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Guest Post: It's Your Choice, Europe: Rebel Against the Banks or Accept Debt-Serfdom

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

It's Your Choice, Europe: Rebel Against the Banks or Accept Debt-Serfdom

The European debt Bubble has burst, and the repricing of risk and debt cannot be put back in the bottle.

It's really this simple, Europe: either rebel against the banks or accept decades of debt-serfdom. All the millions of words published about the European debt crisis can be distilled down a handful of simple dynamics. Once we understand those, then the choice between resistance and debt-serfdom is revealed as the only choice: the rest of the "options" are illusory.

1. The euro enabled a short-lived but extremely attractive fantasy: the more productive northern EU economies could mint profits in two ways: A) sell their goods and services to their less productive southern neighbors in quantity because these neighbors were now able to borrow vast sums of money at low (i.e. near-"German") rates of interest, and B) loan these consumer nations these vast sums of money with stupendous leverage, i.e. 1 euro in capital supports 26 euros of lending/debt.

The less productive nations also had a very attractive fantasy: that their present level of productivity (that is, the output of goods and services created by their economies) could be leveraged up via low-interest debt to support a much higher level of consumption and malinvestment in things like villas and luxury autos.

According to Europe's Currency Road to Nowhere (WSJ.com):

Northern Europe has fueled its growth through exports. It has run huge trade imbalances, the most extreme of which with these same Southern European countries now in peril. Productivity rose dramatically compared to the South, but the currency did not.

 

This explains at least part of the German export and manufacturing miracle of the last 12 years. In 1999, exports were 29% of German gross domestic product. By 2008, they were 47%—an increase vastly larger than in Italy, Spain and Greece, where the ratios increased modestly or even fell. Germany's net export contribution to GDP (exports minus imports as a share of the economy) rose by nearly a factor of eight. Unlike almost every other high-income country, where manufacturing's share of the economy fell significantly, in Germany it actually rose as the price of German goods grew more and more attractive compared to those of other countries. In a key sense, Germany's currency has been to Southern Europe what China's has been to the U.S.

Flush with profits from exports and loans, Germany and its mercantilist (exporting nations) also ramped up their own borrowing--why not, when growth was so strong?

But the whole set-up was a doomed financial fantasy. The euro seemed to be magic: it enabled importing nations to buy more and borrow more, while also enabling exporting nations to reap immense profits from rising exports and lending.

Put another way: risk and debt were both massively mispriced by the illusion that the endless growth of debt-based consumption could continue forever. The euro was in a sense a scam that served the interests of everyone involved: with risk considered near-zero, interest rates were near-zero, too, and more debt could be leveraged from a small base of productivity and capital.

But now reality has repriced risk and debt, and the clueless leadership of the EU is attempting to put the genie back in the bottle. Alas, the debt loads are too crushing, and the productivity too weak, to support the fantasy of zero risk and low rates of return.

The Credit Bubble Bulletin's Doug Nolan summarized the reality succinctly: "The European debt Bubble has burst." Nolan explains the basic mechanisms thusly: The Mythical "Great Moderation":

For years, European debt was being mispriced in the (over-liquefied, over-leveraged and over-speculated global) marketplace. Countries such as Greece, Portugal, Ireland, Spain and Italy benefitted immeasurably from the market perception that European monetary integration ensured debt, economic and policymaking stability.

 

Similar to the U.S. mortgage/Wall Street finance Bubble, the marketplace was for years content to ignore Credit excesses and festering system fragilities, choosing instead to price debt obligations based on the expectation for zero defaults, abundant liquidity, readily available hedging instruments, and a policymaking regime that would ensure market stability.

 

Importantly, this backdrop created the perfect market environment for financial leveraging and rampant speculation in a global financial backdrop unsurpassed for its capacity for excess. The arbitrage of European bond yields was likely one of history’s most lucrative speculative endeavors. (link via U. Doran)

In simple terms, this is the stark reality: now that debt and risk have been repriced, Europe's debts are completely, totally unpayable. There is no way to keep adding to the Matterhorn of debt at the old cheap rate of interest, and there is no way to roll over the trillions of euros in debt that are coming due at the old near-zero rates.

Never mind actually paying down debt, sovereign, corporate and private--the repricing of risk and debt mean even the interest payments are unpayable. Consider this chart of one tiny slice of total EU debt:

There is no way to push the repricing genie back in the bottle, and so there is no way to roll over this debt and add to it--and to support the high-cost structure of Euroland's welfare-state governments and their astounding debt, then debt must be added, and in staggering quantities.

Austerity won't put the repricing/bubble burst genie back in the bottle. A funny thing happens when more of the national income is diverted to debt service (making interest payments and rolling over existing debt into new higher-interest debt): there is less surplus available for investment and consumption, which means that both productivity based on investment and consumption based on debt will plummet.

This leaves the nation with lower productivity and lower GDP, which means there is also less tax revenues being collected and more bankruptcies as companies and individuals accept the reality that their debts cannot be paid.

The repricing genie responds to this decline in national income, surplus and taxes by repricing risk of default even higher, and so the interest rate is also repriced higher. This makes servicing the mountain of existing debt even more costly, and so even less national income is available for consumption, investment and taxes.

This is called a positive feedback loop: each action reinforces the other, i.e. a self-reinforcing feedback loop. Debt and risk are repriced higher, the burden of debt service reduces national income available for investment, consumption and taxes, which further reprices risk higher, and so on.

So you see, Europe, there is only one choice: either accept the endless debt serfdom of ever-rising interest payments and lower income and productivity, or rebel against your pathetic lackey leadership and renounce the entire mountain of unpayable debt. Grasp the nettle and renounce the euro as the fundamental cause of your fantasy and collapse, and revert to national currencies which enable the market to discover the price of your underlying productivity and ability to borrow money.

Renouncing the euro does not mean renouncing the freedoms of the European Union: the two are only bound at the hip in the minds of your enfeebled leadership, who are in thrall to the leveraged-26-to-1 banks that are poised on the edge of insolvency.

Let the banks implode in bankruptcy, clear the worthless "assets" of debt from the books, and let the market price currencies and everything else. The only other choice is debt-serfdom.

