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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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This is politics not economics.
Merkel is a tool. She was born in West-Germany, daughter of a clergyman who felt that East-Germany was the better place. She grow up to become a very good communist. If theese facts doesn't ring any bells...?
Nowadays her only mission is to keep the Euro project intact. She has no special ideology...
Merkel did not grow up in West Germany?
http://www.economicpolicyjournal.com/2011/09/is-angela-merkel-being-blac...
http://www.spiegel.de/spiegel/vorab/0,1518,377389,00html
info
Angela Merkel walks in dealing with the Stasi files in the footsteps of former Chancellor Helmut Kohl, who had set itself against the publication of records of the intelligence to defend. Merkel refused to let the authors of the WDR film "In the Eye of Power - the images of the Stasi," the release of a photograph of her from the early eighties. In the Acts of dissident Robert Havemann and his wife, Katya, the researchers had found a passport photo of the young Merkel. The image was found in a photo collection of people who had been captured in the approach to the land in Havemann Grünheide in Berlin. The filmmakers asked Merkel to release the image. However, her office announced that Merkel would be for "reasons of protecting their privacy," but also in terms of "equal treatment in similar requests," no permission to use the photos. This prompted the Birthler authority the rasterized image only available. In GDR times, Merkel had on East Berlin's Central Institute for Physical Chemistry at times shared the office with a son Havemann. The theses of the dissident a "third way" between communism and capitalism, they always turned off by its own account: "From his vision, I was never excited," she told her biographer Gerd Langguth.
Just interesting. Nothing definitive and no 'smoking gun'. But worth consideration.
Pattern recognition is far more valuable that technical analysis in my opinion.
Love the last sentence. Hope the pattern(s) start(s) to be more widely recognized.
Its not her fault if she was born in Est-Germany.... Also keep in mind that without her, the EZB would have the Bazooka since a few months. And why should Germany pay for all other countries ? Nevertheless, she will be forced to keep the Euro project intact, otherwise she will not be reelected.
But the EU breakup will come soon or late !
Hey dumbass!
The point is that she was born in the WEST!! The clergyman family made the choice to become East/Germans. PRETTY FUCKIN UNIQUE IN THOSE DAYS!
She's gotta be the world's ugliest lookin biped (OK - apart from Hillary.. you can throw MIchelle in there as well for good measure)...I think we can all, at least, agree on that ?
Uuughhh!! Where do they find these broads? Your guess is as good as mine!
+1 for Candy Crowley.
Look up Julia Gillard...
They can be found in either... yes, you guessed it, Marin and Connecticut!
My mistake, but is it reason to call me DUMBASS ??
Quite symptomatic for the society we are living in.....
We fight a lot.
It'll feel better, once it stops hurting.
Cool ain it...lol.
We never go away being misunderstood.
Has ZH and BK gone all Keynesian on Europe?
Everyone seems to have a blind spot here (or is it wilful bias?).
The Euro currency will not be sacrificed to save any nation. The ECB will act as lender of last resort to the banks, but individual governments (and eventually dumb bond holders), will be allowed to suffer.
Bond buyers need to realise the risk with Euro countries bonds is not a currency risk (via debasement/inflation), rather it is of real hard capital losses.
Yes, the Fed will step in to buy all sorts of shit eventually, as a last resort to save dollar privilege. It will buy the US a year maybe.
It is already happening before our very eyes, look at Irelend, Greece, Italy, Spain and Portugal. The pain is being taken, they are not the US.
And rejoice, as the world will be a better place under the Eurosystem, where gold is traded on a physical-only basis, and no country (yes, the US again) gets a free ride courtesy of holding the world's reserve currency.
As for exchange rates, well, every man and his dog are predicting Euro doom, and the shorts are loaded. Hmm, what happens next do you think?
Not at all.
What our point is that one can not transition from spendthrift Keynesian ways to conservative fiscal policy without a reset crash first. For Europe to return to a stable equilibrium it will have to undergo a very painful transition. Krugman's point is that Europe should do everything in its power to continue failed Keynesian ideology, or said otherwise, delay the day of reckoning from today until tomorrow. His point is worthless as it is the model that is broken.
