Euro-zone Sovereign Government Debt, Too Many Emergency Meetings in Europe

From LewRockwell, Aug 16, 2011
By Gary North

If the sovereign government debt situation in Europe is anywhere near a final economic solution, why do the heads of Germany and France keep meeting? These meetings are getting more frequent.
Why didn't all the previous meetings solve the economic problem of PIIGS debt?

What public relations statement do they expect will bring financial stability to the PIIGS?
What new program will they suggest, only to be disavowed as impractical by the European Central Bank, and then adopted a week or two after the official denial?
What program will they ever submit to their respective parliaments, to be debated openly in front of voters? None, you say? I see. Just like before.
What opportunity will voters in France and especially Germany be given to express their view of the new program? None, you say? I see. Just like before.
What indication will investors see that there is any new program that is not merely another Band-Aid?
What program, other than more deficit spending by France and Germany to lend more money to the PIIGS, will ever come forth from one of these meetings?
What solution, other than more purchases of the IOUs of PIIGS bonds by the ECB, will ever be presented?
What will they ever suggest, other than more of the same?
What evidence will ever be presented that the latest round of more of the same will not be followed in a few weeks and months and years by even more of the same?
As always, investors dream of a final economic solution. They keep returning, like a dog to its vomit, to the capital markets, euros in hand, to get in on the boom that lies ahead – must lie ahead – because of the final infusion of capital, the final expansion of the monetary base, the final round of more of the same.

A RECESSION BY ANY OTHER NAME

The New York Times published an article by two European correspondents on whether Europe is moving into a recession. It is obvious from the official numbers that it is doing just that, but an open admission of this in a news report would of course be unprofessional.
The article began with a human interest story of some hard-pressed Englishman whose small company has laid off workers. The company installs home heating systems. These days, there is not much construction going on. The owner says it is the toughest market he has ever seen.
It occurs to me that heating systems break down. They must be replaced. People still need to keep warm in the winter. But selling heating systems in summer is tough. The firm should be promoting discounts for installing heating systems. This is a hard sell. Most people do not turn on their heaters in summer. They do when it gets cool, and some find that the system does not work. They call the repairman. He may try to sell them a new system.
I get their main point. The new housing construction industry is comatose. It's comatose in the USA, too. The bubble has popped, and it will not fly again prior to mass inflation.
But modern economies are service economies to an extent that we do not perceive. This sector is also slowing. The official numbers for the overall economy are bad.

In France, the second-largest economy in the European Union after Germany, growth came to a standstill in the three months through June, according to official figures. Meanwhile, industrial production in the 17-nation euro area fell 0.7 percent in June compared with May, more than analysts had forecast.
On Tuesday, economists expect a report on euro area economic activity to show that gross domestic product slowed to 0.3 percent in the second quarter, from 0.8 percent in the first three months of the year.

When GDP is at 0.3%, the economy is as good as in a recession. Statistical errors in sampling are in that range. An economy that is slowing, but which is already at 0.3%, is heading into a recession.
The article admitted that there are recessions in Greece and Portugal. It follows the Keynesian party line. It blames austerity measures. Even if this assumption is true, these are not true austerity measures. Nobody in power in Europe suggests that these governments can or should balance their budgets this year, let alone run fiscal surpluses in order to pay off their debts slowly over time. Oh, no. Nothing that radical. But still there is austerity compared with a year ago.

AUSTERITY AND OTHER MYTHS

The authors pushed the thesis that the recession is due to austerity measures imposed on PIIGS by the north.
Government austerity measures have cut into consumption in countries like Ireland and Italy, and the belt-tightening is spreading. President Nicolas Sarkozy of France, in an attempt to reassure bond investors that the country can service its debt, last week told his budget and finance ministers to come up with new measures to cut the budget deficit to 3 percent of gross domestic product by 2013, from a projected 5.7 percent this year.

