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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Posts Tagged ‘Belgium

The imminent failure of the Eurozone

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by Econophile
Posted  September 2, 2011
This article originally appeared on the Daily Capitalist.

YOU KNOW THOSE MOVIES WITH THE BOMB SET TO A TIMER ticking down to 00.00 where the sweaty hero nervously cuts one wire at a time while holding his breath and then at 00.01 he stops the bomb? Well, Europe is like that except that the bomb goes off and kills everyone.

Our planet has a problem. Its leading economies, the U.S., Japan, and the E.U. are declining. That is, about one-sixth of the world’s population is losing ground.

These big economies are the ones that lead the rest of the world, including China. Countries like China, India, and Brazil, depend on the health of the big economies to keep buying their products and commodities so they can grow and generate wealth for their citizens.

What is especially concerning is the blow-up that is about to happen in Europe. It is not something that is happening “over there.” In a world that is so interconnected financially and by trade, a sinking Europe is everyone’s concern.

Their problems are much the same as ours with a twist. Their governments and central banks have also pursued reckless monetary and fiscal policies and now, effect is following cause. They have more or less followed the same policies as has the U.S., much to the same end. They spent large, engaged in Keynesian fiscal stimulus in a bailout attempt, ran up huge debts and deficits, and their economies are in decline.

The twist is the European Monetary Union (EMU), known as the eurozone. It is as if here in the U.S. there was no federal government and each state was truly sovereign, but there was a Federal Reserve Bank. Some states spend more than others, funding deficits by borrowing huge sums to support programs their citizens wanted. The profligate states want the Fed to buy their debt and float them loans created out of thin air, or otherwise they will go belly up and they will take down many states’ banks. The responsible states know they will be stuck with the bill.

The EMU started on the idea that it would bind the EU closer. In essence it was a political decision rather than an economic decision. They passed a stern rule that said no state could run of deficits of more than 3% of their GDP. Except for Estonia, Finland, and Luxembourg, all countries, including Germany, now exceed the limit. Thus their politicians sacrificed fiscal probity for political gains.

They have hit the wall: Greece will soon default on their sovereign debt. On Tuesday, yields on one year Greek bills  reached 60%.  It is a sign that investors have no faith in the Greek government’s ability to repay their debt.

The EU, ECB, and the IMF are trying to establish a European Financial Stability Facility (EFSB) in order to further bail Greece out. They have already pledged €110 billion and they are trying to put another package together of €109 billion. But Finland insists that Greece puts up additional collateral, which is not possible. Since the collateral would be part of the bailout money, it would be, in essence, Germany and France guaranteeing Finland’s contribution.

Greece has missed every fiscal target it or its saviors has had. They are trying to get their deficit down to 7.6% of GDP through more austerity measures, but it looks like they will miss again (est. 8.5+%). Basically they are asking the Greeks to do something they don’t want to do, and they will no doubt take to the streets again in protest.

If they default, then that opens a can of worms. European banks, other than Greek banks, hold €46 billion of Greek sovereign debt. Belgium’s Dexia hold Greek sovereign debt equal to 39% of its equity; for Germany’s Commerzbank, it’s about 27%. On top of that, EU banks are into private Greek companies for about €94B (France, €40B; Germany €24B). According to the Wall Street Journal, the total market cap of all EU banks was just €240. The same article also points out additional unknown liabilities to insurers and investment banks.

The International Accounting Standards Board (IASB) has warned banks they need to write down, or mark-to-market, the Greek debt they hold. Whether they do or don’t doesn’t matter. The fact is that these banks are undercapitalized and in trouble. Their “stress tests” are a fiction. Liquidity is starting to shrink in their banking system because of these jitters. Rabobank, for example, said it is growing cautious about interbank lending – now limited to overnight loans. More banks are stepping up to the ECB window for funds. Overall, credit is starting to tighten. Nervous Greek depositors are withdrawing funds from their banks. Rich Greeks never trusted their banks.

In other words the Europeans have created a problem that they can’t solve, easily at least.