And lastly, it is almost guaranteed, as we have been saying for a while, that an epic short squeeze is forming in the Euro, and it will happen as the central banks will have at least several more kitchen sink attempts to rescue the system.
It is not unlikely that the EURUSD trades back to 1.60 purely on short covering and on a $1 trillion QE3 announcement by the Fed.
That said, both Europe and the US, in their current variants, are doomed.
"That said, both Europe and the US, in their current variants, are doomed."
Back in the 80's I recall reading a book with input from Milton Freedman about the national debt and the "Hockey Stick" curve on a graph indexed to compounding interest.
It simply showed that once that curve is negotiated through - we as a solvent nation are through.
There is a point of no return where just the interest on the debt can no longer be serviced and it spirals completely out of control.
Back then there was concern about sound fiscal and monetary policy.
Up to now as of recent I fail to see that concern that was back then as this fact displays an obvious indicator that we have already negotiated that curve through the point of no return - ie: THEY CAN'T FIX IT EVEN IF THEY WANTED TO.
Have to start from scratch just like the corrupted OS on a computer where you have to wipe the HD and reload...
Gotta agree about the Euro short squeeze.
What our point is that one can not transition from spendthrift Keynesian ways to conservative fiscal policy without a reset crash first.
Under conservative economic theory, yes a crash is inevitable. Under capitalism, a boom could occur. Start with 0 tax rate on all incomes individual or corporate. Get rid of the EPA and the rest of alphabet agencies whose job it is to interferce with free trade amongst individuals and countries. Abolish the FDA and set loose a bio tech revolution that will be more astounding than the tech revolution.
Abolish Social Security and Medicaire. Take what ever assets are there and return them to the "contributors" proportionately. Advances in free market health care and free market insurance will provide a better standard of living than Medicare and Social Security can or will. Social Securty and Medicaire will collapse anyway.
Get rid of licensing laws so that people in protected professions like attorneys, doctors, contractors, etc must compete.
Abolish the fed. Privatize curreny and credit creation so that instead of losing 95% of purchasing power, currencies can increase in purchasing power.
There has never been a full capitalist system in the US or anywhere else. It takes imagination to realize that under capitalism a crash is not inevitable. I appreciate the fact that you did not represent your premise as capitalistic.
"Imagination is more important than knowledge. For knowledge is limited to all we know and understand, while imagination embraces the entire world, and all there ever will be to know and understand." Einstein.
"epic short squeeze"? REALLY? What phuckin' planet you on? Those are 300 percent interest rates in Greece? Go ahead..."cut the debt load"! HAHAHAHAHAHA! they're still bankrupt! the "value of currency" is TOTALLY MEANINGLESS when you can't get a loan! What you need to explore here is "printology"--or "how printing money to buy government debt results in PLUNGING interest rates with NO change in government behavior" and proceed from there. Obviously if you're telling me to start buying any financial asset denominated in euros now that Germany has true real negative interest rates...i think i'll pass. Now if you were to argue...and of course you won't "how about some AT&T stock which yields over 6%"--hey, debt-brother--you my man!
Thanks
We did not experience any reset crash in a 1st world country since 1921 in the USA, if you exclude wars and other external shocks.
There is extensive literature about it on mises.org
So there is the chance the southern EZ countries show the world that the austerity medicine works.
1.60 and then back down? LOL, yes. Doomed? Depends, IMHO.
would the "cut off oil from Iran" consitute an "external shock"? how about the collapse of Greece? or is that a "soon to be external shock" once they get "kicked out"?
I don't see a "cut off from Iranian oil" yet. Though I learned in Greece how to drive like the locals downhill with a switched off engine to save gas - prices having been often several times higher than in the rest of the world. This is by the way another reason for the EU, you see? Common Market for the exchange of goods and services.
Greece can "collapse" without getting so far down not to stand up again (albeit at a lower level) quickly, it has one of those southern european economies that can go through Argentina-like-Crises every few years without blinking too much.
Of course the howling of the demonstrators can deafen the US watchers - but again this is because you typically have riots (which are breakdowns of order), while we typically have various degrees of violent demonstrations (which can be as violent as yours, but it's about politically changing the order). So you usually look at a screen and misjudge the fact that the median citizen feels quite unthreatened and can usually even go there and watch physically how they are doing - without itching for a gun and a phone.
