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Posts tagged ‘Der Spiegel’

The Unfolding Economic Crisis in Europe

By: Christopher M. Quigley

B.Sc. (Maj. Accounting), M.I.I. (Grad.), M.A. www.wealthbuilder.ie

Since October 24th, the German newspaper Der Spiegel has been running a fascinating series of essays on the unfolding economic crisis in Europe.

The scope and detail of the series has caused a bit of an online stir since this bastion of German mainstream journalism painted a very negative view of the future; accordingly, many are wondering whether the German elite are finally beginning to question the sustainability of the current monetary paradigm.

The main issues addressed in the articles were the lack of economic inclusion, the instability of contemporary European economic policy and the increasing wealth disparity among European social groups. One example with regards to the latter outlined how, in the Swiss Canton of Zürich, the 10 richest residents own as much as the poorest 500,000.

Surprisingly, Der Spiegel was very critical of the European Central Bank. The paper went to pains to point out that despite years of easy monetary policy the Euro was still very much a vulnerable project and highlighted the fact that while many problems still remained there was “no more ammunition” left in the ECB’s arsenal of “weapons”.

[Read: ECB Policy Misstep Poses Biggest Risk to Markets]

This “conclusion” perturbed a number of Irish politicians because vary rarely has such a negative German spin been placed on European monetary policy. Upon reading the four articles, one is left with the distinct impression that Euroland is a failing entity exhausted from years of fighting ongoing crises ready to finally roll over and die when the next recession hits.

Thus, despite the glam and glitter surrounding the memorial celebrations for the fall of the Berlin wall, things are not so rosy in the European garden. Next year the British go to the polls to pick a new parliament. The English Prime Minister David Cameron has publically stated that if he wins he will hold a referendum to take Britain out of the European Union. Many believe that such an event might just be the catalyst to push the EU over the edge. 2015 could prove to be a momentous year for Europe and it is my view that Der Spiegel is beginning to see the writing on the wall.

European Deflation Raises Its Ugly Head

Apart from the issue of economic, social and political exclusion, Europe’s other major problem is that of deflation.

To combat a serious collapse in the circulation of money the ECB has embarked on the drastic policy of negative interest rates. Here is what Simon Black of Sovereign Man had say on this matter:

It Begins: German Bank ‘Charging’ Negative Interest To Its Retail Customers

Central bankers today have a delusional view of the world. Just three months ago, Mario Draghi (President of the European Central Bank) embarked on his own folly by taking certain interest rates into NEGATIVE territory. Draghi convinced himself that he was saving Europe from disaster. And like Don Quixote of Spanish lore, everyone else has had to pay the price for his delusions.

On November 1st, the first European bank has passed along these negative interest rates to its retail customers. So if you maintain a balance of more than 500,000 euros at Deutsche Skatbank of Germany, you now have the privilege of paying 0.25% per year… to the bank.

We’ve already seen this at the institutional level: commercial banks in Europe are paying the ECB negative interest on certain balances. And large investors are paying European governments’ negative interest on certain bonds. Now we’re seeing this effect bleed over into retail banking. It almost seems like an episode from the Twilight Zone… or some bizarre parallel universe. That’s the investment environment we’re in now.

In my opinion the main reason why this deflationary banking policy is spreading throughout Europe is the fact that stratospheric structural unemployment rates exist among European youth in Cyprus, Greece, Portugal, Spain and Italy. Seven years and no strategic initiative has emerged from Brussels to tackle this serious human catastrophe. How long it can continue without social breakdown is anyone’s guess but it is this factor which is behind regions such as Catalonia and Scotland seeking to “go it alone”.

Many believe that the only long-term solution to Europe’s economic malaise is reversion back to a union of sovereign states within an economic union rather than a political and monetary one. Such a move would allow the inefficient southern European states devalue their currencies and thus achieve economic competitiveness. However, it would appear the powers that be will not countenance such a move. Sometimes it requires fate to take a hand. I am sure in 1989 the politburo of the Soviet Union did not wish to see their hegemony diminish but their Empire collapsed, not due to desire but due to the sovereign power of economic truth.

Is the Market Preparing to Go Hyperbolic?

Despite the recent run up in the markets since the 17th of October, when you look at the S&P 500, the Dow Industrials, and the NASDAQ, there is no evidence to be seen of real momentum breakdown.

Yes the market advance has lost some power over the last week but this looks to me like the market is merely catching its breath in preparation for a strong rally into the New Year.

Such price action allows the main indices to wear down their overbought positions through time rather than through price retraction.

Thus while, ideally, I would like a nice pullback to give some technical support to new long positions entered into I do not think it is going to happen. Thus, any major moves up should be taken advantage of as I believe the market has a higher probability of going hyperbolic in early 2015 than contracting.

Chart: S&P 500: Daily
sp500 nov 13

Chart: Dow Industrials: Daily
dj30 13 nov

Chart: QQQ ETF: Daily
qqq 13 nov

Charts Courtesy Of Worden Bros.

Sources: Der Spiegel “The Zombie System”, Michael Sauga, October 24th 2014.

Sovereign Man blog, Simon Black, 4th. November 2014.

© Christopher M. Quigley 14th. November 2014

Education Minister: I didn’t copy my thesis (German News)

Deutsch: Bundesministerin Dr. Annette Schavan ...

Deutsch: Bundesministerin Dr. Annette Schavan am DFKI 2008 (Photo credit: Wikipedia)

Education Minister Annette Schavan has reacted angrily to accusations from the University of Düsseldorf that she plagiarised her doctoral thesis, which she wrote in 1980. “I won’t accept that,” she said.

Schavan said she would make a statement on the accusations soon, after having kept a “determined silence” as they gathered momentum over the past five months.

“I at no time attempted to deceive while working on my dissertation,” she told the Rheinische Post newspaper.

She said that she “couldn’t remember details” after 30 years, but she never consciously gave a wrong source in the work.

Accusations of plagiarism were first published anonymously on the blog schavanplag.wordpress at the beginning of May, when the university announced it would be carrying out an investigation.

Reports in the Süddeutsche Zeitung newspaper and Der Spiegel magazine published over the weekend said the university’s appraisal found “characteristic signs of a plagiaristic method” in Schavan’s work. Altogether, passages on 60 of the dissertation’s 351 pages were found to be questionable………………………

full article at source: http://www.thelocal.de/national/20121015-45559.html

Euro-zone Disaster Zone, Breaking Up is Hard to Do, Who do You Trust?


I have contended for some time that Europe is faced with two   choices: Disaster A, which is the break-up of the eurozone, or Disaster   B, which is the creation of a fiscal union, which keeps the euro more or   less intact. Over the last few months I have come to realize that there   is indeed a third option, which now looks increasingly possible. This   is rather sad, as the third option is just an even worse Disaster C.   Each choice carries with it its own unique set of problems, but the   outcome of any of the choices will be that the people of Europe face a   serious recession, if not a depression. This will impact global growth   for more than a short time and, depending on the choice, could plunge   the world into a crisis as bad as or worse than the recent credit   crisis. In today’s letter we look at all three choices, meanwhile musing   on how we arrived at the bottom of such a deep hole, shovels flailing.“Breaking Up is Hard to Do” was written and sung by Neil Sedaka.   It was a #1 hit exactly 50 years ago this week. And while that song was   written for a different era, it could be the theme song for much of   Europe today.

“Don’t say that this is the end. Instead of breaking up, I wish that we were making up again.”

And indeed Europe is quite the dysfunctional family, seemingly   always on the verge of breaking up, but somehow managing to patch up the   differences. We all have a family member (or two or three) who cause   that sort of trouble. We watch the incessant squabbling with unease,   wishing they would just settle things and move on. They never deal with   the real issues, as that would mean facing too much personal angst and   maybe even lead to an admission that the problem is not just with the   other party. The euphoria of the initial relationship has been lost in   the reality of day-to-day existence. Now, they either sort it out or   break up.

These sorts of relationships devolve into co-dependency, where no   one is happy. And the rest of us are liable to get sucked in. Even   though it’s uncomfortable to be around these people, we still have to   interact. But don’t you wish they would get some serious therapy?

