May 10, 2010

Memo to ECB: print money

Posted in Debt · 181 comments ·
Share 

The only thing that will stop Ireland – and a number of other EU countries – from defaulting on their debts is if the European Central Bank bites the bullet and starts printing money to buy up government debt in Europe in limitless quantities.

This is what we have come to. Anything less and the financial markets will keep selling European sovereign debt.

Today we will hear what EU governments have decided to do. Some kind of EU stabilisation fund is promised. However, unless there is a major move by the ECB to buy government debt, the crisis will deepen.

This must be driving the Germans mad.

However, they went into this euro adventure with their eyes wide open and, now that their worst fears have been realised, it is beginning to look like they are on the hook for the whole thing.

Worse still from the German perspective, their banks, which had been exemplars of prudence for years, are now up to their necks in the government debt of delinquent nations – debt which no one wants. The only buyer of downgraded sovereign debt – Ireland’s included – is the European Central Bank (ECB).

In order to save the finances of Ireland – and the interests of Germany’s banks which are owed €127 billion by Irish banks – the ECB has to do what our government did back in September 2008,when it guaranteed the banks. The ECB now has to guarantee all the government debt of Europe. Anything less and the financial markets will run a mile from all nonGermanic government debts, precipitating mass sovereign default all over Europe.

As a consequence of this realisation, we are facing Credit Crunch Mark II. This is because fear has once again replaced greed, and the contagion has spread. At the beginning of last week, investors were rightly worried about how much sovereign debt was on the books of the large German and French banks. The EU put together its mega-package to bail out the banks that had exposure to Greece, but the markets brushed it off because they realised that the banks were contaminated.

Europe is now back to the situation where the US found itself after Lehman Bros collapsed, because the banks don’t trust each other. Certain European sovereign debt is the ‘sub prime’ of 2010, and the banks won’t lend to each other until they know who has this trash on their books and how much of it they have.

This will cause a double dip, because the new credit crunch will simply squeeze business, and the whole of Europe will face the capital constraints that Irish business faces at the moment.

We will then see reverse contagion: the bond markets drive the money markets which in turn drive the bond markets down further, which begets more capital flight from the bond markets.

The cash will just end up back in the central banks because, without trust, we will end up with loads of money, but nowhere to invest it. So we will have money alright, but no credit. So the money markets are seizing up as well as the bond markets, which are now shut to Greece. The door is also closing on Ireland, Spain and Portugal. But it won’t stop with us.

When the banks stop lending to each other, someone else has to. This is where the ECB comes in. Having prevaricated for weeks, the ECB will now have to throw caution to the wind and print money. It will have to orchestrate Europe’s own Tarp – a ‘cash for trash’ scheme – which sees the central bank bailing out every government in Europe.

It will be a type of continent-wide Nama where, instead of buying loans underpinned by land, the ECB will buy loans underpinned by each country’s ability to pay tax in the future.

But the problem with this is that, as long as the countries can’t devalue their currencies, they will have to get competitive by enduring long and painful falls inwages. Most workers won’t put up with this carry-on indefinitely. As the economies contract, their ability to generate revenue to pay the extra interest of the new loans falls. So the ECB doesn’t so much lend money to governments as give it to them.

This will open the floodgates to inflation because, with so much money injected into the system, there will ultimately be nowhere for that cash to go except into the price of real stuff.

Germany can’t insulate itself from this.

The Germans face two appalling vistas.

The first is staying with the euro but not allowing the ECB to buy up all the dodgy government debt. In this case, the periphery defaults, and the German taxpayer has to write a cheque for the German banks that will be dragged down by the meltdown.

The second choice Germany has is to allow the ECB to print money and therefore abandon the obsession that Germans have with low inflation.

Either way Germany loses. Not as much as we do, but it loses nonetheless. At some stage, the Germans have to ask: ‘‘What’s the point?” They were perfectly happy with the deutschemark and could be again.

They only signed up to the euro to get permission from the French for German reunification. Now that reunification is history, what’s to stop the Germans reconsidering the euro? After all, the only way they can insulate themselves from the mess in Europe is by leaving the euro.

Such an event is unimaginable, even in the face of today’s crisis. But if the remedy doesn’t resolve the inconsistencies at the heart of the euro, the problem will just resurface again and again. Is such a construction worth keeping?

All this is reminiscent of the collapse of the USSR. The powers, the politicians and all the experts were caught on the hop. No one believed that it would collapse overnight, yet it did. I was in the Soviet Union in 1990 trying to learn Russian and, although there was a sense of something happening, very few Soviet citizens whom I met imagined the country would break up.

A decade and a half later, in the most exciting day of my journalistic career, I interviewed Mikhail Gorbachev for a programme I presented onTV3 called Agenda. He was my hero, yet I couldn’t shake off the feeling that here was a man who understood the problems but couldn’t see that there was no solution to the problems within the parameters which he was prepared to consider. He had to think the unthinkable, but he couldn’t. The Soviet Union disappeared, and life went on.

If the euro goes – which is still only a small risk, given political inertia and the fact that big individual and institutional reputations are tied up in the project – life would go on. In fact, there are those of us who believe that Europe would thrive economically without the euro, in the same way as the Asian Tigers expanded after the devaluations that followed the Asian crises of 1997/8.

This is a minority view now, but wait till the Germans realise that their politicians have waltzed them up a financial cul-de sac and that the only way out is inflation.


  1. Listening to reports, ECB gets a war chest of €750bn, €250bn from the IMF, plus new powers to purchase bonds directly in the market place.

    So, presumably, if markets send bonds to 5.8% for Ireland, ECB can intervene and either purchase them at that price or higher, or issue others to Ireland at a lower price.

    Curious to know from any economists here where ECB gets its funding from?

    Is this an exercise whereby the ECB has preferential rates for its borrowings, so can borrow in bulk at a lower interest premium than can be obtained by individual member states.

    Or can the ECB print whatever money it likes? If it can print money, does this support package mean effectively a devaluation for the euro as a whole on the basis of the extra money it’s put into circulation?

