by
Denis Korn
Podcast
by
Alasdair Macleod
Executive Summary
- The political and economic reasons why Europe's leaders will not change their behaviour until forced to by further crisis
- The reasons Europe's future is in the hands of Germany and the ECB
- How risk has spread from the periphery: What's next for Spain, Italy, and France
- The sure bet for investors to consider
Part I: The Europe Crisis from a European Perspective
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: What Lies in Store for Europe
In Part I of this article, we looked at the background to the Eurozone crisis and made the point that there are substantial extra government liabilities that were hidden by most member nations to meet the joining criteria in the target year for proof of convergence, 1997. And the only reason that capital flight from Greece, Ireland, Portugal, Spain, and Italy has not led to a banking and economic collapse already is that it has been accommodated by a build-up of imbalances between the accounts of national central banks of the individual Eurozone members.
The End of the Keynesian Experiment
In truth, all advanced Western democracies face the same crisis. It is the end of the Keynesian experiment, marked by the collapse of various credit-fueled bubbles four years ago, mostly involving property. This event threatened a global systemic banking collapse, which was only averted by sovereign nations guaranteeing the solvency of their banks by shifting the risk to government bond markets. The answer for the US, UK, and Japan has been to flood the system with dollars, pounds, and yen respectively, partly to give banks breathing space, and partly so that governments could fund their ballooning deficits.
The individual states in the Eurozone gave away that facility to the ECB, so they are only the first of the advanced nations to face collapse. This is because printing money is the principal means by which governments survive financial crises.
In that sense it is wrong to blame our financial ills on Europe; that would be like sinners casting stones. Like the rest of us, by agreeing to underwrite their banks, Eurozone governments have multiplied their potential debts three, four, or even five-fold (Ireland by eight!). Unfortunately, there is nothing, frankly, that the politicians can do to stop a Eurozone meltdown; they are in a bind of their own making, and they do not understand, nor can they explain to their increasingly angry electorates, how to get out of it.
There is a remedy, and it is deeply un-Keynesian.
What Lies in Store for Europe
PREVIEW by Alasdair MacleodExecutive Summary
- The political and economic reasons why Europe's leaders will not change their behaviour until forced to by further crisis
- The reasons Europe's future is in the hands of Germany and the ECB
- How risk has spread from the periphery: What's next for Spain, Italy, and France
- The sure bet for investors to consider
Part I: The Europe Crisis from a European Perspective
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: What Lies in Store for Europe
In Part I of this article, we looked at the background to the Eurozone crisis and made the point that there are substantial extra government liabilities that were hidden by most member nations to meet the joining criteria in the target year for proof of convergence, 1997. And the only reason that capital flight from Greece, Ireland, Portugal, Spain, and Italy has not led to a banking and economic collapse already is that it has been accommodated by a build-up of imbalances between the accounts of national central banks of the individual Eurozone members.
The End of the Keynesian Experiment
In truth, all advanced Western democracies face the same crisis. It is the end of the Keynesian experiment, marked by the collapse of various credit-fueled bubbles four years ago, mostly involving property. This event threatened a global systemic banking collapse, which was only averted by sovereign nations guaranteeing the solvency of their banks by shifting the risk to government bond markets. The answer for the US, UK, and Japan has been to flood the system with dollars, pounds, and yen respectively, partly to give banks breathing space, and partly so that governments could fund their ballooning deficits.
The individual states in the Eurozone gave away that facility to the ECB, so they are only the first of the advanced nations to face collapse. This is because printing money is the principal means by which governments survive financial crises.
In that sense it is wrong to blame our financial ills on Europe; that would be like sinners casting stones. Like the rest of us, by agreeing to underwrite their banks, Eurozone governments have multiplied their potential debts three, four, or even five-fold (Ireland by eight!). Unfortunately, there is nothing, frankly, that the politicians can do to stop a Eurozone meltdown; they are in a bind of their own making, and they do not understand, nor can they explain to their increasingly angry electorates, how to get out of it.
