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Guest Post: Euro Double-Bind: Both Paths Lead to Disintegration

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

Euro Double-Bind: Both Paths Lead to Disintegration

The euro's handlers are in a double-bind: whatever path they choose, Germany has no choice but to renounce the euro as an act of self-preservation.

Is there anything that hasn't already been said about the Eurozone's structural flaws and the absurdity of the half-baked "solutions" tossed together by its frenzied, fumbling leadership? Perhaps not, but we can fruitfully boil the mess down to a simple double-bind.

The double-bind can be stated thusly:

1. If the European Central Bank (ECB) tries to save the private banks and bondholders by printing trillions of euros to buy up the mountain of hopelessly impaired sovereign bonds, then Germany will rebel and renounce the euro as an act of self-preservation.

Germany knows that money-printing robs savers and the productive via the stealth theft of inflation, and its people will not stand idly by while their wealth is destroyed by ECB euro-printing.

2. If the ECB renounces money-printing, then the only economy solvent enough to fund the 3-trillion-euro bailout with actual cash is Germany, which will rebel against this debt-serfdom by renouncing the euro.

There are only two paths, and they both lead to the same end-state: dissolution of the euro and the EU's monetary union. The situation is truly binary; there are no other real solutions. The half-life of theatrical, fantasy "solutions" is shrinking fast; where a meeting, a resolution or a vote once sparked a three-month rally, now it powers a meager three-day rally at best.

Soon the rumor-fantasy-"solution" rallies will last three hours, not three days. Once the zero line is reached, then rallies invert to crashes, and the markets will go critical, i.e. implode. This is the nature of intrinsically unstable systems.

The only real question left is when the criticality occurs. Can it be staved off until 2012? How long will it take for Germany and the rest of Europe to grasp the end-state of this simple double-bind? Months? Or will it be weeks or even days?

Once you realize the only two paths left both end at the same destination, then the only rational action is to move your cash out of euros and the doomed banks, and liquidate your euro-denominated assets into some other currency as fast and as furiously as possible.

Meanwhile, the Status Quo is issuing calls for euro 1.40 and a year-end rally to beat all rallies. Anything's possible, but the double-bind is real and cannot be massaged away. How much longer can fantasy be substituted for reality?

 

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Sat, 11/12/2011 - 12:30 | 1872115 Abitdodgie
Abitdodgie's picture

I whish this collapse would just happen , I'm getting old

Sat, 11/12/2011 - 13:50 | 1872221 French Frog
French Frog's picture

"How much longer can fantasy be substituted for reality?"

As usual, for much longer than most people think it can...sadly

Sat, 11/12/2011 - 16:01 | 1872361 nuinut
nuinut's picture

The fantasy seems to be on the part of the author.

...whatever path they choose, Germany has no choice but to renounce the euro as an act of self-preservation.

Try wording that differently:

...whatever path they choose, Europeans have no choice but to renounce the euro as a store of value.

And we have a plausible third option.

As the reserve asset the ECB already use to value the euro publicly on their own balance sheet, and being the focal point in times of monetary stress, I suggest physical gold will be used as the natural alternative store of value.

Sat, 11/12/2011 - 16:38 | 1872408 Zeroexperience2010
Zeroexperience2010's picture

I think I know you from FOFOA blog ;)

 

Fully agree with you, FIAT won't be used as store of value for the next couple of years, maybe even couple of generations.

 

When I see what demonstrations happened in Germany against the EUR (couple of people here and there), the author can forget about his wet dream of German populus rising against the EUR. Germans have been forced to get used to inflation since the EUR replaced the DM, there were never any notable demonstrations. Rough guess would be, if they manage to inflate below 10-20% per year, Germans won't complain, just work more, and buy more and more gold (still quite simple and anonymous up to 15000EUR per transaction). Disclosure: I am half German.

Would 10% or 15% yearly inflation for a couple of years be sufficient to reduce the eurozone debt significantly or into a useful range?

Sat, 11/12/2011 - 18:40 | 1872592 UgglyBetty
UgglyBetty's picture

I completely agree with you, people dont complain about inflation, they just get used to it like the boiled frog. But imho, once yearly inflation gets to the levels you mention it easily gets out of control because of many factors (expectations, velocity of money, money being printed like hell as shortages appear... etc.etc).

So I think it is not a wise option for Germany to speculate and say: ok just a couple of years to liquify debt and then we get serious and fight inflation. Never occured, at least from our "extensive" inflation experience (I'm from Argentina)... Inflation becomes an addiction for governments, they never quit pushing it except when social unrest causes them to "take some measures" (which only work temporarily) and then everything stays the same.

As I said in some other post, it's very sad to see that the developed world is going down the Argentinean way, I mean, I really dont like seeing that our terrible experience will soon the extrapolated to the rest of the world...

Regards, BettyLaFea

Sat, 11/12/2011 - 19:25 | 1872661 masterinchancery
masterinchancery's picture

No.  Inflation at that rate would cause a bond panic and a crash in the euro.  Germans may not demonstrate, but they will certainly vote.  In any event, ECB printing has been ruled out by the German courts without a public vote and new Constitution, neither of which will happen. As you must know, Germans are very law abiding.

Sat, 11/12/2011 - 21:02 | 1872768 Zeroexperience2010
Zeroexperience2010's picture

The European Union has shown again and again that laws and rules (she set up) are made to be broken. Germans might be law abiding, but the German politicians are of a different caliber, they are like 99% of the politicians. If direct printing will be avoided, then a couple of GS/JPM advisors will be able to set up an indirect way. And Merkel will utter again "alternativlos"...

If you look at the trade balance of the eurozone you will see it's pretty much in balance:

http://www.tradingeconomics.com/euro-area/balance-of-trade

so the 'intrinsic' value of a euro (relative to gold, USD, CHF, whatever) is irrelevant for the import/export aspects.

The people that will get hit by inflation will be the employed (salaries will not rise as fast as inflation) and the people whose networth is savings accounts, life insurance, euro bonds.

 

Sat, 11/12/2011 - 19:07 | 1872632 AE911Truth
AE911Truth's picture

I agree with physical gold as store of value for everyone globally. This raises the issue, why used debt as a transactional currency? Why not use simple debt free currency as a unit of exchange and account? There is no reason for the unit of exchange to be debt. I understand why bankers and polititions want money to be debt, since they profit enormously. Why do the citizens of countries around the world accept debt as money. Perhaps becsuse they do not know? I think the citizens of the world are waking up to the scam of debt as money. I think the Occupy movement is educating people around the world to this theft of their labor. Wake up everyone. Cast off your chains. Refuse debt as money. Demand debt free money for transactions. Save your wealth in physical precious metals.

This will help you understand how much of your wealth has already been stolen from you: "If that mischievous financial policy,[interest free colonial script money], which had its origin in the North American Republic, should become indurated down to a fixture, then that government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe." Source: The Flaming Sword, Vol. XII September 2, 1898

Everyone refuse debt based money.

Sat, 11/12/2011 - 19:58 | 1872696 boiltherich
boiltherich's picture

Gresham's Law:  Bad money forces out good money.  People will always use that money they like and respect the least when they have to option to use more than one legal tender.  If you need a couple thousand dollars worth of car repairs which would you use, $2,000 in Federal Reserve Notes or one ounce of your gold?  You will keep the gold and blow the bucks.  In the eurozone they either have to back the single currency to the bloody end or each move back to their own currencies.  There is no option of a core northern industrial euro having severed the weaker states, once those weaker states are out the value of the original euro will have been so compromised by debt and defaults and legal chaos that all will have to bury it.  That does not mean that smaller fiat bolcs could not emerge, but they will not be using euro, not for long or with any success that is certain.

Sat, 11/12/2011 - 20:00 | 1872699 nuinut
nuinut's picture

Questions for you: are all current fiat currencies debt-based? Which specific criteria make a currency debt-based?

 

I agree, a medium of exchange needs only an objective valuation to be useful, such as an uninhibited public exchange rate with physical gold. This is all the information required by the potential users of said currency.

It is the exchange rate with the store of value that establishes the value of the medium of exchange.

We need to stop trying to have one instrument (fiat currency) performing both monetary functions (store of value and medium of exchange) because this creates a circular reference.... how can something objectively value itself? (answer: it cannot)

Any medium of echange is backed only by whatever it can be exchanged for in a free market. This is where it finds its value, or not.

Debt has nothing to do with it, except as a distraction from the real issue.

Sun, 11/13/2011 - 11:34 | 1873580 TheFourthStooge-ing
TheFourthStooge-ing's picture

nuinut asked:

Questions for you: are all current fiat currencies debt-based?

Not necessarily. United States Notes were directly inserted into circulation by the US Treasury as bills of credit. They were interest-free and, although at times they could be redeemed for precious metal, unlike demand notes they were never guaranteed redeemable for anything.

http://en.wikipedia.org/wiki/United_States_Note

On being non-debt-based:

http://en.wikipedia.org/wiki/United_States_Note#Post_Civil_War

As to your second question:

Which specific criteria make a currency debt-based?

I must admit that I cannot provide a definitive answer. I know that it is borrowed into existence, is an obligation (IOU) of the issuing government, and that, in theory, it is redeemable in "lawful money". As to what constitutes so-called lawful money these days, I have no idea.

 

Sat, 11/12/2011 - 14:45 | 1872283 HardlyZero
HardlyZero's picture

Seems like the tipping point has arrived and will be shown in the next month.

2012 will be the tailspin outcome.

Get as safe as you can.

Suggest precious metals.

Sat, 11/12/2011 - 17:50 | 1872520 covert
covert's picture

down with the euro. I predicted from the beginning that it would fail and no-one believed me.

http://expose2.wordpress.com

 

Sat, 11/12/2011 - 19:02 | 1872621 Barbar
Barbar's picture

 

 

obviously you are distracted by the eloquent hadji show put on by the pr machine of the man exclusively for the serfdom class (i.e. your class) to quench your thirst for freshly spilt arena blood as a precaution in case you would happen to figure out to look at the man.

forget the hadjis. look at the man.

this will help:

http://en.wikipedia.org/wiki/War_Is_a_Racket

 

Sat, 11/12/2011 - 12:31 | 1872117 Prepared
Prepared's picture

same here...CTRL-ALT-Delete already.

Sat, 11/12/2011 - 16:59 | 1872439 edotabin
edotabin's picture

lol.... that is referred to as a warm boot.  This needs a graceful shutdown (hopefully), power off, pull the plug, wait about a day or two, make hardware/software corrections/upgrades and then boot up again.

Sat, 11/12/2011 - 12:36 | 1872121 spastic_colon
spastic_colon's picture

hmmmmm.....how befitting if this were to be the squids grand plan as retribution for all of Germany's sins of the past.

Sat, 11/12/2011 - 12:45 | 1872132 Bartanist
Bartanist's picture

That assumes a lot. Most importantly it assumes that they are/were not on the same side ... like the two party system.

Sat, 11/12/2011 - 23:27 | 1872985 WonderDawg
WonderDawg's picture

Come on. Two words: Paul Warburg

Sat, 11/12/2011 - 12:40 | 1872124 Bartanist
Bartanist's picture

Your entire premise rests on the German people rebelling? They rolled over for Hitler. What makes you think they are any different than Americans in their will to rebel when faced with the exact same issues.

The American people were steamrolled because they have no power with their government.

Sat, 11/12/2011 - 12:51 | 1872142 WestVillageIdiot
WestVillageIdiot's picture

Don't forget that Hitler was a form of rebellion against Weimar.  His support was often middle class, with a large number of teachers supporting him.  The rebellion against Weimar was the rebellion against printing.  Hitler was also seen as a counter to communism which the Germans feared far more than nationalism. 

Is there a Hitler waiting to claim Germany?  I don't know but I just don't see Germany being able to build a military machine today like they did in the 30s. 

The real point is that the Germans have a history of rebelling against politics and monetary wizardry.  Right now the Euro zone is loaded with politics and monetary wizardry. 

Sat, 11/12/2011 - 13:00 | 1872162 The Limerick King
The Limerick King's picture

 

 

The Germans will soon be rebelling

And Euro bonds Banks should be selling

The time has now come

To stock-up on rum

And quickly prepare for the shelling

Sat, 11/12/2011 - 13:08 | 1872173 WestVillageIdiot
WestVillageIdiot's picture

Very nice.  But I would have changed the rum lines to "the time is now here to stock up on some good beer" 

Sat, 11/12/2011 - 13:17 | 1872185 The Limerick King
The Limerick King's picture

 

 

I agree...beer would have been much more apropos.

Sun, 11/13/2011 - 18:05 | 1874173 Savyindallas
Savyindallas's picture

The Nazi movement was nothing without Hitler. Putting all the post-war propaganda aside-if you look at objective facts, Hitler was one of those truly rare leaders who had the capacity to raise the entire nation to levels they otherwise could never have achieved. This type of leader comes around once in a century. Had Churchill not been so hell bent on wolkd war (something Churchill saw as essential to to his ticket for greateness) and had he stayed neutrAl or allied with Germany against the monstrous Stalin and Bolshevist Russia - Hitler may have been one of the greatest leaders of all time  -one for the ages.

Now you can never agree with this assessemt if you beleive the post war propaganda we have been taught  -the victor writes the history books. That should be self evident to true students of history.

Sat, 11/12/2011 - 12:53 | 1872144 Doomsday Profit
Doomsday Profit's picture

 

 

.

