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Why 95% of Traders Fail

The E.U. Cracks Up

Politics / Euro-Zone Apr 19, 2011 - 05:39 AM GMT

By: LewRockwell

Politics

Best Financial Markets Analysis ArticlePolitical upheaval has hit Finland, and it’s merely a foreshadowing of bigger changes ahead. The core issue is whether Finland ought to be paying for bailouts for other EU states. In reaction to establishment support for the bailout, voters ousted the pro-bailout ruling party and gave an upset victory to the bailout-critical conservative party. Against every expectation, the eternal rule of the social democrats is at an end.


But most striking of all are the gains made by a previously invisible party called True Finns. This is the only party to take a hardcore position: no bailouts at all. It also so happens that this party is predictably nationalist on issues of trade and immigration. But that’s not the source of the appeal. The bailout is what is on everyone’s mind. And you know that the anger must be palpable if it fired up the usually sleepy world of Finnish politics.

In the sweep of history, few issues are as politically volatile as tax-funded bailouts of foreign countries, especially during difficult economic times. It’s a policy that provokes dramatic political change. The 20th century’s most famous case was in interwar Germany, when nationwide resentment against payments to conquering allied nations ushered in National Socialist rule.

It should be no surprise that over-taxed Finns have no interest in sending their tax dollars to bail out the banking industry of Portugal, a country that is 2,500 miles and two days travel away. Even governments should have learned long ago that it is never a good idea to enact these sorts of policies. In this case, however, every EU nation is bound by a political contract to bail out any other; the bailouts are embedded in the very structure of how the political, financial, and monetary sector is currently structured.

The entire EU system is afflicted with the paper money disease. It creates a boom that balloons the banking sector, allows politicians to spend wildly, and encourages private enterprise to expand operations in an unsustainable way. Then the bust comes and everything falls apart. Government revenue crashes, banks are threatened with insolvency, and mass bankruptcies are apparent everywhere.

There is a fork in the road, one branch labeled liquidation and the other bailout. When the fiat money is available—and with their favorite interest group, the banking establishment, warning of the end of the world—guess which way the politicians choose? This is why member states are being told that they must cough up $129 billion (it will be more) to save Portugal from its own problems.

It’s not that politicians all over Europe (and the US) love Portugal so much that they are glad to lavish it with more paper money. The real fear is contagion. If Portugal goes, Spain and Italy are next, and then the whole shaky system comes down, first in Europe, then in the UK, and finally in the US. This is the scenario that allows politicians once again to paper over the problem rather than confront it.

Wasn’t the invention of the European Central Bank supposed to control credit expansion in Europe? Philipp Bagus, in his book The Tragedy of the Euro, identifies a fatal flaw. There is nothing that the ECB can do, even if it wanted to, about sovereign state finances or the fractional-reserve banking system that feeds on government-created debt. The ECB can control money injections, but it can’t stop debt creation or the banks that thrive on it.

This debt creation generates its own unsustainable boom. A country’s finances then correct to reflect reality and the banking system comes under pressure. Then the bailouts begin. What ends up happening is that the (relatively) frugal states in the European Union subsidize the less frugal ones. There is moral hazard embedded in the very structure of the entire system.

Nothing is going to fix it. Bailouts are only temporary aids until the next round of credit-fueled profligacy. And there is absolutely nothing that the ECB can do to stop it. Every profligate country knows that it is too big to fail, and that it enjoys presumed access to the financial resources of every other state in the EU. So the result is ongoing and worsening bailouts, leading to total bankruptcy.

For this reason, everyone knows that there is far more at stake than just Portugal. The entire system of European finance and monetary arrangements is broken. It can’t be repaired with patchwork bailouts. At some point, the flaw in the system will have to be fixed (via a hard currency) or there will be a reversion to sovereign paper currencies and the Euro will be chalked up as yet another failed experiment in monetary and regional planning.

Keep in mind that this is the third country to be bailed out recently. Ireland and Greece came first. And those bailouts barely worked. Once we plough through the smaller countries, we will move on to the larger countries. And there is not enough money, absent hyperinflation, to bail out Spain, much less Italy.

The European Central Bank, which has been less irresponsible than the Fed in recent days, is the first world central bank to do what should have been done three years ago. It is raising rates with the intention of tightening money. The Fed should and must do the same thing. But there is a problem. If real interest rates reflected financial reality – with no presumed bailouts and no power to create new money – they would be sky high.

The Portugal case and the Finnish reaction should serve as a wake-up call. All these bailouts and stimulus packages cannot hide the fact that the governments and banking systems of the US and Europe are fundamentally bankrupt, sustained only by the power to create money out of thin air. Each intervention is working to buy time but not to deal with the fundamental problem. And each time when the problems return, they are worse than before.

It doesn’t take a True Finn to recognize the injustice of bailouts for foreign governments. Neither nationalism nor bailouts will fix the real problem. We will eventually find our way back to sound money. But it is going to be terrible slogging, and real convulsions, along the way.

Llewellyn H. Rockwell, Jr. [send him mail] is founder and chairman of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author, most recently, of The Left, The Right, and The State.

http://www.lewrockwell.com

    © 2011 Copyright LewRockwell.com - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ernie Messerschmidt
19 Apr 11, 13:28
dissenting view

I think your views are incorrect. "Tax-funded bailouts of foreign countries"? If you really look into it, it's fundamentally shyster banksters that are being bailed out, not countries. They created mountainous inverted pyramids of fraudulent money-substitutes mostly out of thin air,but with small amounts of peoples' real assets at the bases as hostages, and profited big time. After being bailed out by their agents the privately owned central banks (Fed and ECB), they finally extort real worked-for money from the people's governments to cover their theft and require austerity and suffering to pay for their heist.

