Sep 232012
 
 September 23, 2012  Posted by at 11:54 pm Finance
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The German edition of Der Spiegel opens the new week on Monday morning with a series of articles on the European situation, which make clear, as if that were still necessary, that Europe is still an absolute mess. You know, just in case you thought it was not. That Mario Draghi's latest unlimited whatever it is had somehow chased away the demons.

First, Der Spiegel writes that the Greek deficit is twice as high as previously thought,, at €20 billion, according to a preliminary version of the long awaited troika report. The gap has to be closed for the next tranche of bailout money to be paid.

Second, eurozone countries plan to let the ESM balloon to over €2 trillion ($2.6 trillion) . Remember that the German Constitutional Court limited Berlin's part to about €119 billion recently. Creative accounting to infinity and beyond. The efforts to keep the union together will blow it apart.

Third, former German FInance Minister Steinbrueck works on a banking plan that would split up investment and retail activities for Germany's banks (including Deutsche), think Glass Steagall. He wants to ban commodities speculation. And he wants a bank-ESM, a fund paid for by banks that can be used to bail them out, rather than taxpayer money.

There's lot more going on, and going wrong, in Europe, no matter what Draghi does, and no matter what plans José Manuel Barroso unveils. When I saw that the latter was seriously talking about establishing a European army, I couldn't help thinking: will it bring all those translators to the battlefield too?

Europe is not a country, it is not a culture, and it is not a language. It is a loose union that consists of many of each. Europe can hold together in times of plenty, and it will fall apart in meagre times. The only thing Europeans have power over – to a degree – is how the process of unravelling will unfold; they can't stop the process. The present attempts to hold the union together at all costs will be extremely costly, they have zero chance of succeeding, and they will lead to violence. The alternative, an attempt to live together as good and peaceful neighbors outside of a currency union, is not even considered. And I'm pretty sure it won't be until it's too late.

Hedge fund king Ray Dalio last week expressed the same fears I have been hammering on for months now, see for instance Project Europe is Over, Dear Angela, It's Time To Do The Right Thing and A Big Bad Brick Wall. I will always be reluctant to evoke Hitler's name, because it will inevitably be interpreted by many people as over the top fear-mongering, and because of the WWII survivor stories I grew up with, but the principle remains the same. A few weeks ago, I finally did resort to using the name, for the simple reason that in my view the threat in Europe is growing by the day:

What Makes Mario Draghi So Dangerous For Europe

Europe is creating conditions – of misery, poverty and hopelessness – in a number of its member states [..], that are not unlike those that provided the space needed by the likes of Hitler and Mussolini to rise to power in the 1920s and '30s. And that is a grave danger.

Now, Dalio says this:

RAY DALIO: I don't know whether we're beyond the point of being able to successfully manage this. And I worry then about—social disruption. I worry about—another leg down in the economies—causing—social disruptions. Because deleveraging—can be very painful, it depends how they're managed.

But when people—get at each other's throat, the rich and the poor and the left and the right and so on, and you have a basic breakdown,that becomes very threatening. And for example, Hitler came to power in 1933, which was the depth of the Great Depression because of the social tension between the factions. So I think it very much is dependent on how the people work this through together and worry about the social elements.

I can only hope that more people wake up to this, and that the people who lead the continent into these dangers will be relieved from their positions before they can do more harm. Hey, I can hope…

Still: "How the people work this through together"? They obviously don't. It's one-way traffic all the way. Conditions and demands are imposed upon people who have no say in how their politicians, elected or not, react to them. It's the bullies vs the bullied, working all the way down the chain of command.. The troika bullies Spanish PM Rajoy, and he turns around and tries to bully Artur Mas, the President of Catalunya.

And as long as the IMF is allowed a seat at the various tables from which it can demand and impose, that is not going to change. The Fund's "reform" demands, based on Milton Friedman's Chicago School shock capitalism, tried, tested, and fine-tuned in South America, Asia and Eastern Europe, are still the sole religious mantra. These days, that is true for the EU as much as for the IMF, as I documented in Hungary Says The IMF And EU Want To Make It A Colony Of Slaves.

Is this because nothing has been learned from past failure doctrine disasters? No, on the contrary, it's because the approach has been so spectacularly successful for the IMF's main donors and puppetmasters. What have been calamities for the people of the countries concerned have also been both the sparkplugs and the fuel for the engine of increasing political power the puppeteers have obtained through the IMF. And this time around they're set on doing themselves one better. This time they are aiming to buy up the Acropolis and the Coliseum.

And it's really simple from thereon in. It makes no difference whether you call it shock doctrine or 21st century imperialism or hostile takeovers, you can't take away from the people of Greece, Italy and Spain all the monuments of their past, as well as all powers they have over their own economies, production facilities and agriculture, and expect them to take that lying down. Not going to happen.

That's what makes the situation in Europe so dangerously volatile today. And it will all spread further too. We will end up with large parts of Europe being de facto owned by international conglomerates, who will use this ownership to drive up prices for essential services, food, electricity, water, housing etc. While at the same time IMF-style "reforms" will drive wages down.

The politico-banking class are all sitting there smugly and comfy in their bought-on-someone-else's-credit plush offices, picking through the still rich and splendid spoils of once proud nations and fiercely independent peoples. And even if they do win some of the preliminary battles at the negotiating table, the real ones can be won only through the use of violence.

There isn't much time left until that becomes a realistic threat, which means that now is the time for the people of Europe to decide whether they want to go down that road or not. And if they don't, they need to draw conclusions and accept the potential consequences of that decision: Get up, Stand up. And no, I don't have a lot of faith that they will. But I do hope that more people will now start to clue in on what that means: yes, violence.

Czech President Václav Klaus gives his view in the Telegraph this weekend. Klaus is not my favorite person, he's certainly no Václav Havel, but he provides a few good insights here.

Václav Klaus warns that the destruction of Europe's democracy may be in its final phase

The new push for a European Union federation, complete with its own head of state and army, is the "final phase" of the destruction of democracy and the nation state, the president of the Czech Republic has warned.

