December 18, 2011

LEAP/E2020: Global systemic crisis – USA 2012/2016: An insolvent and ungovernable country

http://www.leap2020.eu/GEAB-N-60-is-available-Global-systemic-crisis-USA-2012-2016-An-insolvent-and-ungovernable-country_a8481.html

As announced in previous GEABs, in this issue our team presents its anticipations on the changes in the United States for the period 2012-2016. This country, the epicentre of the global systemic crisis and pillar of the international system since 1945, will go through a particularly tragic period in its history during these five years. Already insolvent it will become ungovernable bringing about, for Americans and those who depend on the United States violent and destructive economic, financial, monetary, geopolitical and social shocks. If the United States today is already very different from the "super-power" of 2006, the year the first GEAB was published, announcing the global systemic crisis and the end of the all-powerful US, the changes we anticipate for the 2012-2016 period are even more important, and will radically transform the country's institutional system, its social fabric and its economic and financial weight.

...

In this public communiqué we have chosen to present an excerpt from our anticipation on the changes in the United States for the 2012-2016 period.

But before addressing the American case, we wish to review the situation in Europe (5).


[font color="blue"]From the non-dislocation of Euroland to the dislocation of the United Kingdom[/font]

As anticipated by our team, the EU summit in Brussels on 7 and 8 December last has led to two key events:

1. The further integration of Euroland with an acceleration and strengthening of budgetary and financial integration and the initiation of a fiscal integration (6). The Eurozone governments, led by Germany, have confirmed their willingness to go right through to the end of this process, unlike all the Anglo-Saxon and Eurosceptic discussions which, for the last two years, predicted that Germany would abandon the Euro. At the same time, they have refused to follow the path of the Fed and the Bank of England by refraining from running the printing press (Quantitative Easing) as long as budgetary discipline is not achieved within Euroland (7). The clear failure of QE in the US as in the UK (8) confirms the relevance of this choice which will allow the issue of Eurobonds at the end of 2012 (9).

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In contrast, the "assurance" that the Greek case (of a “voluntary tax” of a 50% “haircut” for the country’s private creditors) will remain an exception is a promise that binds only those who believe it. Incidentally it has been pushed by the French President, Nicolas Sarkozy, whose citizens are well aware, after five years of seeing him in action, that his commitments have no lasting value and are always tactical in nature (10).

2. The lasting marginalization (at least 5 years) of the UK within the European Union vividly confirms that it really is now Euroland that henceforth leads European affairs. David Cameron’s inability to gather even only two or three of the United Kingdom’s “traditional allies” (11) illustrates the structural weakening of British diplomacy and the general lack of confidence in Europe on UK’s ability to overcome the crisis (12). It’s also a reliable indicator of the loss of US influence on the continent since the sending of Treasury Secretary Tim Geithner and Vice President Joe Biden to maraude on the mainland a few days before the summit served no purpose and didn’t prevent the British failure (13).

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In fact this summit will have been historic, but not yet because it will have settled the European financial and budgetary problems. As we anticipated in December 2010, and as Angela Merkel has just said in the Bundestag, the Euroland path is a long journey, complex and chaotic, like the road traveled since the 1950s for European integration (14). But it’s a way that strengthens our continent and will place Euroland at the heart of the world after the crisis (15). If markets are not happy with this reality, it's their problem. They will continue to see their ghost-assets go up in smoke, their banks and hedge funds go bankrupt, trying in vain to push up interest rates on European debt (16) resulting in the ratings of the Anglo-Saxon credit rating agencies losing all credibility (17).

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This summit is historic because it confirms and boosts the return of the EU founding countries in charge of the European project and because it shows that far from witnessing a collapse of the Euro zone, the shock treatment attempted by David Cameron on the orders of City financiers (18), is resulting in an acceleration of the United Kingdom’s dislocation (19). In addition to the confrontation between Liberal Democrats and Conservatives which Cameron’s posture initiated, undermining even further a coalition already in really bad shape, this British marginalization raises fierce opposition in Scotland and Wales whose leaders proclaim their attachment to the EU and its volition, as regards Scotland (20), to join the Euro once the independence process starts around 2014 (21).

