Volcker Talks of Possible EU Breakup (Loose Lips Sink Ships Edition)

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I would imagine that some EU policymakers are not happy right now. We’ve put up links in Links from various European media outlets yesterday and today which describe the unusual lengths (by modern geopolitical standards) that Obama took to push Eurozone leaders to agree on a bailout package last weekend. Obama reportedly depicted the financial markets as a hostile force:

Dealing with the markets was like dealing with a military enemy, Mr Obama said. You had to use “overwhelming force”. He also offered help from Washington to buy up euros for dollars and ease the pressure on European central banks.

So it looks as if Paul Volcker is a turncoat. It’s one thing for people in the private sector to express negative views about the future on the Eurozone, quite another for someone of Volcker’s stature who is playing a policy role for the Administration to undermine an initiative deemed so important that the President has thrown its weight behind it. From Bloomberg:

Former Federal Reserve Chairman Paul Volcker said he’s concerned that the euro area may break up after the Greek fiscal crisis that sparked an unprecedented bailout by the region’s members.

“You have the great problem of a potential disintegration of the euro,” Volcker, 82, said in a speech in London yesterday. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”

Yves here. On the one hand, Bloomberg did cherry pick this remark from a longer speech, but Reuters and Clusterstock have alarmist headlines similar to the one up at Bloomberg.

The other part of Volcker’s remarks on the Eurozone is his focus on “fiscal discipline.” To be blunt, this is a bank-oriented framing of the problem, when banks are part of the problem. Greece needs a debt restructuring (in fact, that would have been a better course of action than throwing good money after bad) and any austerity program is effectively a transfer for the populace to the lenders. Given the depth of the austerity programs demanded and the potential for backlash in other countries, having the banks write off some of the loans now is far more realistic. It is more viable from both a political and economic perspective. Fiscal cutbacks are more likely to get public cooperation if pain is shared, and are more likely to succeed if they are less severe. If other Eurozone countries go into a sharp contraction as Ireland has (nominal GDP has fallen nearly 19%), the deflationary spiral will make the debt burden even less likely to be paid off. And Spain is already showing signs of deflation, even before the serious budget cuts have begun.

I have seen no indication from any stories on the speech that Volcker acknowledged the demand problem in the EU: that more demand from German is needed from Germany to rebalance the EU internally and to buffer the deflationary pressures in the Club Med countries. Absent that, the EU is on a path to full bore deflation. Given the size of that economy, it will have serious ramifications for the stability of the global banking system and US growth.

And Mr. Market is not happy this morning. The Euro dropped through 1.25 to the dollar, an important support level, and Asian and European stock markets are down.

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  1. alex black

    Anyone who is dumb enough to take financial advice from Barack Obama deserves what they get. The man has never even invested in stocks in his entire adult life.

    “Hey, I was a community organizer. Here, let me tell you what you need to do to save your continent’s financial system….”

    Euro at 124.40. Shock and awe shocked and awed NO ONE. How long before we start seeing him hung in effigy off of Athenian lampposts?

    1. earnyermoney

      “It’s a good time to buy stocks…” Obama March of 09

      That was a pretty good call. Worked well for him as he earned $5 Million last year. It helps if you can direct the Fed to pump liquidity into the markets.

      1. alex black

        His $5 million was royalty income from his book sales. When he released his income tax statements during the campaign, he was already a multi-millionaire, but had never once invested in anything – not his “area of expertise”.

        And when you’re the President and the stock market is sinking down a rathole, it’s part of your “job” to tell people that they should buy stocks.

        What exactly in Obama’s resume qualifies him to tell the EU how they should handle their finances?

        Euro at 1.2397 and dropping. His call to “overwhelm the market” like a military enemy pretty much tells me his view of the billions of people who constitute “the market”.

    2. James

      Shut up and stop pretending like you know stocks.

      >>Anyone who is dumb enough to take financial advice from Barack Obama deserves what they get. The man has never even invested in stocks in his entire adult life.

      Yeah, but he has been an insider all of his life. Have you? If he hasn’t invested, its because someone else who could/would absorb any possible loss did so for him.

      >>“Hey, I was a community organizer. Here, let me tell you what you need to do to save your continent’s financial system….”

