News & Analysis
Only Unlimited Money Printing Will 'Help' the EU Now
Thank you Germany ... Alone among EU leaders, Chancellor Angela Merkel goes to tonight's summit in Brussels with an iron-clad mandate. It is a remarkable moment. Never before – to my knowledge – has a national parliament demanded and held a prior vote on an EU summit accord. Had this principle been established a long time ago, we might have avoided much of the relentless Treaty creep and EU aggrandizement advanced by secret deals at the Bâtiment Justus Lipsius. Thank you Germany. Thank you too, judges of the Verfassungsgericht, for giving the Bundestag a veto on EU encroachments on fiscal sovereignty. – UK Telegraph/Ambrose Evans-Pritchard
Dominant Social Theme: Finally, Europe has a bailout that is necessary to combat the problem. Why couldn't they just get it done earlier? Politicians are always dragging their feet until the last minute ...
Free-Market Analysis: Of course, by now you know the EU has announced another "miraculous" bailout. But this article, written by one of our favorite mainstream journos, Ambrose Evans-Pritchard, shows why it won't work, can't work and NEVER WILL work. Hats off to Ambrose. Such clarity is not usually the bailiwick of the mainstream press, not even the Telegraph.
In fact, the "miracles" that are announced regularly by the Eurocrat brain trust are nothing more than an elite dominant social theme. Crises are SUPPOSED to be solved by the most brilliant among us ... and top governmental officials have the goods. That's why they are there, to tackle problems too complex for the rest of us.
The realty is otherwise, of course. Governments CAUSE the problems that later demand attention and are in some cases unsolvable. The Euro-crisis, as this article shows us, may be one of the unsolvable ones. A malevolent mixture of monetary rigidity, uncontrollable debt and banking insolvency seems to doom any potential solution to irrelevance.
The article doesn't start propitiously. In fact, it's one of Evans-Pritchard's more confused articles in our view, given the murkiness of exactly what one is supposed to be "thanking" Germany for. But the reason to analyze the article is not to probe Pritchard's gratitude (ironic or not) but to comment on the article's conclusion. Here he justifies all the rest:
The unpleasant truth is that [Merkel/EU's] leverage proposals are idiotic, the worst sort of financial engineering, legerdemain, and trickery. As countless economists have pointed out, it concentrates risk. Germany's €211bn commitment to the fund is not technically breached but the risk of suffering large and perhaps total loss is vastly increased. Creditor states switch from protected senior status on Greek, Portuguese, or Italian debt to the bottom rung on new slabs of sub-prime structured credit.
The bluff might well be called. The consequence will be to bring forward the downgrade of France and other states. It will accelerate contagion to the core, not stop it. Why is Germany pushing for such a destructive policy? Because it dares not cross the €211bn red-line that has become totemic in the Bundestag, and because it has for ideological and cultural reasons excluded the one option that can plausibly halt the eurozone crisis – which is mobilizing the full fire-power of the European Central Bank.
It should be obvious by now that euroland needs an authentic lender-of-last-resort. Yes, there is a risk that ECB bond purchases could degenerate into chronic monetisation of deficits. But it is an even greater risk that the EFSF – as proposed – will set off a calamitous chain of events.
In three paragraphs, Evans-Pritchard takes us to the heart-and-root of the problem. The EU's central bank cannot print the money necessary to defuse the rolling debt crisis. In the US, the Federal Reserve issued something like US$16 trillion in short-term loans when the markets were seizing up in early 2008. Most recently the Fed basically guaranteed something like US$75 trillion of Bank of America's bad derivatives debt. (Thanks, Merrill Lynch!)
These are admittedly huge sums. We defy anyone to visualize how much US$75 trillion is. It's like imagining infinity in our view. That's why we often write that the dollar-reserve system is dead and that it died in 2008. One cannot issue out – or even intend to issue out – such vast sums of money. Their very incomprehensibility tells the tale.
But in a sense, for the moment, such aggressive actions seem to have worked. The system, in all its chaos and ruin, staggers on. The incomprehensible amounts of money issued by central banks to stabilize it seem to have worked for the moment.
They won't for the long-term in our view but for those politicos and bankers looking for a short-term fix, throwing impossible amounts of currency at the underlying problem of over-leverage is a satisfactory answer.
This is what Evans-Pritchard is pointing out in his article. Contrast sums of US$16 trillion and US$75 trillion to the piddling euro amount of 400-plus BILLION (with a "b") that the EU has wrenched out of its member-nations after considerable wrangling. It is nothing but a penny in a pot!