Here are their alternatives:

1. Keep bailing out Greece, with the specter of Italy and Spain being the next target of market forces as EU economies cool off. This is not appealing to Germany and France who know their taxpayers will have to put up most of the money.

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Please Europe, either put up or break up

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by Ambrose Evans-Pritchard
Posted August 5th, 2011

THE DEBT CRISIS IS MOVING AT LIGHTNING SPEED. We must wait to see whether the ECB is really willing to sit back and let the whole edifice collapse. Are the Bundesbankers really so stubborn that they would rather bring down the European financial system, tank the world economy, and cause a deep global depression, rather than enter the bond market on a sufficient scale to back-stop Italy and Spain?

Tough call. 50:50, I’d say. The hardliners are seriously ideological people, and there seem to be some in the upper echelons of German policy-making (though obviously not the floundering bean-counter Schauble, or the battered Chancellor), who suspect that it might be better to lance the boil by forcing an immediate break-up of EMU.

I note that Belgium’s central bank governor Coene hinted that the ECB is withholding bond purchases to force Italy and Spain to push through – you guessed it – yet more growth-destroying austerity. Dangerous game. These 1930s deflationists really are a menace to society. In a nutshell, unless the ECB is willing to step in – I mean really step in, not piss in the wind – until such a time as the revamped EFSF bail-out is ratified by all parliaments and is ready to take the baton (say November), and unless the EFSF itself is quadrupled in size and given a €2 trillion mandate without all the German-imposed ifs and buts, then the game is up.

If the EU authorities refuse to do this, it is best for everybody that it is recognized immediately and that arrangements are made for the orderly break-up of monetary union…  not next year, or next month, but next week. There are two basic choices:

1) a spiralling crisis in the South, leading to a string of countries being blown out of EMU, causing a catastrophic financial collapse akin to 1931. As Citi’s William Buiter told me yesterday, the issue is not how long Italy and Spain can ride out the storm in bond markets. There would be a banking and insurance crisis long before sovereign defaults came into play, simply because the fall in bond prices on the secondary market is causing carnage to bank books (among other transmission mechanisms).

Or 2) Germany and its satellite economies withdraw immediately from EMU (let us say the Netherlands, Austria, Finland, Flanders and Luxembourg). This allows the South to enjoy a much-needed devaluation to restore competitiveness without going through a disastrous Fisherite debt deflation. Their contracts would remain in euros, so they would not need to default.

Temporary capital controls and some form of financial repression would obviously been needed for a few weeks. The German bloc would have to stand ready to recapitalize its banking system with €100bn perhaps (peanuts in the bigger picture) to offset the shock effect on sudden exchange losses on Club Med debt.

This would require French leadership. (I have almost given up on Germany.) Carried out with Napoleonic speed and determination, I think this could conceivably prove the game-changer that halted the downward global spiral. Markets would very quickly see that the greatest impediments to recovery had been removed. We could rejoice, and breathe a little easier again. My guess is that stock markets would surge in Milan, Madrid and Paris, as occurred in London and Milan after the ERM crisis in 1992.

Yes, I know, EMU is not the ERM, blah, blah, sanctity of the Project, blah, blah, blah. But just how different is it really? Will this happen? I don’t see much evidence that anybody is thinking along these lines. (The Buba men seem to want to expel Greece, Portugal, etc, which is not at all what I mean.) Just my instant thoughts on a story that is moving with lightning speed.

More later, after some Rioja, and a Vecchia Romagna to finish.

The creeping nausea of American exceptionalism

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by James Howard Kunstler
Posted originally June 6, 2011

HISTORY, THAT COY DOMINATRIX, LOVES TO TRICK the credulous human race. In a moment when something we call “democracy” seems to be spreading through the dodgy precincts of the world like a contagion of virtue, the trend is actually going the other way in countries that have practiced it for a while.

