The Year 2012 In Perspective

Tyler Durden's picture

By Martin Sbilieau of "A View From The Trenches"

The Year 2012 In Perspective

Today, I want to summarize what we covered over the year. During 2012, I sought to address both theory and market developments. Under an Austrian approach, I discussed many macroeconomic topics: the effect of zero interest rates, the myth of decoupling (between the US and the Euro zone), collateralized monetary systems (as imposed by the European Central Bank), the technical (but not realistic) possibility of a smooth exit from the Euro zone, the destruction of the capital markets by financial repression, the link between the futures, repo and gold markets and consumer prices (I don’t like the word “consumer prices”, but it is better than speaking of a “price level”), insider trading, circular reasoning in mainstream economics, high-frequency trading, what can precipitate the end game to this crisis, the technicalities of a transition to a gold standard, the conditions for a successful implementation of the gold standard, and the flawed logic behind the Chicago plan, as proposed by Benes & Kumhof.

Let’s now briefly follow up on each of the market themes I covered in 2012:

1.-There has been no decoupling: The Euro zone is coupled to the US dollar zone

At the end of 2011, when the collapse of the banking system in the Euro zone (courtesy of M. Trichet) was dragging the rest of the world, the Swiss National Bank established a peg on the Franc to the Euro and the Federal Reserve extended and cheapened its currency swaps with the European Central Bank. These two measures –indirectly- coupled the fate of the assets in the balance sheets of the Euro zone banks to the balance sheets of the central banks of Switzerland and the US.

As in any other Ponzi scheme, when the weakest link breaks, the chain breaks. The risk of such a break-up, applied to economics, is known as systemic risk or “correlation going to 1”. As the weakest link (i.e. the Euro zone) was coupled to the chain of the Fed, global systemic risk (or correlation) dropped. Apparently, those managing a correlation trade in IG9 (i.e. investment grade credit index series 9) for a well-known global bank did not understand this. But it would be misguided to conclude that the concept has now been understood, because there are too many analysts and fund managers who still interpret this coupling as a success at eliminating or decreasing tail risk. No such thing could be farther from the truth. What they call tail risk, namely the break-up of the Euro zone is not a “tail” risk. It is the logical consequence of the institutional structure of the European Monetary Union, which lacks fiscal union and a common balance sheet. I am not in favour of such, but in its absence, to think that the break-up is a tail risk is to hide one’s head in the sand. And to think that because corporations and banks in the Euro zone now have access to cheap US dollar funding, the recession will not bring defaults, will be a very costly mistake. Those potential defaults are not a tail risk either: If you tax a nation to death, destroy its capital markets, nourish its unemployment, condemn it to an expensive currency and give its corporations liquidity at stupidly low costs you can only expect one outcome: Defaults. The fact that they shall be addressed with even more US dollars coming from the Fed in no way justifies complacency.

In January of 2012, I laid out an analytic framework to visualize the dynamics between these two currency zones. I reproduce the figure below without comment, as it is self explanatory:


In February, I anticipated that the European Central Bank was eventually going to need to floor the value of sovereign debt. It took about seven more painful months to see this take place, with the announcement of the Open Monetary Transactions. With this in mind, I suggested not to chase the stock rally and warned that shorting the euro would be a painful trade.

2.- Manipulation in the gold market

From my years at the Universidad de Buenos Aires, I always remember professors J. M. Fanelli and Daniel Heymann, because they used to and still think that policy makers (in Argentina) had no choice but to “manage” the price of the US dollar (vs. the peso) to fight inflation. The value of the US dollar, in pesos, was a signal that shaped inflation expectations, according to them. In the same fashion, I am convinced that those at the helm of the G7 central banks believe that to shape inflation expectations and avoid the burst of the bond bubble, they need to manage the price of gold. And that is exactly what they have been doing (via swaps, leases from their deposits at below market rates), since Standard & Poor’s downgraded the sovereign risk rating of the US. They are wrong of course and in time, it will prove to have been an expensive decision. The proof? Movements like the $100/oz drop upon the announcement of the second Long-term Refinancing Operation at the end of February. Nobody who lives marked to market would ever dump so much gold in seconds in a market, let alone do so sustainably and predictably, as it often happens, between 10am and 11am ET. I am convinced that had it not been for this manipulation, gold would have had a stellar performance this year. But how serious can I sound debating a counter-factual statement?

