By Peter B. Meyer – 31st of July 2012
Democracy is just a wealth-distribution, and ultimately wealth-destruction scheme that pits the taxpayers vs. the tax eaters. In the case of Europe, the Germans, the Fins and the Dutch produce and save, while Greece, Spain, Portugal and the rest consume. Eventually, a bankruptcy will bring to light the truth about democracy, which Hoppe explains as follows:
“It is nothing more than an especially insidious form of communism, and that the politicians who have wrought this immoral and economic madness and who have thereby enriched themselves personally, - never of course, being liable for damages they have caused! - are nothing more than a despicable bunch of communist crooks.” Hans-Hermann Hoppe (born September 2, 1949) is a prominent Austrian school economist
Friedrich von Hayek, another well-known figure in the Austrian school of economics, wrote in his seminal work the Road to Serfdom: "By giving the government unlimited powers, the most arbitrary rule can be made legal; and in this way a democracy may set up the most complete despotism imaginable."
It's hard to ignore Hayek's and Hope’s prescient warnings and words when you observe today’s political manipulations to keep the EU together and the Euro alive. Europeans are deceived in the hope one day a miracle is going to happen that makes the impossible possible and solves this crisis without pain and leaves the EU and its Euro in tact.
However, the Europeans are turning against its Elite austerity pushers. Sarkozy lost to the socialist Holande. The Dutch government of Mark Rutte handed in its resignation. The “technocrat” in Italy and the new government in Greece wonder how long they can hold on, while the Spaniards continue to live in pain under the draconian measures dictated by the Eurocrats.
As in Spain, Greece, Ireland, Portugal and practically all-modern countries, people wait for the government to figure out how to give them retirement incomes, healthcare, and full employment.
Of course, politicians cannot solve economic problems for the very simple reason: they themselves are the cause of them. Despite all the phony governments’ interventions the recovery is not coming and will not come either, because it is impossible at this stage of overflowing debt.
Recovery is impossible because this isn’t an ordinary recession it is a depression ‘the end of the economic road’. The world faces a huge solvency and not a liquidity problem. New money supply cannot restore health to sick loans and government bonds. The only way to restore solvency to the financial system is to deflate the economy or slash the amount of debt through mass bankruptcy.
Who set up the euro? Who set interest rates and lending standards? Who caused the bubbles by lending too low for too long? Who then ‘fixed’ the crisis — by lending more, at even lower rates, to the very financial institutions who had just proven such bad custodians?
Who spends more than he makes, year in and year out? Who promises even more spending — even as he is facing bankruptcy? Who counterfeits money — printing trillions of dollars and euros with nothing more behind them than the “good faith” and “full credit” of an insolvent bankrupt government? Who starts ‘wars’ that cost trillions of dollars and hundreds of thousands of lives, and then, standing over the wreckage announcing victory, and goes away?
The elite – the ONE % - are defending their turf by creating wars, unnecessary fears about terrorist attacks, instating security checks at airport the world could do without, global warming hysteria, uneconomic recycling of waste costing more than the conventional way, keeping-on more money printing until the bitter end, extending the pain, and causing extra expenses for citizens, but with the hidden purpose to create added income for themselves, in doing so unnecessarily extending the suffering for the populace.
An honest man knows better than to interfere in other peoples’ business. His own business is tough enough. He cares deeply about the things around him, and tries to make his world better in every way he can. But he would be embarrassed to pretend to solve other peoples’ problems. Even if he is only offering advice, he does so reluctantly, carefully, and tentatively.
If he is smart he knows that you can’t really make things better by bullying, deceiving and threatening people. An economy works best by doing the one thing that the fixers can’t allow — letting people make their own deals, find their own jobs, and solve their own problems. So really the truth must be camouflaged to let people believe government has everything under control. "Truth has to be repeated constantly, because Error also is being preached all the time, and not just by a few, but by the multitude. In the Press and Encyclopedias, in Schools and Universities, everywhere Error holds sway, feeling happy and comfortable in the knowledge of having Majority on its side." --Goethe
Although Goethe made his insightful observation two hundred years ago, his words hold more meaning today than ever in history. Error can indeed be found throughout stories in the mainstream press, in "official reports" and coming from the very mouths of world leaders, many "democratically" elected. But what even Goethe could not have predicted is the broad extent to which these errors are knowingly, deceptively and insidiously woven into our daily news, effectively subverting the masses and keeping them blind and apathetic to the empirically-driven motives of the world's elite.
