• Steve H. Hanke
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What Is Killing Europe

Tyler Durden's picture


From Mark Grant, author of Out Of The Box, a follow up to our  "A Few Quick Reminders Why NOTHING Has Been Fixed In Europe (And Why LTRO 3 Is Not Coming)" from March 2012.

What is Killing Europe
The bigger the real-life problems, the greater the tendency for people to retreat into a reassuring fantasy-land of abstract theory and technical manipulation.
Many people have little or no understanding of what is presently taking place in Europe. This is because it is reported nowhere, discussed in public by no one and carefully hidden in the data supplied by the European Central Bank.
What I will discuss today is the prime mover, in my opinion, of the destabilization of the European economies and yet, like the debt to GDP ratios on the Continent; just because it isn’t counted does not mean that it does not exist. I will endeavor to explain it as simply as possible.
A bank in some European country such as Spain lends money but the collateral, Real Estate or commercial loans, are going bad. The bank then securitizes a large pool of this collateral and pledges it at the ECB to receive cash. In many cases to take the pool the country has to guarantee the debt. So Spain, in my example, guarantees the loan package which is then pledged at the ECB and is a contingent liability and which is not reported in the debt to GDP ratio of the country but nowhere else that you will find either. “Hidden” would be the appropriate word.
Then as time passes the loans get even worse so that the ECB demands cash or more collateral because they will not be taking the hit; thank you very much. The bank cannot afford to post more collateral so that the country, Spain, must post the collateral and add an additional guarantee for the new loan or they must post cash which is oftentimes the case. 
Consequently as time passes and more cash has been spent the country, Spain, begins to run out of capital and the 10.6% deficit figure, that Spain announced recently, is not anywhere close to the actual reality so that they will get forced to officially borrow more money from the ESM as the sovereign guarantee of bank debt becomes unsustainable.
What is happening is then becoming clearer as the nations of Europe are running out of capital as they endeavor to support their banking institutions. The breadth and depth of this problem is nowhere to be found but the effect is unmistakable.  The European nations are going bankrupt.
The problem is that Europe pretends to be asleep. The difficulty then is that you cannot wake them up.
The longer that time passes; the worse the situation. The countries cannot afford to pay their known bills. The banking crisis worsens. The debt at the ECB must get paid which worsens the finances of the sovereigns. It is a death spiral unless the economies pick-up and experience real growth which is just not happening. Soon the problems will become bad enough that they will hit the fan once again and this time; there will be real Hell to pay.
You can expect this for Spain, Greece, Portugal, Cyprus, Slovenia, Ireland et al and in short order. I have used Spain as the example today because their stated 10.6% economic decline is only a fraction of their real issue. Again, what is not counted or what is not stated does not ease the burden of what must be paid. They may proclaim fantasy but they are living in reality. The famous windmills are becoming unhinged.
I have no issue with myths. I just have difficulty when governments fly them as banners of truth

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Sat, 04/27/2013 - 10:44 | 3505388 Zer0head
Zer0head's picture

What is Killing Europe?

soon it will be birdflu 


Sat, 04/27/2013 - 10:47 | 3505393 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Another European killer will be a demographics implosion. You need young people to run your country. Gramps can't do it alone.

Sat, 04/27/2013 - 10:54 | 3505407 BobPaulson
BobPaulson's picture

Sustainability is death to a system fundamentally constructed on a foundation of infinite exponential growth. IMHO that is the kernel of all our problems, top to bottom. More technology needed? Nope. A rethink of the assumptions of our entire social system? Probably, but that scares the shit out of me, knowing who will step forward and volunteer to engineer a sustainable world.

Sat, 04/27/2013 - 11:10 | 3505444 11b40
11b40's picture

Engineer a sustainable world?  Ha Ha.

That was a joke, right?

A sustainable world will be engineered one day, but it won't be men that do it...at least not by design.  By accident, maybe, when the wrong finger hits the nuclear trigger, but more likely Mother Nature will bring pestilence (bird flu, black plague, etc.), or severe climate change that induces famine, or some other nasty surprise for human kind.


