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A breakthrough in Europe?

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By Delusional Economics, who is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

If the comments from overly excited EU parliament members leaving a “closed door” meeting with Mario Draghi are correct then the ECB president is about to announce a plan to buy unlimited short-term sovereign debt up to 3 years on the proviso that  national governments formally request assistance and are therefore bound to fiscal compliance via an MoU.

I am yet to hear any negative reaction for the plan from anyone of importance within the European elite  and it is a fair assumption that the major players have been pre-informed of the basics of the proposal. The question is just how much has been shared and whether this is actually a “plan”, or simply a vague proposal for one.

I find it difficult to believe that the “open ended” nature of the plan is acceptable to the many Northern European governments and it is also difficult to see how this isn’t direct funding of governments. We’ve also already heard from the German Finance Minister, Wolfgang Schauble, warning people to lower their expectations.  That said, if Mr Draghi has managed to negotiate the political minefield of Europe to allow for unlimited purchases of sovereign bonds then it is a huge break-through. I do, however, remain sceptical that this is the case given the proximity to the German constitution court decision and the multitude of times previously these sorts of rumours have been shot-down.

We’ll have to wait until Friday morning (Australian time) to get the story from the horse’s mouth but already the Spanish and Italian yield curves have fallen sharply led by the front end. This obviously isn’t the first time that Mario Draghi has announced emergency measures with the SMP and LTRO programs used over the last year and it certainly isn’t a surprise to me that the ECB is again at the front of the crisis with this action.

As I stated back in January in response to a S&P rating downgrade:

Although I don’t completely agree with S&P assessment of the ECB I do agree with the following statement:

the ECB may yet engage in additional supporting steps should the sovereign and bank funding crises intensify further

There is no doubt in my mind that this will be the case for no other reason than the “fiscal compact” is just the same policies we have seen over the last 24 months. If periphery nations are forced to deflate their economies in line with their productive capacity under the current European policy settings then the ECB will have no choice if it hopes to meet its mandate of price stability. The fact is that only after the existing debts are written off can Europe enter a phase of economic recovery.

The question that I think we will see answered in 2012 is exactly how this will occur. Will it be by default, starting with Greece, by transfer via yet another newly cobbled together shared issuance mechanism, or via the continuation of the expansion of the central bank’s balance sheet? S&P appears to be siding with the later which, given recent history, I think is a fair bet.

And this leads back to what I have said previously about the enactment of supra-European austerity in Europe and the expected outcomes for struggling nations under these circumstances:

A country with a long running current account deficit has been borrowing goods and services from the rest of the world. In order to support this the non-external sectors of the economy will have expanding debt positions and due to this an economy structured around consumption over production. Because the external sector is a net drain on capital from the country, the government and/or private sector must continually expand their debt in order to maintain economic growth.

In many cases this debt accumulation leads to asset bubbles, because the expanding debt drives asset prices which attracts speculation and in doing so accelerates the external borrowing. This in turn drives up national income, which in turn drives higher prices and further speculation. If a sector’s debt is accumulating faster than its income then at some point in the future a limit will be reached and the rate of debt accumulation will fall. This leads to falling asset prices and national income, which ultimately leads to a crisis as accumulated debts start to sour.

This is what we have seen across the European periphery, although the debt has accumulated in different sectors of the economy across different countries. Ultimately, however, once a European country falls into crisis the debt has ended up in the government sector, even if it didn’t start there, because Europe has chosen to keep banks alive at all costs. This ideology, however, is the major issue with the “Austerity” plan.

After a financial crisis the private sector tends to have lost significant amounts of wealth which leads to both the loss of demand for, and ability to support new borrowing. The debts to the rest of the world still exist which tends to mean the external sector is still in deficit even with lower demand for imported goods. This means that in order for the nation’s income to remain at the previous level the government sector must go into deficit to offset the fall in private sector credit creation. If this does not occur then the economy will shrink until a new balance is found between the sectors, which basically means the economy will try to find equilibrium at some lower national income, and therefore GDP.

This is the sort of deflationary policy that Europe is endeavouring to implement in the European periphery. There is just one BIG problem. At a lower national income the country has no ability to service the debts that it accumulated on its previous income, yet that is what Europe expects to occur. This is simply delusional, because it is a mathematical impossibility and in trying to break these basic laws of arithmetic Europe is slowly destroying the economies of the European periphery which will, in turn, bring down the stronger economies.