And Europe was again acting out this week. First, Italian Prime Minister Mario Monti gave an interview to Der Spiegel, in which he warned of the disintegration of Europe if the European   Union

Full article at source: http://www.marketoracle.co.uk/Article36015.html

Merkozy continuing to ignore Greek realities

Today’s meeting between Sarkozy and Merkel is being framed in the context of continued pressures across the euro area (see report on the meeting here). More ominously – within the context of the euro area leadership duet ignoring the latests warning signs for Greece.
Per Der Spiegel report, IMF has changed its analysis of the Greek rescue package agreed in July 2011 in-line with IMF changes in forecasts for Greek economy in the latest programme review in December 2011. Specifically, IMF lowered its forecast for growth from -3% to -6% GDP.
Der Spiegel cites IMF internal memo in claiming that the Fund is viewing existent Greek programme (including to 50% ‘voluntary’ haircut on Greek bonds currently under negotiations) as insufficient to stabilize the Greek economy and fiscal situation

full article at source:http://trueeconomics.blogspot.com/2012/01/912012-week-opener-merkozy-continuing.html

Goodbye Euro, Hello Drachma

by Tyler Durden of  zerohedge

A few months ago, when Zero Hedge first broke the news that the Drachma is
trading at several major banks on a “when issued” basis at the client’s request,
it was promptly dismissed. Alas, it may be time to dismiss the dismissal, after
Spiegel reports that as one of the scenarios considered for a Greek default,
Germany anticipates the reintroduction of the drachma by the pathological liars
at the Greek parliament. Yes: the currency that Greece was so happy to jettison
10 years ago when after the assistance of Goldman to hide its bloated debt, to
much pomp and circumstance it entered the soon to be defunct Eurozone, is coming

full article at source : http://www.zerohedge.com/news/goodbye-euro-hello-drachma


How long will we have to wait for the return of the Irish Punt? Rumour has it  the Irish Government is currently  running the printing presses!

Athens Mulls Plans for New Currency

sent in to us by Chris :

Greece Considers Exit from Euro Zone

By Christian Reiermann


A protest against austerity measures in Athens. Greece is considering leaving the euro zone, according to sources in the German government.

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government’s actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area’s finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens’ intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece’s possible exit from the currency union, a speedy restructuring of the country’s debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union — regardless which variant is ultimately decided upon for dealing with Greece’s massive troubles.

Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel’s conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany’s behalf.

‘Considerable Devaluation’

Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.

“It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro,” the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble’s staff have calculated that Greece’s national deficit would rise to 200 percent of gross domestic product after such a devaluation. “A debt restructuring would be inevitable,” his experts warn in the paper. In other words: Greece would go bankrupt.

It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.

What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy.

“The currency conversion would lead to capital flight,” they write. And Greece might see itself as forced to implement controls on the transfer of capital to stop the flight of funds out of the country. “This could not be reconciled with the fundamental freedoms instilled in the European internal market,” the paper states. In addition, the country would also be cut off from capital markets for years to come.

In addition, the withdrawal of a country from the common currency union would “seriously damage faith in the functioning of the euro zone,” the document continues. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. “That would lead to contagion in the euro zone,” the paper continues.

Banks at Risk

Moreover, should Athens turn its back on the common currency zone, it would have serious implications for the already wobbly banking sector, particularly in Greece itself. The change in currency “would consume the entire capital base of the banking system and the country’s banks would be abruptly insolvent.” Banks outside of Greece would suffer as well. “Credit institutions in Germany and elsewhere would be confronted with considerable losses on their outstanding debts,” the paper reads.

The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to “write down a significant portion of its claims as irrecoverable.” In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds, which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion) “Given its 27 percent share of ECB capital, Germany would bear the majority of the losses,” the paper reads.

In short, a Greek withdrawal from the euro zone and an ensuing national default would be expensive for euro-zone countries and their taxpayers. Together with the International Monetary Fund, the EU member states have already pledged €110 billion ($159.5 billion) in aid to Athens — half of which has already been paid out.

“Should the country become insolvent,” the paper reads, “euro-zone countries would have to renounce a portion of their claims.”


“The Kill Team” A platoon of U.S. soldiers in Afghanistan

All this has happened on Obama’s watch and I for one do not welcome him to our country. Murder is murder no matter who is committing it whether it’s Gaddafi in Libya or Obama in Afghanistan we must stand up to evil. The US solders responsible must be brought to justice Obama is due to visit Ireland in May and I now think this invitation should be withdrawn he is no better than Gadaffi.I will be writing to our government and I will be asking them to withdraw his invitation. This is sickening, how can human beings do this sort of thing to each other ?God help us !

Follow link to view photos 


Warning these photos are extremely graphic and disturbing

source: http://www.rollingstone.com/politics/photos/the-kill-team-photos-20110327/0602176

Bail Out Europe’s Banks?