Consequently: Governments’ planning and taxation is “the road to serfdom,” pretending “free markets” by giving bankers leeway to act recklessly, oligarchic, undemocratically. Governments are told to bailout the debt-ridden banks benefitting the wealthiest 1% layer of society, by shifting all the losses onto taxpayers.
Governments should act democratically by subordinating the banking and financial sector to serve the economy, and not the other way around as it is today.
Austrian economist Ludwig Von Mises wrote in relation to this crisis the following wise words: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system involved.”
Ludwig von Mises proudly called himself a liberal. He was the 20th century's great defender of capitalism and the free society. His book, Liberalism
first appeared in 1927 as a follow-up to both Mises' devastating 1922 book showing that socialism would fail and his 1926 book criticizing interventionism. It was written to address the burning question: If not socialism, and if not fascism or interventionism, what form of social arrangement is most conducive to human flourishing? Mises' answer is summed up in the title of his book, Liberalism
By Peter B. Meyer – 26th of July 2012
Who will be first to leave the Euro in this Crisis, Greece, Spain, Italy, France or Germany? The lack of money to finance its debt leaves no other choice, and will force this Exodus. The race could be decided within weeks if not days. Watch the coming weekends, when markets are closed, this operation could take place.
France under Francois Hollande seems in trouble, public debt in France is at 86.1% of GDP but is actually 146% if ECB liabilities and bank guarantees are included. The projected budget deficit this year is 4.5%, with France having herself exempted from the EU’s instruction to bring deficits down to 3% by the end of the year. On the contrary Germany the strong man of the EU could leave too, although more voluntarily, because its total exposure to its beleaguered EU neighbors has soared to €1.5 trillion, while EU member nations ask for more! That’s a staggering sum of money, equal to more than half of German GDP.
At the heart of the European Union project lays the alliance between France and Germany, if France can’t keep itself together, or Germany decides to leave voluntarily the whole EU is doomed.
Nonetheless, leaving the Euro will bring the sovereigns the urgent needed cash to continue their operations. Returning to their own currency is the remedy to reignite their own economy, at the expense of the other EU nations. Although the procedure for each nation is similar, lets take a look how this works out for Spain, because Spain most likely will be the number one.
Spain is borrowing at an interest rate of 7.5%; a level that is said is “unsustainable.” Soon Spain will be shut out the bond market. Policy makers in Madrid are in a panic. Of course, they don’t take any responsibility for this mess. They just blame the short sellers! So they banned short selling for 3 months. That ought to solve the problem, but everyone knows, markets go down because people sell. When you make selling illegal, they think the problem is solved! Simply, it reflects the government’s admission Spanish equities are severely in trouble.
Spaniards won’t accept more austerity; so the last alternative is to exit the Euro, for which the government perhaps will receive more local support, because unemployment levels are heading upwards. Leaving the Euro provides debt deflationary dynamics, ensuring banks having money again.
If all the options are analyzed, Spain has no other choice than to return to its (New) Peseta, and devalue by whatever is necessary. Devaluation is politically the easiest way out, such could happen on one of the coming weekends. On the day of the exit, Spain will initially value the New Peseta at par with the euro, but devaluate immediately thereafter, before the markets and banks open the following Monday.
The government has to make sure that nobody has previous knowledge about this decision until after the revaluation is put into practice. Foreknowledge of a Spanish exit of the EURO and a return to a local currency would cause a bank run of tremendous proportions: People would realize that the government was going to devalue the currency, so they would rush to their banks to withdraw their money and either send this money out of Spain or else hold it in cash under their mattresses. Either way, such a bank run would crater the entire banking sector instantly, because the banks certainly do not hold reserves to meet such a run.
Secrecy and surprise is key to the success of this operation. This is the reason that, if and when there is in fact an exit from the EURO, no one will hear about it until after it has been carried out. When the exit is made, the Spanish economy is basically reset; with at once a healthy banking sector, a reignited export-driven economy, and instantly-attractively priced capital goods.
Bondholders, and those living on a fixed pension will suffer. The purchasing power of their pensions would be reduced by the amount of the devaluation, which could reach up to 75%.