Evans-Pritchard has illuminated the basic problem of these EU bailouts. In the US, the Fed can issue unlimited amounts of money; the EU Central Bank is constrained. Thus, arguments will continue over fixed amounts of bailout change when unlimited amounts are needed. "Enough" will never be enough.
That's what happens during a fiat-money collapse. Central banks must print and print until the currency is either inflated away to nothingness or a depression commences that salvages at least some of the banks within the context of the current economic structure. The EU hopes for the latter, but it doesn't currently have the power to pull it off. Only the Fed has that sort of unconstrained artillery.
Of course, we would like to see this rotten system collapse entirely. It might have a terrible impact on many – but salvaging the system via monetary inflation and war will be just as horrible. At least if the system collapses, the horror will mean something.
Conclusion: In any event, Evans Pritchard explains to us the source of the problem. Without unconstrained money printing, no "bailout" is ever going to be enough. Only fiat-money printing by the ECB can salvage the EU. So here's the real question(s) for all you EU believers and investors (or non-investors): Is the ECB apt to get the power to print unlimited amounts of money any time soon? Think so? Will that really happen? And if it doesn't, what then ...
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Posted by amanfromMars on 10/28/11 01:51 PM
"The Power Elite are always one step ahead and already have figured out how best to secure their wealth." ... ..Posted by Frank on 10/27/11 08:03 PM
Frank,
If I was them I would be more worried about my health and life.
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Posted by Frank on 10/27/11 08:03 PM
"Most recently the Fed basically guaranteed something like US$75 trillion of Bank of America's bad derivatives debt."
-Madness! The US public is unaware of this & its implications. This should be center news on the MSM, if they were honest & desiring to expose the truth (but they're not). More reason to abolish the Federal Reserve, but now it seems to be too late to avoid another Federal Reserve induced disaster.
"Evans Pritchard explains to us the source of the problem. Without unconstrained money printing, no "bailout" is ever going to be enough. Only fiat-money printing by the ECB can salvage the EU."
-Printing money out of thin air does not solve the underlying problem. At best I it buys time until inflation eventually kicks in and throws another monkey wrench into the growing problem. Eventually the problem is faced and the pain is sustained to fix the problem or the system collapses.
Looks like the USA will fail by printing too many US Dollars leading to its eventual collapse but the ECB will fail first by not permitting itself to print Euros to the same degree. This is all very upsetting & now seems unavoidable. I had hoped until now for a slim chance to avoid the upcoming economic disaster. But our political leaders are blind or corrupt and the situation now seems hopeless. The Power Elite are always one step ahead and already have figured out how best to secure their wealth.
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Posted by chad2 on 10/27/11 06:26 PM
I'd say this officially puts the west in an artificial world. Where do all artificial worlds end up? It's never pretty in the end. It must all come crashing down to reality soon. To who's benefit? The communist of course.
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Posted by Agent Weebley on 10/27/11 03:03 PM
FATBEARD - YOU'RE BACK!
Sorry about our scuffle in May 2010.
Click to view link
Can we continue where we left off? I can only post in the evenings. Dang . . . broke my own rule.
Reply from The Daily Bell
Don't encourage him.
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Posted by F_Beard on 10/27/11 02:04 PM
"Here we go ... " DB
Still stuck in your gold-buggery?
I really wish we had true liberty in private money creation so you gold worshippers could learn from experience that PMs as money are dumb.
Reply from The Daily Bell
On this we agree. Let there be money competition. Somehow we don't see gold and silver losing out ...
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Posted by jp1110107 on 10/27/11 01:43 PM
Excellent piece.
=========
Europe's future is coming into focus: hyperinflation
BY DETLEV SCHLICHTER ON OCTOBER 27, 2011
[snip]
For years now we have heard this in endless macroeconomic research pamphlets and newspaper editorials: There can be no monetary union without a fiscal union. This is, of course, utter nonsense. Complete rubbish. And it doesn't get any more right by repeating it at nauseam.
The money of capitalism
The money of capitalism, of the free market and global trade, has always been gold (or silver, but I will refer to gold here). A gold standard is the oldest and best currency union imaginable, and I would argue, the only one workable. Under a gold standard various countries and their governments use the same currency, gold. There is no central bank and no printing press. Governments have to make do with the income they generate from taxing their local population. In such a system, the state has to live, just like any other entity in society, within its means. Apparently, this is a truly fantastical notion for today's politicians and mainstream economists. Under a gold standard, the state may also borrow from the market but it is clear to the lenders that they assume full risk of default. There is no lender of last resort. This is a powerful constraint on government largesse.