Sound money would be governments creating needed credit for the real economy without the parasitic bankers, who produce nothing but chaos, poverty and suffering, skimming off all of the cream for themselves. Money is nothing but credit. "Gold-backed" is still fractional reserve farce with the bankers in control. It's the thieving bankers that are the source of the problems, not people who work for a living and their governments.


Jim
21 Apr 11, 01:41
dirty little secrets

Dirty Little Secrets - the hidden, awkward origins of World War 2

http://www.rense.com/general92/dirty.htm

The unexpected views of four key diplomats who were close to events

Just consider the following:

· Joseph P. Kennedy, U.S. Ambassador to Britain during the years immediately preceding WW2 was the father of the famous American Kennedy dynasty. James Forrestal the first US Secretary of Defense (1947-1949) quotes him as saying "Chamberlain (the British Prime Minister) stated that America and the world Jews had forced England into the war". (The Forrestal Diaries ed. Millis, Cassell 1952 p129).

· Count Jerzy Potocki, the Polish Ambassador in Washington, in a report to the Polish Foreign Office in January 1939, is quoted approvingly by the highly respected British military historian Major-General JFC Fuller. Concerning public opinion in America he says "Above all, propaganda here is entirely in Jewish hands…when bearing public ignorance in mind, their propaganda is so effective that people have no real knowledge of the true state of affairs in Europe… It is interesting to observe that in this carefully thought-out campaign… no reference at all is made to Soviet Russia. If that country is mentioned, it is referred to in a friendly manner and people are given the impression that Soviet Russia is part of the democratic group of countries… Jewry was able not only to establish a dangerous centre in the New World for the dissemination of hatred and enmity, but it also succeeded in dividing the world into two warlike camps…President Roosevelt has been given the power.. to create huge reserves in armaments for a future war which the Jews are deliberately heading for." (Fuller, JFC: The Decisive Battles of the Western World vol 3 pp 372-374.)

· Hugh Wilson, the American Ambassador in Berlin until 1938, the year before the war broke out, found anti-Semitism in Germany ‘understandable’. This was because before the advent of the Nazis, "the stage, the press, medicine and law [were] crowded with Jews…among the few with money to splurge, a high proportion [were] Jews…the leaders of the Bolshevist movement in Russia, a movement desperately feared in Germany, were Jews. One could feel the spreading resentment and hatred." (Hugh Wilson: Diplomat between the Wars, Longmans 1941, quoted in Leonard Mosley, Lindbergh, Hodder 1976).

· Sir Nevile Henderson, British Ambassador in Berlin ‘said further that the hostile attitude in Great Britain was the work of Jews and enemies of the Nazis, which was what Hitler thought himself’ (Taylor, AJP: The Origins of the Second World War Penguin 1965, 1987 etc p 324).

Is all of this merely attributable to terrible antisemitism?

The economic background to the war is necessary for a fuller understanding, before casting judgement on the originators of these viewpoints.

At the end of the First World War, Germany was essentially tricked [see Paul Johnson A History of the Modern World (1983) p24 and H Nicholson Peacemaking 1919 (1933) pp13-16] into paying massive reparations to France and other economic competitors and former belligerent countries in terms of the so-called Treaty of Versailles, thanks to the liberal American President Woodrow Wilson. Germany was declared to be solely responsible for the war, in spite of the fact that ‘Germany did not plot a European war, did not want one, and made genuine efforts, though too belated, to avert one.’ (Professor Sydney B Fay The Origins of the World War (vol. 2 p 552)).

As a result of these massive enforced financial reparations, by 1923 the situation in Germany became desperate and inflation on an astronomical scale became the only way out for the government. Printing presses were engaged to print money around the clock. In 1921 the exchange rate was 75 marks to the dollar. By 1924 this had become about 5 trillion marks to the dollar. This virtually destroyed the German middle class (Koestler The God that Failed p 28), reducing any bank savings to a virtual zero.

According to Sir Arthur Bryant the British historian (Unfinished Victory (1940 pp. 136-144):

‘It was the Jews with their international affiliations and their hereditary flair for finance who were best able to seize such opportunities.. They did so with such effect that, even in November 1938, after five years of anti-Semitic legislation and persecution, they still owned, according to the Times correspondent in Berlin, something like a third of the real property in the Reich. Most of it came into their hands during the inflation.. But to those who had lost their all this bewildering transfer seemed a monstrous injustice. After prolonged sufferings they had now been deprived of their last possessions. They saw them pass into the hands of strangers, many of whom had not shared their sacrifices and who cared little or nothing for their national standards and traditions.. The Jews obtained a wonderful ascendancy in politics, business and the learned professions (in spite of constituting) less than one percent of the population.. The banks, including the Reichsbank and the big private banks, were practically controlled by them. So were the publishing trade, the cinema, the theatres and a large part of the press – all the normal means, in fact, by which public opinion in a civilized country is formed.. The largest newspaper combine in the country with a daily circulation of four millions was a Jewish monopoly.. Every year it became harder and harder for a gentile to gain or keep a foothold in any privileged occupation.. At this time it was not the ‘Aryans’ who exercised racial discrimination. It was a discrimination that operated without violence. It was exercised by a minority against a majority. There was no persecution, only elimination.. It was the contrast between the wealth enjoyed – and lavishly displayed – by aliens of cosmopolitan tastes, and the poverty and misery of native Germans, that has made anti-Semitism so dangerous and ugly a force in the new Europe. Beggars on horseback are seldom popular, least of all with those whom they have just thrown out of the saddle.’

etc etc etc etc


Saikat
26 Apr 11, 01:31
matured capitalist economies

All matured capitalist economies are facing excess capacities in the real economy. Finance gives capital an alternative profitable investment outlet. So the least worst policy is to feed financial capital by making money out of thin air.


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