All the other schemes and proposals are simply variations of one single fantasy: that the feckless leadership can fool the repricing genie with parlor tricks. They can't. Everybody with any understanding of the situation knows that the debt bubble has already burst, and risk and debt cannot be repriced back to fantasy levels.

That repricing has already occurred, and cannot be revoked or shoved back in the bottle. The Great European Debt Bubble has already burst, and so now it boils down to a simple choice: debt serfom or open rebellion against the banks that profited so handsomely from the euro-fantasy.

There is no middle ground, as the debt cannot be repaid, not now and not in the future. It cannot be reshuffled, masked, or hidden; it can only be renounced.

It's your choice, Europe; choose wisely. If you want a model for sanity and growth, look to Iceland. They renounced their unpayable debts and debt-serfdom, and let the market reprice their currency, debt and risk. The nightmare is past for them; they chose wisely. Now it's your turn to choose.

The debt-serfdom will fall to you, not the banks or your Elites.

 

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Sun, 12/04/2011 - 15:39 | 1944520 LookingWithAmazement
LookingWithAmazement's picture

Last week the whole system was saved again.

Sun, 12/04/2011 - 15:59 | 1944601 falak pema
falak pema's picture

every week is thanksgiving in Europe. We will go from outside central bank to central bank, except the ECB kept under lock and key by Merkel. She is using debt serfdom of all of europe to save her own future by getting others to bail out the club med countries. Merkel's spiel is very simple : its our banks but its your money that has to be printed to save them. Now the Nixon phrase is on the other shoe : Our banks your problem !

Mon, 12/05/2011 - 00:05 | 1945737 trav7777
trav7777's picture

we'll need to start saving this system every other day it seems

Mon, 12/05/2011 - 07:53 | 1946117 Harlequin001
Harlequin001's picture

'It's your choice, Europe; choose wisely. If you want a model for sanity and growth, look to Iceland. They renounced their unpayable debts and debt-serfdom, and let the market reprice their currency, debt and risk. '

Who are you kidding? If the rest of the world did what Iceland did the world would be in revolt. Iceland got away with it for now because the rest of the world is still printing and borrowing to delay the collapse and hide Icelands defaulted debt on the balance sheet of its banks. The harsh reality of bankruptcy has not yet visited Iceland, but it is on its way...

The nightmare is past for them; they chose wisely...' You must be fucking joking...

Sun, 12/04/2011 - 16:01 | 1944606 knight99
knight99's picture

It wasnt saved dumbass it just bought them a little more time. When is the last time CB around the world saved anything? The Bernak is either a fking moron or criminal psychopath. 7.7 trillion in guarantees, 13 billion straight to the banks for profits?? What do the banks do instead of raising capital in 2010 when they had a chance. They paid RECORD BONUSUS. Tax payers what’s left of them get screwed middle class is stuck with negative wage growth and standard of living when inflation in real products (gas and food ) is going higher by the day.

Only thing I can say is I am gald I live in a tax free country where politicians dont fking waste my money bailing out the bankers.

 The only thing you should be "lookingwithamazement" is your stock account getting smaller while you hold your soon to be worthless portfolio.

Sun, 12/04/2011 - 16:45 | 1944733 Michael
Michael's picture

What can't be repaid won't be repaid.

I say, Let the banksters and oligarchs go bankrupt and eat tuna fish sandwiches.

Sun, 12/04/2011 - 18:21 | 1944944 topcallingtroll
topcallingtroll's picture

I take it knight 99 doesnt understand sarcasm. One of the common signs of obsessive compulsive personality or even more serious mild autism such as asperger's.

Sun, 12/04/2011 - 22:16 | 1945527 JungleJim
JungleJim's picture

Read somewhere that there's a lot of lead in tuna fish, oh ...., maybe it was mercury.

Mon, 12/05/2011 - 08:00 | 1946123 Harlequin001
Harlequin001's picture

Plutonium and cesium now I believe...

and Pacific tuna is particularly 'green' because you can fillet it 24/7 without the need for artificial lights because it glows with an erie blue glow at night...

nice...

Mon, 12/05/2011 - 01:23 | 1945854 Ahmeexnal
Ahmeexnal's picture

Heads on a pike don't need to eat.

Sun, 12/04/2011 - 16:51 | 1944745 sqz
sqz's picture

I am gald I live in a tax free country

You live in the Cayman Islands? :)

 

Mon, 12/05/2011 - 01:24 | 1945857 Ahmeexnal
Ahmeexnal's picture

Yanomami Nation in the Amazon Forest.

Sun, 12/04/2011 - 17:19 | 1944817 BigJim
BigJim's picture

The use of the word 'again' in 'Last week the whole system was saved again' implies irony.

Sun, 12/04/2011 - 20:28 | 1945235 BigDuke6
BigDuke6's picture

Thank you BJ.

Its ironic that on a thought provoking site such as ZH that irony is usually met with aggression.

COI - i am a big fan of MDB.   Read his posts - they are pure gallows humour.

Do you understand that?  Its like the 'Life of Brian' bit at the end where they are being crucified and Brian says - 'I can see my house from here...'  Its the realisation that you are fucked and why not have a laugh.

Junking irony makes you dimwitted so have a think about it first.

Mon, 12/05/2011 - 08:17 | 1946134 Ghordius
Ghordius's picture

Irony, sarcasm - all under the attack of the netetiquette imposing the view that you are supposed to attach /sarc tags...

------------

To the article: I still have the impression that Smith, like others, view the EZ problem through an American lens...

This "Debt Serfdom" meme, for example.

Another two I really like: 1. "The Euro is flawed" and 2. "Net exporters create unfair imbalances"

In a full gold system you would have to rewrite them into:

1. "Gold is flawed, you can't have one sort of money for the whole world" and

2. "Net Exporters want our gold / shrink our money supply"

Sun, 12/04/2011 - 17:28 | 1944834 YBNguy
YBNguy's picture

Eurozone Winter?