Sat, 11/12/2011 - 13:33 | 1872202 DormRoom
DormRoom's picture

lmao.. You think the people from the country that produced, and sustained Protestantism aren't not going to rebel?

Sat, 11/12/2011 - 14:24 | 1872254 JPM Hater001
JPM Hater001's picture

It is different-

Because in the former 1930's Germany, you found a country beaten to a pulp and an economy in shambles with only micro-regions of the country producing any useful goods.

In the later Germany's problem IS wealth.  They learned the calculated risk in not owning up to irresponsible economics...even when created by war or other means.  In fact, you could almost claim that Germany has paid close attention to ensure they dont end up doing PRECISELY what the other EU countries in trouble have done.

Ahh, irony in the morning always makes for a nice late day crap of contentment.

Sun, 11/13/2011 - 00:08 | 1873046 JR
JR's picture

I agree that the American people are being steamrolled; perhaps the rough treatment will awaken them.

Also, If you ask Lord John Maynard Keynes if the U.S. could be blamed for the Third Reich, he would say, “Yes.” Keynes warned that the heavy reparations Germany would be forced to pay until 1988 by the Allied Powers in the Treaty of Versailles after WWI, were excessive and counterproductive, and would force Germany, out of starvation and desperation, to war which is what happened. 

The greed cemented into the Treaty of Versailles led to Germany’s 1923 hyperinflation and forced the impoverishment that led, ultimately, to WWII

As for Hitler, in the second round of the 1932 election (Weimar Republic law provided that a candidate needed to receive an absolute majority of votes), the German people did not choose Hitler; they elected Paul von Hindenburg of the Independent Party. It was Hindenburg who unwittingly played an important role in the coming to power of the Nazis by appointing Hitler under political pressure as Chancellor of Germany in January 1933.

Hitler succeeded Hindenburg as head of state only two years later, when Hindenburg's death brought his term to a premature end in 1934. After the president's death Hitler abolished the office entirely to replace it with the new position of Führer und Reichskanzler ("Führer and Reich Chancellor"), and cement his dictatorship.

Sat, 11/12/2011 - 12:44 | 1872130 spanish inquisition
spanish inquisition's picture

I have already fully baked in all projections of half baked solutions and all I needed was the directions on a box of brownie mix. My ideas are cooling as we speak.

Sat, 11/12/2011 - 12:54 | 1872147 WestVillageIdiot
WestVillageIdiot's picture

That reminds me, we have a box of brownie mix that has been in the cupboard for a while.  I think I will make those today.  Thanks for the reminder.  With a little vanilla ice cream they should be very pleasing.

This should also be a reminder that as we watch this colossal fustercluck play out, you still need to enjoy some of the little pleasures that life offers.  This may be an afternoon raking leaves, drinking a beer or just sitting with your thoughts on a beautiful fall day.  Letting this crap seap too deeply into your spirit is not good for anybody.  Fighting these battles doesn't mean killing yourself. 

 

Sat, 11/12/2011 - 16:51 | 1872424 Schmuck Raker
Schmuck Raker's picture

Thanks. I needed that.

Sat, 11/12/2011 - 12:46 | 1872133 lolmao500
lolmao500's picture

Not a big surprise.

In other news...

http://www.kgw.com/news/Occupy-Portland-plans-next-move-as-eviction-loom...

Occupy Portland Prepares For War

Police Friday said they had reason to think many in the camp were arming for a confrontation, calling for reinforcements from Seattle and San Francisco, along with constructing weapons and fortifications.

Police said hundreds were possibly heading to Portland and people may be in trees during any police action and a hole was being dug, reinforced by wood.

Protesters were also thought to be hammering nails into pieces of wood for weapons and gathering gas masks.

Several pallets were brought in Thursday night to the northwest corner of Chapman Park known as "The 420 Hotel" where police were told it looked like protesters were making shields.

Sat, 11/12/2011 - 12:57 | 1872157 WestVillageIdiot
WestVillageIdiot's picture

Have you seen the equipment police departments have amassed since 9/11?  I think the cops will do just fine.  Or they can be like the protests here where there are 2 or 3 cops per protester.  That gravy overtime has to be nice. 

Sat, 11/12/2011 - 21:40 | 1872834 TruthHunter
TruthHunter's picture

The untold story is the amount of brainwashing they endure to keep their jobs. Since

9-11 huge amounts of "training" precautions have been taken to insure loyalty.

I would have some hope for the future of the USA if I could trust that the cops would

do the right thing.

Sat, 11/12/2011 - 12:53 | 1872137 monkeys.pick.bottoms
monkeys.pick.bottoms's picture

Politicians in Europe use the threat of war to blackmail Europeans (especially Germans) to stick to the slave system we have now. I wish people could understand war will not happen because everybody is broke. Let's crash and rebuild and then, when we get really rich, let's worry about people invading other people. Also: Screw nationalism, let individualism finally break through. I'm fed up carrying the shitty burden of mistakes made by people that accidentally lived in the same land that I do. Greetings from Poland.

Sat, 11/12/2011 - 12:49 | 1872138 mccoyspace
mccoyspace's picture

I think option 1 is the most likely by far, but I really wonder if the Germans will ultimately balk at that. Yes I know they know their history of hyperinflation. Yes I know their central bank wouldn't do it. But I don't think they will give up on their dream of a unified Europe very easily at all. They really really like having a common currency and open borders. And when you travel in Europe, those things are really nice. If they do finally pull out I think it will not be anytime soon, and only after a LOT of printing has happened. I could be wrong. We shall see.

Sat, 11/12/2011 - 13:14 | 1872182 reload
reload's picture

De facto printing is well underway already, but as the `me too` brigade gets ever larger and more bankrupt entities emerge the German people will wake up and say with increasing volume -enough.

The EU itself (commission and joke parliament) is becoming more reviled by europeans. To prove how out of touch they are, they announced this week that member states will be levied an extra 5% p.a in contributions.

A trading alliance with Russia would make a lot of sense for Germany and as an East German Mrs Merkel has an understanding of their culture - not to mention a solid relationship with Mr Putin. With favourable access to German manufactured capital goods Russia could become a powerhouse in more than Energy and commodity production. Germany gets energy security and a ready market for exports.

Its all about timing of course, but I think the article is right. In the end Germany does have options outside the Euro and they get more attractive by the day.

Sat, 11/12/2011 - 13:46 | 1872214 Börjesson
Börjesson's picture

It doesn't have to be either full union or total isolationism. There are lots of paths in the middle. You don't need a common currency to have open borders (which I too enjoy) and free trade.

Also, I don't know that it's really the Germans who have been dreaming of a unified Europe. Seems to me it's more the French and some others who have been pushing for it, and talked the Germans into it.

