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Tyler Durden and Paul Krugman agree! – The EU is toast!
A rare occurrence in journalism happened today. Tyler Durden of Zero Hedge is in agreement with – hold on – Paul Krugman of the NY Times.
Both writers point readers to the FAQ from S&P on the downgrades in Europe on Friday. Both hone in on one particular section. I’ll repeat it:
We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.
There is absolutely no way to achieve economic growth while pursuing fiscal austerity. It just doesn’t work like that. The only other possibility is for Italy and Spain to re-establish their legacy currencies. That is S&P's unwritten, but clear message.
Boom!
The point on legacy currencies made by S&P is actually an old one. Many have insisted that monetary union between north and south was a mistake. But for S&P to have put it on the table is very confrontational to existing EU thinking regarding the need for a breakup. European leaders have all along ignored the blogs and various MSM commentators. Their line has always been, “A breakup is unthinkable”. Not any longer.
I don’t expect “Merkozy” to change their stance on the single currency issue anytime soon. But others will. The message in the S&P FAQ will not be ignored. We’re going to see it in the MSM, and we’re going to hear about it from both the political and the financial sides of governments (and of course, the blogs).
The thought process of a resumption of legacy currencies won't start on Monday. Before this can be accepted as a viable option, things have to first get worse. Much worse. Liquidity has to dry up further. Bond spreads for Italy and Spain have to widen. Funding conditions for the banks have to get worse. Equities (especially bank stocks) have to be broadly declining. The economies of the region need to be in recession coupled with very high rates of unemployment. Declines would be most severe in Spain and Italy. Social disturbance would be on the rise.
Reading the S&P FAQ, you have to conclude that the conditions that would force a return of the legacy currencies will happen, and they will happen in the next twelve months.
There are some very substantial currency implications built into this line of reasoning. If you believe, as I do, that things have to get (much) worse before we see Pesetas and Liras again, then you might logically conclude that the Euro is first headed south against the crosses. EURUSD at 1.100 would not be out of the cards in this scenario.
But consider the end game for this. What's the value of a Euro if Spain, Italy, Ireland and Portugal were no longer part of the monetary union?
That price starts at EURUSD 1.6000.
I look at this and wonder if the currency trade of the new millennium is taking shape.
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The Eurozone as a whole is net creditor with no trade deficit. Thats right... No trade deficit, not 50 billion a month like the US, not even 50 cents.
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Global warming and its connection to elitist Keynesian politics.http://freegoldobserver.blogspot.com/
unpick the numbers and you see where the weaknesses in competitiveness lie
sort of along the lines of the S & P downgrades. and they were generous to France
There is absolutely no way to achieve economic growth while pursuing fiscal austerity = Keynesian printing economics.
You all fail in this respect, seriously, you simply do not understand this, any unit of money lent is a unit of money created. Why can't you all get it? It is the simplest and most fundamental law of economics. If you and I go out for a hamburger at lunch and you borrow the $7 from me for the meal then we have just created $7 in new money. It is so simple a child can figure it out.
Trillions were borrowed and leant mostly electronically and all that borrowing and lending was in reality making money. Get used to $500 gasoline, not that it matters anymore, we will all be billionaires. It all comes down to what you and I can afford to buy.
The bottom line is that the US dollar is still king, it might be down, but it will never be out.
But keep in mind that every dollar borrowed is an expansion of the money supply. That means inflation. It has always been inflation. It will keep on like this. The poor will get poorer, the rich will get richer. Learn the words Marin and Connecticut, they are your new masters. Sorry to say we just have to eat it if we want to survive, we lost. I know, I am not pleased either, but there is nothing I can do without a million men at my back.
Fate.
Dude, take an accounting course. Please.
If I lend you 7 grams of silver to buy a hamburger, 7 grams of silver doesn't come into existence. Dollars, though they be fiat, are no different.
Seriously? If you lent Silver that means you saved it to have it. When a bank lends money they create 95% out of thin air. It's a significant difference - while it may seem to an individual hamburg buyer as the same, the latter waters down the value of money for everyone. The fractal reserve system will end horribly - why do you think the Founding Fathers attached the death penalty to watering down the money supply??
Why has oil and gold shot up almost to the day that the Euro currency was introduced ?
Since the year the Euro was launched , Oil went from $10 to $100, gold went from $300 to $1900
Marin and Connecticut?
I see war in our immediate future. Big WAR. It will facilitate creative financing to take the spotlight off crashing countries.
