FlightCheck

I couldn't agree more. A viable economy is built upon production, savings, and investment. As the Fed injects the markets with more and more printed money, it denies the market its natural and necessary correction that forces a return to savings, reduction in consumption, and debt servicing.

olympic

The same skalawags that were in cahoots with German corporations and were doing under the table deals for projects in Greece won't get me out of the mess, I know that.

What model of destruction? The corruption?

jungle

Corruption? In a sense, but the real mistake is that people mistake politics for economics and the crisis is caused by a failure to use sound economics in forming policy.

Perhps a better explanation:Guest Post: What Austerity? | ZeroHedge

oldschool

I just think that the US will be the last one standing and that has got to mean something? I've heard all about the crushing debt on the Euro and dollar but in the end it's just paper, if it all crashes down would we not just have to wipe the slate clean and start over? Yeah I know things would hurt for a while but, why not?

jungle

I hear this a lot and just have to chuckle. Wiping the slate clean means erasing all debt, but many don't understand that every dollar printed represents a dollar of debt. It isn't just paper-it is a debt burden handed to the populace mostly without their consent or understanding.

Wiping the slate clean would mean complete destruction of both the currency and the economy. Do you think the Bank would just suddenly forget you owed them something on your house and car? No, they would confiscate those assets and sell them for what the market would bear in whatever the currency happened to be-it has happened before.

The better alternative is to gradually unwind high debt positions by governments through reduction in spending and by economic growth, in addition most of the future unfunded liabilities could be eliminated by the stroke of a pen by revoking impossible promises.

In the end all fiat currency systems rely on trust-trust that the currency is a fair representation of labor, goods and services and that the currency retains its value by means of fiscal constraint and sound economic action.

Running a printing press 24/7/365 is in direct opposition to reality.

There is going to be major pain either way, all at once or spread over time.

Just like going bankrupt, there are two ways-slowly and quickly.

oldschool

I agree with you as far as not letting the little guy off on his debt for his 25k car or his 300k house because thats just the way things seem to be, but lets say JPM Case owns Euro debt by way of some complicated hard for me to understand way and the Euro collapses putting JPMC in a real bad spot they can make up for it by not paying the guys on the other side of the bet who in turn those guys won't pay who they owe and so on. Yeah lots of people get screwed and lots make out but in the end it keeps the civil unrest to a minimum, the biggest threat to our "leaders" on both side of the isle???

jungle

I don't think the EU is going to collapse, but what we are seeing now and will see is a reshuffle that is holding individual countries responsible for their excess. How that ends depends on many things, but it means that the EU is going to stop propping up the laggards, not because they are mean spirited, but because they can no longer afford to.

It may well mean a return to former currencies by some countries, and it will mean money is going to get far more expensive for those with poor credit history.

Large cash outflows have already started from some of those countries as many seek safe haven elsewhere. The JPMs of the world will hold on to their stack and keep it moving. Lots of people are going to bear the brunt of it, and it may take many years to resolve.

Civil unrest is probable to some extent, but who do you petition when you have run your own economy into the ground?

Massive spending programs end up sacrificing the future for the present, and for some the future has arrived.

oldschool

Well I wonder how long this will all last here in the US. I watch Nightly Business Report all the time and there was a guy on there saying we can go a long time on the track we are. Excuse my ignorance but he was saying we are now at 40% of something like paying debt and we can go to 100% and still sustain our economy. So how long will it last cause I think ammo will become the new currency if it all does collapse, you can't eat gold but you can protect your family and feed it with ammo! It's funny that I'm even in this conversation cause I can not hang, I used to work on the floor of the Chicago Mercantile Exchange and had the hardest time what in the heck these people were trading and how a guy could trade against the market and what the heck is an option etc.. Anyway my boss would for fun rattle of a bunch of market info for the day prior to the open to me and ask if the dollar would go up or down verse other currencies and when I gave him an answer he would jokingly announce to everyone that the market would do the opposite of my prediction. I guess I could have made money betting against myself! Good times working on the floor of the MERC (early 90's) but I'm glad I found my way in life elsewhere in the end.

jungle

This story has played out many times in history, right now in Argentina it is playing out again-25% annual inflation and a loss of faith in the local currency and the leadership in the economy. It isn't a pretty picture.

Argentina loses a third of its dollar deposits | Reuters

jungle

From Mark Grant, author of Out of the Box

The World is Flat and other Tales from Spain

“The very powerful and the very stupid have one thing in common. Instead of altering their views to fit the facts, they alter the facts to fit their views... which can be very uncomfortable if you happen to be one of the facts that needs altering.”



-Dr. Who

The art/science of Deduction is a process that I engage in daily. To paraphrase Mr. Sherlock Holmes; it is where I make my bread and cheese. On the most fundamental of levels you must have the facts right before you can reach any conclusion or series of conclusions and here is where Europe tries its best to mislead you; they do not wish for you to have the correct data. I used to think it was just some political strategy of giving the public information but I now honestly believe that the Europeans engage in a very devious manipulated charade quite on purpose. It probably dates back to the Church claiming that the Earth was flat when it was heretical to disagree with the doctrine which was provided by Rome. The way the Spanish Prime Minister is behaving concerning the Spanish bailout he must still believe this heretical nonsense today. This week the bailout; next week the Inquisition.