Mon, 12/05/2011 - 00:14 | 1945749 Buck Johnson
Buck Johnson's picture

You hit it right on the head, right on the head.  All that money 13 trillion and all those guarantees 7.7 trillion could have been used to rebuild our society and our economy for a new golden age and we could have led the world in this new age.  Orbital manufacturing, new powersystems, new rocket propulsion systems, colonization of our star system from our new technologies and more.  This may sound like science fiction, but eventually we will have to do this anyway might as well start the new age.

Sun, 12/04/2011 - 15:40 | 1944521 Sockeye
Sockeye's picture

Love the time bomb graphic. Just need to add some short little fuses burning brightly.

Sun, 12/04/2011 - 15:43 | 1944530 GeneMarchbanks
GeneMarchbanks's picture

In February, the iTalians will be in some pain.

Mon, 12/05/2011 - 08:20 | 1946141 Ghordius
Ghordius's picture

nah, by January the Italians (what is iTalians meant to be, anyway? The word is now a couple of millennia old) are Out Of Trouble until August 2012

just have a look at the financing needs and you'll see what I mean. But they have to get out of December, first...

Sun, 12/04/2011 - 15:44 | 1944538 agent default
agent default's picture

Debt serfdom it is.  The europeans are as spineless as it gets.  In the end they will lose both their money and their freedom and rightly so, if you accept being held hostage by these scumbags instead of sending them to the gallows tree, you deserve to get steamrolled, just like they will.  Americans, are you paying attention here, or did Wallmart just put something extra shiny on discount offer?

Sun, 12/04/2011 - 15:48 | 1944549 Collapse is imminent
Collapse is imminent's picture

Stocks are shiny and cheap, everyone should buy some. /sarc

Sun, 12/04/2011 - 15:49 | 1944558 Dr. Kananga
Dr. Kananga's picture

By the time Americans learn to pay attention, it may be too late.

Mystery company buying up U.S. gun manufacturers

"In recent years, many top-selling brands - including the 195-year-old Remington Arms, as well as Bushmaster Firearms and DPMS, leading makers of military-style semiautomatics - have quietly passed into the hands of a single private company. It is called the Freedom Group - and it is the most powerful and mysterious force in the U.S. commercial gun industry today.

Never heard of it?

You're not alone. Even within gun circles, the Freedom Group is something of an enigma. Its rise has been so swift that it has become the subject of wild speculation and grassy-knoll conspiracy theories. In the realm of consumer rifles and shotguns - long guns, in the trade - it is unrivaled in its size and reach. By its own count, the Freedom Group sold 1.2 million long guns and 2.6 billion rounds of ammunition in the 12 months ended March 2010, the most recent year for which figures are publicly available.

Behind this giant is Cerberus Capital Management, the private investment company that first came to widespread attention when it acquired Chrysler in 2007. (Chrysler later had to be rescued by taxpayers). With far less fanfare, Cerberus, through the Freedom Group, has been buying big names in guns and ammo."

http://www.nytimes.com/2011/11/27/business/how-freedom-group-became-the-...

Sun, 12/04/2011 - 17:15 | 1944806 slewie the pi-rat
slewie the pi-rat's picture

what's that smell?

...bechtel?

Sun, 12/04/2011 - 19:49 | 1945143 hardcleareye
hardcleareye's picture

Bechtel... Provokes a  response in me similar to Steve Martin in Dead Men Don't Wear Plaid to the words "cleaning women".

Mon, 12/05/2011 - 07:45 | 1946108 falak pema
falak pema's picture

Bechtel and Bohemian Grove blues, when Ronald Reagan and Tricky Dicky talked world order and deregulation over a golf course way back in 1970s. It paid dividends to Bechtel, as two top Bechtel Oligarchs were in RR's first administration :  Weinberger and Shulzt. Bechtel invented politically slanted 'financial engineering' in the Oil Patch, in Iran and Saudi. They were the original model on which the Bush-Cheney Houston Clique then built the Halliburton model ratcheting up the 'financial engineering' with political payout to unforseen levels. 

Bechtel, Halliburton-Cheney, Koch Bros, the Oil services lobby money line; riding on the coat tails of the MIC-Oil lobby bonanza trail. Since the late 60's. 

HCE,  now you can take your stuff off and play at being Kim B...

Sun, 12/04/2011 - 17:17 | 1944813 bugs_
bugs_'s picture

Cerberus also bought Dyn-Corp

Sun, 12/04/2011 - 21:10 | 1945337 Bring the Gold
Bring the Gold's picture

Living up to their namesake and guarding the gates of Hell.

Sun, 12/04/2011 - 15:45 | 1944540 rambler6421
rambler6421's picture

Eh.  It's time to liquidate the malinvestment.  If any of you follow Jim palast, he claims that this is the goal of the IMF (to rape and pillage these countries) so the elite can gobble up assets for pennies on the dollar.

 

libertarian86.blogspot.com

Sun, 12/04/2011 - 16:30 | 1944686 sabra1
sabra1's picture

exactly, but these authors just don't get it! all is going as scripted, to finally bring the US to third world status. hence, a new second word status will be created, worldwide. WAKE UP PEOPLE, DON'T YOU WANT YOUR WORLD BACK?????

Sun, 12/04/2011 - 15:46 | 1944541 Gringo Viejo
Gringo Viejo's picture

OFF TOPIC: Just read that Swiss America which has produced 2 television commercials advocating the purchase of precious metals, has been denied on-air access by ALL major TV networks. Source: GATA.org.

Sun, 12/04/2011 - 15:54 | 1944574 GeneMarchbanks
GeneMarchbanks's picture

GE no likey silver...

You're... what? Surprised?

Sun, 12/04/2011 - 18:05 | 1944906 Temporalist
Temporalist's picture

Here you go:

Obama and Ben: Part 1 "The Inflatocracy"

http://www.youtube.com/watch?v=GU2iFJu31ik

Obama and Ben: Part 2 "The Wizards of Oz"

http://www.youtube.com/watch?v=u3Sd49HVDC4

Sun, 12/04/2011 - 15:48 | 1944550 Apeman
Apeman's picture

I want to rebel, but I'm surrounded by sheeple. The mojority still hasn't got a clue what's going on. Courtesy of the pro-EU media.

