All the world’s a stage

by Peter Tchir
of TF Market Advisors, 
Posted December 5, 2011

I CAN’T HELP BUT FEEL THAT WE ARE WATCHING A PERFORMANCE THIS WEEK. It feels like the actions, the meetings, and the statements are all very scripted. It seems reasonably clear which ending they are going for, but many of their actions also fit the “alternative” ending so it remains imperative to be cautious.

Roles for “bit” players have been cut

Last week, for the first time, the EU seemed to be able to muzzle the minor players and even limit the lines of the big players. The Finance minister summit was a failure. Nothing useful came out of it. EFSF was a total flop. The bank backstop plans are at a national level and revolve around the idea of getting banks to borrow even more in the short term and not extend their maturities.

In spite of the obvious failure, there were relatively few comments. Rather than getting headlines of disputes, or even headlines of bigger and better ways to leverage, they seemed to let it die a relatively calm death and move on. This was a chance for every finance minister to get their quotations in the news, but they seemed reasonably constrained. There were far fewer comments about the ECB or even from ECB members. To me, it seems that the big players (Merkozy and Draghi) have taken control of the play and are trying to get it to the ending they want.

The “Script”

Germany took great pains last week to distance themselves from ECB decisions. The speeches made it clear that the ECB should be “independent”.  This has been taken as a sign that Germany is relenting on letting the ECB print. By affirming the ECB’s independence, Germany can, in theory, explain that it wasn’t responsible for the printing. There is also a chance that this is a way to take the blame off of Germany if the ECB decides not to print.  That seems less likely, but not everyone, especially at the ECB, believes printing is a solution, so this could be a way for them to take the focus off of Germany’s “nein”.

According to the script, Merkel and Sarkozy will become the Merkozy again tonight so that they can ride into this week’s summit with a “renewed joint focus”, blah, blah, blah. There is no way that they don’t act as though they have some agreement (even if they don’t). We won’t know what is discussed, we won’t know how much time is spent working out plans for a summit failure, all we will get is another handholding moment meant to encourage the market. I suspect that more time “off screen” will be spent discussing preparations for a failed summit, but all we will see is smiling confident faces.

At this point, I will give the politicians some credit. For the first time in months they seem to be writing the script. They aren’t just taking whatever script Wall Street hands them, and trying to act that out. The Wall Street scripts haven’t worked and have been unbelievable. The  politicians are finally taking control and trying to develop their own plan, and selling Wall Street on how viable it is. Since they are politicians, they are actually trained at figuring out what can get done and selling it to the people.  It probably won’t work, but at least they are doing what they are good at, and it would be hard to do worse than listening to another round of self-serving Wall Street advice.  On a refreshing note, at least we have agreement on something, Wall Street and politicians now both think the other group doesn’t understand anything and has no sense of timing.

The “puppets” are pushing through austerity in Italy and Greece. They can be held up as shining examples to other countries of what needs to be done. They aren’t the heroes of the story, but are there so that the Merkozy can point them out and show that i) it can be done, and ii) when it is done, the EU and IMF will come through with additional funds.  The “it” they got done won’t be well defined (but this is a movie, not the real world anyways) but the reward those good countries receive will be highlighted.

So the meeting will have Merkozy telling the smaller and problematic countries what a great future lies ahead for the eurozone. They will talk about the sacrifices they are making to ensure the viability of the future. There will be no criticism of the plan as only “friends and family” reports will get the inside scoop, and the “trailer” will be played over and over as part of the advertising campaign. We, the audience, will suspect that all the best parts of the play are in the “trailer” but we won’t be able to dig deep enough to argue against it.

The puppets will tell the other countries how happy they are that they have finally adopted austerity with growth to move forward and that they are excited about this opportunity to be part of the renewed commitment to the eurozone. Anyone who tries to figure out how austerity and growth work together, or where the money is coming, or any other details, will be escorted from room, and will be Clockwork Oranged into reading “fringe blogging websites” until they accept that details are bad, and only vague notions and slogans can “solve” anything.

At the end of the day, any holdouts will get invited to special meetings with the Merkozy. This is where they will be asked what they want to get in order to support the agreement, and reminded, that it is only an agreement in principle so they might as well say yes now, and they can always reject it later. These dark little meetings where the bribes are given and the futility of the agreement are discussed will only be available on the director’s cut, but will make people cringe when they realize what went on.

So in the end, according to script, everyone will get a chance for a joint communiqué and photo up where they talk about their commitment to implement these progressive changes. Every person who truly thinks about it for more than a minute, will know that it is a sham. They will see what has gone on, but it won’t matter. The “critics” will fall all over themselves to proclaim the success of the summit and that we are witnessing the birth of a new and better Euro. For a few days at least, the airwaves will be filled with the excitement that the “great leadership” exhibited by the Merkozy, and the diligence of the puppets, has led to such a monumental agreement. The future will be so bright, some might even “wear shades” when they discuss what has been accomplished.  Tears wouldn’t even shock me.

Then before anyone can complain that the positive reviews were bought, or that the script is flimsy, we will see the next wave of activity. This will be like a giant publicity machine, trying to turn a horrible movie into an Oscar winner through the sheer strength of publicity and graft.

The ECB will cut rates by 50 bps. The ECB will announce further participation in the secondary markets and hint at the ability and willingness to print money. The IMF will announce some new programs. The EFSF will start participating in the primary market. Even the Fed might hint at future QE (if not actually doing anything).

Then the leaders can sit back and hope their magic works.  Hope that their story has been bought and that the markets can take off and that they won’t actually have to implement much.  Yes, I think this is the key here.  They know that the treaty agreement changes are unlikely to be implemented.  They know the ECB has limits, that the IMF is going to struggle to do what people seem to believe they can do, they just hope that this is enough to give the markets so much confidence that they don’t have to do anything.  A market that can swing 6% on a 50 bp rate cut, might be manipulated into going so high that confidence is regained, long enough to buy time.

The “alternative ending”

So far, the directors have rejected the alternative ending. They don’t think that America in particular is ready for a non Hollywood ending, but they are filming some scenes just in case.  Fortunately many of the scenes are exactly the same as in the preferred ending. In the alternative ending, Merkozy and the puppets can’t convince everyone to go along with the communiqué. They can’t convince them that it is really meaningless so there is no point to disagree. Somehow the summit ends without the decision to move forward.

U.S. Corp and the impending IMF merger

by Robert Denner
of Daily Economic Update
Posted December 1, 2011

BEEN LOTS OF TALK AROUND LATELY REGARDING THE COLLAPSE OF THE U.S. DOLLAR AND WHAT THAT WOULD MEAN FOR THE UNITED STATES OF AMERICA AND THE WORLD. There has also been a lot of talk about the Federal Reserve Bank of the United States of America and how unhappy the people of the US are getting with this largely unknown organization.