The problem is not the preposterously named austerity measures, contrary to the financial press, which is Keynesian to the core. The problem is far more fundamental: the end game for Keynesianism.
The Keynesian game has been to spend, spend, spend: tax, borrow, and print. This is not working any more. It is in fact visibly failing.
Now the gray sky Keynesian politicians in northern Europe are demanding that the sunshine Keynesian politicians of southern Europe (and Ireland) cut back on government spending, meaning slow the rate of growth in government spending. Why? So that the happy-go-lucky PIIGS can make interest payments on their debts to northern European banks. Then what is the reward offered by the north to get the south to change? Cheap loans from northern European governments, the ECB, and the IMF. To be used for what? To make interest payments to the banks. And what is the result? Greater debt. With what result? Even larger interest payments to northern banks.
Get the picture? The key phrase is "interest payments to northern European banks."
This is the meaning of the so-called austerity: an austerity for governments and therefore also for those citizens who are dependent on government funding. That is a lot of people. They resist this austerity. They vote in blocs. The politicians are afraid of them. So, there is no real austerity. There are no government surpluses to pay off existing debts. The opposite is taking place in the PIIGS. The northern governments, the IMF, and the ECB are lending money to them, so that they can sell additional IOUs.
There is a hue and cry by Keynesian economists against any austerity measures.

Many economists warn that the austerity measures could be counterproductive by making people fearful of unemployment and afraid to spend. "Austerity has become the problem, not the solution," said Ian Harnett, a managing director at Absolute Strategy Research. "Me saving is great. You saving is great too. But if we all save it's not good."

Keynesians are contemptuous of saving, by which they mean investing in the private sector. They love saving when it means purchasing government bonds. This, they call investing. They think of private saving as crowding out true investment, which is government spending. They resist private saving, for it reduces consumption and the sale of government bonds.
But does government austerity reduce consumption? No. The money that would have been loaned to the government is now either loaned to the private sector or else spent on consumer goods. It has to go somewhere, after all. If it goes to investments in the private sector, the money will be spent on producer goods.
The shift in capital allocation from the purchase of government bonds into the private sector changes the structure of production: the array of capital prices. It makes old investments look foolish – rather like the popped real estate bubbles. But it does not reduce overall consumption. It merely changes the income streams of the nation. Who gets how much will change, but everyone will get something. What the government does not spend, private participants will.
A government deficit requires saving to fund it. Keynesians are always favorable to government spending, with or without deficits, but preferably with. They want government spending to crowd out private spending. The more that a nation's GDP is based on government spending, the more they like it. The more that private spending is based on being on the receiving end of government spending, the more that consumers become dependent on the government.
This is the Keynesian game. It always has been. It is fascism – the corporate state – by salami slicing. It is fascism on the installment plan. This is why Keynes wrote this in the Foreword to the 1936 German edition of his General Theory.

The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions. Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced.
If there were real austerity – a reduction of government spending by at least 30% – the private sector would have to adjust to a world in which economically productive customers, not those receiving government handouts, increasingly drive their economies.

The economic costs of making this transition would be high. Capital is not homogeneous. It is not digits on a balance sheet; it is a structure of the tools of existing production. It has been misallocated because of the Keynesian interference with the economy for six decades. Today's capital must be re-priced and re-allocated. There would be a stock market crash, as capital is re-allocated. Today's tools are priced in terms of government spending. This is the benefit of austerity: a shift back to greater private sector productivity. It would come at a cost.

THE SOLUTION

The solution for the PIIGS' economies is the same as the solution for all economies: to get out of the government debt trap, not to take more debt. But Keynesianism is based on government-subsidized debt. So, there is therefore no solution for Keynesians, other than more of the same.
The recession in two or three small PIIGS nations points to the future of German exports. The authors warn: "Worse-than-expected results from companies like Daimler, Deutsche Bank and Siemens in the last month have reinforced the feeling that Germany's extraordinary boom is near an end." Indeed! That is because it really is near an end.
Yet Merkel once again felt compelled to get into another of her famous gurgling sessions with Sarkozy. She was expected once again to reassure the PIIGS that Germany's government will come to the rescue.
How many times will Germany come to the rescue? How many times will Merkel write a check on the personal bank accounts of German taxpayers before the taxpayers revolt? Many more, I suspect. Voters refuse to throw out all politicians who do not oppose the bailouts. But at some point, they will.

Then what will happen to the PIIGS?

It is clear what is coming: a great default. It is clear to everyone except Keynesians. They believe that government debt will grow forever. There will never be a default. What Latin American governments have done over and over for 180 years cannot happen here. Why not? Because it just can't.
This is the religion of Keynesianism: government debt forever, interest payments to big banks forever, and bailouts by other governments forever.
This economic nonsense sells fairly well in political circles in surplus trade nations like Germany, China, and Japan. Why? Because the export sectors want it. They want government subsidies. They get these subsidies directly and indirectly. The main way they get them is to pressure their governments to pressure their central banks to inflate, using the newly created money to buy IOU's from negative trade nations. This holds down the value of their domestic currencies: more sales to foreigners. It also holds down interest rates on government debt in negative trade nations, which is always acceptable to politicians everywhere.
It cannot go on. So, it will stop. It will stop only when the PIIGS default. They will default.
To find out what will happen after they default, read this. It will scare you. It scared me. (Skip page 2, which is off target.)
It does not scare conventional investors. They believe in assurances by Keynesian economists that this can go on indefinitely, and in any case must go on for the foreseeable future.

