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Tuesday, June 12, 2012

New finance czar could transform Europe

The money crises in the Euro Zone could reshape the notion of national sovereignty, according to this think piece:

According to a report in German magazine Der Spiegel, European Central Bank President Mario Draghi, Eurogroup President Jean-Claude Juncker, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso are drafting a plan to stabilize the system. Under the purported plan, all eurozone members would be required to balance their budgets. Borrowing would be permitted only if approved by a Europe-wide finance minister, a position that would have to be created and supported by a select group of eurozone finance ministers. If approved, money could be borrowed by issuing eurobonds....

The ability to manage a national budget, including the right to borrow, is a central element of national sovereignty. If the right to borrow is transferred from national governments to unelected functionaries appointed by a multinational entity, a profound transformation of democracy in Europe will take place. The European Union has seen transfers of sovereign rights from national governments and their electorates before, but none as profound as this one. Elected governments will not be able to stimulate their economies without approval of this as-yet-unnamed board, nor will they be able to undertake long-term capital expenditures based on the issuance of bonds. This board thus will have enormous power within individual countries....

During the U.S. Civil War, the future of the Union was challenged by the secession of the South. The decisions were made on the battlefields where men were willing to die either for the Union or to break away from it. Who will die for the European Union? And what will hold it together when its decisions are unpopular?

Comments (10)

Supposedly when they set up the EU everyone who joined promised to keep debt below a percentage of GDP. Of course, there was really no punishment for not following the rules and people like Greece saw no reason not to pump up govt spending. Except now instead of Drachmas that were Greece specific, they could spend Euros that had the hallmark of the Germans backing it.

Being politicians, why not take the easy road and spend more (instead of raising taxes - unpopular and not getting you re-elected or passing laws - which most financial people could outsmart anyways)?

Anyways, why people are not just cutting Greece loose is beyond me, but they'll probably have to cut Italy, Spain and Portugal (and maybe France.) Somehow you think the Germans would remember what happened the last time govt just decided printing more money would fix things (Hint - Weimar Republic).

Right now we are doing the same thing (I think our debt passed annual GDP this fall), except we're the leper with 4 fingers so we still look better than the alternatives (China is waaay too smart to let foreigners buy their debt and in turn, control their currency.)

Another problem is that flooding the system with money doesn't mean the avg guy sees even a penny. Instead we get short-term asset (stocks and gold you can buy today and sell tomorrow) inflation and no one wants to make a long-term investment.

If the economy does turn around, inflation is going to be one helluva a beast to deal with.

Unlike Krugman (who thinks the only reason things don't work is because we haven't spent enough), I think just patching a sinking ship isn't going to turn out well.

The Conservatives in Britain who stood strong against joining the Eurozone look smarter every day, the Scandinavians as well. As for the French, Italians, Spaniards and Greece et. al., avoiding entanglements that subject themselves to German domination, what is they say about history repeating itself?

That union is doomed. People are not going to want to be Germany's lap dog. People will start to see the relationship between debt and slavery and they'll balk. Big time.

As for the US debt I hate that we owe so much but haven't bought anything. The crash is coming anyway, might as well dump a trillion or two into infrastructure, technology and energy so we at least have an awesome economy to pull us out of inevitable hyperinflation.

We need to do it soon too, while people still think it's politically possible for the US to actually pay off it's debts.

"might as well dump a trillion or two into infrastructure, technology and energy"

You must be kidding. Right now what do you think happened to all that stimulus money (or for that matter relative freebies like the $700M tobacco settlement) that got dumped into Oregon? About 95% of it got routed to employee benefits which is why they had to take another $1.1B out of the general fund last biennium for the same thing.

Might as well just give people a trillion in a tax cut to middle-income types, at least it'd end up in the avg guys hands unlike now.

A crucial part of the story in Greece is that Goldman Sachs under the leadership of Henry Paulson worked with the Greek politicians to hide their debt and allow them to exceed the percentage of GNP the EU calls for.

This was done using fictional exchange rates, and those marvelous derivatives.

The second point is that the New World Order/Bilderberg types who planned the EU, don't look at what's happening as an all-out failure. They look at it as an opportunity to use the crisis as a way to increase their control.

Finally, and all this is just stuff I read - theories really. The reason the EU doesn't want Greece to go is that if Greece kisses off the EU, and goes back to its own currency, it could do the unthinkable: Recover.

I sometimes wonder if we had let our 5 biggest banks follow the rules of capitalism and paid for their 200-plus trillion dollar derivatives nightmare, by disappearing, whether we ultimately would be better off.

The recent history of the world is simple: The bankers are trying to survive the mess they made, even as one country after another gets crushed by it. Why not just kiss them off and start again?

Bill: I don't wonder what would have happened had we let the big banks go under. Any logical person knew that letting them go under, although initially very painful, was the proper course. Unfortunately, "too big to fail" (promoted by big government types of both parties) would not let that happen!

"The reason the EU doesn't want Greece to go"

Not bad, but how about this? They think the Euro is too big too fail.

Banks and govts are all getting possessed of this megalomania and end up taking on way too much risk just for the sake of being big.

When the whole crisis thing happened with Paulson waving his arms, I didn't think letting the banks flop was an option, but now I think I was wrong. Part of capitalism is the "creative destruction" process which punishes bad ideas and poor risk strategies which is what a lot of the banks did to get higher yields.

So now we saved them and guess what? Two years later Dimon comes out and says the same BS is an isolated instance and will never happen again.

God, these people think we are idiots.

Seeing Jamie Dimon on the Hill today talking about a 2 billion dollar derivative loss when the balloon is 600-700 trillion, is not even a dog and pony show. It's a flea on a dog and pony show.
Meanwhile the congressmen actually had the temerity to ask, "Could this happen again?"

The "too big to fail" set includes the Fed - a privately owned bank running America's currency. And of course Jamie Dimon sits on a branch of the Federal Reserve. It's ridiculous.

Zero percent interest rate is killing the economy. Right now everyone is going to the US treasury for security, but that bubble will blow and end the old world economy.

And once the Eastern investment block drives the paper-gold crowd to their knees, the price of physical gold and silver will sky rocket.

The economic black hole is getting stronger every day and it cannot be stopped.

And that really sucks...

"The "too big to fail" set includes the Fed"

Remember the term "full faith and credit" on our legal tender and notes, think about that and then smile.

I gotta say, though, in the land of the blind , one-eyed men are kings.

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