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The Curse Of The Euro: Money Corrupted, Democracy Busted
Submitted by David Stockman via Contra Corner blog,
The preposterous Gong Show in Brussels over the weekend was the financial “Ben Tre” moment for the Euro and ECB. That is, it was the moment when the Germans—–imitating the American military on that ghastly morning in February 1968——set fire to the Eurozone in order to save it.
Some day history will judge good riddance……..but that get’s ahead of the story.
According to an American soldier’s first hand recollection of the Vietnam event, it was a Major Booris who infamously told reporter Peter Arnett, “It became necessary to destroy the town to save it”.
After the massacre of Greek democracy in the wee hours Monday morning, Angela Merkel said the same thing—even if her language was a tad less graphic:
It reflects the basic principles which we’ve followed in rescuing the euro. It now hinges on step-by-step implementation of what we agreed tonight.”
Now no one in their right mind could think that lending another $96 billion to an utterly bankrupt country makes any sense whatsoever. After all, the Greek economy has shrunk by 30% since 2008 and is wreathing under what is objectively a $400 billion public debt already in place today.
That figure follows from the fact that on top of Greece’s acknowledged $360 billion of general government debt there’s at least another $25 billion loan embedded in the ELA advances to the Greek banking system. The latter is deeply insolvent, meaning that some considerable portion of the $100 billion ELA currently outstanding is not an advance against good collateral in any plausible banking sense of the word, but merely a backdoor fiscal transfer from the ECB to keep Greece’s financial shipwreck afloat.
Likewise, as I demonstrated Friday, given the even deeper deep hole into which the Greek economy has tumbled during the last six months, the fiscal targets extracted from Greece under this weekend’s demarche are utterly ridiculous. Indeed, even if the targeted primary surpluses of 1,2,3 and 3.5% of GDP are miraculously reached through 2018, upwards of $15 billion of budget deficits after interest accruals would be incurred anyway, and a lot more than that if there are material budget shortfalls, which is a virtual certainty.
So even before the latest dose of Troika economic punishment further debilitates its economy, Greece at this very moment has a de facto public debt of $400 billion sitting atop $200 billion of GDP.
Here’s the bottom line. Merkel has no better answer for how dropping $96 billion of new debt on a country with a 200% public debt ratio will save the euro than did Major Booris when he dropped approximately 10,000 gallons of napalm on Ben Tre in order to “save” the town. In both cases, a doomsday machine had been set in motion, and the designated officers of the state mechanically and blindly carried out a mindlessly destructive next step.
In the instant case, the doomsday machine is the Euro and, more precisely the rogue central bank in Frankfurt that stands behind it. In fact, the real ill is not a common currency per se—-something that Europe actually had on a de facto basis before 1914 under the fixed exchange rates of the gold standard. The latter, in effect, was a common currency because French francs, British sterling, Dutch guilders and the rest were interchangeable at a constant rate—-an arrangement which helped produce a multi-decade spurt of prosperity that the old continent has not seen before or since.
No, the problem is the rampaging printing press of the ECB. The latter has fundamentally falsified the price of debt, and thereby unleashed throughout Europe a deadly brew of phony economic growth in the early years and then egregious fiscal profligacy when the growth bubble cratered after the 2008 crisis.
During its initial eight years, the ECB expanded its balance sheet at a torrid 14% annual rate. And that’s ironic because the original remit of the ECB was a Friedmanesque “price stability” single mandate.
That didn’t happen, of course, as the European consumer price level rose by 21% during the same eight years (2.4% per annum) in which the ECB’s printing press was running red hot. Uncle Milton would have been rolling in his grave, and, in fact, beforehand had pronounced the euro a disaster waiting to happen.
So rather than delivering consumer price stability, what the ECB actually did during that period was to create a giant artificial bid for euro debt, thereby driven the yields far below their true economic levels. That is, the ECB deeply subsidized newly issued Eurozone government borrowings.
Not surprisingly, Greece, Portugal, Spain, Italy and even France feasted heartily. But then Europe’s phony credit fueled growth stopped, causing the nominal GDP growth rate to decelerate sharply.
Since the eve of the financial crisis, nominal GDP in the Eurozone has crawled forward at a mere 0.9% annual rate. That represents a 75% reduction from the pre-2008 rate and is a reflection of the crushing burden of debt, taxes and the dirigisme of the Brussels superstate and national policies alike.
Accordingly, it quickly became evident that Europe was swimming naked as a fiscal matter, and that the ECB’s cheap money regime had eviscerated the 60% debt-to-GDP target of the EU treaty. Even after averaging in the fiscal rectitude of Germany and some of its northern compatriots, the EU-19 debt ratio has climbed steadily toward the 100% of GDP mark since the financial crisis.
What was needed all along was an honest bond market, and one which priced the debt of each of the 19 fiscal jurisdictions in the Eurozone based on their own budget facts, economic trends and governance records and risks. That requirement almost materialized when the original Greek debt crisis broke out in 2009-2010, and the yields on the so-called PIIGS debt soared.