That is certainly the case in Europe, especially Greece right now, where the mobs in Syntagma Square denounce their waffling parliament for agreeing to a bailout deal that will make Greece a step-child of Germany. The German voters are none too pleased with this, either, since their country is now on the hook to pay Greece’s bills. Ireland, Portugal, and Belgium are standing by for adoption next in Europe’s Home for Wayward Children. Spain and Italy may need to become wards of the Euro-state, too, but they are more like adults with drinking problems who are liable to wreck the whole household if invited in.

Anyway, the Greeks rallying in Athens’ central square lately are sick of politicians and parliaments, and there is a no small danger that they will soon rise up and dispense with theirs in the dumpster behind the Parthenon. A man in a uniform has a certain appeal in a situation like this. He is comfortable issuing orders in unfavorable situations, in fact, rather thrives on it. The Germans know all about this. Their “savior” back in the 20th century was a fellow in an ersatz military getup who virtually ran for office by denouncing “parliamentarism” and by the time his party occupied a fair portion of the seats in theirs, he burned the darn thing to the ground.

The Irish gaze longingly at little Iceland, out there in the North Atlantic now free of debt obligations from the simple act of raising the middle finger in the direction of the London banks. Ireland is sore tempted to do likewise, and the act would have an appealing historical symmetry to it. They may toss out their parliament to get to it. Staying sober is another matter. In Portugal, they are too busy having lunch, which is a very serious affair, they will assure you, and undertaken in spirit of absolute Iberian fatalism (that beefsteak died for you!).

Oh, for the days of Salazar when lunch was decreed eighteen hours a day! Belgium, of course, will always be hopeless – Europe’s doormat. And what can you say about a people who slather mayonnaise on their French fries – apart from their amazing failure to discover the miracle of ketchup, despite being overrun by American GIs sixty-odd years ago – and speaking a language that nobody has ever written a rock and roll song in.

Europe is held together with baling twine, masking tape, and spit. It’s been a fun half-century catering to harmless clownish tourists from Houston, with their “big boss” belt buckles and decoupaged wives. But lately the Chinese visitors look more like bargain-hunters at the preview of an estate auction, sizing up the merchandise, and even the waiters in the cafes know the score. The Grand Palace of Euroland is closing for business. Anybody who thinks that Germany is going to run some kind of halfway house for crackhead countries “in recovery” will be disappointed. The compressive contraction that grips the OECD like economic Lou Gehrig disease will be with us as far ahead as anyone can see.

For sure, there are features of European life that dispose many of its countries to face the long emergency on much better terms than the train wreck across the Atlantic. They know how to get by on much less oil – though the coming energy crisis will still be hard on them. They have excellent public transit already in place (yes, it depends on the energy situation). Their agriculture is scaled much more intelligently. Their cities, too, with some exceptions. But they have a long history of brawling amongst themselves and the recent half-century of peace and prosperity is already taking on the shimmer of a fading mirage. Europe is burning down financially from the outside in while the monster that was known as the global economy lies gasping on the rocky shore of Fukushima. The Euro and the weak political union that went with it, is toast. You can include the outsider England in all that, since their practical circumstances are no better than Spain’s or Italy’s – perhaps a little worse, even… poor tattered Old Blighty!

By the way, I hope you don’t think the homefolks here in the USA are all that deliriously happy with representative government either. These days, despite all Sarah Palin’s bluster about “freedom” and “our heritage,” elected officials are held in about equal esteem to herpes viruses. Congress and the senate are paralyzed by triviality and the President is too busy golfing to disturb the status quo – which is the status quo of a house on fire. We won’t have to wait much longer to find out how unexceptional America actually is.

It’s a darn shame, and I mean that literally, because this is exactly what the American public is so ashamed of, and why appeals to the repressed sense of shame based on hyper-patriotic bluster, are so successful. It allows folks to feel great about themselves while they sink into the ooze. It’s okay, we’re special. I stopped at a convenience store at the edge of the Adirondack Mountains on Saturday afternoon and a more frightening gaggle of disfigured mutts I have never seen before. Has everybody in upstate New York only just been released from prison? The tattoo craze is especially telling. It’s one thing to get some tattoos with the idea that you are artfully expressing something. It’s another thing to deploy them around your body parts as though you were slapping decals on a 1989 beater car. These mutts had tattoos on their necks, their boobs, the sides of their heads, their knuckles, their ankles. The idea, apparently, is to make yourself appear as frightening as possible – and I can tell you it is a very successful initiative. Can lady Gaga please write us a new national anthem: America, The Horror Movie.

