Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
Inflation About To Explode Higher - 22nd Oct 16
Still waiting for SPX uptrend to kick off - 22nd Oct 16
Will a Rising US Dollar Crush Gold’s Fledgling Bull? - 22nd Oct 16
Why The Global Economy Will Disintegrate Rapidly Back to Olduvai Gorge - 22nd Oct 16
GLD Bleeds Out; Weekly Gold Update - 22nd Oct 16
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's insane Housing Market Will Tumble and Crash in 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16
Donald Trump on Life Support, May Abandon Election Campaign and War on Republican Party - 15th Oct 16
The Gold Manipulators Not Only Will Be Punished, They Have Been Punished - 15th Oct 16
Black Votes Matter - Is the US on the Verge of Mass Race Riots? - 15th Oct 16
Gold Stocks Screaming Buy - 14th Oct 16
Brace Yourself for the Quadrillion-Dollar Reckoning - 14th Oct 16
The Next Recession Will Blow Out the Budget - 14th Oct 16
John Mauldin: My Infrastructure Plan to Save the US Economy - 14th Oct 16
World War III On The Brink: War Will Continue Until It Triggers Economic Collapse - 14th Oct 16
US T-Bill Rejection At Ports In Progress - 14th Oct 16
These 2 Debt Instruments Pose Peril to Millions of Investors - 14th Oct 16
China’s Rocketing Housing Market Real Estate Bubble - 14th Oct 16
DIY Winter Home Maintenance Money Saving 22 Point Checklist to Get Ready for Winter/Fall - 14th Oct 16
US Stock Market, Big Picture View - 13th Oct 16
Stock Buybacks Main Force Driving Bull Market; Rewards Investors and Starves Innovation - 13th Oct 16
SPX Gapping Down... - 13th Oct 16
Syria - Obama Stepped Back From Brink, Will Hillary? - 13th Oct 16
The Structure and Future of Gold in the Investment and Monetary World - 13th Oct 16
Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - 12th Oct 16
Gold and Crude Oil - General Stock Market Links - 12th Oct 16
Samsung's Galaxy Battery Just The Tip Of The Iceberg - 12th Oct 16
Hillary: Deceit, Debt, Delusions (Part Two) - 12th Oct 16
Gold and Silver Metals Show Strength Relative to the USD Index - 12th Oct 16
Announcing Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 12th Oct 16
Confirmed Stock Market Sell Signals - 11th Oct 16
Hillary Deceit, Debt, Delusions - 11th Oct 16
Trump Support Crashes to New Low of 6.4 on Betfair Odds Betting Market - 11th Oct 16
The World Is Turning Dangerously Insular - 11th Oct 16
An American Tragedy: Trump Won Big - 11th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

The Truth About Europe: There Is No Solution

Politics / Eurozone Debt Crisis May 31, 2012 - 02:05 AM GMT

By: Ashvin_Pandurangi


Best Financial Markets Analysis ArticleI like that title, The Truth About Europe: There Is No Solution. But I don't think it can all be summed up, the reasons why I mean, in one article. So I think I'll make it a running series. Still, whatever data we can look at, past, present and future, none of it will make an essential difference. The title stands: There Is No Solution For Europe. Period. All I can do is keep pointing to news and stats and data that confirm that. All of them do, so that should make it a lot easier, even if most voices out there never tire from pointing out the opposite.

Nor do I need to limit my topic to Europe; it's not as if the US, or Australia, or any other industrialized country, has any other fate to look forward to. This global debt deflation is truly global, the only thing that differs is the exact time the hammer comes down. Maybe those people are best off who never had much, though they will be sure to be squeezed ever harder by us, the declining rich.

On our travels, we repeatedly met/meet people who claim that "there is always a solution". I think that notion keeps people from understanding crucial issues, it looks more like a faith-based point of view to me than a realistic or scientific one. And no, for Europe there is no solution. In the same way that there is none for global debt deflation (keep an eye on that one!) in general. The latter is quite simply the former writ large.

It’s like people saying that if you're not part of the soluton, you're part of the problem. Sounds cute, but it's not exactly helpful when there are no solutions available. May be we should all be fed quantum mechanics in grade one, just so we understand the folly of "there is always a solution". I digress.