      Well, you know the “I was [merely] a community organizer” part was a lie. Funny part is, why don’t “sophisticated” investors such as yourself realize that before posting shit such as this, and better yet, why didn’t world financial markets – all knowing and all seeing as they are – weigh in on this definitively before his election?

      Why NOT trust Obama’s recommendations as opposed to… I dunno… Alex Black’s for instance?

      Gee, let me think on it…

      1. Bonesetter Brown


        Obama is a tool of the banks, little more. He is not an insider of Wall St, and barely of Washington. His buy call in ’09, referencing “profits and earnings ratios”, was fed to him just like the telescript for Sarkozy and Merkel. He looks for all the world like a man who knows not what he is doing or why he is doing it.

      2. alex black

        “Hmm, let me think on this”….

        Think all you want, but I don’t expect much intelligent thought from someone who starts out a post with “Shut up.”

        But I apologize if I offended your sensibilities. Yes, I know President Obama has a lovely baritone voice and is a handsome man, and many still follow him dreamily because of that. They react almost violently when anyone interrupts their dream.

        You shouldn’t follow my stock market advice (but do note, I didn’t give any). You should follow no one’s stock market advice. The only person who ever gave accurate advice was JP Morgan, who, when asked what the stock market will do, replied, “It will fluctuate.”

        Although if you DO manage to get any inside information from Obama on who he next intends to enrich on the backs of future generations, by all means, front-run that trade….

  2. Roy

    Jim Rickards former General Counsel at LTCM and at Credit Suisse before that points out that in the age of financial derivaties that Goldman can create Euro shorts faster than countries/central banks can print money. On CNBC he describes Soros had to have real money backing him up to do a raid on the pound years ago. Not any more.


      1. Gary Anderson

        I am just wondering Yves, if Goldman, in trying to short Eurozone sovereign debt, made the dark overlords, the central banks, mad. You can’t really mess with the dark overlords unless you are Howard the Duck. :))

  3. attempter

    So Obama’s capable of viewing “the markets” as destructive in this context, and he’s willing to go to absurd lengths to commit his own political capital and, infinitely more important, American workers’ wealth, to temporarily prevent rogue marketeers from derailing the Bailout.

    But of course he’s not willing to view racketeering in toto as any kind of enemy. On the contrary, all his personal heroes are criminals, all his ideals boil down to the exaltation of corporate looting, and all his policies, starting with the Bailout itself, have the sole goal of empowering history’s worst robbery.

    That’s why he so aredently wants the Bailout to continue by crushing the people of Greece, and why he’s so piqued that some of his masters are shorting the Bailout itself.

    Of course, like any other snivelling little chickenhawk he also gets a puny little rise out of throwing around manly terms like “overwhelming force”, and I suppose if “the markets” can be turned into a bogeyman for the betterment of the Bailout’s political prospects, that’s standard political demonology.

    1. Vinny

      Yeah! It’s like the National Enquirer.

      My favorite ClusterStock headline for today: “Kidnapper steals banker’s wife and refuses to accept ransom in normal Euros”… LOL

      Can I have some of those abnormal Euros too?…


  4. kevin de bruxelles

    Well like any vulnerable kid knows, it is much better to misdirect the attention of the bully towards others than to risk getting beat up yourself. That seems the be the British strategy (with a huge US assist) in hyping the PIIGS and hyperventilating about the breaking up of the Eurozone. But all these Anglo Saxon critics are really trying to do is through up a propaganda smoke screen over Britain’s own porcine problem; their SWINE’s (Scotland, Wales, northern Ireland, and the North of England). With austerity on the menu, the unproductive SWINE’s, who have been living lavish lifestyles for years on the back of southern England and the City, are likely to make good on their longstanding demands for independence from Westminster elites and the unelected House of Lords once their generous dole payments are cut off by the Tories. This in turn will lead to the break up of the Hegelian construct, the UK and represent final nail in the coffin for the decrepit British Empire that has been in terminal decline for nearly the last 100 years.