European Union – A flawed foundation, but a brilliant strategy?

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by Gordon T. Long
Posted originally May 31, 2011

IT WAS THE PERCEPTION OF GETTING SOMETHING OF VALUE WITHOUT ANY MEANINGFUL sacrifice that initially fostered the EU Monetary Union. Though the countries of Europe were fiercely nationalistic they were willing to surrender minor sovereign powers  only if it was going to prove advantageous to them. They were certainly  unwilling to relinquish sufficient sovereignty to create the requisite political union required for its success.

After a decade long trial period it is now time to pay the price for Monetary Union.  I suspect that the EU membership is unwilling to do so. Though they likely will see the price as too high to do so, the price to not do so has become even greater.  They have unwittingly been trapped by a well crafted strategy.

Never has a monetary union functioned without a political union with which to control Fiscal Policy. This was well understood by the strategists but not the salivating sovereign leaders looking for cheaper money to finance election candy and avoid unpopular, pressing economic realities. It was expected that the obstacle of political union would  inevitably give way when the pre-ordained and unavoidable political crisis forced the issue. We are presently at the cusp of this crisis in Europe.  As we just experienced the Arab Spring we are about the experience the European Summer on an unavoidable path to the American Autumn and World Winter in an unfolding “Age of Rage’.

The initial resolution of sovereign debt defaults by the bailouts of  Greece, Italy, Ireland, Portugal, Spain (GIIPS) will eventually be the creation of a Eurobond, in my measured opinion.  It is the next move on the strategic chessboard being carefully orchestrated. A Eurobond will allow the ECB to issue debt. With the ability to issue that debt, the obligatory abilities to pay for it will come. Paying for a Eurobond will mean giving up gradually increasing levels of sovereign taxation.

The current political impediment to political union is that never has a ruling political regime been willing to surrender the golden jewels, specifically public taxation. But this will happen because it is the hidden strategic goal now operating in Europe. To understand the real European Strategy you need to appreciate the history of Europe and its cultural diversity. Ever since the Roman Empire and Charlemagne, leaders have dreamed of a single Europe. No one in modern times from Napoleon to Hitler has been successful.

The one thing the European nations understand and for a time were successful at, was Mercantile Colonialism. They were the ones that invented it. When I say ‘they’, I refer to Kings and their financiers. The Kings may now be gone, but the financiers are even more powerful today than ever before. The colonies are no longer on the other side of foreign seas to be conquered, but rather part of the Euro zone.

The essence of Mercantile Colonialism is to create a need for debt, then finance that debt and eventually exchange that debt for the collateral assets that are the underlying wealth producing assets. In the Austrian School of Economics, this exchange of printed paper for real assets, is called the Indirect Exchange.  It is well understood and well documented but like usury is avoided in polite conversation. Eventually the colonies worked as slaves to pay the debt to their European masters.

Gold is the Money of Kings, Silver is the Money of Merchants and Debt is the Money of Slaves

The European banks are slowly but surely, through a tactic of Financial Arbitrage, moving more and more sovereign debt to the ECB and EU. Someone must pay for this debt and that will eventually be the entire European taxpayer base. That is the goal.In the initial stages of the Euro dream everyone was benefiting.  Like an initial user of drugs the early stage is euphoric before the issues associated with the addiction surface. This stage fostered tremendous growth in debt – never ending Corniche housing villas in Spain and Portugal, embarrassing pensions and social benefits in Greece, tax advantages for off shoring corporations in Ireland or unjustifiable and hidden local government spending in Italy. It has been a captive market for the Asian Mercantile Strategy and a financial retail market boon for US financial instruments created from the never ending supply of freshly minted US fiat paper. I was living in Europe during the debates on the viability of a European Union. I remember only too well what everyone eagerly wanted and fantasized gaining from a European Union.