These two forces are converging together in what could be a very serious and detrimental way as it relates to the average US citizen. This article will rely heavily on flawed analogies to help the lay person understand the inner workings of both the IMF and the Federal Reserve Bank. This is not to be taken as an academic piece and I would ask that it not be judged as such. This is meant to help those people that have recently woken up to the reality that their country has been hi-jacked and those that are desperate to get up to speed as quickly as possible. So let’s jump right into the thick of it shall we? First we need to start with what I hope are simple lessons so that you can take what I am about to teach you and apply it to the real world.

There is one thing that bankers and computer people love to do and that is to use big scary acronyms to scare off the simple folk. So here is your first lesson.

IMF and the SDR

So right off the bat we are using acronyms that mean absolutely NOTHING to the lay person and yet that is an actual sentence believe it or not… IMF stands for the International Monetary Fund. The SDR is short for Special Drawing Rights and is the currency of the IMF. The International Monetary Fund is a private bank that is used to help sovereign nations engage in international commerce. Just like if you owned a company and you used bank A, and your supplier used Bank B, the IMF would be the bank that both banks A and B used to transfer payments and credits back and forth to each other. To Company A and B (using Bank A and B) it would be seamless.

But the IMF does a whole lot more for the global economy. They are the creditor of last resort for a lot of countries. For if you want to engage in international commerce in the free world (meaning the world now) you must be a part of the IMF system. Should a country that is part of this system become over leveraged because of mismanagement and debt accumulation, the IMF stands ready to come to the rescue. To understand how this relationship has worked in the past (and the present); I MUST go into some history. I will keep it brief I promise.

To understand how the global monetary/commercial world works you have to go back to the end of World War II. Following the war the United States was alone as a major industrial power. The rest of the industrial countries were in shambles. The United States was also nearly alone as a producer of oil. It is this later point that needs to be highlighted.

The United States used its vast oil reserves and coupled it with a highly trained industrial labor force and put it to work in its vast expanse of industrial capacity to re-build the rest of the world. It is this fact that is at the very center of our current monetary system some 60 years later. So I will start with my first analogy…

The US Corp could be seen as a huge company like General Motors. Following WWII US Corp was the only company left with the capacity to make things and it had the working capital and energy to do what it wanted. US Corp went out into the world and started to acquire other businesses. First was Japan Corp which US Corp had beaten into a pulp during the war. US Corp decided that it was in its own best interest to build Japan Corp back up but it needed to make sure that it never again could threaten US Corp the way it did in WWII.  Japan Corp used its own currency called the YEN and US Corp obviously used the Dollar. So to make this all work, US Corp had to make sure that the workers at Japan Corp didn’t feel like the last of their country was being taken from them. To keep them vested in the viability of their own country it was very important to let them keep their own currency and their own political structure, albeit greatly modified under the surface. We allowed Japan Corp to keep their figurehead CEO (the Emperor) and we installed a new board of directors (Democratic institutions). We linked the Bank of Japan to US Corp’s bank the Federal Reserve Bank through a new institution called the International Monetary Fund and the World Bank.

If we were to compare this to General Motors this would be like GM buying another company and bringing it under the umbrella of the GM brand. So in this case Japan is like Pontiac and they are given free rein to run their subsidiary the way they see fit, SO LONG as they abide by the parent companies rules.

This setup worked wonderfully and within a decade Japan Corp was back on its feet and was supplying cheap labor and products for US Corp and with every single barrel of oil Japan Corp bought on the international market it further linked them with our monetary system.  To keep the Japanese citizens from feeling that it was the US Corp in charge of everything we came up with the International Monetary Fund and the World Bank. Of course these institutions were funded initially by the United States and Great Britain and as such they were just pseudo US institutions. But it worked and the Japanese subsidiary of US Corp gladly bought oil and products from the United States in its own currency (the Yen) but it was linked via the IMF to the US Dollar. For you see US Corp linked everything that the industrial world needed to the US Dollar. All gold/oil/silver/food/etc were priced first in US Dollars and depending upon the relative “strength” of your currency to the US Dollar, this would dictate how much of your currency it would take to purchase a barrel of oil or an ounce of gold. This gave US Corp a huge advantage in the world as we produced almost everything anyways. We had most of the world’s oil supply and a very large portion of the food supply. We were the largest producer of the big complex things the world needed to rebuild. We allowed the smaller subsidiaries to produce the little stuff we needed or wanted. Japan Corp was great at the later, supplying us with small radios and other cool electronic gadgets.

US Corp built a company with dozens and dozens of subsidiaries, each one of them bringing something to the table either large or small. And as the world re-built, other countries wanted to get in on the good times and they voluntarily sold themselves to US Corp. Other countries were very reluctant to join our big happy company. Those countries fell into two groups. Either they were affiliated with Russia Corp or they wanted to stay neutral. But in a world that was moving fast towards globalization it became apparent that each country would have to choose a side lest they be shut out of the global market. For remember that the only way to gain access to US Corp’s vast array of markets and supplies is to be a part of the IMF/World Bank. It was the only way to convert your currency to other currencies (like the US Dollar to buy OIL!!).

I will end this history lesson there as I could get sucked in for hours explaining how US Corp and Russia Corp went to economic(and sometimes real) war with each other and how Russia Corp tried to have it both ways by linking themselves partially to the IMF to gain access to US Corps vast supplies and labor.

I will leave that to YOU to go out and study on your own as it is a story to rival any fictional book you have ever read. The important thing to take away here is that the International Monetary Fund and the World Bank are institutions that were created by the United States and Great Britain. It is a global system that allows countries using different currencies to exchange their goods and services with each other almost seamlessly. Remember also that the system was setup INITIALLY to allow US Corp to control the world’s most important supplies. Things like FOOD, OIL, COMMODITIES (gold,silver,etc) and the rest. At the time this system was created it was the United States that was supplying the lion’s share of these items. But as the decades have come and gone, these items have increasingly come from other parts of the world.  And a good portion of these countries are ones that were FORCED into our system either out of necessity or by direct manipulation of their country by forces outside their borders(meaning the US and the IMF).

CONFESSIONS OF AN ECONOMIC HITMAN

This next part of our story is centered on how the US has maintained its spot at the top of the economic order even in the face of massive budget deficits and seemingly unending debt loads. The title of this section is called Confessions of an Economic Hit Man, as I give a nod to a book of the same name written by a man named John Perkins. Mr. Perkins is a trained economists and his specialty was international finance. His job was to go out into the world and sell foreign leaders on US Corp and to convince them to get on board with our system. Or more importantly, it was his job to make sure that they were forever caught up in our system and that they did not attempt to leave our company.

German endgame for EMU draws ever nearer

by Ambrose Evans-Pritchard
Telegraph International Business Editor
Posted September 4, 2011

For fifty years Germany has invariably stumped up the money required to keep Europe’s Project on track, responding to unreasonable demands with grace and generosity. We will find out to what extent Germany’s constitutional court (pictured) shares these views when it rules this Wednesday on the legality of the EU rescue machinery. Photo: AP

It bankrolled French farmers through the Common Agricultural Policy, that disguised tithe for war reparations. It then bankrolled Spanish farmers as well. It funded each new wave of EU expansion, though reeling itself from the €60bn annual cost of its own reunification. It gave up the cherished D-Mark, the anchor of German economic stability.

