After our last post regarding Iceland tripling its GDP growth after changing its constitution and throwing corrupt bankers and politicians in prison, we received the IMF’S counter-rumor that it was due to their intervention that Iceland is prospering while Europe continues on the brink of monetary collaspse.
The fact that they cite Paul Krugman should tell the reader all they need to know. Krugman celebrated the fact that Iceland was implementing capital controls ala Castro’s Cuba.
Socialism can appear to function for a very long time on a small scale, but over time it leaves everyone poor and bitter. The IMF by definition is the largest sponsor of socialism in the world.
In Europe, the sumo wrestlers have resumed their battle royal on the edge of the cliff. In this metaphor, the wrestlers conveniently represent the various banks, semi-sovereign governments, central banks, and other unproductive, parasitic organizations with the words “Monetary Fund” in their name.
Up until now, with the exception of some jeering from the spectators, the battle royal has been good natured fun. Each time one of the wrestlers has tumbled towards the cliff, several of his benevolent fellow competitors have come to his rescue.
First Greece, then Ireland, Northern Rock, Anglo-Irish, and The Bank of Ireland. Now Alpha, Spain, Caja del Sol, Portugal, Italy, and Dexia.
Each time, they get up, dust each other off, and go back at it.
But the competitors are getting weary, as are the spectators. With each new stumble towards the cliff, more competitors and even some spectators are required to jump in to avert certain disaster. If this continues, when one of the weary wrestlers finally tumbles over the cliff, it is increasingly likely that he will take the rest of his competitors and a decent number of well meaning spectators over the edge with him.
Now things are starting to get interesting as BNP Paribas, SocGen, and France herself began to stumble towards the edge. Who will save them?Certainly not the Swiss National Bank, which last month stumbled to the edge of the ring and ironically may be the first to fall off.
Any sober observer will quickly point out that this is an insane pastime. Why would a group of sweaty fat men repeatedly try to push each other from a ring along the edge of a cliff?
We can only venture a guess, and our guess is along the lines of “they somehow believe that they must.”
Why ask Why? Just stay away from the edge!
It doesn’t make sense, neither do a great number of things that occur in the current, insane, “debt is money” currency system in which we live.
People and institutions are trained to make decisions regarding money based on the assumption that money in and of itself has value. This assumption, under which the world currently toils, was debased along with the US Dollar back in 1971. Money today has very little in common with the money our fathers grew up with. Peter Schiff, the outspoken CEO of Euro Pacific Capital, has gone as far as to call modern currencies the “hidden portfolio risk.”
Our father’s money was based on the assumption that men were dishonest, and what they used as money (gold and silver) served to keep them honest. Today, money is widely assumed to be honest, a fact which has served to make a great number of men dishonest.
Debt is not money, the proof
The only way that the illusion that debt is money can be perpetuated is when debt, and therefore the perceived money supply, is increasing. First of all, who has ever been known to turn down free money? When the exponential increase in the perceived money supply is occurring, it creates the welcome illusion of wealth.
Second, people quickly learn that the easiest way to make money is to position oneself as close as possible to the creation of new debt. This is essentially the business model of Goldman Sachs and every other consumer and investment bank on the planet.
The money is so easy that no one stops to consider what would happen if aggregate debt were to begin to decrease, in turn decreasing the money supply by the same multiples with which it was created.
It will never happen, right? People will never turn down free or almost free money.
Yet they are. It turns out that people have a propensity for austerity when they have no choice. If money were based on something real, austerity would be extremely healthy for the economy which would be accumulating a capital base from which to make the next series of technological advances.
In the current, insane, debt is money currency regime austerity (the reduction of aggregate debt) removes the life blood from the monetary system and causes the underlying economy to die a slow, then sudden and altogether painful, death.
The mirage of the debt fueled economy quickly vaporizes and the debtors and creditors in the system find themselves in the middle of an economic desert with a long road ahead of them.
There will be much struggle along the way, and their only hope is to walk together.
Another day, another Euro. It appears that it is still all systems go for the Greek bailout. Athens will get another shot of hot money in mid July and the charade will keep going on.
In the old communist days, the joke went “we pretend to work and they pretend to pay us.” In the current socialized monetary system, the joke goes “we pretend to cut back and they pretend we will pay them back.”
As our astute fellow taxpayers are already aware, the Greeks have no intention of changing their ways. Parliamentary promises and austerity measures are of little value when 90% of the population is against them. It is doubtful that the money lenders in Germany and France will step out of their high rises to come repossess the Parthenon.
No, they will leave that to foreign militaries as they march on Palestine.
But we are getting ahead of ourselves. Our topic of the day is why the Euro/IMF and now, reluctantly, the private sector are “thrashing” (which must be somewhat harsher than mere hashing) out an aid plan for Greece tomorrow in France. From Reuters:
International banks and insurers will meet on Wednesday to thrash out a plan for the private sector to contribute to Greece’s bailout effort as fears grow that the proposal will be derailed.
The Institute of International Finance (IIF) lobby group said it will chair the meeting of private-sector creditors.
It needs to resolve how a deal can get past credit rating agencies without it being termed a default, and how accountants will deal with it.
A lot of work remains to be done and Wednesday’s meeting will not be decisive, several sources said.
