Biderman & Santschi On "Why Germany Should Leave The Euro"

Tyler Durden's picture

While some have discussed the game-theoretic dilemma that Germany faces relative to the 'rest' of Europe, David Santschi of TrimTabs (Biderman's balder buddy) digs into the details as a potential solution (hard as it may be) as Europe's fatal flaw (the currency unionization - but not fiscal or banking union -  of a group of nations with strong sovereign identities). The imbalances are so great right now that the only practical solution David sees is to breakup the Euro-zone, and simply put the best way to achieve a break up would be for Germany to leave voluntarily - establishing a strong currency and in turn saving itself financially. The clear implication is that if Germany continues down the path of printing and bailouts it will be dragged down along with the rest of Europe. The EVP does not minimize this as a 'good' or 'easy' solution - many people would lose their livelihoods and many would lose a lot of money -  but it is the only practical solution that he sees (as Eurobonds, banking unions, and fiscal unions are simply impractical in terms of both effect and timeliness).

Of course this would have painful implications as the Euro would fall sharply but given the yields on Spanish debt (and previously on Greek, Portuguese, and Irish), it would appear markets are pricing this in as a string possibility and as we have noted Germany's CDS are starting to rise (whether on risk-transfer or contagion concerns). Reflecting on the press (and in our view, the politicians), Santschi quotes W.C.Fields quite appropriately: "If you can't dazzle them with brilliance, baffle them with bullshit!" as he opines on the sheep-like reporting from the mainstream media of politicians 'lies'. Europe remains a solvency problem not a currency problem and it seems journalists do not understand the difference between a grant of money and a loan of money - as the latter needs to be paid back!

In one of the most sane discussions of the reality in Europe, Bidermantschi note that it appears investors have finally wised up to the fact that "bailout loans are nothing but a shell game replacing old debt with new debt" and the heretical proposition that central banks perhaps cannot solve all the world's problems.

Well worth the 6 minutes or so for a lot of food for thought on what is going through Merkel and Schaeuble's heads (especially at half-time in the Germany-Holland game)...

 

for the short-version (though we suggest listening to the entire piece), fast forward to 4:00 and understand the difference between solvency and liquidity and why central bank largesse has to fail.

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Joebloinvestor's picture

Sounds like the rest of the EU has a great plan.

Guilt trip Germany into picking up the dinner tab (forever).

Pladizow's picture

Perhaps it is this belief that has lead to negative yield on German Bonds - lets buy them for massive price appreciation as Germany exits!

Germany: Oh hey Europe, would you mind sewing these yellow stars to your clothes?

idea_hamster's picture

Germany leaving the Euro isn't new, and it's terrible idea.

The Euro would fall apart, creating a currency inefficiency-led recession in all Euro countries.  Further, Germany's new Duetschmark would strengthen sharply, doubly affecting Germany and causing a real depression.

That's a 1923 Munich Beerhall Putsch formula.

The country that SHOULD leave the Euro is Finland.  Not so big that it busts the whole thing, a currency that's actually balanced either way right now, and would open the idea of leaving and provide a model.

NotApplicable's picture

As I've said time and again, Lincoln proved conslusively that Western political unions are insoluable.

And they'll kill every last person who says otherwise.

The last thing that TPTB want is a decentralized West. This "collapse" scenario came into existence the instant the political-but-not-monetary union was formed. What they couldn't do at the ballot box, they'll do as a method of crisis management (broken eggs, omelets and all that).

If that doesn't work? Why there's always a war to fire up to win the hearts and minds.

Harlequin001's picture

'"bailout loans are nothing but a shell game replacing old debt with new debt"'- Now that's not strictly true is it?

The bailout loans are about replacing what was a pension fund asset with new bank loans.

Old investors get wiped so that banks can now claim the 'investment'...

insanelysane's picture

The game is going to end whether or not Germany leaves or all the small countries are kicked out or they all go down together.