And so, in short, the fiscal response to the debt crisis is shrinking the economy of Europe and by doing so the existing debt burden is unable to be serviced which, without actual debt write-downs, requires on-going expansion of the ECB’s balance sheet to compensate. The issue is that, as we’ve seen most recently with Spain, as the economies weaken the process accelerates due to efforts by governments to “double down” on the failing response:

As we have seen from nations like Greece and Portugal, a country with a long running current account deficit and a private sector with a desire or not choice to save has significant problems trying to reach a government surplus. Once you understand that the external sector and the private sector are a net drain on national income it isn’t hard to see the problem. Under these circumstances there is simply no room left in the economy for savings in the government sector and attempts to reach government surpluses become counter-productive as this simply accelerates the decline.

If a country’s current account deficit is structural .. then these efforts are very dangerous because this can easily develop into a damaging feedback loop. The loss of income through the external sector leads to a loss of income in the private sector, this then drives the stronger desire to save, meaning government revenues fall further. This inevitably leads to calls for higher taxes, which once again drain income from the private sector … and around we go. The result of this dynamic is a rise in unemployment, therefore national production and income, meaning once again the government sectors revenue decline while private sector spending and investment fall further.

And that has been my major issue with the fiscal plan for Europe for over 2 years. The policies being enacted to attempt to re-balance the economies of Europe are extremely destabilising and aren’t a credible plan that will allow struggling economies to get back on their feet in order to meet their on-going obligations. It would appear now that these failings are now flowing out to the rest of the world, as I suggested they would:

So while there is no credible counter-balance for the effects of supra-European austerity any attempt to implement the new “fiscal compact” will make Europe’s economic issues worse. The continent is already on the way to recession and unless we see some additional action from the ECB, or a huge swing against this new framework, the push to implement the outcomes of the summit will simply accelerate that outcome. My assumption is that, if Europe does ratify this framework (there are a few stragglers), after 12-24 months of trying the effect will be so disastrous that they will eventually give up. But until then my base case for Europe is a significantly worse economic outcome.

I could be somewhat more positive if I thought the rest of the world was going to be able to provide the sort of demand for European products and services of a magnitude that could offset internal European deleveraging. However, in the current global environment it isn’t going to occur and the inter-dependencies between Europe and the rest of the world guarantee that a slowing Europe means a slowing globe.

Action by the ECB this week is, in whatever form it takes, is yet another compensatory action for the broader policy failure. I do however expect such action in its final form to be watered down under political constraint which means, if it is the case, I’ll be back discussing whatever then next intervention happens to be in another couple of months.

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57 comments

  1. Min

    “I find it difficult to believe that the “open ended” nature of the plan is acceptable to the many Northern European governments and it is also difficult to see how this isn’t direct funding of governments.”

    In times of crisis officials sometimes break the law in order to do what needs to be done.

    “We’ve also already heard from the German Finance Minister, Wolfgang Schauble, warning people to lower their expectations. That said, if Mr Draghi has managed to negotiate the political minefield of Europe to allow for unlimited purchases of sovereign bonds then it is a huge break-through. I do, however, remain sceptical that this is the case given the proximity to the German constitution court decision and the multitude of times previously these sorts of rumours have been shot-down.”

    Maybe Germany will leave the Euro. :)
    Read more at http://www.nakedcapitalism.com/2012/09/a-breakthrough-in-europe.html#rRtzIhtgYDKzR0h5.99

    1. Bridget

      Mish Shedlock has been arguing for quite some time that Germany should leave the Euro. He makes a good case.

    2. Andrey Subbotin

      This is where it is going, Germany and its northern partners leave, France stays and becomes the leader of the rump southern EU. Euro drops against DM, France displaces German exports.

      However then we end with German block and French block competing, like in bad old times. This was something EU tried to prevent.

  2. Jim

    I find it hard to believe that so many “progressives” who took Bernanke/Bush/Geithner/Obama to task for “doing whatever it took to save the US from an implosion” are so cavalier when it comes to giving the ECB a pass.

    You can’t have it both ways.

    Especially with respect to the ECB. How can any progressive support the ECB stiflign democracy to “save the system”?

    I imagine that some of you would actually support the ECB if it declard that it must appoint provisional governments in certain states to ensure the collective integrity of the Eurozone.

    Who would have guessed two decades ago that the UK, as a result of its decision not to join the EZ, would become the premier economic, political and military power in the continent of Europe.

      1. Jim

        Compare the 10-year rate in the UK with the 10-year rate in Spain. Both countries have similar debt/deficit profiles. Yet, the UK is paying 1.64%, while Spain is paying 6.52%.

