When Deceptions End, So Will Europe’s Experiment

Although U.S. stocks eventually did the right thing, plummeting to end the day, they were down only slightly for most of the session – a surreal performance, considering the hellish new tack of Europe’s financial crisis. If investors were already jittery about bailout-mania on the Continent, Wall Street bankers should be incontinent with fear over the rise in interest rates that has started to spread outside the high-contagion PIIGs zone. Even ostensibly top-tier borrowers like Holland, Finland and Austria have been getting socked with higher borrowing costs lately as investors have dumped triple-A paper issued by those countries. As for the deadbeats, Italy’s bonds pushed above 7% while yields on Spanish debt surged as high as 6.358%. Imagine a country trying to grow its way out of debt when it’s paying those kinds of rates on a Matterhorn of existing debts. The allegedly good news is that the technocrats who have replaced top elected leaders in Greece and Italy will come up with a plan to save the day. Yeah, sure. You can bet that Ben Bernanke’s got one they can try.

Germany would veto it, for sure, and not because Germans remember the 1920s hyperinflation as though it were yesterday.  No, it is plain common sense that has prevented Germany from acceding to the populist solution of revving up the printing presses. Although Merkel seems eager to patch things up for perhaps another month or two by any means, there is resistance among German bankers to Belgium’s Plan A, which would entail selling bonds issued in the name of a federated Europe. This might sound like a great idea to the village idiot, or to Nobel economist Paul Krugman, but to anyone with common sense and no ideological allegiance to Karl Marx, it is simply a hair-brained scheme to remedy a cosmic-size debt problem with a vast new layer of debt.  Ironically, although all of the bailouts attempted so far have relied on increasingly big numbers to wow the public, the numbers game appears to have turned counterproductive above the two trillion-euro mark. It is one thing to pretend that “restructuring” of commercial-bank debt will do the trick, and that the public’s confidence can be restored with, say, a 500 million euro bailout package. But at a certain level, the public, if not the news media and university economists, begins to ask, “Where will all that money come from?”

In the meantime, public confidence has continued to erode to the vanishing point. Under the circumstances, the financial collapse that politicians have been attempting for nearly two years to forestall will probably precipitate out within weeks, if not days. With market forces starting to overwhelm political fantasy, the European dream of unity under a single currency is about to fail.


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  • fallingman November 17, 2011, 11:39 pm

    Okay Rick, I’ll give you your props.

    “This might sound like a great idea to the village idiot, or to Nobel economist Paul Krugman, but to anyone with common sense and no ideological allegiance to Karl Marx, it is simply a hair-brained scheme to remedy a cosmic-size debt problem with a vast new layer of debt.”

    Just so. Funny and dead on…if a bit redundant. Ha. I love good writing.

  • roger erickson November 17, 2011, 7:33 pm

    gets better

    Greece gets hatchet men,

    meanwhile, “Italy needs reforms not elections,” EU Pres Herman Van Rompuy

    could get worse before it can get better?

    • Seawolf November 17, 2011, 9:16 pm

      That, Roger, is a must read for everyone.

  • roger erickson November 17, 2011, 6:46 pm

    this is a must read, if you want to understand modern fiscal/financial operations


  • roger erickson November 17, 2011, 6:18 pm

    There’s some confusing rhetoric here. Since data is meaningless w/o context, doesn’t this context have to be clarified before interpreting the data?

    1) The dominant form of capital is always human initiative. So when you mention “loaning productive capital,” all you mean is people getting off their backsides & setting their sites on something. That can happen at a moments notice, and when it happens that fast, the ONLY possible way to denominate it fast enough is via fiat currency (ultimately, that’s all a currency system ever is; just a way to denominate distributed transactions; quit obsessing over the bookkeeping numerals you use, and keep your eye on the actual Aggregate Output; that’s what matters).

    2) Conversely, starving a population of it’s own fiat currency always reduces to trying to dampen it’s own initiative. It’s pointless. Currency supplies, as simple records of accounts, have to follow desired transactions, no matter how distributed. To do so, currency supplies have to stay within tolerance limits, neither too much (can help foster inflation) or too little (can help foster deflation). Again, do whatever is needed to keep Aggregate Output growing – ‘cuz the alternative is death.

    3) No matter how much fiat currency Germans try to hoard, they’re cutting off their own customers to spite their own, low-paid labor. That cycle spirals only one way, downward.