But that proved to be the last gasp of a real bond market because in short order Brussels and Frankfurt shut it down in the name of defending the misbegotten euro. This bond market destruction effort took the form of a double whammy of falsification.
First, a false debt sequestration chamber (i.e. the various bailout funds) was erected by Brussels and the IMF and into it was stuffed hundreds of billions of the sovereign debt of Greece, Ireland, Spain and Portugal. This occurred during 2010-2012 when PIIGS debt was being dumped furiously, and appropriately so, by European banks, bond funds and financial speculators as the extent of fiscal breakdown in these states became sharply apparent.
In hindsight, this original euro bond crash was a gift from the economic gods. That’s because facing a closure of the public debt markets, each of the PIIGS would have had to work out its own internal fiscal solvency plan without edicts, mandates, inspectors, and meddlesome interventions from the troika apparatchiks, and without the incremental “bridge loan” debt that these bailouts entailed.
Stated differently, bond market discipline is fully compatible with national sovereignty and democratic fiscal governance. Indeed, it is a requisite in the European context.
As it happened, however, Merkel was hoodwinked into believing that the original bond sell-off was the work of the same malevolent Anglo-Saxon “speculators” who purportedly caused the great financial crisis of 2008. So the EU superstate, she was told, had to take on the job of “banker” to the fiscally weaker members of the monetary union in order to buy time, defeat the speculators and preserve the financial stability of the Eurozone.
Unfortunately, Merkel and her coterie are monetary ignoramuses and therefore bought this tommyrot hook, line and sinker. So doing, they were utterly blind to one glaring reality. Namely, that the crashing global credit bubbles of 2008 and the euro bond crash of 2010 and after had the same cause.
In both instances central bank financial repression had caused government bonds to be underpriced and global investors to desperately scramble for yield (including exotic securitized mortgage product in the first instance and PIIGS bonds in the second). It also enabled Wall Street and London speculators to surf these financial bubbles on the back of cheap carry from the central bank pegged money market. So doing, the speculators were able to buy hand over-fist those securities which were rising and then sell with a vengeance these same mis-priced securities when the various bubbles burst.
In short, the desperate need back then was to shutdown the heavy-handed Keynesian central banker intrusions in the debt and money markets; permit the issuing governments to default; require the imprudent bankers holding the impaired debt to take steep losses; and to thereby put the bond market vigilantes back in charge of public fiscal discipline—–one state at a time.
Needless to say, the troika bailouts had the opposite effect. By compressing bond spreads toward a German common denominator, they destroyed price discovery and national fiscal sovereignty. The troika bankers, therefore, had to become heavy-handed agents of fiscal governance, meddling in the minutest details of national budget accounts; and, also, self-appointed economic reformers intruding into the very warp and woof of domestic commerce and the labor and product markets and practices of the borrowers.
This massive intrusion was necessary in order to cover-up a Troika lie and delusion. The lie was that the debt of Greece and the other PIIGS was not being mutualized, and that the loans and guarantees issued by the bailout funds were first cousins to commercial bridge loans that the borrowers would in due course repay.
In the same vein, the delusion was that the market oriented “reforms” stipulated by the Troika would unleash higher GDP growth rates among the borrowers, thereby permitting them to grow out from under their Troika bridge loans after a period of externally enforced fiscal retrenchment.
This means that the Troika MOUs were not based on the assumption that “austerity” per se was a policy tonic. That charge is just a Keynesian canard that has gotten endless resonance in the financial press—–as in MarketWatch’s specious headline this morning proclaiming, “Greece offers evidence that austerity doesn’t work”.
Actually, it proves nothing of the kind. What it does prove is that superstate bureaucrats operating by dictate and remote control cannot reengineer national economies sufficiently to meaningfully elevate economic growth rates; and to thereby enable fiscally insolvent state borrowers to grow out from under their unsustainable debts. Indeed, that is just a variant of the supply side delusion of GOP orators in the US.
To some considerable degree this Europeanized form of the Laffer Curve was the subtext during last weekend’s Gong Show of political bullies, economic ignoramuses and superstate apparatchiks in Brussels. Here’s how they finally instructed the hapless Greeks to manage their crushing $400 billion of debt. Why among other things, their final missive required:
…….adopt more ambitious product market reforms with a clear timetable for implementation of all OECD toolkit I recommendations, including Sunday trade, sales periods, pharmacy ownership, milk, bakeries, [over-the-counter pharmaceutical products in a next step], as well as for the opening of macro-critical closed professions (e.g. ferry transportation)…….
If you weren’t aware of the Troika’s grow-your-way-out-of-debt delusion you would think this whole thing was some kind of giant hoax. After all, is it really possible that the assembled might of 327 million citizens of the Eurozone-18 are telling the 11 million inhabitants of Greece that they must open the restricted professions of engineers, notaries, actuaries, and bailiffs, and must liberalize the market for tourist rentals and ferry transportation?
Or that they are also being told exactly how to reform their utility capacity based payments system and other electricity market rules. And this is being ordered so as to avoid the deadweight economic losses which occur when electric power plants operate below their variable costs or netting of the arrears between power provides and the utility distribution system provides erroneous economic signals, among other things.