        Furthermore, the moment the Brits elect an anti-austerity power, it will continue paying less than 1.75%, despite more deficit spending.

        Spain, regardless of the party in power, will continue paying 6.50%+, until it finally separates from the EZ.

        1. Paul

          Ahh… the magic of being one own’s currency issuer! you can’t have risk of default if the Central Bank can print!

        2. Eric

          Do you know any investor that would want to park money ”safely” in pesetas?
          Spain will continue to pay >6% with their own currency.

    1. Mondo

      I agree with you, democracy seems to be losing, and this approach is supported by some in the name of the ‘greater good’. Apparently, trying desparate measures leading us deep into the unknown (even if the bond purchases will be sterilized, as the rumor goes), with the faint hope that this will *somehow* help the 99%, does justify throwing democrarcy overboard. The ends justify the means ??

      Regarding the state of the UK economy however I suggest that you follow William C’s advice.

      It depends on where you look – yes, the stock market is doing just fine, and luxury real estate in London couldn’t do any better. For the 99% this is not very relevant unfortunately.

      1. MyLessThanPrimeBeef

        Many things the rich do, I think, are unintentionally good for the 99.99%.

        That doesn’t mean if you compel them not to do those things, it will not be good for the 99.99%. It might just be that it’s even a better deal for the 99.99%.

        1. Jim

          Can you please clarify your remarks.

          Are you arguing that if the ECB believes that the only way to maintain the integrity of the Eurozone is to suppress democracy in member “countries”, that the ECB has the right to do so?

          MyLessThanPrimeBeef, how would you feel if a Romney/Ryan administration, in order to “save the country from imminent collapse”, with the explicit backing of the fed, slashed social security and medicare benefits by 25%, without congressional input?

          1. MyLessThanPrimeBeef

            Jim, the ECB shouldn’t do that.

            What I meant was when the rich loot (one of the many things they do), one can, with sarcasm, say that when the rich spend from the looting, it is good for the 99.99% (not their intention though when they loot). Thus, I wrote, there are many things the rich do that can be unintentionally good for the 99.99%. But it would be better to compel them not to loot.

            So, it may be that maintaining the Eurozone integrity is good (that’s their claim), but not suppressing democracy in peripheral countries is better, in this case.

          2. MyLessThanPrimeBeef

            It’s good for the 99.99% in the sort way that it’s good for the serfs when the lord of the manor feasts, because when he’s done, they can start digging at whatever is left over, if thre is any.

      2. rotter

        “with the faint hope that this will *somehow* help the 99%”

        except for you and me and some miners in Spain, what gave you the idea that anyone shares this “hope” of yours?

    2. Generalfeldmarschall Von Hindenburg

      @Jim. I don’t see liberals giving the ECB a pass for stifling democracy. On the contrary, I see plenty of taking them to task for ruling like kremlin oligarchs while public protest is smashed or ignored.

  3. MyLessThanPrimeBeef

    Quintus Fabius Maximus Verrucosus.

    Draghi is his descendant.

    Warty was also known as the Cunctator (please note this is a not a dirty word most of the time) – the delayer, who refused to confront Hannibal.

    A good strategy 2,000 + years before, but bad today. There were only two sides then but today, it’s multi-lateral.

  4. kevinearick

    the fact is that political parties compete to stick it up the — of labor, and negotiate the split between capital and middle class. you have to develop the necessary adaptive skill to operate beyond the law of least common denominator robots pursuing you “forward.”

    intelligent labor is well beyond the empire’s reach, sooo, the middle class is going to be on the receiving end of any “breakthrough.”

    come january, the majority of the middle class is going to be on the receiving end. don’t expect a rational response.

  5. Hugh

    Yet another euro deal mirage. If Draghi had gotten approval for unlimited purchases, he would be crowing it from the rooftops. What this looks like is another announcement of a deal that will die when the details come out. It’s important to realize again that this would just be a backdoor bailout of Northern banks: ECB > peripheral governments > peripheral banks > core banks and that the peripheral countries would still have to embrace austerity (the dismantlement of their social safety nets and the selling off of their commons) and depression for the pleasure of drinking this poisoned chalice.

  6. kevinearick

    look canada. on what planet does Harper’s austerity program an open amnesty for chinese bank and municipal criminals make sense?

    the cat is out of the bag now, and the robots can’t change their direction, but you can. don’t worry, the next set of political morons will run out in front of the parade.

    food an tobacco.

    1. JEHR

      I’ve read your post a number of times and cannot make head nor tail of it. Would you care to state what you really mean to say?