Sun, 12/04/2011 - 16:32 | 1944690 sabra1
sabra1's picture

for a crash course people, check out infowars.com

Sun, 12/04/2011 - 19:10 | 1945061 Al Gorerhythm
Al Gorerhythm's picture

Your position is akin to Ron Paul's. He'd like to make changes but is surrounded by the TBTF"s bought and paid for lackeys.

Mon, 12/05/2011 - 01:12 | 1945836 Econolingus
Econolingus's picture

Rebel against what?

Figure that out, and then maybe you can help the "mojority" see the light.

 

Sun, 12/04/2011 - 15:48 | 1944552 JustObserving
JustObserving's picture

Where is the US time bomb?  According to usdebtclock.org, our debt and unfunded liabilities are growing at $23.6 billion a day, or $8.6 trillion a year.  Yet, the super committee could not agree to cuts of $1.2 trillion over 10 years.  I suspect the debt action is far more vigorous on our side of the Atlantic. We are bigger, better debt-serfs in the US of A. 

Sun, 12/04/2011 - 15:56 | 1944557 electricgorilla
electricgorilla's picture

COMING SOON: Hungary's Death Spiral

Sun, 12/04/2011 - 16:00 | 1944603 slewie the pi-rat
slewie the pi-rat's picture

yup!

serfdom ain't so baaaaad...

Sun, 12/04/2011 - 16:01 | 1944605 yabyum
yabyum's picture

The US is in the same boat, that boat is sinking quick.

Sun, 12/04/2011 - 18:35 | 1944977 Carlyle Groupie
Carlyle Groupie's picture

Scuttle the bish before Slewie the PieRat takes over.

Sun, 12/04/2011 - 16:04 | 1944612 smoked
smoked's picture

tyler hard to keep a  lit on lithuanian witches HEbrew

Sun, 12/04/2011 - 16:07 | 1944625 SilverIsKing
SilverIsKing's picture

Sounds like you'd better be buying your guns now cause his consolidation shit seems like a ploy for gun control at the manufacturer level. Either that or these guys know a growth business when they see it.

Sun, 12/04/2011 - 21:14 | 1945340 Bring the Gold
Bring the Gold's picture

Clearly the former. They buy a Merc group like DynCorp that undobutably will head up police actions in the Western World and they buy up gun manufacturers?

1+1=2

Everything Cerebrus touches is more than a little on the darkside. Definitely not the friend of the little guy, I'm not even a gun fan and I find this alarming. 

Sun, 12/04/2011 - 16:11 | 1944635 Tom Green Swedish
Tom Green Swedish's picture

The USA has trillions more in assets than liabilities, its the liquidity that people are worried about. I would really like to see a comparison of all major countries balance sheets; ie total assets / to debt, not just the GDP thing. The macroeconmic theory just points to one thing. Its like one part of the credit equation. For example if I make 45,000 dollars a year and have 45,000 dollars in debt, but I also have 500,000 dollars in assets, does it really matter that I have 45,000 in debt?

Its all about the stock market and "their story" to manipulate markets. All they care about is short term things. Quarterly Earnings / Yearly Growth, so they can trade stocks. In this case they are using countries now to trade the stock market. What do countries debt and growth have to do with private industry, other than interest rates? In all reality it would be smart for these countries to default on their debt, especially if they have more assets.

Sun, 12/04/2011 - 16:55 | 1944759 Teamtc321
Teamtc321's picture

Mid way through Mr. Bass's interview there are some chart's that you are looking for. http://www.zerohedge.com/news/kyle-bass-explains-new-world-order

Sun, 12/04/2011 - 17:27 | 1944833 BigJim
BigJim's picture

...For example if I make 45,000 dollars a year and have 45,000 dollars in debt, but I also have 500,000 dollars in assets, does it really matter that I have 45,000 in debt?

Bad analogy... here's a better one: For example, if my neighbors make 45,000 dollars a year, and have 45,000 dollars in debt, but I have 500,000 dollars in assets that they can steal through inflation, taxation, or outright confiscation, does it really matter that they have 45,000 in debt?

Well, it may not matter to my neighbors, but it certainly fucking matters to me.

Sun, 12/04/2011 - 18:38 | 1944958 Waterfallsparkles
Waterfallsparkles's picture

They cannot steal Real Estate Value thru inflation.  Yet, the value of your Mortgage Loan decreases with inflation as the value goes up with inflation.

Remember that there was not a period in the last 50 years where Real Estate actually went down.  Only in the last 3 years with all of the Bad loans sliced and diced into Finance vehicles.

So, own Real Estate, owe a Mortgage and you will be fine.  The Real Estate Appreciates and the value of the loan depreciates.

Got it?  Buy Real Estate.

Sun, 12/04/2011 - 19:14 | 1945069 Al Gorerhythm
Al Gorerhythm's picture

... as your currency is slowly destroyed. Got it? Buy gold and other fungible PMs.

Sun, 12/04/2011 - 21:16 | 1945350 Bring the Gold
Bring the Gold's picture

Of course food and energy etc. will soar in prices and defaults will become even MORE common as margins shrink and jobs are lost. The banks will own ever more real estate...got it?

Mon, 12/05/2011 - 01:16 | 1945840 Econolingus
Econolingus's picture

NAR/NAHB troll.

Check the charts: real estate--factoring in taxes and maintenance--barely outstrips inflation over the LONG TERM.  Sure, you can catch lightning in a bottle and see a 10-year triple if you bought a 3BR/2b for $50k in Phoenix, but smooth it across markets and over 80 years, and you aren't hitting homeruns.

Sun, 12/04/2011 - 16:11 | 1944636 smoked
smoked's picture

Don't worry aboutaleb wrath heist any association jew2 BiBa

Sun, 12/04/2011 - 16:14 | 1944647 Snakeeyes
Snakeeyes's picture

Britain's banking debt to GDP ratio is around 600%. And other countries are no slouches either.

http://confoundedinterest.wordpress.com/2011/12/04/can-europe-control-it...

