News & Analysis
Ireland and Greece Keep Decaying
ECB Sees EU Aid for Irish Banks, Fueling Bailout Bets ... Ireland could use European Union aid to bail out cash-strapped banks, the European Central Bank said, stepping up pressure on the Irish government to prevent an escalation of the debt crisis that threatens the euro economy. As Ireland insisted it doesn't need handouts for its public budget, ECB Vice President Vitor Constancio said it would be able to use the emergency fund set up to support euro-area governments to recapitalize banks reeling from the bursting of the real-estate bubble. "The problems of the Irish banking sector are not only problems of liquidity but also in some cases problems of capital," Constancio said in Vienna today. While the EU rescue fund can't lend directly to banks, the Irish government can "use the money for that purpose," he said. – Bloomberg
Dominant Social Theme: There is always a way to pay down debt if you are part of the European Union. Come, let us reason together ... and change the rules.
Free-Market Analysis: For months we have read in the mainstream media that Ireland has pulled together as a country and culture and that the "austerity" it was undertaking was working. Ireland was held to be increasingly solvent and the people of Ireland (in mainstream articles) were constantly lauded for their sacrifice and discipline. We, of course, wondered if and when this entirely false paradigm was going to fall apart. In fact, the Irish themselves did not pull the proverbial plug – but then they didn't have to. Over the past months it has become increasingly clear that government leaders have not cut the costs they claimed they had, and that the problems with Irish banks were increasingly worse than conceded.
Thus it is that the EU's "austerity" showplace – Ireland – is gradually becoming undone. And Ireland is not alone. As we were finishing this article, there were additional reports featuring Portugal's dramatically worsening economy and further tensions between Greece and Germany over Greece's eroding balance sheet. But Ireland is front-and-center today. Astonishingly, the Guardian newspaper carries the news that "Dublin has 24 hours to make decision as EU emergency talks loom amid fears Irish banks' contagion may spread to other eurozone countries."
From our point of view, some of this alarm may be manufactured to drive the European Union closer together, a strategy already enunciated by Eurocrat leaders. And one of the reasons that Irish leaders have struggled mightily not to avail themselves of the EU bailout facility (on behalf of their banks) is because it comes with significant strings attached. But apparently the Irish may have no choice. Right now, apparently, Irish bank equity is only worth two percent of what it was only two years ago. This is a staggering reversal, akin to the bankruptcy of IBM in the states or the sale of Newsweek for the proverbial dollar.
In fact, the "austerity" that the EU seeks, and certain nations are trying to provide, is likely not working very well in any of the affected countries. Greece, despite the violence of that countries protests, was supposed to have swallowed the proverbial medicine of EU austerity as well. But here is an excerpt from Yahoo.com on the continued unraveling of the Greek economy:
Greece admits breach of bailout terms as audit begins ... Greece acknowledged Monday it would breach conditions for a new installment of a 110-billion-euro bailout as the IMF and European Union began an audit of the country's austerity measures. Greece's Socialist government faced a week of tough talks with its benefactors and although bolstered by sweeping successes in local elections on Sunday, the outlook is still overshadowed by gloom on the economic front.
The Eurostat statistics agency issued its final revision of Greece's accounts for the past four years, triggering a new forecast by Athens that its public deficit in 2010 would reach 9.4 percent of output ... Having flirted with insolvency until it was rescued by the International Monetary Fund and EU in May, Greece on Monday sought to reassure its partners that despite the latest figures, it remained on course ...
The bigger the deficit last year, the more it has to do to meet rescue conditions this year. The announcement was awaited with much concern in Greece as it may entail further deep spending cuts that have already provoked strikes and demonstrations. Greek Communists planned a protest later Monday, with private sector workers aiming to strike on December 15. – Yahoo
Is this a surprise? In fact, it is all too predictable to anyone who examines the EU – and its integrated countries – with even a little bit of skepticism. The EU is simply too big and to unwieldy to work in our humble view. It is perhaps in the protracted final stages of some sort of unacknowledged bust-up.
It doesn't help of course that the EU refuses to audit itself, and has not done so for over a decade now. The amount of institutionalized corruption must be staggering; to believe that somehow the EU's component governmental parts (like Greece or Ireland) can be responsible when the larger entity is not, provides us with a fairly unbelievable scenario.