Sat, 04/27/2013 - 11:17 | 3505448 SafelyGraze
SafelyGraze's picture

what the ecb needs is an army or swat team or something

that way it can go door to door and collect what it is owed


Sat, 04/27/2013 - 11:30 | 3505458 hedgeless_horseman
hedgeless_horseman's picture



The ECB's 1% reserve ratio will be one of the nails in Europe's coffin.


Come on, Mario, let us see you try to cheat the devil with a 0% reserve ratio.

Sat, 04/27/2013 - 11:30 | 3505464 Beam Me Up Scotty
Beam Me Up Scotty's picture

Someone over there must have divided by ZERO!!

Sat, 04/27/2013 - 11:40 | 3505484 Klazy Plick
Klazy Plick's picture

Western Civilization was a "White People" bubble.

Sat, 04/27/2013 - 12:17 | 3505564 autofixer
autofixer's picture

Safely, Just call the Boston P.D.

Sat, 04/27/2013 - 13:12 | 3505652 SafelyGraze
SafelyGraze's picture


Sat, 04/27/2013 - 11:20 | 3505450 nmewn
nmewn's picture

She's not a very moral person is she? ;-)

Sat, 04/27/2013 - 11:31 | 3505467 11b40
11b40's picture

I believe the word is amoral.

Sat, 04/27/2013 - 11:54 | 3505512 nmewn
nmewn's picture

I was playing off of PUD's constant anti-gold rant that somehow she is, that we (by being creatures of nature) are "poisoning the planet." Of course she is amoral, she doesn't think or plan or feel the pain or loss associated with lava flowing through someones living room or hurricanes or earthquakes.

She invented mercury, not us ;-)

Sat, 04/27/2013 - 12:08 | 3505532 Pool Shark
Pool Shark's picture



Indeed. 'Mother Nature' is entirely indifferent to our existence.



Sat, 04/27/2013 - 12:09 | 3505534 nmewn
nmewn's picture


Sat, 04/27/2013 - 12:34 | 3505601 Terminus C
Terminus C's picture

We are 'mother nature' along with all other living and non living systems in the universe.  Many 'creations' of 'mother nature' have come before us, many will come after.  As you say, there is no "care' or 'morality' in the systems of existence.

Sat, 04/27/2013 - 13:04 | 3505636 Kirk2NCC1701
Kirk2NCC1701's picture

Mother Nature may be the ultimate "bitch" on her bad days, but we are told by ancient shepherds that God loves us.  Let's not forget that this deity also made all the other wonderful creatures:




Sun, 04/28/2013 - 09:12 | 3507276 Svendblaaskaeg
Svendblaaskaeg's picture

"She invented mercury, not us ;-)"

 ..but She need humans to make plastic (George Carlin)

Sat, 04/27/2013 - 13:05 | 3505645 saveUSsavers
saveUSsavers's picture

You are correct, and robotics is soon going to replace burger-flippers. Even min wage jobs will be vanishing. We need a discussion of tech replacing those jobs, but corporations live for one thing.

Sat, 04/27/2013 - 19:13 | 3506461 StychoKiller
StychoKiller's picture




White Collar Holler
(Nigel Russell)

Well, I rise up every morning at a quarter to eight
Some woman who's my wife tells me not to be late
I kiss the kids goodbye, I can't remember their names
And week after week, it's always the same

And it's Ho, boys, can't you code it, and program it right
Nothing ever happens in the life of mine
I'm hauling up the data on the Xerox line

Then it's code in the data, give the keyboard a punch
Then cross-correlate and break for some lunch
Correlate, tabulate, process and screen
Program, printout, regress to the mean

Then it's home again, eat again, watch some TV
Make love to my woman at ten-fifty-three
I dream the same dream when I'm sleeping at night
I'm soaring over hills like an eagle in flight

Someday I'm gonna give up all the buttons and things
I'll punch that time clock till it can't ring
Burn up my necktie and set myself free
Cause no one's gonna fold, bend or mutilate me.

Copyright Nigel Russell and dedicated to the city of Bramalea,
Ontario, Canada.

Sat, 04/27/2013 - 11:20 | 3505452 Colonel Walter ...
Colonel Walter E Kurtz's picture

They have some young people and many are unemployed (as is the case in Spain and I think Greece). The solution the TPTB are probably considering is that if they could just get rid of gramps and his old age overhead (pension, healthcare, high pay if working for the gubmint for years, etc...) things could get back on track. Get rid of a few of the young and much more of the old, and maybe things could work out.