In the same vein, there are edicts to alter the operating specifications for running a bakery, the rules for owning a pharmacy, the methods by which milk is sold and marketed, and it get crazier from there.
The rationale for all of this mind-boggling meddling in local commerce and economic life, of course, is the Laffer Curve. The Greeks are to be jack-hammered into more market-oriented economic habits so that Greece can grow its way out from under its debt and thereby become a sturdier debt mule while under the Troika’s ministrations.
That’s all absurd of course. But it’s what happens when a superstate becomes a fiscal banker and lies to its constituencies about the financial costs and risks of underwriting what were plain old bad debts in the first place. Indeed, when you destroy honest bond markets you eventually end up with Stalinist governance in the name of the free market!
The implications of that truth are doubly ironic. First, the real policy of the Troika was not “austerian” as gas-bags like Professor Krugman constantly importune; as indicated, it is actually a European version of the Laffer Curve—–that is, fiscal redemption through supply side magic and a bigger denominator of GDP to generate incremental tax revenues and thereby shrink the ratio of debt to national income.
The second irony is that almost all of the labor and product market reforms advanced by the Troika are good free market concepts that would enable greater efficiency and productivity over time, and thereby stimulate a larger pie of national income. However, the skunk in the woodpile is that the crypto-communist labor laws of Italy and Spain and the crony capitalist product market cartels and restrictions which thwart efficiency in Greece and throughout much of Europe are for better or worse a product of the democratic process.
As free traders used to say about protectionist quota and tariffs, if some benighted parliaments abroad decide to fill their harbors with rocks in order to keep out cheaper foreign goods that is their right to be stupid; it does not warrant closing American harbors in response and thereby punishing domestic consumers and markets in retaliation.
Yet, by the same token, the domestic stupidity that causes the Greek parliament to hang on to retail trade restrictions that prohibit price discounting and competition except during specially designated winter and summer “sales periods” does not justify the preemption of domestic legislative sovereignty. If the Greeks wish to legislate themselves into a lower standard of living in return for the perceived social stability and benefits of dirigisme—-that is their democratic prerogative.
Stated differently, the Eurozone is fatally flawed monetary union; it is not a sovereign state with plenary Federal preemption. Therefore, the Brussels conceit that it can be a Laffer-Curve style banker to the PIIGS is fundamentally mistaken. If any sovereign state of the EU can’t pay its debts, those debts need to be written off or restructured. With the passage of time and the trauma of realized losses in the government bond markets, there would be less debt issued and more fiscal rectitude apparent even among social democracies of the old world.
Unfortunately, the Franco-German alliance that has driven the EU bailout regime has now dug itself into a deep corner of lies and delusions. What Greece does prove—-and Spain, Portugal, Italy, Ireland and France, too—-is that quasi-socialist welfare states in the contemporary European setting can never grow out from under excessive debt. Supply side reform is a snare and a delusion into terms of debt carrying capacity, and is political dynamite if coercively imposed from above via superstate preemption of domestic governance.
All of this should have been apparent from the get-go, but is surely evident now after a half-decade of failed Troika bullying. But the Troika bankers-cum-reformers are now trapped because they have continuously lied to their own parliaments about the risk of the PIIGS bridge loans and the prior bailouts of the private investors who originally held their debts.
Were France to seek funding for the EUR 72 billion of Greek debt it has underwritten (including its share of ECB advances) or Germany the EUR 95 billion or Italy the EUR 63 billion or Spain the EUR 44 billion——governments would fall in no time. The incipient nationalist-populist uprising that is already roiling European politics would erupt into a stampede of upheaval.
And this is where the second falsification——Mario Draghi’s “whatever it takes” ukase—comes into the picture. The Eurozone would have blown to bits during the original 2010-2012 crisis, and notwithstanding the extensive bailout facilities, had not the ECB committed itself to massive monetization of the PIIGS debt—-debts that real investors did not wish to hold even at the elevated rates which materialized during the crisis. These soaring rates were indeed the off-ramp to bankruptcy because these states were, in fact, bankrupt.
Yes, it took nearly two years for the ECB to actually get its big fat $70 billion monthly bid into the marketplace. But that was immaterial. The fast money gamblers bet that the ECB would eventually commence a massive bond buying campaign and were more than happy to front-run the resulting euro bond bubble.
That the speculators who rode the Draghi bubble made hundreds of billions of profits buying PIIGS debt on 95% repo, and were then positioned to sell their bonds back to the ECB at the first sign of a market break, is a deplorable consequence of the ECB’s version of bubble finance. But the real ill is that the weak-kneed, hypocritical and often corrupt politicians of the peripheral countries were enabled to falsely claim victory without significantly rectifying their own fiscal insolvency.
Spain is the poster-boy on this front. After the mid-2012 Draghi ukase, it did not significantly shrink its state budget or reform its tax and regulation addled economy. By the end of Q1 2015 its real GDP was still 6% smaller than during early 2008. Accordingly, its debt ratio rose sharply and is now pushing up against 100% of GDP.