We are so used to German self-abnegation for the sake of Europe that we can hardly imagine any other state of affairs. But the escalating protest against EMU bail-outs by Germany’s key insistutions go beyond the banalities of money. The fight is over German democracy itself.

Those who talk of a Fourth Reich or believe that EMU is a “German racket to take over the whole of Europe” – as Nicholas Ridley famously put it – have the matter backwards.

Germans allowed their country to be tied down with “silken cords”. They are the most reliable defenders of freedom and parliamentary prerogative in Europe, precisely because they know their history. Finance minister Wolfgang Schäuble could hardly have chosen a more toxic term than “Bevollmächtigung” or general enabling power when he requested blanket authority from the Bundestag for EU rescues, as if Weimar were so soon forgotten. He was roundly rebuffed.

You can feel the storm brewing in Germany. Within days of each other, President Christian Wulff accused the European Central Bank of going “far beyond” its mandate and subverting Article 123 of the Lisbon Treaty by shoring up insolvent states, and Bundesbank chief Jens Weidmann said bail-out policies had “completely gutted” the EU law.

Both believe the EU Project has taken a dangerous turn. Fiscal powers are slipping away to a supra-national body beyond sovereign control. “This strikes at the very core of our democracies. Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies,” said Mr Wulff.

Otmar Issing, the ECB’s founding guru, fears that the current course must ultimately provoke the “resistance of the people”. Instead of evolving into an authentic union with a “European government controlled by a European Parliament” on democratic principles, it has become deformed halfway house.

What recovery? Undemocratic and corrupt, the EU faces dis-Union

from The Daily Bell
Posted August 31, 2011

Double-dip fears across the West as confidence crumbles … The Western world is at mounting risk of a double-dip recession after key measures of confidence collapsed in both the United States and Europe, with Germany the steepest one-month fall since records began in the 1970s. The IMF has slashed its growth forecast for America and Europe, according to a leaked draft of its World Economic Outlook. – UK Telegraph

Dominant Social Theme:
Everything has been going very well, and employment and profits are picking up. So let’s not spoil a good thing, eh?

Free-Market Analysis:
This article in the UK Telegraph takes a dim view of the “recovery” that the West is supposed to be enjoying. In fact, it cites a good deal of evidence to show the West’s economic situation is about to get even worse. In doing so it all but predicts the EU itself – or at least the euro – may be only weeks away from fracturing.

This is good, of course, though perhaps (unfortunately) over-optimistic. The EU is nothing but a fascist enterprise that should be broken up as soon as possible. Astonishingly, the appendages of the EU have not been audited for years because the auditing firms will not take responsibility for an institution of such corruption.

There is an inner circle in the EU that is answerable to no one expect perhaps the great banking families of Europe and America that have created this monstrosity. It is from this tiny circle of “leaders” – all of them either coming from communist or socialist backgrounds – that EU policy is created.

The result is a mishmash of oppressive regulations and overweening ambition. The EU leaders have had ambitions to build an army and to create a fuller union of EU states that will mimic the worst federal excesses of the United States.

What is even worse is that all of this was planned long ago; even as EU member states and their populations were being assured that the EU was nothing but a large trading facility, its top executives were plotting and planning a 400 million strong, federal union. One hears echoes of that today, as academics and politicos alike call for a closer EU to counteract the implausibility of the euro’s current condition.

In fact, these days the euro itself is not a currency mechanism so much as a kind of metaphorical manacle that increasingly is keeping Europe’s Southern flank – miserable and bleeding – tied to the richer North. The result: higher taxes, resource fire-sales and the slashing of public services and retirement benefits.

Of course, we’ve long predicted that the EU, or at least the euro, is in significant trouble. This is based on the idea, generally, that there is no “recovery” – not in America and not in Europe. In fact, Europe’s Southern PIGS are bankrupt; meanwhile, the US’s unemployment refuses to go down and may even be headed up.

What’s left? The world’s economy basically hangs on the thread of China and as we’ve tried to point out in numerous articles, that’s a thin support indeed. China’s social unrest is actually quite staggering at this point, though under-reported. Its much discussed (finally) empty cities, skyscrapers and malls are symptomatic not of central planning so much as communist party desperation.

The ChiComs will do anything to meet their self-imposed growth targets. But the result has been the biggest building and buying binge the world has ever seen. It has to end sometime, and it is very possible that it will put an end to the Chinese government itself. Without China, the world will reel round like a drunk looking for a handhold.

Without support, the global economy will fail. India, Brazil and Russia shall not provide salvation. Germany will not salvage the EU, for without anyone to buy its products, Germany will participate in the upcoming worldwide “recession.”

But the UK Telegraph article tells us to expect grim times – really grim ones – even without China’s participation. In the US, we learn, the US Conference Board’s index of consumer sentiment “plunged to the lowest level since the depths of the slump in 2009, falling to 44.5 from 59.2 in July.”

Meanwhile, Christine Lagarde, new chief of the International Monetary Fund, put her wrong foot first, irritating the Germans and then the French by discussing a global crisis is entering “a new phase.” This was not welcome news to the leaders of either country, and the Germans especially do not want to be pressured into supporting a weaker euro, no matter how concerned Ms. Lagarde is.

Lagarde is actually reacting to her own research. We learn from the Telegraph that the IMF has slashed its growth forecast for America and Europe, according to a leaked draft of its World Economic Outlook. Lagarde and the IMF want American and European central banks to print more money, even though it doesn’t seem to be working. The Germans know it; the IMF does not seem to.

The Germans apparently understand that nothing can be done, at least when it comes to Spain, Portugal, Greece and Ireland. Lagarde’s IMF disagrees. Jose Vinals, the IMF’s head of capital markets, “rebuked Europe’s leaders for failing to beef up bank defences and allowing the debt crisis to fester.”

Vinals received support from Charles Dumas of Lombard Street Research, who said a further “recession” in the West is inevitable because of fiscal deflation. What should have happened? The ECB should have loosened considerably this summer; Jean-Claude Trichet, Europe’s central banker has got it all wrong, and has been behind the curve besides.

Yet can Trichet really be blamed? He’s feeling considerable heat from the Germans who have claimed that the ECB has engaged in “legally questionable” purchases of Spanish and Italian bonds. The Germans apparently feel they are losing control of the ECB, even though it is German money that drives the EU and the euro.

The rhetoric is building in Germany. The Telegraph notes that Hans-Olaf Henkel, former head of Germany’s industry federation (BDI), wrote in the Financial Times that his support for the euro had been “the biggest professional mistake I have ever made.” What’s the solution? A so-called ‘Plan C’ under which Germany, The Netherlands, Austria and Finland make their own currency, leaving the South to struggle on without the straightjacket of a German euro.