3.-Liquidity will not fund capital expenditures but share buybacks, dividends

In March, we were perhaps the first to suggest that the US dollar liquidity enabled by the Fed via swaps was going to be used to buy back shares and distribute dividends, rather than finance capital expenditures (I say “perhaps” because a few days later David Rosenberg expressed the same view). This is a typical outcome of financial repression. Nations under financial repression generate bankrupt companies owned by wealthy owners. Time will tell but so far, numerous articles have been suggesting that this trend is taking place (Eric Beinstein, from JP Morgan, shows evidence to the contrary, in his latest Credit Markets Outlook report). Because of this, I proposed that as a trading theme, one should buy the product, rather than the producers, which is a winning trade in inflationary environments. Therefore, the suggestion was to buy gold, rather than gold miners.

4.-To defend their currency, the Euro zone destroyed its capital markets

(At this stage, I think no comments are needed on this point, which I made in March.)

5.- Sovereign debt owned by other sovereigns is a concern

In March too, I noticed that the situation in 2012 resembles that of 1931, as Greece and increasingly other peripheral EU countries owe to other governments, the IMF and the European Central Bank. Private investors have been wiped out and just like in 1931 (when France, for political reasons, allowed the KreditAnstalt to go bankrupt), when the next bailout is due, political conditions will be demanded that no private and rational investor would demand.

6.-Canada’s story will be different

In April, I proposed that the Canadian context was different and that rather than expect contagion from the banking system to the government, in Canada, we should expect contagion from the government to the banking system. I still expect this deterioration to be triggered by an exogenous development (i.e. outside Canada) and the reaction of the Canadian dollar to the revised unemployment rate on December 7th may be telling us that this view has merit.

7.- September marked a tectonic shift

I will not elaborate on the points below. I wrote extensively about them in September (see here, here and here), but I need to mention them because they are very relevant for the next year. These points, I must clarify, are my best case scenario, because the necessary condition for their validity is that Spain and any other peripheral country in need of a bailout asks for one and receives the support of the European Central Bank (ECB) in exchange :

-The market will arbitrage the rates of core Europe and its periphery, converging into a single Euro zone target yield (with higher German rates).

-We will no longer be able to talk about “the” risk-free rate of interest, when we refer to the US sovereign yield. Inflation expectations will pick up

-The Canadian dollar should not rise significantly above the US dollar (i.e. above $1.04 per 1 CAD).

-The ECB backstop (i.e. purchase of sovereign debt) generates capital gains for the banks of the Euro zone and transforms risky sovereign debt into a carry product (i.e. an asset whose price is mostly driven by the interest it pays, rather than its risk of default, because this risk has been removed by the central bank)

This implies that in the future, sterilization at low rates or the suggested negative deposit rates at the European Central Bank, under Open Monetary Transactions, will not be feasible. Banks will demand high rates in exchange, if they are to sell the debt to the central bank.


In my next letter, and likely the last one of the year, I will address the topic of why we have not yet seen high or hyper inflation and what is necessary, in general, to see this phenomenon take place. The letter will go dedicated to Peter Schiff. In it, I will seek to show that unlike Keynesian economists believe, not only are high nominal interest rates compatible with high inflation, but in fact they are a necessary condition for high inflation to exist and morph into hyperinflation. This is a paradox to mainstream economics…and, coming from Argentina, I love paradoxes.

A final observation, on method

As my approach is within the Austrian school, you may have noticed that I use praxeology. ( “a theorem of a praxeological science provides information that has been derived by sheer reasoning; it is the product of pure logic without the assistance of any empirical observation”, I. Kirzner). Hence, you find almost no statistics in my articles. My aversion to them is due to my view that the national accounting system used to date is simply a barbaric relic of mercantilist doctrine. But that’s a story for another time… I walk through problems using simple axioms and test their logic with identities (i.e. balance sheets). Mainstream economists, on the other hand, use equations. Hence, they need to “torture” their stats to prove their propositions, because they are inductive. I use deduction.