Exit the EU, devalue, and rebuild. The more you look at the situation clinically, the more obvious it is that this theory is the best thing for the long-term health of the Spanish economy.
The common opinion is that no nation can exit the EU, because if it does, it won’t be able to borrow on the bond markets. This is not true, once a government forcibly converts its banks’ and accountholders euro-deposits into - for Spain - NPS deposits it essentially has confiscated the entire quantity of Euros in the country. The government keeps these Euros and will have short and medium term sufficient Euros available and doesn’t need the bond market to borrow Euros.
By forcibly converting into the new currency the government has sufficient quantity of Euros in possession to cover its international balance of payment for imbursements of the necessary essential imports of oil, etc. This doesn’t mean they never have the need to borrow on the international money markets again, but in the medium term they have enough hard currency to survive.
To avoid a run away inflation the government decrees a wage and price freeze, to prevent price increases. Capital controls won’t be necessary due to the fact that all of accountholders’ Euros are confiscated by the conversion into new pesetas. The government further will immediately –before devaluation- foreign debt obligations, without prior provisions to the contrary, will be converted into NPS–bonds. Thereafter it will devalue the NPS by say 30% while eventually a step-by-step devaluation of up to 70% during the following months could be a possibility. The moment this action is made public all foreign currencies will flee the country, but this may be a relatively small amount. All these measures have got to be implemented in the course of one weekend.
The only problem the government faces, is that all these have to be executed swiftly with 100% secrecy without any leak. Prior knowledge of this move will cause an enormous capital out flow and bank runs that cannot be covered by sufficient euro liquidity.
Many small businesses will go bust, because of foreign currency commitments that cannot be met, while as a consequence the unemployment rate, in the short run will increase, but thereafter quickly be reduced.
Take care you have gold and silver coins in your possession at home, and take your surplus liquidity out of your account immediately or transfer it in a foreign currency other than the euro. Hoard immediately all the stuff you need in the foreseeable future. While black markets will become the popular exchange trade.
By Peter B. Meyer – 24th of July 2012
The sunny years have passed. Now there are storm clouds on all horizons, consumer confidence has disappeared. When all went well, people thought things weren't true. Now, they don’t believe things are true. It is the other way round. Once was believed people could get richer by wasteful spending of money that wasn’t theirs, they now turn to their Government for financial support.
First it was thought this crisis was an economic recession that only should last a year or so, but this recession, now in its fourth year, is turning in a depression. The difference between the two is that a recession is temporarily, while a depression is structural. The world has too much production capacity from everything cars, electronics, houses, offices, you name it. Structural reform now is essential, reducing manufacturing capacity and affiliated activities. Innovative ways and innovative thinking have to be deployed to make the change cleverly, with minimal harm.
This crisis was caused by the central bankers mispricing the cost of capital, which resulted in misallocation of capital, driven by debt leveraging that ultimately became exposed as a hideous asset bubble which then collapsed, destroying the lives and livelihoods of tens of millions of relatively innocent people.
First Alan Greenspan and later Ben Bernanke were apparently unable to see this entire coming while it was so obvious: culminating in the collapse of housing and the blow up of the credit market.
Nonetheless Bernanke still gives to the view that if you make credit cheaper, you’ll boost economic growth. “(He) provided absolutely no proof that the Fed’s purchase of U.S. Treasury bonds and mortgage bonds in QE1 and QE2 did anything to promote growth in the real economy. All he’s done is boost stock prices and make it easier for the U.S. government to finance its deficits.”
“The Fed can’t ‘promote growth’ when households are reducing debt. It’s telling that Bernanke said the government needs to get fiscal policy in order (spending) for consumers and businesses to be more confident about taking risk.”
Our leaders apparently still don’t have a clear-cut solution! They just continue with throwing taxpayers’ money around. It seems they are in no hurry to put things right, they even don’t take time to investigate what really brought us in this mess, and don’t analyse the situation thoroughly to come up with an adequate answer. They only applied Keynesian stimulus packages that provoked corruption.
Politicians want to create jobs but don’t know that’s impossible. There is plenty practical wisdom around to learn from. But if you put people in charge that created the mess, don’t expect effective solutions, like Einstein once wrote, “Never expect the people who caused a problem to solve it.” Simply put; this economy needs to be restructured and not revived.