Needless to say, the above blindingly obvious fiscal deterioration——under which Spain’s public debt has risen by a staggering $650 billion during the last three and one-half years of “austerity” administered by the blatantly corrupt and thoroughly dishonest Rajoy government——–had no impact whatsoever on the pricing of Spanish 10-year bonds after the Draghi ukase. By the end of March this year the debt of the quasi-bankrupt Spanish state was trading at 1.0%, reflecting a blatantly artificial stampede of Spain’s public debt first into the hedge fund parking lots, and eventually into the vaults of the ECB.
There is no possibility of honest fiscal governance in a social democracy like Spain when its debt price is blatantly falsified per the above. Indeed, at this very moment the Spanish government is back into the market with a massive $15 billion issue, attempting to surf on the debt market wavelet generated by Monday’s Greek bailout headlines.
To be sure, the Keynesian commentariat and ECB apologists are now proclaiming that Spain is fixed——perhaps just like Greece was last August when its government issued 10-year debt at under 5%. The point is, however, that the modest rebound in Spain’s current account and uptick in its employment and GDP figures is a rounding error in the scheme of things. Another recession is surely coming to Europe, and perhaps sooner rather than latter. Since Spain’s budget deficit in 2014 was still 5.8% of GDP, how in the world will its fiscal accounts survive another recessionary blow?
They won’t. The Troika bankers will be all over Spain like a wet blanket, extinguishing another European democracy and fueling radical popular movements like Podemos—just as it has already done in Greece.
And a cascade around the European periphery of that mode of Stalinist governance may not be too far down the road. In a few days it will be blatantly obvious that the Germans have occupied Greece in every meaningful sense of the word save the actual bivouacking of uniformed troops.
A German/troika agent will place a custody lien on every airport, train station, port, power plant, electrical distribution grid, ferry boat, bus line, tourist attraction and public park, forest and island for which the Greek state still holds title. Even then, it will not amount to close to the $50 billion of collateral demanded.
Likewise, within days the entire banking system of Greece will be taken over by the ECB, meaning that depositors—-especially those above the EUR 100,000 guarantee threshold —–will be given a goodly haircut.
In short, Greece will become an outright debtors’ colony and its government will function as page-boy legislators for the Troika occupiers. Needless to say, political and social upheaval will erupt when the full extent of the Tsipras surrender becomes evident, and the resulting political contagion will spread throughout the length and breadth of Europe as Greece implodes.
In due course, the euro will collapse and the baleful Keynesian money printers’ regime in Frankfurt will be repudiated and dismantled. But not before European democracy has a brush with death, and European prosperity is extinguished for a generation.
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Only in suffering does Jesus manifest his power.
When the comforts disappear, you find your strength.
I’ve never felt so strong.
The beginning of the end.
https://www.youtube.com/watch?v=5NgAP7FOqQQ
I'm a believer, but beware of when I become joyous.
Say, Thong . . .I just got a nice letter from the IRS, detailing how very rich I will become once I retire, thanks to federal largess!
Everytime I read that letter, it makes me feel like Chuckie!
Twerk harder!!!
http://galeinnes.blogspot.com/2015/07/social-herds-economic-turds.html
I love it when Mutti accidentally lets her real intentions slip.
Her goal was not to bailout Greece, but to save the Eurozone, at the Greek's expense.
Hope you're watching Spain. You're up next.
What's wrong with that?
Everyone now realizes that the Euro was not a good fit for confetti money cultures of southern Europe. It's not a no-brainer choice for them. The Italians, Spaniards, and Greeks have experienced the ravages of high inflation also, and know the virtues of hard currency as well as the cold-turkey disadvantages. But in the end, all those countries will probably choose to return to confetti money and inflation. Fine, let them, in as orderly a way as possible. If that is Merkel's policy, what's wrong with that? A half-dozen northern countries still want the Euro and do fine with it.
There will be an unpleasant spat, of course, between the exiting countries and the northern taxpayers they will stiff on the way out. But the death of democracy wailing and heavy breathing is way over the top.
Psychopaths have always corrupted Christianity's message to "Be happy living on your knees; be strong - suffering is good for you."
Tolerating suffering at the hands of evil people is the second most grevious sin imaginable. The first most grevious sin is putting those evil people in power and doing nothing when they exploit anyone - especially anyone weaker than you.
Finding 'strength' when a boot is stomping on your face is the height of stupidity and morally nearly as bad as the psychopath doing the stomping. A chimp has more sense than that.
Turn the other cheek.
Right or left of the sphincter?
Like I said, I'm a believer, but you gotta' have some fun with the pathos.
Oh, and another thing.. SUBMIT
Maybe that could be the basis for a religion or something..
How would you say it in Arabic?
Jesus sent many demons back to hell.
You have the same power in the Holy Spirit.
Have you ever tried to use God's power via prayer?
Prayer directed at evil's forehead?
God will kill a man or woman who invites evil inside of them, one way or another.
I don't need a nanny God to kill psychopaths for me. He created me with a brain and fists - I assume he expects me to get off my ass and do the job myself on occasion. If he expected me to beg him for everything, then he would have created me with all knees and no brain.
