The eurozone crisis: What's it all about?

The lesson of past crises is that if a country can't pay its way in the world and is running up larger and larger debts, it doesn't matter much who is doing the borrowing. Sooner or later the problem is going to come to a head


And thats what Brown and ZANU_Liebour tried to do in the UK and also try to get the rest to copy so that he could say that he had saved the world.

BUT what he actually did was make this much much worse in his attempt to buy and election with false promisess

During the Blair/Brown era we managed to pay off our Second World war loan to the U.S.A. but no-one seems to mention this, isn't just political speel that all new governments say the others have left a mess, ( i.e. the new greek administration ) however it appears to have backfired and caused a euro crisis. Dave and the gang just jumped on the band wagon and though I hope it doesn't prove to be the case seem to be going back to Mrs T politics of looking after the rich whilst blood letting the poor again. I don't believe we have a cash crisis. when general taxation goes up to 35% and higher. Vat goes up to 40% then I feel we may have a crisis.

Eurozone is a part of the global economy which is an investors economy. The undermining of national production and turning everyone into a worker bee subject to the whim of investors was a pig's ear sold as a gold purse. The investors (banking and financial services) devised a scheme that was good for them and no one else. A fundemental resturcting of financial services will be needed to creep out of the current crisis, but with the bankers holding a gun to every governments head that is unlikely and the minor reforms that have been touted have not changed much at all. The separation of financial services profit from national production has created a predator buisness that can do very well by undermining national economies. There is a lack of political will to change any of this and the problems will continue until governments are willing to take on the banks. The banks are now claiming stress problems, in other words, the money they took from the taxpayers and the bad loans they gave to the taxpayers still do not provide investors with the obscene profits of the past. The banks certainly have not done anything to grow the economies as they are doing well living on the interest they are charging governments to finance the debt the banks created. The country that resolves to treat the crisis as a crisis and bring the debt as a national loan with no interest financed by the government and not the banks will move forward as the banks contribute nothing and only take from the existing process and thus the taxpayers. They should have been allowed to fail and things would be better now. The entire rationale for bailing out the banks has proven to be unsupported and was nothing more than a transfer of wealth upward to make sure the wealthy were not harmed by the gambling of the bankers.

I can tell you what it's about: devaluing the Euro to assist exports, reduce debt, and hurt speculators. Otherwise, it's all fictional.

Now, back to USD and Sterling.

how about you and robert report the end game.
The USA is going to explode as all the debt and financial theft has been offloaded onto the tax payer, jobs are diminishing at a huge rate, gdp is dropping through the floor. This is bad enough if UK PLC was in a good state, but the UK has maxed out its credit card and offloaded the debt of bailing out the banks and financial institutions onto the public. So we are now paying for this with inflation, currency devaluation and stupidly low interest rates for the prudent, a city that is let loose to do what it wants with our pensions , regulators and various other quangos who dont do anything, or make the occasional noise to make it look as if they are doing something.

IS the end game the US dollar no longer the world currency, will gold come back into vogue , there is too much evidence now pointing to the great depression 2.0 with bells on, so you two give us an alternative, instead of the tory vs labour false option as if we have a choice because they are both the same really serving the same purpose.

Is it not time to try an alternative rather than the same old rehashed growth and debt based system and trying a brave system ?

It is likely that Germany is the only truly strong economy in Europe and if that is the prerequisite for Euro membership then the Euro must fail.Even with its strength however the German economy has it's fault lines with an over protected and over regulated market and a highly exposed banking sector that due to the characteristics of the German economy (strong export led balance of trade surpluses) and a national propensity to save money rather than spend is forced into its position of banker to the other weaker European economies to avoid being cast as an outsider by it's very success. Hence what we have is where we are at today. What is missing amongst the other Eurozone countries is the determination to use the safety net of German support to reform their productivity to enable the public spending levels needed to provide the social infrastructure that provides for an agreeable environment and social solidarity that they desire. For all the rush to balance the books real progress will only be made by economic progress in providing the goods and services that the rest of the world and Europe itself needs. The difficult part is that growth now needs to recognise the need to manage the use of resources so that the environmental impact is sustainable in a way that it currently is not. Big challenges that call for real leadership and common vision that goes well beyond the current backward looking rush to re-invent the recent past, with all the promise of certain failure that that plan holds.

Hey Stephanie, you're back and with you the "Eurozone crisis" a la BBC! No word ever from you about the crazy private debt bubble that the UK has created and keeps inflated at literally any cost. That is nothing to worry about, is it? No of course not! As far as you are concerned, the crisis is always elsewhere! Sounds very much like good old Gordon Brown to me...

Stephanie wrote:
"The lesson of past crises is that if a country can't pay its way in the world and is running up larger and larger debts, it doesn't matter much who is doing the borrowing. Sooner or later the problem is going to come to a head."
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Where is your critique of the relevance of this when it comes to UK personal debt?

No way. The BBC won't mention private debt, because they are paid by the government. The government won't mention private debt because they are comitted to a Western ideology that has long since died. What a tragic and hopeless scam.

Eurozone crisis? Fiction.

I will get to cause in a minute.
But for those of you that are lamenting the Euro, don’t bury her yet; she's not dead.
See the lid rising?
The Euro rises!
We have the Reagan-Greenspan-Chicago school of fantasy.
We have Dominique Strauss-Kahn and the austere policies of the IMF.
We have Jean-Claude Trichet running the European Central Bank, and doing it quite well.
July 12th, 750 billion to perhaps a trillion euros is to be committed to back the worth of the euro. This is not— as media-hyped – a “bail out”.
It is the EU and the IMF standing behind the repayment of bank loans to sovereign debtors, which of course means Governments.
And guess what happened then?
Interest rates neeed for those loans slipped and slid down the capital slide, staggering the western world with its speed.
As for the cause: loads of US derivative and negative credit default swaps (toxic). There would have been no Greek crisis if international traders had not deliberately set out to undercut markets, drive Greek loan rates sky-high, and get rich quick on sovereign debt. (Do I have to name the Anerican companies, or do you know then by now?)
Greece did not invent the world crisis, nor did Portugal, Spain or Italy.
They got fleeced.
The guilt lies with the United States, the source of those wild west gambling toxins called derivative swaps; and of course, that neat game of betting against soveriegn debt and oh yes, selling short.
The United States is a country without financial regulation, and don't let the lastest bill fool you - nothing tough about financial regulation in that thar bill.
The United States is a country that never even tried to implement Basel 1 or 2. I wonder what it will do with 3. Whatever it does will not be spelled I M P L E M E N T.

#2 donald johnson

Its not 'Dave and gang' going back to Thatcher's era, that's where it just started. It was Keith Joseph (Thatcher's ideological mentor) who spawned the laissez-faire doctrine.

You have so much to learn about the people that 'run' this country...

You MUST read the article in the link below to understand the background to your understanding.

The influence of intelligence services on the British left
https://www.lobster-magazine.co.uk/articles/rrtalk.htm

Note who wrote and published the article.

It's all about Libertarian free-market anarchy and it's not only an ideological doctrine espoused by the Labour Party. It's all about PROFIT AT ANY COST. Its consequences will destroy the very fabric and society of this country.

Look beyond the propaganda of the so called 'free press' and media.

Did you notice that Stephanie's last post was originally titled something like "Can the OBR be truly independent?" but then it was changed and became titled "Can it live up to its billing"?

Clearly someone in MI5 threatened to do a Lady Di on her, and now we have some propaganda about the Eurozone to help make amends. Don't worry though folks, the next post will be titled "Is Brussels run by Communist space aliens?" and then we'll have something serious to think about.

"Brussels wasn't too worried because most of those deficits came from private borrowing, not governments."

So... The most important problems were the property booms in the Mediterranean countries. How much of this was the fault of the natives of those countries, and how much the fault of Northern Europeans buying into the Mediterranean property boom, pushing prices up and up? How much of the problem was the British exporting the latest "British disease" - the insane belief that property is always a good investment and prices only ever go up?

Europe-wide, there needs to be concerted effort to crush the property bubbles. Relaxation of unnecessary planning regulations, punitive taxation on multiple home ownership. Bring house and land prices down to what they were twenty years ago. Never mind that some "investors" will lose their shirts, never mind that a few banks will go bust (so long as the owners and creditors of those banks take the hit rather than taxpayers). The alternative, a period of ever-escallating austerity leading to a 30-style depression is far worse.

The construction of the Euro was all smoke and mirrors. If monetary union was set up properly you would have had political union first. Then a central bank with proper reserves and regulations (as the USA) with each Eurozone economy properly accountable to that central bank.

What we had instead was a union based on the credibility of the old Deutschmark. Once Germany hesitated to support Greece that Eurozone concept was in trouble.

The problem is the core hard currency countries can survive a union but not countries that can't compete.

Does anyone remember we had 12 D-marks to the £ in the 60's? By the 80's I believe we were down to 1 or 2 D-marks to the pound. That's how competitiive Germany is. No wonder the rest of Europe cannot keep up. The basic foundation is flawed even if the objectives are exemplary.

Contrary to some of our bloggers who keep dredging up how dreadful the banks are, this is nothing to do with banking. The issue is the set up of the Eurozone which was too simplistic and naive.