ZH needs to add a second line to the header, On a long enough timeline the survival rate for global credit ponzi drops to 0 value.

lineskis's picture

Santschi, please hold your iPhone/iPad in landscape, not portrait, so we don't get these awful black stripes on the sides! Gee! :)

AGuy's picture

"The Euro would fall apart, creating a currency inefficiency-led recession in all Euro countries."

The Euro already has fallen apart. Its just going to take some time for it to die. How long, depends on how long the bureacrats are able to kick the can. The longer they wait the more pain it will bring, more good money and resources is committed to prop up bad debt.

Consider a ponzi scheme, the quicker it ends the less wealth is destroyed. Wait until the very end, then all of the wealth is destroyed.

 

Pinto Currency's picture

Back to an old fiat currency solves what?

You still have debt collapse coming in spades - and a run to real assets.

Ghordius's picture

Sure, but think how banker's bonuses would grow!
And it would save JPM! For a year of bonuses more, everything makes sense.

Pinto Currency's picture

 

That has been the approach until now.

kito's picture

it makes no sense for germany to abandon the euro. if they revert to mark, then austria goes, and everybody else abandons ship. germany will wind up with strongest currency (aside from swiss franc) in the eu, leaving them at a tremendous disadvantage for trade with almost all countries. if they stay in the euro, the other fiscally sound countries (finland, austria, belgium, estonia, slovenia, netherlands, etc) will also likely stay. this allows germany to maintain somewhat of a level playing field with countries that can actually afford their products, without having currency imbalances. better for the piigs to get the boot.

Bunga Bunga's picture

So what? If the new Deutschmark appreciates too much, they just go the Swiss way and peg.

casey13's picture

If they peg they will have to print massive amounts of money to keep the peg. If they leave it will be to avoid having to print.

Pinto Currency's picture

 

Or perhaps they go halfway and "back" the Euro partially with gold to try to save the Euro and to save and increase the large and centrally-controlled union.

In this scenario, the Euro would likely still not be redeemable into gold as the citizens would probably redeem their currency for gold.  And if the debt is not drastically reduced as a function of GDP, the economies will continue to collapse.

The Euro central banks currently hold ~ 15% of reserves in gold but there is no formal "backing" per se (partial gold standard) of the euro.

Steaming_Wookie_Doo's picture

I was reading Dr Joseph Farrell (@ gizadeathstar.com) where (and I'm paraphrasing with faulty memory) he posits the EU bank bailouts are happening in part because "certain parties" don't want to see Germany independent and [free of the Euro] creating alliances with Russia and China, as this would create a massive block of know-how, resources and labor.

potlatch's picture

Both Russia and China are boat anchors

ATM's picture

All the BS debt is flowing up to Germany right now. That debt is denominated in Euros. So when Germany leaves what is left of the Eurozone will simply print and pay the Germans in worthless paper, just as they have always done!

So either they bail out the debtors so that the germans can get paid or they allow the debtors to reneg. either way the germans are going to get screwed only if the Euro is still around they can try to maintain some control, and wasnt't that really the whole idea behind the Euro inthe first place?

forexskin's picture

imagine the venal sins commited in the name of empire...

you're probably right - but still, they must be tempted by the prospect of telling the leaches to f**k off.

forexskin's picture

so what?

if the new DM appreciates, Germany can invest in other assets degraded by mismanagement and put them to more productive use. if their currency is too strong, their ability to sell will be diminished, demanding they either improve productivity further, or simply blow it on hookers and coke...

if i see another argument against reform because it isn't compatible with the mercantilist ideal, i'll..., i swear i'll...

oh never mind, even some ZHers can't tell the difference between productivity and manipulation, since apparently it can't be the problem...

Offthebeach's picture

Any nation that can fight and lose horribly two world wars, and have half under Communists for fifty years can easily handle the closing time headache of a failed delusion.

rockraider3's picture

The DM would allow Germany to control their own destiny.  They can strengthen or weaking their currency as needed. 

Also, don't forget that a significant problem in Europe is that Germany is so much more efficient than the other EU countries.  Even with a stronger currency, Germany's efficiency will allow them to compete in the market place.