In an interview with The Sunday Telegraph, Václav Klaus warns that "two-faced" politicians, including the Conservatives, have opened the door to an EU superstate by giving up on democracy, in a flight from accountability and responsibility to their voters. "We need to think about how to restore our statehood and our sovereignty. That is impossible in a federation. The EU should move in an opposite direction," he said.

Last week, Germany, France and nine other of Europe's largest countries called for an end to national vetoes over defence policy as Guido Westerwelle, the German foreign minister, urged the creation of a directly elected EU president "who personally appoints the members of his European government".

Mr Westerwelle, in a reference to British opposition, called for nation states to be stripped of vetoes on defence to "prevent one single member state from being able to obstruct initiatives" which "could eventually involve a European army".

The new offensive followed the unprecedented declaration by the Commission's president, José Manuel Barroso, during his "state of union" address to the European Parliament on 12 September, that he would make proposals for a fully-fledged EU "federation" in 2014. "Let's not be afraid of the word," he said.

[..] Mr Klaus described Mr Barroso's call for a federation, quickly followed by the German-led intervention, as an important turning point.

"This is the first time he has acknowledged the real ambitions of today's protagonists of a further deepening of European integration. Until today, people, like Mr Barroso, held these ambitions in secret from the European public," he said. "I'm afraid that Barroso has the feeling that the time is right to announce such an absolutely wrong development. "They think they are finalising the concept of Europe, but in my understanding they are destroying it." [..]

"When it comes to the political elites at the top of the countries, it is true, I am isolated," he said. "Especially after our Communist experience, we know, very strongly and possibly more than people in Western Europe, that the process of democracy is more important than the outcome". [..]

In his book, Europe: The Shattering of Illusions, to be published by Bloomsbury on Thursday, Mr Klaus makes the case that the EU has evolved into its current form because political leaders have found it convenient to turn away from their nation states, where voters have historically been able to hold them to account.

"Political elites have always known that the shift in decision-making from the national to the supranational level weakens the traditional democratic mechanisms (that are inseparable from the existence of the nation state), and this increases their power in a radical way. That is why they wanted this shift so badly in the past, and that is why they want it today," he writes.

"The authors of the concept of European integration managed to short circuit the minds of the people, making a link between Hitler's aggressive nationalism (nationalism of a totally negative type) and the traditional nation state, calling into question the existence of nation states in general. Of the many fatal mistakes and lies that have always underpinned the evolution of the EU, this is one of the worst."

Mr. Klaus has kept his country out of the eurozone, a wise decision, since the Czech Republic was in no better position than Greece was when it joined the euro, and might well have ended up where Greece presently is.

The peaceful split between the Czech and Slovak parts of Czechoslovakia in 1994 will probably be talked about a lot in the coming years, if only because it went directly against he trend of unification. Had similar wisdom been used in Yugoslavia, we might have been spared a lot of violence. When there no longer is an economic reason for regions to stay together that have their own culture, history and language, then these regions will split up. That is not a disaster. Big is not better.

There were a million and a half people in the streets of Barcelona to celebrate Diada, the national holiday of Catalunya (I like their spelling so much better…) the other day. For the Catalans, independence is a done deal, it's just matter of time. They're on their way there, and they intend to continue on that way. Spain's refusal to let Catalunya control its own taxes, as well as a verdict by the Madrid Constitutional Court against a plan accepted by its own parliament to give regions more self-control sealed the deal.

The government in Madrid, however, calls the plan "illegal, unthinkable, lethal". The Spanish army is threatening to "crush the vultures". That sounds a lot more like Yugoslavia than like Czechoslovakia.

But it is the inevitable future of Europe. If and when Catalunya secedes, the Spanish Basque region will soon follow. The French Pays Basque will insist on joining it. Scotland? Wales, anyone? There will be many regions in many countries that will resist central governments increasingly feeding, like Rome did when its wealth was running out, on their peripheries.

People with distinct cultures, histories and languages will feel that they are better off governing themselves. And in many cases they will be right. They will realize that times will be economically much harder no matter what they do, so they might as well do it alone.

What Europe should be doing is recognizing these situations early, and facilitating cries for independence where these cries are loud and clear. It does no such thing. Europe's leaders want to intensify the union, not allow it to break up.

But Catalan polls show a majority of the people are for independence. And there is a UN charter that guarantees a people the right of self-determination. Still, the Spanish army vows to crush the vultures. Europe had better come to its senses fast.

The fate of the continent and its people is presently in the hands of a group of bankers, technocrats and delusional politicians. That fate needs to be clawed out of those white-knuckled fingers, and fast, or we will see a lot of blood in the streets.

UPDATE September 25: One day after I wrote the above, Ambrose Evans-Pritchard comes with Be Very Careful, Beloved Spain , in which he outlines the same danger I did, with the Spanish army threatening the Catalans. He ends with:

"People sometimes ask when I became a pessimist. The answer is the summer of 1991 when I accompanied Serb troops into the Baroque city of Vukovar – shattered by howitzer shelling within a comfortable drive from Vienna, and strewn with the bodies of dead children – and watched 300 wounded prisoners taken from hospital. I assumed they were at last safe. We learned later that they were machine-gunned shortly afterwards at a collective farm nearby.

The unthinkable was happening before my eyes, though it was small in scale compared to the slaughter of 8,000 Bosnian Muslim men and boys at Srebrenica, which I later covered at a trial in The Hague.

When things go wrong, they really go wrong. Cuidado, Querida España."

I think we all need to be very careful, not just the Spanish and the Catalans.

And Nigel Farage:

“What is really happening here is the eurozone crisis is so serious, and so dire, public opinion across Europe is turning so quickly in every country against the project, that what they are trying to do is seal and complete the project before everybody really wakes up to what’s being done in their name.”

“That’s what they are about. We are now entering the end game in what has been a 50 year political project. This is all going to come to a very dramatic head over the course of the next two years….