    There’s something called the “Job Creators Alliance” here in the USA, that is equally clueless. They, like Germans, should also join the “Buyer Creator Alliance?”

    after all: no customers, no jobs; and soon after, no employers;

    the “Buyer Creator Alliance” was a de facto group, started by Henry Ford 🙂
    [he simply gave his staff raises, so they would buy more, & scale up his sales; that’s just going for volume over margins; it’s called sane Asset Allocation, or “distribution”]

    ps: volume over margins is actually the story of evolution, and even reverse-entropy;

    more numbers = more diversity = more, indirect, options => faster “selection” of better ways;

    Better Markets = wider asset allocation => better quality of distributed decision-making;

    again, not rocket science; just the axioms of nature

    • mava November 17, 2011, 11:10 pm

      Au contraire!

      If, as you say, “The dominant form of capital is always human initiative”, then they should be doing just fine with that “dominant for of capital”, no need for the loans! I’ll keep my capital to myself, and they should proceed just on their initiative. All we see, however, is that they want the capital. Old, smelly, dirty capital.

      Oh, and I can tell you why I humbly think this is so. They have eaten their own capital, there is none left.
      To increase productivity they need capital. If not their own, they will need to borrow it from someone, who did not eat it. Then they must pay prevailing interest rates, grasshoppers.

      And here comes the fiat money system. Since it is so good and so modern, let them have it. We will see if printing new paper can create any new capital. I can promise you, that they are going to need the real capital, real saved wealth. I keep mine in physical pm. That way, it is safely locked away from the hands of those freeloading grasshoppers. Print they can, all they want, but they are not touching anything real.

    • mava November 17, 2011, 11:19 pm

      On your second point, you are contradicting yourself here, so I don’t have to. If it is an accounting system, then it cannot be fiat, it cannot be something that is capable of inflation, because it then looses that first characteristic you have mentioned, that ability to keep an accounting.

      If I made something, a gadget, or performed a service, then I shall be compensated at the price that is market price right now. If I take gold, I can later spend it on something at that same value as I have acquired it at.

      But, if I take fiat money, then after the “money managers” make few bailouts of gamblers, the fiat that I hold now has less value. So, the fiat is incapable to hold the value, therefore it is not and can not be an accounting system.

    • mava November 17, 2011, 11:24 pm

      On your third point now. When germans do bailout the gamblers, what they actually are doing is they are skimming the walth of all germans, to pay for bad loans that only some germans have made, and to make those some germans whole again. This is not a good thing.

      Those who were foolish enough to make bad loans, should be allowed to go bankrupt, so that those germans who were prudent could acquire bankrupt companies, pfennig on a mark, and continue production the best way possible. Preventing this from happening just leaves the capital in the hands of bad people who should have never had any access to the capital to begin with.

  • gary leibowitz November 17, 2011, 3:56 pm

    As an aside, I must apologize for my reference to the Bush tax cut being 1 trillion per year. I don’t know where I got that figure but it turns out to be 1/10th of that per year. From 2001 thru 2011 it tops 1 trillion.

    A Washington Post article explains how this figure came about.


    • Mojine November 17, 2011, 5:38 pm

      The group casts the figure as a “cost” in terms of lost government revenue, though it’s also the amount of money these individual taxpayers have saved.
      Read Bastiat before you start spewing tripe about “lost revenue” for the poor itty bitty government. Every dollar of tax collected is LOST REVENUE! It is lost by the person who earned it, and whatever it is wasted on is bound to displease many. Starve the beast.

    • redwilldanaher November 17, 2011, 6:21 pm

      Well put Mojine. I’d be embarrassed to admit that I’ve ever read anything written by the little errand boy Ezra Klein. That the tool even has a column should sicken any freedom-loving man.

  • Willio November 17, 2011, 2:48 pm

    I know leftists who talk about how much better life is in Europe than in the U.S.A. They did not appreciate, or understand that Europe paid relatively little for their own defense and they paid for lush retirement benefits using national debt.

    • Robert November 17, 2011, 3:40 pm

      -What an excellent point.

    • mava November 17, 2011, 5:23 pm

      so true. That is showing us, which way we are going to head, as soon as the dollar is no more (ahem, as soon as we can’t extract purchasing value from anyone on this planet who holds the dollar in his pocket simply by printing a new dollar).

    • Benjamin November 17, 2011, 7:17 pm

      Exactly what I had in mind to say, Willio! Though I don’t have the link handy, I recall reading story not long ago about how some European countries are known to discount a portion of their infant mortality, which in turn makes the life expectancy rise. It makes their socialized healthcare systems look better, in other words.

      On top of that, Europe’s defense in no small part accounts for our military presence in the world, what is bankrupting us as surely as the -isms are bankrupting Europe.

      Now, this of course isn’t to slam Europe as the worst continent in the world. The U.S. is just as much a part of why the world sucks today. It’s just an explanation as to why the new failed experiment is failing. The old failed experiment was never dealt with. Yep, TPTB just decided to plop a new, expensive wood floor atop the old, termite-infested one and, surprise surprise, the new one is swiss cheese too!