    • Malcolm McClure has posted the following link in previous article

      http://bit.ly/bxeDln

      Partly answers the question above:

      “However it will not be creating new money in the eurozone in the process of purchasing such bonds, because for every bond shunned by investors that it buys, it will sell other securities back into the secondary market to remove the additional liquidity it has created.”

      So it won’t be printing money, but if securities need to be sold, euro gets weakened anyway.

      Also from link:

      “And to ease the palpable tensions in the bank-to-bank market for dollar loans – where there have been signs that banks have become less keen to lend to each other for longer periods – there is collective action by the Federal Reserve, the ECB, the Bank of England, the Swiss National Bank and the Bank of Canada.

      In essence, the Fed will swap dollars with these other central banks for their respective domestic currencies, and the dollars will then be lent to banks in Europe.”

      • Alf

        Hi cbweb,

        I believe the ECB can’t buy government debt primarily (only secondary) unlike the Federal Reserve. So it will need to sell some of its unencumbered securities to offset the increase in liquidity. These are limited so eventually it will probably be forced to drop interest rates, possibly to zero. If I was betting that is where I think we are heading.

    • WEll, the notion is that these monies ‘never will be needed’ and are just used to make the attacks less attractive, but this will not work.

      Of course, this is a pre text to inflationary politics, pumping more money into the system.

      It is insane….

    • Philip

      I think you have it bang on. Hence the future inflationary effect because there’s more money than the system can absorb. It’s putting everyone into the same boat and probably ties them together politically.

  2. Somehow it reminds me to the sick gambler in Las Vegas….

    He gambled and lost more than he could afford…. However, because of his illness, he is convinced that now is the time to gamble really hard, pulls the title deeds to his house and land out of his pocket and places it on zero.

    Now the ECB buys trash for cash, welcome to ‘les jeux sans frontières’ stagnation in Euro land and enforced inflationary politics.

    • econarchist

      Funnily enough, Deutsche Bank has been having problems with a casino that it owns in Las Vegas which it took over when the previous owner defaulted on a loan. Bank’s over-budget casino flooded in middle of desert! :
      http://www.guardian.co.uk/business/2009/nov/16/cosmopolitan-casino-deutsche-bank-vegas

    • econarchist

      Deutsche Bank also took over part of the newspaper publisher Axel Springer from another loan defaulter in 2002, and it still owns 8.3% of the company. Axel Springer runs the Bild which has been running an anti-Greek campaign which borders on being racist. This campaign ignores the fact that the “Greek bailout“ is really a bailout for bondholders, who probably include Deutsche Bank, who gambled on Greek government bonds and are now having trouble getting repaid. It’s not known how much Deutsche Bank is exposed directly or indirectly to Greek government bonds, or to Irish bank bonds either – that’s all commercially sensitive information, I suppose – but it must be fairly substantial.

  3. [...] David Mc Williams in his latest posting Memo to ECB: print money David Mc Williams in his latest posting Memo to ECB: print money [...]

  4. I have heard this printing our way out of trouble from a number of places but isn’t the immediate rejoinder that inflation will rocket. Double the amount of euros circulating and surely our exchange rate with the dollar will halve and the price of oil will double. Everything from food to TVs to mobile phones to clothes would all rocket in price. Plus the Chinese and Americans would want more interest in future on loans in euros because the risk of currency devaluations would have gone up?

    Surely that is why the value of the euro has to be protected and why we can’t print ourselves to salvation. Isn’t the only way for us to recover to balance the books – make expenditure equal to income. So either raise more income through taxes, VAT and the like or cut down the public sector or benefits – none of that is popular because it will cause pain but is it not more honest than saying we’ll get a free lunch by printing more money?

    • David seems to think its fine to print loads of money. He’s as Keynesian as you can get. Thankfully, he’s not running the country.

    • mcsean2163

      namawinelake,

      3 Pro’s for inflation:

      1. Automatic wage cuts for all in real terms and probably wage increases in euro terms.

      2. Prices of houses should go up. People escape negative equity and the construction industry can revive itself a little.

      3. Increased employment due to competitive labour force and associated reduction in government deficit.

      • Deco

        2. I am not sure about the construction industry reviving itself. It has managed (as a result of low interest rates) to completely over supply the market).

        But money printing on a massive scale might rescue NAMA !!! (eh…maybe Lenno was right all along about “Long Term Economic Value”…)

        • Malcolm McClure

          Deco says: “maybe Lenno was right all along about “Long Term Economic Value”

          With hyperinflation debts will melt away when compared to earnings, (assuming that earnings remain tied to purchasing power). However long term economic value isn’t simply a matter of covering debts with inflated euros.
          It requires replacing the actual economic cost to NAMA with the equivalent purchasing power in devalued euros. (ie the inflation multiple of the number of euros each ‘asset’ cost NAMA).

          • @Malcolm Point well made. Also to echo 8 above re those on Ghost Land estates, isn’t it ironic the biggest losers from the property bubble, those who bought say 2006-2008 , who are living in those unfinished estates like Robinson Cruso, are also on the hook as taxpayers to bail out the banks and developers through paying higher taxes for NAMA and bank bailouts, this along with less money to clean up their estates, generally less for social services, schools, hospitals!

      • “1. Automatic wage cuts for all in real terms and probably wage increases in euro terms.”
        Yes but David Begg and his unionized pulic sector people can survive an inflationary spiral.They will likely negotiate their way out of it with higher wages.
        What about people on basic old age pensions and ditto, reliant on cash savings to keep the wolf from the door.?

        ( value of both wiped out)

      • Old age pensioner gets a letter from his bank.
        “Dear Mr X we are sorry but it is no longer economically viable for us to maintain your savings account.
        We enclose a cheque for 100,000 Euros in final settlement,”

        (The notification letter has a stamp for 150,000 Euros.!)
        Shades of Weimar?

  5. Philip

    I am not so sure we can compare the breakup of Russia with a probable one for Europe. In the Russian case, the breakup was into a more favorable and improving world economic climate.

    For the Asian crash, it too was happening when the rest of the western world was improving.

    The fact is that unless China and other Asian markets become buyers like the westerners have been up until recently, we are looking at a steady decline all round. Asian markets simply do not buy globally. They sell globally – and that translates into selling into the west.