The larger trouble of course is that only the the EU's smaller countries have unraveled yet. What about Spain, Italy and even France? The cumulative impact of so much trouble is not seen all at once, but unwinds over months and years. As we do not think the world's economy will hit bottom until Chinese inflation brings that country's economy down as well, we have a hard time believing these current EU measures will work. They may provide a temporary bandage but the bleeding will continue and the world's economic situation may eventually worsen considerably.
The problems are already baked into the EU system. The corruption is part of the process – along with the resentments it generates. One has to review the provenance of the "sovereign crisis" to see it clearly. It began when the EU wanted to embrace countries that patently had no business in the EU. That's because the EU demanded that the countries that "joined" needed to be fiscally responsible. Accordingly the EU provided funds to the various governments – and the problems were assumed to being on the way to resolution.
Only it didn't work out that way. The money basically found its way into the pockets of the national elites where is served as a kind of bribe – or was applied to useless, half-finished projects. The citizens of the PIGS (where most of the problems occurred) might not have been enthusiastic about joining the EU. But their elites, drenched in easy money, were most happy to cajole their various countries into the fold. And that was what the money was really for in our view. Thus, we have a good deal of trouble with the idea that those at the top of the pyramid did not understand what was going to happen to the EU when it experienced a downturn.
In fact, several top Eurocrats are on record as predicting that when the EU experienced a downturn the pressure for further consolidation would become significant and even impossible to resist. We have seen this to some degree already. The EU has created a fund that was supposed to recapitalize banks that had taken losses (mostly with the PIGS). But now the Eurocrats are bending the rules again, claiming that the fund can somehow be accessed by individual EU governments. This breaks a fundamental tenet of the EU organizational structure – that individual EU states, where they to get into trouble, could not be salvaged by other countries in the EU.
Inexplicably, there was never any mechanism to support troubled EU states. The idea was that once these states had received the initial funding to straighten out their books, they would keep out of trouble on their own. Again, no one actually expected this to happen. The Greeks, Italians, Spanish and even the Portuguese all had terrible governmental track records. The profligacy and waste in these countries is likely only rivaled by the EU itself. Everyone knew what was going to happen, eventually. And those at the top of the EU hoped that it would result in a "more perfect union."
Presumably, this is still the expectation, but we think the Anglo-American power elite that operates in the shadows behind the EU and the Brussels officialdom is playing a dangerous game. We think we see signs that the unrest is far more widespread than the elites expected and that the entire charade is playing out under the hot lights of the Internet's glare. In fact, the Internet itself may have provided many in Europe with confirmation of their perspective that they are being taken advantage of. There is no gratitude we can see toward the EU, nor a great deal of thankfulness for its continued expansion. Instead, there are manifestations of what we maintain may be a growing "class war."
We have pointed out regularly (in other articles) that the tribes of Europe might only tolerate the EU so long as it promised prosperity. Right now the only promise is one of prolonged austerity that may persist through generations. Again, this is bound to breed resentment and continued unrest in our view. The elites that have planned the EU and built its authoritarian infrastructure step by bloodless step no doubt expected some of what is taking place, but we see in the reactions of the various highly placed individuals a level of surprise and even desperation that indicates to us things are not firmly in hand.
The continued unraveling of Irish banks, the unsurprising continuation of Greek book-keeping difficulties are further evidences of what EU leaders will have to continue to contend with. As the elite continues to struggle with the larger economy, worldwide, and without reaching firm accommodations with the BRICs and China in particular, we think the eroding situation in Europe may weigh even more heavily.
Conclusion: The longer the EU's PIGS-distress continues, the more jeopardy the euro is in. The key perhaps is Germany. If Germans begin to believe in aggregate that they are continually at risk for PIGS insolvency, then the euro, at least, is in significant danger. We see no sign that any of the tribes of Europe are feeling especially pacified at the moment, and thus the threat to the Eurozone continues, and even worsens.
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Posted by Zenbillionare on 11/18/10 07:15 PM
@ MArk Humphrey
"The fiscal crises will inspire central banks to inflate a lot for a while. But the inflating and other forms of government capital destruction guarantee that businesses will become impoverished."