Well, then again, of course, everything will be "solved" one way or another in the sense that the sun will rise again tomorrow in various places (others will be cloudy on any given day) , i.e. time will run its course and something will come out of all this. That's a kind of solution too. But there won't be some clever man-made scheme that makes all the bad things go away. It simply doesn't work like that. Not this time, if ever. The ECB or IMF or Bernanke or whoever will not be able to stop the financial rut. The issue is more that they ain't even trying, but manage to make people believe they are.

What they can and will all do, however, is make everything worse. Much worse. For the man in the street.

Who is being told that he needs to have his wages and pensions cut and lose his home so the economy can recover. While his sparse remaining wealth is transferred to bankrupt financial institutions.

The future European situation, from the point of view of the man in the street, could be mitigated, made better, improved, enormously, though two simple measures. Which will not be executed. Because those who make the decisions don’t do so with the man in the street in mind. Quite the contrary. But still.

First, the ECB and the troika it represents (which all represent the financial institutions, but that’s another story) could treat their own claims on Greece - and, eventually - Spain, Italy etc., like they insisted private creditors' claims were treated. That is, take a 50-70-90% haircut on those claims. That would give Greece a lot of breathing space. And Spain too. Not even considered.

But much more than that, Europe should restructure its banks. And not in the way Spain tries to do with Bankia, by pumping $20-odd trillion into it. How that was ever labeled "restructuring" is beyond me, frankly. No, banks should be restructured in the "old fashioned" sense. Put their books on the table out in the open, see what debts there are, what assets, what liabilities, and if the ultimate count is negative, let it go under. Simple. Shave creditors, save depositors.

Europe, like America, could have used all those trillions in bailout money to guarantee their citizens deposits. Instead, both have opted to guarantee their banks' losses. A clear and simple choice. But also one that just about nobody seems to have understood.

There are tons of people, I read and hear them every day, who think that the extend and pretend phase can last for years more. After all, they argue, it's already lasted for four or five.

They miss the point. Or A point, a big one.

Which is that if and when bankrupt financial institutions (and they are bankrupt, or they wouldn't have needed those trillions) are saved with our money, there is a direct claim on our wealth. And even more importantly, there is a claim on our future earning power. Those trillions will have to be earned back, after all.

The problem is that there is a limit to our earning power. That limit is there today, and there is precious little reason to believe it's not going to be there tomorrow (barring divine intervention). And that means that the financial world will come to the conclusion one day that any additional funds derived from government guarantees based on our (yourself, your children and grandchildren) future earning power are losing credibility.

The European safety nets, the ESM and EFSF, are already - hilariously and only on paper, but still officially - relying on contributions from Italy and Spain. Which will not be able to comply. And will count on Germany to make up the difference. And there's a limit there too. So the bond markets will conclude some day soon that even if the EU sold all its children into unpaid slavery, they still couldn't possibly pay for all the commitments made in European societies. And there the buck will stop.

What we can learn from all this is that our money is used to prop banks, and the banking system, while at the same time our debt to those same banks, and that same system, rises. The ECB and the Fed lend money to banks, money "underwritten" by our present and future earning power, at something like 0.05%, money the banks use to either buy sovereign bonds which pay interest rates that are 5 or 10 or 20 times higher (depending on the country we live in), or to prop up their accounts at the central banks, which also earn them higher rates. Both options, again, are underwritten by our earning power.

Our money keeps our banks alive through a mechanism that makes our debt to them grow while we keep them alive. All our central banks need to do is make sure that bond yields are higher than the interest they charge banks on "emergency loans".

Oh wait, they can't even do that forever. Yields on US, German, Japanese bonds will fall mercilessly as investors seek safety. But hey, who's talking about forever? All they need is something that works today, and provides the time to think about an equally profitable scheme tomorrow. If you're too big to fail today, why not buy some Spanish bonds? Losses can always be transferred and profits pocketed.

Now you may say: the banks are bankrupt regardless, so why would a central bank or government pull these stunts? To answer that, you need to know who rules the banking system and the governments systems. And who votes for the latter. You.

To be continued.

Ashvin Pandurangi, third year law student at George Mason University
Website: (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2012 Copyright Ashvin Pandurangi to - 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 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife