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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Posts Tagged ‘Gross Domestic Product

Wikileaks discloses the reason(s) behind China’s shadow gold buying spree

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by Tyler Durden
Posted Zero Hedge, September 3, 2011

WONDERING WHY GOLD AT £1850 IS CHEAP, OR WHY GOLD AT DOUBLE THAT PRICE will also be cheap, or frankly at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar’s reserve status. Putting that into dollar terms is, therefore, impractical at best, and illogical at worst.

We have a suspicion that the following cable from the US embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24 karat pool. The only thing that matters from China’s perspective is that “suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.” Now, what would happen if mutual and pension funds finally comprehend they are massively underinvested in the one asset which China is without a trace of doubt massively accumulating behind the scenes is nothing short of a worldwide scramble, not so much for paper, but every last ounce of physical gold…

From Wikileaks:

“China increases its gold reserves in order to kill two birds with one stone”

“The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): “According to China’s National Foreign Exchanges Administration China ‘s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.”

Perhaps now is a good time to remind readers what will happen if and when America’s always behind the curve mutual and pension fund managers finally comprehend that they are massively underinvested in the one best performing asset class.

From The Driver for Gold You’re Not Watching (via Casey Research):

You already know the basic reasons for owning gold – currency protection, inflation hedge, store of value, calamity insurance – many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you’ve got the basic arguments for why one should hold gold for the foreseeable future.

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Five things you need to know about the economy

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by David Galland of Casey Research
Posted  August 3, 2011

AT ANY POINT DURING THE RECENT NEGOTIATIONS IN WASHINGTON over the debt, did you seriously think for even a second that the U.S. was about to default?

Of course, in time the U.S. government (along with many others) will default. However, they are highly unlikely to do so by decree or even through the sort of legislative inaction recently on display. Rather, it will come about through the time-honored tradition of screwing debtors via the slow-roasting method of monetary inflation.

Yet most people still bought into the latest drama put on by the Congressional Players – a troupe of actors whose skills at pretense and artifice might very well qualify them for gilded trophies at awards banquets. Instead, rather than glittering statuettes, these masters of the thespian arts settle for undeserved honorifics and the pole position at the public trough. Followed by lifelong pensions.

But to the heart of the current matter, do I think that the latest antics out of Washington will have any more lasting effect on the trajectory of the economy than what I had for breakfast this morning (raw oats with a dab of maple syrup, milk, a sprinkling of strawberries, and half of a banana, sliced)?

Absolutely not. Sorry to say, but the trajectory of the economy at this point is well established, and closely resembles that of a meteor streaking through the night sky. What’s left of the solid matter of the nation’s accumulated private wealth is fast being burned off by an unstoppable inferno of government spending, inevitably leading to an earth-shaking crash.

I make this dire prediction not out of an aberrant psychology (I hope), or in an outburst of self-promotion for Casey Research because the big-picture scenario we have so long warned of is unfolding according to script, but rather due to certain fundamental truths about our current situation. And that brings me to the five things you need to know about the U.S. economy (much of which also applies to the other large developed nations)…

1. The U.S. remains in the grip of a debt-induced depression.

While personal levels of debt have eased somewhat since the crash, most of the improvements have come at the expense of debt repudiation, and are offset by the steep decline in housing prices that have left something like 50% of mortgages underwater. Meanwhile the debt on the balance sheets of the U.S. government and the country’s largest financial institutions remain at record highs – and much of that debt is toxic. So, what’s the one thing that the heavily indebted – individual or institution – most fears? Answer: Rising interest rates.

2. Interest rates can’t stay low.

Despite the debt, interest rates remain near historic lows – which is to say, well below the norm. At some point they have to at least revert to the mean, which would push the 10-year treasury rate north of 5% from current rates below 3%. But in reality, the levels of monetary inflation, the nature of the debt, and mind-numbing scale of the government’s other financial obligations – in total upwards of $70 trillion – all but guarantee that interest rates must go much higher than 5%. That in turn torpedoes the half-sunk real estate market and risks kicking off a debt death spiral as higher interest payments suck the financial juice out of the economy and causes debtors to demand even higher rates. Say hello to Doug Casey’s Great Depression.

The last time the U.S. economy found itself in such dire straits was back in the 1970s, when the problem was raging price inflation. Back then, though, the debt levels were considerably lower than they are now. Then, Fed Chairman Paul Volcker had the latitude to raise rates and by so doing helped to choke out inflation. By contrast, today the Fed is virtually helpless. Rates certainly can’t be pushed lower by any appreciable amount, and the Fed sure as hell doesn’t want them to go up. While the Fed has been a primary factor in controlling interest rates up to this point in the crisis, in the near future the direction of interest rates – particularly long-term rates – will increasingly be determined by skittish market participants. Specifically, the sovereign and institutional buyers whom the U.S. Treasury so desperately needs to keep showing up at their auctions.

To use a metaphor, the situation today is akin to a bunch of gunfighters facing off in a dusty street, hands poised over their six-shooters, eyes nervously shifting this way and that – to the eurozone, to the housing markets, to the situation in Japan, to the U.S. government spending, to the crumbling balance sheets of the banks, to the Fed. Everyone is anxiously watching, waiting for someone else to start making the first move. The standoff can’t last – and when the lead starts flying, there will be few places to hide.

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Death by Debt

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by Chris Martenson
Originally posted June 8, 2011

ONE OF THE CONCLUSIONS THAT I TRY TO COAX, LEAD and/or nudge people towards is acceptance of the fact that the economy can’t be fixed. By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past. At least they are for the debt-encrusted developed nations over the short haul – and, over the long haul, across the entire soon-to-be energy-starved globe.

The sooner we can accept that idea and make other plans the better. To paraphrase a famous saying, Anything that can’t be fixed, won’t.

The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew.

All economic depressions share the same root cause. Too much credit that does not lead to enhanced future cash flows is extended. In other words, this means lending without regard for the ability of the loan to repay both the principal and interest from enhanced production; money is loaned for consumption, and poor investment decisions are made. Eventually gravity takes over, debts are defaulted upon, no more borrowers can be found, and the system is rather painfully scrubbed clean. It’s a very normal and usual process.

When we bring in natural limits, however, (such as is the case for petroleum right now), what emerges is a forcing function that pushes a debt-based, exponential money system over the brink all that much faster and harder.

But for the moment, let’s ignore the imminent energy crisis. On a pure debt, deficit, and liability basis, the US, much of Europe, and Japan are all well past the point of no return. No matter what policy tweaks, tax and benefit adjustments, or spending cuts are made – individually or in combination – nothing really pencils out to anything that remotely resembles a solution that would allow us to return to business as usual.

At the heart of it all, the developed nations blew themselves a gigantic credit bubble, which fed all kinds of grotesque distortions, of which housing is perhaps the most visible poster child. However outsized government budgets and promises might be, overconsumption of nearly everything imaginable, bloated college tuition costs, and rising prices in healthcare utterly disconnected from economics are other symptoms, too. This report will examine the deficits, debts, and liabilities in such a way as to make the case that there’s no possibility of a return of generally rising living standards for most of the developed world.  A new era is upon us. There’s always a slight chance , should some transformative technology come along, like another Internet, or perhaps the equivalent of another Industrial Revolution, but no such catalysts are on the horizon, let alone at the ready.

At the end, we will tie this understanding of the debt predicament to the energy situation raised in my prior report to fully develop the conclusion that we can –and really should – seriously entertain the premise that there’s just no way for all the debts to be paid back.  There are many implications to this line of thinking, not the least of which is the risk that the debt-based, fiat money system itself is in danger of failing.

Too Little Debt! (or, your one chart that explains everything)

If I were to be given just one chart, by which I had to explain everything about why Bernanke’s printed efforts have so far failed to actually cure anything and why I am pessimistic that further efforts will fall short, it is this one:

There’s a lot going on in this deceptively simple chart so let’s take it one step at a time.  First, “Total Credit Market Debt” is everything – financial sector debt, government debt (federal, state, and local), household debt, and corporate debt – and that is the bold red line (data from the Federal Reserve).

Next, if we start in January 1970 and ask the question, “How long before that debt doubled and then doubled again?” we find that debt has doubled five times in four decades (blue triangles).

Then if we perform an exponential curve fit (blue line) and round up, we find a nearly perfect fit with a R2 of 0.99.  This means that debt has been growing in a nearly perfect exponential fashion through the 1970’s, the 1980’s, the 1990’s and the 2000’s.  In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again, from $52 trillion to $104 trillion.

Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008, and it has not yet even remotely begun to return to its former trajectory.

This explains everything.

It explains why Bernanke’s $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits), which were positioned to directly benefit from the money. It explains why things don’t feel right, or the same, and why most people are still feeling quite queasy about the state of the economy. It explains why the massive disconnects between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities.

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Where is the recovery? I cannot seem to find it

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by Tony Pallotta of Macro Story
Originally posted June 13, 2011

“The only thing worse than being blind is having sight but no vision.” – Helen Keller

POSSIBLY THE ONLY THING WORSE THAN HAVING a serious problem on your hands is when you clearly do not understand the problem.  You ignore the data and find an easy scapegoat for why the problem is temporary and will pass. The slowdown in the US economy is not transitory as the Fed chairman states. Hopes for 3-4% GDP growth in the second half of 2011 are simply that, hope.

The earthquake in Japan, the third largest economy, occurred two months before US economic data began slowing sharply. It is easy to say that must be the cause. It is far harder to blame failed policies for that involves being honest with oneself. Accepting failure is everyone’s Achilles’ heel.  Something few can overcome.

What is most disturbing about the failed policies of the Federal Reserve and Federal Government are the millions of Americans suffering when they do not have to. With one in seven Americans on food stamps, one in five unemployed or under employed, 28% of mortgages underwater, do leaders truly think we are this naive and that recovery is underway?

In a recent survey 48% of Americans feel we are already in a depression, forget recession. Regardless of what the NBER says or measures of real GDP, something easily manipulated through the deflator, it feels and therefore it is a depression. Food prices are rising. It costs more to fill up our gas tank. Walmart and countless other low cost stores bare witness to the modern day bread line.

If the US government reduced spending by 40% today, right this second, we still could not put a dent in a $12 trillion national debt, closer to $70 trillion when factoring in unfunded liabilities. The government nearly shut down in May as leaders tried to agree on 1% in budget cuts later found to be a pure accounting scheme. All is not well in the US economy and a recovery is not and has not begun. Trillions have been spent since 2008 and we have nothing to show for it.

Ask a child wearing a red shirt what color their shirt is. They will shout red. Ask that same question to an adult and they will hesitate, afraid to answer the most obvious question out of fear they are being set up. As adults we seem to lose the ability to see the obvious. We live in constant fear of being wrong, being judged by others for our inadequacies. Rather than focus on the task at hand we focus on the failure. The safety of going along with the group outweighs the truth we see with our own eyes.

Ask a fund manager with $5 billion in assets under management (AUM) if the economy is recovering and they will say yes. They will say this soft patch is transitory, it is a function of Japan and the revolution in MENA (Middle East and Northern Africa). They will tell you Greece is contained.  They will tell you housing is bottoming. They will tell you stocks are cheap.

Do they believe that? Aside from group think I certainly hope not but if the group says that red shirt you are wearing is in fact blue, well dammit, that shirt is blue. No one believes they are a lemming, that they are part of the herd. The word sheeple does not include them. Then why does history always show the majority to be wrong?

As the market rolls over investors are beginning to question the color of that shirt. Perhaps it is red after all. The Federal Reserve has a horrible record at economic forecasting, absolutely horrid yet with each new forecast we are expected to believe “this time it is different.”  With each passing day more data tells us they are wrong yet again. As investors we must be diligent in our work, diligent in understanding the issues. We must think for ourselves, beyond the noise, beyond the pressure to conform. Now is the time to have courage in our convictions.

When I listen to Bernanke speak what scares me most is not his forecasts of 3-4% economic growth but his complete lack of comprehension of the problems:

  • His apparent belief that this soft patch will pass.
  • That QE was successful.
  • That with more time structural changes in our economy will fix themselves.
  • That the answer to debt is more debt.
  • In the words of Helen Keller his sight makes him a very dangerous man.

Bonds forecast, equities confirm. Bonds have spoken. Equities are finally listening.

 

The Economic Death Spiral has been triggered

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by Gordon T. Long
Posted originally May 27, 2011 
This posting has been abbreviated slightly

For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended.  It is now in the process of reversing and becoming a vicious downward economic spiral.

One of the strategies is the Asian Mercantile Strategy.  The other is the US Dollar Reserve Currency Strategy. These two strategies have worked in harmony because they fed off each other, each reinforcing the other. However, today the realities of debt saturation have brought the virtuous spiral to an end.

One of the two global strategies enabled the Asian Tigers to emerge and grow to the extent that they are now the manufacturing and potentially future economic engine of the world. The other allowed the US to live far beyond its means with massive fiscal deficits, chronic trade imbalances and more recently, current account imbalances. The US during this period has gone from being the richest country on the face of the globe to the biggest debtor nation in the world. First we need to explore each strategy, how they worked symbiotically, what has changed and then why the virtuous cycle is now accelerating into a vicious downward spiral.

ASIAN MERCANTILE STRATEGY

The Asian Mercantile Strategy started with the emergence of Japan in the early 1980s, expanded with the Asian Tigers in the 90s and then strategically dominated with China in the first decade of this century. Initially, Japan’s products were poor quality and limited to cheap consumer products. Japan as a nation had neither the raw materials, capital markets, nor domestic consumption market to compete with the giant size of the USA. To compensate for its disadvantages, Japan strategically targeted its manufacturing resources for the US market.  By doing this, the resource poor island nation took the first step in becoming an export economy – an economy centered on growth through exports versus an economy like the US, where an excessive 70% of GDP is dependent on domestic consumption.

The strategy began to work as Japan took full advantage of its labor differential that was critical in the low end consumer product segment, which it initially targeted. Gradually, as capital availability expanded, Japan broadened its manufacturing scope, moving into higher levels of consumption products requiring higher levels of quality and achieving brand recognition. Success soon became a problem as the Yen began to strengthen. To combat this the Japanese implemented the second critical component of what became the Asian Mercantile Strategy template. It began to manipulate its currency by aggressively intervening in the forex market to keep the yen weak.