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tony bonn's picture

fabulous article with only one omission ( i didn't read every word) - but state sponsored crime syndicates will also contribute to defautls....and there are plenty of them as gensler and schapiro surely know - they being protectors of said criminals.

GetZeeGold's picture




2012.....the criminals made out like bandits.


Thanks bitchez - Jon Corzine

JohnnyBriefcase's picture

But, but crime doesn't pay...

krispkritter's picture

For us no.  But we have morals, scruples, and souls. " feels good to be a Bankster..." 

francis_sawyer's picture

So basically... BUY GOLD [phyzz]...

My 'New Years' resoultion is to get to the point using only a fraction of the allowed Twitter tweet characters...

Michaelwiseguy's picture

My New Years Resolution; To bust mainstream media news by going on a rampage showing people how big an enemy they are to people. We need an exhaustive discussion with many examples over many months, to determine the extent that their enemy actions are affecting the population with their social engineering, read brainwasing and mind control.

Especially CNN, MSNBC, FOX, ABC, NBC, and CBS are always actively doing damage to your mind and society by swaying herds of people to their pre-determined corporate wishes and desires.

I want it to be known and said as common fact, MSM TV News Channels are Enemy's of the People.

Here's a recent example of their terroristic activity;

Fox News busted reporting fake news; drivers on Cannabis 


kliguy38's picture

Gold is the ultimate arbitrator of the ponzi....either its controlled or its GAME OVER BITCHEZ! and they are not gonna go down without a fight....real money is the threat.

GeorgeHayduke's picture

A very true comment on a very good essay. Too many folks are looking at what's happening today through an obsolete academic filter and Cold War mentality when an organized crime and street thug perspective is much more appropriate.

Bollixed's picture

I'm still trying to figure out how a yearly perspective of 2012 can be written before we even experience all the machinations said to befall us on 12/21/12.

Surely those predictions have more credibilty than any government stats...

(I don't believe any of that nonsense, btw)

TuffsNotEnuff's picture

Why the decline into paranoia ?????

The diagram is mostly silly. Hardly the fearsome tool it is intended to present. It is an example of why we have accounting -- so we have actuals to gauge performance.

Silly statements, odd claims have to be tested. Not like this:

" find almost no statistics in my articles. My aversion to them is due to my view that the national accounting system used to date is simply a barbaric relic of mercantilist doctrine."

Obviously the Germans and Chinese are applying mercantilism with great success. That comes because their bankers and government managers understand national accounting systems. They are not fooled by economic sophistry.

America ??? We blew $2-trillion on Iraq and Afghanistan and another $1-trillion on irrational military hardware. We blew huge sums on the no-negotiation drug benefit. We blew $2-trillion on the tax giveaways to the wealthy.

Effective tax rates in America are the lowest they have been in decades. But that's a statistical truth. Not compatible to any part of this article's claim of "Austrian" economic intuition.

Sean7k's picture

The Germans and Chinese are up to their eyeballs in debt, empty infrastructure and debt ready to implode. You obviously are not paying attention to the German PMI figures. This has nothing to do with accounting and everything to do with understanding finance, fascism, government manipulation of statistics, hiding debt (deutche bank) and the elimination of mark to market while cb's buy worthless MBS and store it on balance sheets they are terrified to unwind. 

Effective tax rates? Even accountants know that you have to look at ALL the taxes, fees and payments required from your income, wealth and dividends. You haven't even begun to approach "statistical truth". It is this obvious ignorance and unwillingness to consider alternative methods of economic prognostication that brands you. 

You might first look to what praxeology is, why it is effective and why Samuelson and the mathematical school of economics is such an utter failure. (Hint: it involves basing models on a set equilibrium that doesn't exist- what some call a false assumption).

thatthingcanfly's picture

On the bright side for 2012, we did put that Curiosity rover on Mars to show those backwards Christians there is no God. Yea!

tbone654's picture

without a God, you will misuse liberty...

Bollixed's picture

Well, the flip side to that is it removes more than half the reasons people feel the need to kill each other...

thatthingcanfly's picture

It occurs to me my sarcasm was lost on some.