    The Conservative Party has just taken power in the UK (in coalition with the Lib Dems) and their first order of business is to introduce an austerity package for their SWINE’s. The Brito-sceptic Scots have been planning an independence referendum anyway this year, but with last year’s bailout of Scottish banks by Westminster elites this was not going to get a majority. But that calculus turns if harsh austerity measures are imposed on the Scots. Not to mention that the North Sea oil boom is pretty much finished. It will be very tempting for the Scots to make a bid for freedom from the UK if their dole payments are cut off and leave England holding the bag for Scottish bank debts. In Northern Ireland there is an uneasy peace that is greased by huge payments to the various parties – basically peace bribes. Indeed fighting insurgencies is expensive and so this policy made financial sense for the Westminster elites. But as soon as the payments are cut off to the former paramilitary hooligans, what is going to stop them from imposing a veto by restarting the Troubles, albeit at a lower intensity?? The expensive of refighting this war would cause the British deficit to once again skyrocket towards an eventual British bankruptcy or hyper-inflation.

    In the end the UK has as much logic being a political unit as that other masterpiece of British Imperialism, Iraq. The Scots and English have been fighting each other longer and more fiercely than the Shiites and the Sunnis – even if for the recent past this volcano of hate has been somewhat dormant. But don’t let the relative calm fool you, this hate will soon erupt once again. Ireland is similar to Kurdistan, they just want to be independent, while Ulster is like Mosul, too mixed up to successfully divide. And yeah, the Welsh are kind of like the Marsh Arabs – slightly irrelevant. In the end, Britain, like Iraq, is only held together by the jackboot of military oppression or handsome bribes and welfare payments.

    So forget about the PIIGS, the real story for the coming years will be the break-up of Britain’s due to their SWINE.

      1. kevin de bruxelles

        Yes, I was messing around with it in the comments section of the A E-P piece yesterday to see how they liked a taste of their own medicine. To their credit the Daily Telegraph at least posted the comments.

        I want to do a full on parody of an A E-P article but from a Brito-sceptic outlook of course :)

    1. Anonymous Jones

      Some of my best friends are Scottish. Every once in a while, I’ll be randomly rambling about someone or another and might offhandedly say, “I like that guy. Nice dude,” and one of these normally staid, lovable Scottish imps will turn red and start fuming, “for f*ck sake, can’t you tell that a**hole’s from London?”

      Anyway, just an anecdote.

      Nice comment again, KdB. FWIW, what you say makes a lot of sense to me…

    2. Jessica

      I am not sure if you are correct or not, but I must praise your originality and clarity of expression. Everything you say is at least plausible and possible correct.
      I would like to add another possible piece that I think is implicit in what you wrote. The UK periphery may think that it is becoming more independent, but the Westminster elite may be just fine with this. Conceivably (pure speculation here), might be even deliberately provoking it. At least for the Tories, the idea of Parliamentary elections without Scotland has to be appealing.
      In that sense, it would be somewhat analogous to the way the Soviet management strata cast aside much of their empire and communism too. I think there are examples from the Roman Empire too. Imperial elites can consolidate power by deliberately casting aside provinces or classes that they no longer need.

      1. PJM

        I sugest a link and an image from Portugal:


        This newspaper is edited by foreigners living in Portugal, especially in Algarve and Lisbon. We have an old and small british community living in Portugal and theyre happy livinh among PIGS. ;) British living in Portugal is an old tradition since the british helped us to create Port Wine. We dont mix these lovely british with others hooligans anti-Portugal british that seems international relations like a soccer derby, with violence and xenophobic goals.

        The last front head line is amusing and says:

        ECONOMIC MIRACLE (yes, in capital letters)

        Statistics continue to confound reality as Portugal reports its biggest economic growth in years.

        That head line has one image with mr. José Sócrates, Prime-Minister of Portugal and the Pope, during last visit to Portugal.

        For us is good to see these kind of news made by others. It is the best way to know what we are doing good or bad.

        I think mr. Ambrose and mr. Johnson should come to Portugal and have some contact with our cozy foreigner community, living in Portugal. These foreigners who lives in Portugal could teach them what is living in Portugal and what were doing to improve our economy and standard of living. Meanwhile they can meet sir Cliff Richard and drink his new wine, made in Portugal. ;)

    3. PJM

      Dear Kevin, let the €uro tank. Maybe they will start be in panic. :)

      I was looking the last portuguese figures concerning exports, March month, before the deep fall of the €uro against the u$sdollar, and I was very happy.

      Portuguese exports rose 24,3% in March. Exports to outside Europe rose, surprise surprise, 38%. Hey, let the €uro tank and we will have one of best economic growth in decades. ;)

      I was looking the inflation in May, after the fall of the €uro, and surprise surprise, the inflation is controled. Only 0,7%. If we cut energy and food unprocessed inflation is negative 0,5%.