    If Germany decides to break away, will it really benefit in a world where its traditional markets (the west) are blown. It’ll find itself competing with a formidable suppliers in the East. As for the prudential banks in Germany…the ones that traded recklessly by giving loans to those who cannot pay back…Sorry, I think Germany needs to acknowledge its part in this mess and start mucking in with the rest of the European crew to fix this.

    Reality is that the productive capacity has moved east and people took flight to property investments (with a bias to this happening more and more where the industral base was poorer). This is the basis of the entire financial mess.

    The Bond markets are going to have a field day unless the root cause is not tackled.

    • Deco

      Russia used massive inflation. And they have still not recovered to the point that people are leading healthy lives. Though in some respects they have recovered.

      Asia sis not do that much mney printing in comparison, and did have a lot of bankrupticies. Asia responded much faster. (Though in fairness none of the East Asian countries had a Boris Yeltsin figure in charge dishing out lumps of Russian industry to cronies over bottles of vodka).

  6. Euro Abulance Brigade :

    My reading is that the recent anouncements by the EU means they have not explained how they will finance their funds entirely .What I mean is that have stopped short of saying they will print money.Why have they done that ? It seems thay are playing mind games with the Chinese and US .
    Why are the markets taken their decision as a positive step to raise the euro exchange value and the bonds and shares on the open markets ? This confuses me.

  7. Malcolm McClure

    David was well ahead of the pack as usual.
    Yet there is a significant inconsistency in the market’s reaction to the news. Stock markets have soared, reflecting the devaluation of currencies caused by the massive quantitative easing the bailout represents. Yet the Euro actually rose against the dollar and sterling. This suggests that some of the funds were employed to manipulate exchange rates in the Euro’s favour.
    Can anyone explain the inconsistency of massive QE not resulting in devaluation of the Euro?

    • Stirling and the USD are using QE as well, simple. Look at the gold price, that shot up against all those currencies

    • @ Malcolm 8,

      ECB would argue this is not quantitive easing, which would strictly mean devaluation. They say they will sell securities if they have to buy bonds, so technically the amount of money currently in the system remains unchanged. When you consider the market as a pack of wolves surrounding Greece, what they’ve done is set up a defence perimeter around countries such as Greece. The perimeter is the €700 bn war chest to prevent attack , with new powers to defend against speculators, whether these work in the medium to long term. Also my question earlier where does this money come from. Well, it comes from securities on the ECB books it must already hold. Another point, this is virtual money in the PIGGY bank, will only be drawn down in secret and if required/necessary to support PIIGS when/if they come under attack. MArkets respond in the way they do cause they maybe persuaded Greece is less risky with this backing….Medium to long term remains to be seen, PIIGS still in an awful mess with bailout money poured down the drain for Ghost Land estates last night’s shock RTE documentary, NAMA has paid 50% for, that are worth nothing only fit to be knocked down, echoing a topic in one of D’s earlier articles…

    • Central Banks did purchase.

  8. Malcolm – sometimes explanations make no sense in a cover up instead what you see is what you get.

  9. its my guess when after the true values are recorded for exchange euro value etc and the arrival of inflation then the next phase will be :

    Mark 3

    ‘ A Regulated Euro Market for goods and services ‘

    Tarriffs

    Exchange Control outside of EU

  10. Malcolm McClure

    There are interesting parallels to Norman Lamont’s attempts to support sterling in 1992:

    Early September 1992: Norman Lamont, Chancellor of the Exchequer in the Major Government, was defending Pound Sterling against attacks from the international financial markets. Since October 1990 the Pound had been part of the exchange rate mechanism of the European Monetary System. This arrangement allowed participating currencies to fluctuate within a margin of 2.5 per cent. If a currency fell outside of the margin, the other participating currencies were required to intervene to support the currency or to engage in negotiations to reach agreement on a new fixed value. Some observers remarked in October 1990 that Sterling had entered the EMS at too high a value (i.e., 2,95 Deutschmark.
    The international financial markets worried over 1992 summer: “why would the members of the European Community feel obliged to stick to the Maastricht criteria?”. The pressure on ‘weak currencies’ such as Italy, France, as well as Great Britain was mounting.
    Lamont faced a dilemma: he could raise interest rates to protect Pound Sterling. However, this would be bad for the economy, which is having a recession; many families and business would be helped with a lowering of interest rates, but that would further weaken Pound Sterling He decides to defend the currency by relying on Britain’s financial reserves (amounting to 23 billion Pounds).
    In August this policy was successful, at the price of 1,3 billion Pounds. Foreign assistance, however, help, expected under the rules of the EMS system, was not forthcoming. Rather, other EMS partners weaken the position of the British currency: on 15 September Bundesbank director Helmut Schlesinger expects Pound Sterling to devalue soon. Investors start betting on devaluation, thus precipitating that very devaluation.
    Lamont tries to defend the Pound using Britain’s financial reserves, but on 16 September 1992 reserves worth 15 billion Pounds have not been able to defend the currency: it plummets. The next day Lamont withdraws Sterling from EMS and lets it float freely. By then, Britain’s financial reserves had gone and George Soros made his billions.

    Is this pay-back time? The key to what happens next must be the German base rate and whether Angela Merkel survives.

  11. Well, I find it more than concerning that the IMF is in the entire european boat now. NOT good!

  12. wills

    David.

    The article is peeling the layers away and getting to the essential truths on what is ‘actually going’ on.

    It’s taking all this time finally to get to mainstream that the euro was a botched job and done through the cooking of books.

    Now the cracks are showing and the insiders of europe are plastering over the cracks again but this time using the ‘printing of money’ out of thin air, not backed up by wealth generation or provision of labour, but we have a money printer out the back garden shed been wheeled out to bail out debts run up by greed and insider crony networks knowing full well the debts would be expired by making more money and here we have it.

    To-day the euro insiders are indirectly saying into the mainstream that the money printers are been switched on and put on the readies!!!

    That is what is happening.

    They are not going to say it out straight balck and white ‘cos they do not want the man in the street asking himself the following question……..

    ‘…………… hang on a second mildred, did the news just say the EU are going to print paper money of the printing presses for no other reason than to funnel into banks to pay off bad debts……’

    ‘…………well I want some of that to please instead of working 40 hours a week for it………’

    • wills

      agin….. the economic system is rigged and works and operates in application to proximity to paper money printing press control.

