by ilene - November 13th, 2010 1:02 pm
Tidal forces are pulling the European Union apart. On one end, European governments have taken on debt and liabilities—both public and private—which they cannot possibly meet, rendering many of the smaller European states insolvent. On the other end, Europe is unwilling to carry out sovereign default and restructuring of debt of any one of its member nations. So as Europe gets closer and closer to the Global Depression, we are seeing as these two opposing forces—insurmountable debt vs. unwillingness to default and restructure—pull the continent apart as surely and relentlessly as tidal forces. — Gonzalo Lira
Courtesy of Gonzalo Lira
In July of 1994, a comet named Shoemaker-Levy 9 crashed into Jupiter—it was quite a sight.
According to astronomers, Shoemaker-Levy was a comet that was captured by Jupiter’s gravity twenty or thirty years before it was discovered. As the comet circled Jupiter, at one point it passed the Roche limit—the line around a large mass where its gravity will rip apart a smaller mass by way of tidal forces.
after Jupiter’s tidal forces
ripped it apart.
By the time Shoemaker-Levy crashed into Jupiter, tidal forces had had their way with the comet. As the picture shows, it was no longer a single comet—it was a string of small lumps of rock and ice
Tidal forces are pulling the European Union apart.
On one end, European governments have taken on debt and liabilities—both public and private—which they cannot possibly meet. These debts and liabilities are near-term enough that there is only one way to characterize many of the smaller European states: They are insolvent.
On the other end, Europe is unwilling to carry out sovereign default of any one of its member nations. Indeed, there is a sense that—constant drumbeat of the Germans aside—Brussels is unwilling to evencontemplate the very notion of sovereign default and debt restructuring. Brussels and the European Central Bank believes in bailouts, not default, because they believe that the entire European project rests on the non-default status of all the EU members. They believe that all EU debt is backed by the entire EU, no matter how irresponsible the EU country that issued the EU debt.
by ilene - May 11th, 2010 1:31 pm
Courtesy of Karl Denninger of The Market Ticker
No, no, not the ECB’s.
The "currency speculators" – cough - BANKS that were shorting the hell out of the Euro.
Let’s see if I can figure out what’s happened here.
- Banks shorted the Euro, (correctly) surmising that Greece, Portugal, Spain and others can’t possibly cover their debts.
- The ECB freaks out as the Euro heads toward PAR and calls "emergency meetings" (forgetting, I might add, that the Euro traded under PAR not that long ago.)
- The ECB and Eurozone decides to "defend" the Euro with €1t in "defensive measures", including buying bonds of bankrupt sovereigns (gee, that’s nice – monetization by another name.) Since the ECB and EuroZone cognescenti is of course connected to the large banks in Europe (including France, where Sarkozy is located) these banks know to back off on Friday (notice the nice little uptick?) to lock in their bonuses from these insanely-profitable trades against their own currency.
- The very same banks, including the ones in Sarkozy’s back yard, see the very nice spike and short the Euro even harder, (correctly) surmising that they have successfully stuck the gun up the nose of the ECB!
Rinse and repeat until you have all the money.
Naw, it wouldn’t be that simple, would it? Why of course it would.
See, lending someone money when they’re bankrupt can’t possibly make them not-bankrupt. It can only make them more-bankrupt. As a consequence the ECB’s action is self-destructive and doomed to fail, and as a consequence there is no reason for these banks to back off at all! Indeed, quite to the contrary – they have (correctly) deduced that they can make billion in bonuses by shorting their own currency to destruction, forcing ever-larger "interventions" by the ECB!
If you’ve ever seen a meth addict goose himself with his drug of choice to the point where his teeth literally fall out, you know how this story ends.
The only winning play is to refuse to play at all, and force the bankrupt to recognize their insolvency and reorganize their debts. That’s it. Attempting to paper over insolvency never works, and the market has now deduced this, as I expected – although I didn’t think it would happen quite this quickly.
by ilene - January 20th, 2010 2:59 am
This is not just about California. Come Summer 2010, the most severe gaps will be closed via budget cuts or tax increases unless the Federal Government can pull a rabbit out of the hat.
by ilene - October 15th, 2009 12:36 pm
Roosevelt Institute Braintruster William K. Black explains how the finance economy preys on the real economy instead of serving it. He shows how both have become dysfunctional and warns that we must not neglect the real economy — the source of our jobs, our incomes, and the creator of goods and services — as we focus on financial reform.
What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector’s current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.
1. The financial sector harms the real economy.
Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary — essentially a “middleman”. Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector’s parasitism.
Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator State, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation. The facts are alarming:
by ilene - October 3rd, 2009 2:10 am
Courtesy of Washington’s Blog
Why isn’t the government breaking up the giant, insolvent banks?
We Need Them To Help the Economy Recover?
Do we need the Too Big to Fails to help the economy recover?
The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:
- Nobel prize-winning economist, Joseph Stiglitz
- Nobel prize-winning economist, Ed Prescott
- Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
- MIT economics professor and former IMF chief economist, Simon Johnson (and see this)
- President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)
- Deputy Treasury Secretary, Neal S. Wolin
- The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine
- The Congressional panel overseeing the bailout
- The head of the FDIC, Sheila Bair
- The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
- Economics professor and senior regulator during the S & L crisis, William K. Black
- Economics professor, Nouriel Roubini
- Economist, Marc Faber
- Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales
- Economics professor, Thomas F. Cooley
- Former investment banker, Philip Augar
- Chairman of the Commons Treasury, John McFall
Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.
In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer – who was Ben Bernanke’s thesis adviser at MIT – say that – at the very least – the size of the financial giants should be limited.
Even the Bank of International Settlements – the "Central Banks’ Central Bank" – has slammed too big…
by ilene - August 26th, 2009 9:32 pm
Another terrific article, courtesy of Chris Martenson at Chris Martenson’s blog.
In this excellent, short-and-sweet report, the case is made that a 3.5% boost to GDP from government stimulus spending alone will hit in the third quarter of 2009.
This means that whatever reading is turned in, you should mentally subtract 3.5% from it, because "growth" resulting from government deficit spending is not real growth at all, it is merely consumption borrowed from the future.
Are you stimulated yet? We hope you are, because we’ve just witnessed the largest economic stimulus in the history of the world. Never before have so many government dollars been thrown at the economy to prevent a depression. When added together, the combined financial, monetary and fiscal stimuli in the US are more than the cost of the two World Wars and “The New Deal” combined.
Stimulus spending worldwide has taken the form of a combination of tax cuts, transfer payments (free money) and infrastructure investments on roads, schools, railroads etc. In the US, the financial and stimulus contributions have been especially impressive in scale.
According to CNN’s bailout tracker, the various US government departments have committed to stimuli worth $11 trillion dollars and have issued cheques totaling $2.8 trillion dollars thus far in 2009.
Neil Barofsky, the Special Investigator General for the TARP program, has estimated that the total cost to the US taxpayer could be as high as $23 trillion.
The vast majority of this stimulus has been directed at the financial sector – a complete waste of money in our opinion, supporting a segment of the economy that never deserved to be bailed out.
Nonetheless, the US taxpayer has spent massive sums, committed to promises worth even more and may ultimately owe debt in the double-digit trillions when all is said and done. Nice of them to spend so generously, wouldn’t you say?
Although the stimulus has been fantastic for the stock market, it has generated very little benefit for “Main Street”. To make matters worse, the effects of the stimulus packages have already started to wear off.
To explain why, we must mention the American Recovery and Reinvestment