Stephen Jen from SLJ Macro Partners believes that the EU’s debt-ridden Southern flank may act first, as politicians revise their views on the PIGS’ unpopular austerity and propose radical solutions featuring disunion either of the EU itself or of the currency. “I think this will happen in weeks rather than months,” the Telegraph quotes him as saying.

We are not holding our collective breath. (Just today there are reports that Merkel DOES have enough votes to push through yet another EU bailout package in Germany.) But it does occur to us that the combination of an intractable sovereign debt crisis, an oncoming German recession and a court case intended to decide whether Germany’s current government is acting unconstitutionally may be enough – eventually – to crack open the union.

We have never predicted in the past what may happen to the EU, at least not in the short term. In fact. this deeply dishonest political system was meant to grow by crisis. Its top men assumed that there would come a time when the euro would not function properly. One can even make a case that the European banks were encouraged to acquire sovereign debt in order to precipitate the current crisis.

But something happened on the way to a closer union. We believe the Internet Reformation has thoroughly exposed the plans of those at the top in a way that was not anticipated. It is one thing to manipulate people who do not understand what’s occurring. It is another to move ahead with a slippery program that people understand is not in their best interests.

The EU, if it fails, becomes merely one more dysfunctional meme. It takes its place in an increasingly long line that includes the foundering war in Afghanistan, the rising tide of disbelief over the war on terror, the obloquy that global warming now attracts, the derision to which central bankers are increasingly subject, etc.

The 21st century is nothing like the 20th. The great banking families are losing control of communications and increasingly cannot configure their messaging. Mainstream media is struggling to survive. The vast fear-based promotions rolled out by Tavistock Institute are not working so well these days. The directed history that seems to have run the world for nearly 200 years is becoming undone. This world lives in interesting times. Such lack of elite control was seen last some 500 years ago during the era of the Gutenberg Press, which led to the Protestant Reformation and a wholesale shift in the way populations were controlled.

It may be that the powers-that-be have already anticipated the break-up of the EU or at least the degradation of the euro. Perhaps such an occurrence will be used to bring pressure on world leaders to create a truly global currency. But even so, this must be seen as a secondary strategy more than an original plan.

Conclusion:
Definitively, the great families and their enablers did not wish for the EU to fail, so far as one can tell. Its dissolution, were it to occur, will be no victory for them. In fact, it would be a most important and startling defeat, one that might have an extremely negative effect – not just on European unity but also on regulatory democracy and even on the central banking system. It might even signal the beginning of the end of the modern conspiracy to rule the world.

DB Briefs: Danger of a deteriorating social mood / China’s shifting economic sands / Is bank recapitalization the answer?

from The Daily Bell
Posted August 30, 2011

The deflationary hurricane of deteriorating social mood

Deteriorating social mood is like a very slow-building, very slow-moving hurricane: The longer it goes on, the stronger it gets. And while some policymakers may be praying like St. Augustine for chastity, and others for a book of dry matches, I’d be moving to higher ground to stand on. The path I am most worried about is not the long-term sustainable inflationary economic one, but the much nearer-term deflationary storm path that comes with deteriorating social mood. For the northeast, Irene may have now passed. But for all of America, there is another, much bigger storm that bears watching closely. – Minyanville.com

Dominant Social Theme: Everything is OK and don’t you worry. The elites know how to handle the economy, and you will retire rich, even if you don’t think so now.

Free-Market Analysis: The writer of this article, Peter Atwater, has hit upon a kind of anti-meme. He believes that “Everything we [in the West] need to do for long-term economic, if not societal, success and stability comes with very severe short-term consequences.” And thus it has not been done. Fed Chairman Ben Bernanke‘s monetary stimuli are not the answer, he argues. More radical solutions are required. What is necessary is a severe reinforcement of economic “chastity.” Banks must be strengthened; nations must cease to spend; citizens must accept austerity.

Of course, this is a power elite theme of itself: that the larger world (and Western) economy is an irresponsible one and that the West’s leadership has proven inadequate to the task. Here at the DB, we disagree. The issue is not austerity or cost-cutting. Responsible leadership in our view is that which demands an end to the elite’s ruinous central banking economy and a return to some sort of competitive money, which would inevitably feature silver and gold.

Somehow, despite Atwater’s concerned gloom, we don’t sense he’s ready for the really radical reconfigurations necessary to build healthy economies. He apparently feels that reshuffling the proverbial deck chairs is a revolutionary act.

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China’s shifting economic sands

Is China’s economic miracle built on sand or cement? It won’t exactly make world headlines, but in the Chinese port city of Dalian there was another accident today in the city’s sprawling petrochemicals development zone. This time a fuel tank caught fire in an oil refinery belonging to state major PetroChina. This is the same city, you’ll remember, that was hit by serious protests a fortnight back after a paraxylene chemical plant was nearly breached by a storm surge caused by a passing typhoon. In that case, the local government caved in and agreed to shut down the plant. What’s amazing – and disconcerting for many living in Dalian – is that this is the FOURTH major safety alert in the petrochemicals complex in the last 12 months or so. – UK Telegraph

Dominant Social Theme: Don’t worry about China. This is one powerful and far-sighted country.

Free-Market Analysis: This article in the Telegraph about China is an interesting one because unlike many mainstream articles it dares to ask the question whether the “Chinese Miracle” is nothing but hype and the proverbial madness of crowds.

Every night when he goes home to his Beijing apartment, the author writes, he catalogues the way that the apartment is “quietly crumbling.” Look carefully, he writes, “and you’ll see the flagstones in the public areas are subsiding drunkenly, the access road to the rear is shot to pieces, the bathroom fittings are corroding and the façades are starting to peel. With an apartment that hardly matters, but when it comes to railways, bridges, petrochemical complexes, 40,000 dams (as my colleague Malcolm Moore reported this week) and even nuclear power stations, we’ll have to pray higher standards have been enforced.”

Actually, the article’s feedback comments are even more alarming, speculating that the same sort of sloppy construction may doom modern Chinese dams to catastrophic failure within the next ten years. As for domestic harmony, we find the article has generated the following feedback from Scott Jensen: “In 2005, China stopped publicly reporting how many riots occur each year in its country because the rate of increase was rapidly increasing year after year. Some now speculate there are at least 120,000 riots in China a year. That’s over 10,000 a month.”

We’ve been writing about the demise of the Chinese Miracle for several years now. And articles like this one only reinforce our conclusions. China’s old communist leaders simply don’t know what to do. They’ve thrust China into the modern era, but in a manipulative and controlled way (see Sino-Forest Corp.) that is merely storing up problems for the future. Eventually, the dam is likely going to break – metaphorically and in reality. The catastrophic results may shake the world.

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Is bank recapitalization the answer?

European banks set cash test by IMF chief … European banks face ordeal by fire this week after the International Monetary Fund called for “urgent” action to shore up their defences, if necessary with state money and under legal compulsion. Recovery is in danger if we don’t shore up defences, says Christine Lagarde – UK Telegraph

Dominant Social Theme: Strengthen the banks to strengthen the EU.