The end game for them is to effectively abolish the nation states of Europe, to completely abolish any concept of national democracy, and to vest all power, all the attributes we associate with normal countries, that is all to be vested in this new European political class.

Photo: Christophe Moustier 2006: Detail of bronze door of the Sagrada Família, Barcelona, Catalunya

 


Home Forums You're Dreaming If You Think The Euro Crisis Is Resolved

This topic contains 0 replies, has 0 voices, and was last updated by  Raúl Ilargi Meijer 4 years, 9 months ago.

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  • #8433

    The German edition of Der Spiegel opens the new week on Monday morning with a series of articles on the European situation, which make clear, as if th
    [See the full post at: You're Dreaming If You Think The Euro Crisis Is Resolved]

    #5747

    Ken Barrows
    Participant

    The question is who will be the first region to declare independence AND refuse a Euro bailout/accept short term austerity/chaos.

    #5750

    steve from virginia
    Participant

    The Soviet Union re-emerges … in Western Europe, this time. Who would have guessed? It’s too bad, Sovietism failed its first go-round and for the same reasons this version is failing right now: nobody would lend to USSR when that country was desperate. Nobody will lend to it now.

    The US orchestrated a credit embargo on the USSR, which crashed when the West wouldn’t lend after crop insufficiencies and a decline in Soviet export oil price. The US and its closest allies know all about embargoing credit: they have done it before … Southeast Asia, Latin America, Africa.

    The Soviets pursued industrialization, the Europeans are desperate to prop up their current rotting version. There is really no difference between the two sovereign ‘concepts’. It is likely the Moscow version had more drunks in high places than the Brussels variety but this is hard to tell.

    Catalan independence is overstated: the Catalans want the euro, they want to be members of the European Union. All the Europeans want the euro, they cannot afford (imported) petroleum without it. Without the euro and petroleum there are no wonderful cars, which nobody can imagine a life without. The whole world is throwing everything they can into the furnace for the sake of the wonderful cars.

    Which Saudi prince would accept a Catalan peseta? “Give us dollars!” the Saudi’s would demand … “or else!”

    Of course, the Europeans should simply dollarize their economies like the Ecuadorans and Panamanians have done. They would have all the benefits of the euro without any of the hassles … nothing would get worse and the credit embargo would be maneuvered around. The IMF is simply a proxy for the US Treasury, one kind of IOU would be swapped for another. There would be no need for political integration, bureaucracy, neo-nazi parties or anything else. Monetary policy would be the simple matter of managing foreign exchange flows… Because there is a credit embargo the Europeans … a dollarization strategy would make life more complex/difficult for the tycoons who have decided to steal Europe’s oil consumption.

    Yes, Sherlock Holmes, that is what the credit game is all about. America has fought two wars for oil and a number of others in the shadows, hell hath no fury like a pickup truck owner with an empty tank. Robbing the exhausted, effete Euro-trash by denying the Eurobankers and their government clients their credit ‘fix’ is too easy, like stealing candy from a baby.

    #5751

    TheTrivium4TW
    Participant

    So if this whole Euro thing is bad for the people on the ground, WHO is pushing for it that has the POWER to force their will onto the people?

    How is this group of people related to the debt based monetary system?

    How is this group of people related to selecting (financing and promoting in the media) the political class that the population eventually gets to vote on?

    Let’s stop analyzing the speed of the ship and its chari configuration and get to the captain of the ship.

    Now that would be newsworthy.

    #5752

    Alexander Ac
    Member

    Hi Ilargi,

    great article. Small correction – Czechoslovakia did split in 1993 (1. january)

    Václav Klaus is not my favourite person either (he is climate sceptik and free market zealot :-), but some of his remarks make sense (as with everybody, right?).

    And why not to mention Hitler, when Golden Dawn in Greece has 22 % of votes?

    I said that elsewhere, that we will face multiple “Hitlers” on many continents – not a nice picture, but why should it be otherwise?

    Alex

    #5754

    Regional secession? Saving the “union” at all costs? Sounds a lot like the American Civil War. But since Europe is much more culturally complex than America, you’d have to think that they would be more apt to successfully resist. Especially if it does turn violent.

    #5756

    Golden Oxen
    Participant

    Sir, I would just like to point out that Mr Dalio is strongly recommending the purchase of gold. He claims it is a must to own.

    #5757

    Sir, I would just like to point out that Mr Dalio is strongly recommending the purchase of gold. He claims it is a must to own.

    If you’re as rich as he is, you can’t go wrong with that advice.

    If you’re not, he thinks your purchases will raise the value of his holdings.

    #5760

    Professorlocknload
    Participant

    My earlier comment here got lost in space, so in short;

    Trivium@
    “So if this whole Euro thing is bad for the people on the ground, WHO is pushing for it that has the POWER to force their will onto the people?”

    Who? What?

    1. Central Banks, at the direction of their owners,

    2. The Banksters, funded by,

    3. The Corporations, who purchase the,

    4. Politicians, who are promised a piece of the action for playing along.

    A system made possible by seizure of governments from self serving voters, who previously made them large enough, to provide absolute protection to the new owners…absolutely. The voter then being set aside, as no longer useful except as subject of the realm.

    The western worlds democracies and republics could now be called Corporatocracies. (Fascism, with a happy face?) And don’t be fooled by these politicians who are “appealing” to their constituents to whack the big bad banks and hand power back to the people, through even more regulation. Not only will they not cede power, there is just no money in it for them.

    The easy fix is gone now, negated by “Martial Law Light.” That be the “Redress” clause in that pesky First Amendment. http://www.givemeliberty.org/FreedomDrive/Redress.pdf Especially the “or disturbing public tranquility” part. (Ask OWS about that) Matter of fact, it would not surprise me that after one more staged “youtube film” uprising like the one taking place in the ME, that the free speech part will be “adjusted” as well, and sites like this one and Zero Hedge will go dark. Then we’ll find the true meaning of “every man for himself”

    But, it is what it is, until it isn’t. Until then, steer clear of the steamroller, pick up a few crumbs and enjoy what isn’t in their clutches. We just aren’t anywhere near the point where the personal risk of blood letting is worth the unknown outcome, to most folks. To the contrary, they are actually requesting their captors “do more.” ?