Sun, 12/04/2011 - 16:21 | 1944665 Sudden Debt
Sudden Debt's picture

YOU GUY CAN PRINT!!! MY SILVER AND GOLD DARE YOU!!!

Sun, 12/04/2011 - 16:22 | 1944672 guiriduro
guiriduro's picture

Not sure that the euro needs to be dumped, but agree that the debts will have to be.

I think a lot of the criticism of the euro comes down to two things - having one interest rate for different areas, which was supposedly problematic because lending was encouraged (there were plenty of other policy tools to prevent banks from overleveraging which were ignored); Secondly the ability to devalue locally: easily refuted, firms and individuals can set their own prices and negotiate their own rates with their suppliers, no need to globally devalue because those actors won't, if they needed to, they would - that's what markets are for.  Plus the euro created price transparency and reduced transaction costs across the eurozone, splitting into different currencies again would just introduce friction here and reduce efficiency - that's not going to happen.

On the question of debt management of course, the author is spot on - no sensible or sustainable way to repay it, basically, default is the only sensible answer for the long term good of the countries concerned.   That's not to say there aren't governments and public sectors that need some reform, but a simple recognition that the dynamics of debt repayment as things stand will just drive states and economies into the ground unless those debts are revoked.

Sun, 12/04/2011 - 16:41 | 1944721 bank guy in Brussels
bank guy in Brussels's picture

Interesting about the question of 'local' interest rates with a common currency.

It is often forgotten that originally, the US Federal Reserve system had different interest rates in the different regions. That's the reason the US 'regional' federal reserve banks exist. Back then, too, banks didn't do business across state lines, making the whole 'regional interest rate' system easily do-able.

According to some people, that system worked somewhat well until the whole Fed and US economic framework changed at the time of FDR's gold confiscation.

Sun, 12/04/2011 - 16:34 | 1944694 boiltherich
boiltherich's picture

Hey, if debt serfdom is good enough for me and my country why would it not be good enough for Europeans? 

Sun, 12/04/2011 - 16:40 | 1944715 El Gordo
El Gordo's picture

I can't tell you how long I've been preaching the same concept.  Oh wait, I was talking about the USA.  It won't be long until we are up in the que. 

Sun, 12/04/2011 - 16:52 | 1944752 bank guy in Brussels
bank guy in Brussels's picture

Really, Europeans won't submit to 'debt serfdom' for very long. We're far less restrained about demonstrations, general strikes, and, er, rioting a little.

In Brussels on Friday we had nearly 1% of the entire Belgian population demonstrating here, just to let the incoming government know who was boss.

We are not as loudmouthed individually as Americans, but we are much less repressed as a group. We start to assemble and we snowball pretty readily. We have much less fascism in our governments and our police forces than in the US; we are closer to our governments and they respond much more readily to us. Life is pretty nice here in most ways, so we are not so angry, which should not be mis-interpreted as submission to a future forty years of debt slavery.

Despite our lack of 'carry' laws, there are also a lot more firearms in private hands here than Americans generally think, and I think private ownership of gold and silver may be even more widespread here than in the US, though we are very discreet about it.

We are still ready to storm the Bastille. 1789 is not forgotten, by either people here or the governments.

Sun, 12/04/2011 - 18:29 | 1944961 topcallingtroll
topcallingtroll's picture

Hmmm.

Maybe you all arent as pussified as I thought.

Sun, 12/04/2011 - 19:25 | 1945094 hardcleareye
hardcleareye's picture

So, does your definition of "Europeans" include Greece, or how about Ireland or Spain, or maybe Italy (currently headed by an ex GS exec.)?

If so I find the current events in those countries in conflict with your statement "we are closer to our governments and they respond much more readily to us" (I assume that your definition of "us" is the common natural people of the European Union).

 

(My bullshit detector has gone off.....)lol

 

 

Sun, 12/04/2011 - 20:24 | 1945228 Boner Jamz 03
Boner Jamz 03's picture

Well, this is as close as you guys have been to being able to blow up the banks in a very long time, don't fuck it up (because when this happens in America -- and it will -- there's absolutely no fucking way banks will lose).

Mon, 12/05/2011 - 01:19 | 1945847 Econolingus
Econolingus's picture

Nonsense.  You record since 1789 is dismal, especially if you are French.  No one in Europe will do anything, anymore than anyone in Detroit is going to "rebel"--and they had plenty of reason to if you check out the employment/investment/real estate implosion after the US financial crisis.

More big talk certain to be followed by NO ACTION.

Go and take your Viagra and keep your big man fantasies alive.

Sun, 12/04/2011 - 16:54 | 1944757 aleph0
aleph0's picture

 

 

There is beauty in simplicity, but not in ...." the simple minds of your enfeebled leadership " .

Well explained .... as usual.

Thank you CHS

Sun, 12/04/2011 - 16:55 | 1944758 max2205
max2205's picture

If feel bad for Charles he called a big drop or crash and the market turned on Bens actions. He may still be right.

Markets are pretty much the only thing Ben has been able to hold up

Maybe if this debt blows up he will let market forces readjust and we can all start anew without 4 years of bullshit coming from govts

Sun, 12/04/2011 - 17:17 | 1944809 Bansters-in-my-...
Bansters-in-my- feces's picture

Hey...!!!

Look over there....

Seems to have worked so far.....

Sun, 12/04/2011 - 17:28 | 1944832 Pumpkin
Pumpkin's picture

Rebel against the banks?  Why be so polite?  Give em what they got coming!  And I ain't given up any tuna fish for them either!

Sun, 12/04/2011 - 17:41 | 1944860 SwingForce
SwingForce's picture

"Riding the Merry-Go-Round to Hell", there's your feedback loop.

Sun, 12/04/2011 - 18:22 | 1944932 Waterfallsparkles
Waterfallsparkles's picture

At this point I am not sure what the People can do.

You have a police state to keep them in line.  You have the Courts which enforce Judgements and even in some cases Arrest Warrants.  Yes, even in America.

You have the IRS that will seize everything you have and lock you up until you die.