Further success forced Japan to move to a more aggressive forex strategy to maintain a currency advantage. It was strategically decided that Japan’s large and growing foreign reserves were to be re-invested back into the US. By buying US Agency and US Treasury debt instruments it kept the dollar strong relative to the Yen. The more successful Japan became, the more critical this strategy became. In the 80s Japan dominated global expansion as it brought US automotive and consumer electronics’ manufacturing to its knees.

By the early 90s the Japanese labor advantage was quickly being lost to the Asian Tigers because the Yen versus the Asian Tiger currencies was too strong. The Asian Tigers were following the Japanese model. The Asian Crisis in 1997 re-enforced to all Asian players the importance of holding large US dollar denominated reserves. This further accelerated and reinforced the strategy of purchasing US Treasury and Agency debt. With China’s acceptance into the World Trade Organization (WTO),  China emerged on the scene in full force. Armed with the lessons of the last twenty years, China took the Asian Mercantile Strategy to another level in its ongoing evolution.

The results were one of the largest and fastest transfers of industrial power ever to occur in history.  In ten years, China assumed the role of the world’s undisputed industrial powerhouse in the world.

The virtuous cycle further accelerated as Asia became more dominant because its reserves, reinvested back in the US, began to have a larger and larger impact. The more Asia bought US Treasury and Agency debt, the lower US interest rates were forced, allowing Americans to finance more and more consumption. The more Asia bought US securities, the stronger the US dollar was against Asian currencies, and therefore the cheaper Asian products were relative to US manufactured products. It was a self reinforcing Virtuous Cycle. The result was a staggering 46,000 factories transferred from the US to Asia over the same ten year period. The transfer set the stage for chronic unemployment and public funding problems, but it was temporarily hidden by equally massive increases in debt spending.

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This is just a warm up for what’s coming our way

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by Graham Summers
Phoenix Capital Research
Posted originally June 3, 2011

Despite the fact we were told repeatedly that the Greece situation was solved just 12 months ago, the country is once again at the forefront of the ongoing crisis in the Euro-zone. Having already thrown billions at this problem last year, this time around European officials are actually considering REAL solutions, i.e. Greece leaving the Euro-zone. Of course, as soon as these rumors surfaced, several Greek officials (who never seem to be named) quickly responded to say the rumors are unfounded.

At this point it is clear that the Euro-zone will be restructured in the near future. Whether or not it will change with Greece alone leaving the EU, or if we see multiple players drop out, one thing is clear: the EU in its current form is finished.

How we get to this outcome remains to be seen. But the “Greece issue” serves as a perfect illustration of the central issues plaguing the world financial system today. Consider that Greece’s entire GDP is less than $330 billion (about the same size as the state of Massachusetts). The country also has a debt to GDP levels of over 100% and deficit of around 12%. In other words, it’s clear, plain as day that the country is broke. So why does Greece matter so much to the EU? The answer is quite simple: derivatives and the interconnectedness of the global banking system.

It’s now well documented that Greece should never have been allowed to join the EU. The only way it met the fiscal requirements was by using off balance sheet derivatives (crafted by Goldman Sachs and pals naturally) to hide the true state of its financial health. However, once Greece entered the EU, its bonds quickly entered the toxic debt game of “hot potato” amongst the EU banks. By the time the European crisis erupted last year, German and French banks were on the hook for $65 billion and $82 billion of Greece’s debt, respectively.

Small wonder then that these more fiscally sound countries pushed to bail Greece out. Failure to do so would mean a banking crisis in either country. So banks got the EU into this mess in the first place (Wall Street helped hide Greece’s true debt loads to get Greece into the EU) and now banks are making sure that European taxpayers pony up the cash for this dishonesty (German and French banks are leaning on politicians to not allow Greece to collapse).

And so here we are, with austerity measures and higher taxes occurring in Europe because of bankers’ greed and dishonesty. Having realized that their politicians aren’t going to do the right thing, the people are now openly expressing their disgust at the ballot box (Angela Merkel’s party is getting slammed in Germany for supporting the bailouts) and the streets (protests are occurring across Europe).

And it’s just a taste of what’s coming to the US.

Indeed, everything happening in Europe right now (civil unrest, political turmoil, currency crisis) is coming to the US’s shores in the future. We are running similar debt-to-GDP ratios, deficits and our banking system is similarly laden with worthless derivative garbage.

Again, the same upheaval happening in Europe will come to these shores. It’s only a matter of time. Which is why the wise thing to do is prepare in advance of this. This means getting some food, water, and bullion on hand. It also means considering what one would do if the stock market came undone again.

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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