Free-Market Analysis: One of the problems with gaining Christine Lagarde as the IMF’s new chief, is that she seems to believe it is incumbent on her to be vocal about the Western economic system. Thus, she set off what the Telegraph calls “tremors” at a recent financial conference by warning that the global economic system was on “thin ice.”

“We are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed, so we must act now,” she said. “Banks need urgent recapitalisation. If it is not addressed we could easily see the further spread of economic weakness to core countries, even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalisation,” she said.

Lagarde is a lawyer by training, so perhaps we should give her the benefit of the doubt. But such warnings are merely part and parcel of a larger elite charade in our view (and Lagarde now works directly for the elite). The “reserves” a bank holds in the modern era are nothing but paper certificates. It is difficult to see how holding more or fewer of them contributes to a bank’s solvency.

If she were to demand that banks hold gold or silver reserves, we would be more impressed. But that would be too sensible. Instead, she will no doubt continue to offer this sort of nonsensical rhetoric. In the age of central banking, a bank’s solvency is far more dependent on the largesse of central banks.

If Lagarde were truly sincere about bank recapitalization, she would examine the linkages between central bankers and their commercial banking brethren. Those with the strongest relationships would been seen as having the healthiest banking prospects. No doubt, this is an overly cynical recipe. But it is a realistic one.

Central Bankers race toward global currency solution

from The Daily Bell
Posted Thursday, August 11, 2011

CENTRAL BANKERS ARE RACING to shield their economies from fiscal tightening and lopsided currency swings that threaten a new global recession. In the 72 hours after a Group of Seven conference call on Aug. 7, the Federal Reserve pledged to keep interest rates near zero through at least mid-2013, the European Central Bank intervened in bond markets and the Bank of England indicated it’s ready to add more stimulus if needed. Japan signaled renewed concern about the yen and Switzerland yesterday stepped up its fight to curb an “overvalued” franc. … While the actions aren’t as directly coordinated, the push is one of the broadest since the Fed, ECB and four other central banks cut interest rates together in October 2008 to limit fallout from Lehman Brothers Holdings Inc.‘s collapse. – Bloomberg

Dominant Social Theme:
The experts at the world’s central banks are on the job.

Free-Market Analysis:
This Bloomberg article is just another in a long line of disappointing mainstream financial reports that does nothing to address the real issues causing the crisis and, in fact, does everything to try to misinform the public into believing that the “experts” have all under control.

Well, we do not think more jaw-jaw is what people want to hear right now, or that the money magicians are capable of doing anything to stop the rapid erosion of public confidence. And based on the recent upward move in Honest Money, it is quite obvious the markets don’t want to hear it either.

Regardless of what Bloomberg wants people to believe, the world’s central banks are NOT independent banks led by teams of “experts” dedicated to establishing prudent national monetary policy. No, they are nothing of the sort and never were intended to be. They are simply a cartel-like crime syndicate that operates under the direction of the Swiss-based “super central bank,” the Bank for International Settlements. And the BIS is just one more tool in the arsenal of elite monetary control of the world.

The BIS sits like a great spider at the heart of the corrupt and ruinous central banking mechanism that the Anglo-American elite has successfully foisted upon the world. It coordinates the policies of these ruinous entities – not to any great effect – but to ensure that the Anglosphere maintains control of what it has built.

The Western elite’s banking scheme is a central part of how the Anglosphere has managed to dominate the world behind the scenes. Through central banking and the BIS, the Anglo elites have a stranglehold over economies worldwide. Even though most of the world was aligned against a presumed to be corrupt BIS after World War II, it somehow managed to escape dissolution. This is because it is a prime asset of the City of London, that mysterious one-square mile patch of real estate at the heart of London where the Bank of England itself is located.

However, today all of the elite’s poisonous machinations face an unprecedented decline in public confidence. And nowhere is the threat of total collapse more intense than on that most important elite edifice of all – the central banking system itself.

It is only the confidence of the public that enables the continuous printing of unrestrained fiat currencies – which combine to provide the base of an international Ponzi scheme. But something’s happening around the world that the money masters didn’t plan on. People are waking up.

But you wouldn’t know it by reading articles like this one, excerpted above. No, Bloomberg, a mainstream media outlet to be sure, would rather you believe that there are sweaty-browed experts working around the clock to fix the situation. So what magic tools do they have? What are the experts doing about this financial mess? Here’s more from the article:

Finance ministers and central bankers from the G-7 nations, which include the U.S., U.K. and Germany, said in a statement Aug. 7 that they will “take all necessary measures to support financial stability and growth in a spirit of close cooperation and confidence.” …

The next day, the Frankfurt-based ECB, which last week restarted its bond-purchase program after an 18-week hiatus, extended its focus to include debt of Italy and Spain, the region’s third- and fourth-largest economies.

The Fed’s decision Aug. 9 to hold its key interest rate at a record low through mid-2013 and signal it’s ready to use additional tools comes as U.S. politicians are tightening the nation’s fiscal belt and the economic stimulus enacted by President Barack Obama in 2009 comes to an end.

Bank of England Governor Mervyn King told reporters in London yesterday that headwinds buffeting the nation’s economy are intensifying “by the day” and officials can expand stimulus if the outlook for growth deteriorates further.

Bank of Japan Governor Masaaki Shirakawa said Aug. 9 that volatile exchange rates could have a “negative impact” on the economy, after the central bank last week added 10 trillion yen ($130 billion) of stimulus and the country unilaterally intervened in the currency market to weaken the yen.

Switzerland’s central bank said yesterday it will increase the supply of francs to fight the currency’s “massive overvaluation.”

That’s it? The central banksters have decided to do MORE OF THE SAME. They’re all going to work to make sure they “print-in sync” as much new money as “necessary” so that none of them face total collapse and threaten to take down the entire game? That’s the plan? And they will directly intervene in the market to create the illusion of demand/strength by buying the garbage debt from countries like Spain and Italy? This is the plan? Isn’t that called market manipulation?

Wow. Well, here’s a better plan. Stop the insanity! You cannot fix a dysfunctional monetary system that is built on a fraudulent premise by simply increasing the degree of the crime. The impossibly wealthy families who desire one-world governance will stop at nothing – including the use of force – to complete their centuries-long mission. But arrogantly, they will refuse to cease their devious efforts and instead will try to use these crises to bind the masses into accepting a fear-based international monetary solution. Out of chaos… order.

In fact, just the other day one of China’s faceless mouthpieces, the Xinhua News Agency, came out in an editorial to the world and stated, “International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”

And then there is this statement from Fed Chair Ben Bernanke, “Policy makers must respond forcefully, creatively and decisively … crises that are international in scope require an international response.”