      1. kevinearick

        from the perspective of canada’s population relative to resources, all canadians are very wealthy. fom the perspective of central control, they are becoming more impoverished by the day, trading real resources to china for return of paper and more control at the top. look at real labor wages relative to re and commodity inflation, due to the trade relationship. canadian politicians are bigger, dumber crooks than the ones we have down here.

        the chinese ebezzlers are flooding into canada, building the same bs they left behind. been to toronto lately? that trade relationship is also providing the artificial floor under fracking and oil.

        when things go bad/good locally, have good seed adated locally and use tobacco as money to re-boot. it’s addictive, non-violent, and tied to nature, qualities you want to measure, to create a negative feedback loop.

        1. kevinearick

          interest ratess / qe are simply a means of giving capital a credit leverage advantage, with short-long debt mismatch on the backs of the unborn, ensuring debt slavery.

          does that help?

      1. F. Beard

        Under Keen’s plan maybe, but not mine. You should ask Keen.

        I consider a universal bailout to be a form of just restitution and one doesn’t tell the recipient how he should spend it.

        1. MyLessThanPrimeBeef

          I don’t want to ask Keen. You are the one who is citing him. I think you should make clear your differences with his proposal.

          Again, the rich private borrowers might owe up to millions of factional reserve dollars while many of the 99.99% might owe a few thousand or tens of thousads of dollars. How do you know you will get to 100% reserve with your $800 (or something like) per month restitution checks?

          Speaking of restituion, any plans for victims of religious persection?

          1. F. Beard

            I think you should make clear your differences with his proposal. MyLessThanPrimeBeef

            Too bad. Get off your lazy butt and do it yourself.

            How do you know you will get to 100% reserve with your $800 (or something like) per month restitution checks? MLTPB

            Because, except for actual physical cash, all the new reserves will end up in banking accounts at the FED.

          2. MyLessThanPrimeBeef

            If you are going to cite Keen the way you do, you should let the readers know the differences and that his proposal agrees with your plan only as far as it helps you to install your theo-nomics.

            As for the 100% reserve, the system will be, though many banks won’t.

          3. F. Beard

            you should MyLessThanPrimeBeef

            Says you. Do you tell Yves how to run her site? Go ahead and try.

            As for the 100% reserve, the system will be, though many banks won’t. MyLessThanPrimeBeef

            Then they’ll have to borrow the reserves from other banks or attract deposits from other banks in order to do more lending.

          4. MyLessThanPrimeBeef

            It’s between you and your readers. Nothing to do with Yves.

            As for 100% reserve, so we agree that many banks might not be 100%.

          5. F. Beard

            Speaking of restituion, any plans for victims of religious persection? MyLessThanPrimeBeef

            So unless we have plans for 100% justice then we shouldn’t have plans for any justice?!

            But from a strategic viewpoint, an ethical money system and restitution for previous theft should go a long way to eliminating all sorts of evil from social discord to environmental destruction.

          6. MyLessThanPrimeBeef

            No, just checking to see if you are being selective.

            Again, you should ask, what happened to all the printed money and in the case of Glasnost/Perestrooika Russia, what happened to all the vouchers given away?

          7. F. Beard

            I’m being strategic in my choice of evils to fight.

            As for the Russians, I imagine they had to sell their shares for money. That would not be a problem with a universal bailout.

          8. MyLessThanPrimeBeef

            No, the lesson there is you can give away moeny or vouchers, but if you don’t do something about the 0.01%, about wealth/power inequality, all of it will end up in their hands.

          9. MyLessThanPrimeBeef

            Victims of religious persecution don’t think it’s strategic to mix state and theo-nomics.

          10. klare

            ECB=FED !dollar=Euro!!Draghi easing works 4 Bernanke!Both 4 GSachs!US is behind European Union idea!Rockefeller’s dream from the 50s!Yet he has been pushing 100% for a U.N. governance in US!Obama &Clinton &Monti Tri-Lateral, most obedient puppets!

          1. F. Beard

            I’ll do with out the freebie shite. Skippy

            Your share will just go to someone else then. Got to get to 100% reserves.

          2. F. Beard

            I wish to be a responsible human being. Skippy

            Enforced poverty isn’t the way since people won’t tolerate it for long.

          3. Skippy

            I concur with MLTPB.

            All you do is piggy back on some popular theory[s in a mish – mash approach, which in the end, is deceptive and misleading. So much for your personal religious based integrity – ethics. All the wrapping up, your self, with the downtrodden and poor thingy (You could give that female saint a run for her Money). When all they are to you… is a means too an end… Fundamentalist beardo world… barf.