Bollixed, go read some Augustine.

CPL's picture

It even too late for the Austrian school to correct this.  The entire system is so broke and corrupt there is no room left for correction.


Only way to fix it now is a global debt jubillee.  Remove all debt from the books.  Not some.  All.  It fucks savers like myself, but since we are so's time to acknowledge that people are lousy with money and ixing the problem with more debt isn't a solution.  Expunging all debts from all levels of society can fix this.  People will have to learn how to let it go.  "People" being anyone with debts owed to them.  It would resolve many things, like measuring real growth, determining where resources have to go properly.


If TPTB wanted to correct this safely, five years ago would have been the time.  GDP wasn't quite 100%, now interest over runs productive capital gains.


Since all this fiat is only an abstracted backed with nothing.  It would require nearly nothing to accomplish but agreements for everyone to drop the nonsense and get it done.  Ink is a shitload cheaper than bullets and it's value stands as long as the agreement is in place.

Misean's picture

Wrong. It allows the looters to profit and continue, as they would be the only ones with real wealth after the debt wipe out, and the rest of the people going hat-in-hand right back into debt to the people who caused this.

No "jubille", for it is nothing but a con. The answer is bankruptcy and wipe out.

CPL's picture

Bankruptcy is debt jubillee, but it's the modern, less effective version of it that only adds to the debt load of most that take it.

Check out the history behind it and the reasoning.  In England prior to Cromwell the bastard and that half wit drunk Francis Bacon, every fifty years debt would be wiped out, top to bottom because ancient economist understood that playing with infinite debt was bad for everyone involved.


Plus it made banking a break even proposition, not investment though.  As you can see we are still here.  The highlights of both the USA, Canada, India, China, Japan, Europe were developed with it.  Without debt jubillees, the Dutch wouldn't have their canals.  The Statue of liberty wouldn't exist.  London would remain a fishing villiage.


There are a great number of reasons of why debt jubillees have been used over millenia.  This is the first time in recorded history anyone has let debt pile up past fifty years.  Ever.  That alone should give you food for thought.


If playing with funny money.  Treat it like a monopoly game.  Game must reset.  If people are truely as smart and Darwin driven as they claim.  They will rise to the top again.   Otherwise, there are no "tools" left in either Austrian or Keynesian philosophies, all that is coming is pain for everyone because of greed.


Greed might be good for Gordon Gecko, but when the numbers of hungry people grows larger than bullets.  What we are asking right now is to become Liberia.

RockyRacoon's picture

I could go with that, if:

1. Means of the easy build-up of subsequent easy credit were removed (that would mean the death of the modern banking system).

2. A defined schedule or time passing would require another jubilee in the future (the rolling jubilee must be made part of the plan).

Without some limiting factors there would be no reason for people not to pile up easy debt again... and again...

You can't simply eliminate debt and expect that prudence, thrift, and responsibility will follow.  I know that your provided links go into those points, but I just wanted to lay out the minimum parameters.

These two factors alone mean that it just ain't gonna happen.  A full default and collapse looks like the only plan available to us now.

CPL's picture

I agree on all points here.  

We can't fix the stupid in people and how lousy they are with money.  The function of the tool of common currency is just too simple and useful to avoid but like a good boiler system, there needs to be an emergency valve to redirect pressure in a system to shut it down.  Easier getting a boiler working again from nothing if you've still got a boiler to work with.

It's one of the principal reasons usury wasn't profitable and only the crown and the exchequer would handle the function of treasury and bank.  If you actually got into loaning money as a business before 1780, you would have to expunge all those debts in a fifty years cycle.  If you notice a common theme in European history wars tend to start at the beginning of the debt cycle, until a Bravarian, English, French, Italian, etc Royal runs inflation to the ceiling and a debt jubillee came early.  Then everyone would behave themselves for 30 years dreaming of new ways to blow each other up until the cycle reset.