Can’t you just see the smile on Christine Lagarde’s face as she gleefully embraces her new position as Head of the International Monetary Fund? For surely there is an IMF logo engraved on the international boot readying itself to slam down on the faces of current and future generations. But hold on a minute… will the puppets/experts running the world’s central banks – and Money Power standing behind them – be able to pull off this global manipulation?

We’re not so sure they will. And we certainly don’t wish them luck.

All across the world, the modern Internet Reformation is beginning to reshape the way people relate to power in the modern age. While it is not as obvious as during the era of the Gutenberg Press, there is formal doctrine accepted by Western societies that is beginning to shatter. That formal doctrine may be termed regulatory democracy and it has been leavened with numerous assumptions that on closer inspection turn out not to be true. Like what money is and what it is not. And it is the Internet itself that allows for information to spread that undermines the various precepts of regulatory democracy.

It is this hierarchy that promulgates regulatory democracy and its various dominant social themes – the fear-based promotions that the Western power elite uses to control the conversation and to further centralize power and authority worldwide.

And one of those fear-based promotions that the masses have been bombarded with is the “expert” theme. The public is constantly being promoted into accepting a passive position with respect to how the financial world operates. They are meant to be overwhelmed with facts and complicated economic formulas so they feel helpless, confused and generally incapable of mastering their own financial destinies. After all, how could anyone understand such a complex subject as money?

Well, all around the world people are starting to understand that the system is rigged and money really isn’t complicated at all. The Internet Reformation reveals the cartel’s synchronized efforts to manipulate public confidence so they can continue their fraudulent and manipulative wealth redistribution game.

Conclusion:
The reality of the situation is this: there are no magic monetary tools that can fix the global monetary crises hidden in the basement of the Federal Reserve, the Bank of England, or any of the others. The fiat money instruments themselves – dollars, euros, yen, etc. – ARE THE PROBLEM.

And in this alternative media-led ‘Net era, the old men hiding behind the central banking curtains are starting to look rather pathetic. The illusion is fading and people are waking up. In fact, the European Union is failing, various serial wars of conquest are not going well, and the fear-based memes of the elite are continually being debunked by an Internet that adds more to humankind’s real knowledge base every day. It will take decades if not centuries to control the damage that has already been done (from an elite standpoint), and what has been done cannot be undone.

Will the international power elite lose their destructive ability to create money out of nothing and their control over legislative power that currently prohibits private money competition? Will the elite be forced to take a step back in the face of a massive public awakening? Or will an Orwellian-style society be forcibly foisted upon us all with the UN, IMF, World Bank, BIS, NATO, WHO, ICC and all the other edifices of world government eventually control every aspect of our lives? Only time will tell, but the Internet Reformation gives one great hope that the “best laid plans will be laid to rest.”

S&P downgrades US credit rating to AA+, and more

Daily Bell Briefs
Posted August 08, 2011

S&P downgrades U.S. credit rating to AA+

The United States lost its top-notch triple-A credit rating from Standard & Poor’s Friday, in a dramatic reversal of fortune for the world’s largest economy. … This came after a confusing day of reports: Standard & Poor’s told the U.S. government early Friday afternoon that it was preparing to downgrade the U.S.’s triple-A credit rating but U.S. officials notified S&P that it had made a $2 trillion mathematical error. The error was in the calculation of the U.S. debt-to-GDP ratio over time and was based on a misreading of what the correct congressional baseline was, government sources indicated. They said that once informed of the error S&P revised its rate-cut rationale to emphasize the political aspects of the country’s debt situation. “A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesperson said. – CNBC

Dominant Social Theme: You cannot trust the private sector with this sort of thing… the State knows better.

Free-Market Analysis: We have been suggesting for quite a long time now, perhaps ten years or more, in various books, editorials and publications, that the US monetary and political system was in serious trouble and would eventually face a severe “reality check.” Today, we see the headwinds of reality crashing into the structural edifices that have been erected as a means of population control and economic enslavement. The US dollar is a license to steal, one that has been granted via legal tender laws, and the heist has now been revealed to millions during this dawning era of what we call, the Internet Reformation. The US political establishment – in this case the Treasury Dept. – can criticize S&P’s downgrade all they like, but the truth of the matter is that the US is broke and soaked in a sea of unsustainable debt. To whine about a $2 trillion “error” – that isn’t really an error at all, considering the Treasury Dept. is disputing S&P’s misuse of “congressional baseline” numbers that somehow accurately forecasts the “U.S. debt-to-GDP ratio over time” – is nothing short of laughable. Suffice to say, why should anyone, including S&P base any of their numbers on congressional baseline numbers when all the government does is tell one lie after another? Does anyone with any semblance of understanding of the fiat-money system really believe that the “wise leaders” acting/running the US are going to master the great ship’s rudder and pull off a last minute “miracle-manouver,” thus avoiding the treacherous shoals it is destined to crash into? We think Hurricane Reality is about to teach the “Captains of Fantasy” and their believers a severe lesson. Now S&P cannot come out and say that, but we can.

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Asian Markets slip on U.S. credit downgrade

International markets trembled over the weekend following an unprecedented downgrade of the United States’ sovereign credit rating by the agency Standard & Poor’s. Analysts had feared that the downgrade, in combination with the spiraling European debt crisis, could send overseas investors into a panic and undermine the strength of the global economy. … As of 11 p.m. EST on Sunday, Japan’s Nikkei index had fallen 1.3 percent to 9,178.03, a drop of 121.85 points. Hong Kong’s Hang Seng was down 3.71 percent at 20,169.41, while the South Korean composite index KOSPI had fallen 3.01 percent to 1,885.27. Australia’s S&P/ASX 200 index slipped 1.2 percent to 4,055.80, while New Zealand’s NZX 50 declined 2.49 percent to 3,194.82. In the Middle East, Israel’s TA-25 market fell 7 percent to close at 1,074.27, its biggest decline since 2000. Egypt’s EGX30 fell 4.2 percent. Other markets showed more measured losses: the Abu Dhabi Securities Exchange General Index fell 2.5 percent, while Dubai’s exchange closed 3.7 percent down. … In spite of the S&P downgrade, few on Wall Street are expecting investors to pull out of Treasuries on a large scale, since the bonds are still seen as relatively safe. – Huffington Post

Dominant Social Theme: Don’t believe all the hoopla; US government debt is a safe and stable investment.

Free-Market Analysis: How anyone can suggest that there is anything safe about US government bonds, especially now, is beyond us. But we would expect nothing different of an article that appears in the Huffington Post, a mainstream media player to be sure. To think that people should act like the US Congress and try and solve the fiat-money debt problem by investing in the very problem itself – US debt – is foolish, in our opinion. The article, not surprisingly, mentions nothing about honest money as a safehaven option – despite that fact that gold, trading above $1,700 as of this writing, is up more than 50% in purchasing power over the last three-years alone against the US dollar. Does the US dollar, or dollar denominated debt, sound like an investment that is “relatively safe” to you?