      … paper money is an illusion and a confidence trick to steal a persons value of labour.

      • wills

        let me phrase that….

        ..paper money (which is a tool) is been used as a weapon against certain people to pilfer the value of their labour.

        Despicable.

        • mcsean2163

          wills,

          I have to disagree, although not in negative equity myself, many of my friends with children are living in unsuitable houses and flats that are deep in negative equity. Every month they funnel all their earnings into their apartments, paying of little or nothing when it could be going to into something that would help their children and themselves.

          I would love to see quantitive easing and hopefully some form of a return on their investment. I believe it would also help manufacturing, etc.

          It’s hard to have too much sympathy for people who squirrel away, (me), all their money, instead of maybe setting up a business or doing something with it…..

          Yep, savings won’t be worth the same, I’ll lose myself but I reckon it’s the way forward.

          • Fergal73

            I don’t see why savers (those who didn’t inflate the boom) are punished by the value of their savings being reduced – then we all might as well live in Wonderland (Alice’s version – where up is down and good is bad, wise is foolish etc).

            I saw the bubble way back in 2002 (after being offered 12.5 times my income in a mortgage!) – and saved with an eye on the long term with the view to buying a home (not an investment). Savers didn’t inflate the boom, spenders did.

            Inflation will inevitably mean higher interest rates – so savers might actually make out like bandits in the longer term. In that scenario, those on variable rate mortgages will be hammered again.

          • wills

            mcsean2163.

            Blimey.

            Let me respond on your comment.

            SAVINGS = CAPITAL

            It is because this fact above is no longer adhered to is the reason why we live in a Casino economy which leaves 1 billion people starving every day in a world of abundance.

  13. its official, we are in a depression

    • Tull McAdoo

      Speak for yourself there paleface, we up her in D4 are doing swimmingly, although it is a bit depressing having to leave the chopper under wraps while this re-adjustment is taking place……OH ITS SUCH A BORE………….

      • Deco

        recession ? what recession ? Officially it will soon be over….

        http://www.davydirect.ie/Generic?page=MorningNews1

        It is just a matter of changing perceptions Tull…..I am sure your preception was changed, and you were cheered up rightly by the appearance of An Taoiseach on Prime TIme last week.

        (I sat there and wondered – is there something that he is afraid to tell us ? )

  14. Pravda/RTE have a series of programmes on the aftershock to our meltdown.

    http://www.rte.ie/aftershock/

    No doubt this will be propaganda elevated to an art matching even p18 of yesterdays Sunday Indo.

    Even RTE gets it right occasionally though, last nights broadcast of
    Ghost Land being exception rather than the rule.
    http://bit.ly/crXpn4

    You’d think it would be available on the RTE player, but no, seems they’ve already canned it, I couldn’t find it.

    The original documentary included a tour of a selected number of the approx 650 vacant/unfinished developments around Ireland. Your heart would go out to some young couples who found themselves the proud owners after being relieved of €250,000+ of a neighbourhood blighted by 90% vacancy, street lights turned off at night, septic tanks for sewage that are unattended and frequently break down. Dangerous buildings that are playground to the children from 8yrs upwards etc

    Next government could well put together a plan to finish the best of these estates that already have the highest occupancy rates. Go to the stranded and beleaguered and scammed property owners in the worst of these estates and offer them a free replacement house in the finished estate.

    Knock the resulting empty ghost land estates asap.

    It would also be nice if next government downsized itself to match our miniscule population compared to that of other countries, downsizing to include numbers of TD’s, pay/bonuses/expenses.

    Maybe we could also reflect on the consequences of EU membership for Ireland, we now have a peacocking, puppet debt servicing agency for European and international bondholders called FF with astronomical debt obligations that apparently will be screwed out of the population in perpetuity at the expense of social services, increasing taxation.

    We are truely a land of gombeen serfs in hock up to our necks to French and German banks with no end in sight to this arrangement.

    Victims of economic imperialism or treasonous betrayal by FF peacock strutting still e.g. Lenihan ‘piloting our little way through the economic maelstrom’ Makes you want to laugh in face of the logical alternative!!!!!

    • Deco

      Nice one Pravda.

      The horse has bolted. Now, time to fix that door that was falling off the hinges for ages…..

    • paulmcd

      cbweb: I like your proposals relating to ghost estates with one exception – “Knock the resulting empty ghost land estates asap.”

      Knocking the empty estates would cost man-hours, machines, and money which could be put to better use. There are 2 things which I believe to be possible with regard to the remnants.

      (a) They could be left as they are, and to decay over time, serving as a reminder to future generations of the effects of 21c. unregulated expansion in lending to fuel a property boom.

      Maybe we could get Disney Corporation to manage them on our behalf – NAMALAND, a new province in the heart of Fantasyland.

      (b) I estimate that unoccupied and unsaleable housing of today would have a Long Term Economic Value – the concept which Lenny believes in so intimately – which would be more than equal to the 2.5 billion euros to be paid by NAMA in professional fees over the coming decade. Let these fees be in the form of PAYMENT IN KIND, from surplus housing and other real-estate stock, for the firms concerned, unless they can prove beyond reasonable doubt that their contribution to the NOUGHTIES BUBBLE was of little or no significance. The firms concerned would also be charged with the upkeep and management of the ghostly estates.

      ERNST & YOUNG who will audit NAMA’S books, and whose forensic whiz kids will pore over the accounts of Nationwide, are the firm who failed to detect “errors and omissions” in Anglo’s books. They, above all, should receive payment in kind from NAMA and Nationwide stockpiles of housing “assets”.

      • @Paulmcd,

        Good we are having thoughts on what to do with these ghost land estates. I might build an Android GPS location system for them for tourists, with a module that allows you input a suggestion on what to do with them? I like your Disney idea, some tourism variant could be good. Re (B) no way, another opportunity for a Mahon Tribunal fees for legal fees opportunity strung into never never land at the end of which no one pays everybody is bankrupt, surprise, surprise, taxpayers pay! Ernst & Young, can you believe they were hired for NAMA after Anglo debacle, for which they should be in court!!!

