What is truth?

Posts tagged ‘Norman Lamont’

Euro Crisis or Death by A Thousand Day Trades

 

We in Europe are certainly living in interesting times.

   PDF Document  here   Euro Crisis Or Death By A Thousand Cuts[1]

Labour unrest, collapsing employment, bankrupt public coffers, riots and sovereign debt default.

This all might seem unexpected however in 1995 a former European Union economist Bernard Connolly foretold it all in his classic book “The Rotten Heart of Europe.” Connolly was hounded out of his elite job for telling the truth about the lies and obfuscation about the ERM (Exchange Rate Mechanism), the forerunner of the Euro. He knew that his instincts and training as a professional economist were telling him that the Euro would be a disaster for Nation States yet he was not allowed to articulate his genuine concerns.“As we shall see, in France the long arm of the authoritarian state has pressurized dissident economists and bankers, deployed financial information programmes on international TV channels, threatened securities houses with loss of business if they questioned the official economic line, and shamelessly used state-owned and even private-sector banks, in complete contradiction with their shareholder’s interests and Community law, to support official policy. ……….

The economic profession in Europe organized literally hundreds of conferences, seminars and colloquia to which only conformist speakers were invited; and the Commission’s “research” programmes financed large numbers of economic studies to provide the right results from known believers.”Connolly goes to state the essence of his book:

“My central thesis is that the ERM and the EMU (European Monetary Union, the mechanism with ultimately brought the Euro into technical existence) are not only inefficient but also undemocratic: a danger not only to our wealth but to our freedom and ultimately, our peace.”

As the current crisis unfolds we are just beginning to see the flaws in the Euro system that Connolly foresaw. Under the regime yes we have stable exchange rates between the Euro countries but there is no harmony between the disparate economies that make up Euroland. For example when it comes t0 borrowing “sovereign debt” each country is on its own. This last week Greece had to pay 18% on two year money whereas Germany had to pay only 3% approx. Where Greece has gone Spain, Portugal and Ireland are soon to follow. The technical makeup of the Euro is being brought into the glare of the light of day and business functionaries do not like the weaknesses they see. The idea that the Euro has a “central” bank has thus been exposed as a myth. If the Euro actually had a real central bank the sovereign nations of the European Super State would be able to borrow under its aegis, they cannot.

This means the Euro is not a “currency” as such but in actual fact is an exchange rate mechanism only.

Thus it is a political entity not an economic one. The fact that Germany “cannot assist” Greece in these crises while the Euro burns indicates again that politics and power rules the day not bread and butter and families and jobs. The behavior of Germany is actually frightening in light of the fact that it is the major beneficiary of this artificial exchange mechanism. The Euro is allowing cheap German goods flood.

Europe and explains why it has 200-300 billion Euros of trade surpluses with its economic partners.In a survey last week over 80% of Greeks want to exit the Euro but this voice is not being reported in much the same fashion that Connolly’s concerns were silenced by elite bankers and politicos. However, in 1995 the world was less connected when the Euro mechanism was being set up. Today we have hedge funds connected through Cray computers ready to “play” the markets. As soon as traders realize the Euro is a one way bet they will opt destroy the exchange mechanism because of its exposed failings.

The Emperor has been seen to have no cloths. As sure as night follows day they are going to reap their reward, the same way George Soros reaped his one billion paycheck on the 16th. September 1992 (“Black Friday”) when the bank of England lost 3.4 billion Sterling in one single day defending a flawed exchange link to Euroland. It is my suspicion that Germany sees this as a very real scenario and does not desire to waste its hard won foreign reserves on a “Norman Lamont” (The “Black Friday” chancellor of the British exchequer) type endgame.

All of this would be fascinating if it were purely an academic issue, unfortunately it is not. In Ireland, for example, the country is going through a horrendous economic downturn, one which is being exacerbated by this “currency” crisis. The problem is we now know the Euro is not a real currency and confidence is shot. The end result is lost jobs, non-existent credit, frozen business cash flows, unemployment and emigration. In other words the issues are very, very real. And I am sure it is the same in Greece, Portugal, Spain and Italy.

I do hope that the powers that be put their heads together to solve this developing disaster. Bernard Connolly wrote about it 35 years ago so they have had a lot of time to prepare. Let’s hope wisdom prevails and that the lessons Argentina learnt nearly a decade ago can be used. In that crisis, when she had to break the link to the Dollar (a la our Euro) she allowed devaluation but inspiringly its leaders also insisted the devaluation of all Dollar loans. In doing so the elite realized that they had only two options.

Social catastrophe or neutered bankers. They took on the bankers and substantially diminished the debt. Thus they saved their nation.

Accordingly, the so called “PIIGS” countries; Portugal, Italy, Ireland, Greece and Spain, should form a league based on national economic restructure. This league should form a common secretariat with the purpose of negotiating an exit from the Euro and allowing their currencies to “float” once more. This will immediately allow their economies to become competitive again without widespread deflation. Most importantly all Euro loans must be devalued to a new negotiated exchange conversion, as per the Argentinean model. This action will be greatly resisted by Euro bankers. This is why no one European nation could go this route alone. But together in league they have a chance.

I hope Irish leaders realize the difficulty we are in and have the intelligence and wisdom to formulate the type of solution mentioned. If such leadership was shown by Ireland perhaps the other heads in Portugal, Italy, Greece and Spain would have the courage to join with their fellow European brothers and sisters and save their nations from certain financial destruction. Yes we truly are living in interesting times.

source  thanks to chris at  www.wealthbuilder.ie

Reference: “The Rotten Heart of Europe”

Bernard Connolly

Faber & Faber, London, 1995.

Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

If this article goes viral around the web, I wouldn’t be surprised if the euro tanks and several European sovereign states’ spreads blow out. I have busted several of them in another of a long series of “creative” economic forecasting schemes to fudge the appearance of “austerity”. 

Well, its official (sort of). Greece, a Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!member of the European Union, will probably join the ranks of countries like Latvia (where policies are limited by the choice of the currency regime), Iceland (where the crisis has resulted in a very heavy external debt burden), the Ukraine (which is still affected by financial and political fragility) and a bevy of third world and emerging market countries in distress from the (not very) esteemed club of IMF financial aid recipients. What does this portend for the Euro? Well, I have blogged earlier in the year that the Euro’s credibility is now highly suspect and those pundits who dared contemplate the Euro potentially replacing the dollar as the global reserve currency now see the folly of their ways. The chances of a break-up are significantly higher and quite realistic. Credit Agricole’s currency strategist puts it succinctly:

“If Greece goes with the IMF, that says something terrible about the political process within Europe,” said Stuart Bennett, a senior foreign-exchange strategist at Credit Agricole Corporate and Investment Bank in London. “This undermines any confidence in the currency.”

Greece will probably end up defaulting on their debt, with or without the aid of the IMF, and they will probably have good company with several other EU members. I say so, and so does UBS Economist Donovan.

“I think it’s in an impossible situation,” said Donovan, who is based in London, in an interview with Bloomberg Radio today. “Europe has failed to clear its first serious hurdle. If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work. It’s a bad idea.”

How dare I make such a proclamation? Well, because I am telling the truth based upon facts and the many forecasts from the various sovereign nations are basically based upon lies, fiction and farce! As it is look at how the market is viewing the Greek tragedy:

European governments have yet to agree on how to fund any rescue for Greece, which says it will struggle to pay its debts at current market interest rates. While Prime Minister George Papandreou announced a 4.8 billion euro ($6.4 billion) austerity package on March 3, the extra yield that investors demand to hold Greek debt over German counterparts has since risen.

The spread was at 324 basis points today compared with 316 points at the start of the month. The euro fell 1 percent today to $1.3358, extending its decline this year to 6.7 percent.

I am willing to bet the “market” has not taken a strong, hard, objective look at those proposed austerity measures and uncovered the secrets that I am about to reveal. If they have, these spreads would have been blown out much wider. 

A German finance official said yesterday that both countries may agree to involve the IMF. Papandreou said March 19 that Greece, which needs to sell about 10 billion euros ($13.4 billion) of bonds in coming weeks, is a step away from not being able to borrow and may need to turn to the IMF if European aid isn’t forthcoming.

Europe’s fiscal crisis shows the need for the euro region to create a common fiscal policy, former U.K. Chancellor of the Exchequer Norman Lamont said in an interview in London today.

“That would be the logical step,” Lamont said. “I don’t think they are prepared to do that, and without doing that I think the euro is a contradiction, a currency without a state.”

Bingo! The man hit the point right on the head. There are too many chiefs and not enough Indians.

I want to visually and verbally demonstrate what an absolute joke European economic estimates have been throughout this crisis, and more importantly how politicians and sovereign states are interpreting this joke in such a way that can deliver a punch line that can most assuredly end in sever global recession, or worse. This document/blog post alone should serve to sink the Euro and blow out CDS spreads for several European sovereign. Why? Because the truth hurts and the truth is not what has been coming from European sovereign states as of late.

The IMF and the EU have been consistently and overtly optimistic from the very beginning of this crisis. Their numbers have been dramatically over the top on the super bright, this will end pretty, rosy scenario side – and that is after multiple revisions to the downside!!! We can visit the US concept of regulatory capture (see How Regulatory Capture Turns Doo Doo Deadly  and Lehman Brothers Dies While Getting Away with Murder: Regulatory Capture at its Best) for the EU, but due to time constraints we will save that topic for a later date. To make matters even worse, the sovereign states have taken these dramatically optimistic and proven unrealistic projections and have made even more optimistic and dramatically unrealistic projections on top of those in order to create the illusion of a workable “austerity” plan when in reality there is no way in hell the stated and published plans will come anywhere near reducing the debts and deficits as advertised – No Way in Hell (Hades/Tartarus/Anao/Uffern/Peklo/Niffliehem – just to cover some of the Euro states caught fudging the numbers)!

Let’s take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.


Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side.  Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic.

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad…


The EU/EC has proven to be no better, and if anything is arguably worse!

 
 

 

Revisions-R-US!


and the EU on goverment balance??? Way, way, way off. 


If the IMF was wrong, what in the world does that make the EC/EU?

The EC forecasts have been just as bad, if not much, much worse in nearly all of the forecasting scenarios we presented. Hey, if you think tha’s bad, try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post


Think about it! With a .5% revisions, the EC was still 3 full points to the optimistic side on GDP, that puts the possibility of Greek  government forecasts, which are much more optimistic than both the EU and the slightly more stringent but still mostly erroneous IMF numbers, being anywhere near realistic somewhere between zero and no way in hell (tartarus, hades, purgatory…).

Now, if the Greek government’s macroeconomic assumptions are overstated when compared with EU estimates, and the EU estimates are overstated when compared to the IMF estimates, and the IMF estimates are overstated when compared to reality…. Just who the hell can you trust these days???

 source link http://boombustblog.com/reggie-middleton/2010/03/14/qgreek-crisis-is-over-region-safeq-prodi-says-i-say-liar-liar-pants-on-fire/
 

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