    #5761

    p01
    Participant

    ilargi post=5454 wrote: Sir, I would just like to point out that Mr Dalio is strongly recommending the purchase of gold. He claims it is a must to own.

    If you’re as rich as he is, you can’t go wrong with that advice.

    If you’re not, he thinks your purchases will raise the value of his holdings.

    😆
    How do you still find the patience, Ilargi?

    #5763

    Professorlocknload
    Participant

    Could it be Mr. D is in the business of making book on card stackers, raising his stops with each new level reached? Dealing in “nominals” as opposed to “reals?”

    Like, might he hold beads and pork bellies for different reasons than we, automatically selling them when the quants are triggered?

    #5764

    davefairtex
    Participant

    Ilargi & Golden Oxen –

    Sir, I would just like to point out that Mr Dalio is strongly recommending the purchase of gold. He claims it is a must to own.

    If you’re as rich as he is, you can’t go wrong with that advice.

    If you’re not, he thinks your purchases will raise the value of his holdings

    On the one hand, it seems to me that if Ilargi quotes Dalio as an authority worthy of reference, it seems altogether fair of Golden Oxen to refer to other things Dalio has discussed – in this case, gold.

    That said, most hedge fund managers public opinions I view with great suspicion. Given how they are compensated (and that they are in this business STRICTLY to make absurd amounts of money) I would be quite astonished if they weren’t talking their book at all times – in this case, in terms of the huge disaster Dalio sees enveloping the eurozone (he is likely short euros) as well as his idea of the must-own nature of gold (he is likely long gold).

    Honestly, I would recommend tuning both of his opinions out. This doesn’t mean I agree or disagree with him – but I prefer not to let his opinions influence mine in any way, except to note the likely positions he has taken.

    Too many news stories these days are really lazy reporters quoting traders or hedge fund managers that are just talking their book; the traders are simply hoping they can jawbone the markets into making money for them, and the reporters are either unwitting dupes or co-conspirators.

    #5765

    ilargi wrote:
    Sir, I would just like to point out that Mr Dalio is strongly recommending the purchase of gold. He claims it is a must to own.

    If you’re as rich as he is, you can’t go wrong with that advice.

    If you’re not, he thinks your purchases will raise the value of his holdings.

    How do you still find the patience, Ilargi?

    It’s not so much the patience, there’s some of that here and there from time to time every day. What I do find worrisome is this Groundhog Day theater where we need to explain the most basic things again and again. We should be working and looking forward, not backward, and these sorts of questions make that hard.

    No matter how many times we say that timelines are not our primary focus, sure enough people, who on the surface seem to be intelligent enough, ask for timelines. We can say 1000 times that we don’t see gold as a good investment from our “very long time very deep depression” point of view, but there’s always someone who ignores the fact that that is our point of view and still wants to know what we think of gold tomorrow morning.

    There’s no shortage either of folks who want to time the precise point to shift from gold, or stocks, or you name it, to hoes and heritage seeds, but we’ve already said 1000 and one times that from where we’re sitting, every single day they lose on the purchasing hard goods front is one that will someday hurt something ugly.

    People approach us with their points of view, completely ignore and disregard ours, and still expect answers that fit into theirs. It has a certain comedy quality, granted, but it also has these “gold is higher today than it was yesterday, so you are wrong when you say it will have lost value in 5 years” qualities. Slapstick more than comedy.

    Nicole and I are here to talk to anyone who will listen about what we see, and we’ve been here for years now. Our overall ideas haven’t changed a bit, if only because everything we’ve said would happen, did. Not from the POV of the short attention span crowd perhaps, but then, they’re not the crowd we’re addressing.

    And we’re not about the S&P, or the price of gold, those are just little thingies in the grand scheme of the biggest credit bubble in history deflating, de-bubbling, in the face of which there’s still people, believe it or not, who talk about hyperinflation. That, I find strange.

    We can discuss why we see what we see, but we can’t continue to discuss daily changes in the S&P or gold prices (for the simple reason that TAE is not about those things), accuse us of being wrong in things we’ve said would happen in the longer term future because of these daily changes, and still pretend we have a serious discussion.

    #5766

    Viscount St. Albans
    Participant

    Ilargi, you have been more than willing to talk about the movements of the markets (yes, the S&P) as long as it moved in the direction you thought it should move.

    You’ve quoted the downward movement of bank stocks or overall markets countless times.

    But when they move up? We get silence or anger.

    If you don’t want to talk about the S&P or the markets, then fine. If you do, that’s fine too.

    The trouble is your emotional and analytical uni-directionality. If it’s down, you shout: See how I’m right (and I’ll be glad to offer citations). If it’s up: You yell at everybody for being so small-minded. This is bias of the worst kind.

    The market is neither wrong nor right, it just is.

    #5768

    Nassim
    Participant

    Like Ilargi, I am a monetary deflationista. Unlike Ilargi, I do dabble in precious metals, but I sold everything two weeks ago.

    I recently saw this recent post on ZH:

    “The Fed Has Another $3.9 Trillion In QE To Go (At Least)”
    http://www.zerohedge.com/news/2012-09-23/fed-has-another-39-trillion-qe-go-least

    The writer clearly understands the importance of the on-going deflation in the Shadow Banking system. However, he comes to dramatically different conclusions (I think) regarding price inflation.

    Any comments?

    #5769

    skipbreakfast
    Participant

    Yup, gold is up. So is Apple stock and actually even the Euro. Lots of things are up. That’s what has me particularly worried.

    Dalio and others DO need to deliver a RETURN ON THEIR MONEY. They have lots of their own already, and they’re playing with other people’s who demand some kind of return. Credit-money is chasing returns out of desperation, whether it’s mutual funds, hedge funs funds or ordinary small investors who thought they could retire by buying and selling stock. If you’re not rich, you should be more concerned about the return OF your money.