Central banks do ONE THING well: buffer collapse by keeping asset prices artificially high and interest rates artificially low. Thus there is no "reset crash". They DO NOT engender risk taking, but instead promote the exact opposite, which is waiting for the next decline so you can unload to the central bank. They will continue to do so until all incentive for risk taking is crushed.
Aka the big freeze of markets on strategic plays like sovereigns and synthetics and interest arbitrage through carry trade. Deleveraging the whole synthetics WS construct has to be now put firmly on the agenda, world-wide. The Tobin tax just the tip of the regulatory iceberg being envisioned on EUro front.
Bad news for day traders if it happens. Will Obammy give the green light US state side if Merkel declares it the DICTAT on Euro front...???
We are not there...but Quo VAdis Merkel? And how will Obammy/FED react? Quo vadis, PAx Americana?
Epic 2012 year of tipping point decisions in Atlantic Alliance now firmly sitting on SS Titanic.
Knowing political inertia in USA during election year, Merkel may feel she has a tactical window in 2012 to do the painful DICTAT of continued fiscal austerity coupled to MArket Verboten...Big poker play there...
so Krugman is worthless and pointless
preaching to the converted TD, that's an easy sell/sermon round these parts
Calling Caveman Krugman "worthless and pointless" is merely to imply that he, and/or his policies, have no worth and no point.
How does one label a person who actually has negative worth, and whose policies make negative sense?
that's an easy one: a parasite (socialist)
Or a Fascist: (a parasite)
Or someone with summer homes in Marin and Connecticut.
Its not the question IF the EU is toat but WHEN..... nevertheless ES finished almost in the green yesterday, so this news must be bullish (thanks for explanation) ! Unbelievable, but if even Marc Faber starts to be bullish on stocks, something big will happen soon.....
Well I know 14 day RSI is technical blahblah bullshit and all but I'm seeing 5 for 5 over the last 12 months. Now we working with #6.. so about that bullishness.. do you feel lucky punk ?
/sarc
http://fiatflaws.blogspot.com/2012/01/rsi-14-signals-against-spy.html
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.
This is where the thought process breaks down. You can't even imagine a world in which decreases in government spending lead to growth in the economy. It's as if the state is the economy. All because there's an addition symbol next to government spending as a component of GDP. You've modeled yourselves into a corner.
Yet the undeniable observation remains: the government produces NOTHING. Everything they have is from the society it steals from. That they consume less or more is immaterial to the overall productive capacity of the rest of economy. In fact, the less they steal, the more capital is available for the rest of the productive portion of the society to re-invest.
Keynesians like Krugman are so far beyond a working theory of this capital development that it boggles the mind that anyone still reads them.
What they mean is that harsh austerity measures would cripple the economy. Long term this reduction of government may be good for the country, but short term it would be devastating. That may seem desirable for poor, country folk or unemployed, basement bloggers; but it is not for me. I prefer to live within the matrix and enjoy my life. Last night I drank Glenlivet scotch, ate good food and watched football while playing games on my IPad. Print away. I don't give a fuck how they invent the money, just keep it going.
Catullus;
Your observations regarding the lack of production from government is true. However, it does not invalidate the observation that economic growth and austerity are antithetical to each other over the short-to-medium term. Consequently, for highly levered systems such as Europe that believe that they can cut their way to solvency, it is this short term period of economic dislocation likely to be caused by said austerity that is critical. Ultimately, smaller less intrusive government is good for any economy. The reality remains that Europe can not get there without debt desctruction and all of the resultant political turbulence.
"Yet the undeniable observation remains: the government produces NOTHING."
Bravo, just what I was thinking. Thanks for introducing some common sense. The government just redistributes stolen wealth created by real work in the private sector. It should be excluded for GDP calculations. Its another type of malinvestment like housing.
"...what government gives it must first take away..."