      So, until now, the fall in the €uro dindt have inflation pressures fo Portugal. Our productivity is growing fast as we need. The unemployment is still rising but less than before. However our industrial production is growing above european average.

      So let the €uro tank. ;)

      The wish of the end of €uro is having some strange results. One these days americans and british will scream against Europe because the €uro is falling and helping us exporting more. If Portugal export 24% with a strong euro, how much it will rise when the european currency will be at pair agaisnt the dollar?

      In Portugal everybody is in suspense. Can be this be true? Exporting as we are an german state? Nobody knows but we hope to export more and more because we will meed it to help cut our imbalances.

      Some thinkers are trying to understand what is happening in Portugal. This is a strong growth and is a good surprise. However some voices think: we had a strong internal demand before because we had a fast fall in interests rates that was an external schock that is past. Maybe our economy is more strong than we think after this hard work during last decade of bad years.

      Our effort is paying. Today a new great investment was launched. Galp launched a new crude oil refinery. Its true that our corporate debt is high but our companies are investing much more and having better profits and margins. Like Galp. Galp takes oil in Brasil and Angola, cracks that oil in Portugal and is exporting all that oil to everywhere, inlcuding USA. Yes, its a big company for our small company. Yes, that company has a lot of debt who put some pressure in our macroeconmic figures. Portugal has a lot of debt however we have great companies having their business outside Portugal.

      For example, Jerónimo Martins Group is having more revenues outside Portugal than inside our cowntry. That company is working hard to compete with the best companies in the world. They learned how to be competitive outside Portugal. A new generation of workers and managers are learning to compete in hard markets and profiting with their experience.

      Other case study is Portucel Industrial. Is the leader in Europe for office paper and special printing. This company has one of the best products of the world in his industrial sector. That company has a lot of debt. However his profits are growing because is management is very good and are spilling over their skills to others companies. Is like a business school. Exports almost everything that produces.

      With the euro tanking, some of this companies will profit and create more value and jobs. These companies will pay their debt and invest much more. And they will be good examples to others good companies. The fall of the euro will help us much more, thanks to some atacks to Europe.

      Now were seeing some results from our effort. And were more excited with our strategy: work, work and more work. Step by step policies, without blaming others for our internal problems. Were learning with our errors and others errors. Even the atack to portuguese interests is giving more stimulus to work more and better to show that we can live in Democracy, with a european currency and free markets.

      With the €uro falling maybe Portugal will be out of this crisis soon than we think. My people deserves because is struggling a lot. We will win this economic war.

      1. PJM

        Some interesting links with some last portuguese figures.

        Industrial producion in european context:


        April inflation (I made a mistake in the last comment saying that were May figures, my excuses):




        Economic growth:


        Maybe some analysts should focus more in crude facts and figures before some opinions. As I said before, we need good criticism to cut our errors but not xenophobic opinion makers doing ideological propaganda.

        1. PJM

          Now we have conditions to be more agressive cuting our internal demand and fiscal deficit. Our exports are more high than our prospects and internal demand is more strong with the economic recovery from last recession. So the last Austerity Plan will increase taxes to stop some internal demand and cut our trade deficit. And will cut public spending. The aim of portuguese strategy is clear: take advantage of strong external demand for our goods and services to cut internal demand and increase savings to stop imporing like before. The goal is having economic growth to create jobs and cuting our imbalances. This Austerity Plan was signed by the government and the main oposition party.

          Some external analysts dont understand our strategy. Maybe they believe is better to be more agressive cuting imbalances however this kind of strategy is very risky and dont assure to have good results for the pain needed to implement these kind of plans. However, in my humble opinion, is the best strategy now. We will cut our fiscal deficit and trade deficit but not with madness chicago boys experience. Step by step as the economic growth picks up and gives oportunity to be more agressive cuting spending.

          If we are very agressive like some wish we can have a shcok and a deeply double recession. But with this incremental strategy we hope to avoid a receession during the fiscal deficit fixing. We hope to have a steady economic growth, create more jobs and exporting more and cuting our internal demand. We hope to do what is needed to cut debt and fiscal deficits without a lot of social pain.