And, the icing on the cake, the collusion between the City and the British government is now a topic that extends beyond the UK’s borders and reinforces the continent’s determination to finally bring this “outlaw” under control. As we have described since December 2009 and the beginning of the attacks against Greece and Euroland, the City, alarmed by the consequences of the crisis as regards European regulations, launched itself in an attack against an evolving Euroland, putting the Conservative Party and Anglo-Saxon financial media in its service (22). The episode of the recent Brussels summit marks a major defeat for the City in this increasingly public war, exposing by the way the resentment of a majority of British who are not so much against Euroland than against the City (23) accused of exploiting the country (24).

With £1.8 trillion of public money invested in banks to prevent their collapse in 2008, the British taxpayers are in fact those who have paid the most for the rescue of financial institutions. And the British government may well continue to exclude this amount from its public debt calculations by claiming it’s an “investment”; in fact, fewer and fewer people consider that the banks in the City will recover from the crisis, especially since its worsening in the second half of 2011: the shares purchased by the Government in fact are already worthless. The “UK hedge fund” is on the brink of collapse (25) ... and thanks to David Cameron and the City, it’s isolated with no one to come to its aid, neither in Europe nor the United States.

With the Chinese bubble (26) about to join the European recession and the US depression, the 2012 storm will determine whether David Cameron and his finance minister George Osborne are worthy descendants of the great British sailors.

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[font color="blue"]The future of the USA - 2012-2016: An insolvent and ungovernable United States[/font]

In this issue, our team therefore gives its anticipations regarding the future of the United States for the 2012-2016 period. We recall that since 2006 and the first GEAB issues, LEAP/E2020 described the global systemic crisis as a phenomenon characterizing the end of the world as we know it since 1945, marking the collapse of the American pillar on which this world order has rested for nearly seven decades. Since 2006, we had identified the period 2011-2013 as that during which the “Dollar Wall” on which the power of the United States sits would fall apart. Summer 2011, with the cut in the United States’ credit rating by S & P, marked an historic turning point and confirmed that the “impossible” (27) was indeed in the process of coming true. Therefore today, it seems essential to provide our subscribers with a clear anticipatory vision of what awaits the “pillar” of the world before the crisis at the point when the crisis moved into “top gear” in summer 2011 (28).

Thus, according to LEAP/E2020, the 2012 election year, which opens against the backdrop of economic and social depression, complete paralysis of the federal system (29), strong rejection of the traditional two-party system and a growing questioning of the relevance of the Constitution, inaugurates a crucial period in the history of the United States. Over the next four years, the country will be subjected to political, economic, financial and social upheaval such as it has not known since the end of the Civil War which, by an accident of history, started exactly 150 years ago in 1861. During this period, the US will be simultaneously insolvent and ungovernable, turning that which was the “flagship” of the world in recent decades into a “drunken boat”.

To make the complexity of the current process understandable, our team has chosen to organize its anticipations around three key areas:

- US institutional deadlock and the break-up of the traditional two-party system
- The unstoppable spiral of recession/depression/inflation
- The breakdown of the US socio-political fabric

[font color="blue"]The unstoppable US economic spiral : recession/depression/inflation (extract)[/font]

In fact, the United States ends 2011 in a state of weakness unmatched since the Civil War. They practice no significant leadership at international level. The confrontation between geopolitical blocs is sharpening and they find themselves confronted by almost all the world’s major players: China, Russia, Brazil (and in general almost all of South America) and now Euroland (30). Meanwhile, they cannot control unemployment where the true rate stagnates at around 20% against the backdrop of an unabated and unprecedented reduction in the labour force (which has now fallen to its 2001 level (31)).

Real estate, the foundation of US household wealth along with the stock market, continues to see prices drop year after year despite desperate attempts by the Fed (32) to facilitate lending to the economy through its zero interest rate policy. The stock market has resumed its downward path artificially interrupted by two Quantitative Easings in 2009 and 2010. US banks, whose balance sheets are much more heavily loaded with financial derivative products than their European counterparts (33), are dangerously approaching a new series of bankruptcies of which MF Global is a but a precursor, indicating the absence of procedural controls or alarms three years after the collapse of Wall Street in 2008 (34).

Poverty is gradually increasing in the country every day, where one in six Americans now depend on food stamps (35) and one in five children has experienced periods of living on the streets (36). Public services (education, social, police, highways...) have been significantly reduced across the country to avoid city, county, or state bankruptcies. The success with which the revolt of the middle class and the young (TP and OWS) has met is explained by these objective developments. And the coming years will see these trends get worse.