  15. walnut

    Printing money is not the way out. The Weimar Republic did this very thing and look what happened. The Japanese have tried this and they are still stuck in a deflationary low growth economy which is on the precipice of its own debt crisis. Helicopter Ben has cranked up the printing presses since 2008 and still cannot get any inflation and unemployment is at 10%. Please stop with this QE fluff. Lets just default and start again

  16. G

    “Consider Ireland as Exhibit A in this regard. Ireland began cutting back deficit spending in 2008, when its banking crisis began to spread and its budget deficit as a percentage of GDP was 7.3 per cent.

    The economy promptly contracted by 10 per cent and, surprise, surprise, the deficit exploded to 14.3 per cent of GDP.

    We would wager heavy odds that a similar fate lies in store for Greece, given the EU’s inability to understand or recognize basic financial balances and the interrelationships among the various sectors of the economy. Neither a government, nor the IMF, can predict with any certainty what the outcome will be—ultimately private saving desires will drive the outcome, as Bill Mitchell has noted repeatedly.”

    Marshall Auerback is a market analyst and commentator. He is a brainstruster for the Franklin and Eleanor Roosevelt Intitute.

    Full article
    http://www.counterpunch.org/auerback05072010.html

  17. mediator

    Bigger picture here.

    Credit Crunch Mark II is the next stage in orchestrated the absolute removal of sovereignty from the European People including us. The real issue is whether the other peoples of Europe will acquiesce as we have…

    Hyper Inflation leads to eviseration of middle classes and leads to extremist politics. Perfect conditions for people to give up more of their freedom out of fear.

    PS
    Trilateral Commision must have loved Cowans abasing himself on our behalf

  18. But what have the Europeans really agreed to?
    From here it looks like a giant NAMA solution! Yes we have arrived at the unthinkable, a NAMA for Europe .this of course is just as bad if not even worse that our own Irish NAMA ,but with much worse consequences. All over the air waves to-day we hear that the Euro has been saved and the markets initial reaction is positive but the markets are prone to swing at a moment’s notice and I would not put faith in any initial reaction.
    Where are all these billions going to come from and what is the Irish government’s contribution going to be now ,from my estimates we could be asked to stump up 5,000.000.000 billion. Where are we going to get this kind of money? Am I the only party pooper?
    Someone somewhere is going to ask the question what are we going to have to do the get this money? Give up more sovereignty, in the form of a new Lisbon 3 referendum.
    Either way this is not good news and this will dawn on the people of Europe in the coming months!

    • wills

      machholz.

      The ‘money’ will be printed and snuck into the banks via the private central bank, through the back door.

  19. Black Cat

    That’s it – I’m buying loads of paint and canvas and catfood and going to hide in the hills of Glencar until this all blows over

  20. G

    They deprive us of every privilege – they turn round and taunt us with our inferiority! –they stand upon our necks, and ask why we don’t stand up erect? They tie our feet, and ask us why we don’t run? The laws forbid education and they ask, why we are not moral and intelligent? They tell us, because we are not, that th…ey have the right to enslave us. ~ Frederick Douglass, Cork, October 23, 1845.

    They rob us and ask us why we are ignorant…………………

    Fury as fee-paying schools get extra €1m in government grants

    Officials turn down funding for same work in other ‘areas’
    http://www.independent.ie/national-news/fury-as-feepaying-schools-get-extra-83641m-in-government-grants-2173957.html

  21. dwalsh

    I don’t think this crisis can be solved by adjusting the current batch of equations. Printing money will only feed the beast and deepen the underlying abyss. It will buy a little time, but not a solution.
    The only way forward – hopefully by global agreement – is an entirely new economic system. But that will not become a perceived option until there are no other options left; until the current equations expand to infinity and collapse.
    At that point the pirates will be seen as the common enemy of all humanity and the spell they now hold the political elite under will be broken. Unfortunately the world will be broken as well. But the world can be fixed if the right mindset can be achieved. I hope It will become obvious to all that we cannot build a global civilisation on the basis of capitalism; that is to say, on the basis of personal greed.
    Ultimately this is all about mindset and consciousness.

  22. This is going to turn out to be the mother of all NAMA’s
    How is adding to you debts going to solve your problems of having unserviceable debts in the first place?
    At best ,this pan European action from politicians , by the way have their 54th meeting to discuss their 9th solution to the problems that were contained in just Greece have now ,they claim the final solution and that is to print more money
    He lads! Printing toilet paper is not the answer!

    • How is adding to you debts going to solve your problems of having unserviceable debts in the first place?

      You have to look at the winners today, numero uno France. Who had the highest eposure to Greece? France! Go figure…..

  23. Tull McAdoo

    Its about bloody time the Germans, French et al agreed to put in place a big enough contingency fund. If it was down to me I would have made it 1trillion and send a clear message to the market that member governments would have their risk assessed by the ECB ( and not the george soros’s of this world), when they needed to issue bonds to fund infrastructural developments etc. as it only make sense given that a lot of these developments are usually undertaken to comply with some Euro directive. I have also argued consistently that the French And Germans in particular should not be able to use their quantity of scale, to avail of better rates ( bps over midswaps or whatever) as it gives them an unfair advantage (competition) over the other less developed members.

  24. Freethinker123

    Man we humans really are stupid and pretictable most of the time, thinking out side of a box never crossed these ejets minds. In the words of Einstein ” A problem cannot be solved with the level of thinking that created it” fact.

  25. G

    THE DECLINE OF THE WEST
    Most analysts (at least the ones that are worth reading) contend that the sovereign default crisis (Greece, Portugal, Spain, etc.) in the EU is about the collapse of a system that created monetary union without a political union. It isn’t. That’s actually a narrow, parochial view. Instead, the current sovereign debt crisis is about something much more interesting: it’s another battle in a war for dominance between “our” integrated, impersonal global economic system and traditional nation-states. At issue is whether a nation-state serves the interests of the governed or it serves the interests of a global economic system.

    Who’s winning? The global economic system, of course. The 2008 financial crisis, the first real battle of this war (as opposed to the early losses in skirmishes in Russia, Argentina, the Balkans, etc.), generated a very decisive outcome. It was a resounding defeat for nation-states.* The current crisis in the EU will almost certainly end with the same results.