None of our leaders is able or willing to take bold and necessary decisions. They just apply the wrong medicine (money) and won't believe or listen to the few that could help. Mr. Market, and clever entrepreneurs are able to adapt to this condition of depression that will offer a contributive approach, while this process could take 10 years or more.
Austerity doesn’t work cutting spending, results in firing people increasing unemployment. Budgets are becoming even further of balance, with higher deficits. Decreasing GDP resulting in more economic misery.
Russian Kondratieff proved in the ‘30s that economic cycles are more powerful than government, while governments can alter the impact of a smaller "normal" bubble; they are helpless in the wake of a true "Super-Bubble." The real economic cycle is going to run its course, no matter what the government does.
Real prosperity can't come until all the "poison" of debt is out of the economic system. The result of underestimating these cycles is catastrophic, and a force much more powerful than any government can control. So the real economy will weaken.
For genuine recovery real money in the hands of people who can make it happen is required, in the hands of entrepreneurs, family operations, business people, but not the government. For an honest recovery let people keep their money so they can pay their bills, save, invest and spend, whatever they want to do with it.
Depressions are quite exceptional so no statistically reliable evidence and information is available. No general parameters do exist because this phenomenon is just too extraordinary. Hardly anyone still alive does remember the depression of the '30s and are able to recall the circumstances that then took place. A depression is not a break in an ongoing economy; it is the end of the economic road. It is a situation in which debt must be squeezed out of the system. In these circumstances bailouts, financial aid, and government stimuli packages are inadequate, in fact these hold back the process for recovery. Unfortunately this view represents a minority.
During the bubble era people spent too much borrowed money on things they didn’t really need. Once the credit crunch became fact, Policymakers thought money must be spent on whatever, just to creating jobs, growth and inflation.
However this situation is now becoming the “Bailout Bombshell” without solving the economic crisis that anyhow will turn in a depression. Tackling a depression as explained, requires other measures apparently unknown by our policymakers.
By Peter B. Meyer – June 24, 2012
The western world economy is going to collapse, “we’re coming to the end of a certain monetary and political model that supports the over financialization of the world.” Change is due. But it is impossible to predict when the economy turns into a global disaster. It is like a broken bridge, you see the cracks, and you know the bridge isn’t safe, but it’s hard to predict when it will collapse. It could be imminent or take another couple of years, but the bridge will collapse that’s sure. And such is the case with our current economy.
In Europe, governments in 2000 collectively spent 44.8% of GDP. Today it is 49.2%, which is a huge increase. That’s not austerity, that’s stimulus. And as the phony austerity doesn’t work, new leaders want to try phony growth. Francois Hollande, France’s new president, says he will hire more government workers and spend more money to promote “growth.” He also says he’ll raise taxes on the rich to 75% of marginal income, up from 41% now, and increase the “wealth tax.” The retirement age increased by his predecessor Sarkozy to 63 will be reversed to 61. How he thinks you get real growth out of this foul mixture is an enigma. The government already directs and consumes half the nation’s output, while the economy remains flat. How will it do better with more money? Instead, the French will be wasting their resources, squeezing the most productive part of the economy, and becoming poorer. We live in a world of frauds and counterfeits.
"The financial markets... aren't relaxing their pressure on Spain. Doubts continue regarding the construction of Europe, about the present and the future of the euro," Treasury Minister Cristobal Montoro told the Spanish Senate during a budget hearing. "The ECB must respond firmly, with reliability, to these market pressures that are still trying to derail the joint euro project."
“When you look at the world’s problems in another light, literally, riots in the streets of Europe, the Middle East and elsewhere, it’s a sign that people collectively are sick and tired of traditional politicians and political models that take the road to national insolvency. The old guard hasn’t delivered on economic improvement, and in a wired world, people know it.”
In Europe, America, the Middle East, and Asia, the political and economic structures, are over due and will unfold in due course. Over the last 25 years, we've had a series of financial bubbles fueled by government spending and easy money. Governments (mis) used their power to print money to stave off financial devastation, and proclaim the economy is doing better.
Consider the 2000-2001 technology crash. The markets tanked. Investors got crushed. The economy tottered on the brink of total collapse. And what happened? In rushed the Central Banks with low interest rates, pumping money into the economy and fueling an unprecedented, and unsustainable, real estate boom. Of course, the real estate bubble burst, resulting in the credit crisis and sparking the global financial meltdown of 2008-2009.