The weakness of the 2011 US economy and society is, paradoxically, the result of the “rescue” attempts carried out in 2009/2010 (stimulus plans, QE ...) and the worsening of a pre-2008 “normal” situation. 2012 will mark the first year of deterioration from an already badly impaired situation (37).

SMEs, households, local authorities (38), public services,... have no more “padding” to soften the blow of the recession into which the country has fallen again (39). We anticipated that 2012 would see a 30% drop in the Dollar against major world currencies. In this economy, which imports the bulk of its consumer goods, this will result in a corresponding decrease in US household purchasing power against a backdrop of double-digit inflation.

The TP and OWS have, therefore, a bright future ahead of them since the wrath of 2011 will become the rage in 2012/2013.

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Notes:

- (1) Not to mention the rating agencies that spend their time changing their ratings, proof that they have no reliable methodology and that they float at the mercy of pressure and fashion.

- (2) Which can thus directly determine both the relevance of our anticipations and the honesty of our assessments.

- (3) A development anticipated by our team for a long time.

- (4) At the request of numerous American readers.

- (5) We will put forward our anticipations for the EU in the GEAB N°61 or 62.

- (6) The EU president, Herman Van Rompuy, is almost right in saying that in a few years this 2011 year-end will be judged as an "annus mirabilis" for Europe. Our team considers that 2012 will actually be the key year. Source: Le Soir, 13/12/2011

- (7) Source: New York Times, 10/12/2011

- (8) The Bank of International Settlements has just warned the UK that its policy of Quantitative Easing was in the course of failing. Source: Telegraph, 12/12/2011

- (9) Whatever Angela Merkel may say today.

- (10) The Germans, Dutch and other countries with a surplus are for that matter determined to return to this point when the time comes. And we maintain our anticipation that 30% of Western public debt will not be repaid in 2012: in Europe, Japan and the United States.

- (11) That’s to say European countries still subservient to Washington such as Vaclav Klaus’ Czech Republic, the Baltic countries or Sweden.

- (12) All countries outside the Eurozone, except the United Kingdom, have wisely lined up behind the banner of the European single currency. But of course, they are without any doubt “irresponsible”, “idiots” or “foolhardy”... unlike the writers in the Anglo-Saxon media who know that this is doomed to failure. Just as before 2008, they were convinced of the invincibility of Anglo-Saxon finance or, until the second half of 2011, that the crisis was under control! Source: Libération, 13/12/2011

- (13) This type of high-level US visit or presidential phone call, widely reported by the US press, just before an EU summit, has become a feature of the Obama administration. In the absence of being able to influence events - since Euroland has made it clear to Washington that it should mind its own business, it helps to convince the US public that Washington is still the “eus ex machina” of European affairs, even though never since 1945, has US influence been so weak on the evolution of Europe. It’s true that without money, without a common threat, and without credibility, as regards economic and financial affairs, the task of US envoys isn’t easy!

- (14) Source: Euronews, 14/12/2011

- (15) LEAP/E2020 considers that today Angela Merkel is undoubtedly the only European, and even Western, "statesman". She isn’t a great visionary but is the only political leader combining the need for difficult policies with a positive vision of the future. And whatever we may think, she shows an undeniable determination, a necessary quality to achieve the things that are important in politics and which are always difficult.

- (16) We say “in vain” for two reasons. First, because the actual current rates are not those used by the press (see chart above) and, secondly, because according to our analyses, Euroland in 2012 or early 2013, if interest rates continue to rise, will undertake to directly collect a part of the huge European savings in order to withdraw under its own conditions from the Anglo-Saxon financial markets... who will have to accept a major haircut.

- (17) In this regard, the shareholding composition of the three agencies throws the light on the complete lack of decision-making independence since they are held by a few large US banks and investment funds (source: Bankster ). It’s time that they downgrade Euroland by several notches... so that investors are compelled to make their choice: believe the agencies’ ratings or rely on their own views (source: CNBC, 15/12/2011). Ultimately there will be a difference. LEAP/E2020 believes those who follow the agencies will be the biggest losers in this financial crisis. And the attempt by European governments to “keep their AAA rating at all costs”, as in Nicolas Sarkozy’s case, demonstrates just one thing: they’re only listening to their financial friends. When one is Euroland and the first global trading bloc, the holder of the largest global savings, etc... one couldn’t care less about the rating agencies. One ignores them or one breaks them. Two things that will be in the 2012 programme for that matter.

- (18) The City “hedge funds” have become the largest donors to the Conservative Party (see chart above) which is de facto their political intermediary. And these same “hedge funds”, of course, have a special affection for the British Eurosceptics of whom Roger Cohen paints a particularly edifying picture in the New York Times of 13/12/2011. What the British Eurosceptics have against Angela Merkel, is not that she’s German, but that she’s not a Nazi. If it were so, their ideas of “superior race” could be expressed more easily within the EU.

- (19) Which will find itself left without influence over the decisions that will affect it in any way. Source: Guardian, 10/12/2011

- (20) Sources: Scottish TV, 12/12/2011; Wales Online, 10/12/2011; Independent, 05/12/2011

- (21) In this regard, our team took the opportunity to share its thoughts on the use of the term "United" in country names. We believe that all countries or political entities that put the word United or Union in their name are doomed to disunion the day a serious crisis changes the internal balances. Using the term “United” in fact masks a fundamental problem of common identity. That is why the Union of Soviet Socialist Republics collapsed, the United Provinces were disunited and the United States like the United Kingdom are facing growing centrifugal tendencies. It’s also why the European Union is not a viable political entity (it is doomed to be only a big market, source: Spiegel, 18/11/2011)... unlike Euroland which has no need to add Union or Uni to have a common identity. Franck Biancheri, director of LEAP/E2020, had thus expressed, for these reasons, his opposition to the adoption of the term European Union in place of European Community at the beginning of the 1990s.

- (22) And making full use of its ability to manipulate the currency markets and other financial assets. An aptitude in rapid decline due to the crisis and the growing unmasking of ongoing manipulation.

- (23) Source: Independent, 10/12/2011

- (24) The City is a feudal relic that escapes all genuine regulation within the United Kingdom. Even if only because it is a huge financial center that too few controllers "control", supported by the extensive network of tax havens created from the confetti of the former British Empire. For information, France Télévisions has just broadcast a remarkable report on the City on 11/2011. One could say that the City is a kind of “pirate” base like the Barbary corsairs that the European powers finally mastered by military campaigns in the nineteenth century, after centuries of piracy and smuggling of all kinds.

- (25) Whether due to the fact that the debt is public or private. Thus in 2012 the British real estate investors will be unable to refinance USD 156 billion in loans. Source: Bloomberg, 09/12/2011

- (26) Sources: Telegraph, 14/12/2011; Les Echos, 01/12/2011

- (27) Let’s remember just a year ago it seemed totally crazy to anticipate such a breakdown. Financial experts, the specialized media and other experts of “the future as a mirror image of the past” considered such a breakdown impossible, or possible after five or ten years if the country's financial situation continued to deteriorate.

- (28) This requirement is all the higher that the media and financial sectors are completely parasitized by the “lure” of the “Euro crisis” destined, as we have been emphasizing for the last two years, to hide the seriousness of the situation at the heart of the global financial system, namely on Wall Street and in the City. David Cameron’s resounding failure in Brussels last week incidentally shows the panic that reigns in the heart of Anglo-Saxon finance.

- (29) Euroland, despite its “handicaps”, repeated at length in the Anglo-Saxon media and the hysterical gibes of Wall Street and City intermediaries, has managed for nearly two years to build a whole new politico-institutional device to pass through the crisis and prepare for the world after. On the contrary, the United States is proving itself totally incapable of the least initiative to adapt itself to the new world order as was once again recently demonstrated with the failure of the deficit reduction super-committee goal despite its very limited target of 1.5 trillion in reductions over 10 years (see chart above). The history of states, like that of species, shows however that the ability to adapt is essential for survival, and it's a law that has no exceptions.

- (30) In his marvellous poem « If », Rudyard Kipling wrote “… If you can bear to hear the truth you've spoken/ Twisted by knaves to make a trap for fools/ Or, being lied about/ Don't deal in lies/ Yours is the Earth and everything that's in it”. And this advice applies to communities as well as individuals because the reading of the Anglo-Saxon press about the Euro and Euroland irresistibly makes our team think of this passage from the poem. However, with the marginalization of the United Kingdom within the EU and faster Euroland integration (as per our anticipations), we note the crossing of a psychological barrier in Euroland: it’s no longer the time to avoid offending the sensibilities of our Anglo-Saxon “allies”, but simply to protect ourselves from the attacks of our Anglo-Saxon opponents. Unlike the media and “mainstream” experts of Wall Street and the City, Euroland isn’t wasting time “to twist the words to make a trap for fools”, it satisfies itself in taking reality into account, to move forward “grinning and bearing it” and cut, one by one, the ties that bind it to the British and US financial centres (and the political ones later). Our team cannot resist the temptation to provide a further illustration of the daily “spinning” of information of which most of the British and US media have made a specialty. Thus, in the section of our heading “twisted by knaves to make a trap for fools”, MarketWatch published an article on 14/12/2011 entitled “Fund managers fear a Eurozone break-up” Yet what did we discover in the article? That their main concern (75% of them) was a further US downgrade (48% think it will happen in 2012) and only 44% of them thought there was a risk that one day a country would leave the Eurozone, without mentioning a timeframe. An honest title should, therefore, have been “Fund managers fear a further US downgrade”. But as they say in French: “A la guerre comme la guerre (make do with what you’ve got)!”.