          Its a risky strategy what Portiugal choose. We could face a new external shock if the external demand stops buying our goods and services. But we hope to be sucessful in our strategy. And having more plans to cut spending and increase revenues if needed.

          It is sad to see how some analysts dont study better our facts and figures. And dont ask what were doing to cut our imbalances. And to improve our exports and growth. But thats the life and we will win that economic war. It will be hard, it will be painful and with a lot of misunderstanding about our way. But with time and some results we hope to show that we are working hard. And that hard work is paying.

          I strong believe in the portuguese people. We will not be defeated. :)

  5. JF

    The German’s are so freaked out by their past history of the Weimar episode that they will do anything to avoid inflation. Thus, they’ve decided to flip the coin and try out devaluation to spur exports.

    Of course, we know how this works out: Deflation. The German’s don’t understand how bad deflation will be for the goods they produce and the world in general.

    Fighting the last war never works. The Europeans will lead us lower with their poor decision and weaker banks.

    1. Jessica

      One cause of the Great Depression that I had not understood was that _Everyone_ was freaked out by the Weimar inflation. The policies that gave us the Great Depression were designed to prevent a global Weimar.
      A very simplistic analysis would say that now it is reversed. We are so terrified of a Greater Depression that we will wind up with Global Weimar.
      I find it hard to believe that the Germans are still uniquely obsessed by the Weimar inflation. Given the horrors that came afterward. The same way that no one in the US South remembers how brutal the Revolutionary War was there because the Civil War was worse and less distant in time.

      On the other hand, I am suspicious of any “lessons from the Weimar inflation” that do not take into account the unique post-WW1 situation. The Weimar inflation was not an accidental product of bad policy but the result of a stand-off between defeated Germany and vindictive France.
      On the third hand, even if the common understanding of Weimar is incorrect, we can hurt ourselves fleeing in panic from an illusion as easily as fleeing in panic from something real.

    2. cougar-w

      Maybe inflation will get them back to Wiemar. But deflation will take them back to the Middle Ages.

      The Wiemar Republic had electricity. Nuf said.

  6. RPB

    Agree with most everything except:

    “any austerity program is effectively a transfer for the populace to the lenders. . .”

    What kind of transfer was it at the time when the debt was floated?

    I guess then again its rather unfair to repair the bank sheets and let the bankers off while the populace suffers. At the same time, however, the promises they were made are simply absurd.

    They should be fining the leaders for fiscal imprudence. Eureka! Government leaders should have their personal finances tied to the budgets they pass. Sort of like vested comp packages for bankers, but apply it to the legislature and allow for withdrawals from personal wealth above compensation provided if they put their nation into these types of situations.

  7. Lilguy

    Mr. Volcker is invaluable. I hope he lives a much longer life and remains true to his values.

    He speaks truth to power, and we’re all the better for it.

  8. jf

    Sadly, the “great” minds of the economic world have moved away from the best solution to banking problems. Take over zombie banks, hold the bad debt and reopen with fresh capital.

    Until this happens, the banks will continue to gamble on the taxpayers dime (and it’s a huge f-ing pile of dimes).

  9. sherparick

    I don’t have the ability to read minds like some on this stream. That President Obama was probably the most conservative of major democratic candidates in 2008, that his ideas about economics and finance and Government may have been far more influenced by his 12 years as an associate faculty member of the University of Chicago then is work as a community organizer, that he may have pretty much absorb all the “efficient market” dogma from his discussions with the likes of Richard Posner, Frank Easterbrook, and other leading lights of the Law and Economics school, should be something you consider. Paul Krugman acerbically pointed that his platform was far more conservative than Clinton’s or Edwards’s, much to the hostility of the Obamaphiles, some of whom appear disenchanted on this blog.

    I note that I know nothing of President Obama’s stock buying history, although his first job out of Columbia was working with Business International Corporation as researcher and analyst. http://en.wikipedia.org/wiki/Business_International_Corporation

    I do get tired of the slight wiff of racism I smell when I read folks channeling Sarah Palin’s meme that “Obama was a mere community organizer (with unsaid statement “of poor black and brown people).” It was clearly the most unselfish, difficult, and at times physically dangerous job Obama has ever performed before running for the Presidency. To use it as a strike against him leads me wondering about beliefs and values who view this kind of work in a negative light. That he may be an intellectual captive of the elite groupthink that has dominated America’s elite and chattering classes the last 30 years (see Friedman, Tom) and of Rubinonmics, please be my guest. But I suggest dropping this meme as it says more about those who propagate it then it does about Obama.