Friday, March 04, 2011 –

by  Staff Report

Barry Eichengreen

The European Union is hoping that aid to Greece and Ireland combined with closer economic policy coordination will be enough to put an end to the euro crisis. But that’s not likely, warns US economist Barry Eichengreen (left). First and foremost, he says in an interview with SPIEGEL, Europe needs to help out its ailing banks. – Der Spiegel

Dominant Social Theme: Banks are the world’s most precious industry. Not a single one should fail.

Free-Market Analysis: The German magazine Der Spiegel has turned to an American economist to bang the drums for further bank reliquification (see article excerpt above). Obviously the US$50 trillion that Western powers have apparently dropped into the world’s economy has not done the trick. We know this to be to true as well because of certain elite estimates floating around the blogosphere that the world (including the developing world) will need US$100 trillion or more over the next decade to ensure economic progress.

There is no way that the world is going to find US$100 trillion in its back pocket. The Anglo-American power elite can only be counting on one occurrence – the advent of a rationalized world currency (the bancor) along with an International Monetary Fund empowered to act as a central bank printing fiat money at will. We just commented on the advent of global money yesterday in our article Will Euro Failure Usher in World Currency?

In this article we want to analyze an interview that economist Barry Eichengreen gave to Der Spiegel. It is somewhat disturbing in the sense that it is ploddingly predictable. But in reading it and isolating its arguments, one can see how far the conversation has traveled on the blogosphere; the meretricious economic paradigm of the 20th century established with such tenacity by the power elite sounds increasingly naïve in the 21st century, given the crush of current events and the information available on the ‘Net to anyone who chooses to read it.

According to Wikipedia, Barry Eichengreen is an “American economist who holds the title of George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley, where he has taught since 1987.” Eichengreen received his Ph.D. from Yale and was a senior policy advisor to the IMF in the late 1990s. He is best known for his book Golden Fetters: The Gold Standard and the Great Depression, 1919-1939, Oxford University Press, 1992. In this work, he argues, “the proximate cause of the world depression was a structurally flawed and poorly managed international gold standard.”

Eichengreen makes the point that in trying to tame the Roaring 20s stock market boom, the Fed turned contractionary in the late 1920s and this contraction was “transmitted worldwide by the gold standard. What was initially a mild deflationary process began to snowball when the banking and currency crises of 1931 instigated an international scramble for gold.”

His main point seems to be (and we have not read the book) that the gold standard prevented the kind of expansionist monetary policy that Fed chairman Ben Bernanke has followed in the wake of the 2008 stock market crash. As a result, countries could only begin to reinflate if they abandoned the gold standard. “The main evidence Eichengreen adduces in support of this view is the fact that countries that abandoned the gold standard earlier saw their economies recover more quickly,” Wikipedia tells us. We also learn that his latest book is Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, Oxford University Press, 2011.

Eichengreen is obviously a monetary “expert” – though we don’t generally believe in experts. In the case of Eichengreen, we would make two points regarding his main monetary opus. The first point is that the world went off a silver standard in the 1800s in a breathtakingly coordinated series of renunciations. Eichengreen can argue all he wants about the mechanical reasons for the failure of the gold standard, but the same thing happened with silver previously. The entire Western world suddenly abjured silver. Anyone who looks at these events with an unbiased eye can detect the coordination. It had nothing to do with any sort of disastrous serendipity, as he argues regarding the gold standard. Of course, Eichengreen is an “expert” so it likely escapes him.

The second point we would make is that there is considerable evidence that the Fed went far beyond the legal limits of its Congressionally established gold-ratio in the 1920s. In other words, the Fed was only able to print so much currency against gold reserves but printed considerably more. Why it did so is a mystery, though one could speculate that the end result was what was intended: the erasure of the world’s formal gold standard. In any event, come the crash of ’29, people began lining up at banks to withdraw gold with their Federal Reserve notes. Roosevelt panicked and shut the banks. The powers-that-be were apparently worried that people would discover the Fed had printed notes far in excess of available gold. A crime had been committed; the cover-up was bank holidays.

We find none of this analysis in Eichengreen’s work apparently, nor perhaps should we expect to. Mainstream Anglo-American economics is not about telling the truth. It is about establishing dominant social themes. The main meme that the powers-that-be want to establish is that the world’s economic system can be run scientifically through the management of “wise men” – central bankers empowered to fix the quantity and value of money. Price fixing never works of course, but the top economists who are paid to make these arguments never point that out. For them, central banks are not a failed institution; they are merely works-in-progress.