- (31) Whereas in the same time, the US population has increased by 30 million, a 10% rise. Source: Washington Post, 02/12/2011

- (32) Our team thinks 2013/2014 will provide, via the Congress and due to massive public support, an unprecedented opportunity to demand a dismantling of the Fed. The anti-federal beliefs of the Tea Parties and those anti-Wall Street of the OWS will find a compelling focal point here.

- (33) Source: New York Times, 24/11/2011

- (34) In this connection it is interesting to note that the rating agencies, led by Moody's, saw nothing coming once again since, until the end of summer 2011, MF Global had a positive rating from these agencies... even while the company was already tapping its clients’ accounts in an attempt to survive. May those who believe that their investments are better protected on Wall Street or in the City reflect on this “detail”.

- (35) Sources: MSNBC, 11/2011; RT, 08/12/2011

- (36) These are the numbers that henceforth rank the country fully in the “Third World” category in social matters. Source: Beforeitsnews, 29/11/2011

- (37) Gregor McDonald says the country can no longer generate growth. Source: SeekingAlpha, 05/12/2011

- (38) Source: Washington Post, 29/11/2011

- (39) In fact, it has never left it since 2008, except technically due to macro-economic measures. But no one eats macroeconomics... except economists.

Vendredi 16 Décembre 2011

http://www.leap2020.eu/GEAB-N-60-is-available-Global-systemic-crisis-USA-2012-2016-An-insolvent-and-ungovernable-country_a8481.html

December 16, 2011

We need to design a new economic order

by Caroline Lucas, MP and a leader of the UK Green Party

... The City of London is set, once again, to play a major causal role in the coming financial catastrophe...

...So I want to appeal for a debate about how we transform our economic system away from today's failed economic order - designed to serve the interests of the City of London's 1% - and instead build a new one.

One that is socially just and ecologically sustainable. One that provides useful and meaningful employment for all and strengthens our communities. We can and must find a better way of bringing people closer together and building a better society, while operating within the limits of the ecosystem.

Why will my fellow politicians not engage in these debates? The system we have is catastrophically impaired, yet our leaders remain prostrate before neoliberalism - an ideology that has destroyed jobs and firms, ruined the life-chances of millions, while enriching crooks, thieves and oligarchs. I call on others to join me in calling on our political leaders to match progressive politics with meaningful action, and in taking a principled stand to challenge the deeply corrupt financial system that has plunged us into environmental and economic crisis.

/... http://www.guardian.co.uk/environment/blog/2011/dec/16/new-economic-order

December 14, 2011

Leaving the Euro: Scenarios...

NYT: Pondering a Dire Day: Leaving the Euro

... Instead of business as usual on Monday morning, lines of angry Greeks form at the shuttered doors of the country’s banks, trying to get at their frozen deposits. The drachma’s value plummets more than 60 percent against the euro, and prices soar at the few shops willing to open...

... As the country descends into chaos, the military seizes control of the government...

... In “Leaving the Eurozone: A User’s Guide,” Mr. Dor starts with the obvious: any return to the drachma would have to be preceded by an immediate freeze on bank deposits.

To prevent panicked Greeks from sending the rest of their deposits abroad, transfers to countries outside of Greece would be halted. As the new currency inevitably lost value, new drachma accounts would remain frozen.