Sat, 11/12/2011 - 13:07 | 1872146 bearsecutor
bearsecutor's picture

agree but timetable is up in the air...I think squids , traders covering shorts and wanting to get year end bonuses, plus hedge funds trying to hit their bogeys/cover shorts  can keep things up until even Jan 1- then it gets very interesting - of course bond vigilantes may not wait that long- and note too that even retail investors find it very hard to sit on sidelines in  ZIRP MMFs when they see Dow rising 2% daily — the macro Euro situation is as you describe it, its unavoidable - it will eventually exert its influence — in the meantime I don't think q1 and certainly not q2 will sustain any conclusion other than bona fide euro recession, and slower growth globally-that will end the party even if bond vigilantes dotn step in beforehand

in short term (days to weeks) Draghi is key-watch what Draghi does-he will have to reveal his hand/tendencies-he is talking a good Bundesbank talk , but we don't know how much Italian debt he is buying, and based on Fridays drop in spread, he's buying a ton — and Italian parliament is talking a good game,a nd berlsuconi APPEARS  to have withdrawn from political scene but this is very dubious-the dude has real exposure to legal prosecution, his cronies are still well entrenched , and MOnti is not going to be a cagy political player-at best he will be Hoover not Roosevelt - and Italian political culture will take decades to improve - rule of law, active instead of cynical citizenship, effective parliament etc. 

In the longer term (months) French ability to avoid contagion is the key-watch to see if vigilantes make a run on France. It's really hard to see why Germans , despite their love for eurozone , will stay around to endlessly support the entire EU with transfers,a dn certainly Finland, Dutch and Austria would be happy to set up a joint currency with Germans. I can see Germany going all in, but of hey feel France is going to default as well, they have to leave for economic self preservation

 

They real question for ZH readers and any other with conviction on the euromess- is what will constitute an all clear to start buying equities ? Waiting for actual german departure form euro (or structural changes in treaties and constitutions) could take > 1 year..or do we go back in with a 20, 30% fall in stock prices ? Will that indicate market has price din Euro reorganization finally ?

Sat, 11/12/2011 - 13:39 | 1872205 DormRoom
DormRoom's picture

Timetable is not up in the air. It's widely accepted that once the ECB can no longer sterilize its bond purchases, then Germany must decide to either pull the plug, or allow carte blanche money printing.

 

I don't know how much more they can sterilize.  80-100B, perhaps.. So expect criticality around Feb?  Sooner, if they are forced to buy PIIGs bond at an accelerated pace.

Sat, 11/12/2011 - 12:54 | 1872148 Conax
Conax's picture

The German people have paid enough, for cripes sake. They paid ridiculous reparations after WW I. This 'Versailles Treaty' was directly responsible for the rise of Hitler and WW II. After that, they paid and paid for their 'sins' right up to today. They just gave Israel two submarines a while back, I believe.

So now the Europeans over-extend their credit (like everyone else) and start circling Germany looking to make the 'bad guys' take one for the team.  Successfully demonized over the years, disparaged, impugned, they are now supposed to hand over the profits of their labors to whom? That's right, the same people that have been criticizing them for 60 years.

Germany should look after the interests of her people.

Sat, 11/12/2011 - 13:06 | 1872169 WestVillageIdiot
WestVillageIdiot's picture

I love Germany.  My heritage is mainly German.  But the idea that Versailles was so hard on the Germans seems fallacious to me.  Did you ever see what the Germans demanded from the Russians in the treaty of Brest-Litovsk for the Russians to exit the war? Versailles was a love note compared to that.  Russia was lucky the Germans lost and couldn't collect on that treaty.  The Allies were generous compared to the Germans, in this sense.

Sat, 11/12/2011 - 13:15 | 1872183 Conax
Conax's picture

They took lands, wrote themselves a blank check the Germans had to cover, interefered in their politics and military..

http://www.historylearningsite.co.uk/treaty_of_versailles.htm

"Land Losses:

"The following land was taken away from Germany :

Alsace-Lorraine (given to France)

Eupen and Malmedy (given to Belgium)

Northern Schleswig (given to Denmark)

Hultschin (given to Czechoslovakia)

West Prussia, Posen and Upper Silesia (given to Poland)

Financial costs:

The loss of vital industrial territory would be a severe blow to any attempts by Germany to rebuild her economy. Coal from the Saar and Upper Silesia in particular was a vital economic loss. Combined with the financial penalties linked to reparations, it seemed clear to Germany that the Allies wanted nothing else but to bankrupt her.

Germany was also forbidden to unite with Austria to form one superstate, in an attempt to keep her economic potential to a minimum."

How were they supposed to get back on their feet with this level of punishment?

I think the treaty brought Hitler to power.

Sat, 11/12/2011 - 13:54 | 1872224 jimmyjames
jimmyjames's picture

I think the treaty brought Hitler to power.

************

You know this stuff well Conax--I'm impressed-

"Out of every economic and societal collapse-

A man riding a white horse appears"

Sat, 11/12/2011 - 18:04 | 1872537 boom goes the d...
boom goes the dynamite's picture

Do not fuck with the germans,

http://www.youtube.com/watch?v=Y_bDtqoMzJA

Sat, 11/12/2011 - 13:43 | 1872210 jimmyjames
jimmyjames's picture

The German people have paid enough, for cripes sake.

*************

"Germany has always been the pawn"

General George S Patton-

Sat, 11/12/2011 - 14:28 | 1872261 Conax
Conax's picture

My uncle was wounded riding a tank in Patton's army. He hated his guts, but even he would acknowledge that Gen. Patton won the war in Europe.

A tough bastard, but he was nobody's fool. The crap that went on after V.E. Day was a real problem for the general.

Sat, 11/12/2011 - 15:28 | 1872337 jimmyjames
jimmyjames's picture

There is much suspicion surrounding his death from a fender bender accident-

Who was it that opened the door and attended to him immediately?

Patton knew the game of the "money changers"

Sat, 11/12/2011 - 15:38 | 1872343 Conax
Conax's picture

I've forgeotten most of that stuff.. But questioned about his 'accidental' death, his niece told an author that it was not all that bad because, "Uncle Georgie wouldn't know what to do in peace time anyway" or words to that effect.

The PTB were worried he'd run for president, win, and screw up all their plans.

The sick part was, rumor had it he had already decided not to run for office.

Sat, 11/12/2011 - 15:41 | 1872340 Treason Season
Treason Season's picture

Link for the quote  bitte.

Sat, 11/12/2011 - 22:00 | 1872861 jimmyjames
jimmyjames's picture

Link for the quote  bitte.

******************

I cannot find the direct quote-I did read it as diary entry to his wife in the book called "diaries of Patton"

Below is an excerpt from that conversation/letter-

btw--i am not in any way a german decedent or have any german background-

*******************

After a visit to ruined Berlin, he wrote his wife on July 21, 1945: "Berlin gave me the blues. We have destroyed what could have been a good race, and we are about to replace them with Mongolian savages. And all Europe will be communist. It's said that for the first week after they took it (Berlin), all women who ran were shot and those who did not were raped. I could have taken it (instead of the Soviets) had I been allowed."