It used to serious mess with all the Egyptian ( today's Gypsies/Pikers) and Jewish money lenders in the middle ages.  They would set up shop, slightly mistime the whole thing and it would blow up in their faces. 

centerline's picture

History is replete with debt jubilees.  Same as it ever was.  And you are correct that wealth will remain in the hands of certain people who will restart a similar system and the cycle will repeat.  In a wipe out, the same organizational structure will eventually emerge though.  Is human nature at the core.  Sucks.  But there it is.

If given a choice, I think I would prefer the debt jubilee because maybe we have chance to burn out the cancer in the system and take a real step forward.  A wipe out would effectively burn the evidence.  (This is why I think we are heading for a wipe out though).




Disenchanted's picture



repudiation  (entire article at link originally from June 1992)


Most people, unfortunately, apply the same analysis to public debt as they do to private. If sanctity of contracts should rule in the world of private debt, shouldn't they be equally as sacrosanct in public debt? Shouldn't public debt be governed by the same principles as private? The answer is no, even though such an answer may shock the sensibilities of most people. The reason is that the two forms of debt-transaction are totally different. If I borrow money from a mortgage bank, I have made a contract to transfer my money to a creditor at a future date; in a deep sense, he is the true owner of the money at that point, and if I don't pay I am robbing him of his just property. But when government borrows money, it does not pledge its own money; its own resources are not liable. Government commits not its own life, fortune, and sacred honor to repay the debt, but ours. This is a horse, and a transaction, of a very different color.


For unlike the rest of us, government sells no productive good or service and therefore earns nothing. It can only get money by looting our resources through taxes, or through the hidden tax of legalized counterfeiting known as "inflation." There are some exceptions, of course, such as when the government sells stamps to collectors or carries our mail with gross inefficiency, but the overwhelming bulk of government revenues is acquired through taxation or its monetary equivalent. Actually, in the days of monarchy, and especially in the medieval period before the rise of the modern state, kings got the bulk of their income from their private estates — such as forests and agricultural lands. Their debt, in other words, was more private than public, and as a result, their debt amounted to next to nothing compared to the public debt that began with a flourish in the late 17th century.


The public debt transaction, then, is very different from private debt. Instead of a low-time-preference creditor exchanging money for an IOU from a high-time-preference debtor, the government now receives money from creditors, both parties realizing that the money will be paid back not out of the pockets or the hides of the politicians and bureaucrats, but out of the looted wallets and purses of the hapless taxpayers, the subjects of the state. The government gets the money by tax-coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties, therefore, are making agreements about other people's property, and both deserve the back of our hand. The public credit transaction is not a genuine contract that need be considered sacrosanct, any more than robbers parceling out their shares of loot in advance should be treated as some sort of sanctified contract.


centerline's picture

Seems the current path is the path of least resistance.  Those who have the power to implement a global debt jubilee are either corrupt or beholden (captive) to those who don't want this, or both.  And the public at large in the end will blamed for what ultimately goes down.  Most will take the bait, one way or the other, along so many artificial divides constructed for such a purpose.

Given the size and complexity of the current problems, I really think this is the beginning of a turning point in history larger than WWII, birth of the industrial age, etc.  A second Roman collapse per se.

(I regretfully agree that savers will get shafted here.  I think karma still counts, but this is something that has to be kept in perspective - as you pointed out.)

+1 on your posts CPL.


CPL's picture

There is no U-Haul behind the hearse mon Ami, there never should be anything but friends and family stronger for your wealth.


It would be a shitty wake if nobody showed up.

Misean's picture


But if #5 then NOT #7...? no???

It seems that Spain's reluctance to ask is driven by #5, so....

old naughty's picture

"But if #5 then NOT #7..."

I think the answer   lies   buried between #5 and #7, no?