A corollary to the meme of the infallible central bank (printing money-from-nothing) is the certainty that the banking system itself, the distribution arm of central banks if you will, is inevitably, a sacred necessity. Throughout the world from central to South America, from Europe to Africa and everywhere else, the downtowns of major metropolises are crammed with individuated banks. There are in some cases more banks than fast food places.

This banking bubble is perfectly predictable because banks ARE the biggest bubble in the world. Central banks will never let their distribution arm fail. It is this argument that Eichengreen is making in the Der Spiegel interview without saying so in so many words. It is not even a concept that is up for discussion. There is no head-scratching over HOW banks became undercapitalized. There is only the assumption – a nearly religious one – that banks need to be recapitalized, especially in Europe.

In fact, he begins the interview by making this point. “The present bailout attempts have never made sense,” he admits. “Essentially, all Germany and France want to achieve with these measures is to protect their own banks from collapsing. Now people are beginning to realize that there is no way around rescheduling Greece’s debt — and that will also involve the banks. For this to happen, there is only one solution: Europe needs to strengthen its banks! … The euro crisis is first and foremost a banking crisis.”

He goes on to make the point that “Europe’s banks are in far greater danger than people realize” and then makes the candid statement that last year’s stress tests were a “token gesture.” How much recapitalization do European banks need? He puts the costs for the major banks, the big German and French ones at 3 percent or perhaps US$300 billion.

He then goes on to make the point that recapitalizing banks will do no good without a closer “coordination” among independent nation-states. He is thus arguing for an EU political and economic convergence, which he claims is a necessity given the current crisis. He also warns that the US will eventually come under the same scrutiny as Europe regarding its out-of-balance sovereign debt balances. “If [the US] hasn’t tackled [its] debt problem by then – and it looks unlikely that we will – then we will face serious problems.”

For Eichengreen however, the answer is not to cut spending. The tax stimulus is very ineffective, he says, because it tears another hole in the budget and rich people are not inclined to spend the money that they save with the cuts. It is fiscal policy – raising taxes and other sorts of revenue – that is necessary to shore up the finances of the US. “Either more taxes flow into government coffers or there will be less money available for universities, the socially disadvantaged, defense and so on. In California, we firmly believe that we lead the way for the rest of the country. It was true with surfing, and we hope it will be true with getting the country out of debt.”

He also comes down on the side of “quantitative easing” in which central banks print money to buy their own country’s debt. “Political deadlocks force central banks to get involved in monetary policy. The result is quantitative easing. Interest rates are already at zero, so the Fed is trying to stimulate the economy by buying securities. The same is happening in Europe. In serious crises like these, central banks suddenly become the only ones that can actually make anything happen … When it came to fighting the crisis, [central banks] made the right choices and worked hard.”

He ends the interview by predicting that the dollar reserve system is failing and that some other currency will have to take its place. He discounts the yuan because “The Chinese will need 10 years to internationalize their currency to the point that it offers central banks and investors an attractive alternative to the dollar.” He is more optimistic about the euro, which “could be ready in five years.”

There is not one item in this interview that is in any sense original (though the bank recapitalization meme is surely alarmist). The only part of the interview that is somewhat surprising comes at the end when he speaks of the euro replacing the dollar. This is actually a strange statement to make given that at Davos the IMF came out with an astonishingly intricate roadmap on how to make SDRs (the currency baskets issued by the IMF) into the new global currency. Most of the report apparently centered on building a bond market, a repo market, etc. – all the paraphernalia of the modern central banking state – in order to ensure an orderly flow of funds.

There is seemingly no doubt, now, that the Anglo-American powers-that-be intend for SDRs to be the new world currency. The only question is whether the BRICs will go along with it and how quickly it can be built. It will take a significant crisis to create a world currency. (Out of chaos … order.) We see signs that the power elite is manufacturing just such a crisis worldwide.

Almost everything that Eichengreen states in his interview can be rebutted. He believes that banks need to be recapitalized with fiat money-from-nothing when it was the overprinting of money that caused the financial crisis to begin with. He believes it is better to raise taxes than to cut spending when faced with sovereign imbalances. He believes that when central banking over-printing of money has caused an economic crash, the remedy ought to be MORE money printing. His analysis of the Great Depression is naïve in our view and his explanation for why the world went off the gold standard does not take into consideration that countries went off the silver standard 50 years before in much the same way, one nation at a time – like clockwork, with an eerie kind of coordination.