[snip]
Click to view link
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Posted by F_Beard on 10/27/11 01:28 PM
[i]That's what happens during a fiat-money collapse.[/i] DB
Fiat is the ONLY ethical money form for government debts. However, fiat should only be legal tender for government debts, not private ones.
A government enforced PM standard is fascist. Why should the population be forced to buy your favourite shiny metal in order to pay their taxes? Qui bono?
The solution to the money problem will not be solved with shiny metals but with proper principles.
Reply from The Daily Bell
Here we go ...
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Posted by Hoss on 10/27/11 12:59 PM
"Yes, AIG may be at the root of much of it, but it's traveled much farther than that now. According to wire reports, "Bank of America (BAC) shifted about $22 trillion worth of derivative obligations from Merrill Lynch to the FDIC insured retail deposit division. Along with this information came the revelation that the FDIC insured unit was already stuffed with $53 trillion worth of these potentially toxic obligations, making a total of $75 trillion."
The report adds:"Bank of America NA is FDIC insured, and has the blessing of the Federal Reserve, in spite of such a transaction being prohibited by Section 23A of the Federal Reserve Act." "
Haha, thanks for that ... I think.
Yup. The silence on this deserves a series of articles. Ring that Bell!
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Posted by AlephNull on 10/27/11 12:20 PM
Hint :
Hope I've understood it correctly, but basically it means separating into two monetary systems. One for the real/local world and one for the international finance world.
I suppose it could be compared somewhat to the WIR currency in a way.
His ideas reminded me somewhat of Sir James Goldsmith's "The Trap" , which basically says that the current system is based on the lie of "continual and therefor infinite GDP growth" which obviously ends up destroying our planet and ourselves - in many ways, not just economically.
BTW, I assumed that DB was a German-language based team - am I wrong here?
Still, I would love to see that interview "dubbed" into English .. I found it very worthwhile.
Maybe I'll listen to it again and make some notes for you.
Reply from The Daily Bell
Thanks. The bi-currency solution has been spoken about for the US too. But it's seen there as a way to devalue the currency domestically while continuing to make the financial world "whole" abroad. Some of our elves don't speak German.
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Posted by AlephNull on 10/27/11 11:31 AM
@DB
Thanks for the article which I basically fully agree with.
I found this 50+ minute interview with Prof. Franz Hörmann ( Wirtschaftsuniversität / Wien ) to be excellent and would like to share it with you here - unfortunately only in German.
IMO , it is probably the best and most interesting/constructive interview I have watched for years.
"Betrugsmodell Finanzsystem: Interview mit Franz Hörmann"
Click to view link
Apart from explaining why our current monetary system is a fraud and doomed to failure, he goes much further with proposal for a possible future monetary/economic system that could function very well - and that maybe we will soon be moving/progressing towards this or similar thanks to the Internet & other new technologies which enable us all to crystallize our thoughts and ideas more quickly and efficiently than was possible in the past.
... Definitely worth spending the time listening - hope you enjoy it.
Reply from The Daily Bell
"he goes much further with proposal for a possible future monetary/economic system that could function very well"
You want to give us a hint?
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Posted by rossbcan on 10/27/11 11:25 AM
DB: "Without unconstrained money printing, no "bailout" is ever going to be enough."
... perhaps because unproductive predators suck up what ever resources (public indenture increases) become available, faster than they can be made available?
The system is a black hole, destroying and sucking everything into its voracious maw, including, eventually, itself.
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Posted by Hoss on 10/27/11 08:14 AM
The $75 Trillion AIG guarantee deserves a series of articles on its own.
The silence on this largest ever transfer of risk (which is almost sure to happen) is simply deafening.
As far as the EU is concerned, it matters not too much which path is taken. All paths lead to the same destination: the serfs will have the debt placed on their heads. Being simply impossible to pay, this might break the 'social contract', in which the only sacred thing is spending much, much more wealth than is generated. From each according to his ability, to each according to his need. Until all ability is dead.
Reply from The Daily Bell
Yes, AIG may be at the root of much of it, but it's traveled much farther than that now. According to wire reports, "Bank of America (BAC) shifted about $22 trillion worth of derivative obligations from Merrill Lynch to the FDIC insured retail deposit division. Along with this information came the revelation that the FDIC insured unit was already stuffed with $53 trillion worth of these potentially toxic obligations, making a total of $75 trillion."
The report adds:"Bank of America NA is FDIC insured, and has the blessing of the Federal Reserve, in spite of such a transaction being prohibited by Section 23A of the Federal Reserve Act."