Offthebeach's picture

What's the difference between Germany now backing the Euro vs a Europe backed by a strong, Democratic, free Germany freely backing enterprises? The first is by force, and central planning socialism, the latter more free enterprise by a free ( er ) people. Germans and Europe have not done well under forced, faux popular elite. Hindenburg, hitler.and the Communists. All driven by planning junkies, debts and destroying economic flexibility and national options. Europe has all it needs for beginning of success. But first it must clear mal-investments, remove incompetent leaders, take losses. If Poland, the Baltics, Nordics can flourish after dustbinning socialism, so to the rest of Europe. I don't see the euro now leading to a freer, more clear,politically Democratic Europe. However. It seems the elite are too invested in the financial trench warfare of the Euro to pull out. Politics is warfare by other means. Lots of little people are getting killed. They've worked and saved for nothing but yet another grand planning racket.

akak's picture

Kito vomited:

germany will wind up with strongest currency (aside from swiss franc) in the eu, leaving them at a tremendous disadvantage for trade with almost all countries.

Yes, a devalued fiat currency always leads to national prosperity --- just look at the wonders currency devaluation did for Weimar Germany, Zimbabwe, Yugoslavia, or the booming and robust economies of 1970s and 1980s Latin America.

Where did this idiotic and blinkered, neo-mercantalist notion that devaluing currencies somehow is "good" for ANY nation come from in the first place?  It is insanity of the first order!  With its absurd and limited focus on exports only, not only does it ignore how such devaluations impede IMPORTS, but how they destroy the savings and living standards of the entire national population, as well as how they hamstring an economy through malinvestments due to erratic and erroneous (rising) price inputs.

Please, enough with such Krugmanesque foolishness!

I bestow yet another downarrow upon the Keynesian idiot who is Kito, as well as upon the fallacious and insidiously destructive economic tripe that he loyally regurgitates in defense of our ruling sociopathic financial and political elites.

AbelCatalyst's picture

Kito: see my post/link below. This is the debt supercycle endgame - its all about survival at this point, and getting out of debt with the least amount of damage is the key. We are entering an entirely different game with different rules and goals. In the next few years success will be defined in a very different way than it is today...

Alexandre Stavisky's picture

For knowledge of money (as money is life) has made me wise and bitter and strong;

And I am rich in all that I have lost.  And gained subtlety in in seeing wrong.

Would that the world were honest, true, and honour-bound,

instead, the pit of intrigue and despair within which little redeem be found.

Broke and broken, bodies are, accountings too

First the paper, then flesh to pulpers ensue.

Inheritable bankruptcy's sons on war's bloody fields tear new wound,

Maim, screech, and die...to powder charge for new Usury's round.

 

Those who must pay the debt, never incurred it.

But insisting its authors bear consequence? Absurd.

 

AbelCatalyst's picture

Not sure this is a new idea.  I posted this in October of last year (back when Germany was printing Marks, then cancelled the order, and now has fired up the printing presses again):

http://www.zerohedge.com/news/ecb-back-market-prevent-sovereign-bond-rout

(It's the first post and was picked up by a number of other web sites around that time)

Yes, the Germans are going back to the Mark.  it's inevitable.  Read my post and you'll see clearly why this will happen eventually.

Bunga Bunga's picture

On German blogs this idea has been discussed for more than a year now. Did you see the Book with the fat letters G E R M A N Y and a Langenscheidt Dictionary next to in Santschi's book shelf?  And he got internet.

Bay of Pigs's picture

Jim Willie of the Golden Jackass has been saying this for a very long time as well. 

Biderman's a hack. Time to dump him ZH.

lolmao500's picture

Well it worked for Germany and Israel... still working to this day, 67 years after the end of WW2...

Will To Live's picture

Hard to listen.

The guy is probably $ loaded,

and his shirt sucks.

Distracting.