    In the dying days of this economy, there are profits to be made for the lucky ones. Like every ponzi though, most will get burned.

    Just look at the “you-can’t-lose” real estate bubble (which is still going up in a few ridiculous places). All of those people who thought they were so rich because they had money on paper. Anyone who didn’t buy in was thought to be a fool. Ultimately, only a small percentage can and will sell up early and walk away with the profit. The rest of them will be underwater. Why can’t gold be any different. Like the real estate market, some markets will go up longer than anyone expects, but the end result is the same in a deflation.

    There could easily be some upside yet in precious metals. I won’t be at all surprised to see a final incredible rush on this investment class before the house of cards comes down. You might be able to benefit from it. But this is credit playing the casino. As such, only play with what you can afford to lose (and given how hard it is going to be to make money in the upcoming years, you better have a lot of money).

    I agree some gold as insurance isn’t so crazy, but the fact that gold is rising is not a sure sign that it is going to save you. Apple stock won’t save you either. These are all functioning as “risk on” trades. The day gold rises when the markets tumble will be much more evidence that something fundamental has changed. Right now, gold goes up with the casino. Someone’s gotta blow a bubble up or all the hedge funds and mutual funds will go broke very very soon! We aren’t going to buy real estate. We’re rather skeptical of internet stocks. Tulips went out of fashion a long time ago. Gold is wonderful, but beware–it has all the hallmarks of another bubble investment. Doesn’t that parabolic rise remind you of anything else?

    #5771

    truthspeaker
    Member

    Ok, big picture

    Europe has insufficient resources to maintain its complexity/consumption, and is trying to solve this problem with more complexity, but without the resource to fund it, hence austerity to use remaining resources for additional complexity. This manifests as existing structures using more resources to sustain themselves at the expense of the overall system. Like an organ shutting down to continue feeding the brain or heart of a starving person.

    Its a simple situation, when people go hungry, they will tear everything apart, and it will be a case of who survives the food scarcity afterwards.

    If everyone grew their own food, there wouldnt be a problem anywhere.

    #5772

    Golden Oxen
    Participant

    @ Ilargi, Sir, I am surprised to see you thought my posting was a question, it was not. You will kindly see that it was just a expanding of the views of Mr Dalio in the article quoted that you omitted.

    I certainly have no expectation that you should comment on gold or forecast it’s future price. That is an impossible task for anyone in my view to accomplish correctly.
    You do in fact have no problem disparaging gold purchase and caution punishment for those who do so in the short term. What would you call that? My feeling is that clearly it is a forecast of a lower future price. You could quite possibly be correct, but others, including myself, have a different forecast.
    I also humbly submit it is one of many helpful tools in getting along to the future.

    #5773

    davefairtex
    Participant

    Viscount –

    Ilargi, you have been more than willing to talk about the movements of the markets (yes, the S&P) as long as it moved in the direction you thought it should move.

    I’ve noticed this as well.

    And yet – TAE has been right about the deflationary pressure – both before the pop, and now as well. Certainly I didn’t see it coming, only they and a few others actually did. I feel like the last 5 years has been a real learning experience for me about these sorts of issues, and TAE have been one of my teachers in this area.

    I come here, to get the “deflationary take” on things. I figure between TAE, Mish, and Martenson we’ll get effectively complete coverage on what is really going down.

    #5774

    davefairtex
    Participant

    Skip –

    Gold is most definitely looking expensive from the standpoint of your chart right now. But check out this chart:

    This odd chart is the US total credit market debt owed divided by the price of gold. With a bit of (hopefully forgivable) hand-waving, we could approximate this to be the following:
    TCMDO – claims on real wealth (Billions of $ US; as of apr-2012=$55T)
    GOLD – real wealth ($ US per ounce, on apr-2012=$1660)

    We can see this bottomed out at a ratio of 6.92 back in 1981. Its got a ways to go before it hits that point again. But it certainly has made a brisk move already.

    I think this chart is interesting because it pretty neatly shows the interrelationship between gold and credit from the standpoint of the major moves in recent times – and it also puts the current move in the perspective of history.

    Then again it could be total bollocks. Let me know what you think!

    #5775

    I come here, to get the “deflationary take” on things. I figure between TAE, Mish, and Martenson we’ll get effectively complete coverage on what is really going down.

    What, Martenson has done a 180? Whaddaya know?

    #5777

    p01
    Participant

    ilargi post=5472 wrote: I come here, to get the “deflationary take” on things. I figure between TAE, Mish, and Martenson we’ll get effectively complete coverage on what is really going down.

    What, Martenson has done a 180? Whaddaya know?

    Nah, the Ph.D./MBA burden still outweighs common sense, there’s no escape from that.

    #5778

    You do in fact have no problem disparaging gold purchase and caution punishment for those who do so in the short term. What would you call that? My feeling is that clearly it is a forecast of a lower future price. You could quite possibly be correct, but others, including myself, have a different forecast.

    GO,

    My position, our position, often stated, is that the depression will be so severe that anyone who presently owns less than $1 million (complete ballpark number, but certainly no less that that) in real wealth (not stocks, pensions, real estate etc.), will have no use for gold. It will plummet with everything else once credit ceases to be available.

    Gold is presently being held up by zombie money like the rest of the economy. I’ve talked about a conversation with a young man in Tasmania earlier this year who said he asked his grandpa about gold, and got the answer that gold is not the way to go, because in 1930s Hobart a gold coin would buy a man no more than a half dozen eggs.

    Why anyone would think it will be different this time, I can only guess. Inborn blind optimism? As for what I would call that: truth, a warning, blowing a bubble?

    The webosphere is overloaded with sites that promote gold, and most of them make money off of that position. Are they all wrong? Yes they are, not because they’re all stupid, but because they don’t include a truly severe depression in their thinking and their models. They’re biased towards blind optimism, a common human trait.

    They follow markets etc. to a fault, but have no underlying full historical analysis available that facilitates for possible outcomes that would threaten their own positions and lifestyles. In short, they think they can beat the markets. In this case, by holding gold.