John Coleman
NO. Europe is STUCK WITH THE PHUCKING EURO. End of story. If it incinerates the majority of their banks, insurance companies and a country or two...OH WELL.
roads
schools
hospitals
sewerage
land drainage
and many more, there is no govt and no public spending in somalia, if your not a pirate life is crap
Let's add a few more
the internet
dams = electrical power grids, irrigation
mail delivery
parks
food safety
consumer product safety
richard in norway,
The Rand/no government crowd will never admit it, but they understand the value of government. They are not so dumb as to fail to see the benefit of dams, bridges, parks, the space program and all of the innovation that it sparked, university research, the court system that allows us all to settle our private disputes, firefighters, the police, and everything else. They simply don't want to contribute to it. Theirs is a philosophy of selfishness and greed. They worship at the altar of "me." They troll around on the internet that would not exist but for public money and public institutions, and they call for an end to taxes. Ironic, isn't it, that they are so angry at the welfare queens of the world.
It is highly amusing though --- all these idiots posting about government not producing anything --- right on a Internet site made possible through government created technology
Exactly. And it's the same idiots who, when buying gold, will only accept coins minted by the US government.
The issue isn't whether government is not "producing anything" - just a brief look at the 20th century shows us governments producing devastation on a scale unimaginably larger than peoples without governments could ever manage.
The main debate is - what does a monopoly of coercive force do better, than systems comprising voluntary transactions?
Preventing (and punishing) force & fraud are the most obvious candidates. A small standing army that keeps 24hr watch and provides initial defence until civilian militias mobilise. The 'natural monopolies' - roads, and landlines, maybe. After that, government's ability to provide services more efficiently than private sources becomes increasingly doubtful.
Pointing out the wonderful contributions government-funded research has gifted us ignores the fact that all that funding came from sucking capital away from the private sector, where chances are pretty good it would have been much more productively employed.
I always thought someone should produce a t-shirt saying: "The MIC put a man on the moon - and all I got was this lousy frypan"
The private sector didn't deem it profitable enough to deliver mail, create parks, the internet, the highways, the electrical grid, etc etc. They had decades to do it but never stepped up. In countries with little effective government the roads are shitty, phone & electric service is spotty, etc etc etc. Not saying that government can't be cut back, but let's get real here. In addition, billions in private money has been made off of tax-payer government research. Government has been very very profitable for big business.
Yes. I'm sure ZH wouldn't exist without the government creating the internet. Praise be Algore.
It was ARAPNET http://en.wikipedia.org/wiki/ARPANET
"They are not so dumb as to fail to see the benefit of dams, bridges, parks, the space program" Don't companies and more importantly, individuals comprising those entities build the dams, bridges, space shuttles? Yes, to all three.
The internet, and indeed all science and technology, exists because of the ingenuity of individuals like Tim Bernler-Lee. http://en.wikipedia.org/wiki/Tim_Berners-Lee. Perhaps, you foolishly believe, quantum mechanics, statistical mechanics, etc. would not exist but for centralized government funding.
The free individual and his ability and drive is the engine that drives the world. The collectivist cabal has a universal characteristic: like of ability and competence. That's why they always demand wealth redistribution in the name of "fairness".
Here's some advice Buffett should take: don't feel like you're paying enough taxes: send the IRS a check. Just keep your grubby hands off other people's money (OPM). People just have no regard for OPM-which is the origin of the last financial crisis-and the reason for the consistent failure of social welfare states.
Somalia is the libertarian paradise!
It's strange how libertarians hate big government when the best countries in the world has a strong government... But a big and strong government can be efficient; the problem in the US is that the government is tied to big corporations. It's becoming a fascist state!
Fucking idiot...
"Somalia is the libertarian paradise!"
Please explain why a libertarian would be comfortable on a piece of land controlled by Islamic warlords and pirates.
Thanks in advance or take your shit back to Kos for him to advise you what to say.
Big government can be efficient... At doing what exactly? Perhaps they're efficiently giving someone else money to those big corporations.
I have suggestion: go to Somalia and explain to them what toilets are all about. I mean, granted, they have no public schools so the concept of getting shit out of their huts may be difficult for them to comprehend. If they don't spit in your face for being so offensive, maybe they'll be kind enough to explain to you that they don't have the resources to build advanced sewer systems because their land has seen centuries of warfare, foreign governments (tribes) ransacking their lands, naval warships dumping waste off their coasts, huge Japanese fishing boats trawling their waters bare, etc. Try not to get your feelings hurt when they laugh at the idea that government is their solution to all this.