    However, I do surmise that in this case President Obama appears to have acted to try to avoid a major international financial crisis that he thought would likely injure a fragile U.S. economy, which even from a pure political self-interest perspective he would like to see growing for the next 3 years (through the 2012 election). Whether, it will work or not, I have my doubts as all this money is being spent not to boost demand, but once again bail out banks who made loans to borrowers who were unlikely to be able to repay the loan over time in return for short term fees and profits. I don’t know how Greece gets out this without debt restructuring, partial default, and leaving the Euro for revived Drachma. Ditto for Portugal, Italy, Spain, and Ireland. The UK is so lucky that the atavtistic nationalism of the English kept them from joining the Euro. And the market mavens are starting to wake up that all their demands for Fiscal austerity appear likely to trigger a second recession.

    But we are running into the basic accounting dilemma of the modern international economy. The countries that have been running mercantilist policies (also know as “export oriented growth”) want to keep running their surpluses and enjoying their “moral rectitude.” But the U.S., the traditional consumer of last resort has pretty much exhausted its ability to absorb the world’s excess capacity. There are to many people making to much stuff all around world, and not enough people with the wherewithal to buy it. And the tricks, pratically ponzi schemes used to hide this fact and circulate this dumb money to its destruction have been pretty well used up. If the whole world wants to export and no one import, I doubt Mars can absorb the surplus.

    The EURO crisis, with its boost of the dollar, is going to have an immediate effect of slowing the U.S. economy as exports decline and imports rise. With the U.S. dollar, the least ugly of world currencies probably looking overstrong in the medium term, the only way U.S industry and service labor in competition with foreign labor to stay in business and at work will be with real wage deflation. This in turn will put pressure on U.S. housing and rental prices (first with the income to house price ratio and second with slower household formation and more people sharing houses and apartments with others (parents and adult children, siblings, and roommates)). The finacial elite looks under the bed and closets for the phantom of inflation, while deflation stalks the land.

    I am reading “The Big Short” right now, after “Bailout Nation” and “Lords of Finance,” with ECONNED and Dean Baker’s “False Profits,” and Bagehot’s “Lombard Street” next in the docket. I look forward to reading how 1873, 1893, 1929-1931, and 2007-10 all compare.

    1. alex black

      Um, dude, I was the guy who made the “community organizer” swipe. And I used to BE a community organizer in Chicago (when I was 18 and 19). We won 3 lawsuits against US Steel and Con Ed to get them to reduce pollutant emissions. It was good work.

      But it does NOT qualify me to strong-arm the EU into bailing out their bankers and telling them how to run their economy. And if I had gone on to teach law and to be a State Senator, neither of those positions would have either.

      And as to the “unspoken put down of brown and black people” that you catch a whiff of in my statement, my Black girlfriend will find that amusing.

    2. Jessica


      Well written and well balanced.
      “But we are running into the basic accounting dilemma of the modern international economy”
      I agree that you have correctly identified the underlying issue. And I agree with JF (whom you were replying to) that nationalization of the zombie banks was (and still is) necessary.
      But I my sense is that we still have not gone quite far enough. We get as far as identifying the problem at a deep level, but we can not go farther. Partly because we can not even get the need to take power away from those who created this mess recognized. But also because the step after that is the scary one. To ask what the solution is. Scary because no one knows yet. It won’t be a matter of society or the current structure of power finding the solution and implementing it. We will need for society to evolve and mature in ways that are new and as yet unknown. Dogmatically applying concepts from the 1800s or early 1900s won’t be enough.
      I see two clues in our search for the answer. One is the role of knowledge production and how it doesn’t really fit into social and economic rules that evolved to handle thing production. The second is to recognize that our problem is not scarcity or lack, but rather that our current societies and economies manage to turn the enormous abundance of contemporary productivity into scarcity, a lack of demand. And as you have correctly pointed out, what is going on now is that we have exhausted the techniques we have used to try to get around that lack of demand. Now we have to figure out a way to evolve societies and economies so that somehow abundance no longer generates this scarcity.