Frankly, I can't imagine a God that would create a race of simpering fools who's only purpose was to beg him for shit. In fact, that's exactly how I would define a psychopath, i.e., EVIL.
Germany is well on its way toward being on everybodies shit list, but they don't care as long as they get their money.......
But but but ...
The reforms imposed by the cruel Troika occupiers are all measures which:
1) David Stockman would consider no-brainer good policies for his own country
2) Nearly everyone at ZH would consider good policies in the abstract.
Stuff like privatization of boondoggle union-dominated state-owned loss-making companies; labor market flexibility; shrinking the bloated government sector; raising the retirement age; collecting taxes with enough consistency that there is some hope of having a balanced budget someday. If European prosperity is lost for a generation, it will be because they chose to keep the boondoggles and print money and hyperinflate to pay for them. It will not be because they embraced Teutonic discipline under the whip of that sexy dominatrix Angela Merkel.
They are good ideas, but implementation is everything, and Germany is forcing it to be done in the worst possible way. Greece is set up by its own system to fail, but America might be able to do it if except we are using the same system that is killing Greece. The entire world is looking at a hard reset and it will be awesome in a doomsday sort of way......
I thought the USA is undisputed leader in that category?
A little indentured servitude, maybe .... but of their own making .... quit treating them like babies ! Monedas from Zion-Hedge
I was 7 when I watched the fall of the Berlin Wall in television. I didn't really understand what I was seeing, but I knew that what I was seeing was important, and a great day for human liberty.
I hope I live to see the EUSSR fall in due course.
People in jail .... must serve their debt to socialism .... indentured bitches .... must comply with their contracts .... then they can breathe free again .... honestly .... you can't fake real freedom without guilt ! Monedas from Zion-Hedge
You treat a man like a nigger .... he soon begins to act like a nigger ! Monedas from Zion-Hedge
It's always a surprise just how far govts can kick the can.
The death throes are long with this one.
Check out IMF COFER data on foreign currency reserves held by central banks around the world.
17% / 260bil. of EUROs dumped by central banks in the last 12 months alone.
EURO - the reserve currency that was not
the currency that was not
Check out the GDX
http://www.marketwatch.com/investing/fund/gdx
This is so awesome...
Mongo very confused, Mongo not understand.
Loans coming from the ECB and IMF are supplied courtesy of EU and US taxpayers, respectively and are used to pay back Greek debts. So in effect, TAXPYERS continue bailing out large banks which engaged in lending massive amounts of money to Greece in a completely reckless and irresponsible manner. Are large banks ever held accountable for this type of behavior? As usual, it is TAXPAYERS to the rescue of the 1%. Unfortunately, Greece is only the beginning as other Greece’s in the EU- Portugal, Italy, Spain and France are all faced with stagnant/declining economies, high unemployment and high debt: GDP ratios. What happens when these countries start defaulting?
All US/ EU taxpayers will owe 2 million each instead of 1 million.
"Whatever it takes".
A digital Fantasyland.
Money corrupted
Democracy busted
Liberty lost in the shuffle
Death in the streets
Bitter called sweet
Goin' down slow in the skuffle
You can cry when you hope
No one is around to see you
You can whisper your lies in the night
And deny everything you've seen
Winter is colder
Earth growing older
Like a coat so worn
That it's frazzled
Evolution is dead
It was all in your head
Your lying eyes were bedazzled
Reading a fantastic book by George Kennan, ambassador to Russia during the cold war. Great history from Russian revolution to the cold war (published 1961).
It is clear to me that the grand majority of human suffering in the 20th century was the direct result of
1) Shithead diplomats, presidents and premiers
2) Countries owing other countries large amounts of money.
The Tsarist govt borrowed shitloads from the French to fight WWI (France held 80% of Russia's debt), but it wasn't the govt holding the debt; mostly private french investors. They wanted their money back, and no way would (or could) the Bolsheviki govt pay. Germany owed Russia for reparations (at least they "owed" the Tsarist govt which no longer existed) per Versailles.
So, let's make a deal. If we don't pay the French, then you don't have to pay us!
And we know how the movie ends.
So, if the real object of the Euro is to enslave everyone to Germany, is the stated object to wipe out all vestiges of Greek, French, Italian and Spanish culture so that there is no identification with prior borders and prior loyalties?
Flooding Europe with immigrants might wipe out the culture.
Promises, promises. One can only hope the EU crashes and burns with the bankers trapped inside.
The ECB bailed out the banksters some time ago. Greece is hanging around the EU's taxpayers' necks now, along with all the other insolvent countries in the region. That's what the whole bailout scheme was about in the aftermath of the housing bubble, turning a banking crisis into a sovereign crisis that's bigger by an order of magnitude at least.
The Eurozone made a mistake so basic in its formation that there's a Wikipedia article about it, Optimal Currency Area, with a quote from Uncle Milton in it even.
Our American Constitution has not been destroyed (same for Greece Constitution); it has been overthrown by bankster fascist (government of, for and by multinational corporate monopoly). The American Constitution and our Bill of Rights, as autherted primarily by James Madison and explained in the Federalist Papers, is still intact today.