CONCLUSION

You may think you are out of touch because you see no solution coming out of these official meetings.
You are out of touch . . . not with reality, but with Keynesian economics.
You are out of touch with the politicians who reassure their listeners endlessly that the latest meeting has provided a framework for a long-term solution to the PIIGS problem.
You are out of touch with the fund managers who believe them.
This is the price of being in touch with reality.

Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

http://www.lewrockwell.com

© 2011 Copyright Gary North / LewRockwell.com - All Rights Reserved

16 Statistics Which Prove That The American People Are Absolutely Seething With Anger

From The Economic Collapse, Aug 16, 2011:

According to a whole host of polls and surveys, the American people are incredibly angry right now.  The American people are hopping mad at the government, the American people are hopping mad about the economy and the American people are hopping mad about the direction that this country is headed.  Never before in modern U.S. history have the American people been this angry.  There is vast disagreement about what the solutions to our problems actually are, but what everyone can agree on is that the American people are absolutely seething with anger right now.  The statistics that you are about to read are mind blowing.  We used to be such a happy country.  Once upon a time we were one of the happiest places on earth.  But as the economy has fallen to pieces anger has been steadily growing.  If something is not done to turn the economy around eventually this anger is going to erupt in frightening and unpredictable ways.

The American people are not equipped to handle hard times.  We are incredibly spoiled.  Most of us have only known good times, and most of us have been taught that we will have endless prosperity all of our lives because we live in the greatest nation on earth.
Well, “the greatest nation on earth” is about to get a massive wake up call.  We are up to our eyeballs in debt and we are bleeding jobs, businesses and wealth at an astounding pace.  Our economy is dying right in front of our eyes, and most Americans have been so “dumbed-down” that they don’t even realize what is happening.
But what most Americans do know is that things are “bad” and they want someone to “fix” things.  They know that something is “not right” and they want things to go back to the way things used to be.  The longer it takes for things to return to “normal”, the angrier they are going to get.
The following are 16 statistics which prove that the American people are absolutely seething with anger right now….

#1 A new Washington Post poll has found that a whopping 78 percent of Americans are dissatisfied “with the way this country’s political system is working”.
#2 That same poll found that only 26 percent of Americans believe that the federal government can solve the economic problems that we are now facing.
#3 Gallup says that Barack Obama’s job approval rating has hit an all-time low of 39%.
#4 According to a recent CBS News/New York Times poll, Congress has a disapproval rating of 82%.
#5 A new Rasmussen survey has found that 85 percent of Americans believe that members of Congress “are more interested in helping their own careers than in helping other people.”
#6 That same survey found that 46 percent of the American people believe that most members of Congress are corrupt.  That figure was a new all-time high.
#7 According to a different Rasmussen survey, only 17 percent of Americans now believe that the U.S. government has the consent of the governed.
#8 A recent Reuters/Ipsos poll discovered that 73 percent of the American people believe that the nation is “on the wrong track”.
#9 A recent poll taken by Rasmussen found that 68 percent of Americans believe that we are actually in a recession right now.
#10 According to Gallup, the percentage of Americans that lack confidence in U.S. banks is now at an all-time high of 36%.
#11 U.S. consumer confidence is now at its lowest level in 30 years.
#12 According to a recent Washington Post-ABC News poll, 90 percent of Americans believe that the economy is performing poorly.
#13 That same poll found that approximately 80 percent of Americans believe that it is “difficult” to find a job these days.
#14 According to one recent poll, 39 percent of Americans believe that the U.S. economy has now entered a “permanent decline”.
#15 Another recent survey found that 48 percent of Americans believe that it is likely that another great Depression will begin within the next 12 months.
#16 According to a brand new Rasmussen survey, 48% of Americans believe that reductions in government spending are “at least somewhat likely” to result in civil unrest inside the United States.

So why doesn’t the government step in and spend a whole bunch of money and make everything all better?
Well, the problem is that we have done this time after time before and now we are broke.
We have been living way, way beyond our means for decades and now the bills are coming due.
David Walker, the former Comptroller General of the United States, has been warning about our debt problem for years.  Walker says that the United States is heading for a “sudden and very painful” economic collapse….

