Courtesy of The Automatic Earth
Prince William County, Virginia. "Along Bull Run near Sudley Church"
Ilargi: It probably hasn’t escaped you that we are entering the next phase of this fine crisis of ours. Those equally fine leaders we’ve elected to represent us and protect our interests are now almost literally stumbling from one emergency meeting into the other. It doesn’t look like Greece can hang on much longer as an EU and Eurozone member without some sort of miraculous intervention.
Well, US Finance Secretary Tim Geithner claims to have the powers of miracle, and he personally brought them to a meeting -an emergency one- in Poland on Friday (where many a European wondered whether he spoke for Washington or for Wall Street, no doubt).
Geithner’s big plan is for Europe to take its European Financial Stability Fund, which is projected to be €440 billion by the end of this year, though that is by no means certain, and leverage it about ten-fold to some €4.4 trillion. This, as per Geithner, will calm the markets -and presumably restart economic growth, and job creation, and the housing markets-.
Geithner’s perspective is a purely religious one. He has no proof that his idea would work, there is no science that underlies or reinforces it, just a belief system. Nevertheless, ideas like his are very popular, and I for one wouldn’t bet against them being unleashed upon us all.
Obviously, the ten-fold leveraged expansion of the EFSF is an act of faith: the faith that creating more debt/credit out of thin air will restore the markets’ faith in a sound financial system.
Thing is, when you look beyond its immediate impact, the expansion, if it is executed, can only, and of necessity, achieve the opposite of what it’s supposed to do. While the markets will be glad to gobble up the cheap funds, they will not have faith in them. They are simply not that stupid. They will know where the money comes from. And there is still a fundamental difference between money made with productive work and money made with mere acts of faith. They’re not even the same money, much as they may appear to be.
Just as there are relatively few people who understand that deflation, not inflation, is the biggest and most immediate threat to our economies, there are equally few who have fully mentally processed the notion that debt can’t be overcome with more debt, except perhaps in particular situations where a broad set of exceptional conditions is met.
Engagement in war comes to mind. Or the discovery of a truly unparalleled source of very cheap and productive energy (for practical purposes, I’ll leave out the earth being hit by an asteroid). But there is no sign of the latter on the horizon, no matter how much faith one may have that it lies just beyond that horizon. That leaves us with the former.
Barring both, there is no way we can borrow our way out of our debts and into prosperity.
It seems apparent that we have indeed entered a new phase of the crisis because our "leaders" are losing their sense of control -hence all the emergency meetings-. And they have no idea what will happen from here on in, no more than we do. That scares everyone, but leaders even more so. It’s because they are addicted to control; it’s also because they feel they have deeper to fall. And when people get scared, they turn to faith.
In practical terms, if Greece would default in the nearby future, and chances are fast growing that it will, nobody can predict what goes next. The domino effect in banking and sovereign debt is only predictable in that it will occur, not how or to what extent. And what is presented by Geithner, and the IMF’s Christine Lagarde, and the World Bank’s Robert Zoellick, and Princeton’s Paul Krugman, and all these economists posing as scientists, as some sort of sound policy, is nothing but an act of ultimate faith driven by fear. Fear for their particular positions in their particular world. Which in all likelihood is not yours.
They don’t know how bad it all will be. They’re just afraid it will be very bad for themselves. Their actions are not necessarily driven by reason; they may not even recognize either their faith or their fear. But whatever drives them, they sure as hell and high water don’t fit my profile of who I would want to see tackle this crisis, or any other for that matter. Taking the risk of plunging countless people into unspoken misery on account of your religion is not something human history seems to recommend, at least not to me. If the best we’ll be able to say afterward is they at least meant well, we’re doing something wrong.
Are there no opposing views? There’s a few inside these meetings.
Bundesbank President Jens Weidmann said:"The EFSF’s sole purpose is the financing of states and that’s in order as long as it’s done via the capital market. If it’s done via the central bank it constitutes monetary state financing," (which is forbidden under European Union rules). And German Finance Minister Wolfgang Schäuble: "We don’t think that real economic and social problems can be solved by means of monetary policy. That has never been the European model and it won’t be."
The Dutch and the Finns are also quite outspoken opponents of bottomless European pits. But most of the finance "experts" there are still cut from more or less the same cloth, and in the end adhere to the same faith-based economic models. They may feel fine about letting Greece go under, and Portugal and Ireland, but they will nevertheless pour their voters’ money down the nearest drain they can find when it comes to "saving" their own respective banks. Which is of course the exact same thing, even if it feels different to them.
We have no democratic means in place anymore to put those folks into power who would truly try and alleviate the plight of the people. Our democracies are based on voting systems, but votes are of necessity bought and sold if and when money is allowed to enter the political system. And the money that has bought the system says that it must fork over the money of the people. Or else. The faith-based fake science named economics is but a tool used on the ignorant in order to justify this.
I sincerely hope that what Ambrose Evans-Pritchard has labeled "Germany’s austerity nihilism" will at least beat some sense into some heads. But I don’t have much faith in that.
For our children, it would seem to be best if Greece falls tomorrow, and takes down a lot of countries and banks all over the globe with it. It’s the only way we might be able to stop ourselves from spending tomorrow’s money today. But the flipside of that, too, I’m afraid, is religious warfare.