The western elites are banking on having the biggest balls.
The US is dragging all the little EU sheep into conflict as they are broke and have to follow.
Libya was the dress rehersal.
Methinks Russia and China will be sorely tested. If China's smart it will pull the plug on the US and opt for internal strife instead.
I guess we will see.
Grab a Chair. The music is about to stop! If you're a middle class Amerikan, grab a Gold and/or Silver chair. Those are your only two choices. Everything else will be stolen by the banksters while our politicians blame everyone else. Presidents come and go but career politicians just get fat and fuck-up everything they touch!
Once the wheels come off the centrally planned machine I am afraid TPTB are going to find a way to screw anyone who atempted to preserve some wealth.
I don't think it would be worth the backlash to confiscate gold again but restrictions could be put on selling it that are similar to confiscation, like a 90% capital gains tax.
Our government and their bankster masters no longer seem worried about even making their actions APPEAR to follow any rule of law.
As much as I hate to admit it, they can't be stopped from hurting themselves. The best they can come up with is debt restructuring or another bailout. The inevitable failure of either just takes the economy down, another level. This is turning into a track meet, across quicksand.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
But post WW2 we had a Marshall Plan. Will it take WW3 to get another Marshall Plan???
I think that the TPTB feel you have to physically destroy a lot of assets and kill n maim a lot of people to merit Marshall's plan; Detroit n Cleveland don't warrant a Marshall plan, yet...; its not destruction, its decay.
<blockquote>There is absolutely no way to achieve economic growth while pursuing fiscal austerity.</blockquote>
This isn't "absolutely" true. The US after WWII is a perfect example of fiscal austerity accompanied by great economic growth. In fact, I will just state the truth- once you reach the point where fiscal austerity is self-defeating, you are irretrievably lost. Best not to ever let your government and society reach that point. This is what Krugman and his lickspittle acolytes always miss.
Equities are done for next 3mths...so some very good trades coming. But we must remind our selfs that China has been acting very weird last mths of 2011 and into 2012 – major volatility/swing trades in the markets point to one thing: crash looming. QE3 is already happening in a form of massive swaps to the ECB and the ECB is now just printing sh*tloads in the EZ banking system, particular Spanish banks. The point is, when officially QE3 comes - will we get a major rally. Most likely. But still it will trade into the highs end 2011 and early 2012. Meantime this market going down.
The EUR has broken every support in the last 6mths.
So some, possibly in positions of power to influence the course of action, could be loading up on EUR as it declines toward 1.1000 against the USD and then the split is sprung to kick EUR up to 1.6000 ??? As Arte Johnson used to say on Laugh In , "Verrry Interesting."
The eur/usd trade is in motion. I think the chinese buying the Australian dollar every night is going to end up ugly!
Just ask Japan / and all the Brics! Look @ Sovereign waste in Switzerland ( CHF).
Even S&P implies EU is toast.......uh oh, must mean the EU will survive with a Tobin Tax....barf.
Everything is the USs fault. Everything!
So, the old wallet I've got stuffed full of Marks, Francs and Pesetas might be worth something after all.
I have, however given up on the Cruzeiro.
I give up!
Krugman, you are your own worst enemy! You katsup " bullshit" wanabe! Krugman look @ your son!
% debt/gdp - 5%. You douche bag! Wake up! " KRUGMAN is the consumate " BULL- SHITTER" , on fantasy Island!
De Plane De Plane!
Krugman, you are your own worst enemy!
Not while I'm alive.
Look all, we all know that the Euro will not survive this crisis. But understand that with our elections in a little over 9 months there is going to be one hell of a full court press to keep the status quo. I see none moving out of the Euro this year...1 possible exception is Greece as they are closest to the edge. If that happens then the first wave hits all shores. But i think it will be delayed.
And at some point the Euro shorts will get hit. But we all know intelligence and proper thought have nothing to do with these broken markets. Notice though how so far the markets here hardly go down, no matter what the bad news is. Many feel the same way, Euro short squeeze, dollar lower and up we go.
Timing is of course critical to position into the move. But no one has any idea if it will be Tuesday or a month from Tuesday. I am watching gold and the miners like a hawk. Broke weak support at 1,650 and must retake that to scare a few shorts.
It is all tied together now, when does the squeeze start, how low first the Euro, what happens to Greece? Remember we are the last sick currency standing and we will go down last. But I have no doubt it is over. We will implode. So how do you time all this to profit on the trade. You Don't. Too many hidden cards. And for Gods sake, never, never work with margin. You will get wiped out short or long. That is a fact.