“Here’s the bottom line. If you take the total liabilities of the United States – public debt, unfunded pensions, retiree health care, under funding with regard to social security, with regard to medicare, a range of commitments and contingencies – as of September 30 2010 we would have had to have had $61.6 trillion dollars in the bank in order to be able to defease those obligations.”

The cold, hard truth is that the U.S. national debt should have been addressed many years ago when it was still relatively small.
At this point, there is no solution to our national debt problem under our current financial system.
Most state governments are also facing huge financial problems.  The state government of Illinois is so broke at this point that it can’t even afford to bury the poor people that are dying.
But Illinois is not alone.  All over the country, state and local governments have been implementing austerity measures.

According to the Center on Budget and Policy Priorities, state and local governments have slashed more than half a million jobs since August 2008.
That is a whole lot of good jobs that aren’t there anymore.
But government debt is not the only debt problem that we are facing.  Personal debt is also a raging crisis.

According to USDebtClock.org, the total amount of personal debt in the United States is now over 16 trillion dollars.  The exploding levels of personal debt have created a tremendous amount of stress in households from coast to coast.
When I was growing up, it seemed like almost everyone was in the middle class.  But today the middle class is shrinking at lightning speed.
According to author David DeGraw, 17.3% of all Americans were living in poverty during 2009.  Not only that, DeGraw also says that 9 major U.S. cities have a poverty rate of over 25 percent.
Can you imagine that?
In fact, there are some cities such as Detroit where the poverty rate is over 35 percent.

It is hard to believe what is happening to America.  Today, there are over 45 million Americans on food stamps.  That number has increased by approximately 12 percent in the last year alone.
There are currently 34 million Americans that need a full-time job.  Unemployment is rampant and there is intense competition even for part-time jobs that pay minimum wage.
So where did all of the jobs go?
Well, as I have written about previously, globalism is absolutely devastating our economy.  Millions of our jobs have been shipped to countries where labor is far, far cheaper and they aren’t coming back.
In addition, millions of Americans that do still have jobs are also deeply struggling right now.  There are millions and millions of Americans that are working part-time jobs because that is all that they can find right now.  Millions of other Americans are flat broke and are discovering that their paychecks are “shrinking” due to inflation.  Wages have barely risen while prices for food and other necessities are skyrocketing.
Most families are really struggling to get by right now.
According to the Washington Post, the average yearly income of the bottom 90 percent of U.S. income earners is $31,244.
It is really hard to pay a mortgage and feed a family on that income.

The only people that seem to be doing well are at the very top.
The average yearly income of the top 0.1% of U.S. income earners is 5.6 million dollars.
Not that making money is a bad thing, but when an economic system funnels all of the rewards to the very top you know something is deeply broken.
The poorest 50% of all Americans now own just 2.5% of all the wealth in the United States.
A lot of poor Americans have literally fallen off the map.  The Daily Mail recently did a feature on one tent city that has been constructed deep in a forest in New Jersey….

In scenes reminiscent of the Great Depression these are the ramshackle homes of the desperate and destitute U.S. families who have set up their own ‘Tent City’ only an hour from Manhattan.
More than 50 homeless people have joined the community within New Jersey’s forests as the economic crisis has wrecked their American dream.

You can see shocking pictures of this tent city right here.
So it is no wonder why so many Americans are so angry.
If you lost your job or your home you would probably be angry too.
Most Americans just want to be able to go to work, make a decent living, pay the mortgage and provide for their families.
But in America today that is becoming increasingly difficult to do.
Our economy is a giant mess and the American people are becoming very angry.
If the economy gets even worse, they are going to become even angrier.
Storm clouds are gathering on the horizon.
Things are about to get very, very interesting.
________

Related:
Obama's Bleak Misery Tour

Disapproval of Congress Hits All Time High of 84%

Alert: Silver shorts are getting out of the way

From Safehaven, August 15th, 2011.
By Clive Maund

Silver held up surprisingly well during the stockmarket collapse - you will recall that we had expected it to take more of a beating - no doubt assisted by gold's sparkling performance, so that now, having held above strong support, and with a marked improvement in its COT structure over the past week, it is believed to be poised for a really strong upleg.