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China blasts U.S. debt problems, urges new global reserve currency

China on Saturday condemned the “short-sighted” political wrangling in the United States over its debt problems and said the world needed a new global stable reserve currency. “China, the largest creditor of the world’s sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets,” China’s official news agency said in a commentary. “International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” it said. – Reuters

Dominant Social Theme: It’s time to let Christine Lagarde and the other “wise leaders” at the IMF run the world’s money.

Free-Market Analysis: Well this certainly comes as no surprise. We have been ringing the bell on this one for while now. In fact, we ran a staff report back in March 2009, titled China Wants IMF to Manage New One-World Currency. The essence of what we said in that article, as well as many others dealing with Money Power’s insatiable desire to fasten a global currency yoke on the entire world’s population, is that out of the fiat-manufactured chaos we have today, it is likely that global order will be promoted as the cure to all our monetary ills. The IMF, a globalist organization to be sure, along with the World Bank, will be marketed by the establishment politicians, NGO think tanks and mainstream media outlets as the only logical way to alleviate the markets of their instability and overall confusion. The eurozone experiment alone should be enough of a wakeup call – for anyone that cares to see – that by stitching together a bunch of systemically bankrupt nation’s fiat currencies does nothing to aleviate the rot inherent in the design and nature of the money-stuff-system itself. We truly hope the world escapes from the grasp of the globalist’s fiat-fangs and that this plan of unification does not become a reality. What the world needs, in our opinion, are private currencies competing in a free-marketplace where governments have no involvement in either the issuance of currency or its management. Let the market decide what to use as money and keep the State and unelected global government agencies out of it.

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ECB says will “actively implement” bond-buying

The European Central Bank said on Sunday it would “actively implement” its controversial bond-buying programme to fight the euro zone’s debt crisis, signaling it will buy Spanish and Italian government bonds to halt financial market contagion. … “The Euro system will intervene very significantly on markets and respond in a significant and cohesive way,” a euro zone monetary source said, speaking shortly before the statement was released. … The ECB statement sought to justify the buying by saying it was “designed to help restoring a better transmission of our monetary policy decisions taking account of dysfunctional market segments and therefore to ensure price stability in the euro area.” – Reuters

Dominant Social Theme: The dysfunction of the invisible hand must be slapped with oversight and active intervention.

Free-Market Analysis: This is getting just silly. Think about it for a minute. Here comes the ECB to create a US-style Plunge Protection Team that can “intervene” whenever the “wise leaders” feel it is necessary – all for the purposes of shoring up confidence in a dying fiat-money central banking system. The arrogance of Money Power to think that people cannot see this for what it is – blatant manipulation – is simply flabergasting. The ‘Net dissects the obviousness of such planning and exposes the desperate attempts of those who believe they are smarter than the free market. The name of the game is global power via global governance. To achieve that end, the power elite‘s agents will do just about anything in the face of Hurricane Reality to try justify the means. Once again, the problem facing the world today is the fraudulent nature of the global central banking system and the monetary units they peddle. Creating another manipulation-arm to intervene and “fix” the illusion is no solution at all.

Cracks beneath the Façade

by ilene
from Stock World Weekly
Posted June 26, 2011

China 

ON THURSDAY, QU XING, DIRECTOR OF THE CHINA INSTITUTE OF INTERNATIONAL STUDIES, a Foreign Ministry think tank, told reporters that China doesn’t want to see debt restructuring in the Eurozone and is working with the IMF and countries involved with the debt crisis in an attempt to avoid it. Speaking at a press conference during a visit to Hungary, Premier Wen Jiabao said, “China is a long-term investor in Europe’s sovereign debt market. In recent years we have increased by a quite big margin holdings of Euro bonds. In the future, as we have done in the past, we will support Europe and the Euro.”. Sunday, on a tour of the Chinese-owned Longbridge MG Motor factory in Birmingham, Premier Wen told BBC it will lend to European countries, and also has plans to stimulate domestic demand and reduce its foreign trade surplus.

China’s stated position prompted Zero Hedge to ask, “Will the third time be the charm for the Chinese ‘white knight’ approach to Europe, where it has so far sunk about $50 billion in bad money after good?” Saturday, Zero Hedge reported that China’s European Bailout (And TBTF) Bid Hits Overdrive, As Wen Jiabao is Now in the Market for Hungarian Bonds. “It seems China has learned from the best, and either knows something others don’t (except for the SHIBOR market of course) or is actively preparing to become Too Biggest To Fail by making sure that if something bad happens to it, literally the entire world will follow it into the depths of hell.  Sunday, ZH wrote, “As expected, China is the new IMF… All this means is that China will do everything in its power to prevent the ECB from launching an outright unsterilized monetization episode, which will double the amount of importable inflation (plunging EUR) to hit the Chinese domestic economy, and destabilize the already shaky stability, so critical for the Chinese communist party.” (China Says It Will Bail Out Insolvent European Countries.)

It’s good to know that China has its problem with inflation now solidly under control.

 

Greece

Greece has a population of just over 11 million people. Compare that to the New York City metropolitan area population estimated at 18.9 million. It may seem strange that Greece’s travails might greatly affect the global economy, but the potential repercussions from a Greek default become more significant when considering leverage and derivatives. Data from the International Monetary Fund (IMF) show that German banks are heavily leveraged, holding 32 Euros of loans for every Euro of capital they have on hand. Other banks are leveraged to the hilt as well. Belgian banks are leveraged 30-1, and French banks are leveraged 26-1. Lehman’s leverage at the time of its collapse was 31-1. U.S. Banks are paragons of sanity by comparison, with an average leverage of only 13-1. (Europe’s sickly banks) France and Germany are the countries most exposed to Greek debt through bank and private lending and government debt exposure (chart below).

Derivatives present another potential minefield. As Louise Story wrote in the NY Times,
“It’s the $616 billion question: Does the euro crisis have a hidden A.I.G.? No one seems to be sure, in large part because the world of derivatives is so murky. But the possibility that some company out there may have insured billions of dollars of European debt has added a new tension to the sovereign default debate… The looming uncertainties are whether these contracts — which insure against possibilities like a Greek default — are concentrated in the hands of a few companies, and if these companies will be able to pay out billions of dollars to cover losses during a default.” (Derivatives Cloud the Possible Fallout From a Greek Default)

Michael Hudson explored the differences between what happened to Iceland and its debt crisis, and what is currently happening in Greece:
“The fight for Europe’s future is being waged in Athens and other Greek cities to resist financial demands that are the 21st century’s version of an outright military attack. The threat of bank overlordship is not the kind of economy-killing policy that affords opportunities for heroism in armed battle, to be sure. Destructive financial policies are more like an exercise in the banality of evil – in this case, the pro-creditor assumptions of the European Central Bank (ECB), EU and IMF (egged on by the U.S. Treasury)…

“The bankers are trying to get a windfall by using the debt hammer to achieve what warfare did in times past. They are demanding privatization of public assets (on credit, with tax deductibility for interest so as to leave more cash flow to pay the bankers). This transfer of land, public utilities and interest as financial booty and tribute to creditor economies is what makes financial austerity like war in its effect…

“One would think that after fifty years of austerity programs and privatization selloffs to pay bad debts, the world had learned enough about causes and consequences. The banking profession chooses deliberately to be ignorant. ‘Good accepted practice’ is bolstered by Nobel Economics Prizes to provide a cloak of plausible deniability when markets “unexpectedly” are hollowed out and new investment slows as a result of financially bleeding economies, medieval-style, while wealth is siphoned up to the top of the economic pyramid.