Just sayin.

potlatch's picture

The Germans will just sit there all night and put out half-smoked cigarettes in their strudel over and over

Sudden Debt's picture

Today merkel was dressed in orange...

ORANGE!!!

THAT'S THE COLOUR OF HOLLAND!!!

During a WK WHERE THEY HAVE TO PLAY AGAINST HOLLAND!!
That's gonna cost her votes....
And that's how politics actually work these days...

Motorhead's picture

Netherlands not looking good in the European Championship, particularly after their 2-1 defeat to Deutschland. It's 'good night, nurse' for the Dutch 11.

Merkel in orange?  Hmmm, is there ANY color that can help?

ACP's picture

GERMANY IS THE EURO.

In which case, yes, they should leave.

lunar's picture

..that's the wish of many Germans

I am a Man I am Forty's picture

Ooh ooh!  I know!  I know!  Pick me Pick me!     Because the other european countries are a giant fucking anchor wrapped around Germany's neck??

aminorex's picture

More like: Germany is an anchor tied around the sack of peripheral kittens.  Toss Germany, Finland, Netherlands, and the remainder would happily print their way to competitiveness, and in the process destroy most of their debt.  German deflationary policies are not suited to a fiat currency regime.  Germans want to pretend that they have a sound currency, but it's just not so.  Germany is down 700 tn in TARGET2 and sinking fast. That's as deadly a boat anchor as ever drowned a cuddly kitten. If Germany were outside the Euro, they could get something other than debts and promises in exchange for their products.  As it is, they get nothing of real or lasting value, just promises of more Euros, backed by the good will and firm intentions of Italy and Spain. 

The problem is too much debt and no will to destroy it.  If politics can't solve that problem, the forces of nature will do so.  This problem is an inevitable consequence of debt-based money.  Since sound currency was abolished, the only way money enters circulation is by loaning it.  Since the loans are at interest, the amount of debt always increases faster than the money supply.  Thus, printing money to pay debts just creates more debts. As long as you can export your debt, you can kick the can down the road, but eventually everybody who holds debts and promises gets wiped out, and only the holders of material and real property have anything. Unless fiat money is displaced, ultimately the same thng will happen to the U.S. and Japan, Australia, and - eventually - even China.  It's World War 4, and it's generational warfare, in which the central bank is I.G. Farben, pumping out the toxic war materials which leave a denuded landscape incapable of supporting the next generation.

The established global central banking system has made cash the ultimate "toxic asset".  Unless it is thoroughly reformed, the result may be delayed but it is no less inevitable for that:  Chaos, poverty, and warfare.

 

potlatch's picture

Can't the Kaiser declare a Jubilee?

Snakeeyes's picture

UK was smart not to join. Germany should leave the loser's club.

mendolover's picture

That kid graduate high school yet?

WhyDoesItHurtWhen iPee's picture

certainly not from the Hair Club for Men

Wood's picture

To facilitate the transition from euro to marks they will use gold. The German commercial banks will be recapitalized with gold at a much higher price than we have now. The chinese will be quick to jump on board as will the swiss. Very exciting to watch!!

Merrekie's picture

Oops, their gold isn't in their possession. It's stored at different locations (NY, London and - I think - Geneva). Good chance it's been leased away, given away or stolen. The only gold left is aunt Gertrud's wedding ring and perhaps a forgotten relic in some church. Pegging the new Mark to this remaining gold would be über-bullish.

Wood's picture

Yes, leased many times over, yet it never moved.

TheGardener's picture

So this non-sovereign nation would finally do so with her American masters consent, the latter still claiming to hold her gold and thus being in full control. Sounds like
having a shoe shining boy for president you could always withdraw by producing his true birth certificate.

bushboy's picture

I dont think it will matter to the world where germanys gold is, as it hasnt worried them up until now. I do beleive the price of gold will reset to a higher level as they are saying though.

Muppet Pimp's picture

Sorry Purple shirt guy, but Germany leaving only buys more time and solves nothing.   The europeans will really scream when they collapse the euro via large scale printing operations and cannot afford gasoline anymore.