    Full Article
    http://globalguerrillas.typepad.com/globalguerrillas/2010/05/the-decline-of-the-west.html

    • dwalsh

      @G
      With respect I cannot agree with your proposed solution no 3. If things pan out as you say there will be no possibility of independent communities or economies. If the financial wolves win the war they will allow no such independent activity. People holed up in independent rural enclaves will be visited by helicopter gunships and swat teams.

    • Deco

      G
      At the root of the decline of the West, is the intellectual declne of the West.

      There was a time when people could handle reality. Now vast legions of western society just want to plonk down on the couch and wathc multichannel TV. Life has become a virtual experience. And if the flat screen gets taken away,and grown men moan like toddlers.

      The mind is saturated in irrelevant non-information like how many caps Rooney has for MUFC, etc….People are provided by an endless supply of drivel. It is essential to the ‘manufacturing of consent’.

      • G

        @ Deco – in agreement – Bread and circuses society, no sooner had the premiership ended than ads for the world cup kicked in, was interesting to see it, virtually seamless, distraction intensifies as the system comes under pressure.

        I did a search on Chomsky on Youtube one day, and there amidst the videos were two of a sexually explicit nature, they always seek to exploit human weaknesses, if it is not Sky Sports, it’s the ‘Bang Babes’ on the Sky Adult channels, something for everyone indeed.

        Breaking free of such ‘entertainment’ can be challenging as well they know. Matrix.

      • dwalsh

        Yes. And if you watch the news and read the papers you wont know what is really going on.

    • Are we getting there before anyone else as a leading member of the hollowed out Eurozone PIGIS club:

      From your link:

      ” nation-states of the West will join those of the global south as hollow states: mere shells of states that serve only to enforce the interests of the global economic system. These new states, more market-states than nation-states, will offer citizens a mere vestige of the public goods they offered historically. Incomes will fall to developing world levels (made easy to due highly portable productivity), and wealth will stratify. Regulatory protections will be weak. Civil service pensions will be erased and corruption will reign. The once dominant militaries of the West will be reduced to a small fraction of their current size, and their focus will be on the maintenance of internal control rather than on external threats.”

  26. Deco

    Furrylugs thanks for the words of encouragement. I am just another individual trying to figure out what is going on. We are all on an intellectual journey of increasing our competence level.

    My adivice, is to stay determined but intellectually honest. We have lived in a society where being made into a follower of others, is
    I think that we are all trying to improve the level of debate.It is hard work.

    It is important for each individual to develop their own ability, not be following others (who have often ther own hidden agendas) but by following in search of the underlying truth, which is beneath the perceptions being generated for us by vested interests,and the essential freedom that must be pursued by everyman.

  27. SM

    How realistic is the use of barter to reduce the average families reliance on money?

    I wonder has there been any serious studies done on it. For example, if you were in advertising, could you do a deal with your home heating oil supplier to provide marketing services to the value of a year’s supply?

  28. econarchist

    I don’t see any reason why the Euro has to disappear completely, ending up with every country having a separate currency like the deutschmark, as David suggests. The problem right now is with the PIIGS. The other Euro zone countries have their economies more or less in sync. There’s no reason why they should create new problems of having to deal with varying exchange rates whenever they trade with each other. The solution appears to be to split the Euro into two currencies, which would effectively mean a devaluation for the countries choosing the weaker one.

  29. Deco

    I read this yesterday evening, and my first instinct was to disagree with the proposal to “paper over the cracks”.

    The idea of printing money to solve the problem is a zero-sum game. You can create as much money as you want, but you cannot create wealth. All you can do is redistribute it. And in this case, working people whose finances represent sweat, are losing wealth to the benefit of those who borrowed. It is also a reassignment of resources from those who were scpetical to those who were obedient. In essence this produces an obedient society. In this context everybody is afraid of the ‘toxic fallout’ factor, from the disintegration of the loans. It has the potential to sink the entire credit system.

    Actually, I really don’t know how to solve this problem.

    And I am hesitant of any project that entails monetary easing, because the root of the problem was the monetary easing that occurred from 2002 onwards as a result of ECB interest rate policy.

    In effect, are we not just going to end up creating another bubble. Paul Krugman recommended creating a bubble when the US property bubble burst. That idea was loaded with assumptions about creating bubbles being the essence of macroseconomic policy.

    In retrospect it is now fairly obvious that Greek bond interest rates were too low. And interest rates in Greek deposits were obscenely low, otherwise there would have been a higher saving rate, and less borrowing/spending in the Greek economy.

    Likewise low interest rates were instrumental in creating bubble conditions in Spain and Ireland. The low interest rates helped Greeks borrow to buy German cars, and resulted in German banks sending money to Greece to get a tiny margin more of interest than they could get at home. Same applies to French banking. And the same applies to Irish borrowers. And concerning Spanish borrowers.

    But discussion of this point is completely absent in any public forum. The ECB has literally proceeded unfaulted. And now it is even being encouraged to print money to cover up it’s tracks.

  30. Lets assign Nama to Mother Nama the procreator of all monopoly money and watch the real value of the loans sink and the assets /securities revalue to return more piglets .

  31. MaxKeiser

    So moving money from Irish Bank a/c in Euros to a German bank a/c (also in Euros – for the time being) is potentially a good move?

    Any takers / comments?

  32. Its amazing that so much fiction ;can be printed on paper.I like the phrase “real stuff”.

  33. Deco

    Don’t worry lads….we are on top of things…..
    http://www.independent.ie/national-news/cowen-met-with-regulator-twice-in-four-years-2173983.html

    did they meet on the golf links or in the bar of the Shelbourne Hotel ? And as regards Mr.Bruton saying Mr. Cowen refused to take notice of any warning signs, let face it….nobody on Kildare Street took any notice of the warning signs….and nobody in IBEC -ICTU (the real government – opposition) took any notice either. There were all clueless about macroeconomic imbalances….the lot of them….the entire “leadership”.

    And if the “leadership” is useless,then you have to make you own way through the morass that they create. You have to learn to depend on yourself, and to develop a survival instinct.

