Euro-Zone Erodes
By Staff News & Analysis - August 17, 2010

The Debt Virus Spreads After Make-Believe Recovery … Andrew Milligan, head of global strategy at Standard Life Investments Ltd., discusses the outlook for European Central Bank monetary policy. Milligan speaks with Betty Liu from Edinburgh on Bloomberg Television's "In the Loop." … The euro area is growing again. The banking system has survived its stress tests. The Greeks have implemented their first austerity measures with some success. The fevered predictions of the early summer that the euro was doomed, and that Europe's sovereign-debt crisis would rip through countries such as Spain and Portugal like a virus, have been forgotten. The crisis appears to be over. Don't believe it. Under the surface, the cracks in the euro are getting worse. The imbalances in the euro area are growing all the time. The resistance to the bailout package will rise as the terms turn out to be immoral and absurd. And the big-deficit nations are locked in a downward economic spiral. – Bloomberg

Dominant Social Theme: The Eurozone must do better?

Free-Market Analysis: The argument made in this article is that Europe's debt crisis is not at an end and will continue to get worse. The article is written by Matthew Lynn – a Bloomberg News columnist and author of "Bust," a forthcoming book on the Greek debt crisis. Is there a dominant social theme involved? We're not sure. A cynic would argue that journalists like Lynn are merely whipping up hysteria and therefore serving as one side of the Hegelian Dialectic. (The other side would be that EU leaders have in fact taken the necessary steps to conquer the problem.)

But we don't see why there needs to be any kind of rhetorical positioning regarding the EU sovereign debt crisis. Paul Craig Roberts, whom we interviewed recently, thinks otherwise. In an article entitled "Without a Revolution, Americans Are History," he presents the analysis that the crisis was cooked up. The idea, he writes, is that the initial hysteria was intended to manipulate money flows to benefit US Treasury prices. He provides this analysis:

The Treasury was able to unload a lot of debt thanks to "the Greek crisis," which the New York banksters and hedge funds multiplied into "the euro crisis." The financial press served as a financing arm for the US Treasury by creating panic about European debt and the euro. Central banks and individuals who had taken refuge from the dollar in euros were panicked out of their euros, and they rushed into dollars by purchasing US Treasury debt.

This movement from euros to dollars weakened the alternative reserve currency to the dollar, halted the dollar's decline, and financed the US budget deficit a while longer. Possibly the game can be replayed with Spanish debt, Irish debt, and whatever unlucky country is eswept in by the thoughtless expansion of the European Union. But when no countries remain that can be destabilized by Wall Street investment banksters and hedge funds, what then finances the US budget deficit?

Now this is an interesting perspective. But we recall the tiff between French President Nicolas Sarkozy and German Chancellor Angela Merkel. At the time, Sarkozy threatened to withdraw France from the union if Merkel did not agree to what became a US$1 trillion bailout fund. This sounded serious to us. In fact, we never believed that the crisis was made up, though perhaps the quarrel between Sarkozy and Merkel was exaggerated.

Is Roberts is implying that the Eurozone was being manipulated without the knowledge of these leaders? These speculations are certainly complicated. We recall, for instance, that the alternative press floated the argument that the crisis was being fostered to "bail out" European banks that had sunk too much money into profligate Southern Europe and now needed the PIGS to adopt austerity.

We tend to use Occam's Razor when it comes to such analyses. The simplest explanation is best. Europe DOES have a sovereign debt crisis. The numbers seem fairly clear. We tend to doubt, too, that the entire world's financial markets could be organized to do the bidding of the US Treasury or the big European banks. Elite control doesn't seem to work that way.

Sometimes an elite retreat is just that. The recent controversy over global warming was very obviously not planned, as the power elite has a lot riding on legislation to create a kind of "carbon currency." The undermining of the credibility of the global warming meme through the release of unauthorized emails was not something we imagine the elite was pleased about. In fact, legislation now being jammed through to counteract "global warming" will tend to boomerang as more and more don't believe the promotion, or are increasingly less scared.

Likewise, we have spent a considerable amount of time and energy trying to unravel the Afghanistan war. There are many in the alternative press who believe the difficulties NATO and the Anglo-American forces are having are exaggerated on purpose. This argument holds that for the sake of a "long war," and to generally destabilize the region, the allies have been purposefully holding back. We don't believe this. We tend to believe the Afghan war is one of control and is aimed at subduing the Pashtuns in Afghanistan and the Punjabis in Pakistan – some 200 million strong altogether. We think the allies have not yet succeeded even though they wish to. (See other article in today's Bell on this issue.)

When it comes to the EU crisis, we tend to see the same issues at work. In fact, we agree with Lynn that the trouble is going to get worse before it gets better and just may sink the euro if not the European Union. We think the presence of the Internet has complicated the job of the elite enormously, by advertising elements of the crisis that the elite would rather left unspoken.

It is not easy being an elite meme watcher, as we have stated before, and yet the stakes have never been higher. Investing these days has less to do with numbers than elite manipulation. If you, dear reader, believe that the euro-crisis is simply a manipulation (or at least an over-statement), then you may – as China – shift your investments from Treasurys to euros. But if you believe that the crisis is real and severe, you may wish to avoid the Eurozone entirely. And maybe Treasurys as well. Perhaps you will want to buy gold and silver as so many others have done.

After Thoughts

We tend to think that the euro-crisis in its largest sense is NOT manipulated (or at least has spun out of control) and that the elite – which evidently and obviously is behind the EU – has a problem on its hands that it may not be able to solve. We think the power elite is having a tough time keeping its promotions afloat in numerous venues. That's our take. What's yours?

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