Twenty years ago, Eichengreen’s weary verities would have seemed to be common wisdom. Who, after all, would have had the resources or education to contradict him? But today, that is not the case. Austrian economics and free-market thinking have convulsed the blogosphere. The Federal Reserve and central banks in general have never been so unpopular, despite all that the establishment can do to try to stem such negative sentiments. Interviews such as this one with Der Spiegal do little to re-establish the elite’s failing dominant social themes.

Yes, it is difficult in fact to see what can shore up the central banking system at this point. Gold and silver are money. Central banks fix the price of money and lead economies into the boom and bust of centralizing ruin. What is the solution? It is, in fact, necessary or even inevitable that the Anglosphere – which has implemented the central banking economy worldwide – will increasingly create a rolling economic crisis (with or without a war or wars). It is the only way in our view that continuity can be maintained between the current dollar reserve system and what is probably planned in the not-so-distant future.

The idea will be to put a basket of currencies in place via the IMF’s SDRs that will include the dollar. In other words, patch together a bunch of failing fiat currencies. But after a point the dollar will not matter so much. The basket itself will assume predominance. Perhaps there is some other solution that we don’t notice; and we are not prepared by any means to suggest that what the Anglosphere apparently has in mind will actually work.

Conclusion: Of course there is another more rational scenario. We would hope that the chaos that Western powers-that-be are now inflicting on the world will result not in another elite-mandated system but a general breakdown of the abysmal fiat-money system. In such a situation it might well be that real honest money would reestablish itself – the historical norm of gold and silver; the kind of bimetallism that has served the world well for thousands of years. Such a system is the hope of the future. You will not find it mentioned in mainstream-media interviews such as the one that just took place with Eichengreen


Eichengreen: Europe’s Banks Are in Far Greater Danger Than People Realize

Spiegel interviews Barry Eichengreen:

‘Europe’s Banks Are in Far Greater Danger Than People Realize’, by Barry Eichengreen, Spiegel: The European Union is hoping that aid to Greece and Ireland combined with closer economic policy coordination will be enough to put an end to the euro crisis. But that’s not likely, warns US economist Barry Eichengreen. First and foremost, he says … Europe needs to help out its ailing banks. …

SPIEGEL: How much money do the banks need to crisis-proof their balance sheets?

Eichengreen: As a rough estimate, I’d put the costs for recapitalizing the German and French banks at 3 percent of Franco-German gross domestic product. … There are no cheap solutions. My main concern is that Europe will choose a middle path again, for example by making the interest and terms on loans to Greece and Ireland more tolerable. Europe’s leaders wouldn’t be wrong in doing that, but it would fall far short of what is needed to save the euro. The result would be more wasted months for Europe. …

SPIEGEL: Despite the current crisis, the economic fundamentals in the euro zone are still stronger than those on the other side of the Atlantic. Why are bond traders scrutinizing Europe but not the US?

Eichengreen: …I worry that they will begin to distrust the US soon too. History has shown us that financial crises always happen close to elections. We have an important election coming up in 2012. If we haven’t tackled our debt problem by then — and it looks unlikely that we will — then we will face serious problems. …[W]ithout raising taxes, we will not be in a position to balance our budget and pay back debts with interest. But because you can’t talk about raising taxes in this country, the US will gamble away investors’ trust.

SPIEGEL: Is there any desire in US political circles to do something about this problem? Just last December, President Barack Obama extended the Bush administration’s tax cuts to 2012, even though tax cuts for the super-rich do nothing to stimulate the economy.

Eichengreen: You’ve answered your own question. … But the government has to find a way to boost the US economy — to lower unemployment, which is at 9 percent, if nothing else. Equally important would be a clear statement from Obama and Congress about how they plan to tackle the debt problem in the medium-term. But instead of doing that, the administration and Congress have just pushed the problem further into the future — foolishly to 2012, of all years. Believe me, it will be impossible to talk about this problem in an election year. …

SPIEGEL: The European Central Bank and the US Federal Reserve are buying government bonds to … stimulate their economies. Is that really a good idea?

Eichengreen: …In serious crises like these, central banks suddenly become the only ones that can actually make anything happen. This reveals the shortcomings of politics — and it causes problems, because the banks start doing things that their mandates don’t cover. …

I thought I was pessimistic.