  34. strathspey

    Why do I get the impression from reading this blog and the associated comments that there is a distinct anti-German, anti-ECB undertone? Nobody forced the delinquint Irish and PIGS to borrow money that they couldn’t afford to repay. This is the price of fiscal sovereignity. That or either acknowledge the need for further EU supervision. The typical Irish syndrome of always trying to play the part of the victim seems particularly prevalent while trying to aportion blame onto any other entity. Time to grow up and accept individual and communal responsibilty. To dismiss Germans for being savers, instead of consumers, for being the world’s second biggest exporter, running a current account surplus year in and year out and for being fiscally prudent should be admired and emulated instead of pandering to the notion of mediocrity by constantly comparing ourselves to the other basket case economies.

    • Malcolm McClure

      Och ay, mon, ye’r no in Balamory the noo. Stick to yer Glenfiddich and Glenlivet and lave wir Black Bush for us serious economists.

    • LOL

      Wake up and smell the roses, Germany is running shadow budgets since decades.

    • Alf

      “Nobody forced the delinquint Irish and PIGS to borrow money that they couldn’t afford to repay. ”

      Ironically it seems to be a very common Irish attitude to overly chastise the borrower. Phrases like ‘PIGS’ are one sided and were clearly created by the lenders.

      The truth is nobody forced to the lender to lend what each borrower could not afford to pay back. Due diligence was required and obviously not done. The truth is neither side believed this would happen so surely the responsibility is shared.

      The lender has the final say and dictates the premiums to compensate for their risk. Irresponsible lending is just as damaging as irresponsible borrowing.

      “This is the price of fiscal sovereignity.”

      How true.

    • strathspey,

      Your criticism of the PIGIS is valid.

      Fact is regulations were broken by German and French banks who hosed lending to Ireland, see European Treaty in regard to the Parity Pact and Article 125. No regulation, no intervention from the ECB.

      The need for further EU supervision goes unchallenged here.

      In fact, the fact of lack of regulatory supervision at the European level in the past has been highlighted as a major raison d’etre for default rather than payment of reparations for the rape of our economy due to such lack of supervision both locally and at the European level.

      It is such grounds as these that build a strong case from Ireland for diminished responsibility and the need for loans to be written off.

      Germans of course have to be admired for being good savers and their fiscal rectitude. German and French banks who hosed money onto the PIGIS in a whiskey for indians fashion with the ECB blessing, that is an entirely different matter.

      Your “The typical Irish syndrome of always trying to play the part of the victim seems particularly prevalent while trying to aportion blame onto any other entity.” is racist, xenophobic, blinkered and flies in the face of the facts that determine our current debacle. Comments like these don’t help the debate only pollute it with prejudice and racism that bring the debate down to an ignorant level.

  35. I hope no mis understands my comment .which refers to the sudden changes in the value of printed paper money.Since we are paper free on the silicon.David writes very serious stuff.
    Thanks ye all.

  36. Tim

    Folks, this, from Nouriel Roubini this evening:

    “A excerpt of my new book Crisis Economics in Newsweek magazine: “Bust-up the Banks” http://www.newsweek.com/id/237631

  37. I hate to say but have the Soap Operas deadened your mindset that caused delay in your recent comments ?

    • In hard science tiny symbols do a huge quantity of work.This is not the case in english.Old habits die hard.You must do the work; as the symbols won”t.

  38. aye they say the scotch cured many an ill

  39. Good Evening,

    The Euro sliding again. Not good news for the bailout. If this fails, we will be back to square one looking at a two speed Europe. Probably no bad thing.
    David

    • Moving the few bob to Germany so. I’m browned off with this craic. Might even move there meself.
      That gunge on RTE tonight is peurile.

    • Could help both, the richer and the poorer EU members.

    • Joe Stiglitz agrees or at least sees a two tier wedding cake as one option.

      “”The social and economic consequences of the current arrangements should be unacceptable. Those countries whose deficits have soared as a result of the global recession should not be forced into a death spiral — as Argentina was a decade ago.

      One proposed solution is for these countries to engineer the equivalent of a devaluation — a uniform decrease in wages. This, I believe, is unachievable, and its distributive consequences are unacceptable. The social tensions would be enormous. It is a fantasy.

      There is a second solution: the exit of Germany from the eurozone or the division of the eurozone into two sub-regions. The euro was an interesting experiment, but, like the almost-forgotten exchange-rate mechanism (ERM) that preceded it and fell apart when speculators attacked the British pound in 1992, it lacks the institutional support required to make it work.

      There is a third solution, which Europe may come to realize is the most promising for all: implement the institutional reforms, including the necessary fiscal framework, that should have been made when the euro was launched.

      It is not too late for Europe to implement these reforms and thus live up to the ideals, based on solidarity, that underlay the euro’s creation. But if Europe cannot do so, then perhaps it is better to admit failure and move on than to extract a high price in unemployment and human suffering in the name of a flawed economic model.”"

      • econarchist

        Furrylugs, very good analysis of the available options from Stiglitz, a lot better than the “we are where we are and there’s no alternative“ argument.

        His third option (institutional reform) would work in the long term and stop the same problems from happening again, but in the meantime the second option (splitting up of the Eurozone ) seems necessary, at least temporarily. It’s not realistic to expect all the Eurozone countries to be able to pay off their debts without having the competitive advantage of a devalued currency.

      • dwalsh

        I would not favour Stiglitz’s analysis or solutions.
        Why should sovereign nations and their populations be allowed to be attacked and destroyed by these wolfpacks of speculators? Why should ordinary people take reductions in wages to fund the profits of these wolfpacks? Why should Europe allow itself to be divided and thus more easily conquered?
        Why on earth should a few gangs of financial pirates – euphemistically called ‘the markets’ – be permitted to destroy entire nations and the lives of millions?
        Is it not abundantly clear there is nothing any nation on earth can do to protect itself from these wolfpacks so long as they are permitted to operate? It is central to their very existence that they will do anything they can get away with to maximise profits…it is contactually built-into the job descriptions of their executives.
        The only protection Europe and the nations of the world have is to eradicate the wolfpacks. Of course things will have to get a lot worse before our political leaders will see this. We are in a struggle to the death with global financial capitalism.

