bad debt dies with the bad bank." of course the debt holders bite the big one so "there's some squawkin' on squawk box." the only other option of course is exactly what Paulson and Treasury did--basically the "hey so called rich phucker, how you need a loan beach?" it's for that reason (among many others) that I think the Paulson Plan worked. The state still functions...the state wins...and now they put an eye right on the clowns who can't run company, insurance company, investment management company and bank. In short the government shows as incompetent as wall street was and still is the same is not true for "those poor underpaid g-men." can they afford the city in which they reside would be a good place IMO to start "mastering the universe" again since no one is claiming DC can't. Anywho my only beef with the euro-landers (who have great polities IMO) is pretty simple: fiddle-phuckology to coin a term. They know what to do and they know the consequences for not doing it. By all means explain to the world how they're better than that!

The Big Ching-aso's picture

The debts are manageable.   It's the payments that aren't.

NEOSERF's picture

$190b euro increase...really?...this is the big god they are in trouble as SocGen alone could soak that up in a bad weekend.

Volaille de Bresse's picture

"You can't solve an indebted nation's debt problems with more debt""


Why not? It worked fine with the U.S. since 1971! Why should the U.S. of A. be the sole country that get away with this kind of scam? Do they have a trademark on Ponzi schemes?


Reggie I'm all ears!

JOYFUL's picture

Do they have a trademark on Ponzi schemes?


prolly not...they just overdid it on the Ellis Island welcome mat thing...

Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, (March 3, 1882 – January 18, 1949), commonly known as Charles Ponzi, was a businessman and con artist in the U.S. and Canada. Born in Italy he became known as a swindler in North America for his money making scheme.

One of yours? Oh, I forgot, you're all "Europeans" until it's expedient to disown the cousins....


heavy heavy allotment of Eurotrash troll here on ZH today...more empirical evidence to back Reggie's "wild" speculations...


AnAnonymous's picture

Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, (March 3, 1882 – January 18, 1949), commonly known as Charles Ponzi, was a businessman and con artist in the U.S. and Canada. Born in Italy he became known as a swindler in North America for his money making scheme.


Stupid. US citizenism is first and all a state of mind. Possibly, it is backed up by a specific configuration. Cultural indoctrination plus appropriate genetic make up is what makes a US citizen.

Charles Ponzi was by all measures a US citizen. He had the US citizen mindset and possibly the genetic make up. His talent took its full potential in the US.

Being born in the US is moot. Just like claiming that the founding fathers were not US citizens because they were not born in the US.

US citizens are full in control of the Earth, in the Americas, in Europe, in Africa, in the middle east, in partly in Asia. Only in places like China you meet people who are in power and not US citizens.

This is a US world order, dominated by US citizens and fashioned to satisfy their needs.

That is the way US citizenism is.

Diogenes's picture

Since 1933 you mean. Nationalizing the peoples' gold was the first step in the Ponzi. They shut the gold window in 71 because by that time the debt was so overwhelming there was not gold enough to cover the withdrawals. Even though only a tiny fraction of dollars was being cashed in for gold.

AnAnonymous's picture

Nationalizing the peoples' gold was the first step in the Ponzi.


No. The colonial century and the expansion of the US onto Indian lands, leading to bid there would have be more Indian lands to invade and take over was itself a Ponzi.

When this Ponzi matured after the last bit of the Indian land was transfered, it led to the Great Depression.

The US has been built on Ponzis.

Ghordius's picture

yes, but you can argue that in 71 the "pure fiat" USD was born

between 33 and 71 at least in theory it was somewhat backed by gold

IAmNotMark's picture

It HAS worked since 1971.  How much longer does it keep working?