Bye Bye Unloved Euro, pseudo fiat currency of 350 million?
“If you misprice risk, don't come looking to us for liquidity assistance. The longer this goes on and the more risky positions are built up over time, the more luck you need… It is time for financial market to move back to more adequate risk pricing and maybe forego a deal even if it looks tempting… Global liquidity will dry up and when that point comes some of this underpricing of risk will normalize.”
Axel Weber. Davos January 26 2007.
When Axel Weber, German economist and President of the Bundesbank, made those idiotic false statements at the elitist winter junket in Davos 2007, everyone there knew that Axel was merely making a sophisticated joke at German taxpayers’ expense. When the banksters brown stuff hit the legendary cooling machine, everyone and their bankster brother was soon lined up at every central bankster’s door from Washington to Tokyo, and every capital city in between. The ECB and Bundesbank merely went through the motions of talking tough and bailing their favourite crony crisis of the hour. Taxpayers, their children and grandchildren everywhere were sold into debt slavery to bail the “mispriced risk” banksters out. Poor Axel and his Ilk, are not facing any charges of murdering any banksters who bet the ranch the wrong way. The bailouts bought just enough time for a rigged stock market bounce, before Ebenezer Squid’s phony Greek liquidity deals blew up, and the great 2010 sovereign debt crisis sped into view, contaminating all of Club Med along the way. Now the whole unloved Euro project is collapsing one brick at a time. Euroland’s vainglorious pompous politicians, attempt at creating a “kinder gentler,” United States of Europe monetary union, but without the political integration of a debt union, is now well into deep collapse.
The Germans were far to sensible to want a debt union, where hard working, tax paying, hard saving Germans, would be asked to cover the debts of tax shy, work shy, party loving Club Med Europe, until one day they were as impoverished as the rest, but virtually the only ones working in the socialist paradise of 21st century Europe. Their politicians forced it on them anyway. Luckily in Britain a feud between “I’m a straight kinda guy” Prime Minister Blair, and his sullen, misanthropic Chancellor, Stalin MacBroon, lately departed Prime Minister of downwardly mobile modern Britain, kept Britain out of the now snake bit European Monetary Union.
Below, Internet economics guru, Edward Hugh, tells CNN why he thinks Germany will leave the currency union before Club Med bankrupts them all. Stay long precious metals. This sort of possibility was unthinkable just one year ago. We are only at the first of a multiple series of fiat currency crises and crashes. The central banksters are the problem and not the solution.
"The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."
Hans F. Sennholz
Urgent action needed to halt euro crisis
By Edward Hugh, Special to CNN June 10, 2010 -- Updated 1231 GMT (2031 HKT)
(CNN) -- The future of the eurozone seems to be hanging in the balance at the moment, and with it the future of the global financial system.
Despite vigorous commitments from the EU to support those eurozone economies in difficulty and a program of sovereign bond purchases from the European Central Bank, markets remain decidedly nervous, and the cost of financing debt continues to rise.
As a result, the common currency continues to hover anxiously around the 120 to the U.S. dollar mark as investors fret and fret about how the proposed bailout package will apply in practice, and who the first customer will be.
Meanwhile Spain's banking system continues to have hard work financing its short-term liquidity needs, and July looks likely to be a long hot month given the volume of public and private debt that will need rolling over.
The key issue is how a group of economies who have manifestly failed to converge over the last decade are now going to straighten out their imbalances.
Read more about Edward Hugh and his views
As Nobel Economist Paul Krugman continually points out, the problems being experienced on Europe's periphery in countries like Greece and Spain are not simply fiscal ones, they are about structural imbalances and lack of competitiveness, and raise questions which go to the heart of the functioning of the common currency.
In Spain's case, the position is even clearer than in the Greek one: Before the housing bubble burst there simply was no evident fiscal problem -- indeed the country was running a fiscal surplus. Spain's current fiscal problems have only arisen due to the attempt to solve a competitiveness problem, using fiscal stimulus as a means.
Evidently the present situation was not anticipated when the monetary union was set up, so it is hardly surprising that mechanisms to handle it didn't exist, and are having to be put in place on the fly.
It was hoped that monetary management could be carried out on the basis of a hybrid institutional structure (the ECB plus national fiscal policy, with "light" monitoring from the center via the Stability and Growth Pact,) and that no bailouts or closer political integration would be needed.
Again, it is now evident that this methodology simply doesn't work, but there is no road back.
The biggest challenge now facing the EU is thus one of its own making -- Europe's leaders need to be bold and resolute enough to convince markets that they understand what has gone wrong and will do what is needed.
That is to say they need to be resolute in implementing the institutional changes necessary to put the process of monetary union on a firmer and more sustainable footing.