Let's scrap the United States of Europe and all the bureaucrats it's created and get back to a Common Market of competing nations, each with control over fiscal and monetary matters!

Net Investment Position as % of GDP
(negative is net liability position)

Portugal -112%
Spain -94%
New Zealand -89%
Greece -82%
Ireland -73%
Australia -52%
USA -24%
Italy -19%
France -18%
UK -13%
Russia +15%
Germany +37%
Japan +55%
Switzerland +123%

For every debt there is a creditor.

The excessive levels of debt are just a symptom of the underlying imbalances in the world economy
- imbalances between net importing nations and net exporting nations
- imbalances between rich and poor within each nation
- imbalances where more and more money is sucked into the finance sector creating asset bubbles
rather than being used for trade or genuine investment.

There's no point fixing the debt without fixing the imbalances. Indeed it's impossible. We need to redistribute the wealth and wipe out the debts. Wars and depressions have forced wealth to be redistributed so in the past, but there are better ways. Taxes on wealth, exchange controls - they may seem extreme, but not compared to the alternatives.

Would it be fair to say that the Eurozone is now in more of a mess as the USA and ourselves? Or maybe even worse than just 'more'? Because the real debts in the Eurozone are so much larger - mostly their pensions are unfunded, there are declining workforces and growing armies of retired. And electors with a strong sense of their own entitlements.
European Banks that are indebted with loans that may never be repaid in full. And, unlike ours, with no means devised yet to rescue them.
Just as well Britain faced up to the excesses of The City more than a year ago.

Re NIIP: I think the IMF and World Bank are arms of the US government. They are artifacts of Bretton Woods, and they are part of an administration that relies on the USD as centric to international finance and trade. These entities, in my opinion, want to disarm states and undermine foreign currencies. I think they have to, it is their mandate.

The IMF would even short gold if it seemed necessary (is that not a little familiar?)

This is why the NIIP datasets are not available too easily.

https://i.imgur.com/xeRyl.png

#14. dontmakeawave wrote:

"...a central bank with proper reserves and regulations (as the USA)"

So what you are saying is that the ever so well regulated USA did not have a backing collapse, California is not almost bankrupt and the Saving and Loans crisis, AIG and Lehman's did not happen! You are I am very much afraid not making a valid point. All you are trying to do is the irrationally and illogically rant against a rational of a single currency - you arguments are specious and void. Your anti-Euro bigotry is just laughable.

You write Stephanie:-
"The lesson of past crises is that if a country can't pay its way in the world and is running up larger and larger debts, it doesn't matter much who is doing the borrowing. Sooner or later the problem is going to come to a head."

I just do not understand this. If the debts are private and denominated in EUR how can it possibly make much difference whether the debtor resides in Greece or Germany? There might be a loss of current government revenue due to loss of taxes, if the debtor is bankrupted, but there is no reason why a government should take over responsibility for private debts.

Could you possibly explain the "lesson of past crises"? Past crises usually involved trying to prop up a particular currency when net debt over the whole currency area was too high, not debt in just one part of the area.

Surely the "Eurozone crisis", exists in its own peculiar form because of one thing only. The ECB was not allowed to intervene by open market operations to support Greek public bonds, as any normal central bank would, and the financial world expected it would. A quick agreement by the Council of Ministers that this should be allowed as an emergency measure, would have averted the crisis. An declaration of intent to permanently plug the hole foolishly left in the euro system would also have helped.

The German idea that saving is always good and borrowing is always bad seems naive. Just as net borrowing over a currency area will tend to depress the currency's exchange rates, net saving will push them up. What would then happen to German exports? The fact that there are southern Europeans wanting to borrow German savings also keeps the interest rates the savers receive higher.

Euro-zone crisis - what crisis and more importantly who benefits from the so called crisis?

Consider the lives of a speculator and the way that they make business by betting against things, being contrarian. What they do is to manage expectations so that their profitable outcome is the one that happens. This is the Euro-zone crisis (mainly). The banks want there to be a crisis because that have both speculated on the Euro bond market (in London) in such a way as the generate a crisis and benefit from one.

I would not go so far as to say there is not a crisis, but there is far less of a real crisis than they would have us believe. We (and the news media) are being manipulated.

If the Euro dies, the World will collapse into a catastrophic depression - is that what we want - I rhetorically ask the bigoted anti-Euro idiots? It is vital to the World that we make it work - however this is a battle against the banks - so nearly the destroyers of the World in 2007 and we will not be defeated - they will lose. We have beaten them once and we will do it again and they must understand this or perish. The banks will be broken up and their absurdly irrational deals and pay structures will be decimated.

We cannot permit the banks to gain a massive extra hold and profit from inter-currency transactions we have to fight for the Euro and against the banks. Condemning the Euro is supporting the banks make no mistake about it. Banks used to make both huge speculative profits and commissions from exchanging the old currencies we must not let them gain the upper hand and steal our money again. This is a battle to the death it is either them, or the people of Europe and the World. They must be made to understand this, or be forced to do so. The anti-Euro bigoted buffoons, Colonel Blimps and neo-xenophobes must also understand that they too are working against the benefits of everyone and doing the work of the banks!

To 17. At 9:55pm on 12 Jul 2010, leftie wrote:

Would it be fair to say that the Eurozone is now in more of a mess as the USA and ourselves? Or maybe even worse than just 'more'?

------------
YES They are in more of a mess and it is far worse. Each country is sovereign but NONE of them control their own currency. They are in a straight jacket, each and everyone of them. The currency is run by unelected appointees

UK and US and AUS are all fiat currencies. Each currency is issued only by the sovereign government. They have measures they can take that are not open to the eurozone. The name fiat sounds frighteningly Italian, but it helps us. Eurozone countries could go broke if not assisted by the others (known as Germany). We CANNOT go broke, other nasties like inflation , falling exchange rate etc can and might happen, but we cannot go broke. UK government economics is NOT THE SAME AS HOUSEHOLD ECONOMICS.

Trouble is UK banks are financially linked to Eurozone banks so some of their problems can become ours too. Cut, slash, burn won't provide a solution. Time is needed for financial positions to unwind, growth is needed to provide the funds. Current policies are taking economies into contraction. So we will all suffer ..............

PS What is happening to EU expenditure in all this?

Does anyone know? Ooops, does anyone care?
[I do, but in this brave world the individual counts for absolutely nothing. Learnt that from this governments treatment of its ex-employees who are now pensioners and their equivalent private sector pensioners. Now only actions count and we can learn from them; soft soothing words are meaningless, actually perhaps they are inflammatory]

Is it roughly static, going down or up? What's happening to our conrtibutions?

Is the EU devising AND implemting austerity measures? If so, what are they please, anyone know of a useful hyperlink?

Dear old Dormouse

A country is broke if it can't afford to pay for its necessary imports.
Is the UK self-sufficient? (If so, why were the U-Boats a menace in WWI and WWII? Why is RPI currently over 5%?)

Make do and mend.

Frank

Thanks for posting the NIIP chart.

#24 MrTweedy

I agree if no-one will accept your currency at any exchange rate and your debts are denominated in other than £s.

But what are our debts denominated in? I thought that the majority >80% was money loaned by UK pension funds etc that is in £s. All this can surely be repaid! To do it all at once would cause rampant inflation, but much of our debt is long dated giving us time to recover and pay it off IF we maintain productive capacity and output. Current policy does not seem to aim in this direction

I totally agree we MUST become less reliant on imports. We need to invest in the private sector for this to happen. But the governments drive to reduce deficits is actually squeezing the private sector and reducing both its abilty and willingness to invest! The private sector invests to sell into both the UK and foreign markets, rarely just into one exclusively. Current policies in UK, eurozone etc will only reduce the demand for our goods and services so we will go further into the mire.

I wonder why inflation is so high with demand increasingly depressed and unemployment rising, but consider the 5% inflation figure; it reflects, in part, a rise in house prices over the last year. In my expectation, house prices are likely to fall over the next 2 years or more. The CPI is currently a better guide to inflation. Some comes from the lower value of the £, some from industry trying to get profit where it can as it can see whats coming. Would I be right in thinking that the banks have held onto the QE money to re-build their balance sheets? So I suspect underlying inflation is actually lower than the figures indicate.

We import a large % of our food, so why is the government not doing someting to increase our food security? In my view, this is just as big a threat as terrorism. We import the raw material to generate energy, but we have a large supply of coal -politically unacceptable to use, I know - which could be used to secure our energy needs. Or we could be investing heavily to look for and develop viable alternatives. Not a lot is heard about any of this to reduce our dependence on imports fundamental to our way of life.

I wonder why?

well to my mind (and we will never know all the shenanigans that go on out of sight) yes the IMF is the USA and in order for it to get anywhere near paying off its debts it needs to raid other countries ie Europe, thats why BP is getting disembowelled as we speak, because if not it only has two options

the German post world war 1 route or WW3

see marc faber's most recent interview here
https://www.youtube.com/watch?v=DA0FsqMlhF0

if the link doesnt get through google the MArc faber blog its on there

MrTweedy

I don't mind make do and mend if there is no alternative, but all lines of communication of all types are open. I think we have alternatives

Being political, I just get this feeling that the general public is being ripped off, had for a sucker, as we swallow the mainstream economic theory and its proposed solutions. We, the people always come out on the downside where others have created the problem. Those others seem to come up smelling of roses, whilst the general public land in the poo. The poo is spreading higher up the income scale. I would like to see this reversed. The current paradigms aren't working for the general public so I am asking questions, seeking an answer that is different and will change the outcome for the majority of the people of this country. I don't want a revolution, I just want fairplay

If one way of doing a job doesn't work for you, you change what you are doing and try to find a different, better paradigm within which to work. We have been ill-served by current policies, please can we have something better

If not I want to see those that control our economy hog-tied in regulation so that they cannot reproduce this crisis or any other. Shame if they leave the UK, but maybe we will be better off in the long run

Sorry rant over

romeplebian #27.