/... http://www.nytimes.com/2011/12/13/business/global/a-greek-what-if-draws-concern-dropping-the-euro.html?_r=2&pagewanted=1&ref=global-home


Leaving the euro zone: a user’s guide (.pdf)

... For a country wanting to abandon the euro the only legal way possible following the European treaty regulations would be to leave the whole of EU using article 50 of the treaty and then try to rejoin but asking for special dispensation with regards to the monetary union. Another legal way would be to negotiate an amendment to the treaty with other member countries. All these options require long negotiations and ratification by all member states. Some people therefore think that, because of urgency, only a unanimous agreement by the European Council leading to the issue of a European regulation, could be sufficient despite the legal uncertainty that this could entail. Some articles from the Vienna Convention on the Law of Treaties could also be used when a country wants to leave the euro zone without leaving the UE, as long as it is accepted that international public law applies to the European treaty, which is however a much debated issue.

The difficulties related to the abandon of the euro by only one country (or a subset of countries) in the EMU arise because the other countries would keep the euro. The new currency of the country leaving the EMU will have to coexist with its old currency, the euro, that would be kept by the other countries. It must therefore not be taken for granted that any debt that the country had in Euros would be converted automatically to their new currency. This situation would be even more critical if the new currency was expected to depreciate and become worth less than its initial conversion rate with the euro.

A description of the procedures to be undertaken by a country when wanting to leave the euro zone allows you to measure the difficulties that you may come across in the process. A crucial question is how to undo the euro denominated debts and claims of the country’s national central bank to or on the other national central banks in the Euro System, including the European Central Bank. To avoid a panic and too strong devaluation in the new national currency value, the saving accounts could be temporarily blocked. Moreover, contrary to the free circulation of capital in the EU, temporary measures of capital movements control may be taken even though this may be illegal under the European treaty.

In the hypothesis of a state wanting to leave the euro zone, it would only be under certain conditions that certain debts that would have been issued in euros by either a public or private institution of the country before the date of exit, or certain payments deriving from contracts in euro’s settled before this date, could be automatically converted into the new currency at the initial conversion rate. In general such a conversion could only apply to debts and contracts for which the involved contractors intended to refer to the “lex monetae” of the leaving country...

/... http://my.ieseg.fr/bienvenue/DownloadDoc.asp?Fich=1046781054_2011-ECO-06_Dor.pdf


AFP: Impact studies on failed euro intensify

A return to the drachma, the deutsche mark, the punt and the franc or any other national currency would mean devaluations for some, appreciation for others.

According to Jens Nordvig of Japan’s Nomura Securities, Germany’s currency would rise against the US dollar, but Greece would lose 60 percent of its money’s value.

Italy, Spain or Belgium would lose around one-third each.

While scope for exports would improve, debt restructuring on that basis would mean a dramatic rise in borrowing costs for those governments who write off the most.

National banking systems would collapse, experts say, because of a loss of confidence in the value of the currency that replaced the euro.

/... http://www.taipeitimes.com/News/biz/archives/2011/12/12/2003520513


Time: Scenarios of Euro Collapse Appear

... That’s all pretty bleak—though some observers insist there may be a silver lining in the current black cloud of crisis. French researcher Emmanuel Todd argues that though the implosion of the euro would produce a period of economic pain, panic, and instability, he says that shock wouldn’t last as long as some predict (18, maybe 24 months), before companies and governments picked up and moved on. And because many euro countries would be starting anew after having brushed off huge amounts of debt through various degrees of default, Todd argues the post-euro economies could be re-constructed on more solid fiscal foundations.

Another consequence of such default, Todd says, would be freeing economies and governments from control of what he calls the “oligarchy” of mega-rich investors whose fortunes and interests drive and shape bond markets—and whose gain through safe government securities have influenced political leaders into building up huge public debt in the first place. Another benefit for European nations, Todd says, would be throwing off the domination of Germany, which he describes as dysfunctionally psycho-rigid, and so focused on its own national interests that it no longer cares about ruining its euro partners. Burning the rot from a teetering house, Todd suggests, will be hard and grim work, but at least leave enough of a sanitized structure to rebuild from.

That may sound to some like too extreme of a blame-and-punish-the-rich view to take seriously, yet Todd isn’t an observer anyone should write off. An unabashed leftist who switched his early opposition to the euro to more recent resignation that the useful and beneficial currency is probably doomed, Todd is no ideology-blinded seer of capitalistic disaster. His 1976 book, “The Final Fall”, used demographic and economic data to predict the collapse of the Soviet Union almost to the year, and he has since written studies across a variety of sociological disciplines to accurately forecast (and explain) major developments in Europe. It’s for that reason few people in France are willing to write off Todd’s warnings that recent socio-political events make very real the possibility that authoritarian forces may seek or take power in Italy, Greece, Portugal, Spain, and perhaps elsewhere in Europe, particularly if E.U. turmoil results in monetary and economic failure.