There is a remedy, and it is deeply un-Keynesian.
by
Alasdair Macleod
[This week, we introduce a new contributing editor to PeakProsperity.com, Alasdair Macleod. He will mostly be contributing commentary focused on the situation in Europe, where he's located. The credit crisis underway there is not Europe's problem alone; it has the potential to send crippling financial shockwaves to the US and elsewhere around the world. Please join us in extending a warm CM.com welcome to Alasdair. — Adam]
The purpose of this report is to give readers the essential background to the economic problems in Europe and to bring you up-to-date in what has become a fast-moving situation. At the time of writing, there has been a lull in the news flow, but that does not mean the problems are under control. Far from it.
Flawed from the Start
When we talk about Europe today in an economic context, we really mean the Eurozone, whose seventeen members are the core of Europe and share a common currency, the euro. The euro first came into existence thirteen years ago, on January 1, 1999, replacing national currencies for eleven states; Greece joined two years later. In theory, the idea of a common currency for European nations with common borders is logical, and it was Canadian economist Robert Mundell's work on optimum currency areas that provided much of the theoretical cover.
However, the concept was flawed from the start.
The Europe Crisis from a European Perspective
by Alasdair Macleod[This week, we introduce a new contributing editor to PeakProsperity.com, Alasdair Macleod. He will mostly be contributing commentary focused on the situation in Europe, where he's located. The credit crisis underway there is not Europe's problem alone; it has the potential to send crippling financial shockwaves to the US and elsewhere around the world. Please join us in extending a warm CM.com welcome to Alasdair. — Adam]
The purpose of this report is to give readers the essential background to the economic problems in Europe and to bring you up-to-date in what has become a fast-moving situation. At the time of writing, there has been a lull in the news flow, but that does not mean the problems are under control. Far from it.
Flawed from the Start
When we talk about Europe today in an economic context, we really mean the Eurozone, whose seventeen members are the core of Europe and share a common currency, the euro. The euro first came into existence thirteen years ago, on January 1, 1999, replacing national currencies for eleven states; Greece joined two years later. In theory, the idea of a common currency for European nations with common borders is logical, and it was Canadian economist Robert Mundell's work on optimum currency areas that provided much of the theoretical cover.
However, the concept was flawed from the start.
by
admin-2
by
Chris Martenson
In Part II of Chris' shocking interview with Bill Black on the extreme vulnerability that our economic system has to fraud (click here for Part I), the discussion deepens, exploring a number of disturbing topics including:
- Why there is such a crisis of accountability today
- Why future fraud-driven crises are inevitable if status quo continues
- What strategies are needed to reduce the prevalence of fraud
Bill Black (Part II): A Mess of Our Own Making
PREVIEW by Chris MartensonIn Part II of Chris' shocking interview with Bill Black on the extreme vulnerability that our economic system has to fraud (click here for Part I), the discussion deepens, exploring a number of disturbing topics including:
- Why there is such a crisis of accountability today
- Why future fraud-driven crises are inevitable if status quo continues
- What strategies are needed to reduce the prevalence of fraud
by
charleshughsmith
Executive Summary
- Expect the Fed's ability to move the market to weaken from here
- The three key investment-actionable indicators
- The most likely direction the dollar will head next
- Why capital preservation is now of paramount priority
Part I: What Data Can We Trust?
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Three Key Indicators to Watch
In Part I, we set aside the suspect “headline numbers” issued by government agencies as metrics of economic health, and as an alternative methodology, we surveyed the income and balance sheets of households and the federal government. We found declining household income and tax receipts, and high debt loads for both households and the government. This data simply does not support the rosy view of “recovery” presented by government officials.
Let's now examine more actionable indicators of economic health. In other words, it’s all well and good to ascertain whether the economy is growing smartly or not, but how does that guide our investment strategy?
The Three Key Indicators to Watch
PREVIEW by charleshughsmithExecutive Summary
- Expect the Fed's ability to move the market to weaken from here
- The three key investment-actionable indicators
- The most likely direction the dollar will head next
- Why capital preservation is now of paramount priority
Part I: What Data Can We Trust?
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Three Key Indicators to Watch
In Part I, we set aside the suspect “headline numbers” issued by government agencies as metrics of economic health, and as an alternative methodology, we surveyed the income and balance sheets of households and the federal government. We found declining household income and tax receipts, and high debt loads for both households and the government. This data simply does not support the rosy view of “recovery” presented by government officials.
Let's now examine more actionable indicators of economic health. In other words, it’s all well and good to ascertain whether the economy is growing smartly or not, but how does that guide our investment strategy?
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