  • AG November 17, 2011, 2:45 pm

    Don’t get taken into all that american and british hype that the EU is a failed experiment. Believe me, alot of people do consider the EU a good idea and european integration is wanted by many. Even for the periphary countries, let alone the central/core ones. The incompetent governments have been kicked out, Portuguese, Greek, Italian all have new technocratic governments that will get the job done. Spain is set to have elections and the center-right wing party to win with majority vote. So money printing by the BCE won’t be a total moral hazard for irresponsable governments, it will just replicate Fed’s nationalization of bond rates until markets see the austerity plans executed.

    • Robert November 17, 2011, 3:37 pm

      “money printing by the BCE won’t be a total moral hazard for irresponsable governments, it will just replicate Fed’s nationalization of bond rates until markets see the austerity plans executed”

      – Oh boy… where to begin with this one?

      ummm…. ok, how about this:

      Nationalizing Bond rates is a one way street. The Fed is not the gleaming example for Europe to follow.

      If the Fed stopped backing the primary dealers in US Bond auctions, our yields would look very European in less than a week. The Fed has no way out of the US Bond market without demolishing the savings of every mis-guided fool out there that thinks US debt is superior to any other sovereign debt.

      Meanwhile, the total US debt surpassed $15Trillion yesterday. The US has now achieved the mystical 100% debt to GDP ratio; while our illustrious Senatorial Super-Commitee that was appointed to save the US.gov fiscal framework can barely agree on $2 Billion in budget reductions over 10 years.

      This is how dysfunctional the system has become. The scale of the “solutions” under discussion (and swirling around in disagreement and controversy) is .00015% the scale of the problem.

      Meanwhile, Italy is still the place to go for a good pizza and a glass of high quality ghianti, but the Eurocrats are quite certain to make sure that Rome burns (again) long before they let it become economically advantageous for foreign capital to flow back into Italy.

    • mava November 17, 2011, 5:17 pm


      So, if the government is “technocratic” (gotta love your buzzwords, must have read the magazine featuring newly approved thoughts this morning?), does that suddenly changes the fact that many people do not want to devalue their money to pay for few gamblers, and yet, that by printing new euros, the government executes outright theft nevertheless?

      I will give you that there are a lot of people who somehow want to be the subjects of a bigger tyrant than their local bureaucracy. What are you gonna say about MANY people who do not want that? Do we just opress them as long as they are the minority?

  • John Jay November 17, 2011, 2:24 pm

    It’s not just Europe. Every government has been substituting debt and government jobs for a real economy. Here is a link to an article about a Chinese professor of finance at the Chinese University of Hong Kong that says China is on the verge of going bankrupt.

  • buck novak November 17, 2011, 7:08 am

    It’s the horn to you sir.

  • mava November 17, 2011, 5:12 am

    Rick, I can’t wait. I “hate” euro, and EU, because it is an experiment in global government, that was set up to prove that the global cabal can be achieved peacefully.

    And, I don’t feel bad for any of the countries that “can’t grow at that rate of interest”. Ha-ha-ha. Their plight sounds as if someone owes them to loan a productive capital to their use. And, do it at the rate that their lazy arses are willing to pay.

    Why did they not get their debt at a fixed rate, and long term? I know why. Greed.

    So, I enjoy watching them eat their greed.

    I believe you are absolutely correct of Germany too. They will pull out, and then France, and then I shall have my holiday and the evil shall have a day of defeat.

    • Hosehead November 17, 2011, 2:40 pm

      You may eat your Schadenfreude in the end Mava… don’t relish the consequences. It will be painful for all.

    • Carol November 17, 2011, 4:04 pm

      hear hear I second that idea Mava.

      Hosehead remember – No Pain No Gain! Why is everyone so afraid of taking their “medicine” that is due them; afraid to do anything that will cause pain but will ultimately fix things?

    • rmsimc November 17, 2011, 4:54 pm

      Be careful what you wish for, Mava, you may just get it… And “it” won’t leave anything unharmed. A deflationary death-spiral will lead to…well, you know the history.

    • mava November 17, 2011, 5:20 pm

      Actually, rmsimc , I have been begging on this very forum, to show me the history of a deflationary spiral.
      I am still praying that it is so well known, that someone would.

      As to the bigger point, I understand that this is going to be the time of punishment. But like Carol, I believe that the right thing to do must be done no matter what pain it causes.

    • Carol November 17, 2011, 6:09 pm

      Hosehead and rmsimc

      would you rather have 2-3 years worth of pain or 2-3 decades of almost muddling through? That is the choice we have 2-3 years of paid if we accept reality and act accordingly or 2-3 decades of extend and pretend.