Unfortunately, many know of what I dare not speak, but on the bright side......think about all the broken windows to spur growth. Ugh!

Sat, 04/27/2013 - 11:45 | 3505461 dick cheneys ghost
dick cheneys ghost's picture



WW3: the final QE. These are the voyages of the starship BEnterprise. Its 100-year mission: to explore strange new fiats, to seek out new debt and enslave new civilizations, to boldly go where no QE has gone before.

Sat, 04/27/2013 - 12:14 | 3505552 BurningFuld
BurningFuld's picture

I don't know about "where no QE has gone before" as Zimbabwe has set a pretty high bar. But I guess we will find out soon enough.

Sat, 04/27/2013 - 13:03 | 3505638 Kirk2NCC1701
Kirk2NCC1701's picture

Amen to that.

Sat, 04/27/2013 - 12:18 | 3505570 yogibear
yogibear's picture

That's ok, they have loads of middle easterners to take over. Their flooding it.

Sun, 04/28/2013 - 00:50 | 3506979 Nassim
Nassim's picture

Half the young people are without a proper job - so I don't think having more of them is going to solve anything.

Sat, 04/27/2013 - 10:57 | 3505408 Zero Debt
Zero Debt's picture

IMF and the ECB is killing Europe with debt based money.

They need to change to a system using debt free money that does not require interest payments to remain in circulation.

This would eliminate the need to compound the money supply and corresponding debt side of it constantly to keep up with interest rate payments.

Sat, 04/27/2013 - 11:09 | 3505435 machineh
machineh's picture

One could add that fractional reserve banks have been going under for centuries, just as leveraged stock and options and futures traders do.

As long as some of the dimmest bulbs on the planet are government-licensed to speculate on 10-to-1 (if not 100-to-1) margin, repeated crack-ups and crises are GUARANTEED.

This is not a bug in fractional reserve banking. It's a design feature.

Sat, 04/27/2013 - 12:13 | 3505549 disabledvet
disabledvet's picture

Gold...gold...gold...gold...gold. This time of capital can never be drpreciated though it can fall in price. To me that is gold's connection to reality-as defaults soar, unemployment becomes institutionalized, protesters swamp the cities, etc. "if the bank still has gold it can go bankrupt and still become the bank again." there should be a law against a bank pledging gold as collateral for anything. The euro note? REALLY? Say hello to the IMF Europe.

Sat, 04/27/2013 - 12:17 | 3505567 BurningFuld
BurningFuld's picture

The insanely interesting thing about using Gold as a currency is that instead of it's purchasing power going down like Fiat it goes up. This however is incredibly bad if you are a Banker.

Perhaps we do not need Bankers.....hummmmmm.

Sat, 04/27/2013 - 12:27 | 3505590 BullionTweet
BullionTweet's picture

Design Failure!

Sat, 04/27/2013 - 13:28 | 3505663 Kirk2NCC1701
Kirk2NCC1701's picture

You are correct.  It was a deliberate "feature", as expressed by Lord Rothschild himself in this quote:

"The few who could understand the system will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while on the other hand, the great body of the people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."

Well, we have been -- and going by stats -- still are the "great body of the people mentally incapable of comprehending...".  As we discover how it really works, we think that it's a "flaw" in the design, implies a mistake on the part of its designers and absence of malice.  But what you have in fact, is intended malice.  Which also deliberately breaks various of the 10 Commandments, and are broken by a supposedly God-fearing (hah!) or God-following (hah!) group.

Last time I checked, deliberately scheming and breaking the Commandments "Thou shall not covet..." and "Thou shall not steal" was NOT "doing God's work", Mr. 'Bankfine'.  The old penalty -- at the very Minimum -- was loss of all stolen itmes plus additional penalties, which may included public stoning.

It's time to start stoning bankers and all financial thieves.  Not shooting -- that would be too fast and kind -- but stoning.  Publicly.

Sat, 04/27/2013 - 14:01 | 3505732 olto
olto's picture


What is there to comprehend?