  10. Peripheral Visionary

    I will take the other side. This administration and its supporters in the media have a surplus of people who are willing to echo the party line. I recognize the need for members of the administration to “speak with one voice”, but society does not benefit when that “one voice” is at variance with reality. Having l’enfant terrible wandering around speaking the awful truth may be embarrassing for the administration, but society as a whole may be better off for being exposed to a bit of difficult reality.

    The part of this story that concerns me the most is the level of the administration’s commitment to bailing out Europe. I have long been deeply skeptical of international bailout agreements, all too often they are a violation of the duty of national leadership to serve the people of their nations first, as opposed to the international society of political and corporate elites. I fully understand the U.S. exposure to the European system (we are much more entwined with Europe from a financial perspective than most realize), but there are different ways of dealing with that exposure. The route that has been chosen is clearly the one that would provide maximum benefit to the European banks and political institutions, rather than the one that would protect American interests first. I realize that that is borderline nationalist, but to reiterate, the national leadership owes its first and foremost duty to the people of the nation, not the international elites.

  11. anonymous

    Volker is right. There have always been arguments against the viability of the Eurozone. There’s now evidence. Yves’ video of the RBS Bear down thread makes the facts bluntly clear. Greek tourism will struggle, the targets will not be met, Spain, Portugal, and Greece will teeter and Germany and France will be able to put together a package to bail these nations out.

    I’m a lay observer, not an expert. Can anyone explain to me why the Eurozone will still be functioning in September 2012?

    1. Vinny

      “I’m a lay observer, not an expert. Can anyone explain to me why the Eurozone will still be functioning in September 2012?”

      It will be functioning alright, just that it will be called GUSSR, where the “G” stands for Germany, and USSR for a little Putinish nostalgia…


      1. alex black

        You always slay me, Vinny.

        Putin is a judo master. In that art, one learns to be attuned to the movements of one’s opponent, and then to deftly alter it slightly to take them down.

        You might be seeing more Russian tourists down there in Greece in the coming years.

        1. Vinny

          There’s quite a lot of Russian investment (and tourists) here in Crete. But it’ll be interesting to see how this particular island handles the austerity measures, because it’s already close to being a Third World place.

          It’s nice to know America will always be there for us, so until spirits cool down a bit around, we’re going to be watching this “New Odyssey” from a nice, clean beach… in Florida. :)


  12. anonymous

    That should read, ‘Germany and France will NOT be able to put together a second package. Sorry, it’s been a long day.

    1. alex black

      I’m a beam of joy. I started shorting the Euro, HARD, when it cracked 1.40. I suppose I should be added smiley faces when I comment on the current level of the Euro.

      1.2397. 8-)

  13. Abhishek

    The European Bazooka which led to a massive short covering rally on Monday has been proven a complete waste in just 5 days. Reports of political and social fissures within the European Union and more importantly the prospect of slow growth in the whole region due to fiscal cuts has led to the Euro falling even below the level of last week.This despite the raison de etre of the bailout being the “defence of the Euro”

    1. anonymous

      “The European Bazooka which led to a massive short covering rally on Monday has been proven a complete waste in just 5 days.”

      Not at all, Deutsche Bank and the other European banks with PIIGS exposure got the European taxpayer to hold their bags.

  14. Francois T

    Given the depth of the austerity programs demanded and the potential for backlash in other countries, having the banks write off some of the loans now is far more realistic. It is more viable from both a political and economic perspective.

    Hmmm! If it was politically more viable, then why do our political leaders from both sides of the pond insist and persist in making banks and their bondholders whole? They too should take a significant haircut. After all, they made the loans, didn’t they? Did anyone wrote in the loan agreement “Come Hell of High Water, thou, the banker, shall not lose a pfennig.”?

    1. Eric Z

      Thats funny, so if Dem’s are against it, who are you counting on supporting it, Republicans?

  15. Jeffrey Steinberg

    The single most important vote in the U.S. Senate is the upcoming debate and vote on the Cantwell-McCain amendment, that would restore Glass Steagall standards, and give the banks one year to fully sever their commercial banking operations from brokerage, insurance, hedge, private equity, etc. I urge all of your readers to contact their Senators to make sure they support Cantwell-McCain. The Treasury Department and White House, along with Senators Reid and Dodd, are mobilized to stop this amendment, because it would represent the most serious step toward a genuine reform, forcing a reorganization, a write-off of massive amounts of purely speculative debt in an orderly fashion. If the U.S. Senate acts to pass the restoration of Glass Steagall, it will be almost impossible for President Obama to veto it; and House Democrats will be very hard-pressed to vote it down, in conference.