"..or WW3"

hasn't it (sort of) started already?

https://www.energybulletin.net/node/7707

"A country is broke if it can't afford to pay for its necessary imports.
Is the UK self-sufficient? (If so, why were the U-Boats a menace in WWI and WWII? Why is RPI currently over 5%?)" [MrTweedy]

It doesn't really matter if we are entirely self sufficient, so long as we can control inflation. We are not broke in the UK because a sovereign nation cannot become insolvent, but our affluence is limited to the resources, goods and services we can produce.

Everyone is obsessed with export potential, but replacing imports with something home-grown is actually more important, as it protects us from 'supply shocks' and imported inflation. This 'replacement' needs investment, yet without it we are far from 'broke'.

The RPI is high because we have a shortage of 2 Million homes, and this is made worse by property speculation. The underlying rate of CPI (ignoring tax changes like the end of the VAT stimulus) is very low, and the austerity measures are likely to cause underlying deflation, not inflation, but this will be obscured by the Coallitions increase in VAT - always look at the underlying figure.

The coallition will also seek to undermine the 'automatic stabilisers' like JSA to disguise the fact that their policies are pro-cyclical.

They will probably seek to hide the homelesness and suicide figures too!

Hey, I'm not a labour activist or anything, but all the political parties need a good kick - let's burst all their respective bubbles.

Kind Regards
Charlie

As ever, this is an interesting and excellently written piece.

However, it strikes me that the media in general are underestimating the true nature of the economic crisis that we are barely in the middle of. Indeed, there is a speculative air of wishful thinking in much mainstream media commentary that is homogenous to the extreme, that doesn't seem to spell out the dire state of the global economy and hopes that, somehow, somewhere, the status quo can be restored with a few minor tweaks here or there to the global financial system.

Only a couple of months ago, a leading US economist stated that the market is now perfectly positioned for a massive dollar sell-off. The fundamentals for the dollar in 2010 are so much worse than they were in 2008 that it is hard to imagine a reason for people to keep buying once a modicum of political and monetary stability can be restored in Europe. Worryingly, this was prediction was made just before the Euro started to falter.

Meanwhile new bubbles are forming all around us, in the commodity markets, in Hong Kong real estate, in the troubling data coming out of China and other Asian economies, all just waiting to buckle. Can you say Dubai? Greece?

It is a shocking state of affairs that that could yet plunge the global economy into something that would make the last couple of years look like a sweet sail in the doldrums. And yet in the mainstream, the true gravity of the matter lies rotting under the carpet, whilst the corporations and the media lie as awkward bedfellows in post-coital embrace as the house burns down.

Like Alcoholics Anonymous, the first step in battling such a situation is recognisance. To stare into the mirror and understand the damage that has been done and put real measures in place to tackle the profound structural issues. The media is our mirror and yet, at present, it is more Barnum and Bailey hall of mirrors in an horrific chamber of horrors.

I do not include the BBC in my criticism here. But I do feel that the BBC could lead the way and help to establish a new narrative that is fundamental to getting to the heart of the issues and challenging the system. After all, which other media organisations have both the clout, pedigree and capital to both inform, catalyse and guide.

Speculators never like the idea of the reduction in the number of currencies. It reduces the opportunity for what they do: speculation. So, in substitution for all the funny currency names (Mark, Peso, Franc...) they substitute the names of countries and say "oh look, thisland is doing badly compared to thatland" instead of "thiscurrency is doing badly compared to thatcurrency". The need is for real or imagined differences upon which to base a bet.

The game is speculation. If the eurozone economies stood up to the speculators as a single group there would be no problem. The US Dollar spans fifty different states and manages to avoid such speculation (although California might suggest that speculators are playing each state off against the others).

The speculation is that thisland (or thissector if you want to just look at the UK) is not as productive as thatland and so speculators are entitled to thisprofit from thatland. The endgame is that currency has become a commodified fiat entity controlled by markets. As such, no economy (from the household, to the small business, to Cadbury's to nation states) can actually plan. The Market - and speculation - refuses to allow it. Otherwise there is no profit.

The crisis is that the markets no longer have a place to make profit and so are attempting to invent instabilities. The problem with the Euro is - like the Dollar - it is "stable". In order to speculate against a currency there needs to be an instability. For the dollar, received wisdom is that Oil provides an excellent dollar investment opportunity. Oil creates an instability. The Euro - being based on sensible production, manufacturing and "traditional economies" is too tediously stable.

The crisis is a market invention: creation of instability in order to make a profit.

#12 >>Don't worry though folks, the next post will be titled "Is Brussels run by Communist space aliens?"

Please, what have "space aliens" done to you that you have to malign them so ?? Space aliens are nice, wrinkly, brown men with special powers in their knobbly fingers. Hollywood said so, therefore it must be true !! ;-)

#13 >>"Brussels wasn't too worried because most of those deficits came from private borrowing, not governments."

He, who does not learn from history, is doomed to repeat its failures !! Massive private debt was what caused the Asian Currency Crisis of 1997. Did any minister of finance or Chancelor learn that lesson or did they went ahead and encouraged the same to happen here in Europe ??

Of course, Our former Glorious Leader will trot out the hoary, old NuLabour spin and bleat about "lessons have been learnt" but from 1997 until his downfall, he did exacty what he should not have and encouraged a massive property and spending bubble that led to a massive private debt problem !!

It took the Asians 10 years to recover from that mess and, *NOW*, "wise" men, and women (not to be sexist), are bleating about "recovery", a year or two from the Crash, when they have not even started to clear away the original mess !!

Truly, hope springs eternal in the (foolish) optimist's breast !!

#14 >>Does anyone remember we had 12 D-marks to the £ in the 60's? By the 80's I believe we were down to 1 or 2 D-marks to the pound.

But, after Reunification, the D-mark went down again and the Germans were loaded with debt that they are still paying off !! Then the Euro "happened" and the rest, as they say, is history !!

I don't understand your (or is it the BBC's?) refusal to relate any this to the UK's personal debt crisis.

Right now, we're still living with Labour's attempt to keep the failed old economics going, by redistributing wealth from the prudent to the reckless: hence the ultra-low interest rates that are stoking up inflationary pressure and punishing savers. Trouble is, the public sector debt is about to be transferred to the (already heavily-indebted) public - because there's no-one else to pay for it.

So, the government can choose our end-game:
(1) low interest rates, low growth, high inflation - followed by a huge Greek-style implosion OR
(2) rising interest rates, personal pain and insolvencies, lower inflation - and fingers crossed

But either path brings pain: higher taxes, lower government spending (sooner or later), and rising unemployment. Perhaps we shouldn't have borrowed all that money in the first place...

#26 >>We import a large % of our food, so why is the government not doing someting to increase our food security?

Answer (sort of): When was the last time we grew lots of strawberries in winter ?? Where were the last banana and pineapple plantations in Britain ?? Or oranges, for that matter ?? Does this answer, in part, why we import food ??

Even locally grown food are grown by imported labour !! Asking rhetorical questions is easy; getting people off their collective rear-ends to grow food, is a different kettle of fish. And please don't mention the fish(ing) wars !!

#36 >>Perhaps we shouldn't have borrowed all that money in the first place...

It's always easy to be wise after the fact. Or, as our American cousins are wont to say - when it comes to hindsight, everyone has 20/20 vision !!

The question now is - what to do with the massive accumulated debt ?? Those who insist on a debt cancellation forget the fact that the creditors will not easily forgive and forget !! Once your credibility is lost, they will not want to lend you any more. Without the means to fund the extra spending, how will the situation continue without a huge shrinkage ??

https://news.bbc.co.uk/1/hi/business/10606475.stm

Oooh, it looks like lessons have been learnt !! Still, it only took them slightly more than a decade to get to say this. Perhaps, we might see some actual results in the next decade or so !!

Meanwhile, back to Club Med and their borrowings.....

While private debt levels are so high, unemployment will rise and a reduction in the overall circulation of money follows. The effect is a diminished ability for base money levels to have a causal impact on the general economy (supply increases don't affect reducing demand).This means the central bank does not have much power to do anything.

CPI Inflation as a result of GBP declines would only exarcebate the deflationary effect of deleveraging. Prices would rise but unemployment would rise too, as UK businesses would have a decreased demand on goods, while money circulation continued to go into deleveraging.

Austerity measures only serve to temporarily stave off speculative attacks on the GBP, to avoid this kind of CPI inflation.

Ultimately, the government will have to acknowledge that the only way out is through state investment into technology and a seizure/regulation of banks.