I gave all my gold to family members in August of 2011 and was happy to get rid of it---they did me a favor by taking it off of my program. Since then, however, I have accumulated more capital than I need and, now, I have to buy more gold---I don't see anything better to buy.

This money thing is so complicated----waiting, waiting, and, always---------WAITING!

I don't think I will get it this time at $800-$900/oz----but, maybe $1150/oz will come by-----

who can say a word about it?

Sat, 04/27/2013 - 14:46 | 3505804 Kirk2NCC1701
Kirk2NCC1701's picture

You're beautiful:  A true and fiduciary financial planner.  Multi-generational too.  Cool!

Sat, 04/27/2013 - 11:11 | 3505445 GVB
GVB's picture


Sat, 04/27/2013 - 10:55 | 3505410 freewolf7
freewolf7's picture

Central banks.

Sat, 04/27/2013 - 11:02 | 3505422 resurger
resurger's picture

hi zerohead, am in China atm.. there is nothing of that sort
ps i didnt junk you

Sat, 04/27/2013 - 11:16 | 3505447 11b40
11b40's picture

I am in the US, and guess what?  There is no flooding where I am.  Not even rain.

Does that mean no where in the US is experiencing flooding?

Are you saying there is no bird flu in China?  If so, you would be wrong.

By the way, are you eating a lot of chicken in your travels?

Sat, 04/27/2013 - 11:56 | 3505511 resurger
resurger's picture

if you divide 130/1,800,000,000,000 how much do you fucking get? don't sound like  billgate who wants this shit to be epidemic like SARS or pigs flu so that pharmas starts making billions. and no, a flood is not fucking contageous. if you have metal balls, then maybe you should come down here and travel the underground metro with millons of people with no mask on like i do.and yes i eat kungfu, kfc, and fried chicken feet where they clip their nails in a skillet.you will probably die from the smell before you catch the h7n9 bitch.




Sat, 04/27/2013 - 12:11 | 3505541 ronaldawg
ronaldawg's picture

Why so angry?

Sat, 04/27/2013 - 12:19 | 3505572 resurger
resurger's picture

China smells bad lol

Sat, 04/27/2013 - 10:44 | 3505390 Carpathia
Carpathia's picture

"War is Peace, Freedom is Slavery, Ignorance is Strength"  Plus ca change.....

Sat, 04/27/2013 - 10:45 | 3505394 Debugas
Debugas's picture

pure criminality

Sat, 04/27/2013 - 10:50 | 3505398 Hulk
Hulk's picture

Bail-ins Bitchez, coming soon to a western nation near you !!!

Got Gold ???

Sat, 04/27/2013 - 11:01 | 3505399 francis_sawyer
francis_sawyer's picture



Sorry... people... for the brevity of comment articulation there...

Somebody, yesterday, decided to use that, SOLELY, as a rebuttal argument for a francis_sawyer comment...

I thought I'd try it out for size... I'm hoping that I can just play 'TETRIS' on my Gameboy for the next 180 minutes & sill put forth the INVOICE for 3 billable hours...

After all, my time is precious... [movin thru the Cleveland heat]



"Not me baby I'm too precious ~ FUCK OFF"

~Chrissie Hynde


Sat, 04/27/2013 - 11:09 | 3505442 Global Hunter
Global Hunter's picture

Francis, was laying in bed after eating breakfast, a little hungover and clicked on that link.  I wasn't familiar with that song before and that rocked. Thanks!

Sat, 04/27/2013 - 11:51 | 3505497 francis_sawyer
francis_sawyer's picture

Pretenders. Rock. The. House.


How ironic is that coming from a supposed 'Truth Teller'?

Sat, 04/27/2013 - 19:05 | 3506447 hooligan2009
hooligan2009's picture

"brass in pocket"; modern equivalent = bitcoin in wallet!

Sat, 04/27/2013 - 10:50 | 3505402 Dareconomics
Dareconomics's picture

What is killing Europe is the Euro.  Note Portugal:



Sat, 04/27/2013 - 10:56 | 3505406 pcrs
pcrs's picture

Would be nice to understand why Spanish interest rates are coming down.

Do NOT follow this link or you will be banned from the site!