But again, governments rushed in and saved the day, to get the picture: At least 43 countries from every corner of the globe pumped massive amounts of money into the global economy. Here are a few of the stimulus plans:
1. United States: $787 billion
2. China: $585.6 billion
3. Indonesia: $75 billion
4. Japan: $687 billion
5. Germany: $68 billion
6. Macau: $13 billion
7. Great Britain: $29 billion
8. France: $35 billion
9. Singapore: $13.6 billion
10. Australia: $26.5 billion
11. Saudi Arabia: $49.6 billion
12. Korea: $26 billion
13. Canada: $43 billion
14. India: $6.5 billion
15. Vietnam: $1 billion
16. South Africa: $7.9 billion
17. Ukraine $16 billion
18. Israel: $5.4 billion
19. Russia: $20 billion
Massive bailouts and trillions in stimulus funding prevented the global economy from collapsing. But the solutions were a band-aid that merely postponed the inevitable: a long and deep market slide that erased unprecedented levels of wealth from the global economy.
Of course, the government is portraying the bailout as successful. And sure enough, people are relaxing, even starting to feel confident again. Reports of economic strength are hitting the wires, and the market is climbing again. The party is over, and the bill is coming due. The same solution that has come to the rescue in the last 25 years is not going to work anymore. That's because world governments face an inescapable problem: They are simply out of money and no longer have the credibility to borrow! After spending billions to rescue the world in 2008-2009, there is simply nothing left. And everyone is starting to realize how dire the situation is.
The U.K. Telegraph: "China's leading credit rating agency has stripped America, Britain, Germany and France of their triple-A ratings, accusing Anglo-Saxon competitors of ideological bias in [favor] of the West."
Meanwhile Standard and Poor's cut the long-term U.S. credit rating of triple-A to double-A+ on concerns of the ongoing budget deficit and rising debt burden. And things are getting worse every day; the truth is the U.S. faces the very real possibility of a downgrade by another credit agency. In a recent statement Bank of America, Merrill Lynch said, "The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan" to cut the deficit. "Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes." On the surface, the government continues to spark hope with reports of economic growth.
Back in the 1930s, Russian economist Nikolai Kondratieff produced a theory that explained that TRULY HARD TIMES come in broad cycles, or "Super-Bubbles. "These "Super-Bubbles" are typically made up of several smaller or "normal" bubbles. Kondratieff stated that economic cycles are more powerful than government. And that while the government can alter the impact of a smaller "normal" bubble, it is helpless in the wake of a true "Super-Bubble."
In other words, the government can control events for years, even decades. The government can postpone financial devastation, but it can't prevent it. According to Kondratieff, the government's act is a hopeless charade. The real economic cycle is going to run its course, no matter what the government does.
Real prosperity can't come until all the "poison" is out of the economic system. The result of underestimating these cycles is catastrophic, and a force much more powerful than any government can control. The government is helpless to stop the natural path of economic cycles. This is exactly what has been going on for the last 25 years. We've had a series of financial bubbles fueled by government spending and easy money.
The government has used its power to print money in order to stave off financial devastation. Trouble comes, when government prints money, pumps it into the economy, and the economy doesn’t get better. This is just a last-ditch attempt to prop up a private pyramid scheme in fractional-reserve money creation. Governments bailout the to too-big-to-fail banks, funded by the people. If we are funding the banks, we should own them; and our national currency – backed by a gold standard - should be issued not through banks at interest, but through our own sovereign government. But for now count with a total disaster, when the bridge finally collapses and nobody is around to save you. To save yourself, buy gold and silver to survive the coming dark days.
By Peter B. Meyer – June 17, June 2012
It is hardly possible to keep up with the accelerating events. Amazing how quick a government can waste €100 billion. Just days after the European Union agreed to float Spain's financial sector, the yield on Spanish 10-year debt breached the all-important 7% mark – its highest yield since the euro was created in 1999. Yields jumped after Moody's cut Spain's credit rating. For the record: Portugal, Ireland, and Greece were all bailed out after their government debt yields climbed above 7%. In Spain's case, this is the point at which the country will need another bailout soon.