    We do not, and we certainly don’t want to fool our readers into thinking they can. The age of the investor is over, and the investor will be the last to know.

    #5779

    Variable81
    Participant

    ilargi post=5462 wrote:

    It’s not so much the patience, there’s some of that here and there from time to time every day. What I do find worrisome is this Groundhog Day theater where we need to explain the most basic things again and again. We should be working and looking forward, not backward, and these sorts of questions make that hard.

    No matter how many times we say that timelines are not our primary focus, sure enough people, who on the surface seem to be intelligent enough, ask for timelines. We can say 1000 times that we don’t see gold as a good investment from our “very long time very deep depression” point of view, but there’s always someone who ignores the fact that that is our point of view and still wants to know what we think of gold tomorrow morning.

    There’s no shortage either of folks who want to time the precise point to shift from gold, or stocks, or you name it, to hoes and heritage seeds, but we’ve already said 1000 and one times that from where we’re sitting, every single day they lose on the purchasing hard goods front is one that will someday hurt something ugly.

    People approach us with their points of view, completely ignore and disregard ours, and still expect answers that fit into theirs. It has a certain comedy quality, granted, but it also has these “gold is higher today than it was yesterday, so you are wrong when you say it will have lost value in 5 years” qualities. Slapstick more than comedy.

    Nicole and I are here to talk to anyone who will listen about what we see, and we’ve been here for years now. Our overall ideas haven’t changed a bit, if only because everything we’ve said would happen, did. Not from the POV of the short attention span crowd perhaps, but then, they’re not the crowd we’re addressing.

    And we’re not about the S&P, or the price of gold, those are just little thingies in the grand scheme of the biggest credit bubble in history deflating, de-bubbling, in the face of which there’s still people, believe it or not, who talk about hyperinflation. That, I find strange.

    We can discuss why we see what we see, but we can’t continue to discuss daily changes in the S&P or gold prices (for the simple reason that TAE is not about those things), accuse us of being wrong in things we’ve said would happen in the longer term future because of these daily changes, and still pretend we have a serious discussion.

    Not that this will add much to the conversation, but I would like to thank Ilgari and the other TAE folk for having patience and keeping a sense of humour about the constant push for short-term/daily price changes by some of the readers.

    I do my best to resist posting short-term/daily price change questions here at TAE as I know that’s not what this blog is here to address. But every so often it’s hard not to ask those sorts of questions, as some of us who have started down this deflationary rabbit hole are not very well endowed financially and large shifts in short-term/daily prices can impact us greatly.

    I continue to try to build up my wealth (thankfully debt-free) as much as I can while gaining possession of some of the hard goods, supplies and skills I hope will help in a deflationary future. But there are days I worry I will get ‘squeezed out” by the system before reaching the point of possessing a sustainable homestead for both myself and my family.

    #5780

    Ilargi, you have been more than willing to talk about the movements of the markets (yes, the S&P) as long as it moved in the direction you thought it should move.

    You’ve quoted the downward movement of bank stocks or overall markets countless times.

    But when they move up? We get silence or anger.

    Just because I say the S&P isn’t our primary focus doesn’t mean I can’t talk about it. That’s just weird, and I don’t understand why you try to bring that up.

    As for where I think it should move, look, you have 15% unemployment in the States, more in large parts of Europe, China is crumbling, yada yada. In short: the S&P is hugely overvalued in all but name. You can pretend that I’m biased there, but is it really me who’s got the bias? Bernanke may claim his latest money grab is meant to counter unemployment, but that’s of course a load of testicles. Central banks are interested only in propping up markets while bank debts are transferred to the public. Which is much easier, probably possible only, here’s looking at you kid, when everyone is fixated on the S&P.

    And I do talk about the markets when they move up in my articles, I do that all the time. No silence, no anger. I simply explain that the S&P still is where it is, as are gold and real estate, because everyone’s money is being doled out with every single reiteration of QE and the rest of the alphabet soup. That I do occasionally tire of addressing the same issues time and again in the comments is another story. But even then, you can’t say I don’t try.

    #5781

    davefairtex
    Participant

    What, Martenson has done a 180? Whaddaya know?

    Chris Martenson makes an effort to base his viewpoint based on evidence (as he sees it), and that he reserves the right to change his mind as new evidence arises and situations change.

    His current assessment on the inflation/deflation outcome is 90%/10%. From what I can tell, the biggest differentiator in the TAE vs Martenson perspective boils down to the Fed + Treasury’s ability to monetize & deficit-spend.

    So far, Martenson sees few real impediments to Fed monetizing Treasury deficit spending. I know for sure TAE does not agree with this.

    #5782

    Viscount St. Albans
    Participant

    Ilargi said:

    My position, our position, often stated, is that the depression will be so severe that anyone who presently owns less than $1 million (complete ballpark number, but certainly no less that that) in real wealth (not stocks, pensions, real estate etc.), will have no use for gold.

    It would be useful if you explained, even in a rough sense, how you’re arriving at the $1 million ballpark figure.

    #5783

    Hircus
    Participant

    Viscount St. Albans post=5479 wrote: Ilargi said:

    My position, our position, often stated, is that the depression will be so severe that anyone who presently owns less than $1 million (complete ballpark number, but certainly no less that that) in real wealth (not stocks, pensions, real estate etc.), will have no use for gold.

    It would be useful if you explained, even in a rough sense, how you’re arriving at the $1 million ballpark figure.

    Try thinking of it in terms of orders of magnitude (or logarithms for the more science-minded). A seven-figure amount of wealth, rather than six figures or eight figures.

    My take on the $1,000,000:
    1) it’s universally understood to stand for “a lot of money” in colloquial English
    2) to have that sort of savings puts you in the top 5% or better of Americans/Germans/British/etc. So if you don’t consider yourself a lot better off than most people financially, don’t think about buying gold.

    #5784

    Viscount St. Albans
    Participant

    I don’t think it’s that hard to show that
    $100,000 / year for 10 years or
    $50,000 / year for 20 years

    is overshooting what’s needed.