Private debt levels can be reduced directly by altering the ratio of interest payment to principal repayments. Banks can be operated at a loss, and can be downsized accordingly.

Anyone remember the european exchange rate mechanism disaster? Proof that the single currency across europe would never work, if ever there was. Debt has been growing exponentially since Nixon abandoned the gold standard in 1971 to print money to fund the Vietnam war, and so has the monetary supply because it is "loaned" into existance. All governments have been doing the same for decades, although this was disguised here by the Thatcher government selling the family jewels in the 80's. We are now reaching the end game as the level of growth required to pay the exponetial growing debts will have to be even greater. The only means of achieving this is by borrowing even more, which is how we got here in the first place. The problem is the money supply is created as debt. Until we do something about this, it is simply no longer fit for purpose and there is NO SOLUTION.

#14
"Let's scrap the United States of Europe and all the bureaucrats it's created and get back to a Common Market of competing nations, each with control over fiscal and monetary matters!

Won't work. Hasn't worked (remember EFTA).

Countries cherry pick what they want and it all falls apart.

Full speed to fiscal and political union.

#41. Averagejoe wrote about the

ERM

I think you will find that the ERM was so constructed that it made financial institutions sure of making vast profits. It was set up by bankers for them to safely make money from the people! Well, if this wasn't the case could they possibly have constructed any safer and more secure way of making money by speculating in currencies!

The only way to switch currencies is to do it. You can't sidle up to it precociously and bashfully and dally - for all that does is let the gamblers (bankers) win. This, by the way, is exactly why Gordon Brown's 'test' and 'when the time is right' for joining the Euro were never intended to be anything of the sort.

He was and indeed still is on the side of the bankers. They need to manipulate and charge us for currency exchange to make profit for themselves. (And this continued economic inefficiency and barrier to our trade is why we must join!)

Ed Balls was asked on Radio 4 this morning about the total debt of the UK and its growth over the years. First of all he reacted as if this was a question that should never be put to a politician but then said private debt was nothing to to with government.
Not even an admission that the results of too much debt is a problem for government.
Again a denial (or plain ignorance) of the history of many a crash or depression.

42. At 09:21am on 13 Jul 2010, Richard Dingle wrote:
#14
"Let's scrap the United States of Europe and all the bureaucrats it's created and get back to a Common Market of competing nations, each with control over fiscal and monetary matters!

Won't work. Hasn't worked (remember EFTA).

Countries cherry pick what they want and it all falls apart.

Full speed to fiscal and political union.

Couldn't agree more.
And, let's finally get over our insularity by joining Schengen and accruing the benefits of doing so.

20. At 10:06pm on 12 Jul 2010, John_from_Hendon wrote:
"You are I am very much afraid not making a valid point. All you are trying to do is the irrationally and illogically rant against a rational of a single currency - you arguments are specious and void. Your anti-Euro bigotry is just laughable."

Sorry, I am pointing out the Euro was poorly conceived - what's irrational about that? The evidence is plain to see. All I did was suggest a better approach.

Perhaps using the US treasury as a role model is not a good example but you need political control before you embark on an experiment the size of the Euro.

As to anti European bigotry, sorry, where was I anti European. All I said was get back to a Common Market! Is that anti Europe?

Specious argument? Because it doesn't accord with your rantings?

As to laughable, get to learn to spell and improve your English before you foam at the mouth about my perfectly reasonable argument.

Dear old Dormouse, Charles & Frank

In practice, I think we are in broad agreement.

(i) Britain is not likely to go broke.
(ii) UK exports will find it hard to grow, due to the constraints on European, American and Chinese consumers.
(iii) The UK imports around £460bn worth of goods and services per year compared to a total GDP of £1,400bn
UK exports are around £420bn, but partly depend on imports.
(iv) UK self-sufficiency can be improved, thus bringing imports more in line with exports.
(v) Government should on the one hand encourage and support investment in greater self-sufficiency, but must also support world trade through comparative advantage. World trade must be kept circulating, to support employment and affordability of goods and services.
Imbalances in world trade and capital positions will have to be reduced. This is best done in an orderly fashion through utilising comparative advantage. If it can't be done in an orderly fashion, then jobs and capital will be lost before the world economy will be able to recover properly.
(vi) Britain is a net importer of financial capital (£180bn net liabilities on its NIIP) but it earns £28bn annual net investment income on its position of net debt (the USA is the only other country in the world in the same position).
(vii) UK (and world) banking system has assets worth less than liabilities. Debt forgiveness via low interest rates on savings and high interest rates on loans will support the banks as they slowly mend their balance sheets over the next 10 years. This is as true of China as the UK, Europe or the USA. Quantitative Easing will also help fill the gap in bank balance sheets.
(viii) Finite natural resources are a constraint on global standards of living, unless technology delivers productivity improvements.
(ix) Structual unemployment will increase, because modern industries are less labour intensive. The labour intensive production that does exist has been outsourced to Asia. Therefore, employment imbalances exist, which are not easy to eradicate. Perhaps some form of job sharing will result (all UK employees work 3.5 days per week, with no formal weekends, but at least we all work).

In my opinion, anyway.

The Decline of the West...

Without strong cohesive forces,such as the rigid support once provided
by stable long-term employment, the slow decline of Western societies
is inevitable.

In the likely continuing absence of strong internal structures which
might arrest decline, possible sources of cohesion are of the rare and
violent type only:

External threat (one or more apocalyptic horsemen comes into view);

Radical internal renewal via large-scale social unrest, nb. not votes
for 'change'.

History tells us that empires decline and crumble because their
populations tend to lose collective discipline (internal cohesion) and
focus on individual gain. This is accompanied by a lowering of moral
standards in many areas of human behaviour, as seems to be happening
now in the West, as it did once in Greece and then Rome. For the
Colosseum read eg. Raoul Moat's death live on Sky; for Barbarians read
Al Qu'aeda...

Unless a severe threat emerges to wake up its population en masse, it
seems pretty clear that the West will struggle to maintain enough
cohesion in order to stop the disintegration caused by allowing
indidvual citizens too much licence to seek their own personal goals
without the limiting forces of powerful social structures.

The kids are now running the school, in other words, small wonder that
the roof repairs haven't been done, but there's plenty of crisps in the
vending machine, and pocket money aplenty, on tick!

In the UK especially, the govt. seems to believe that only by giving
individuals even more licence to seek their own personal gratification
can the collective good be served.

It's an interesting experiment, to be sure, but it appears to have
little rational justification. Scarcely a wonder, then, that most
serious economic commentators believe that we will get either
hyperinflation or severe deflation, plus widespread social unrest, or
war, before this is over.

It may take something pretty nasty before the majority of the
West's pampered citizen-kids wake up to the fact that the balance
between individual gratification and what benefits us collectively
needs to be radically changed from its current state (90:10?).

I do agree about freedom to devalue. I live in 'State' which I will call the two 'Duchies and an Earldom' which has a population larger than at least a third of the Euro States and about half of the US states. I think we should have out own currency, central bank, and all the rest (it will be called the Noble) and there is an excellent site for our Federal Capital in Warrington.

The currency/ immigration booths will be on the M6 just North of Stafford and we will collect an entry tax (for administrative costs) of Stirling 50 paid of course in cash in nobles. We will apply for membership of the EEA.

Our intention is to build a strong alliance with neighbouring regions to eventually create a the seven cities nation along our major east-west motorway.

John-from-Hendon "If the Euro dies, the World will collapse into a catastrophic depression - is that what we want - I rhetorically ask the bigoted anti-Euro idiots"

I am anti-Euro (at least for the UK, other countries can make their own minds up about), but do so on economic grounds - you may not agree with my version of economics but lets face it put 2 economists together and you end up with at least 3 opinions. That does not make me either an idiot or a bigot.

The fact that you descend to such name calling clearly indicates you have no idea what you are talking about.


Should the Euro die? There is no question that its collapse would be cause an economic tidal wave almost certainly fling the world economy into a second and even deeper rescession and is not something that I want to happen right now. Sadly in may well be the case that the Euro was doomed from its birth due to structural flaws - there is a decent argument that economically Italy, Greece, Spain, Portugal, Ireland and probably a few other countries should never have been in the Euro because their economies were just too different to the northern Europe powerhouses and totally incapable of competing. There are two ways around this, either people have to move around Europe much more than curently (as happens in US for example) or you move swiftly to full political union where taxation happens solely at a Euro level and is distribute in a way to smooth out the economic differences (in UK we try a bit of both solutions for example in Wales).

My best guess is that Euro politicians will use the Euro crisis to move to full political union. This is entirely logical but almost certainly will result in the UK leaving the revamped EU.

MrTweedy

I agree with everything there apart from perhaps vii) on banks, if I understand it correctly. As you know I think private debt is having a crippling effect now on things, and deleveraging must be facilitated.

This means for example that restrictions could be placed on the issuance of new debt (through for example mandates on higher deposits, collateral, etc), but interest rates should be reduced as much as possible - periodic repayments should remain high but they should be paying down principal.

In addition, in the 'good' times, the effect of debt was to detract from efforts towards your (viii): managing scarcity through technical generation of abundance. Debt simply allowed leveraged asset speculation to herd populations in specific technical directions with more intensity and severity. The insanity of dotcom would not have happened if it was not for the ridiculous amount of dollar liquidity sloshing around the world stage.