  16. Doc Holiday

    Dealing with the financial markets is like dealing with drug dealers and financial terrorists …… yet, we back these pirates and give them taxpayer bonuses (in America). The war continues, as we fund the pirates and take away accountability and regulation…. Go Pirates!

    Re: “Dealing with the markets was like dealing with a military enemy, Mr Obama said. You had to use “overwhelming force”‘

  17. mark

    where is all the outrage for spendthrift sovereign governments on the part of the pitchfork Wall St. crowd?? Is Code Pink going to protest outside the Greek Embassy in Washington DC for our bailout of them via the IMF?

    1. scraping_by

      Ah, dear Greece.

      I think the fate of the cradle of Western Civ will follow one of two Latin American paths. The first was Ecuador, which can be read in Greg Palast’s The Best Democracy Money Can Buy. When, in the early 1980’s, the IMF forced the Ecuadorean government to take over the debts of its busted elites, it left them in a billion-dollar hole that just grew deeper. This required IMF directed capital liberalization, which meant every peso in the country disappeared in hours, leaving the Ecuador government unable to pay the debt bomb. The IMF responded by pushing the majority of the citizens into poverty with its demands for austerity, until peaceful protesters filled the streets. The police shot the protesters down and claimed anarchists were rioting, justifying draconian police state measures. What was left was a government run by the IMF, with free trade and other slogans in place of economic policy.

      On the other hand, Argentina told the IMF to go pound sand. While the Argentines couldn’t force the discounts they got on the private debt, they got them out of governing their country. They’ve been recovering steadily ever since.

      So, our Greek friends can tell the ECB and their front group the EU to piss off, or they can hand them the keys to their country. I hope for their sake, they choose wisely.

  18. sam hamster

    Fear returns to the markets and the Euro descends. Night is coming across Europe and the Finance Ministers have locked themselves in their houses, gone to their basements and lit candles. The chickens that they will slay later in the night in magical rituals cackle in their cages along the wall.

    They promise their Prime Ministers favorable results and then turn off their cell phones. They turn off the lights, deal cards and roll the bones to begin summoning the powers of the night.

  19. /L

    I don’t get it, why should Obama need any more qualification than being POTUS, isn’t that enough to bully any of the states in Europe.

    Will they be able to steamroll the European people in to a federation to save the euro. Or is it dead man walking as someone described it, like when you slaughter a chicken with an axe and its running around for a while and a final scream of death angst comes out of the headless neck.

    When No1 want to bully Europe POTUS talks to the head of Germany and France not the phony EU president Rompuy or ditto foreign minister Ashton. Then Sarkozy and Merkel talks and according to El Paise informed by someone in the Spanish delegation Sarkozy was infuriated at Merkel and banging in the table and threaten to leave the EMU if there was no serious rescue package.

  20. A

    This blogger is excellent. The comment section however is starting to look like the one of zero hedge.

  21. Tortoise

    The drop of the euro to close to $1.20 is really good news for the real economy of the euro zone. Every euro zone country benefits, the exporters as well as the tourist destinations. The idea to exchange large government deficits with more printing will result in a more reasonable exchange rate and thus more competitive economies. Many of the euro-zone economic problems were created by the overvalued euro of the last 6-7 years.

  22. joebhed

    Obama convinced the Euro-govs they had to do “something”, and a Trillion-E trick they tried to do.
    Neither money nor legal authority.
    Not important.
    Volcker, thank the gods, decided to sound the truer alarm that the ship was sinking, rather than let the bankers get in another free shot without paying any price at all.
    Not important.
    What is important and overlooked is that this present financial brew, in whatever currency, is all part of the insolvency of the private debt-based monetary system, sometimes called the fractional-reserve banking system, or that described by Nobel Laureate Frederick Soddy as the confidence game of money.
    It’s the debt-money SYSTEM that is insolvent.
    Coming soon to a country or monetary union near you.
    What is needed is the scientific, permanent money system that Soddy had proposed.
    But that would be economic heresy.

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