  40. Sethspray,

    I hope there isn’t an anti-German bias here. All I have been saying is that for the Euro to work properly there needs to be less spending in the periphery and more spending in the core, otherwise we’ll have these periodic problems again and again. Best David

  41. Deco

    Just seen the Aftershock program and now Pat Kenny’s Frontline. Decided I would make an observation, while it is on my mind.

    Richard Curran took aim at the big sacred cow of FF, IBEC and ICTU policy that is the “Smart Economy”. In fact of all that I have seen I think that Curran’s point makes a ton of sense. But it this way. We are short on resources in this country at the moment. And keeping existing jobs is always cheper than creating new jobs. And besides government job creation projests tend to end up like the Dublin Docklands Dev Authority, or Aer Rianta – a rippoff on the general public. Michael Martin was bullshitting prolifically. Leo Varadkhar talked neither sense nor bullshit. (well I suppose that means he would be an improvement). Colm McCarthy talked about the failure to stop the heamarroging that has occurred in manufacturing. Later on a commentator from UCC spoke a lot of sense concerning the futility of task forces for innovation, when government policy in a lot of cases is a complete hindrance, and a bureacratic maze.

    I think most of you would have heard of the phrase “Keep it simple stoopid”. Well, when you are a quangocrat and you have a role, meetings, dinner lunches and all sorts of bullshit appointments and schedules to keep (so as to look like as if you are doing something) then you will produce strategies that are designed to impress. And creating results is only ever an afterthought. Basically we have an institutional myopia from the myriad of (often useless) state agencies (quangos) involved in job creation – because the quangocrats have their own objectives. In other words we are going all French on the whole thing. (and France is not exactly a success story in terms of job creation in recent years). And then we could see that Michael Martin was on a completely different level to the reality of everybody else. He is also oblivious to those on the dole. The fact is that not everybody wants a smart economy job. A lot of people just want fairly ordinary jobs so that they can make an ordinary wage and pay for their families upkeep. And these know nothings have an agenda of trying to impress us with these complex strategies.

    We need to cut down costs so that we can hold on to the jobs that we already have. Energy is a complete no-no topic since the GP got into government. This is because the GP have an ideological position on energy, that it should be made as expensive as possible to discourage usage. And FF are looking after SIPUT, TEEU, etc..

    Second, you cannot have a knowledge economy, and an awful lot of bullshit at the same time. You have to make your mind up. The intellectual basis of the society is submerged in a steady and persistent stream of bullshit. A lot of it coming from people with official jobs and state salaries. But it is all over the place. Beyond all of that we need to ask ourselves deep questions about the amount of bull we generate as a society.

    Third, competitiveness is something that is completely inconsistent many aspects of the sacred cow that is the Irish Lifestyle. That means it is incomprehensible to the superficiality that has become pervasive in our culture since the mid-1980s. In other words we need to get practical. And that means changing our relationship with alcohol, work, business dealings, financial resourcefulness.

    Fourth, there is something seriously dysfuntional about the way D2 operates. It is not efficient. It is hardly effective. And it is so highly structured so as to ensure chaos. There is also is a tradition of sabotaging any information technology project to modernise organizational methods. Put it this way, county councils are sometimes better run than national government, and on worse resources. Basically the quangos are preoccupied with profile, but are often incapable of allowing ordinarily intelligent developments to occur. In fact the agendas from the Taoiseach down through the ranks in D2, are complicating greatly our ability to get our act together. If anything succeeds in this country, we have ministers trying to claim credit for it. (Micheal Martin was at this repeatedly).

    Anyway, it is progress when you have an honest discussion about these issues. And I think that some guests did this, as well as the usual few who have an agenda to push. Some lady who was an entrepreneuer asked why we were generating so many lawyers when their was no work for themand when they are inherently anti-entreprenuerial. I think ths might be related to the perception of power and affluence, rather than any real understanding of economics, current market dnamics, and productivity. But most young people don’t know what career they want to follow until they are about 21-23. This is another area that we have not addressed in our education system.If we addressed it we would have happier citizens and less waste in the education system with places taken by people who don’t make use of their education.

    I expect David to have something interesting to say about Matt Coopers points on mortgage delinquencies.

  42. wills

    Sethspray.

    One may take the view that German interests sped the euro through into reality, turning a blind eye on one or two things, in order for speedy euro implementation in order to get ahead on the funding on the regenerating program for East Germany in the nineties.

  43. BLUFF

    I think the desperate ECB change of mind is a very dangerous move in deed. It can cause tons of stability problems on many levels.

    However, I favor two scenarios;

    1. CHAMPAIGN

    Somewhere you hear that distcint sound of champaign bottles opened, and probably around 200 people have called inner circles friend to come and party. They cashed in and disappear again.

    2. FLANKED

    The move was not a one shot wonder, on the contrary, it was a deliberate move to get the ECB out of hiding and make that critical error.

    I referred to chess earlier, and currently my gut tells me it may be rather 2. than 1.

    If this was not a once off, and there is a stronger intention behind it, the motivations here can be multifold, then this was a tactical move only.

    Another serious attack now can not be buffered by the Euro bailout Bluff, it is simply impossible.

    Timing is of the essence here, and I have not made up my mind what the best time for the next wave would be, but anything from short to longer, 1-6 quarters is possible.

    The ECB move is a bluff, they know that the underlying sovereign problems prohibit a true bailout on a larger scale, do they think the other side does not know this?

    Essentially it is the same like Lenihans 2009 banking garantuee, just now, it is not banks, it is entire countries.

    Whether this works or not, in my opinion is not up to the ECB, but those who attacked.

    • P.S.

      If you think about it, and if that number of approx. 200 attackers is half way decent, well….

      That is 1 to 2,5 mio, in other words, 200 people casue misery for 500 million.

      Again, anyone around her with Jack Bauers cell number? ;o)

  44. CliqueWatch.
    While everyone was watching YoYO-Land, look what happened.

    http://www.independent.ie/business/irish/nama-appoints-new-head-of-treasury-2174611.html

    It’s just jobs for the boys all the way.

You must log in to post a comment.
× Hide comments