“It’s a process. The new French finance minister said today it will take weeks, over the summer. It’s complex. It can’t be settled overnight,” a French private sector source involved in the talks said.
He said there was unlikely to be a single “one-size-fits-all solution” but rather several options, given the number of different bondholders and stakeholders involved.
“The issue is so complex that we need more time,” a German banking industry source added.
Of course, the issue is not complex. The Greeks have promised more than they can deliver. Anyone can do this for a time but if too much time passes, actions (overspending) speak louder than words (austerity measures).
Besides, for a socialist tax collecting entity such as the Greek government, austerity measures starve its customer base of revenue, lowering its own tax revenues, which in turn demand’s more austerity, etc.
For a generally unproductive country that has made the mistake of outsourcing its money printing operations like Greece, austerity is collective suicide. Even credit ratings agencies and accountants can no longer ignore this dubious state of affairs.
Greece, Where the Euro pays tourist prices
Yet paradoxically, the international bankers seem intent on forcing the Greeks, against their collective will, to starve themselves. Why? Even in the parallel universe of our current monetary system this course of action makes absolutely no sense.
And that is precisely why it must be done. Somehow, the banking cartel must put on the charade of solvency. Most people, accountants and ratings agencies amongst them, have a vague understanding that saving money is equal to solvency.
How right they would be, if silver and gold were still money. In the current insane “debt is money” socialist monetary system, savings remove the lifeblood of the currency regime.
But that won’t stop them from trying! As the explanations become more and more ludicrous across the Atlantic and Mediterranean, keep your eye on The Mint’s Key Indicators, which are still pointing at raging inflation with no end in sight in dollar land.
The only protection for savings is anything real that is not a dollar (or a promise to pay a dollar in the future, such as dollar denominated bonds). How is that for investing made simple? So many options!
*See the MINT Perceived target Rate Chart. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Much has happened in the financial markets in this past week, and much will happen in the coming weeks. But perhaps what is most notable is what has not happened.
Namely, the US Congress has not raised its self imposed credit card limit. For an entity that is already $14.3 Trillion in debt ($4 Trillion of which reportedly comes due in the next 12 months) with no realistic plan to pay for it, this is suicide. What are they thinking?
The two parties are in agreement one count, they need to save $2 Trillion dollars over 10 years. Why this sum has been identified as the cure for what ails the country’s finances is anybody’s guess. Unfortunately, but not surprisingly, there is no agreement as to how to get there.
Where will they find $2 Trillion? Tax the rich, screams Obama, repeating the eternal populist sentiment. Stop spending, say the Republicans, using the circumstances to make a push for “limited government.”
Editors Note: There is no hope for limited government with the current two party system in place, therefore the Republican’s stance is entirely a façade.
The President has taken the extraordinary step of asking Congress not to recess over the Fourth of July, as is their custom, calling their lack of agreement akin to his daughters not completing their homework. While the President makes a quaint metaphor, we believe that Obama’s daughter’s homework is probably more challenging than Congress’s task of balancing the budget.
Obama Admonishes the GOP to stay and do its "homework
Balancing a budget is simple. It just takes courage. It seems that courage is in short supply in Washington DC these days.
Without internal fortitude to press the Americans along, a little external pressure is beginning to be applied. First, the Treasury’s latest 7 year bond auction did not go as well as planned as investors demanded 2.43% to hold US paper for a sabbath cycle. Without the FED at the table, it is hard to imagine how it could have gone well. Bond Market participants are beginning to wring their hands.
Then comes word that the IMF is beginning to apply pressure, eloquently reminding the Americans of what they should do and why they should do it. It is worth noting that the IMF appears to be the last to know about such things so we will excuse their apparent surprise at the lack of inaction (they are most likely not informed MINT readers like yourself):
“…the federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets,”
Yeah, tell us something we don’t know. And then, true to their holier than thou, infallible status, they give the Americans advice on how to do it:
“We see early political agreement on a comprehensive medium-term consolidation plan based on realistic macroeconomic assumptions as a cornerstone of a credible and cyclically appropriate fiscal adjustment strategy,”
Great! Thanks for the incomprehensible and totally impractical advice. This type of drivel simply solidifies our opinion that the IMF is a worthless institution and could be categorically ignored if it were not so insistent upon meddling in financial matters on a global basis.
Meanwhile, we are getting to see first hand what happens to a country that gives up control over its currency and then listens to the IMF for advice and is forced to take a loan from them. Greece, is giving the world a glimpse at how popular austerity is with the masses.
The scene that was carried out in the Middle East in the Spring is set to take place in Europe and England over the summer months.
How long until it crosses the Atlantic?
Another event that may occur as interested parties begin to reduce exposure to US Treasury debt is a liquidity crunch that will start in early July. Apart from the debt ceiling uncertainty, the Dodd-Frank financial reform rules are set to begin to do their damage to the financial system on July 15th.
If they do not forestall these rules as many banks are begging them to do, the US and global economy will take their first tender steps into the great unknown, a world without political or real capital to act a a backstop for failures.
It will be dangerous and exciting. And, just like a fireworks show, will be best enjoyed from a safe distance. Keep your money close at hand, meaning out of banks and preferably in precious metals or anything tangible, and enjoy the show!
*See the MINT Perceived target Rate Chart. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
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