Our Founding Fathers had to deal with the same problems we are facing today: domination by corporate monopoly over the American economy and obeying foreign laws.
We fought the American Revolution to be free from the corporate monopoly and domination of the American economy by the British Empire.
After the war, our Founding Fathers along with economist Adam Smith’s “Free Enterprise” economy, the American Constitution was written to guarantee the American People that the government function was for and my the People--- not government of, for and by the corporate monopoly. The Age of Enlightenment of constitutional democratic republics began.
To paraphrase Thomas Jefferson, the Constitution, if not vigilantly guarded against criminal corporate monopoly corruption, the people will have to refreash our Constitution with revolution. Indeed, our nation was founded on revolution in rejection of corporate monopoly and domination by criminal banksters.
Enough is enough! Nationalize the banks and requisition them to serve the People to restart our American Free Enterprise economy, throw the fascist bankster criminals in prison!
If the criminal banksters were prosecuted for American mortgage fraud back in 2000 the criminals would have been in prison instead of destroying the economies of the world with their New World Order
Do we really want to put the banks in the hands of the US government bureaucrats and politicians? Heck they can't even get a simple web site running correctly after several hundred million dollars spent on it. What needs to happen is to get back to true free capitalistic enterprise, break up these TBTF corporations/oligopolies into smaller more controllable units and not outlaw them to contribute to political candidates, local or federal. This just begs for cronyism. Corporations are not people and never should have been treated as such. It makes it too easy for politicians to be bribed and crony capitalism to foster, as is evident in the current US administration.
Nationalization isn't the answer. There are better capitalisitc free market smaller government systems than that. We don't need more bigger government telling us how to run markets.
This statement by Stockman needs expanding, because he is conflating words. When people conflate words and are not clear in their meaning, I always wonder if they have ulterior motives, or if they are just confused. Stockman’s world view could be collapsing due to its inherent contradictions, hence leading to his evident confusion.
First of all, you cannot pay down debt with an export limited economy running on endogenous banker credit money. The political system is irrelevant in this context.
“-is that quasi-socialist welfare states in the contemporary European setting can never grow out from under excessive debt “
To answer Stockman’s charge about socialism, I will quote Hudson, because he says it better than I can:
The SOCIALIST ALTERNATIVE was to take natural rent-producing sectors into the public domain.
----------------
“Michael Hudson: The missing item in today’s economic reforms is what classical economics focused on, from the French Physiocrats through Adam Smith, John Stuart Mill to Marx and his contemporaries: freeing industrial economies from the rentier carry-overs of European feudalism. The focus of classical value and price theory was to free economies from economic rent, defined as unearned income simply resulting from privilege: absentee land rent, mineral and natural resource rent, monopoly rent, and financial interest. The aim should be to prevent rent-extracting activities – defined as purely predatory transfer payments, an economically unproductive zero-sum activity.
The classical labor theory of value aimed at isolating those forms of income (land rent, monopoly rent and interest) that were socially unnecessary, and simply were legacies of past privilege. The halfway alternative was to tax land rent and monopoly rent (Henry George, et al.). The socialist alternative was to take natural rent-producing sectors into the public domain.
Europe did this with the major public utilities – transportation, communications, the post office, and also education, public health and pensions. The United States privatized these sectors, but created regulatory commissions to keep prices in line with basic cost-value. (To be sure, regulatory capture always was a problem, especially when it came to railroad charges.)”
--------------
What Stockman is really whining about is rent charges, or shifting of wealth from producers to non producers. In his worldview, Socialism rewards the non producers – and of course it can if designed so.
But, Europe got wealthy by taking the natural rent producing sectors into the public domain to get the lowest cost value. Inelastic markets and natural monopolies have to be regulated. If inelastic markets and national patrimony is sold off to financial oligarchy, said Oligarchs becomes a permanent overlord class with their boot on man’s throat.
My view is that you should tax rents with fiscal policy. My view is that you should redistribute with prices wherever possible (direct injections), rather than using political force. But, that view would probably be off of Stockman’s cognitive map.
My view is that your state-worshiping is so naive that it beggars belief.
How many goons with badges and guns will be required to implement your sovereign money, perfectly regulated fantasy-land?
Remember the banker’s assumption that house prices always go up which resulted in losses of over 6 trillion?
The bankers made another assumption, that Germany would pick up the tab for bad debts of other Euro-zone nations.
So lending to nations like Greece was just like lending to Germany but they made more profit.
Thus bond yields tumbled as bankers couldn’t wait to lend to the club-med nations.
When it became apparent that Germany was not going to pick up the tab for other Euro-zone nations, bond yields rose immediately and sustainable debt became unsustainable debt.
(If bond yields rose much the debt of the US, UK and Japan would also be unsustainable.)
So another banker assumption ends in chaos.
Can this top the 6 trillion lost in 2008, wait and see.
You don't need Central Bankers to mess things up, bankers are quite capable of doing that all by themselves.
Proverbs 22:7 "The rich rule over the poor, and the borrower is the slave of the lender." Welcome to slavery Europe!