Basically the central euro problem has always been the issue of trying to set up a monetary union without setting up a political one first.
For the euro to work you need consensus, and people need to feel European (like people in the U.S. feel themselves to be Americans). If this were the case, and we had a "no one gets left behind" spirit, then Europeans would be more prepared to share difficult burdens together.
But what we have are excessively strong and largely out-of-date national identities -- just look at the way Greeks and the Germans lose no opportunity to have a go at each another.
Do people in Michigan speak this way about people in Florida? Differing cultural attitudes are a significant part of the picture, and nowhere is this clearer than in the attitude to inflation.
In part the euro hasn't worked because while people in the south anticipated a high-inflation, high-interest-rate environment, people in Germany anticipated a low-inflation one. Now the French would like the Germans to accept a 4 percent inflation target, while the countries in the south have ongoing deflation.
This just isn't going to happen, and we need to be realistic about what we can and can't do.
At the present time there is a lot of speculation about whether or not the euro will break up completely. I think this concern is misplaced at this point.
What the zone needs to do is address the competitiveness issues, and return the struggling economies to growth. To do this they need to restore lost export opportunities with the core countries.
A weaker euro does help, but ironically it is more help to Germany than it is to Greece or Spain, since while Greece only exports something like 4 percent of GDP outside the euro area, and Spain something like 8 percent, in the German case the equivalent figure is more like 24 percent.
Unless the heavily indebted countries on Europe's periphery find their way back to growth, the debt problems will become unsustainable in two, three, five years' time.
One way of resolving this problem would be for the respective countries to carry out a substantial "internal devaluation" -- that is a systematic reduction in prices and wages -- but the citizens involved have shown little stomach for this, and neither the EU Commission nor the IMF are prepared to actively advocate it.
So we are left looking for "doable" alternatives. From a purely technical point of view it could be very constructive to have an organized exit by Germany, allowing the euro to drift downwards for a time, while growth returns to the periphery.
If a new German Mark was trading at around 140 to the dollar, while the euro was at 80 or 90, all the peripheral economies would be rapidly kick-started back to life.
And as the situation improved, then the gap would steadily close, as structural reforms were applied, and productivity gradually rose.
Germany would obviously loose out in terms of peripheral debt, but would gain at the sovereign end, since German government debt is, of course, denominated in euros.
What such a move would do is buy time, which is something which is badly needed right now, and not only here in Europe.
To put things another way, it isn't only Europe's economies that are in disorder at this point -- the high value of the dollar means the U.S. recovery is steadily grinding to a halt.
So, putting it bluntly, we could call the euro-slide story -- "how Greece screwed the U.S." It's time to find some solutions that work here, and as the IMF warns in its latest report on Spain, time is now of the essence.
The opinions expressed in this commentary are solely those of Edward Hugh.
http://edition.cnn.com/2010/OPINION/06/10/edward.hugh.blogger.eurozone/index.html?hpt=Sbin
Editor's note: Blogger Edward Hugh has a growing online fan base for his views on Europe's economy, and his advice has been sought by the IMF. Now 61 and living in Spain, Hugh's thoughts on the region's economic problems are attracting attention worldwide.
Repeating below from last week, it doesn’t look good for the long term existence of the euro.
"Gold is not necessary. I have no interest in gold. We'll build a solid state, without an ounce of gold behind it. Anyone who sells above the set prices, let him be marched off to a concentration camp. That's the bastion of money."
Adolf Hitler
Euro 'will be dead in five years'
The euro will have broken up before the end of this Parliamentary term, according to the bulk of economists taking part in a wide-ranging economic survey for The Sunday Telegraph.
By Edmund Conway Published: 10:23PM BST 05 Jun 2010
The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion in the City since the election. The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office.
Of the 25 leading City economists who took part in the Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. Five declared themselves undecided.
http://www.telegraph.co.uk/finance/financetopics/budget/7806064/Euro-will-be-dead-in-five-years.html
Finally, John R. Ing, President and Chief Executive Officer of Maison Placements Canada Inc. Toronto, has been kind enough to allow me to share his latest update and thoughts on our financial world stumbling from crisis to crisis. His always excellent reports are worth reading. His latest report is available at the link below.
http://www.scribd.com/doc/32933537/Neither-a-Borrower-Nor-Lender-Be-1
Stay long precious metals.
"Gold is not less but more rational than paper money. Money holds value so long as it is in limited supply; gold will always be in limited supply, and would require real resources to produce even from the sea; paper and printing ink are not in limited supply. The gold system is much closer to a modern automatic scientific control system than the crude and relatively unstable system of paper."
William Rees-Mogg
Have a great World Cup, Formula 1, weekend.
GI.
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