            Skippy… Like a punch line to the greatest comic gag… what kind of act are you?

            http://www.youtube.com/watch?v=tGVL_reIuJM

            PS.. Co2 increase equals plant food… what a profoundly idiotic, simplistic, moronic, thought to utter, when you have so little understanding of the planets living – interactive systems. “Life depends on adequate conditions of food, water, and shelter from inclement elements and also that weather, geological, and biological factors (among others) are involved in the web of life that affords this environment” – Odum. Please inform your self to the actual environment that we all share, before making such unvalidated statements. You have a propensity for such acts.

          4. F. Beard

            When all they are to you… is a means too an end… Fundamentalist beardo world… Skippy

            Actually, I’m trying to put off The End which will be rather unpleasant for many. But if you’d rather hasten it then it won’t be my problem because of, you know, that Rapture thingy.

          5. Skippy

            Winning?

            Does it matter win – lose, if in the end, it does not address the actual physical issues that acerbate the monetary and fiscal problem set. The acts committed from industrialization to this day and onward, their legacy issues, as long as everyone has enough folding money? Mon Dieu!

            Put off the rapture[?], nay you hasten it, the more we do, the quicker a catastrophic decline will arrive. Its all in the planetary archeology. Technology is just a form of leverage against the laws of the universe. The more elaborate and powerful the technology the greater the leverage. Groups of humans offed them selves with stone tools, it just took longer. The speed needed in discovery to offset problems created by – old technology – is increasing exponentially. There will be a point of no return. When this occurs, the only question will be, what form the destruction occurs under. War, social collapse, environmental denigration – carrying capacity loss or a pot luck of all the above.

            Look, one way or another a slow down is going to occur. The point – is – what – is – the most moral way to achieve this state. I personally would like a democratic solution and not one handed down by the 1%, we know how they operate… eh.

            Skippy… so too summarize… your plan would only intrench the 1% further, keep all the unwashed compliant (shopping is great therapy for the immersion advertised suckers), hasten the reduction of the environments carrying capacity (I’ve given you numerous links to this effect [water, fish stocks, mining - exraction, etc]), where all you can muster is – print – and let the good times roll! Win… barf.

          6. F. Beard

            if in the end, it does not address the actual physical issues that acerbate the monetary and fiscal problem set. Skippy

            How many times do you have to be reminded that usury alone is unsustainable? And that usury for credit is even worse since it forces everyone into debt?

            And yes, Keen winning is very important else this Depression could drag out another 20 years. Do you think we can have 20 years of Depression without it leading to another world war? And how hard will WW III be on the environment, do you think?

          7. Skippy

            How many times do – you – have to be reminded that usury is the dog you whip, yet your fine with the rest of the equation, unsustainable in its own right. In fact you envision a world where multi nationals, corporations, and all other manner of Social Darwinist’s would be the prevailing controllers of the means of exchange, including religious mobs. Ohhh but people would get to choose, right? Freewill thingy. That has been show to be the canard it is, trot that lie about all you want, but, its still a lie.

            Depression? That’s a problem with allocation of resources by the 1% and its they that would use a WWIII to thin the heard and not some spontaneous act by the 99%. So I have no idea why you pander with the – were all going to die – if we don’t accept your shtick routine.

            The difference between myself and you is I actually have hands on experience – knowledge with building ie processing plants, civil projects, C/RE buildings, Ag, mining, globally… I know whats happened in the last 30 years, personally, and the evidence of the last 100ish. Its not good, you think stuff like PCB and its like are gone, flushed out of the environment? Its getting worse, a lot worse, yet its full speed ahead, gotta make some money.

            BTW Steve Keen is a great analyst at what he does, nothing more, nothing less. He still has not incorporated the environment into his models. Do you know why economists don’t, they can’t, its imposable to date and its not something they can control. Economists need to control their models, hence all the crappy meta axioms, not unlike religion. Did you not read Yves book or any other publication that was critical of the modeling used to date, its like using a screw driver as a saw. Both are tools but, when used improperly, well look around you.

            There are other options, better, more rational options, yet they are not politically viable under the currant conditions. This is what the 1% has always feared, the most through out history, a change sufficient enough to make people examine the prevailing ideology and use critical thinking to imagine another way, abetter way, a way that does not involve them. The world grows smaller every day beardo, what worked in the past is growing dimmer as we move into the future. Nothing you suggest remedy’s any of it, it would only increase the suffering of billions.