"But as to the fable that there are Antipodes, that is to say, men on the opposite side of the earth, where the sun rises when it sets to us, men who walk with their feet opposite ours that is on no ground credible. And, indeed, it is not affirmed that this has been learned by historical knowledge, but by scientific conjecture, on the ground that the earth is suspended within the concavity of the sky, and that it has as much room on the one side of it as on the other: hence they say that the part that is beneath must also be inhabited. But they do not remark that, although it be supposed or scientifically demonstrated that the world is of a round and spherical form, yet it does not follow that the other side of the earth is bare of water; nor even, though it be bare, does it immediately follow that it is peopled."



-St. Augustine

The Church may now recognize that the world is round but the attitude remains the same and it is still almost heretical to disagree with the numbers handed out by the new hierarchy; the European Union. They count what they wish to count, they add what they wish to add and when I count all of the numbers and not just those they wish me to count then I am branded an evil-doer making “mischievous comments” which is how the Irish characterized me at one point. It is no surprise I suppose, governments in peril will go to any length to preserve their own existence and the more they are under siege; the worse their behavior.

After the now humorous proclamations by Europe and the IMF that the austerity measures in Greece would bring the country to a 120% debt to GDP ratio the second most ludicrous claim was that the EFSF and then the ESM will ring fence the core countries in Europe. This notion was heralded by both the EU and the IMF and the concept was just as effective for keeping Spain out of trouble as the advice of Mr. Ponzi for making investments. Now Troubadour Rajoy of Spain sings that the bailout for Spain was “a great victory for Europe” one supposes that we have returned to the flat earth theory. Since neither of the stabilization funds were actually funded of course; contingent promises to pay, which seem to get counted and then counted again like votes under Mayor Daly of Chicago are once more in vogue. However now with Spain to actually receive $125 billion (a $26,400 debt for each and every person in Spain) in the first round of funding and I say the “first round” because the money is nowhere near adequate for their banks much less their regional debt no matter what nonsense Ms. Lagarde speaks these days as she follows the advice of Marie Antoinette, “Let them eat cake;” now someone has to come up with the cash. You may have noticed in your life as I have noticed in mine that promising to pay and actually paying are two very different things. You may have also noticed that actually paying lessens the amount of money that the payer has left which is just what the European nations are concerned about as their credit quality deteriorates as they cough up the cash. Funny how that works!

The EU notion of ring walls did absolutely nothing, as I long ago said it would not, because the economic decline happens from within and not from without. The EU attempted and failed to protect itself from a threat that did not really exist because economic deterioration happens because of fiscal and monetary policy and not real or perceived threats from real or perceived bond vigilantes. A coral may protect the horses from the wolves but it does nothing to keep the horses from getting sick and the horses are most assuredly sick.

For those of you that keep waiting for some giant change-the-world event; I invite you to re-gear your perspective. Greece has fallen, Portugal has fallen, Ireland has fallen and now Spain has followed the road into Purgatory. These are significant events that are, in fact, changing the world though none has caused Armageddon to date though they may by their aggregate but not singular importance. This is also why Greece is of such key importance; it has nothing to do with staying in or out of the Euro or of the preservation of the European Union as a political entity. That part of the equation is barely relevant. What is of critical importance though is that if they leave the Euro that they will default on some $1.3 trillion in total debt that can be afforded by no one. That is the rub and you may ignore the rest of the Eurospeak that is bandied about from Brussels to Berlin. A default by Greece will bankrupt and cause re-capitalization at the European Central Bank, it will throw the IMF into a tailspin and it will play havoc with Target2 and the German Central Bank. Do not allow yourself to be taken in and mis-directed; this is THE issue and the only issue of real importance.

Pay close attention, as well, to the method of funding. First the EFSF money because the ESM is not yet in existence and then the ESM money, if/when approved, to the Spanish FROB (Fund for Orderly Bank Restructuring) which is part of the Spanish Government. The ESM money then immediately subordinates not just Spain’s sovereign debt but any and all bank debt in Spain so that the senior debt of Bank Santander gets subordinated and the bank’s assets can be called upon just like the sovereign to repay the fund if necessary. Look at the fine print here; pretty frightening. Then the Regional Debt will come into play which will cause another round of funding for Spain and which will toss the country into the vice-grips of the Men in Black who will arrive in droves from Berlin and Paris. We are also about to confront a very angry Ireland, Portugal and Greece who will legitimately ask why Spain is being funded at 3.00% while they are penalized for their indiscretion in much more painful ways. The first reaction of the markets may well be that the Three Kings of the Orient have arrived to save the day and, if so, take advantage of it because like in times recently passed the daylight will soon dawn that the core countries, Spain represents 12% of the budget of the EU, has now been infected and the cancer has spread to the lymph nodes as the “great victory for Europe” becomes the severing of the coronary artery. Now it is just not that Spain had to be bailed out but the problem is squared as Spain can no longer afford to pay to help the rest of the periphery nations.

“Hemmed in by the Americans and the Russians in the final days of World War II, Hitler convinced himself that he had two armies in reserve to mount a counter-attack and win the war.



Meanwhile, having lost the entire Pacific, Japan's Imperial Cabinet believed that no enemy could set foot upon the country's sacred soil.



When the truth is unimaginable, human psychology finds an alternative reality in which to dwell.”



-Today