Read more: http://globalspin.blogs.time.com/2011/12/13/as-the-crisis-refuses-to-calm-scenarios-of-euro-collapse-appear/#ixzz1gWGcEMsK

December 13, 2011

Latter-day London was built on the back of Empire,

on the back of the tired, the poor, the huddled masses yearning to breathe free, the wretched refuse of the teeming shore,

and still tries to maintain itself that way.



A terrible beauty was born.

December 13, 2011

The Economist: Lessons of the 1930s: There could be trouble ahead

Just excerpting here one small part of a long explanatory piece. Very relevant to right now, today. X-posted in Good Reads: http://www.democraticunderground.com/1016973

... In the mid-1920s, after an initially untenable schedule of war reparations payments was revised, French and American creditors struck by the possibility of rapid growth in the battered German economy began to pile in. The massive flow of capital helped fund Germany’s sovereign obligations and led to soaring wages. Germany underwent a credit-driven boom like those seen on the European periphery in the mid-2000s.

In 1928 and 1929 the party ended and the flow of capital reversed. First, investors sent their money to America to bet on its soaring market. Then they yanked it out of Germany in response to financial panic. To defend its gold reserves, Germany’s Reichsbank was forced to raise interest rates. Suddenly deprived of foreign money, and unable to rely on exports for growth as the earlier boom generated an unsustainable rise in wages, Germany turned to austerity to meet its obligations, as Ireland, Portugal, Greece and Spain have done. A country with a floating currency could expect a silver lining to capital outflows: the exchange rate would fall, boosting exports. But Germany’s exchange rate was fixed by the gold standard. Competitiveness could only be restored through a slow decline in wages, which occurred even as unemployment rose.

As the screws tightened, banks came under pressure. The Austrian economy faced troubles like those in Germany, and in 1931 the failure of Austria’s largest bank, Credit Anstalt, triggered a loss of confidence in the banks that quickly spread. As pressure built in Germany, the leaders of the largest economies repeatedly met to discuss the possibility of assistance for the flailing economy. But the French, in particular, would brook no reduction in Germany’s debt and reparations payments...

... So the dominoes fell. Just two months after the Credit Anstalt bankruptcy a big German bank, Danatbank, failed. The government was forced to introduce capital controls and suspend gold payments, in effect unpegging its currency. Germany’s economy collapsed, and the horrors of the 1930s began.

/... http://www.economist.com/node/21541388

December 11, 2011

Eurozone Solution: Aaah, So That's How They're Trying To Do It!

... Recall, the basic short term problem is that finance is fleeing eurozone banks, there’s a tremendous credit crunch going on. This is roughly what happened in 1930/31 and led to the Great Depression. We would really rather not go through all of that again. The solution is well known. The European Central Bank should simply print euros and buy up the debt of the peripheral nations. Very much like the quantitative easing by the Federal Reserve and the Bank of England.

However, the ECB isn’t allowed to do that so we can’t do that. So, what can we do? ...


... So, here’s a rough sketch of what will now happen. Umm, OK, no, here’s a rough sketch of what the plan is intended to be, assuming that the plan works.

So, we have governments that have huge piles of debt that they need to sell. The ECB is not allowed to buy this debt nor is it allowed to buy old debt to lower the issuance price of new debt. Banks desperately need a source of medium term funding as everyone other than those stuck in the eurozone is pulling their money out of it. So here’s how we do it.

The ECB agrees to lend very cheap money to any bank that asks for it. Sure, they’ve got to put up some collateral to get it but guess what the acceptable collateral is? You guessed it, sovereign bonds. So, banks buy Italian bonds on which they get 7% interest (ish, at present) present them to the ECB and get money at 1%. Recycle this process as many times as you like and the net effect is that the ECB is printing the money to purchase government bonds, using the banks as intermediaries.

We’ve a nice side effect too. The eurozone banks all desperately need more capital. One very useful source of new capital is retained earnings. And if you can borrow at 1%, lend at 7%, that’s a good source of such retained earnings. Providing no one goes bust of course.

/... http://www.forbes.com/sites/timworstall/2011/12/11/eurozone-solution-aaah-so-thats-how-theyre-trying-to-do-it/

(Found myself encouraged to move over here... )