    Why would you need $100,000 per year?
    Why would you need $50,000 per year?

    What are your expenditure assumptions that would give rise to those sorts of yearly budget figures?

    #5785

    bluebird
    Participant

    Viscount – We of the 99% won’t have any money. It isn’t going to matter whether it is $50,000 per year, or $50. In the interim, a bit of cash is needed to buy tools, seeds for food, shelter.

    #5786

    p01
    Participant

    Just to get some statistics clear, especially since it has been requested that income minus spending is oh, so important, and probably balance sheet is the most important:
    Average American family savings account balance: $3,800;

    So much for urban legends of western millionaires by the 5% truck-load, eh?
    Now imagine a plunge in asset values….

    #5787

    bluebird
    Participant

    Yeh, maybe it’s time to stop accessing banks/credit unions before Internet banking is denied. When the tipping point is reached that throws the world into a financial crisis, does anyone else think access to banks will suddenly stop the auto-deposits and auto-payments? Or will banking gradually be eliminated?

    #5788

    Professorlocknload
    Participant

    @ilargi;

    “Are they all wrong? Yes they are, not because they’re all stupid, but because they don’t include a truly severe depression in their thinking and their models.”

    A “truly” severe depression to me is an inflationary depression. As long as bankers create the money in this system, that’s where my bets will be. What’s your definition of one?

    As for needing a million “dollars” to begin to believe one may simply sit on a pile of Federal Reserve Promises to Pay, to get by. Good luck. Don’t ask me how, but they will wring that last 4 cents in value left from the last 100 years of policy, out of their paper. (Is there a trend here?)

    The pile will end up worth it’s intrinsic value, but a claw hammer and the ability to swing it without mashing thumbs or knocking holes in the wall, will become priceless. Personally, I would rather pack a few gold coins with me to any new, safer place I might like to be, as opposed to a hundred pounds of tools or a cotton sack of processed green wood pulp, with which to purchase new tools. Especially if that haven might be in another country, where they already have enough pulp of their own with which to light a fire.

    Now, I don’t have any fancy charts to draw on, but I am confident the price of a good framing hammer has kept up with inflation, or will catch up in the kind of collapse “predicted.” Heck, it might even hold it’s own in a deflationary rout, who knows? And, most certainly, skilled labor will see to it that it marks itself to whatever market prevails in the future. In which case, one may get off that pile of dead presidents, and do productive work, and most likely get by.

    So, if I were a Fractal Dung Beetle (see Fred Reed), I would definitely be pursuing every avenue in learning and practicing a useful, barter-able trade or skill set of some sort. Undertaker? Bartender? Plumber? Mechanic? Cardboard sign printer?

    So, maybe the age of investment is not over, but is in transition from the financial realm to the fields of necessities.

    As per Martenson, 90-10 is a wager. (There’s lies, damn lies, and statistics) That the savvy and strong survive is a given, because they will most likely deal in what is, not in 10,000 what if’s.

    Another thought to ponder. Mobility, in many past ponzi collapses, has been an advantage. Where did all those folks in Detroit go?

    What can you pack? I mean, after some tyrannical local community posse runs you off your doomstead? (Property taxes having been up’ed to meet that pile of FRN’s you have been sitting on, or some lawyer wants a cut, or your corn row is messing up the migration pattern of the three toed salamander, or the discovery of one part per quadrillion of benzine in the air, just inside the property line ?)

    So, I guess what I’m alluding to here is, it will all fluctuate, along with our open minded perceptions. Bend with it, or snap. That said, keep the ideas coming here, they are what I’m in it for.

    As an aside, I heard from a Russian fellow that, on the collapse of the Soviet Union, all sorts of gold and silver coins began to surface, most dated before the founding of that great deadly social experiment. Do we suppose the deeds to land were still registered to the same families then, as before?

    #5789

    SteveB
    Participant

    ilargi post=5475 wrote: My position, our position, often stated, is that the depression will be so severe that anyone who presently owns less than $1 million (complete ballpark number, but certainly no less that that) in real wealth (not stocks, pensions, real estate etc.), will have no use for gold. It will plummet with everything else once credit ceases to be available.

    Viscount, Ilargi refers to wealth, not cash, so I suspect he’s not talking about all of that wealth being liquid.

    #5790

    davefairtex
    Participant

    Here’s my newly-minted eurozone stress chart. It is based on interest rate differentials on 10 year bond debt, and the difference in yield between “safe haven” debt (Germany), the debt of the PIGS, and the ostensible “average” yield of eurozone debt. Ideally, the value of 0 would be the best possible – where German debt yields the same as Greek debt.

    My sense is, more likely than not (60/40) we’ve seen the bulk of the happy reaction to the most recent intervention. The fact that SPX seems to have fallen off a bit even in the face of QE3 lends a bit of support to this thesis for me.

    Next step: inserting event labels onto the chart so we can see how the various interventions affected the eurozone bond market.

    #5791

    Synchro
    Member

    davefairtex post=5478 wrote:

    From what I can tell, the biggest differentiator in the TAE vs Martenson perspective boils down to the Fed + Treasury’s ability to monetize & deficit-spend.

    So far, Martenson sees few real impediments to Fed monetizing Treasury deficit spending. I know for sure TAE does not agree with this.

    My take is that Martenson has it pretty well nailed.

    What actual impediments are there to Fed monetizing, from here to eternity?

    There are those who believe that the all-powerful Bond Vigilantes and the “Bond Markets” will rise up and put a stop to the central bankers’ shenanigans. Well, I’ve got news for those who believe that . . . . ain’t gonna happen.

    It’s been some time now since the Men In Black came to pay a visit on the so-called Bond Vigilantes, flashed their eyeballs with the little pen, and told them to crawl back into their holes and stay there. And that’s where they’ve been.

    As for the “Bond Markets”, the central bankers have played them like Itzhak Perlman plays a Stradivarius. The bond markets crap their pants every time Bernanke, Draghi, or Shirakawa hits the cntl-P button. The Bank of Japan has been diddling the bond markets for 22 years since the 1990 implosion, and there is no reason to believe that central bankers worldwide haven’t read that playbook.