My tactics are set to wait for the inflationary phase to peak and then pay of any remaining debt. During the inflationary phase I plan to increase my debt exposure as much as possible while negotiating fixed low interest contracts. I've parked my funds in assets that are insulated from dollar inflation, mainly commodities based currencies, gold and real estate, with loans at low fixed interest on the real estate part of the portfolio. For each loan I hold, I purchase an equivalent amount of gold, which I then intend to use to honor the debt after the loan has been inflated into the twilight zone. With any luck I will keep most of the gold after the debts are paid.
Hey, it's the game they're all playing, why lose out? Of course, if it goes the wrong way I end up being screwed, but nothing is certain and if there's no risk there can be little reward.
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Posted by John Blenkins on 11/17/10 10:12 PM
The EU and the IMF fly to Dublin later today. That should read,The Bailiffs and the Undertaker fly to Dublin.
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Posted by Mark Humphrey on 11/17/10 04:54 PM
It has been 75 years since the last monetary deflation. I think deflation will happen again, and not due to mysterious cyclical forces or repetitious history.
The Runaway State cannot be sustained, because they have run out of other people's money to spend. It cannot be slowed, because it is supported by prevailing ideological doctrine and the incentives of state craft. As we all know, that which cannot be sustained will be unwound. But Runaway States cannot be unwound"at least in today's culture"without wrenching upheaval.
The fiscal crises will inspire central banks to inflate a lot for a while. But the inflating and other forms of government capital destruction guarantee that businesses will become impoverished. They hide this impoverishment through accounting obscurities. But the more central banks and governments "fix" worsening problems, the more the crisis grows. The more business is impoverished, the more intense the crisis becomes.
Really, my argument boils down to the observation that we've reached a time of rapid monetary inflating. But there is no way out of this money and banking crisis, except by one of two pathways: hyper inflation or deflation. (There are sane solutions to this crisis, as George Riesman has explained, but there is virtually no possibility they would be taken seriously by central bankers.)
Hyper inflation is unacceptable to even the most ardent inflationist ideologue, because it would destroy everything the ideologue wants to control. But if central bankers guess wrong and inflate too slowly in some crisis; or if they purposefully back away from destroying the currency at some critical juncture, then toppling dominoes will usher in monetary deflation.
Reply from The Daily Bell
Great analysis, if somewhat depressing. But let us see!
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Posted by Mark Humphrey on 11/17/10 12:09 PM
Your insights about the inherent antagonism at the heart of the EU are right on target. My impression is that the EU is bound to disintegrate, in a way that ends the euro currency, for the reasons you've discussed.
I think this will happen before the decade runs out, because I think the strains will intensify due to silent but continuous capital consumption in Europe and the USA.
The source of capital consumption, of course, is runaway government spending and regulating. In Europe, government spending is financed by unsustainable borrowing, heavy taxation and considerable inflating. In the USA, rampant government spending is fianaced by unsustainable borrowing, moderately heavy taxation, and eye-popping rates of monetary inflation. This hegemony guarantees capital erosion.
Capital erosion causes fractional reserve bank insolvency, because capital starved businesses become unprofitable. In Europe, the bailout merry-go-round is likely to grind to a stop when Germany and even France decide they've had enough of carnival festivities. At that point, the euro will cease to function as currency, huge loans and other bank assets will become nearly worthless, and a lot of big banks will become extinct.
Inflating of various European fiat currencies would not avert this outcome, because big banks have big cross border assets. So do US big banks, which means the contagion will spread to American banks, already saddled with impossible burdens.
At some point, American inflationist quacks will throw in the towel on currency inflating. They will have to give up, because inflating will destroy what they value highly: the stability and survival of big banks and other institutions from which these people derive their incomes, prestige, and place in life.
Then monetary deflation will roll across the financial landscape, the inescapable consequence of 100 years of inflationist lunacy.
Reply from The Daily Bell
Ah you are predicting a further deflationary depression. Not so sure about that. The whole thing might fall apart and people would simply and naturally start using gold and silver again.
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Posted by John Blenkins on 11/17/10 06:59 AM
@Zenbillionaire.
Thank You. Top Draw.
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Posted by John Blenkins on 11/16/10 10:12 PM
Fantastic post by: Stephen Click to view linkey. DB bear with me!
Sharks sighted off Dublin Bay.
The smell of blood permeates The Irish sea,
(Gulf stream or not) sharp toothed financial assassins greedy for the last of your wealth. Behold Van Rumpy an elite fair wind sends him sailing ashore.Alas the sharks have fled.To his cry.