The Spanish government may announce additional fiscal cuts and structural reforms. Bolstered by funds from the ESM, Spain remains financially afloat for several months. But the Spanish economy continues to deteriorate and unemployment heads towards 30%.
The financial world is watching with disbelief and shock as the European banking and political elites do the daily shuffle in a veiled attempt to hold together a forced, non-elected European Union. While it continues to come further apart at the seams due to excessive sovereign debt and failing austerity measures, rendered meaningless by an explosion in fiat currency creation, not seen since the days of the German Weimer Republic.
"The EuroTitanic has now hit the iceberg and sadly there simply aren't enough lifeboats." Says Nigel Farage, from UK Independence Party.
The next scenario: Violent protests against Prime Minister Mariano Rajoy’s austerity measures, will lead him to call for a referendum. His government fails to get the necessary support from voters and resigns, throwing the country into full-blown political chaos. Likely another Guerra Civil, as the one of the thirties may occur.
Merkel cuts off further support for Spain, saying that hard-working German taxpayers have already done enough. In a hastily arranged mini-summit, Germany, Finland, Austria, and The Netherlands announce that they will not renounce the euro as their joint currency. This only increases financial pressure on France, Italy, and the other members. As the reality of the partial dissolution of the EU sinks in, the financial meltdown spreads from Europe to the United States and Asia.
Investors should study history and get ready for a fast replay of a new version of European history during1919, 1931 and 1933 that could transpire quickly over the next year.
Whether the effects of a worldwide depression will again be countered by another world war (WW3) is the only open question facing the world today. The failed European Union is going down. Of course the power elites will attempt to use the real or manufactured crisis as a pretext to expand the EU, but don’t believe they will succeed. The speed of events and flow of alternative news renders their old style propaganda powerless to keep up with and control public opinion today.
“We are indeed seeing a latter-day replay of the infamous Treaty of Versailles debt load forced on a defeated German nation in 1919 now levied on the entire European Union and this time Germany will be the winner. Maybe the turnabout is fair play but the long-term consequences could be as tragic as what the victorious allies did to a prostrate German nation that led to the rise of National Socialism and Adolf Hitler back in the 1930’s.”
“As was the case in 1919, 93 years ago, the banks and the power elite are seeking profits, gold and wealth at the expense of bankrupt and defeated nations but this time Germany is getting it’s revenge. In 1919, the victorious and "righteous" allied politicians that had earlier forced the United States to enter the war in 1917 in order to forestall a German victory so the American banks and arms industry could get their loans repaid and avoid bankruptcy, are this time on the receiving end. Germany might bailout the EU nations, at the last minute, but at the price of their gold reserves, control over economic policies and veto threat even over elections in the individual nations.”
“In May of 1931, the historic Credit-Anstalt Bank in Vienna, - now called UniCredit and based in Italy- founded by the Rothschild family in 1855, collapsed, - as will UniCredit do-. This in turn caused banks and companies across Europe to go under in a domino inspired panic. This collapse destabilized Europe far more than the Wall Street Crash of 1929 and over time destroyed European confidence and belief in political and financial institutions. The result was the rise in nationalism, fascism and ultimately World War II.”
“Americans don’t really know European history but the people of Europe do and this is why the elites are so determined to avoid another banking panic and collapse at any price. The problem for them is the expensive bank bailouts may well bring an even more destructive threat to Europe hyperinflation. Again, we know what happened in Germany.”
“The EU and the banking elites may well succeed in their efforts but the losers will ultimately be the sovereignty of individual nations and the wealth, freedom and prosperity of Europe. This problem will likely jump the Atlantic and an inefficient fascism like what took place in Italy combined with a nationalistic foreign policy like the German Reich does not bode well for the United States.”
Count on; European bank and stock exchange closures, private gold confiscation, limitations on ATM and bank account withdrawals and international wire transfers, that also will happen in the United States. The people of Europe and America will lose their wealth-security and preservation of purchasing power. Only precious metals and none exchange traded private equity opportunities will provide unique market opportunities.
Suggestion: Take action today and buy gold and silver, because this wil not end well for Europe or the United States.
Note: Many years later, Merkel, who has withdrawn from politics and become a recluse, is asked whether she thinks that she should have done anything differently during the EU crisis. Unfortunately, her answer comes too late to change the course of history.