#47 MrTweedy. I am uncertain how you conclude that the UK (or indeed anywhere else) is unlikley to go bankrupt.

Global GDP is around $60 trillion (manipulated upward by a variety of accounting tricks) and global outstanding derivatives are somewhere north of $600 trillion - and growing by about $15 trillion per year.

Until someone explains what these derivatives are doing then all conclusions must be heavily caveated.

It is true that UK self sufficiency can be improved - but it is also true that policy has consistently been to achieve the exact opposite. Policy has worked very well - coal mining, fishing and farming all substantially destroyed. Maybe evolution will mean that people can eat derivatives.

High interest rates on loans and low interest rates on savings does not constitute debt forgiveness. It constitutes a mafia style enforcement operation.

By the way your assetion in #24 that "A country is broke if it can't afford to pay for its necessary imports" tells us substantially nothing.

Look at Russia - at various times in its hitory it dutifully exported grain notwithstanding internal famines. So Russia remaind solvent, but large swathes of its population died - what an achievement.

there are now a large number of people who are living 'outside ' the system .The black economy is getting bigger and bigger month by month with many cash payments and even the return of bartering,we are heading for some very interesting times.Stay single, debt free and work for cash if you can is the only way forward.

#22 John_from_Hendon. Ah yes the bigoted anti euro idiots. Look at Spain. To remain competitive in the euro zone it needs either price and wage falls of around 35% or efficiency improvements of around 35%.

How is it likely to achieve this? Oh OK it´s not - so the Spanish must adopt the role of human sacrifices. Any reticince on their part to be hurtled back into the 17th century merely demonstrates their bigoted and idiotic nature.

It is interesting to go back in time and look at causes of events. So your review of how we got to the eurozone crisis is likely to provoke soem thought Stephanie. However yesterday I did read about another contributor to the problems in Europe and this is the enormous amount of borrowing that went on in Swiss Francs by the countries of Eastern Europe.I quote from the notayesmanseconomics web blog.
"The scale of what has occurred in Eastern Europe and Iceland is likely to be a deadweight on their economies for some time to come...... Foreign-currency loans account for 91 % of total lending in Latvia, 87.1 % in Estonia and 71.8 % in Lithuania and in Romania and Bulgaria, they represent about two thirds of borrowing.......I have written today about the impact of these loans on economies and individuals but think of the banks which have made such loans"
I gather that Austrian and Nordic banks were particularly involved and hope that the proposed stress tests allow for this. For those interested this analysis can be found at https://notayesmanseconomics.wordpress.com

No.52 armagediontimes

You have not disproved the arguments.

Derivatives net off to zero.
Some derivatives are bad and some derivatives are good.
What value of derivatives can be cancelled without significant cost?
What value of derivatives cross international borders?
Who is likely to gain and who is likely to lose, and why?
Why did Russia export grain?

MrTweedy

More info related to NIIP: I just checked the CZ stats and found that in 2009 the IMF allocated 780,201,010 SDR (21,6bn CZK) to the CZ as part of a special one time allocation of SDR to all IMF member states. The current methodology is such that the CNB includes these as assets without any corresponding liability. This, if adopted across IMF members, may be distorting NIIP stats.

If only for the better, I DO hope it gets much much worse. TheGhostofSichuan hits the nail on the head. And God Bless your little cotton socks Steph but you and that other pawn Peston don't have the gonads to come out and say it.

We need to hit rock bottom so there can be a blood letting so the parasites can be the first die.

One day I hope we realize what a sham FIAT money is and how we have been suckered and stolen from by the financial institutions of this world.

https://www.cnb.cz/en/statistics/bop_stat/investment_position/index.html

#41 agree root cause is a massive increase in populations around the world and until some action is taken on that level there will be no solution but GAIA might enforce one through.

30. At 01:49am on 13 Jul 2010, Charles Jurcich wrote:
The RPI is high because we have a shortage of 2 Million homes, and this is made worse by property speculation.

I cant fault you on the second part re property speculators. However the first element is flawed. There are currently more than one million empty homes in the UK with an estimated further two hundred and forty thousand properties intentionally left dormant. If you were to add the number of second and even third homes in the UK the total number would be well in excess of one and a half million homes. You could then also look at the commercial / industrial empty properties that are suitable for conversion to dwellings which according to the last Government was equivalent to four hundred and fifty thousand homes. Along with the fact that we now have less immigration and also the number of economic migrants has supposedly fallen / decreased. The number of new homes requiered now in the UK is forty five thousand according to a number of economists, think tanks and even organisations such as Shelter.

So the issue we have is that it is currently beneficial to leave properties empty rather than rented or sold. There Is little if any encouragement to redevelop brown field sites and properties. Finally there is an expectation that everyone in the UK must have their own home. The thought of sharing a house appear s to be gone. Also there are now more single occupancy homes in the UK than anywhere else in Europe. It has been estimated that if properties were utilised better even just by 25% there would be an oversupply of properties in the UK. Currently in the UK more than one in five homes are single occupancy. This is predicted to rise to two in five by 2020 and to more than three in five by 2031. This is surely wrong and is putting pressure on our hosing stock. Peoples expectations are completely out of kilter with the reality. There needs to be a stop to the single parent gets a home mentality. There are too many genuine people who need help.

Stephanie, will you somewhere in your explanation of why this whole crisis happened be discussing the real lessons to be learnt.

Many non economists constantly warned about the 'ponzi finance' that became the normal western model. Even today President Obama and his advisers are stubornly sticking to their failed Mortgage scheme 'HAMP' that has cost $75bn to date and delivered nothing other than leave 800,000 US housemholds in limbo while another 4.5million face the cruel reality of their poor choices or bad luck.

Its funny how so often the lucky actually attribute their success to their superior intelligence while most losers attribute their failure to bad luck. Which begs the question if all successful people are smarter than everyone else and all unsuccessful people are victims of bad luck. where did all the fools go.


The rate of 'foreclosure' in the US is rising rapidly again and now 1 in 7 mortgages over $1m is in default. Not subprime, just impossible debts on properties worth 60% of what they paid.

Greece is bankrupt and will still default on its debt. Spain has 20% unemployment and will do well to avoid further collapse, Ireland is broke and have had a 50% crash in house prices etc etc etc. The housing crash is its way here now having stoppped off in about a dozen nations so far. This time we cannot print another £200bn.

I prefer to put my trust in common sense that stands the test of time.

"Bring your desires down to your present means. Increase them only when your increased means permit" - Aristotle

"Annual Income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual Income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Its different this time.

Wilkins Macawber - David Copperfield

Frank

Interesting that "the current methodology is such that the CNB includes these as assets without any corresponding liability. This, if adopted across IMF members, may be distorting NIIP stats."

My 'feeling' is that assets are generally over-stated relative to liabilities, and that negative NIIPs are really worse than reported. Your statement seems to be evidence of this.
However, because the USA and UK earn net investment income, their NIIPs are not an immediate cause for concern. However, only the USA and UK earn net income from a position of net debt.

I am interested in Australia: it has a relatively high negative NIIP ratio to GDP (around -67% for 2010, if my calculation is correct), runs a current account deficit and has a housing bubble where property prices are thought to be 40% over-stated. However, its unemployment is falling. Australia is successful in attracting capital inflows, as its interest rates are high, but if these inflows slowed down then its economy would falter.

Australia:
10 year govt bond yield 5.10%
Official interest rate per Reserve Bank of Australia 4.50%

" #47 MrTweedy. I am uncertain how you conclude that the UK (or indeed anywhere else) is unlikley to go bankrupt."
Indeed, he has probably not read Chris Martensons fine article on exponential growth https://www.chrismartenson.com/blog/exponential-money-finite-world/29744.
How anyone can conclude that the monetary system will continue despite these problems?

50. At 10:16am on 13 Jul 2010, Justin150, et al

Those that say the Euro is economically flawed are correct but miss the point.

The Euro is a political creature and a trojan horse for full fiscal and political union.

"My best guess is that Euro politicians will use the Euro crisis to move to full political union. This is entirely logical but almost certainly will result in the UK leaving the revamped EU."

Leave.

But bear in mind that the dominance of the City and inward investment (Honda, Toyota) is predicated by EU membership.

#56 MrTweedy. Do derivatives net off to zero? How do you know?

Take BP as an example. They have a lot of dertivatives and a lot of other people have derivative exposure that ultimately net back to BP. What happens if BP runs into problems?

Do you just tell Gulf coast residents and businesses to suck it up because all of BPs money needs to go into honoring derivatives contracts?

Last year the Chinese passed a law exempting certain state owned firms from the obligation to honor derivativs contracts. How can they possibly sum to zero in such circumstances?

Your questions concerning derivatives are unanswerable, not least because the law in th US and the UK has been changed so as to relieve large institutions from the requirement to engage in full and proper disclosure. Does this not strike you as odd, and potentially suggestive of a problem?

It does of course mean that no-one can prove or disprove anything in this regard simply because the necessary informtion has been removed from the public domain. Such a course of action appears neither beeficial nor sensible.

Russia exported grain so that it could obtain hard currency in order to pay for its necessary imports, and prevent it from the ignomony of bankruptcy. A consequence was widespread death from starvation.