It appears to me that Occupy Wall Street and the Police are a precursor of things to come.  I think that the Government has already though this out and has developed a plan.  Probably the new bill to be able to arrest and detain Citizens without  the right to a Trial or Due Process.

From a previous article I read the loss of Constitutional rights, Freedom and Liberty was lost with 9/11.  I tend to agree.

The new bill being intoduced in the Congress will allow the President to authorize, arrest and detain for an unlimited time, any Citizen without the right to a Trial or a Hearing.  Denying any Citzen of Due Process of Law.  With that Bill it is over for the American Citizens.  Protest, speak your mind, in public or on line, you are never seen again.

Those in Power want us to be Serfs on our own land, as long as they can stay in power and usurp all of our labor for their profit.  Will not be the first time in History this has happened.

So, stay out of the lime light and keep your head down.  Or you will be no more.

Sun, 12/04/2011 - 18:51 | 1945004 TrulyBelieving
TrulyBelieving's picture

Seems like you have described the situation pretty well. Your last statement about staying out or the limelight and keeping your head down may keep your alive, but that life wouldn't be worth living. Can't help but think of Patrick Henry's "Give me Liberty or give me death."  Yes, that's pretty radical thinking but times are coming when choices such as this are going to be real, for all of us.

Sun, 12/04/2011 - 19:33 | 1945076 Waterfallsparkles
Waterfallsparkles's picture

Well, to be honest with you I am not Patrick Henry and never will be.

I will probably be one of the Serfs. 

Except that I do, in my way try to make a difference by not spending for anything I do not need.  Will not support Consumerism.  Which hurts Wall Street Corporations.

 

Sun, 12/04/2011 - 20:33 | 1945249 Boner Jamz 03
Boner Jamz 03's picture

You're an awesome guy.

Sun, 12/04/2011 - 18:20 | 1944942 Seasmoke
Seasmoke's picture

wow those blue balls look like they are going to burst ......WORLD RESET

Sun, 12/04/2011 - 18:29 | 1944960 DarkStarDog
DarkStarDog's picture

The USA is in the same shit hole.

Sun, 12/04/2011 - 18:33 | 1944969 theyenguy
theyenguy's picture

Mr. Charles Hugh Smith does not recognize the Sovereignty of God and that God made a decision in eternity past to subject mankind to debt servitude. A New Europe is emerging, it will be based upon intergovernmental compacts. The concept of a fiscal compact providing a fiscal union and an intergovernmental Europe with iron discipline is emerging, as leaders labor in ten day marathon to resolve the European sovereign debt crisis.

The sovereign authority of the New Europe comes from the 1974 Clarion Call of the Club of Rome for regional economic government as God is effecting his plan for redemption of the world, Revelation 2:27, by destroying all forms of current economic life beginning with European Socialism.

In order to get people’s attention, He is shaking the economic, political and investment bedrock of Neoliberalism, and is sending the first horseman of the apocalypse, to effect a coup d etat in the EU nations, by installing technocratic government in Italy and Greece, and by starting a dislocation out the stocks which saw the greatest gains from ponzi financing and carry trade investing that came with the Milton Friedman Free To Choose floating currency regime, as seen in this Finviz Screener of EWO, EZA, EWZ, EPOL, EIS, ECH, EWI, INP, TUR, ARGT, CEE; these are also seen in this ongoing Yahoo Finance chart.

Furthermore, He is stimulating the rise of the Beast System of Neoauthoritarianism to rise from the profligate Mediterranean Sea countries. This behemoth of regional global governance and statism has seven heads, symbolic of mankind’s seven institutions, and ten horns, symbolic of its rule in the world’s ten regions.

The seigniorage of fiat money has ended and the seigniorage of diktat has commenced. Not by any human action, but rather, at the appointed time, God will open the curtain, and the Sovereign, Revelation 13:5-10, and the Seignior, Revelation 13:11-18, will step onto the world’s stage to rule the Beast System of Neoliberalism, Revelation 13:11-18, as it rises from the profligate Mediterranean Sea countries. This behemoth of regional global governance and statism has seven heads, symbolic of mankind’s seven institutions, and ten horns, symbolic of its governance in the world’s ten regions. A collapse of sovereign debt and the banking system collapse is imminent.

Out of the current sovereign crisis, will come a New Europe, as the world’s first regional economic government. Leaders will meet in summits and waive national sovereignty, facilitating a intergovernmental Europe. The New Europe’s sovereign authority will be based upon fiscal compacts, and it will implement a fiscal union overseen by the Sovereign, and his banking partner, the Seignior, and together they will provide the seigniorage of diktat, as a means of providing economic security, and bible prophecy reveals that the people will be amazed, and place their faith and trust in it, Revelation 13:3-4.

Sun, 12/04/2011 - 18:49 | 1945011 billybobtx
billybobtx's picture

Sorry, my eyes glazed over...can you restate your main points in ten words or less?

Sun, 12/04/2011 - 19:14 | 1945029 KK Tipton
KK Tipton's picture

Tip to all ZH'ers....make sure you have the right ammo in your Metaphysical Pistol.
http://www.gnosis.org/naghamm/gosthom.html

You are either for the "system", or against it.
If against it....you will have to *fight*.

 

 

Sun, 12/04/2011 - 20:22 | 1945220 ISEEIT
ISEEIT's picture

I spent 10 seconds of my life scanning your shit and what I decided half way through was?

FUCK YOU.

If you want to go to the heart of it motherfucker then quit lying and state the obvious.

GOOD VS. EVIL?

Knock it off with the GOD crap shithead. This is not about GOD it is about YOU. 

It is also about truth and it is about a world so chock full of lies and bullshit that we are literally dying because of it. 

Deception has a smell and deception leaves an impression.

God didn't decide to subject us to anything other than Liberty and this is the mess that we have made of it. We have done this to ourselves. Blaming God is just plain stupid.

Sun, 12/04/2011 - 20:31 | 1945242 BigDuke6
BigDuke6's picture

i just kept scrolling down.

seems like it was a good idea...

Sun, 12/04/2011 - 18:39 | 1944988 topcallingtroll
topcallingtroll's picture

It looks like the only thing holding up the Euro and european banks is the belief that something can be done to reprice risk back to previous levels.