    True markets don’t exist anymore anyway. They are manipulated and massaged every day and in every way by Wall Street and the central bankers themselves.

    That which is being manipulated has lost its ability to enforce discipline on anything whatsoever. And so the central bankers will remain unchecked for the foreseeable future.

    “Give me control of a nation’s money and I care not who makes it’s laws”

    — Mayer Amschel Bauer Rothschild, 1863

    #5792

    p01
    Participant

    Back to the topic at hand, because obviously people who think the Fed can do anything about this clusterfuck have always had a pretty big trickle from the credit urethra, the crisis is going to be solved; like this:

    #5793

    Viscount St. Albans
    Participant

    Steve B said:

    Ilargi refers to wealth, not cash, so I suspect he’s not talking about all of that wealth being liquid.

    I’m pretty sure he is talking about liquid wealth. But our differing interpretations of his statement reveal why it’s important to use careful, precise language, and to explain one’s ideas.

    It’s not useful to simply throw out a number, like $1 million (bare minimum), without explaining how you arrived at it.

    From my viewpoint, using simple division discussed in previous posts, this $1 million figure is a very high approximation of necessary liquid wealth for a 10-20 year time frame. Of course, it depends on one’s spending patterns. But if one uses average annual household spending for 2011 ~ $50K /year, then $1 million is simply too high (by a long shot certainly over a 10 year time frame). I might be missing something that Ilargi is thinking about or considering. But, without an explanation, there’s no way to know.

    http://www.bls.gov/news.release/cesan.nr0.htm

    #5794

    skipbreakfast
    Participant

    davefairtex post=5471 wrote: Skip –

    Gold is most definitely looking expensive from the standpoint of your chart right now. But check out this chart:

    This odd chart is the US total credit market debt owed divided by the price of gold. With a bit of (hopefully forgivable) hand-waving, we could approximate this to be the following:
    TCMDO – claims on real wealth (Billions of $ US; as of apr-2012=$55T)
    GOLD – real wealth ($ US per ounce, on apr-2012=$1660)

    We can see this bottomed out at a ratio of 6.92 back in 1981. Its got a ways to go before it hits that point again. But it certainly has made a brisk move already.

    I think this chart is interesting because it pretty neatly shows the interrelationship between gold and credit from the standpoint of the major moves in recent times – and it also puts the current move in the perspective of history.

    Then again it could be total bollocks. Let me know what you think!

    Thanks for this chart Dave. Am I reading it right–gold’s value increases with credit? If so, the deflationary position has always been a colossal vaporization of credit once the deflationary juggernaut gets rolling. As Ilargi points out it’s the zombie money keeping gold and Apple stock afloat. When Fed printing no longer keeps up with credit destruction, look out below (by the way it isn’t even keeping up with it now when you factor in the evaporation of credit in the ginormous shadow banking world).

    So while Fed balance sheet and government debt expands, gold may be going up. But deflationists do see a reversal of the expansion of both those forces. Either the Fed is dismantled entirely or politically curtailed. How about a new Fed chairman, and one less inclined to print? Or a bond market pressure that resurfaces–something Synchro seems to think is no longer a threat, mainly because they left Japan alone for 20 years.

    Synchro:

    I don’t think Japan’s reprieve is indicative of our ultimate future. Many have said it before, and I will say it again too–Japan’s reprieve came during 20 years of zombie money expansion in the rest of the world–the same zombie money expansion that gave us a Euro crisis, the Chinese “miracle”, and the US subprime mortgage collapse.

    Bond markets are manipulated only so long as they make money going along with it. It’s free gravy–they’ll take it. But if they sense that there’s some money to be made on the other side of the equation (or the opportunity to mitigate loss), there will be a frantic rush.

    Deflationists see a limit on the ability of a government to manipulate a market. Historically, manipulation has NEVER worked indefinitely.

    #5795

    skipbreakfast
    Participant

    bluebird post=5484 wrote: Yeh, maybe it’s time to stop accessing banks/credit unions before Internet banking is denied. When the tipping point is reached that throws the world into a financial crisis, does anyone else think access to banks will suddenly stop the auto-deposits and auto-payments? Or will banking gradually be eliminated?

    Thanks bluebird. I find these conversations more interesting than gold (buy into the gold bubble if you feel like gambling or hedging and take your chances–what’s more to be said?).

    I think you’re saying we shouldn’t rely on digital money and I think you’re right. Cash–the fold-able kind, not the digital kind–is important.

    As for banking, there’s a good chance that electronic banking lasts longer than any sort of cash banking. Which is NOT to say that digital banking lasts longer than fold-able cash in the economy–just that the banks will stop giving out fold-able cash at the tills and ATMs, while they continue to encourage the digital kind. (I’m not predicting as far as a day WITHOUT computers–that’s probably coming, but it’s much further off than our financial collapse).

    I foresee a terrible shortage of actual hard printed currency (the fold-able kind as it has been called). The digital kind, such as the Fed is creating right now, will be more plentiful than the fold-able kind for a long while yet, even as the digital kind is erased faster and faster over time.

    There is a reasonable argument to be made that fold-able currency may offer a premium over digital money. So a real paper dollar is worth say twice as much as a digital dollar. In some ways it always has been, which is why trades-people will offer to do the job for a lower price if you pay cash. Those hard dollars are worth more to him than the digital dollars.

    Definitely, there will be capital controls coming which try to impede our use of fold-able currency. As tax revenues drop off a cliff, and more of the economy is driven underground, fold-able cash will be something everyone will want. Digital cash will serve the system for as long as the system can make it last.

    So I think you’ll still be able to buy things with digital currency. There may be a few zeroes taken off your bank balance of digital currency in the meantime, though. That $100,000 balance could easily become $1000. You’ll still be able to shop with that $1000, in my opinion. You’ll just be much poorer than the person who somehow turned that $100,000 into dollar bills you can hold in your hand.

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