Martin Armstrong: Big Money & the Economic Depression

From Silverdoctors, August 17, 2011:

Martin Armstrong presents a theory for the financial/debt crisis that differs from hyperinflation- worldwide deflation as a result of sovereign debt default.
(This is not your typical Ackerman/ Mish deflation argument)

Armstrong points out the the US is not the worst debt offender (although he does leave out unfunded liabilities in his analysis).
He also correctly states that whether the final outcome is hyperinflation or a massive deflationary depression will be determined by the response to the crisis- whether governments continue to print, or turn to severe austerity ala Greece.
Armstrong believes that sovereign debt will default prior to the dollar collapsing into hyperinflation- however he correctly understands that either scenario is positive for gold as a massive deflation will result in all assets deflating vs. gold.

A must read to challenge your thoughts and perspective with an alternative but highly valid viewpoint.
Aug.16.2011 Big Money and the Economic Depression

5 pages

Euro Area: A Deceptive Calm

From SeekingAlpha,  August 17, 2011  
by: Peter Tenebrarum

Over the past week or so, an uneasy quietude has descended over Europe. Ever since the ECB began its interventions in the government bond markets of Italy and Spain, the sense of immediate crisis has diminished somewhat, as euro area bond yields and CDS spreads have declined in its wake.
And yet, everybody knows that the basic fundamental problems haven't gone away – in fact, they have worsened, as lately even Germany – hitherto regarded as the growth engine of the euro area – has seen its economy beginning to sputter.
As Reuters reports:

German gross domestic product growth slowed more than expected in the second quarter, dropping to 0.1 percent in seasonally adjusted terms from a revised 1.3 percent in the first three months of the year, data showed.
The unadjusted preliminary data from the Federal Statistics Office released on Tuesday also showed that growth eased to 2.8 percent compared to the same quarter a year earlier, after 5.0 percent in the first three months of the year.
The figures compared to Reuters consensus forecasts for a 0.5 percent expansion in quarterly terms and a 3.2 percent rise year-on-year. Quarterly growth was at its lowest since it posted a negative reading in the first quarter 2009.

In the meantime, the news backdrop is oscillating between irrelevance, disappointment and absurdity. (Among one of the more absurd events Finland has received a 'loan guarantee' from Greece in the form of an undisclosed cash amount for Finland's portion of the Greek bailout. Does this make any sense whatsoever?)
The well-known globalist oligarch, hedge fund manager George Soros – a man who for some reason, in spite of having fled from the communists and having made his money in the markets, usually displays an astonishing degree of hostility toward free markets and calls for interventionism by the State at every opportunity – garnered some attention when he penned an editorial in the Financial Times calling for the 'introduction of eurobonds' (see also this interview he gave to the German magazine Der Spiegel). This has possibly raised hopes among supporters of the idea that it may finally be implemented, but these hopes were quickly dashed again.
These bonds would be government debt securities issued by the euro area as a whole, an idea that is understandably resisted by the countries with the highest credit ratings – as it would pull their credit ratings down and represent the final step toward a transfer union. From the point of view of Germany, this would not only likely be unconstitutional, but also amount to political suicide for the political leaders agreeing to it. Note here that the latter concern is a far more important obstacle than the former. The entire gamut of 'euro rescue' efforts and bailouts after all rests on the flimsiest legal foundations imaginable. The political and bureaucratic classes of Europe don't care one whit whether what they do is legal or not. Just about anything can be justified by an 'emergency' after all. It is important to realize that this is simply how the State operates – always and everywhere. 'Democracy' and 'constitutions' are by no means effective shields that protect citizens and tax payers from the State's predations– all that is required is a sufficiently scary 'emergency' and immediately the law goes out the window. As we noted before – quod licet Iovis, non licet bovis.
It is different with the danger posed by the prospect of losing an election. Government power will always fall to political organizations that represent the establishment status quo, which is to say, nothing at all in effect changes for the citizenry should it decide to vote for a different party. Alas, for the parties themselves it is obviously important who will end up sitting the closest to the trough. So it does make a difference for the ruling classes and hence there is little inclination to opt for political suicide, regardless of personal convictions or overarching agendas.
As it is, no decisions of importance will be made in the euro area without Germany's assent. So far the Germans have been reluctantly dragged into agreeing to ever more interventions, but political resistance to a transfer union remains quite high. For instance, Mrs. Merkel's coalition partners, the FPD ('Freiheitliche Partei Deutschland's) and the CSU ('Christlich-Soziale Union'), the former a basically conservative outfit with very slight classical liberal leanings and the latter a deeply conservative party based in Bavaria, remain dead set against the euro-bond idea.
As Ambrose Evans-Pritchard wrote on this ahead of the much-heralded Merkel-Sarkozy meeting:

The simmering revolt in the Bundestag makes it almost impossible for Mrs Merkel to offer real concessions at Tuesday's emergency summit with French president Nicolas Sarkozy.
"We are categorical that the FDP-group will not vote for eurobonds. Everybody must understand that there is no working majority for this," said Frank Schäffler, the finance spokesman for the Free Democrats (FDP).
Oliver Luksic, the FDP's Saarland chief, told Bild Zeitung the survival of Germany's coalition was now rests on the handling of this issue. "Eurobonds are a sweet poison that leads to more debt, rather than less. Should the government endorse a common European bond and with it take the final step towards a long-term debt union, the FDP should seriously ask whether the coalition has any future." Alexander Dobrindt, general-secretary of Bavaria's Social Christians (CSU) and a key Merkel ally, said his party has issued a "crystal clear 'No' to eurobonds".

And so it came as no big surprise that nothing of substance emerged from the Merkel-Sarkozy meeting, luckily in the case of euro-bonds, which would institute what we would term 'euro-bondage' for the much plagued tax payers of the euro area 'core' nations. Naturally a globalist and instinctive centralizer and interventionist like George Soros loves the idea, but not a single tax paying citizen in Germany is likely to agree. As we noted before, every step that brings the EU closer to the socialist super-state once imagined by the likes of Delors and Mitterand is a step in the wrong direction. Soros later also urged Portugal and Greece to 'quit the euro in order to help save the common currency'.
In any case, the Merkel – Sarkozy meeting once again showed that the EU's foremost political leaders are mostly united by an abiding hatred for the financial markets. They rejected the ideas that would simply not fly with their voters – such as euro-bonds and a further expansion of the EFSF – but in order to be seen to 'do something' fell back on that old stalwart of proposing fresh taxes and regulations that will without a doubt hasten the economic decline of Europe. Not surprisingly, stock markets across Europe suffered yet another wave of selling in the wake of their post meeting communique.
As Bloomberg reports:

European stocks fell as German Chancellor Angela Merkel and French President Nicolas Sarkozy rejected an expansion of the region’s rescue fund and rebuffed calls for joint euro borrowing. Asian shares rose and U.S. index futures were unchanged.
Carlsberg A/S, the Nordic region’s largest brewer, plunged 18 percent after reducing its full-year outlook. Deutsche Boerse AG (DB1) and London Stock Exchange Group Plc (LSE) lost more than 4 percent amid plans for a financial-transaction tax. Technology stocks posted the worst performance among 19 industry groups in the benchmark Stoxx Europe 600 Index as Dell Inc. missed analysts’ sales estimates and cut its revenue forecast. The Stoxx 600 declined 0.7 percent to 235.93 at 11:32 a.m. in London. The MSCI Asia Pacific Index gained 0.2 percent and Standard & Poor’s 500 Index futures were unchanged.
“The Sarkozy-Merkel meeting was the major event yesterday and anyone expecting a rabbit to be magically pulled from one of their hats would have been disappointed,” Jim Reid, a global strategist at Deutsche Bank AG in London, wrote in a report today. “Whilst markets will ponder the potential effects on market liquidity and the broader economy arising from the financial-transaction tax, it was the broader tax agreement that was unexpected.”
[…]
Merkel and Sarkozy agreed to press for closer euro-area cooperation, tougher deficit rules and a harmonization of their corporate tax rates.