            Skippy… Obstructionist… NO… more like… non compliant… deviant… allergic to lies and double speak… hate people that constantly use the “saving the poor rhetoric” yet facilitate for the people and mobs that make it that way… Obstructionist lmao. That’s a mighty demeaning sort of retort, that is used by, usually, someone that thinks their intrinsically better, undeniably right, inspired by divinity, um da pope thingy. thingy…

          8. F. Beard

            In fact you envision a world where multi nationals, corporations, and all other manner of Social Darwinist’s would be the prevailing controllers of the means of exchange, Skippy

            They already are! And the rest of us have no choice. You’d keep it that way but maybe change those in charge.

            including religious mobs. Skippy

            What about your own religion which decreed that most of DNA is junk?

  7. steve from virginia

    The proposal is a short-term bandaid on a long-term problem. How does the ECB exit its positions? Does it matter? If it doesn’t the entire exercise is futile/another finance fraud.

    These suffering countries’ current accounts are defective as matters of fact: they have insufficient goods and services to exchange for those they receive. Having the central bank borrow in their place (offering surrogate goods) does not fix this problem it simply papers it over.

    The problem with all these countries is they live beyond their means. This has been supported by cheap loans, now the loans are expensive, the countries cannot increase means even with loans.

    This insufficiency is the part the European establishment refuses to understand.

    The ‘big idea’ is the cost problem is temporary. It might indeed be but the remedy is beyond the ability of the Euro-establishment to provide. The intended effort is more pump-priming. The assumption is that the private sector will step up and lend once the central bank has given direction. This assumption is false: if the ECB is successful it becomes the sole lender to the EU, if the ECB fails there are no other lenders: why would there be any?.

    The ECB’s effort also ignores the matter of what the loans are for: more capital waste which is unproductive on its face … good credit after bad!

    Meanwhile, collateral for ECB’s loans is the EU’s non-productivity. Good luck with that!

  8. tiebie66

    This well-articulated analysis of the problem makes a lot of sense to me. If I understand it correctly, the heart of the problem is that consumption is favored over production causing debt to accumulate until it can no longer be serviced through income. Then debt creation slows down, bringing a contraction along with it, and increased difficulty to further service the debt.

    It stands to reason then, that a rebalancing should be aimed for. Either reduce consumption to the level of production or increase production to match consumption.

    Yet, the solutions offered do not seem to address the needed rebalancing directly. Instead, it appears that the government should compensate for flagging private sector demand by augmenting it, thus continue to favor consumption over production with its attendant capital drains and production atrophy.

    On the other hand, one could assert that at a lower national income consumption would be attenuated, capital drains stemmed, and production increased permitting debts to be serviced. A devaluation would accomplish the same things, but through other channels.

    I’m in favor of austerity: economic contraction will force debts to be written off; people will reduce consumption and reacquire prudence. Positive feedback will cause it to happen quickly.

    There is no pain free way out. Sometimes I think that the many arguments for and against austerity simply boil down to an issue of character – does one (or one’s community) prefer to take the pain all at once or distributed over a (long) period of time? Get it over with, I say. We suffer more in total otherwise.

    1. Hugh

      There are two problems. One is a mercantilist trade pattern where countries like Germany via its banks promoted exports by financing the resultant debt of the importing countries. The second was real estate bubbles blown in the periphery again via financing from Northern banks. Now in both these cases, everyone is trying to make sure that the bondholders of these banks (the 1%) suffer no losses or the least possible loss from the profligate lending of these banks. Now it is not some immutable law of the universe that bondholders can’t be burnt. And if I had to choose between burning them or sending the peripheral economies into depression, dismantling their social safety nets, and selling off their commons, I would go with burning the Northern bondholders.

      1. Skippy

        “I would go with burning the Northern bondholders” – Hugh

        What a glorious funeral pyre that would be!

        Skippy… seriously, less people would suffer in the end, ah for the noble lie…

        1. F. Beard

          seriously, less people would suffer in the end, Skippy

          Skippy the Austrian Economist: “Purge the malinvestments!”

          Actually, no one need be seriously burned:

          1) Ban further counterfeiting by the banks.

          2) Fill the deflationary hole caused by 1) with new Euros given equally to the entire Eurozone population including German savers.

          The problem was caused by lending non-existent money. The problem can be solved be giving away new existing money.

          1. Skippy

            If the underlying metrics to the bonds were fraudulent, WTF are they worth?

            Skippy… yet you wish to support that fraud?

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