Banks & debt crisis

Posted by Dr. Constantin Gurdgiev

This was made public late last night and has serious implications for the Irish banks. If you recall, last summer the EU conducted a similar exercise that resulted in a complete failure to:

  1. Identify the banks that required intervention (subsequent the tests, within two months time, AIB and Bank of Ireland required state capital interventions and within 4 months Ireland was in receipt of EU/IMF funds);
  2. Identify cross- banks risks and the potential for contagion from banks to banks and from banks to the sovereigns; and
  3. Identify second order effects of contagion from rising Government yields and deteriorating sovereign ratings to the banks balancesheets

So now, we shall try again. This time around, just as before the first tests, Irish authorities are also conducting PCAR assessments of the balancesheets. And this time around, these assessments will be at risk of the EU-wide evaluations.

Here is the announcement on the forthcoming EU tests:

“EBA Unveils Timeline and Details on EU-wide Stress-tests

“This afternoon the European Banking Authority held its second meeting of the Board of Supervisors of the 27 constituent members of the EBA. One of the primary items on the agenda was the agreement and specification of details pertaining to the upcoming EU-wide stress-tests.

Here are the main facts:

  • The official launch date of the exercise is the 4 March – that’s right – as in tomorrow!!!
  • The exercise follow the same basic formula as before, i.e. a baseline macro-economic and an adverse scenario, to test for solvency of banks, but it is unclear whether it will be restricted to the balance sheets alone, or will consider the impact on the off-balance sheet assets as well;
  • Publication of the list of banks to be tested, plus the macro-economic scenarios, will take place on 18 March;
  • EBA continues to liaise with relevant bodies such as the ECB and ESRB to finalise the methodology to be used in April;
  • “Vigorous” peer review and results in June.

The main items that stand out is the much greater degree of transparency of the various steps and structures of the tests, but ominous sign is the lack of detail on what results will be released. A spokesperson for the EBA re-iterated that the main developments as compared to the last stress-tests include “more disclosure of the key steps…. and that there will be a vigorous peer review”. Again, there is no explicit identification as to what will be released under disclosures other than what will be leaked anyway – the core testing scenarios parameters and assumptions, plus headline results on specific banks.

Finally, the need to have effective “remedial backstops” in place is part of an on-going discussion with the ESRB and national authorities to ensure that the necessary resources are in place should there be any need to re-capitalise banks. It appears this is still an open question, although the EBA did not rule out the possibility of European funding (EFSF, presumably) being used in a case where a national Exchequer cannot afford to re-capitalise its banks. EBA cited the example of the Irish case and EFSF funds, but clearly, there is no progression envisioned beyond ‘cure loans with more loans’ solutions.

EBA does appear be doing all it can (given opposition from the EU Governments to transparent and rigorous assessments) to make these tests definitive, credible and part of the comprehensive answer to providing macro-financial stability in the EU.

The link to the EBA announcement is here.

It should be interesting to see how PCAR-II comes out against the EBA tests. That duel of tests will be a backdrop to either establishing credibility of one or the other, or possibly none, but hardly both, as either PCAR-II leads EBA tests into recognizing the reality of our collapsed banking system, or it does not.

And on a related issue of banks, here‘s a link to the full interview with Professor Barry Eichengreen on the issue of sick European banking system. Few quotes:

  • Europe “must stop attempting to combat the crisis in Greece and Ireland by forcing these countries to pile more debt onto their existing debts by saddling them with overpriced loans.” Note that the Der Spiegel journo actually fails to understand what Eichengreen is saying here, for the journalist then launches into a next question: “But at the same time, Europe is stifling any chance of growth in Greece and Ireland by forcing them to comply with harsh austerity measures. Is there any way this strategy can actually add up?” Like the rest of Europe, he does not comprehend the reality of what we are facing. It’s not the austerity that is going to kill us, it’s the DEBT!
  • Eichengreen’s response is to attempt once again to stress the very same point: “Essentially, all Germany and France want to achieve with these measures is to protect their own banks from collapsing. …there is no way around rescheduling Greece’s debt — and that will also involve the banks. For this to happen, there is only one solution: Europe needs to strengthen its banks! Greece lived beyond its means, but in Ireland and Spain it is the banks that are the problem. The euro crisis is first and foremost a banking crisis.” Read – it’s the banks DEBT crisis!
  • Der Spiegel’s cool ‘I am European, so Government spending is all that matters to me’ dude again misses the mark launching back into Government spending question. And Eichengreen – after a pause – gives it a third try: “Europe’s banks are in far greater danger than people realize. Most people now understand that last year’s stress tests … were a token gesture and lacked realistic scenarios. …what would put my mind at rest more would be if the responsibility for carrying out the [new] stress tests went to the European Commission. National regulators are too susceptible to pressure from the regulated.”