I see nothing changing here until the "Funding crisis hits". Nothing. Soon 16 Trillion, then 17. Until those in power away from US decide it is time to take their pain and interest rates force the Bernank to stop printing, until then, same old shit. That is how I see it.
Monopoly. I couldn't agree with you more. I wrote an email to Tyler a month ago about this very subject of market reaction. The market is
Telling us a different story. You have Iran and Syria, political gridlock, 15trillion in debt and growing every day, the sovereign crisis, European recession, high us employment , housing prices continuing to fall, Jp Morgan revs below expectations and Jamie Damon tellin the public it's bad ou there, banks in Europe levered 40x etc etc. yet the equity market refuses to go down. In trading, timing is everything. Thanks
I'm sure Marin and Connecticut are somehow behind all these appalling developments.
Not sure about Connecticut, but those Marin County "hot tubbers" are not to be trusted!
Euro zone countries are still very sovereign, so what's there to break up, a common currency?.. trade agreements?.. words on paper?
When stuff don't work out, you break up and move on, NO big fucking deal.
My Neighbor , the Libtard with an Ocean View, had the AUDACITY to infer , that additional QE was a good thing, because we only had to pay " ourselfs " back! This has been festering in me for 2 weeks! I'm livid!
FUCKING LIBERALS just don't get it!
Let me offer you a clue junior...fucking conservatives are MORONS. You're not going to get it, ever. The reason that Liberals will piss in your general direction is that we know, as opposed to believe (like conservatards) about science and rationality. Now please go back to your Fox approved playpen and let the adults talk. Nighty night junior.
The fact is most intelligent people are sick and tired of the fake left/right bullshit. Everyone wants clean air and water; laws that apply to both rich and poor; public safety; a reduced military that works for defense; an end to the police state; and on and on. When you call people "Libtards", smart people automatically react by dismissing your entire point because you are too busy masturbating your conservatiive fantasies.
Why are you getting pissed about that shite - the answer is clear - lets get St Paul in W/H and then we can round 'em up and shoot the fucking lot of 'em.
I get a warm glow just thinking about it!
They won't do anything till parity with the US dollar.
Then they will start to freak.
That term "fiscal austerity" conflates two very different things: raising taxes, which falls on the private sector, ie the wealth creating part of the economy; and cutting government expenditure, most of which is not wealth creating. A large part of the latter in all western democracies is funded by borrowing, and spent on "public servants" whose cost is then counted as GDP.
Cut out a huge swathe of the public sector and nominal GDP will drop, since it is purely an artifice of the dishonest way these statistics are computed, but the real wealth creation in a country will not drop, while at the same time borrowings fall and the crowding out of investment in the private sector is reduced.
Anyone who uses the term "fiscal austerity" without distinguishing between cutting the public sector and raising taxes on the private sector is either ignorant or dishonest, or if they're like PK, both.
Of course real wealth creation would drop in the short term ... regardless of whether it's a bad or good thing a bad thing a deflationary depression/creative destruction would be the short term result. The private sector would shrink before it might grow.
Beautifully said.
Unfortunately the are a lot of ignorant AND dishonest politicians who just don't get called to account on this critical tax/spend dynamic.
bruce, i love your contributions. i read every single one, but please don't ever use the names tyler durden and paul krugman in the same sentence!
how about fuck you and have a nice day! Putting Durdens name next to Krugman is an insult, you cant compare the latter with the Durden the EPIC' NESSSSS!
Fuck Krugman & Friedman!
...unless it's a duel at dawn.
...unless it's followed by Marin and Connecticut.
If the PIIGS leave the union the economy of the remainders would certainly suffer greatly as well, and the value of the Euro would likely drop regardless.
Parity with the US buck would seem more likely, and then the rollout of the new world wide backstop/printing press to 'save the world.'
If the Euro, US buck and Yen all roll out at parity on the slot machine sometime soon, surprise surprise, what a great time for a world wide union, to, you know, save us all.