This conviction, that the politicians had used him and the U.S. Army for a criminal purpose, grew in the following weeks. During a dinner with French General Alphonse Juin in August, Patton was surprised to find the Frenchman in agreement with him. His diary entry for August 18 quotes Gen. Juin: "It is indeed unfortunate, mon General, that the English and the Americans have destroyed in Europe the only sound country -- and I do not mean France. Therefore, the road is now open for the advent of Russian communism."

Later diary entries and letters to his wife reiterate this same conclusion. On August 31 he wrote: "Actually, the Germans are the only decent people left in Europe. it's a choice between them and the Russians. I prefer the Germans." And on September 2: "What we are doing is to destroy the only semi-modern state in Europe, so that Russia can swallow the whole."

http://thy-weapon-of-war.blogspot.com/2008/12/george-pattons-change-of-h...

Sat, 11/12/2011 - 12:56 | 1872153 Decay is Constant
Decay is Constant's picture

In both cases Germany leaves the Euro.
In both cases Germany will appear as "the bad guy" that brought about the downfall of the Euro.
In both cases, the other countries will have "austerity" forced on them one way or another.
In both cases Germany is the "bad guy" who caused it.

How does this NOT end in some kind of conflict in Europe?

Sat, 11/12/2011 - 13:28 | 1872196 reload
reload's picture

Because European countries have pretty small standing armies, and the populations actually know each other these days. Travel, business and the internet has done more to integrate the peoples of europe than any centralised beaurocracy could have achieved.

The idea that government propaganda could whip up nationalist emotions sufficiently that young germans would be willing to go ang kill young Spaniards or young Englishmen would be willing to go and die again in France is, to me, far fetched.

So it would have to be a missile war and that is good old mutualy assured destruction. Not going to happen.

Perhaps some local skirmishes would get going again, but the threat of war is just a threat and a pretty empty one. Used to maintain the status quo.

Sat, 11/12/2011 - 17:31 | 1872474 d_senti
d_senti's picture

I agree to a point; there certainly isn't the ability to whip people up into a nationalist frenzy there anymore (for now at least). And they do have small armies.

But I don't see a conflict in Europe being a standard shooting war ala WW2. It's not gonna be France vs Germany. It'll be France vs France. The French don't hate the Germans, but a good chunk of people in France hate another good chunk, with the same situation in England. You have disparate groups, all awash in anti-nationalist propaganda for two generations, and a growing loss of confidence in both the state and the superstate.

We have unassimilated Muslims, resentful domestic populations, fervent anti-nationalists/far leftists, and a growing backlash against them (English Defence League, Le Penn etc.). Add economic collapse coming soon and you have a recipe for internal strife, revolution and civil war. That could eventually turn into an army vs army situation, but that's not what's next. People are waking up to the BS, while those that defend it are becoming more desperate and fanatic.

Demographically, France will be majority Muslim by 2050. Russia soon will be too. Tell me with a straight face that transition will go smoothly.

Sat, 11/12/2011 - 12:59 | 1872160 gibbersome
gibbersome's picture

This is possibly the worst analysis of the situation I've seen. There is every chance that the ECB will step in and print large amounts of money, and every chance that Germany will go along with it. A weak Euro is great for German exports. Yet there is much uncertainty in the markets over Italy (Greece is old news), and you could experience some inexplicably sharp declines, but the technical trends is VERY bullish.

You are right about one thing, stay on the sidelines.

Sat, 11/12/2011 - 13:31 | 1872200 GoldmanSux
GoldmanSux's picture

I tend to agree with you. There are a lot of Europhiles in the German elite and there is a battle going on. Witness the German resignations on the ECB. Why resign unless you know where this is headed? I would never count out the central bankers. Printing is where this is headed. Not that it will work in the long run.

Sat, 11/12/2011 - 13:42 | 1872207 DormRoom
DormRoom's picture

There are alot of Europhile in the German elite because there are a lot of politicians/bureaucrats that depend on the ECB/EU institutions.

 

If the Euro fails, they are out of a job, so they are incentivize to keep the EZ whole, even though it may not be the best policy for the German tax-payers.

Sat, 11/12/2011 - 15:15 | 1872325 Bear
Bear's picture

Exactly ... so they will print to keep the flow as long as possible. They will say, just as Ben says, inflation is not that high so what is the downside?

Sat, 11/12/2011 - 13:01 | 1872164 disabledvet
disabledvet's picture

The problem is the "big goose egg" has shown up...nothing more. Picture for a moment "at the critical time" as Hitler would say that instead of Jurgen Stark (or whoever is incharge of the ECB now) showing up he sends his six year old son "in his stead." Bewildered "the members of the committee ask Jurgen Jr. what the plan is??!" Jurgen Jr then pulls forth a box he has brought with him and spills its contents out on to the table. The contents are Jurgen Jr's Tonka toys and he starts making "Tonka truck noises" as he plays with said toys "as the entire European Union hangs in the balance." this is actually what happens people! Wake up!

Sat, 11/12/2011 - 19:30 | 1872669 disabledvet
disabledvet's picture

It's tough telling the folks how it really is around here.

Sat, 11/12/2011 - 13:05 | 1872168 Mark123
Mark123's picture

Why not keep the Eurozone but drop the Euro?  Germany (and others) are trying to treat the Euro as a gold backed currency.  So if they really want that, then why not go the extra mile and use gold?  Oh I forgot...that eliminates the bankers fun.

Sat, 11/12/2011 - 13:33 | 1872203 supermaxedout
supermaxedout's picture

There are only two paths, and they both lead to the same end-state: dissolution of the euro and the EU's monetary union.

Thats wrong.  Why should Germany give up its money the Euro. The ECB is in Frankfurt Germany.  Simply said the Euro is the money of Germany the former DM. Nothing changed in the structure itself. The ECB is an exact copy of the Bundesbank the German Centralbank.

When the Euro was introduced the German government did not give up influence on their currency because they simply never had much. The Bundesbank was independent from the government. No matter what. As an example: Some years ago, when the UK sold much of their gold there was also an initiative from the German governemt to do the same. To that time Germany was in deep financial trouble due to the unification costs.  But the Bundesbank simply said no. The said the gold of the bundesbank belongs not to the government it belongs to the German people and the Bundesbank has to safeguard this treasure.

Exactly the same tough rules to ensure the stability of the Euro currency now.  Max 2% inflation p.a. is allowed in average over the time.  This clear framework does not allow the ECB to print money like the Fed and the BOE. It may happen that the ECB is loosening it a bit because it can not be avoided. But not permanent. The ECB has to tighten the monetary belt or to end the party for the case the value of the currency is in real danger by inflation. 