I suspect this is why everyone in power is dithering about plan a or plan b and being hazy about details. They know that nothing can solve this. If they actually put out a detailed plan it would become clear to all there is no solution and collapse would occur immediately.

Better to be vague in public as long as possible to keep hope alive as long as possible while plans to deal with the collapse of the euro are made in secret. The more time governents have to secretly plan how to manage the euro collapse the better off they will be.

Sun, 12/04/2011 - 18:42 | 1944993 tony bonn
tony bonn's picture

"Let the banks implode in bankruptcy, clear the worthless "assets" of debt from the books, and let the market price currencies and everything else. The only other choice is debt-serfdom."

i am having an economic orgasm.....does this mean banksters are fucked? please say yes

Sun, 12/04/2011 - 19:05 | 1945024 non_anon
non_anon's picture

serfdom it is

Hayek's "the Road to Serfdom", for those with short attention spans, the following

http://www.youtube.com/watch?v=bRQ3UcO5P8k

Sun, 12/04/2011 - 19:01 | 1945034 Jordan Kanter
Jordan Kanter's picture

REPUDIATE YOUR DEBT.
The momentum grows: DEBTORS REVOLT – intentiona­­l *default-e­­n-masse* to hasten the collapse of the predatory lending system and the plutocracy into which our country has morphed.

Join us. Simply refuse to play their game, and repudiate your debts – just walk away. The system, as it has transforme­­d over the past 15 years, is simply rigged against you and offers you no mercy. So show no mercy in return; just default. Watch what happens – their power depends upon OUR cooperation, and our continued fear. Reset and rebuild from there.

DEBTORS’ REVOLT — DEFAULT EN MASSE.  The Founding Fathers revolted against England over far, far less. 

Sun, 12/04/2011 - 19:02 | 1945037 Waterfallsparkles
Waterfallsparkles's picture

I actually think that there is a way out of this.

I think we need to find a way to tax Corporation that outsource jobs outside of the United States.  That tax would help to increase revenue into the Budget to pay for say unemployment.  Or help to pay down the Debt.

Housing always provides many jobs.  So, they need to re start the housing market.  Find incentives for Investors and Homeowners to buy the existing housing inventory.  Volker did it in the 1980's. when an investor could buy a property thru FHA with a total cash out lay of 15%, plus excellerated depreciation of 15 years.  Investors clamored to buy everything available (even at 14% interest).  Soon the glut of housing was gone and the market recovered.

Raise the Interest Rates.  I know counter intuitive.  Yet, how many people would go out and Buy a House or a Car if they thought the Interest Rates would be going up?  Many in my opinion.  I remember with Volker when he was raising interest rates by 1% a month.  Thousands of People rushed to buy a House or a Car before the rates would go even higher the next month.  Now people sit on their hands as they know that rates will not go up and can wait until their hearts desire.

The Fed is trying to prop up the Banks with Printed Money but is doing nothing to stimulate the Economy to generate profits for Banks.  Without people working, buying Cars and Houses the Banks can only rely on the printing of money to survive.  Which is a downward spiral.

Sun, 12/04/2011 - 19:05 | 1945046 Snakeeyes
Snakeeyes's picture

Agree with Waterfallsparkles. We need an overhaul to get the private sector. The public sector model is DEAD!

Look at charts of effectiveness of more debt from Treasury or Fed policies.

Have The Fed and Treasury Run Out of Magic Bullets? It Takes a Village … to Destroy a Global Economy

http://confoundedinterest.wordpress.com

Sun, 12/04/2011 - 19:08 | 1945053 spooz
spooz's picture

Iceland's mistake was listening to the IMFs advice.  Now they have to deal with the vulture funds, new banks that act like US collection agencies on debt that should have been dispensed of entirely. The IMF advised them to "include measures to ensure fair value of assets [and] maximize asset recovery" instead of simply defaulting on the debt. Count on the IMF to include a few landmines when they are being helpful.

http://www.counterpunch.org/2011/11/14/vulture-funds-gorge-on-stricken-economies/

 

Sun, 12/04/2011 - 19:15 | 1945070 stormsailor
stormsailor's picture

/es gapped up 10 points on absolutely nothing.  let the "games" begin

Sun, 12/04/2011 - 19:16 | 1945073 GNWT
GNWT's picture

3 members of the management committee have resigned in a month.  Resign from easy money forever? First sign a company is in trouble is executive flight. The division he was in, O'Neill's is commodities. I would wager that this guy unlike the other fools did not sign off on obstruction of justice and theft of customer seg accounts and protecting Corzine from life in prison.

-- Edward C. Forst, co-head of the investment management division atGoldman Sachs Group Inc. (GS), will leave at the end of the year and cede his role to Eric S. Lane, according to internal memos obtained by Bloomberg News.

Forst, 50, who first joined Goldman Sachs in 1994, is the third member of the New York-based bank’s management committee to resign since the beginning of November, after Kevin W. Kennedy, who ran the business in Latin America, and Yusuf A. Alireza, co-head of the Asia-Pacific business outside Japan. 

Sun, 12/04/2011 - 19:47 | 1945144 blindman
blindman's picture

http://maxkeiser.com/2011/12/04/the-gathering-storm/
The gathering storm & Albert Finney (who played Winston Churchill in The Gathering Storm that won him BAFTA and Emmy awards as Best Actor; but his performance in Miller’s Crossing is his best)
Posted on December 4, 2011 by maxkeiser

Sun, 12/04/2011 - 19:59 | 1945174 nowhereman
nowhereman's picture

It's not about taking your ball and going home, it's about refusing to play the game in the first place. 

If you don't accept the role of dept slave, they can't do anything about it.

Be a rock, they can't get blood from a stone.