The "lender" is able to create the "money" out of nothing because of the "borrower."
Yet another superficial analysis, which continues to implicitly cling to the same old impossible ideals as becoming the source of "solutions" to the superficial perception of those problems:
It is vital to comprehend the devolution of Keynesian thought, as his reputation was embellished to the degree that he became an intellectual mercenary for the REAL POWERS, which are the international bankers, whose REAL POWERS are due to them being the best organized gangsters.
The European Union and its Euro were projects of the international bankers, within which context almost all of the successful politicians were the banksters' puppets, voted for by enough of the people who have become the banksters' muppets. Meanwhile, guys like David Stockman appear to deliberately underestimate those problems, and therefore, can continue to imply that there are bogus "solutions" would could exist outside of the REALITIES that civilization actually operates according to the principles and methods of organized crime.
The EU and Euro were stepping stones INSIDE this:
Tragedy and Hope by Carroll Quigley:
"powers of financial capitalism
had another far-reaching goal,
nothing less than to create a
world system of financial
control in private hands
able to dominate the
political system of
each country and
the economy of
the world as
a whole ..."
"We are all Keynesians now," in the sense that we all live inside of a monetary system which is about 99% based on governments enforcing frauds by privately controlled banks, that get to make the public "money" supply out of nothing as debts. We call that "the baleful Keynesian money printers’ regime" BECAUSE Keynes became the leading intellectual mercenary, as an economist promoting the interests of the international bankers, in ways which, OF COURSE, deliberately denied and ignored that the banksters had made and maintained fundamentally fraudulent financial accounting systems.
http://www.sciencedirect.com/science/article/pii/S1057521914001070
Can banks individually create money out of nothing?
"... According to the financial intermediation theory of banking, banks are merely intermediaries like other non-bank financial institutions, collecting deposits that are then lent out. According to the fractional reserve theory of banking, individual banks are mere financial intermediaries that cannot create money, but collectively they end up creating money through systemic interaction. A third theory maintains that each individual bank has the power to create money ‘out of nothing’ and does so when it extends credit (the credit creation theory of banking). ... Since the 1960s it has become the conventional view not to consider banks as unique and able to create money, but instead as mere financial intermediaries like other financial firms, in line with the financial intermediation theory of banking. Banks have thus been dropped from economics models, and finance models have not suggested that bank action has significant macroeconomic effects. The questions of where money comes from and how the money supply is created and allocated have remained unaddressed. ... The bank does not loan any existing money, but instead creates new money. The money supply is created as ‘fairy dust’ produced by the banks out of thin air. The implications are far-reaching. ... The empirical evidence shows that of the three theories of banking, it is the one that today has the least influence and that is being belittled in the literature that is supported by the empirical evidence. Furthermore, it is the theory which was widely held at the end of the 19th century and in the first three decades of the twentieth. It is sobering to realise that since the 1930s, economists have moved further and further away from the truth, instead of coming closer to it. This happened first via the half-truth of the fractional reserve theory and then reached the completely false and misleading financial intermediation theory that today is so dominant. Thus this paper has found evidence that there has been no progress in scientific knowledge in economics, finance and banking in the 20th century concerning one of the most important and fundamental facts for these disciplines. Instead, there has been a regressive development. The known facts were unlearned and have become unknown. This phenomenon deserves further research. For now it can be mentioned that this process of unlearning the facts of banking could not possibly have taken place without the leading economists of the day having played a significant role in it. The most influential and famous of all 20th century economists, as we saw, was a sequential adherent of all three theories, which is a surprising phenomenon. Moreover, Keynes used his considerable clout to slow scientific analysis of the question whether banks could create money, as he instead engaged in ad hominem attacks on followers of the credit creation theory. Despite his enthusiastic early support for the credit creation theory ( Keynes, 1924), only six years later he was condescending, if not dismissive, of this theory, referring to credit creation only in inverted commas. He was perhaps even more dismissive of supporters of the credit creation theory, who he referred to as being part of the “Army of Heretics and Cranks, whose numbers and enthusiasm are extraordinary”, and who seem to believe in “magic” and some kind of “Utopia” ( Keynes, 1930, vol. 2, p. 215). ..."
Welcome to the
WONDERLAND MATRIX BIZARRO MIRROR WORLD
where everything appears absurdly backwards!
"My view is that your state-worshiping is so naive that it beggars belief.
How many goons with badges and guns will be required to implement your sovereign money, perfectly regulated fantasy-land"
My answer:
Canada already had a sovereign money system from 38-74. Very few goons with badges, in fact less than normal as people become more civilized.
What people seem not to get, is that a proper Sovereign money system injects money into the base of the population. In that way, people then own their money power, not the State.
Sovereign money is perhaps a misnomer. It actually rips the money power from the State and from private banks.
It is sovereign in that it makes people sovereigns, not the state.
Some incarnations of the system do spend directly from the State, and then that new money Channels into the commons. In the case of Canada it created a lot of wealth.
Once that money escapes though it becomes savings of the people, and they use it for transactions.