Only thing what happened that other members of the EU decided to use in the future the "German" money.  The reason was, that the principles the Bundesbank was operating were highly succesful in comparision with the practices in Italy and France for example. Italy and France recognized, that the stable DM is the foundation of the German success. They wanted to have it too.

Since it would be an affront to all the other participating nations the name DM was abolished.  The name Euro was introduced to show that this is the money of the EU. Ok that was a bit far fetched since there exists till now some other currencies, like the Pound and Krona but it was and is also a reality that these currencies are somehow pegged to the Euro because otherwise their economies would not be in harmony withe the Euro bloc currency, thus creating lots of disadvantage for the non-Euro economies in Europe

So as a rule it can be said.  At least till now, the Euro is the former DM. 

That this is a fact can be seen by the quantity of cash money handed out when the Euro was introduced. Approx. 60% of all Euro cash money was minted or printed in Germany because this was the quantity Germany needed in comparison with the other Euro countries.  One can easy check this by looking at the Euro coins. It shows by the symbols engraved where it is produced. Now these coins are well mixed and spreaded all over the Euro zone. When living in Germany you get from time to time lets say a 2 Euro coin and you wonder that you havent seen the back side engraving before. That is simply because the majority of the Euro coins do bear symbols showing its minted in Germany. While smaller countries having the Euro like for example Ireland or Luxembourg minted only small amounts in comparisation.

So as a matter of fact the Euro currency does not belong to Germany but it is constructed by the rules of the independent German Bundesbank.

Its a good money because it does not allow that the goverments steal from the population by inflation tax. That there are now some "turbolent" times when this principle of "good" money is fighting the principle "foul" money is obvious. But I'm optimistic, that the intrinsic quality of the Euro will be decisive to win this currrency war.

It is the money principle of the future in my view, even the Euro would break now down, which I do not expect.

Therefore Ms. Merkel is correct when she says, that the Euro has to be defended by alll means because otherwise the Germans simply would have no money at all. That would be also not a good outcome isn't it?  At least it is very clear that this would pull all of Europe down together with the US into the financial hell called hyperinflation. The US curency is doomed already sooner or later but the Euro is still unharmed despite all the calls from US and UK that the Euro is finished.

Sat, 11/12/2011 - 13:50 | 1872220 reload
reload's picture

Great post:

BUT - if the ECB and Germany are able to resist the pressure to print, where do you think the funding for the bankrupt sovereigns will come from?

The IMF? - not without a German backstop (which will get called) and massive US participation.

Un-rescued sovereigns will quickly produce dead banks (including German ones) and austerity in such measure as to provoke serious social/political/economic meltdown.

What the article is arguing is that either way - Germany gets the tab.

Do you see another way out for them?

Sat, 11/12/2011 - 14:14 | 1872243 supermaxedout
supermaxedout's picture

You said it already. Bankrupt souvereigns ! The decision is very simple but of course also very tough.

Whether you kill the currency by printing and handing the new created money  to the already bankrupt souvereigns or you dont.

A system which has such a bad record like for example Greece can not be saved from bankruptcy as long it does not turrn its direction by 180° .  This shakes everything upside down of course but there is no reasonable alternative.  

To print Euros in unlimited quantities does not help anybody. While on the other side it would kill the Euro.

Sometimes there are times when there is no alternative then to adjust to the reality. And the reality is, that we live in times when banks are on the brink of collapse, souvereigns too.  So this might happen now sooner or later and nothing can prevent it.  To sacrifice in such a situation a stabilzing element like the Euro the currency of Europe would be no good idea. It would make things only worse.

Sat, 11/12/2011 - 14:34 | 1872268 reload
reload's picture

I agree with what you say, the Euro as a currency would survive a sovereign and banking bankruptcy. And this is what should happen. However the political pressure and the considerable influence of Europes banks on policy mean that the ECB will print - unless the sovereigns are rescued with somebody elses money. The somebody else is missing, and so the ECB rule book will likely be torn up. I do not say it sould be - far from it, but that is the reality.

Sat, 11/12/2011 - 14:55 | 1872298 slewie the pi-rat
slewie the pi-rat's picture

the stabeeel-ee-tee' may have already been sacrificed

to debt

perhaps what you see & say are still possible in a confederation including collapsing sovereigns and undercapitalized, overleveraged, improperly-accounted-for banking

the EU, like much of the over-debted fiat-fueled world, is now borrowing money to pay the interest on debt to keep from defaulting, and we're getting to the more "interesting" parts of that timeline of ever-increasing indebtedness and ever-decreasing value of fiat

if you like your future earnings and debt repayments in debased currency, go for it!  while people are gambling the present for a bullshit future, the games are certainly fun, but the casino itself is about as stable as WTC 7 after the words: "pull it"

Sat, 11/12/2011 - 15:48 | 1872355 BigJim
BigJim's picture

Ultimately, the ECB is answerable to EC institutions. Do you genuinely believe that when the SHTF, and we have sovereigns and banks on the verge of defaulting left and right, the EC won't put ultimate pressure on the ECB to come riding to the rescue with some of that nice QE stuff?

Sat, 11/12/2011 - 13:52 | 1872225 PulauHantu29
PulauHantu29's picture

Does this mean all those Euro coins will become worthelss? Looks like Germany may reinstate a variation of the GeldMark, perhaps with a Russia/China/Gold backing.

Even more realistic is a EuroCore of Germany, the Netherlands and one or two other solvent countries ...combine in some way with Russia and China and a Rouible/Yuan/Geldmark backed currency.

What a wacky world?!

Sat, 11/12/2011 - 15:01 | 1872304 Peter K
Peter K's picture

He he he he......

Sat, 11/12/2011 - 14:27 | 1872260 CTG_Sweden
CTG_Sweden's picture

 

Article:

"2. If the ECB renounces money-printing, then the only economy solvent enough to fund the 3-trillion-euro bailout with actual cash is Germany, which will rebel against this debt-serfdom by renouncing the euro."

 

 

If the EU would make payment in euros for imported oil mandatory for all EU members I reckon that the ECB would be able to print money almost on the same scale as the US without causing hyper inflation.

If Germany doesn´t want to be a part of such a strategy, why then don´t let them return to the D-mark?

Sat, 11/12/2011 - 14:42 | 1872276 supermaxedout
supermaxedout's picture

Havent thought about such an idea. But first,  it would be hostile against the US because its their privilege.  And second it would be not fair because Europe would spread its problems around the world just like the US today. This would create worldwide high inflation but not hyperinflation. But high inflation is already like hyperinflation for the population of the poor countries of this world. They would have to pay the price by starving to death.  For the banksters it might be a good plan but its a murderous crime against humanity.

Sat, 11/12/2011 - 15:07 | 1872314 topcallingtroll
topcallingtroll's picture

I hate to be a troll, but most of the poor reproduce like rabbits and will destroy the world like they have destroyed their own environments.