 

Sun, 12/04/2011 - 20:36 | 1945255 willien1derland
willien1derland's picture

The author's point applies as much for the U.S. as it does for Europe. The feedback loop that banks provide outsized 'donations' to the Democratic & Republican parties through Political Action Committees (PACs) and thereby allow for their outsized influence in the nation's government must be ended - the first & best way to do this is to prevent the Federal Reserve from unilaterally creating USD - this currency devaluation is fraud perpetrated on a GRAND SCALE - I have no idea how to achieve this end, however, I am willing to try & would enlist any ideas to be posted to this blog...I know that the Federal Reserve has engaged in this process for years, however, we are now beyond the crossroads as Bernanke continues to administer the painkiller of choice - by printing USD he merely supports the collapsed status quo via the illusion of magic USD creation - I know everyone who reads ZH knows this but how can we influence an outcome that is reasonable - the longer this occurs the worse it gets - Though I am an American I truly feel for our European cousins - The Bloomberg article URL below published a quote from Van Rompuy when asked about the viability of IMF loans...I dislike to say this but his arrogance typifies current Western Government thoughts

http://www.bloomberg.com/news/2011-12-02/euro-region-s-central-banks-seen-providing-up-to-270-billion-through-imf.html

‘Easy Solution’

“It is an easy solution because bilateral loans coming from the central banks, they haven’t to ask for money from the taxpayer,” European Union President Herman Van Rompuy said in Brussels yesterday. “But we are exploring these avenues. It depends also on the amount of money we can raise.”

Sun, 12/04/2011 - 20:42 | 1945273 CapitalistRock
CapitalistRock's picture

This article is making the obvious argument that debt must be valued at its true market value (mark to market is the trendy phrase).

But the author has no moral issue with borrowers walking away from their debt obligations. There is also a very practical issue with that: Lenders wont be motivated to lend if borrowers are comfortable with not repaying their debt. You see that today in the housing market. Banks are simply saying no. And it's not because they are greedy or because of any other catchy scapegoat of the day. It's because we have entered a time where we talk seriously about buyers walking away from their debts as if they almost have some obligation to do so.

The correct answer is to value debt at a real, fair market value, while also ensuring their is a penalty for borrowers who stiff their lenders. Unfortunately, Helicopter Ben will simply print money and let the borrowers repay with a rapidly increasing money supply and monetary base. This is the tool for robbing the savers (those who over produce and under consume). It's been going on since the Roman Empire. Ben is hoping you are historically illiterate.

Sun, 12/04/2011 - 21:46 | 1945419 Steve in Greensboro
Steve in Greensboro's picture

You folks are delusional. Debt slavery is not the fault of the banks; it is your own fault due to your voting for leftists who will spend you into banktruptcy.

Sun, 12/04/2011 - 22:32 | 1945562 Matt
Matt's picture

When it comes to government budgets, there is no more left-right paradigm. They all borrow and spend to fill the pockets of their buddies; the only difference is what the money is spent on.

On a personal level, people should accept some responsibility for borrowing excessively. Unless you were lead into an Option-ARM or some other crazy BS without having the complex details explained to you, its your fault.

Mon, 12/05/2011 - 01:10 | 1945831 Econolingus
Econolingus's picture

Moronic.

It's the result of a cozy, non-partisan suck-fest between Washington and Wall Street, but even that is too complex a concept for you to understand, so I won't go any further. 

Delusion requires intelligence, so you are something else.

Sun, 12/04/2011 - 22:17 | 1945532 AldoHux_IV
AldoHux_IV's picture

The euro project is much like the housing policy of the US that led to the burst of the real estate bubble, and much like a failed overall concept of government: governments are not corporations nor should they behave like them.

All socioeconomic policies that have good intention behind it, but results in more debt being accumulated than can be realistically paid back is rotten to the core and should be considered a downright scam.

Sun, 12/04/2011 - 23:00 | 1945627 Jack Burton
Jack Burton's picture

Brilliant! A good summation of Europe's problems and how it got there.

Now, we come down once again to the banks and bankers. Who are the bankers, who owns most of Europe's debts, who owns those bonds and who holds shares in those banks? We all know it is the business, political and aristocratic elites of Europe! The 1% if you will. If these bad debts are written off, the elites lose a fuck'n fortune!

So who believes the elites will stand by and let their fortunes be destroyed? Nope, debt slavery will be enforced at the point of a gun if necessary. The elites ain't taking the hit, the average people are going to.

It literally will require blood in the streets before the elites part with one Euro of their leveraged gains, their bonds or bank stocks.

Mon, 12/05/2011 - 00:46 | 1945792 fx_dilemma
fx_dilemma's picture

western european countries have got a very sophisticated social system , comparing to that system the US walfare state is a cheap fake.Both the politicians and the population have a lot to lose so you can bet that they will be trying to buy as much time as possible , their incentives to do so are much bigger than elsewhere.The population will only rebel once the states become unable to make the payouts they did in the past , until then no one will be rebelling against anything.Of course it's game over but there isn't gonna be a voluntary end , after several tens of years of very nice life (and believe me most americans do not even understand how nice that life was because something comparable never existed in the states , not even in the best times before the crisis) the whole thing is gonna implode like the russian revolution of 1917 , it's gonna come late but it will be fast and brutal...

Mon, 12/05/2011 - 01:07 | 1945826 Econolingus
Econolingus's picture

Strong assertions backed by not a shred of cogent analysis, much less anything regarding proof.  

More nonsense.

Mon, 12/05/2011 - 01:40 | 1945877 fx_dilemma
fx_dilemma's picture

I know the system from the inside , free health insurance for everyone and unemployment support without time limit , this alone is quite a thing and far away from nonsense...

Mon, 12/05/2011 - 01:06 | 1945823 Econolingus
Econolingus's picture

GENERAL MESSAGE TO USA NEO-CIVIL WAR DREAMWEAVERS

I love ZeroHedge articles.  But the comments section on subjects like "debt serfdom" and bailouts and WTSHTF are always the same macho "me and my guns and PMs and bug-out bags", "tree of liberty/blood of patriots" self-glorification fantasies, and gun-up-and-roll-heavy verbal masturbation...

it's like half a you want the system to fail so you can do...exactly what?

Stop being Internet Tough Guy, and start shutting up.  Until you actually do something against TPTB or whoever else you've convinced yourself is putting it to you...most of us are tired of hearing about it.

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