Enjoy the read.

But for those more inclined to read some much more really serious stuff, look no further than to
the latest Reinhart-Rogoff work on debt crisis: A DECADE OF DEBT, Carmen M. Reinhart and Kenneth S. Rogoff, NBER WORKING PAPER SERIES 16827 from February 2011 (no point to link it, as it is password protected). Here are the excerpts:

Starting from the top, the authors say (all emphasis is mine): “there is important new material here including the discussion of how World I and Great Depression debt were largely resolved through outright default and restructuring, whereas World War II debts were often resolved through financial repression [in other words through capital controls, forced expropriation of savings via taxation and soft force-induced diversion of domestic investment to financing of the Government liabilities – in effect, a form of expropriating pension funds etc]. We argue there that financial repression is likely to play a big role in the exit strategy from the current buildup. We also highlight here the extraordinary external debt levels of Ireland and Iceland compared to all historical norms in our data base.”

Another quote: “For the countries with systemic financial crises and/or sovereign debt problems (Greece, Iceland, Ireland, Portugal, Spain, the United Kingdom, and the United States), average debt levels are up by about 134 percent, surpassing by a sizable margin the three year 86 percent benchmark that Reinhart and Rogoff, 2009, find for earlier deep post-war financial crises. The larger debt buildups in Iceland and Ireland are importantly associated with not only the sheer magnitude of the recessions/depressions in those countries but also with the scale of the bank debt buildup prior to the crisis—which is, as far as these authors are aware—without parallel in the long history of financial crises.” And here’s a chart from the paper:

Now, average increase in the crisis was 36%. In pre-2008 history of all modern financial crises, the financial crisis saw increases on average of 86%. In the current crisis, Ireland experienced and increase of Government debt of ca 320%! And this was just Government’s official debt. Quasi-official debts add to more than that. In other words, by historical standards – ca 86% would classify us as being serious bust, 320% would classify as having been financially vaporized!

Puts into perspective the official Ireland’s blabber about ‘we can manage this debt’.

But if we need more, Reinhart & Rogoff oblige: “After more than three years since the onset of the crisis, banking sectors remain riddled with high debts (of which a sizable share are nonperforming) and low levels of capitalization, while household sector have significant exposures to a depressed real estate market. Under such conditions, the migration of private debts to the public sector and central bank balance sheets are likely to continue, especially in the prevalent environment of indiscriminate, massive, bailouts.” So what the authors are saying here is that:

  • There has been no resolution to the crisis after 3 years of drastic measures;
  • The only outcome of the current approach is private debt (banks) continuation to move onto Government balancesheet, until
  • The proverbial sh&&t hits the fan:

“The sharp run-up in public sector debt will likely prove one of the most enduring legacies of the 2007-2009 financial crises… We examine the experience of forty four countries spanning up to two centuries of data on central government debt, inflation and growth. Our main finding is that… high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes. ..Seldom do countries “grow” their way out of debts.

“…As countries hit debt intolerance ceilings, market interest rates can begin to rise quite suddenly, forcing painful adjustment [guess what’s awaiting Ireland when – with current 10% mortgages stress levels – this happens?].

“For many if not most advanced countries, dismissing debt concerns at this time is tantamount to ignoring the proverbial elephant in the room. So is pretending that no restructuring will be necessary. It may not be called restructuring, so as not to offend the sensitivities of governments that want to pretend to find an advanced economy solution for an emerging market style sovereign debt crisis. As in other debt crises resolution episodes, debt buybacks and debt-equity swaps are a part of the restructuring landscape. …The process where debts are being “placed” at below market interest rates in pension funds and other more captive domestic financial institutions is already under way in several countries in Europe [and recall the cheerleaders for this in Ireland were… the pension funds themselves].

Central banks on both sides of the Atlantic have become even bigger players in purchases of government debt, possibly for the indefinite future.”

Pretty tough words…


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