(emphasis added)
The only effect of the financial transactions tax will be that liquidity in European markets will dry up, price discovery will be hampered and a lot of business will simply go elsewhere. It will also pressure stock prices and ensure lower multiples/higher risk premia in the long term. Investors will likely flee from European markets as fast as they can in the wake of this announcement.
Even worse though was the step toward 'greater tax harmonization'. As we have noted on several previous occasions, the most vocal 'harmonizers' are typically the countries that sport the highest tax rates. They want to keep producers of wealth from being able to vote with their feet by stifling tax and regulatory competition across the EU. The crisis is seen as an opportunity to finally force others to comply with these plans. This should also hasten the economic decline of Europe considerably. The currently still rich welfare states are on their way to the poorhouse if they continue to implement such policies. Investors should take heed and act accordingly.
The fact that the size of the EFSF is not going to be expanded means the ECB is facing a few tough decisions now. Should it keep buying Italian and Spanish bonds? The ECB wanted the EFSF to take over these market manipulation duties in due time. However, it should be obvious that the bailout fund simply does not have enough money. If it were indeed enlarged it wouldn't really help the situation either – on the contrary, the crisis would eat its way through to the 'core' nations even faster, as they would have to stump up the money for the enlargement.
We would note that both France and Germany are home to extremely leveraged banks that are potentially prone to suffering a banking crisis that will make the Lehman bankruptcy look like a walk in the park. In our opinion the political leaders of the EU are for the most part economically and financially illiterate and have not the foggiest idea on what a powder-keg the euro area is sitting. How else can one explain the outcome of the Merkel-Sarkozy meeting? What came out of it was mostly the promise of more and higher taxes and 'more meetings'. They could not possibly have come up with a worse resolution.
Of course Sarkozy is well known for having absolutely no idea of how markets work (see his frequent exhortations to institute price controls in commodity markets) and very much personifies the anti-capitalistic mentality so popular in France. Why he is heading a 'conservative' party we will never know. We shudder to think what a French socialist might look like. Mrs. Merkel's grasp of economic issues meanwhile appears rather provincial, although this may actually spare the German tax payers some of the depredations they might suffer under a more 'cosmopolitan' leadership. Unfortunately for the Germans, it will hardly help them if they vote the authoritarian left consisting of the Greens, the Social Democrats and the SED rump 'Die Linke' into power. On the contrary, if such a political constellation were to come to power, it would probably ensure that Germany would give the eurocrats anything they want.
As reported elsewhere, Merkel and Sarkozy also announced that 'closer fiscal and economic integration of the euro-area' is on their agenda. They also made their standard call on Ireland to also raise its corporate tax rate, something the Irish have luckily resisted thus far. They also proposed that euro area members should introduce constitutional amendments that prescribe public debt ceilings. Why anyone would think that those would work better than the existing Maastricht treaty debt ceilings must remain a mystery for now. The closer fiscal and economic cooperation is to be achieved by half-yearly meetings chaired by the eurocrat everybody loves to hate, European Council president Herman van Rompuy. We're not sure how holding even more meetings will help to remove the basic flaws in the euro's design and apparently the markets don't care much for the idea either.

The two leaders, who held an emergency meeting in Paris on Tuesday on the debt crisis — which is threatening to spread to Italy and Spain — also called for enforcing strict budgetary discipline by incorporating a "debt brake" in member nations' Constitutions by the middle of next year.
In addition, they suggested imposing a financial transaction tax to curb speculative trade, which could endanger the stability of debt-laden member nations.
The meeting was hurriedly convened in the wake of severe turbulence in financial markets last week and speculation that France may be downgraded from its top-level AAA credit rating by ratings agencies.
Merkel and Sarkozy said the proposed joint economic governance is intended to closely coordinate the financial and economic policies of the 17 nations under the leadership of their heads of state and government, who will meet every six months.
European Council President Herman van Rompuy will chair those meetings.