Starvation in the overpopulated parts of the third world is the least of our worries right now.

Sat, 11/12/2011 - 15:20 | 1872323 CTG_Sweden
CTG_Sweden's picture

Supermaxedout:

"Havent thought about such an idea. But first,  it would be hostile against the US because its their privilege.  And second it would be not fair because Europe would spread its problems around the world just like the US today. This would create worldwide high inflation but not hyperinflation. But high inflation is already like hyperinflation for the population of the poor countries of this world. They would have to pay the price by starving to death.  For the banksters it might be a good plan but its a murderous crime against humanity."

 

Of course it would be better for other countries if Italy and Spain consumed less instead of getting money printed by the ECB. The same is also true as regards the United States. But since we so far have not seen any hyperinflation due to American money printing I doubt that printing money for Italy and Spain would cause hyperinflation. In any case I have so far have not not seen any economist with a PhD explain why current printing levels are on the verge of creating hyperinflation. Generally, it seems to be risky to print money in order to cover budget deficits. But my impression is that printing is a lot better for countries that have a reserve currency than for countries which don´t have a reserve currency. That doesn´t mean that there are losers in the US as well. People that have all their money in the bank and have no stock and no real estate get poorer if inflation exceeds the interest rate don´t benefit from money printing and inflation.

Sat, 11/12/2011 - 15:55 | 1872357 BigJim
BigJim's picture

It would be incredibly hostile to the US, because, if the euro became a co-reserve currency, Triffin's dilemma would reverse - meaning many of those USDs would come home. and high/hyper? inflation in the US could well result.

However, it would not be Europe 'spreading' its problems around the world, because, in one fell swoop, the EC would be able to flood the world with euros, and its problems would disappear... at least until a balance had been struck between euro and USD demand, and the debt started creeping up again.

PS - just because something is a murderous crime against humanity, doesn't mean banksters would look any less kindly on it.

Sat, 11/12/2011 - 15:00 | 1872299 CTG_Sweden
CTG_Sweden's picture

 

(continued)

If the ECB would print money and lend it to countries like Italy and Spain I guess that the easiest solution to the current debt problem would be near zero interest rate. And if that would happen, I guess that Germany and other EU members would also like to have zero interest loans. I also think that it would might be a problem to explain to the electorate why countries like Spain and Italy should get lower interest rates than their own country, especially if the zero interest policy is continued over a longer period of time. Furthermore, the need for printed euros would be smaller if only those countries which really need zero interest loans would get them. Thereby, the need for paying for oil in euros would be smaller. And the less oil that would be paid for in euros the more dollars would the oil market be able to absorb.

My impression is that the EU leaders are not looking for the most simple and least painful solutions. At least not so far. To many EU leaders seem obsessed with the idea to have as much integration in Europe as possible.

Sat, 11/12/2011 - 14:33 | 1872266 slewie the pi-rat
slewie the pi-rat's picture

charles h may need intervention

double-binds must be brutal for both of hims

the d-b is the situ where you are damned if you do and damned if you doo-d00.  there is no satisfactory action/solution.  none

so people go crazy and do things they wouldn't ordinarily do.  The End

Sat, 11/12/2011 - 14:52 | 1872290 Bear
Bear's picture

Life is usually picking the lessers of two evils ... e.g. Rep vs. Dem

Sat, 11/12/2011 - 15:01 | 1872305 topcallingtroll
topcallingtroll's picture

How about a little money printing and a little cash from germany?

It is not an either/or. They always do a bit of both now, hence stagflation (biflation to the youngsters).

I think the Northern League is willing to suffer and compromise a bit for their new empire and vassal states.

Sat, 11/12/2011 - 15:57 | 1872358 BigJim
BigJim's picture

yup, and maybe a little leverage... voila! A solution the Germans might find palatable, at least compared to going through a Euro collapse.

Sat, 11/12/2011 - 15:04 | 1872308 Peter K
Peter K's picture

Gold backed currencies... Hmmm....Been there, done that, didn't even get the t-shirt.

Sat, 11/12/2011 - 15:48 | 1872353 jmcadg
jmcadg's picture

I feel they are trying to keep the Euro together, purely to protect their own jobs. All unelected fuckshites (except Nigel).

Sat, 11/12/2011 - 16:16 | 1872379 Conax
Conax's picture

+1 -    You get a greenie for mentioning my favorite UK pol, Nigel Farage. Great man, he's a man of courage and vision.

Sat, 11/12/2011 - 16:51 | 1872425 jmcadg
jmcadg's picture

I +1 your +1 Conax. We need Nigel in Parliament, not the scum we currently suffer - on all sides!

Sat, 11/12/2011 - 18:09 | 1872544 boom goes the d...
boom goes the dynamite's picture

And, above all things, the People’s State will never be created by the desire for compromise inherent in a patriotic coalition, but only by the iron will of a single movement which has successfully come through in the struggle with all the others.
- Adolf Hitler, Mein Kampf (1925)

Sat, 11/12/2011 - 19:48 | 1872682 boiltherich
boiltherich's picture

"...then the only economy solvent enough to fund the 3-trillion-euro bailout with actual cash is Germany."

Not even Germany has that kind of liquidity.  That is 4.08 trillion dollars, not even the USA could pull that off without disastrously devaluing the buck. 

Sat, 11/12/2011 - 20:22 | 1872721 howswave5workin...
howswave5workingforyou's picture

Another silly over simplistic article. People forget what impact a change of verbal language has when an asset gets to extremes such as the Italian govt bond. They just have to say we will do whatever it takes like the snb did with the franc and the market will take care of the rest. Pension funds like blackrock will buy Italian govt debt at 6% yield if the politicians play ball. The politicians know that when govt bond yields are greater than nominal GDP you have to pull up your socks. Remember 30% of Italian economy is black market so don't believe the data they've more money than you think and they will tax it.

Sat, 11/12/2011 - 20:23 | 1872722 howswave5workin...
howswave5workingforyou's picture

Another silly over simplistic article. People forget what impact a change of verbal language has when an asset gets to extremes such as the Italian govt bond. They just have to say we will do whatever it takes like the snb did with the franc and the market will take care of the rest. Pension funds like blackrock will buy Italian govt debt at 6% yield if the politicians play ball. The politicians know that when govt bond yields are greater than nominal GDP you have to pull up your socks. Remember 30% of Italian economy is black market so don't believe the data they've more money than you think and they will tax it.

Sat, 11/12/2011 - 20:43 | 1872742 JR
JR's picture

Bravo! Charles Hugh Smith. Your article is brilliant.

The double bind is real because the German people have already been put on alert with the constant threats…from Deutsche Bank and its major corporations who depend on Deutsche Bank, aka Josef Ackermann.  And when the choice has to be made, it’s not going to be creeping inflation the Germans will face, it’s going to be a monstrous tsunami of banker-bailout inflation.