“My friend David Kelley likes to cite Molly Ivins’ quip: ‘It’s hard to convince people that you are killing them for their own good.’ The EU’s attempt to do this didn’t succeed in Iceland. And like the Icelanders, the Greek protesters have had their fill of neoliberal learned ignorance that austerity, unemployment and shrinking markets are the path to prosperity, not deeper poverty. So we must ask what motivates central banks to promote tunnel-visioned managers who follow the orders and logic of a system that imposes needless suffering and waste – all to pursue the banal obsession that banks must not lose money?

“One must conclude that the EU’s new central planners (isn’t that what Hayek said was the Road to Serfdom?) are acting as class warriors by demanding that all losses are to be suffered by economies imposing debt deflation and permitting creditors to grab assets – as if this won’t make the problem worse. This ECB hard line is backed by U.S. Treasury Secretary Geithner, evidently so that U.S. institutions not lose their bets on derivative plays they have written up…” (Michael Hudson’s Whither Greece – Without a national referendum Iceland-style, EU dictates cannot be binding for more.)

Europhrenia

by Gonzalo Lira
Posted originally June 1, 2011

http://gonzalolira.blogspot.com/2011/06/europhrenia.html

ACCORDING TO THE DICTIONARY, SCHIZOPHRENIA IS “A LONG-TERM MENTAL DISORDER of a type involving a breakdown in the relation between thought, emotion, and behavior, leading to faulty perception, inappropriate actions and feelings, withdrawal from reality and personal relationships into fantasy and delusion, and a sense of mental fragmentation.”

In Europe, they’re having the same thing—only writ large: It’s not that the political/financial leadership of Europe is at odds with the people—it’s that they’re two minds locked in a single body, struggling for control. In the one hemisphere of this divided brain, the political/financial leadership is convinced the European union is something devoutly to be wished—no matter what the costs, no matter what fortune and the people throw up in opposition.

In the other hemisphere of the europhrenic brain, the people of Europe overwhelmingly do not want integretation “at all costs”. In some parts (a lot of parts) of Europe, they don’t want integration at all.

Now, like a lot of schizophrenics, europhrenia has been latent over the past dozen years—since the 1999 monetary union, as a matter of fact—because everything’s been going great guns. This is natural—and completely predictable: You ever see a schizophrenic have a break-down when he’s happy, high, and just got laid? No, you do not—he only has his little “episode” when he’s stressed. Same with europhrenia: Everything was copacetic between 1999 and 2008—though there were signs of the disease. In fact, lots of unmistakable signs of europhrenia:

• No country ever voted for monetary union—ever. European monetary integration only ever happened by either government diktat or the legislature overriding the will of the people.

• Switzerland is not a eurozone member because, although the political leadership rather desperately wanted in on the union, legally the only way to do such a monetary union is through a Swiss-wide referendum—and the Swiss political leadership knew that they would lose any such referendum.

• In the nations where the European Constitution was put to a vote in 2005—Spain, France, Holland, Luxembourg—the results were so embarrassing that the other countries retreated on a referendum. In Spain, the Yes vote won—but in the lowest voter turn-out in Spain ever—while in France and Holland, the Constitution lost by resounding margins. And this was back in 2005, when everything was booming. In the end, rather than face the electorate, the European Constitution was superceded by the Treaty of Lisbon—a work-around that short-circuited the democratic process, and got the European leadership what it wanted. These examples are to emphasize one and the same thing: The people of Europe never wanted total European integration, not even in the best of times—whereas the European leadership adamantly insisted upon it.

Now, we are no longer basking in the golden glow of good times: On the contrary, Europe is facing a nasty solvency crisis. So naturally, we’re heading into the manic phase of europhrenia.

The basic problem of the current crisis is, countries of the European periphery—Greece, Ireland, Portugal, Spain, Italy—took on too much cheap debt from banks in the core eurozone countries—France, Germany and Holland—and now are unable to pay for it. It’s not more complicated than that.

(One could argue that the reason the European nations overspent was that the leaders were basically bribing the people with a false sense of affluence, bought and paid for via debt, so that they would acquiesce to the European Union and the eurozone. But that’s for another post.)

There are five ways to get over an unpayable sovereign debt:

1. Default on the debt.

2. Restructure the debt, with both sides making sacrifices.

3. Inflate the currency, as the United States is currently doing.

4. Lend more money in the form of “bailouts”, which is essentially kicking the can down the road.

5. Or squeeze blood from a stone—i.e., impose austerity measures.

Option #1—default—helps no one, and wrecks economies in the short term. Option #3—inflating the currency—is a bad idea for the euro, as it is too young a currency—if the ECB starts really inflating, there might well be a panic out of the euro. Option #4—lending more money—is just postponing the day of reckoning, while adding more to the debt burden. And Option #5—austerity measures—cripples an economy by leaving it too weak to grow its way out of the solvency jam that it’s in.

The sensible thing, of course, would be Option #2: Restructure the debts of these countries, much like during the Latin American debt crisis in the early ‘80s, whereby everyone shares the pain, equally. Banks and other creditors take haircuts, countries are put on a fixed payment schedule and reduced credit availability: Everybody takes a hit, but nobody gets killed. Everybody moves on—bruised but otherwise okay.

Has the political and economic leadership of Europe chosen the sensible approach?

Can PIIGS fly?

The political and economic leadership of Europe has collectively chosen Options #4 and #5: They are lending more money to the insolvent nations—Portugal, Italy, Ireland, Greece and Spain—thereby adding more debt to their burden. And they are imposing austerity measures on the politically weaker countries, specifically Greece and Ireland now—but Spain, Portugal and Italy soon enough.

More loans via bailouts are of no help—they just kick the can down the road, while simultaneously making that can bigger.

Austerity measures naturally hurt an economy by slowing it down—and a slowing economy creates a whole host of problems: Unemployment, poverty among the elderly and the young, generalized discontent, all the rest of it.

But the leadership of Europe seems unperturbed: They’re going hell-bent-for-leather in the direction of bailouts and austerity—which seems strange: It would be a bit like giving an addict both more heroin and insisting he go cold turkey—I mean, make up your mind, right?

So why is the political and economic leadership of Europe insisting on both more loans and more austerity? Why, simplicity itself:

In the current eurozone crisis, the leadership class in Europe has identified the well-being of the banks with their own well-being—to the detriment of the well-being of the Continent, and of the people of Europe.

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

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.