#49 cping500

Will you be expropriating Scotland to exercise your whippets and exporting flat caps and black pudding to the rest of the world?

You may find you need to achieve high volumes of the latter to finance the drain on the economy to be found on the banks of the Mersey.

Warrington as federal capital? You needn't apply to be a European City of culture then.

I distinctly remember some of your blogs of the past that pretty much said:

"Euro crisis,what Euro crisis?"

Flanders:

"will governments get bailed out,"

Truly laughable.

Flanders:

"That end game still has plenty of time left to run."

That`s what Iceland and Greece thought.

Until the music stopped.

Nothing`s been fixed,no lessons have been learned,and mainstream economic commentators still are`nt worth a ****.

"Here's the first one, looking at some of the economic and political roots of the crisis."

And to paraphrase your answer: divergent economies can't have economic union without political union.

True, but as usual Stephanie justs skates on the surface.

Little European countries need economic integration to be able to stand up to US imperialism, i.e. they need their own European imperialism because British, German & French imperialism isn't strong enough.

Remember the war in Iraq was mainly about Saddam being persauded by the French to price Iraqi oil in Euros.

Now if we are talking about finding the roots of the crisis, you then need to ask yourself what is imperialism & where does it come from?

Why do states like the US use military force to invade countries like Iraq & Afghanistan?

Iraq is easy to answer - oil.
Afghanistan is strategically placed - next to China & Russia.

States are the political embodiment of the economic powers in their countries.
The oil multinationals clearly influenced Bush & the Republicans.

But the mistake people make is to think that their interests coincide with the interests of their state.

Ordinary families don't benefit from sending their sons & daughters to Iraq & Afghanistan.
Oil companies, armament companies, & other big businesses benefit.

Imperialism is about the competition between the capitalists lending to wars & lost of lives of ordinary people.

The root cause lies in the productive relations - a few owning/controlling the means of production & the rest of us having to sell our labour to them.

No.67. armagediontimes

It's good to debate with you.

Therefore, if Russia did not export grain in exchange for other ~necessary~ imports, more of her people would have died, and the situation would have been worse.

BP doesn't have derivatives, but investment bankers do. The owners of BP shares could have taken derivates to protect themselves against the risk of BP shares losing value (eg contract to sell BP shares at today's price some point in the future if they percieve risk of BP price falling in the future - put option). These derivatives don't bankrupt BP.


A struggling company may find it difficult to issue more debt or share capital, but only when the market percieves them a bad risk. The market is capable of over or under stating the risks due to the volume of trading moving in one direction. The market can tip an already weak company over the edge, but only by 'accident' as it's not in the parasite's interest to kill the host.

Keep investment banking separate from retail banking.
Then, if an investment bank goes bust because another one profits at its expense no ordinary person would be affected.

#48 >>For the Colosseum read eg. Raoul Moat's death live on Sky; for Barbarians read Al Qu'aeda...

Actually, if you look closely at the decline and fall of the Greek, Roman and other later European "empires", you will find that the people doing the most damage, and contributing the most to the fall, are the barbarians *within*, rather than the barbarians *without*, the said empires !!

However, it is also always easier to put the blame on the barbarians from without the empire and lull the barbarians within with bread and circuses (read dole and reality TV shows) right up till the end !!

#66. Richard Dingle,#50. Justin150, #46,#14. dontmakeawave and all other anti-European, anti-Euro and thus pro-economic-warfare types....

Answer this:

If different regions are economically different and therefore cannot share the same currency, why do we not separate City of London from the rest of the UK so that the two entirely different economic systems can run for their own benefit?

Explain why The North East and the West Country should not have their own currencies to meet the needs of their own different economic development?

Why not let the banks set up a highly profitable currency exchange at Membury Services and Watford Gap to swap the Bristol/Newcastle pound for the London pound?

This is after all exactly what you want to do with the Euro, Europe and the UK.

If you actually believe what you write then the logical position is that you must campaign for floating currencies throughout the British regions - if not, then your position is ridiculous!

Banks are the only beneficiaries of such a system so you must logically all either work for banks or have been conned by banks into believing their propaganda! But the one thing that we must not do is pay any attention whatsoever to your biased and unreasoned views.

dontmakeawave (#14): Your views are just ridiculous - would that be a better way to express my derision of your half-formed and ill though through notions? if you can't or will not understand English perhaps someone could translate for you into whatever form of language sub-set that you use!

Stephanie wrote
"it's all been about the end game: what will happen to all that debt, will governments get bailed out, and what will all of it mean - for the eurozone economy and the messy compromises on which the single currency was based."

#38 Ishkandar re-iterates
"The question now is - what to do with the massive accumulated debt ?? Those who insist on a debt cancellation forget the fact that the creditors will not easily forgive and forget !!"

Mushroom is puzzled about the identity of these "creditors". It appears that "someone" owns whole countries, and it is neither the electorate nor the elected. Makes the concept of "sovereign" rather outmoded.

So please, can someone tell me, who are these people are that "own" Europe.

And, where did these people get the money to buy whole countries? Did they just "create it" through fractional reserve banking? If so, doesn't that point to a way out of this mess?

In my simplistic understanding, it seems to me that if you create money in a given currency, each unit of that currency ought to devalue against the wealth that it represents. The only way to avoid that is to create "imaginary" or "potential" value, by "buying" future wealth-creating activity. e.g. A loan to buy equipment, or paying for more employees to provide goods and services that people need or want. (Buying something in the hope that its value will go up is not "wealth-creating".)

Isn't this the definition of a good investment? One that stimulates an increase in net wealth? (Yeah, I never was a fan of the profit motive.)

Given that these uber-creditors (whoever they are) have bought everybody's forseeable future at a value well above its sustainable return, it looks like they made a bad investment. "The value of your investments may go down as well as up".

How to let the creditors down gently...hmm. We could do like my pension fund did, and write to tell them that we are forced to default on our promised repayments because of "market conditions", or...?

In any case I feel that its about time the dog wagged the tail, rather than vice versa.

To MrTweedy and others who might be interested .

Would you believe a Goldman Sachs report? Well a report on one!

Go to https://bilbo.economicoutlook.net/blog/?p=10670

The report is apparently available by subscription only - so by definition its inaccessible to me.

Anyway, I found it enlightening and interesting. It would explain why Obama was reluctant to follow the austerity measures and the pressures on him. Whilst it is about the US, I see read-across to the UK. The one comment is interesting too!

I'd be interested to hear anyone's views with reasons: Options might be:

1 It doesn't apply to UK
2 Its wrong
3 Its partly right but we, in UK, are on the right track and US are going down a wrong path if they follow this.
4 Its making me think, I need to do more research to understand
5 Yes I see where they are coming from and this raises serious doubts about the UK's austerity plans. I'm starting to change my mind
6 Yes, I agree with the report, but not Bills interpretation
7 Yes, I agree with the whole blog

All thoughts gratefully received

#61 The home issue is a very big conseqeunce of the "Broken Britian" situation.

Not only that if you try to put 2 families together you actually need more larger houses that are relatively empty, my house goes from 2..6 over the course of a week and also the other parts of the familes are doing the same.

Its a shame that the New_labour HMG did not listen to the vocal voices talking about these issues

So there has to be encouragement to stop familes breaking up or stop them start families in the first place, both of which are tall orders.
Hope IDS gets lots of support.

#44 which is why Brown and Balls where pilling on even more debt as they did not even understand the basic fundanemtals

MrTweedy at #47 and others; yes perhaps we are in more general agreement than I thought. I have been following up on your final comments about unemployment. I was writing this for other purposes, I hope it is of interest

So we are to have rising unemployment; not really surprising given the Government's policies. These were announced as if the would affect the public sector only, but there is already anecdotal evidence in Stephanie Flander's blog of private companies being affected. Of course, it always was going to be so given the policies of the Government. We voted the Conservatives the largest number of seats after all. We were told it was going to be tough, but who else was there? All promised austerity – but no-one really defined it. So now we know, 'shut up and take the medicine; you know its good for you'. 1929 resulted in depression because of the policies followed. Aren't the current policies a modern day analogue?

But lets wind back time to the signing of the UN Charter, 24 October 1945.

It stated:

Article: 55
With a view to the creation of conditions of stability and well-being which are necessary for peaceful and friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples, the United Nations shall promote:
a. higher standards of living, full employment, and conditions of economic and social progress and development;
b. solutions of international economic, social, health, and related problems; and international cultural and educational cooperation; and
c. universal respect for, and observance of, human rights and fundamental freedoms for all without distinction as to race, sex, language, or religion.

Article: 56
All Members pledge themselves to take joint and separate action in co-operation with the Organization for the achievement of the purposes set forth in Article 55.

Member nations pledge themselves in 56 to achieve 55's aims.
Current joint and separate action seems to be cut, cut, cut for many nations.

Full employment might be a bit of an ill-defined expression, but 2% is a good working figure. One graphical dataset available to me goes back to 1971 and except for brief periods it has not dropped below 4% and been up well over 11% at its peak. [from bilbo.economicoutlook.net/blog/?p=3483 ]

I also found a graph from 1900 - 2000, look at page 24 of A Century of Change: Trends in UK Statistics – House of Commons Research Paper 99/111 21 Dec 1999

No-one, perhaps, expects targets to be met all the time, but not to have met it ever in 40 years! This needs to be explained. You can hear the politicians reply, 'its the way the financial system works'; 'well there were exceptional circumstances etc': but this is abject failure. In today's society, miss targets and individuals in most companies and organisations (private or public) have to explain and quickly.