By Peter B. Meyer – 9th of June 2012
The breakdown in the EU could happen fast. It is just a matter of who is to leave the Euro first, for two years the talking was about Greece that should have defaulted in 2010. But now the Spanish Banks are under fire, as a result of the huge real estate disaster. The banks own about 70% of the unsold real estate, from which over 50% is not even finished. But on their balance sheet these houses are hardly reduced in value, at least not to real market value, which actually is over 50% lower. When they would have done, as they should, almost all Spanish banks are broke.
The Spanish bank Bankia -the fourth largest- and the first one in a long row to go broke was consequently taken over by the government, while denying reports of a bank run. Spanish Secretary of State Fernando Jimenez Latorre denied the rumor that €1 billion have been withdrawn since the bank was taken over by the government. Bankia shares fell as much as 29%.
When government officials deny something like this, it usually means it's true. The bank's president, José Ignacio Goirigolzarri, said in a statement to the Madrid stock exchange, "Depositors at Bankia can be absolutely reassured that their savings are safe." Of course, all the financial news sources agree: But as valid proof, stock prices are falling due to Spanish banks.
Greece is out. Spain is now "the most important country in the world." It stole the title from Greece because the financial press is screaming most loudly about Spain these days.
How do we know Spain is about to collapse? For one thing, the prime minister said he's not going to allow it to happen. In an unprepared news conference, Prime Minister Mariano Rajoy said, "We are not going to let any regional government fall, or any bank fall, because they can't… If that happens, the country will fall." This is sort of like when a government says it won't devalue its currency, and later it does. They wouldn't say it if it weren't about to happen. It's like saying, "The check is in the mail." Rajoy might as well have said, "Spain is toast." His comments, believe it or not, are an attempt to calm a worried market.
So the EU blew up much worse and more rapidly than many expect, it actually stayed on the brink of disaster for too long. As Spanish banks factually were in big trouble already long ago. Not only are they sitting on a mountain of distressed real estate loans, but now their depositors are fleeing in droves too. The only place Spanish banks can turn to replace this lost funding is the ECB. Consequently the ECB is printing more Euros.
Spanish banks, in turn, are propping up the Spanish government by purchasing Spanish government bonds. Meanwhile, the Spanish economy is unraveling at the edges. It has many unresolved issues. A backlog of mortgage-related losses lurks unrecognized on the balance sheets of Spanish banks. The restructuring of the Spanish housing bubble has yet to begin. Housing prices remain at levels far above what would be justified by Spanish incomes and demand.
To highlight a shocking figure: 80% of Spanish household wealth is in real estate. And 24% of households own second homes. So when -not if- housing prices fall further, this decline will crush the rest of the Spanish economy.
The new government can make heroic efforts to cut spending. It can also push to reform the highly rigid labor markets. But these efforts will fail to get the country out of its hole. Support from the ECB is the only force propping up Spain’s teetering tower of debt. Carmel Asset Management estimates Spanish banks are undercapitalized by €200 billion, or 20% of Spanish GDP. This situation is screaming for a bankruptcy and debt restructuring. The Spanish economy will not rebound until its debt is restructured.
Unlike Argentina, which could seal its financial borders, and rob its own people blind, the whole point of the European project is that the borders are open. And the more Spain and Greece try to keep money in their respective countries, the more people with money are eager to leave.
If Greece or Spain leaves the EU, it will be a disaster for everyone. If at the other hand Germany leaves, it will merely be a surprise. No riots. No revolutions. No currency debacles. The new deutschemark will go up. The euro will go down. Problem solved.
Disasters seem to take longer than you expect to start, but gradually it moves faster than is anticipated. Remember the dot.com blow-up in 2001. One could see it coming for years. Then, when it happened, it blew up fast. So too the collapse of the housing industry was visible long before it happened. And then, when the catastrophe began, it went so fast, one couldn’t keep up with it.
“You don’t have to look very far ahead to see what would happen. Just wait ’til people start lining up in front of the banks to get their money out. If you were in Athens and you saw people lining up to get their money out of the banks... wouldn’t you get in line too? Most people would. And the banks don’t have enough money to honor all those depositors’ claims. So the banks have to go broke... and the whole thing falls down hard.”
The only way to protect your wealth now, is buying gold and silver immediately, before everyone else is doing it and prices rise sky high.