The Citizens:
1. They saw and wanted employment. The EU meant they could  go anywhere the jobs were.
2. It meant cheaper goods because tariffs were to be removed,
3. It meant cheaper cost of financing because of a single currency with as Germany the ‘anchoring credit’.

None of which have turned out to be as advertised by those wanting the EMU (except cheap goods which they don’t have the jobs nor disposable income now to afford)

The Governments:
1. To the sovereign governments it meant cheaper debt since they effectively received German Mark backed debt.  Like free liquor to an alcoholic or free drugs to an addict, the politicians couldn’t sign up fast enough as long as they kept sovereignty over precious taxation.
2. To make the deal happen, countries were allowed to maintain fiscal sovereignty, though everyone quietly understood that separated Monetary and Fiscal Policy was a flawed concept and eventually would doom anyone attempting it.

Government spending and brazen consumption masquerading as GDP started exactly with the retail launch of the Euro.

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May 2011: Prices of silver and other commodities herald a new crisis

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by Maurizio d’Orlando
from AsiaNews.It
Posted May 9th, 2011

AFTER RISING FOR YEARS, THE PRICE OF SILVER, oil and other commodities has collapsed. This is not a good sign. A new crisis is in the making. In addition to its financial aspects, it involved public debt and an endless depression or hyperinflation. All this is connected to the price of gold and silver, which has been controlled for centuries by various groups, today by Goldman Sachs and JP Morgan.

Milan (AsiaNews) – The recent instability in world markets, especially the commodity markets that are so important for Chinese and Indian manufacturing, appears contradictory, even incomprehensible, given in its scope. Suddenly, the world economy appears to have completely changed. Fear of inflation now looks almost out of place. In one day, crude oil dropped by 10 per cent. Rubber, minerals and other raw materials declined from their historic highs. Stocks across Asia are starting to show signs of weakness and the yen lost ground. Silver also took a nosedive, plunging from US$ 50 an ounce to US$ 35 (later bouncing back a bit). What is behind this sudden volatility?

The end of the War on Terror

True, Bin Laden is dead and so is the so-called War on Terror. A collective sigh of relief could be heard across the globe as a clash of civilisation between secularists and Islamists appeared to be averted. One might suppose that this would be an element of economic normalisation and a change in direction for markets.

In fact, concern over international politics seems to have shot up, not gone down. Tensions in Arab nations continue, as does the War in Libya (despite rumours about an imminent truce), which Syria and other Arab autocracies and monarchies, Gulf included, are likely to follow soon. In other words, political factors at best cancel each other out.

From an economic point of view, no single factor seems to have changed for the better to justify a rosier picture, at least in terms of dreaded higher interest rates, and the possible collapse of financial (the bond and partially the stock) markets.

Despite all the efforts, economic data do not suggest any drastic change in the picture; the same is true for the public debt in Europe, United States and Japan. No real improvement seems to be forthcoming from China as far as real inflation and the strength of the financial system are concerned. Unemployment remains high in the West and so on.

The slight dip in US unemployment is certainly no major breakthrough since it is partly a function of the number of people who are so discouraged about finding a job that they have actually stopped looking for work. Economic growth is at best anaemic, at least in Western nations.

Despite the huge rescue package for the US banking system undertaken in the last few months of the Bush administration, which Obama continued and boosted (at an estimated cost of US$ 24 trillion) and which was imitated by almost everyone else (China, Great Britain, Germany, France, Belgium, Netherlands, Ireland, etc.), despite the Obama “stimulus” plan in the first months of the new US administration (also imitated by China), and despite the Quantitative Easing 2 (QE2) of October 2010 by the chairman of the Federal Reserve, Ben Bernanke, good results are scarce.