Why have we not asked for explanations, politely and calmly, from those we put in charge?

BECAUSE THIS WAS ENACTED SO LONG AGO, MOST OF US DON'T KNOW WHAT'S IN THE CHARTER

Perhaps it should now be part of our history lessons. My explanation is that unemployment is an area where excuses can be made, and we then pass on, forgetting
1.the damage to lives, hopes and aspirations; the lost opportunities
2.the increased social security cost
3.the increase in costs to the health service from those worried about their own personal situation
4.the lost production and the consequent lower standard of living
It is clear that we must now realise that over this time period, unemployment has never been top of any politician's agenda as being a problem to solve. Too awkward, too difficult, too many other priority topics would suffer – their priority topics that is, not ours, we would just like jobs with a productive and fulfilled life followed by a decent retirement.
Is it possible that unemployment may now be seen as a tool by which wages are held in check and the working population is 'sedated'? I don't know, I have no evidence, but the thought does occur to me …..................

Perhaps we should all be asking our newly elected MPs what the plan is to meet the requirements of the UN Charter. If they don't know what you are talking about, vote them out.

Is it a document to be simply brushed aside? Hmm......... maybe (No I don't really think so).
But consider the Government has just brushed aside other long term agreements
For both the public and private sectors, long standing agreements on pensions have been changed in the rate at which they are uprated due to inflation; RPI has become the CPI.
I agree were in a mess economically and there is a need to do something, but:
Pensioners cannot work harder, they have no jobs.
Pensioners, mostly, will not be able to get jobs.
Pensioners cannot make up the lost money over the years left to them, but they can of course die.

That does remove the problem!

So this government is hitting at those least able to do anything to mitigate the problem for themselves, and this government is breaking long standing commitments that all pensioners have a realistic right to be fulfilled.

This is starting to look like a pattern from both our Government now and back over time; 'let's ignore what we promised and do what we want!'

If you can think of other examples why not add them to this blog. More good examples could be useful.

True democracy should not work like this. Perhaps we should all be writing to our own MP, exerting pressure and making it clear just how unacceptable this current approach is. The newspapers were full of the unacceptability of the MPs expenses, but I doubt they will follow this up. If it cannot be done immediately, when will unemployment be tackled and how? Do they have aims and objectives against which they can be judged on polling day. We could ask that the private sector does meet the OBRs job creation target (fat chance), but this is all after the event. Time's gone and we the general public have lost yet again. Parliaments mechanisms for holding ministers to account seem weak, perhaps they should be strengthened. Maybe you have ideas?

Finally, MPs should remember that abrogating agreements will bring about distrust and disdain. No-one will accept their words, pronouncements, even when they are right. They will become collectively and individually despised, which brings their profession into disrepute. We don't have a better system of Government than our present one. All others are worse by a considerable margin. MPs would do well to remember again why they are in parliament, to ensure all the people in the UK have good and fulfilled lives. They just 'need to get it'!

Please can they do their job, by ensuring we have the conditions for us all to have a job and keep their long term agreements.

A crisis created by American factory farmed economics of Reagan and Thatcher, giving the financial sector greater control of the economic model than other sectors of business, such as manufacture. When the accountants take over, and especially on the global scale that it was allowed to progress to, the interests of Joe and Josephine public go out the door.

These institutions gambled continually for 20 years on the fiction of accountable growth; where money owed was exampled as profit rather than risk; where NASA risk assessors were employed to package debts of a highly volatile risk as commercially viable. While Joe and Josephine were seen as mere providers of real resource (their money) to feed the gamblers habit. The very institutions (the "rating agencies") who proclaimed everything rosey in the banking garden, giving Lehmann Brothers AAA ratings on their debt packages, now turn and say governments who spent their taxpayers money to bailout the banks to protect their citizens money are debt risks. Surely a global nationalisation of all banks who received governmental support would rectify the inbalance between the providers of the money and those who make huge sums from ficticiously making profit from its manipulation.

It is time for economic commentators, PPE graduates, to be honest in their profiteering on the back of a non-financial crisis, created by the banks for the banks to take control of everybody's lives. The present UK government is lying to the public in using our debt as an excuse to dessimate the social cohesion of the country. With percentage to GDP debt less than Germany, France and Italy; with repayment structured not to fall due until 2014; with domestic growth in GDP the only means of clearing the debt; with vast earnings to be made from the banks majority owned by the UK government (through profits and future sales/breakup), there is no immediate fiscal problem.

To privatise hospitals; give medical practitioners the additional burden of dispensing health expenditure along with treatment; to remove the every-day support provided by existing (though flawed) structures merely allows the Americans to buy-into the NHS and asset strip everything of worth. So desperate are the Tories to get their revenge on the 1945 Labour government they are willing to turn the clock back to the 1930s when the majority could not afford medical care; company doctors turned a blind eye to industrial practices that put employees at risk; private practice took precident over the public need. The introduction of open access to medical practices will lead to the public (with an appointment) sat in a waiting room while a "private patient" get due attention. We all remember the NHS before 1997, the complaints about the standards, the waiting and the Tories desire to introduce the American model (having watched too many episodes of Dr Kildare in their youth). The truth is that President Obama is attempting to introduce a similar NHS ethos 62 years after the UK succeeded, while the Tories want to re-introduce Dr Finlay.

Where is the public inquiry into the fiasco of the "rating agencies" prior to 2008/9, where is the debate on who was forcing ever increasing debt onto the public? Countless individuals have example to attest as to banking greed; the endowment payout seen as a nice little earner by the bank employee (forced by commision earnings and bonuses making-up a large proportion of salary) insisting that "safe money" be put into "high risk investment" to improve yields, but with little discussion of risks and advisor gain. Mortgages sold with advise to "enter whatever salary necessary" with little monitoring of malpractice other than sales figure related bonuses. Perks available on all rthings, cheap mortgages for bank employees (usually 4/5% less than general public); non-contributory pension; school fees paid; car purchases and costs sponsored, all added to the public costs of banking that increased the progress into massive national debt.

Let government start to govern in the interests of the vast majority of the public; let governments call the banks bluff, the rating agencies game. Start by returning the banking industry back to a safe haven for peoples money; return houses back to homes for people rather than objects for fiscal gain; pay people appropriate salaries/wages to the tasks undertaken (if as now seems to be the norm based on the PM's salary down - with running a country seen as more valuable than running a company). Should insitutions be global then taxation should apply to that portion of an institution within the governance of the relevant country, no more offshore banking/transfer of earnings, a new PAYE (Pay As You Earn) for all from shopfloor to boardroom. Smaller local banks responsible to their customers with primacy to security of funds and sensible earnings on investments. No more lunatic profiteering, lengthy prison sentences for all who steal others money, proportional to the numbers of people effected and the amounts involved (where would Mr Leason(?) be now - certainly not free).

If the crisis was not a paper creation can somebody point me towards the enormous pile of pounds/euros/dollars, etc that must be piled-up somewhere on the planet. Surely, rather than fighting in Afghanistan would should send the military to reclaim the bundles of our hard-earned money - debt problem solved. Over to you Mr Osborne.

"I cant fault you on the second part re property speculators. However the first element is flawed. There are currently more than one million empty homes in the UK with an estimated further two hundred and forty thousand properties intentionally left dormant." [ChrisLondon 61]

Thanks for the information Chris. My understanding is that the shortage is in council housing (and similar). This means more people have to rent privately which is much more expensive - hence an upward pressure on RPI.

I think there should be legislation to control this unused property, and to return it to councils where certain conditions are not met. This might be done by some sort of compulsory purchase, where the council takes over the property and gradually pays the market value of the property (less a penalty discount, plus interest) - like paying the previous owner mortgage payments.

Where the owners are unable to meet these conditions, they can have sometime to try to sell first, and thus avoid the penalty discount. I'm not a financial expert, so I am curious to know what you think?

Kind Regards
Charlie

#71 duvinrouge

"Iraq is easy to answer - oil.
Afghanistan is strategically placed - next to China & Russia."

Try drawing a (pipe)line from the oilfields and gasfields of Kazakhstan and Uzbekhistan to the brand spanking-new deep-water port at Gwadar and see which provinces it runs through...

MrTweedy

Steve Keen goes on at length about how the housing bubble in Australia is being prolonged by government first-home buyers stimulus. He explains that the effect is manifold: the first home buyers are indirectly stimulating higher valued housing markets in that the second home buyers (etc) are using the sale value of previous homes to put down deposits on yet more expensive mortgages for yet higher value homes, and so on. The stimulus for first home buyers is having a multiplied effect.

It is just a question of time before this breaks. The interest rates are creating a ("carry trade"?) demand for its currency... China is looking at huge mining developments there. Something somewhere about foreign ownership of property too, affecting things significantly.

74. At 1:03pm on 13 Jul 2010, John_from_Hendon wrote:
#66. Richard Dingle,#50. Justin150, #46,#14. dontmakeawave and all other anti-European, anti-Euro and thus pro-economic-warfare types....