Come all ye maidens young and fair.
And you that are blooming in your prime.
Always beware and keep your garden fair.
Let no man steal away your thyme.
Last verse.
The sailor gave me a rose.
A rose that never would decay.
He gave it me to keep me reminded.
Of when he stole my thyme away.
OMG, you poor and destitute wretch.
Press your sovereignty against my buxom EU breast.
Dispatch your nation a quill too fetch.
Salvation in servitude is yours, for no more than a pledge.
What have i now said the fine old woman.
What have i now,this proud old woman would say.
I have four green fields, all of them's in bondage.
In strangers hands the EU that took it from me.
But my sons had sons as brave as their fathers.
All my four fields will bloom once again.
FOR FECK SAKE IRELAND. Would you ever wake up .
Now then lads have a pint of porter and let us reflect.
So come all you jolly young fellows.
I'd have you takin a warning by me.
Whenever you're out on the liquor, me lads.
Beware of the pretty EU.
She'll fill you with whiskey and porter.
Until your not able to stand.
And the very next thing that you'll know me lads.
YOU've landed in Van Rumpys land.
DB For the sake of copy right i have in some cases twisted a word or two in the forwarding of some of these verse.
Click to view link.
Click to view link
Now lads what is the world coming too when a English Man has to kick your ass, so you might tend your Mothers four fields.
And mind ye not of the boys in the north. For we are all headed for Van Rumpys land.
Click to view link
ANd Finaly PLEASE STAND FOR THE NATIONAL ANTHEM,
Click to view link
Wake up Ireland.
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Posted by Zenbillionaire on 11/16/10 07:57 PM
@Al Kyder
"I think the IRA should drive the Wall Street Bankers out of Ireland"
Wasn't that St. Patrick's job?
Seriously, I hope it doesn't go back that way. I'd personally prefer a more peaceful approach. I was reading a blog by Matt Taibbi the other day Click to view link on the foreclosure courts in Florida and it he observes that one of the big problems is that the "owners" of all the mortgage debt in the US are so disconnected from their clients that they can't even talk to each other in court anymore. The banks have to fabricate documents because the loans have passed through so many hands they've completely lost any provenance they may have once had. Meanwhile, the debtors have nobody to negotiate with before the whole thing blows up into a farcical court proceeding. A truly sad state of affairs.
What we need is a more human protocol, one that allows the concerned parties to really negotiate debt forgiveness. I believe we've lost that. I doubt the majority of debtors in the world would turn down an opportunity to make good on their obligations, however absurd they may be. Most folks, as Taibbi notes, don't even bother to show up in court to defend themselves. They're ashamed and don't expect anything other than to lose their homes. I'd like to believe that sentiment scales to nations. If Greece or Ireland were given a chance to do something useful to pay off their debts I expect they would, but they aren't. That's the heart of the problem I think.
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Posted by Bobby on 11/16/10 07:00 PM
I am beginning to understand how civilizations past felt near the end. The question is how will civilization reinvent itself to survive and thrive? This question will never go away but is something which goes on forever and continually stretches man to new limits. It is a question that no one can safely ignore!
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Posted by The Youth Of The UK on 11/16/10 06:05 PM
Just had an interesting conversation with someone in the know...
Ireland is resisting the bailout because France & Germany want to apply conditions. Condition is to raise corporation tax in Ireland from 12%.
The reason for the need of a loan is that the two Irish banks have big debts falling due (80bn I think he said). The debt is to French & German banks. Irish feel that if they drop the banks, then the problem becomes a French and German governmental one and wont have any strings attached.
Reply from The Daily Bell
Thanks.
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Posted by 43bobcat43 on 11/16/10 05:39 PM
Reply from the Daily Bell:
'Once the facility is tapped there are apparently conditions to be fulfilled. Greece is undergoing an audit now.'
Nice one, it all makes sense now.
Reply from The Daily Bell
Glad we could help.
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Posted by Ryan on 11/16/10 03:42 PM
Here is some interesting speculation. Executive summary: Due to the perceived necessity of keeping German nationalistic sentiment under control, France will capitulate to Germany's austerity demands on Eurozone outliers. The outliers will then leave the union, and a EU centered around France and Germany will remain.