All economies need low friction, non usurious money for transactions.
Credit as money comes into existence with usury attached, which then makes it high cost and high friction.
By the way, it beggars my belief that so many are monetarily illiterate. I suppose it is a function of a perverted school system, or lack of information to have good critical reasoning.
As I keep posting, some of you in ZH land, are no longer exempt and can no longer claim ignorance, as you have been exposed to the real historical facts.
All complex system require feedback nodes, or they go into oscillation. Even ants have a heirachy. Internal to your body is a number of heirarchial systems and feedback control.
Money is the system that predicates human behavior. This notion that things can magically balance is nonsense. The State is required to stop rent seeking and hence bring things down to the lowest cost value.
You are not free if you are harnessed with invisible money power. Go ahead and pay your increasing debts...peons.
In Canada from 1938 to 1973 there was little to no price inflation. Canada had a sovereign-like money system, where the Crown bank spent debt free into productivity channels.
Private bank emissions of credit were limited to four year loans only @ 6%.
Canada’s state bank was incorporated in 1935, and became a Crown bank in 1938.
BOC shares were held in a Trust by the Minister of Finance (MOF). In other word, BOC was originally an incorporated private bank, but its shares then became wholly owned by the trust, with MOF as trustee.
It is true that this is a weak arrangement that can be easily usurped, and that is exactly what happened in 1974, when the Bank of International Settlements came along and demanded Canada return to a private credit money system.
Prior to 74, MOF would tell Governor of BOC to create money debt free. This money would be spent by injection into the commons on productivity modes.
These are the things Canada did from 38 to 74. This small population also built out the third largest Navy in WW2 as well, using this type of money.
Private banks are ordered to remove their banknotes from circulation in 1945, and only use tangible bills issued by bank of Canada.
1)
Free Education, especially for returning WW2 Veterans. Improving labor in this way improves productivity
2)
Business loans
3)
Land Grants. (Land Grants are a way of keeping land from being grabbed by monopoly forces. This was easy in Canada given the amount of land they have.)
4)
St Lawrence Seaway was dredged and improved and added locks. (Note that Canada spends into their commons, as all governments should.) This is something like Panama Canal and a significant engineering feat. It allowed an inland seaway to get from Montreal and Lake Ontario.
5)
Welland Canal is another waterway linke between Lak Ontario and Lake Erie. It is eigh locks and lifts ships 326 feet over the Niagra Escapment.
6)
Trans Canada Highway was built, about 4,000 miles
7)
Universal Health Care. Since economy was efficient, health care could be afforded. Only after 1974 did their Health Care System go bad.
8)
Pensions and Direct Injections
a.
This is a sort of Social Credit Theory. These direct injects are debt free money being collected in taxes, and then spent (injected) back down into the base of the population. This creates a pumping action, and the money goes on to create consumption and wealth. It also overcomes losses from waste in industry, so labor can buy their output. (Wages never equal the actual value of production as waste and overhead is captured in prices.) Canada may not have not understood that injections are proper economics and needed, as shown by Gap theory.
b.
Family Allowances: This is another direct injection, usually for kids up to age 16, about $5 in the 1960’s per month.
9)
Private Banks are Restricted to four year loans only.
a.
This is private creation of credit, but a four year loan at 6% interest means that the interest does not go exponential. Note: In 1974 BIS coerced and removed these restrictions, so Banker could make profits. His profits are usurious and also change the nature of Canada’s money, making it more credit and less debt free.
·
Canada provided mortgages by using TRUSTS. This trust would be a collection of savings, similar to savings and loans in the U.S. at that time. Savings and loans would loan out existing money, not creating new credit. Canadian Trusts would issue a GIC, or what Americans call a CD. This CD would be for five years or so, and only have a percent or two of interest. Remember, they were loaning out existing money, not creating new credit. The interest path would be back to the savers, and hence it is not usurious.
o
When BOC no longer had restrictions on their private banks, e.g. four year loans at 6%, this allowed the private banks to directly compete with the Trusts (savings and loans). Again, the trusts would take existing money, what formerly was debt free, which then became people’s savings, and loan it out. When the trust loaned it out, they would add a percentage of interest, effectively a FEE. This is how money supplies should work, where the money is stored wealth and not credit.
§
Banks can create excess credit by loaning out many times their reserves. This allows them to create too much credit per unit time. Effectively, since they can create without limit, thus they were able to take over the trust industry. Banks could also issue more of their shares, to thus put more reserves in their reserve loops, to then fractional reserve much more credit. The movie “It’s a wonderful life” captures the effect of this mechanism where banks overtake savings and loans.
In 1974 Debt stood at only 18 Billion, easily supported by a Continental Country of only 30 million people. These 30 million performed at a much higher ability than the U.S., which ran on a more private system.
Canada's railway was built without creating Oligarchy and favoring certain groups. The rail road barons almost undid America.
Runaway inflation in the late 1970 was created by the Bankers, especially since the money had changed. After 1974 Governor of Bank of Canada only controls the overnight rate for reserves.
I wish that Stockman would stop holding back and tell us what he really feels.