The 6-month chart for silver shows HUGE upside potential, with a powerful uptrend starting from right where we are now. If the interpretation of the wave count is correct (this can be a big "if" of course, but it does look very clear at this point), then the point we are at now is close to the trough of the wave 2 reaction that should now immediately lead to a strong wave 3 uptrend, all this following the 3-wave A-B-C correction shown on the chart. Even without reference to wave theories the chart certainly looks encouraging as silver managed to break above the quite strong resistance in the $39.00 - $39.50 zone on its wave 1 advance which is now functioning as a support level, in addition to which its moving averages are now in bullish alignment and it is not overbought on short to medium-term oscillators as made clear by the RSI and MACD indicators on the chart. Everything appears to be in place for a big rally to get going - "all systems go" as they used to say.

Further evidence that a big rally is brewing in silver is provided by the latest COT chart, which shows a surprisingly large reduction in Commercial short positions in just one week - the Commercials are getting out of the way, which signals a rally - and it may have just started with today's 85 cent rise.

Germany, France Slide Toward Recession; German Economy on Verge of Contraction

From da Mish's Global Economic Trend Analysis:

 Signs point that the Eurozone economy is already in recession, but no one has called it yet.
Instead, headlines read like this: German Economy Almost Stalled in Q2

The German economy, Europe’s largest, almost stalled in the second quarter as the region’s sovereign-debt crisis weighed on confidence.


Gross domestic product, adjusted for seasonal effects, rose 0.1 percent from the first quarter, when it jumped a revised 1.3 percent [down from 1.5%], the Federal Statistics Office in Wiesbaden said today. Economists had forecast growth of 0.5 percent, according to the median of 33 estimates in a Bloomberg News survey.


French Stagnation


France said last week its economy stagnated in the three months through June, while reports on Aug. 5 showed Italy’s GDP rose 0.3 percent and Spain’s increased 0.2 percent. Austria’s economy grew 1 percent. The German statistics office revised first-quarter growth down from an initially reported 1.5 percent.


Europe’s malaise is further confirmation of a cooling global economy. Japan cut its annual growth forecast last week on weaker export prospects, Hong Kong’s economy unexpectedly shrank in the second quarter and China’s expansion slowed. In the U.S., Federal Reserve Chairman Ben S. Bernanke signaled he may expand record monetary stimulus to revive a faltering recovery and reduce unemployment stuck around 9 percent.

Things have deteriorated must faster than anyone thought could happen. Moreover, as I have noted many times previously, austerity measures in Italy, Spain, Greece, Ireland, Portugal, and France cannot help, at least in the short-to-intermediate term. It may take years for Italy, Spain, etc productivity measures take hold. Germany does not have austerity measures, yet it is on the verge of contraction anyway.


Mike 'Mish' Shedlock
http://globaleconomicanalysis.blogspot.com/ Click Here To Scroll Thru My Recent Post List

Mike 'Mish' Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

"

Dutch Government Gives € 1,000,000.00 Stolen Libyan Money to World Health Organization.

From Mathaba, August 15, 2011:

 

Dutch FM Rosenthal (l): “We don’t recognize governments… but we DO support anti-government rebels”

The Dutch government has given € 1,000,000.00 ($ 1,425,000.00) in frozen Libyan assets belonging to Gaddafi and Libya to the World Health Organisation (WHO) to “grant humanitarian aid” to the rebels in Benghazi and other rebel occupied areas in Libya.
Therewith the Netherlands is the first country using humanitarian aid as a pretext to financially support the Libyan rebels.
“After an urgent request by the WHO, I am delighted the Netherlands can release the money because the sanctions committee of the United Nations has approved this,” the Dutch Foreign Ministry declared in a statement on Monday, adding it was only a fraction of Libya’s assets seized by the Dutch government in March this year.
The Netherlands has several billions of frozen assets of Gaddafi and the Libyan people.
Foreign Minister Uri Rosenthal explained that the decision to unfreeze the stolen funds is “a good example of how penalties work” because “this money will save lives of the people in Libya” and will “squeeze the Libyan regime”.
On May 5, the same Minister Rosenthal called a claim that the Netherlands had recognized the Libyan rebel group as the official representative of Libya “false and incorrect”, saying: “It was a big surprise to hear this and it is not true. We have always said the Netherlands recognizes states, not governments.”
Also on June 14, Rosenthal said that Germany, Italy, Spain and France shouldn’t have recognized the Libyan rebels’ National Transitional Council (NTC) as official representatives of Libya.
However, after a meeting with a number of European officials in Brussels on July 13, the Netherlands decided to also consider the NTC as the legitimate representative of the Libyan people.

The Netherlands contributes to the war against Libya with six F-16 jets and a warship.