Click to view link
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Posted by Oldgezer on 11/16/10 03:09 PM
Reply to Stas – the information about the cost of BO's trip to India was created by the far left wing progrssive party headed by George Soros. They hoped that Fox News would pick up the story and run with it. Apparently there were those in the administration that were willing to go along with the ruse. When Fox News tried to fact check the story they were given false info from the admin in Washington to help the story along (BO literally hates Fox News). Fox News should be paying more attention to the internet blogs instead of the admin as the blogs got it right from the beginning. The whole thing was a hoax. "And the beat goes on".
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Posted by Adulescentulus Carnifex on 11/16/10 02:30 PM
Technological innovoation is now advancing so rapidly that 40 hour work weeks and profit motive are becoming inhumane and senseless. We have reached a point where man can either do government or money, but not both, not in a fair way. It seems the Europeans are going to arrive at this conclusion first. The high finance perfected by the chosen people thousands of years ago is obsolete. Now all it can do is misallocate resources, encourage immorality, inequality, and create human suffering. It's becoming painfully obvious. A bank over the Parthenon? Come on. Austrian economics is certainly a much fairer approach, but I doubt you can dig up enough gold to build space stations and haldron particle colliders.
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Posted by Bill Ross on 11/16/10 01:44 PM
"but their army remains at home..."
The US follows imperial Rome's example, where the legions crossing the Rubicon is fatal. The reason is that US military is motivated by false "rah, rah, freedom"
When the troops inevitably come home, the choices are: sit idle (and be downsized), point guns at fellow citizens (and break their oaths and switch to the freedom side en-masse) or, be immediately downsized and join the homeless and marginalized on the street (and bear their skills on the side of freedom).
Rulers do not like to rely on organized force, for the simple reason that when their forceful minions can no longer be appeased (because ruler predations collapse economies), force discovers its own concept of self-interest, to which rulers are an impediment and competition.
Best to stay out of the crossfire...
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Posted by R.G. Wheeless on 11/16/10 01:07 PM
It's difficult to imagine an economic situation more severe than that of Greece, however the corrupt system in the United States must be at least as bad and lags Greece, Spain, Portugal and Ireland's downfall by only a few months or at best three, maybe four years.
Somehow I have doubts about your take on China. The country may be creating a bubble, but their army remains at home. Willing and able to control mass riots with the slaughter of citizens. History proves this to be correct ever since Mao established a communist regime in the 40's. This Daily Bell article is the best analysis of the world economic condition I've seen. Keep up the good work.
Reply from The Daily Bell
Thanks.
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Posted by Uncle Don on 11/16/10 12:28 PM
Is it a coincidence that Bernanke looks a lot like Lenin? Think about it
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Posted by Stephen J. Gray on 11/16/10 12:18 PM
The Dictators of Austerity
"...IMF-imposed austerity runs the real risk of plunging Ireland deeper into depression and deflation." Financial Times, September 27, 2010.
Austerity measures are being imposed by governments of a number of countries on their populations at the behest of the International Monetary Fund (IMF). The IMF is an unelected, appointed cabal of bankers that is financed by the tax dollars of the people of various countries. The people of these countries supposedly elect democratic governments to run their systems. Therefore, the question has to be asked: Why are their governments taking orders from unelected bankers? Who are these bankers who seem to have power over the peoples elected representatives? Why are these representatives of the people punishing their own people on instructions from the dictators of austerity?
Austerity is being imposed on the people of Greece, Ireland, Spain, Portugal, Iceland and other countries on instructions from the IMF, which raises the question: why bother electing governments if the International Moneychangers are going to dictate policy? And just what is the policy of the IMF? Are they planning some kind of global governance?...
Read full article at:
Click to view link
Reply from The Daily Bell
Well done.
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Posted by DailyTeaParty.com on 11/16/10 12:12 PM
Thank you Daily Bell, we have shared your article with the Tea Party.
Click to view link
Reply from The Daily Bell
Thanks. Appreciate it. Good luck in your mission.
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Posted by 43bobcat43 on 11/16/10 11:39 AM
'And one of the reasons that Irish leaders have struggled mightily not to avail themselves of the EU bailout facility (on behalf of their banks) is because it comes with significant strings attached'
could someone please explain, to a thick irishman, what the 'strings attached' are. ty
Reply from The Daily Bell
Once the facility is tapped there are apparently conditions to be fulfilled. Greece is undergoing an audit now.
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