Misean's picture

How does Canada figure in to a "KreditAnstalt II-This Time it's Sovereign"?

dizzyfingers's picture


Europe’s Problems are Keeping us from Becoming like Europe July 20, 2012 By

What mystifies me about Obama’s claim that “our economy is faltering merely because of these unexpected hiccups in Europe” is that those “hiccups” are exactly what he wants to create here in the states. Can you imagine saying that your prescriptions are not working because we are suffering from the pain caused by someone else using your prescriptions before you did? This is the essence of Barack Obama’s logic, and there is no excuse for thinking people to let him get away with it. The welfare-state is an unaffordable debacle, not merely because it is immoral, but also because it is untenable economically. Has America’s economic growth been impeded by Europe’s malaise? Of course. Is the solution to America’s slow growth more of what created Europe’s malaise? Some questions do not require an answer."


falak pema's picture

Induction is brilliant as long as your don't torture reality to your ends; and deduction is evident unless you are blind to false flags and false trails often provided by sham statistics through blatant crony regulatory capture.  So both methods have their weaknesses. 

To get synthesis from deductive analysis you need a framework based on historically verifiable premises. This crisis has a precedent in terms of mind set and exuberant belief in markets; aka 1929; but not for the incredibly convoluted twist of money trails generated in shadow banking electronic plays in this Reaganista 1980s model, hidden in off-balance sheet accounting; the number one smoking gun of this crisis.

Our money is not money and our debts are nOT assets because a CB says so. 

2012 is just part of the ongoing roller coaster of a capitalist system now careening to its own asymptote. Pax Americana unravel; financial hook, monetary line and political stinker.

ISEEIT's picture

ANYTHING can be abused. Capitalism is the natural state of freedom.

FREEDOM is being abused/perverted.

That is NOT "capitalism's" fault.

I'm inclined to believe that you already know this. I just felt inspired to clarify that.

bank guy in Brussels's picture

This sucker could go down -

Like former US President G W Bush said in 2008, in a rare moment of truthiness

Iam Yue2's picture

The problem, and it is a big problem, is that nobody knows what Berlusconi
will or might do.

Firstly, he has broken the Goldman chain of command, that was starting to nurse the populace into a state of narcotized dysfunction.

Second, he has punctured the austerity baloon. He will run on an anti-austerity ticket offering tax cuts.

Third, he has upset the tame middle ground concensus. How will Bill "I'm buying Italian Bonds" be feeling tomorrow morning?

The game is up, but nobody wants to quite admit it.

ISEEIT's picture

He's just playing a role dude.

Think Donald the doofus Trump.

If he was a serious threat....


earleflorida's picture

your a man after my own heart!

great read... thankyou

GottaBKiddn's picture

Global default by design, on track.

Errol's picture

Based on my experience with beaurocracy, I would guess this is someone's ex post facto response to Sandy.

ISEEIT's picture

I've got a few good 'kid's' staying at my place. Good souls. They all do drugs. I'd like to help them with quitting, but mostly I just like being able to let them be safe. Zerohedge is dangerous because once you actually comprehend the truth about this shit................How in the fuck can you ever function as a 'normal' person again?

I'll admit to never having been 'normal' to begin with...The thing is though that once you understand how shitty the world really is, the only thing left is to love the people you can, even though maybe they won't get exactly why.

JR's picture

The lesson of our time: let the banks fail.

It isn’t the banks that are too big to fail, of course. It’s the owners of the currency who have designated themselves TBTF that are not allowed to fail; in other words, the boss don't get no traffic tickets. He doesn’t get bankruptcy and shut down, not because he’s too big to fail, but because he owns the currency.

In reality, the banks themselves are not that big; they are mortgaged, they are insolvent, they are in debt, they are dead men walking except for the fact that they own the magic, the currency. In fact, most of the wealth of the wealthiest is in derivatives to the tune of 15.3 times larger than the entire gross domestic product of the United States – or, as Paul Craig Roberts has pointed out, ”the banks' derivative bets are 516 times larger than the capital that covers the bets.”

Unless these international bankers are allowed to fail through creative destruction, they will simply continue to become more dominant at the expense and impoverishment of the world’s people. Globalization, like the goose’s golden egg, is heading for a break. You can’t have globalization and freedom. They both can’t exist together.

James McRitchie wrote on January 22, 2012, that “according to the Commerce Department, the financial sector accounted for 8.4% of U.S. gross domestic product last year, higher than its previous peak in 2006. In 1950, the financial sector accounted for just 2.8% of GDP.”