Merkel has everything to lose if Euro goes down as Germany is big beneficiary of this construct. Can the GS cabal destroy the Euro using manipulated market play? I suppose the answer is 'yes we can'. So, what can Merkel do about it? She lost out by using the ECB to monetise using the back door, which did not allow it to issue money direct to sovereigns like the HEAD central bank of EU zone. No, it "pretended" to be above the states, neutral, and did it actions behind the curtain to the private banks, letting the markets cream the isolated sovereigns with huge spreads. Mad play; either you let each sovereign act like a sovereign and assume sovereign risk alone or you go joint and several. Merkel/ECB chose the back door route, the worst possible solution adding billons to the ante. We are in the same place where we would have been if it had been joint and several, but the debt is made worse and will stay so as the rigged market will now make Euro zone bleed having used the notationals to say they are indebted and disorganised (Unlike the FED, BOE, BOJ !!! which is preposterous by comparison of rates). Only this time the collective cost for ECB and thus all funders of ECB, the sovereigns themselves, is horrendous, paid through their noses to the market, by each corrupt crony sovereign in bed with their indebted banks like all sovereings ALL over the world. The banks run the global show. They get money at 0.01% from FED, 700% better than Euro sovereigns, go figure that out, while their BS have no assets and those smug notationals look on, as if all was normal in the market...
WHo taught these people how to count? In front of them the inexorable market, not only knows how to count but also how to use the very pores, voids, and intersections of the financial spider's web like the devil himself.
The First act of the sinking of the Titanic.
GS? They're the second biggest bank in Germany. If the 4th Reich goes down, GS goes down with it. And of course the basis for this Reich is the euro. This article is delusional in supposing that Spain, Italy, Greece or Portugal are going to drop the euro. Now that it is weakening is it not having the desired effect for these economies? Obviously yes. Not only that...but since the German banks/GS are up to their eyeballs in euro-PIGS...there's no way they want to see that euro strengthen such that the debt of the various states is called into question. I can understand the fears of German Insurance companies: without a doubt they're the largest holders of the CDS's just as our own AIG was. it is unclear if the German Government is capable of bailing out these insurance companies should should the CDS contracts be dishonored as they more than likely will be in Greece. Of course...and AGAIN...the "Big Kahuna" is France. It's called AN ELECTION there Bruce Baby. So stop being a beeeitttcchhhh about it BK.
http://www.youtube.com/watch?v=XPNsy029OeU&feature=player_detailpage
GS is the very image of schizophrenic US uber-alles capitalism, which has created run-away fiat pump, and now, as always, wants WS levitation for ever and USD hegemony as well to boot; all the while devaluing goods in real economy made by the creditor nations in USD terms. That way debt created gets blown away over time and USD stays top dog. They play on both sides of the fence in this currency war. Good strategy if you want to never lose. Unless the whole shooting match ends in big capitalist KABOOM. Runaway spiral, repeat of 1929. But that is not part of the financial and geopolitical war game options even considered in WS/DC. When you wear the Purple you are there forever in your own mind.
Its the viability of this global construct which is the REAL issue. If Germany balks now at being sacrificed as collateral of 2008 financial Armageddon of which the EURO crisis is JUST CONTINUATION, then basically what Merkel is saying : Pax Americana, legacy of our past defeat, and impossible, overextended, suicidal construct must now end. That sends a very sinister message to the men in purple in DC/WS. GS, is their key Consigliere of the 'Five families' of US hegemony. Its the institution where the "financially best and brightest" have ruled the roost for thirty years. But it is not the only seat of power in new Rome.
There are all those other traditional members of the five families : MIC, Oil, Pharma, Silicon VAlley (Apple) , Consumer lobby (Walmart), Big Agri etc etc etc. New Rome was built over a century and intends to stay ROme.
But will it? To be or not to be...top dog. Quo Vadis? And at what price...
Bruce,
You posted more than once at the start of 2011 about a tidal wave of inflation soon washing ashore. In U.S.A.
Bad call.
Bad call? CPI-W rose 3.6%, the highest in three years
Well, he also posted that there would be no QE3 in 2011. I took the other side of that wager, and look who was right...
I've learned that soon is a relative term. Be patient, it cometh.
At this point, I no longer care if it's in my time or not. I'll wait it out as long as I can for the sake of future generations.
IBTW -- in Jamaica, "I come soon" means "Don't hold your breath".
Historical references are worthless for valuation. Common sense and standard logic suggest that the EURO is going down. Therefore it will not. In a free market the EURO would be at parity or below today. It is not. I personally believe that the EURO will not be allowed to collapse until after the U.S. elections. Keeping it afloat will require massive liquidity on a scale that only ben almighty can provide. 1.6 sounds far more likely to me than does parity.