The constant reminder to the German people that they need to “help save Europe and the euro” because it’s so important to their businesses and exports has been building and building into a repetitive swan song, and I know the Germans are getting angry.  After all, they are not the wasters.

In a very short time, the German people will be forced to choose either between their own productive lives and estates and their tyrant bankers. IOW, they are going to be given the same choice as ex-Goldmanite Hank Paulson gave to our Congress: do it or we’re all going to sink. 

I will be very surprised if the Germans don’t say, “Then sink.”

The financial sector’s idea is to get people in the harness working all the time just to make their debt payments; the rub is, that by the bankers prerogative to create money out of nothing at their discretion and similarly to destroy it by withdrawal at their discretion, it becomes physically impossible for the people of a nation ever to repay the national money debt the money manipulators have created and for which they themselves surrender nothing.                                                            

In both Europe and America, unless the people get a more just and equitable monetary system than they have now, they won’t support the system.

Europe is living proof of the leverage the financial cartel is using against the governments because of the debt they’ve negotiated with the politicians, often lying by the manipulation of the truth as Goldman Sachs did to keep Greece in the eurozone.

Sat, 11/12/2011 - 21:09 | 1872779 BarryG
BarryG's picture

A great article from today's Express, about the German roots of the Euro....

http://www.express.co.uk/ourcomments/view/283354/Neil-Hamilton

Sat, 11/12/2011 - 21:27 | 1872812 JR
JR's picture

Oh yez, to keep those evil Germans from dominating all of Europe the highly productive rest of the area should just leave them stranded.  That’ll teach ‘em.

You know what, you Germans? Take your Deutsche mark and see how you like it.

That Merkel’s even been taking advantage of Greece, she’s got her boot on Greece’s neck. That’s why Greece is having a hard time! Right?

What an idiot. It’s hard to tell whether Hamilton’s piece is more pro-banker or pro-Zionist.

Sat, 11/12/2011 - 21:25 | 1872808 FinalCollapse
FinalCollapse's picture

ECB is not like FED and it cannot print at will. There are EU and EMU treaties that strictly prevent monetary abuses. Bailing out Italy or any other EU country is strictly prohibited, and some smaller and prosperous countries can leave long before the German population pukes. 

I like reading Charles Hugh Smith's blog, but he may want to explain how this so called printing supposed to take place? Based on what treaty?

Sat, 11/12/2011 - 21:51 | 1872853 JR
JR's picture

Excerpts from Jim Grant interview with Bloomberg on ECB response to printing yesterday on Zero Hedge>>>>>>>>>

The ECB has expanded its balance sheet mightily under Trichet. We have a new leader and we have a new imperative. I dare say Europe is going to print money...

Central banks are insolvent: 

The ECB has a ratio of non-AAA rated assets to equity of 14 to 1. What the ECB has been doing is stepping in where private money fears to tread. In the private sector we call the heading for trouble... The New York Fed is leveraged 100 to one.

And the kicker analogy which is absolutely spot on:

The ECB is now implementing the MF Global trade.

http://www.zerohedge.com/news/jim-grant-ecb-now-implementing-mf-global-trade\

Plus:

Phillipp Bagus of the Mises Institute explains The Fed and the ECB: Two Paths, One Goal (exerpt)....

Federal Reserve (Fed) and the European Central Bank (ECB) are owners of the printing press. They produce base money. On top of the base-money production, the fractional-reserve-banking system can produce money out of thin air. Both central banks produce money in order to finance their respective governments...

In both cases, government deficits are effectively monetized. That means that the ECB was bailing out Greece even before May 2010. It did not have to buy the Greek bonds outright; it only had to accept them as collateral. If the ECB had not accepted Greek bonds, Greek debts could not have mounted to such an extent. The Greek government would have had to default much earlier...

For governments it is the perfect scheme. The costs of their deficits are externalized to the users of the currency. The debt is never paid through unpopular taxes but simply by issuing paper that says, "government bond."


http://mises.org/daily/5575

 

Sun, 11/13/2011 - 07:43 | 1873415 Marco
Marco's picture

Yep, deficits are just roundabout taxation. as such they are given WAY too much importance. The fundamental sustainability of the economy is determined by trade balance, not deficits/debt ... Japan chugs along with huge debt because of this. There are good reasons to use explicit taxation rather than debt financing for a government (and occasionally there are good reasons to use monetary policy as well, if you just want an across the board reduction in consumption to reduce your imports then inflation is a pretty efficient tool). It's a problem more on the level of education/infrastructure policy than anything else though ... just one issue among many of how to run government.

Sun, 11/13/2011 - 14:21 | 1873829 JR
JR's picture

Somebody has to give the bankers their money, right? Otherwise, how can they live?

Actually, Ron Paul explains why deficits can’t be given too much importance.

“Liberty is virtually impossible to protect when the people allow their government to print money at will. Inevitably, the left will demand more economic interventionism, the right more militarism and empire building. Both sides, either inadvertently or deliberately, will foster corporatism. Those whose greatest interest is in liberty and self-reliance are lost in the shuffle. Though left and right have different goals and serve different special-interest groups, they are only too willing to compromise and support each other’s programs.

“If unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny – a consequence of which the Founders were well aware.  For 90 (now 98) years we have lived with a central bank, with the last 32 (now 40) years absent any restraint on money creation. The longer the process lasts, the faster the printing presses will have to run in an effort to maintain stability…

“Real economic growth won’t return until confidence in the entire system is restored. And that is impossible as long as it depends on the politicians not spending too much money and the Federal Reserve limiting the propensity to inflate our way to prosperity. Only sound money and limited government can do that.”  (Representative Ron Paul, U.S. House of Representatives, September 5, 2003)

Sat, 11/12/2011 - 21:27 | 1872810 Marco
Marco's picture

Germany has got quite a bit of gold but most of their "savings" is foreign debt ... they are going to lose their "savings" whatever they do. What they have is their productive capacity and they should start using that more for internal consumption and forget about making foreign countries pay their debts, it's not going to fucking happen.

There is nothing wrong with the concept of the Euro if everyone just stays in trade balance, if we all default and keep the Euro Germany will be in no better or worse position than if it got out. On a national level no currency/debt reserves should be seen as wealth or savings IMO. Such things can only pay for a significant trade imbalance for a very short time. In the end the true wealth of a nation is it's productive capacity, not gold and certainly not paper bonds.

Sun, 11/13/2011 - 09:34 | 1873486 poydras
poydras's picture

The obvious alternative is for debtor nations to default and restructure.  A EMU breakup at this point is too messy. This elaborate dance is all about how to allocate the losses.

The concept of haircuts is already in play with respect to Greece.  They are negotiating the haircuts.

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