Answer this:

If different regions are economically different and therefore cannot share the same currency, why do we not separate City of London from the rest of the UK so that the two entirely different economic systems can run for their own benefit?

Exactly.

The point I have been making for months.

But we need fiscal union. Newcastle and London are fiscally unioned.

'" #47 MrTweedy. I am uncertain how you conclude that the UK (or indeed anywhere else) is unlikley to go bankrupt."
Indeed, he has probably not read Chris Martensons fine article on exponential growth https://www.chrismartenson.com/blog/exponential-money-finite-world/29744.
How anyone can conclude that the monetary system will continue despite these problems?' [Averagejoe etc]

I can't speak for MrTweedy, but the economically active population has not yet run out of resources to sustain them, though that's probably coming in the next 50 years or so.

Sovereign nations with their own currency, and with government debt issued in its own currency, CANNOT become insolvent (unless they want to) - yep Japan is still able to pay its government debts and will continue to be able to do so. This is due to how these currencies work.

Greece etc can become bankrupt because technically all of their debt is denominated in foreign currencies. Because they have a different system (Monetary Union) even the Euro counts as a foreign currency all else being equal. Eurozone countries can improve their situation by either leaving the euro or by pursuing full economic integration, which would mean the eurozone itself would then become a sovereign fiat currency, and individual member states would function like local authorities.

In the meantime they will continue to 'fudge' their monetary system so that it acts 'a bit like' a sovereign currency until the proper institutions and mechanisms are established.

Kind Regards
Charlie

#72 MrTweedy. Methinks you are wrong with respect to your contention that BP dos not have derivatives.

Check this out:

https://www.marketoracle.co.uk/Article20778.html

Do you think that it was a simple supply/demand analysis that sent oil to $147/bbl, and then all the way back down to about $35/bbl and then back up again to around $75/bbl. Or could here possibly be another explanation. Could this have anything to do with a BP/J Aron JV?

What kind of imports would Russia need that are more "necessary" than food? Who do you think decides that something is more necessary than food? I would bet heavy money that it was not the people that had no food.

#74 John_from_Hendon. Maybe you should abandon Hendon and move a bit to the east - maybe Barking.

The UK can exist with a single currency because it is a largely homogenous entity with English as the operative language. It is therefore able to engage in Regional aid, like relocating government departments for example. People are able to move throughout the UK as they may choose.

Do you think that the Bundesbank may be considering relocating to Madrid? If not why not? Most people cannot move freely throughout Europe as, amongst other things, they will find themselves language constrained. What language do you think they may speak in France? If you cannot speak French do you think that this may harm your employment prospects in France?

How many German companies will be looking to employ people in Germany that cannot speak German?

Each European nation is different - for example they have diferent legal systems. Therefore you cannot qualify as a lawyer in England and start practicing law in Rome. You can however qualify as a lawyer in London and start practicing law in Newcastle.

How many policemen do you think there are in Spain who are unable to speak Spanish. How effective do you think a non Spanish speaking policeman would be in Spain.

I am not a financier of an economist but can someone explain why it is a problem if borrowing exceeds a certain percentage (eg 11%, 14%, !6%) of GDP. During the second world war this country borrowed very heavily simply to survive. Eventually it all gets paid off like a mortgage. Or is the speed at which borrowing is paid off purely politically motivated or a panic measure by economists. Lets be honest we are not a third world country who defaults on their debts caused initially by bankers.

Frank

Looking at the USD against AUD exchange rate - the Australian dollar gained against the US dollar until May 2010 due to this carry trade. A quick surf around the web reminded me that the sovereign risks in the Eurozone first made speculators nervous in May, and so they unwound some of their levered positions against the dollar for fear of the dollar strengthening due to flight to quality, as liquidity moved out of risky assets into the dollar safe haven. If global risk appetite returns, the AUD will strengthen again, as the interest rate differentials still exist.

#86

I thought BP were co-owners of an entire exchange?

No.87. armagediontimes

BP can't have any off-balance sheet contingent liabilities, as Sarbanes-Oxley prevents that sort of thing.....

Recently read news that Greece has had 1.2bn euro of "junk" 6 month government bonds over-subscribed to the tune of 3.6bn euro. So either the rating agencies are totally inept or the financial community are back frenzy feeding at the trough again.

Either way it puts the article and debate in perspective - what debt and what rating? The money madness continues, unrestrained with the gamblers running free with all and sundries money!

Anyway, goodbye BP:
https://www.theoildrum.com/node/6593

#87 Arma

Women, man. If you can speak the language of love, the pillow talk, the lingus of the ...ahem, then you can administrate at least half of the population.

No.76 Dear old Dormouse

Essentially the USA has imported financial capital from China in exchange for exporting jobs (labour capital) to China.
The USA took this financial capital and invested it abroad to generate net investment income through FDI, as FDI yields are higher than the yields payable on the US Treasuries bought by China.

China is desperate to keep exporting its capital to the US.

This is the great imbalance - the relationship between China and the USA hurts US employment. If the USA borrows more from China to support private consumption and investment, this will just lead to yet more cheap goods from China, and not more jobs for American workers. It will be the jobless recovery. The USA needs to escape from (X-M). The USA needs to escape from vendor financing. But will it succeed, when average Chinese wages are 10% of average US wages.....

In response to PuzzledMushroom 75# the oil producing Arab nations; Russian oligarchs; South American drug barons; recently enwealthed Chinese and Indian industrialists - these are the owners of American, European and British nations. Take a walk through Belgravia and Mayfair, look at the World's Rich List, those that produce the western nations "needs" (oil and other natural resources, manufactured goods, etc) while we ultimately service their provision through banking and retail services.

We become the dumping ground for unwanted items, be they dangerous toys and electrical items; health risk foods and false medicines, radioactive waste, all are taken in by the "new third or old industrial world". It is interesting that very little invention comes out of China, India or Japan but much production of American, Europen, British origin. Look to who makes the money on these things and see those that were allowed to ship investment out of this country (and America and Europe) following the liberalisation of currency movement in the early 1980s and the birth of "free markets" and "globalisation". Again take a walk around Monaco, Switzerland, the Channel Islands, the Carribean Islands to see who those investors were.

I read today about the saintly Bill Gates and his family largess to the globe - no mention of the selling of a second rate operating system to a desperate IBM; the restrictive practices operated in selling inflated software; the adhoc purchasing of competitive alternatives. These are the people that hold the world to ransom and want us all to bow down to their "entrepreneural" magnificence - sounds a bit like a Biblical disaster heading our way. Maybe Marxs was right all along and capitalism will reach its final collapse through the ultimate greed of its participants.

"Sovereign nations with their own currency, and with government debt issued in its own currency, CANNOT become insolvent (unless they want to) -" Not convinced. The only option available other than default is to print money, if no one is prepared to lend it to you, which eventually results in hyperinflation. Technically we are insolvent as is the US and many other countries. Have a read of Chris Martensons article. You cannot continue to increase debt and the monetary supply exponentially indefinitely, as we have done since the 70's, eventually you will hit the wall and money will become toilet paper.

69. # Biiboidshateu

Spot On.

Flanders predictions are worthless.
I would much sooner trust that Octopus.

One day all this economic theory will be valued with the same kind of increduality as 18th century quacks advocating entire medical diagnosis and treatments based on the colour of a stool.

In response to Armagediontimes #87

Historically the elite, the controllers, have operated a lingua franca, the language of the English court was not English until well into the 15/16th century, the language of Europe was Latin through the influence of the Catholic Church and academia. So the notion that employees would not be able to move through language barriers seems weak - the bosses would utilise a chosen lingua franca. The populace would speak their native tongue, thus debaring them from access from the seats of wealth and power. The problem with policing would be irrelevant as this would become increasingly violent - so to be hit by a German speaking police official in Spain would make no difference (in fact the legal nicety of not understanding the law is not a defence anywhere in the world).

History has many "empirical" examples (the Roman and British Empires and French, Spanish and Dutch or Portuguese) where the ruling power did not, and was unwilling to speak the native language. The British were denegrated throughout the Empire for "going native" and trying to integrate with the local population. Why should the new "empirical power of globalised commerce" be any different?

"I am not a financier of an economist but can someone explain why it is a problem if borrowing exceeds a certain percentage (eg 11%, 14%, !6%) of GDP. During the second world war this country borrowed very heavily simply to survive. Eventually it all gets paid off like a mortgage. Or is the speed at which borrowing is paid off purely politically motivated or a panic measure by economists. Lets be honest we are not a third world country who defaults on their debts caused initially by bankers." [Mike060]

Many macro-economists are saying now that the debt ratios are not at all a problem. This whole panic was in my view politically motivated because it is easy to sell austerity measures by constantly equating normal household finances, with government spending (which is neither financed nor revenue constrained). This government simply wants to shrink the state. What happened with the previous government - aiming to cut £50Bn is still a mystery to me - perhaps they just fell for the Tory scare story, or maybe they believed that ordinary people would think they could not manage the economy if they did not make the commitment to cuts.

The cuts are just not necessary - government needs to spend more, not less, to support the economy, while it is de-leveraging. More information can be found here:

https://bilbo.economicoutlook.net/blog/?p=10670

Kind Regards
Charlie