What is clear is that fears over a new global crisis have not decreased but actually increased. As in 2008, the crux of the matter is financial. What is even more worrisome is the fact that the problem is no longer at the level of the banking system, but rather at that of the public debt. The derivative bubble, by far the greatest systemic danger, is also far from being resolved.

Whether the worldwide economic crisis is starting to find a solution or not is not the issue. In fact, there are many fears that we are the verge of a collapse. The main topic of discussion among the most attentive economists or those not compromised with a specific political project is whether we are moving towards a phase of deflation and a Great Depression (with lower prices for raw materials) or towards the type of hyperinflation that devastated Weimar Germany, Zimbabwe and Serbia. Such a dilemma would require a long analysis, and it is probable that the world economy might have to deal with both evils.

Beyond the dollar

Still, the diatribe between those who believe in the Great Depression scenario and those who think hyperinflation is the real threat does not go beyond a short-term analysis. It fails to see that the essence of the disaster is the pending systemic crisis, which will soon become apparent to everyone. As noted in the last paragraph of a previous article on the War in Libya, we are on the eve of an epoch-changing turning point, at the end of an era that began with the Treaty of Westphalia in 1648. The issue, however strange it might seem, is closely related to the value of silver.

Money, the value of the reserve currency, the dollar, but even more so the relationship between paper money and the gold and silver standards continue to generate heated discussions. Money underlies all economic activity—it is at the heart of the imperial system of modernity. It is thus hard to understand today’s economic vicissitudes without looking back at historical events.

In 1648, the universality of the Holy Roman Empire and Western Christianity ended after surviving the conflict between Catholics and Protestants. The Holy Roman Empire ceased to exist 250 years later, in 1918, but the centuries-old monetary uniformity based on the silver standard began to crumble right after the Treaty of Westphalia. Forty years later, in 1688, another invasion took place in England, after William the Conqueror in 1066. It was funded by a group of anti-Catholic conspirators who brought to power another William, of Orange this time (who is still celebrated in Northern Ireland by local Orangemen for his victory over Catholics).

One of the main players in the conspiracy was philosopher and politician John Locke. It included Calvinists, proto-Masons (the Rosicrucians) who backed Cromwell’s Revolution and Jewish bankers in Amsterdam (for example, the Machado and Pereira, Baron Lopes Suasso and other Dutch Sephardic Jews) who had connections with the Dutch East India Company). Other supporters include names that are still known today: John Churchill, ancestor of Winston Churchill, and Mocatta and Goldsmid of Moses Mocatta, which survives in Scotia Mocatta, a gold bullion bank that takes part in the London gold fixing.

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“The Euro game is up… Just who the hell do you think you are? You are very dangerous people”

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by Tyler Durden
Posted Zero Hedge on Nov 25, 2010

FAMOUS EUROSCEPTIC NIGEL FARAGE, IN JUST UNDER FOUR BRIEF MINUTES, tells more truth about the entire European experiment than all European bankers, commissioners, and politicians have done in the past decade. As we have already said pretty much all of this before, we present it without commentary:

“Good morning Mr. van Rompuy, you’ve been in office for one year, and in that time the whole edifice is beginning to crumble, there’s chaos, the money’s running out, I should thank you – you should perhaps be the pinup boy of the euroskeptic movement. But just look around this chamber this morning, look at these faces, look at the fear, look at the anger. Poor Barroso here looks like he’s seen a ghost. They’re beginning to understand that the game is up. And yet in their desperation to preserve their dream, they want to remove any remaining traces of democracy from the system. And it’s pretty clear that none of you have learned anything.

When you yourself Mr. van Rompuy say that the euro has brought us stability, I supposed I could applaud you for having a sense of humor, but isn’t this really just the bunker [or banker] mentality? Your fanaticism is out in the open. You talk about the fact that it was a lie to believe that the nation state could exist in the 21st century globalized world. Well, that may be true in the case of Belgium who haven’t had a government for six months, but for the rest of us, right across every member state in this union, increasingly people are saying, “We don’t want that flag, we don’t want the anthem, we don’t want this political class, we want the whole thing consigned to the dustbin of history.”

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