The financial sector’s profits as a percentage of all domestic corporate profits reached 45.80% in December 2001, dropping to -13% in September 2008, returning to 35.28% in December 2010, and some are saying they are now back to 45% and, as TruthInSunshine wrote, “are sucking the life out of democracy and the purchasing power of any formerly wide and deep 'middle class.' 

Or as Marc P commented on The Big Picture in December 2011: 

Does the (Arbor Research on Financial Sector Profits) chart include credit card and debit card fees? A friend the other day reminded me of the toll these take from business, especially smaller business. A lumberyard owner might make 6% or 8% profit on gross revenues, and banks will take 2-3% just for processing the transactions. I marveled at the thought: the entrepreneur raises capital, buys or leases property, buys inventory, stocks the shelves, creates jobs, works 80 hour weeks, and a third of his profit goes just to the payment system. Plus the banks make money on the lumberyard’s line of credit for inventory. The banks might make more than the entrepreneur. What a tax on the economy.

An economist this past week on NPR said that the main lesson that can be learned from the EU banking crisis is that the banks are too dominate in our economy. With a proper economy, he said, you have creative destruction whereby when a better idea comes along that develops innovation the old idea is destroyed.

But, he says, under the present setup of state-sponsored usury whereby the TBTFs can’t be destroyed, a bad situation is just getting bigger and bigger, dominating and destroying the economy.

In short, the financial sector was never intended to be, nor can it be, the dominate sector of a flourishing economy.

Charles Hugh Smith put the problem into perspective on ZH this past month: “In the United States, Federal Reserve chairman Ben Bernanke testified to Congress that, despite any apparent setbacks in the previous quarter, the recovery -- fostered by zero-interest overnight rates for selected financial institutions and bolstered by undisclosed distributions of roughly US$29 trillion in quantitative easing and other forms of support to many of those same institutions -- remains on track. Similar sentiments were echoed by Mario Draghi, head of the European Central Bank, reassuring investors in Europe and elsewhere.”

It’s a fatal condition frequently called the ‘financialization of America’ and the world. In short, it's economic suicide.

Democratic koolaid's picture

twothousand and twelve A.D.; Gordon Geicko and "greed is good"  is alive and well, lt's just been hiding circa Cayman Islands bank account's while they are still above water... and a few more public Unions have been disassembled.

I am Jobe's picture

Bendover Amerika. The make up is coming off and it looks ugly bitchezzz.

Floodmaster's picture

1 cad/chf/aud/euro = 0.6 usd

magpie's picture

Will that be called the Timmay Accord

Colonial Intent's picture

All contemporary events show us we are witnessing the end of one era and the beginnings of another; that the liberal world is going down a victim to its own errors, and with it are disappearing commercial imperialism, financial capitalism and mass unemployment....

The liberal world, in giving adult suffrage, made them conscious of their own strength. Then the revolutionary process, accelerated by various crises, started....On the face, a new useful consciousness emerged, which reacts against the hypocrisy and inefficiency of the old systems.

On those true, unassailable principles our whole political work was based and will appear greater as time passes. What the masses of the people in England think is not different from what the German masses think, nor do the dissatisfied people of Old Europe think differently from the disinherited in America. Liberal propaganda may distort these facts and hide the truth for a time, but in the end truth will prevail. The moment of disillusionment is not far distant, whatever projects there may exist now, the historic destiny of our era will be settled according to the spiritual, patriotic formula zerohedge offers us.

Those are mistaken who dream of the establishment of democratic liberal systems in Western Europe, bordering on Russian communism. Those err who speculate on liberal peace agreements or a bourgeois solution. The world is marching on other roads. And the sentiments by which it is animated are so strong and just that, be it victory or defeat, they will overrun whatever may try to stop them...

disabledvet's picture

the status quo won...yet again. those who have argued for change (all of us here) have gotten NONE of it. there is much that "can be" of this world...but until we agree "can be and isn't" wins every time then we are simply arguing a dream. still...i like the sentiment.

TuffsNotEnuff's picture

What on earth ?????

"Those... who dream of the establishment of democratic liberal systems in Western Europe, bordering on Russian communism."

Democratic liberal systems -- bordering on -- Russian communism

Was this written by a random phrase generator ?