(emphasis added)
Naturally, a new tax on financial transactions will do absolutely nothing to 'curb speculative trades' , which the politicians wrongly presume to be the source of the euro area's troubles. Investors are merely taking action to preserve their capital. Why would anyone want to invest in the debt securities of bankrupt governments? Just to please Mr. Sarkozy? And why would Sarkozy and Merkel expect that the incentive to invest into the bonds of bankrupt governments can be increased by taxing financial transactions? Logic doesn't seem to be their strongest suit.
Lastly, the idea that closer economic and fiscal cooperation between the euro area governments will solve the problem is mistaken. The basic problem is that there is an under-capitalized, fractionally reserved banking system that is deeply intertwined with the increasingly insolvent government debtors due to holding the bulk of their bonds. There is practically no brake on the creation of fiduciary media, i.e., money from thin air by the banking system. Governments have profited greatly from this system, which they have misused to impose an enormous inflation tax on citizens (euro area true money supply [TMS] has expanded by about 145% in the past decade) and by financing debts that could not possibly be financed absent such unbridled credit expansion.
As Philipp Bagus has pointed out, the situation is akin to the 'tragedy of the commons' – the profligate member nations thought they had nothing to lose by being profligate. In addition, a currency union works a bit like a peg or a currency board – when economically disparate nations are bound together by such a peg, it seduces investors hunting for yield to invest as much money as possible in the securities that offer a slight yield premium – after all, there is seemingly no currency devaluation risk. At the same time, the credit expansion of the fractionally reserved banking system undermines the pool of real savings and helps with piling up ever more unproductive debt, both in the public and private sectors.
It should be obvious that if the banking system were 100% reserved that there would not be a crisis now. And yet, this subject is completely taboo. We frankly doubt the politicians even understand how the system works, but we are fairly certain that they will eventually badger the ECB into printing money 'Fed style', via unsterilized quantitative easing. This will probably prove to be the 'solution' that is the politically most palatable, as most citizens will be unaware of the horrendous cost until it is way too late.


Merkel and Sarkozy – they're sitting on a powder keg, but still seem to be blissfully unaware of it.

---

Jim Willie: Gold & Silver: Full Spectrum Dominance

From Goldseek, 17 August 2011
By: Jim Willie CB, GoldenJackass.com

Gold and Silver have emerged in the last 12 months as the dominant asset group. They led the entire 2000 decade, still gathering disrespect. They do not require respect from the Wall Street and London crowd. They serve as effective protection during the slow motion crumbling process to the global monetary system. The sovereign bond crisis has circled the peripheral nations, rendered its wreckage, and is working toward the center where the USTBond and UKGilt reside (worried). Italy and Spain are squarely in the crosshairs for financial assaults, but France and the United States lie closer to the core of Western nation sacred debt territory, soon to become sacred burial grounds. That must sound drastic and melodramatic, but just wait. Other calls of an insolvent US banking system, calls of a chronic housing bear market also once sounded extreme. They came true. So did $1000 gold and Canadian Dollar parity calls made in 2005. Again they came true. Dismissal of Green Shoots, Jobless Recovery, Exit Strategy, and No QE sounded bombastic and pedagogical, but they were also correct calls. In fact, very easy calls. The ruin of the USTreasury Bond debt security is a long drawn out process like a cancer victim. Weakness is followed by emaciation, then organ damage, circulatory problems, finally a bedridden state, and lastly the inevitable death. Analogies to each can be made with USTBonds nowadays, like the foreign central banks withdrawing from the process evident in low Indirect Bids, like dependence upon debt monetization.

INTEREST RATE SWAP DEVICE

A preamble is necessary. The Wall Street market makers (manipulators) have succeeded in leading the investment community to believe that the long maturity USTreasury market has contradicted the Standard & Poors rating downgrade of USGovt debt. The bond rally with accompanying fall in the TNX bond yield to near 2.15% as a low led a gaggle of analysts and news anchors to conclude the S&P downgrade can be ignored, as the swimming pool water is safe. Keep in mind the powerful effect of the Interest Rate Swap mechanism. After contemplating some of its traits, you decide if the bond rally is legitimate. The Interest Rate Swap accomplishes the following:

• initiates a bond rally with heavy leverage, using essentially free short-term debt to fund long-term USTreasury Notes (10-year) and Bonds (30-year)
• contributes toward giving an ALL CLEAR sign to a toxic swimming pool, of which the USTreasurys are considered the safest in the Sovereign Bond Summer Camp
• manages a concentrated USTreasury Carry Trade, whereby Wall Street firms recapitalize from easy profits in an orchestrated managed USFed bond rally assured by two more years of accommodation
• enforces the distortion of the capital cost, near 0%, which actually destroys capital and distorts the price of all assets (see the effect on housing market)
• leads the investors to believe the erosion in asset value from price inflation is tame, when the actual CPI is much higher than 5%, and recently closer to 10% annually
• provides end demand for long-term USTreasurys using hidden funding sources like the USFed debt monetization vat or the USDept Treasury standby device, the Printing Pre$$
• provides the required demand to conceal $1 trillion in Wall Street firm naked shorting of USTreasurys (called innocuously Failures to Deliver) which generates desperate liquidity at a time when investment banking has dried up, essentially closing the loop on USTBond counterfeit.

The net effect of the intensive Interest Rate Swap activity is to destroy capital, to drain capital from the USEconomy, and to crowd out the corporate bond market. The United States is becoming 1990 Japan, but without the trade surplus. With ignorance, the financial media has been displaying the "Turning Japanese" rock music song by The Vapors from the 1980s. Little do they realize that the expression means coming to climax during the sexual experience, with a facial expression straining to resemble the Asian countenance. How strange!! Ironically, the effect of the IRSwap usage has kept interest rates artificially low. That is the sentinel signal for the Gold Bull Market, powered by cheap money, in the quest for true safe haven in the strong storm and deep distortions. The prevailing interest rate is far below the rate of price inflation. So the Gold market will remain steadily stuck in powerful bull market mode.

GOLD & SILVER DOMINANT

The banker index is finally under stress. They have benefited greatly from the fantasy of phony accounting practices. They have also benefited from a staged controlled USTreasury Carry Trade. But their losses continue to mount in great volume. Their exposure to Europe sovereign debt, the US housing market, and mortgage bond investor lawsuits combine to make renewed risk. These insolvent zombies are due for a death experience, if only the markets were fair.

METALS BEATS PAPER

Mining stocks are not keeping pace with the bullion metal. The ultimate problem is paper securities and the trust held in them. Persistent stories about well supplied hedge funds shorting mining stocks, stories of naked shorting of small mining stocks (see Alpha Group), and other sponsored spread trades to support bullion metal over the mining stocks have all contributed to the decline in shares. The distrust in all things paper, as in financial securities, at a time when trust in sovereign debt is on the wane, when financial sector insolvency is argued, when bond fraud has gone unprosecuted, has created a hostile climate for investments. The shortage of credit and capital to anything except USTreasury debt has exacerbated the condition. The HUI index of mining stocks has not done well versus the basic precious metal, the gold bullion, since the spring months. The threat of USEconomic recession will only make the situation worse, certain to lead to more whacks to the equity markets. Gold bullion has no counter-party risk, no paper dependence. Stay clear of the fraudulent custodians and their GLD & SLV fraud-strewn funds for lazy investors who do no research. They will be separated from their metal claims, handed cash in redemption, and sent away. One point of fraud proof is that GLD & SLV have a discount to the metal, while legitimate funds like the Sprott Trust and Central Exchange Fund include a premium price to the metal. That is because the big cartel banks, as custodians, are shorting shares of GLD & SLV, sending the metal inventory to the COMEX to satisfy delivery needs.

SILVER STILL STANDS OUT

Independent analyst Dan Norcini does stellar outstanding work. Once gain, he exposed an excellent factor, this regarding Silver. He points out how the Continuous Commodity Index (CCI) has averaged one big drop per month for the past five months. Silver has done well relative to the commodities, as he highlights. In fact, the Silver price is due to rebound. The process has begun, with Silver back above $40/oz. Each CCI drop has lasted from 4 to 7 trading days and has been followed by a rather significant rally. In the past couple weeks, the current decline seems to have run its course. The next 2 to 4 week rally in all of the commodities is underway, like a cycle. To be sure, copper, crude and the grains are going to rally. Norcini surmised (correctly) that Silver was not going much lower, if at all. He posted a reasonable target for Silver at $44 with timing before Labor Day in early September. Adding to the ammunition are the promising Open Interest numbers in silver futures contracts. Even the Large Commercials are covering their shorts in Gold, a good sign generally for precious metals. See the Norcini weblog where he argues how the USDollar will be sacrificed for the greater good (CLICK HERE).

SILVER MORE THAN INDUSTRIAL METAL

The consolidation phase for Silver has given compromised critics and lousy analysts an opportunity to denigrate the white metal, claiming it is exposed for its vulnerability as an industrial metal. While some significant portion of Silver demand comes from industrial processes, it is not replaceable. Besides, its investment demand has been equal in US$ volume as Gold demand, a remarkable fact pointed out by sector leaders Eric Sprott and James Turk. They argue that the Silver price will move higher and reduce the Gold / Silver ratio in the process naturally. The true industrial metal indicator is copper, not silver. Copper has earned the title of having a PhD in Economics. Notice how silver has outpaced the copper price in the last 18 months. Even post-May when the COMEX ambush occurred with successive margin requirement hikes, the Silver / Copper ratio has risen steadily. Sorry, the industrial argument is a weak angle that does not bear weight or scrutiny. The Silver investment demand is due to a big important recognition that Silver is in the process of resuming and reclaiming its monetary role. The Chinese lead in that parade, adding silver to their reserves in management of their $3.2 trillion reserves booty.

The gold market breakout has made history, exceeding the $1800 level before the usual games were played. The higher COMEX margin requirement is a tired card at a tilted table. Look for gold profits to move toward silver positions, lifting its price toward $50 in the coming several weeks. Lastly, one must wonder why the USTreasury Bond futures contract does not have to endure margin requirement increases. It is clearly the biggest asset bubble in existence. However, it is the standard bearer of the fiat paper charade. Its low yield is proof positive of being broken, just like Greece with its high yield. The USTreasury Bond complex would be in big trouble if not for the Interest Rate Swap and the US$ Printing Press both. Prepare to protect your personal wealth during the grandest transfer of wealth in modern history, from toxic paper to reliable hard metal with no counter-party risk. Money is in the process of being invalidated and redefined. The Paradigm Shift continues at work.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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Jim Willie CB, editor of the “HAT TRICK LETTER”

NATO psy-ops bloopers in Libya

From The ugly truth:

The rebellion in Libya has been more of a media war than a full-scale armed clash. Sure, the rebels seized tanks and weapons from government troops in the early stages. This led to some skirmishes between rebels and Gadhafi loyalists in seesaw battles along Libya’s coastal highway.

Between Feb. 15, when the uprising began, and March 19, when the UN Security Council authorized international intervention, the vast majority of Libya’s foreign workers fled the country.

In those chaotic days, the British Foreign Ministry reported that President Moammar Gadhafi had fled to Venezuela. The rebels seemed poised to snatch a quick victory. But Gadhafi had no intention of fleeing and his shaken followers soon regained their composure and began mounting an effective defence against rebel advances.

Not being professional troops, the rebels were soon in a head-long retreat back to their eastern stronghold in the city of Ben-ghazi.

To prevent Gadhafi from inflicting reprisals on the rebels, the UN authorized a NATO-enforced no-fly zone over Libya to protect unarmed civilians from being bombed. That, of course, did not apply to civilians living in Gadhafi-controlled sectors, as the Canadian-led NATO coalition soon began mounting airstrikes against government targets.

For more than five months now NATO planes have supported the rebels, and NATO warships have enforced a one-sided arms embargo against Gadhafi’s forces. And all foreign-held Libyan financial assets have been frozen, making it virtually impossible for Libya to purchase any war materiel, or even basic necessities such as fuel.

Despite all these measures, the ragtag collection of fractious units that compose the rebels have been unable to make any serious tactical headway against Gadhafi loyalists — let alone topple the dictator.

On a fact-finding trip into Tripoli last week, I saw first-hand that Gadhafi has solidified his control over the capital and most of western Libya. Foreign diplomats still based in Tripoli confirmed to me that, since NATO started bombing, Gadhafi support and approval ratings have actually soared to about 85 per cent.

Of the 2,335 tribes in Libya, over 2,000 are still pledging their allegiance to the embattled president. At present, it is the gasoline shortage due to the embargo and lack of electricity from NATO’s bombing that are causing the most hardship to Libyans inside Gadhafi-controlled sectors.

However, at present, the people still blame NATO — not Gadhafi — for the shortages. In an effort to combat that sentiment and to encourage a popular uprising against Gadhafi, NATO planes have taken to dropping leaflets in canisters over the streets of Tripoli.

Unfortunately for the NATO planning staff, the canisters are heavy enough to cause injury and damage roofs when they plummet to the ground.

As for the messages on the leaflets, the Libyans are quite amused at the clumsy translations. On one such note, the intended slogan is meant to urge civilians to go forward and “embrace” the rebels. Instead, it translates to encourage Libyans to go out and “copulate” with the rebels.

Another NATO missive was intended to advise those living within Gadhafi’s sector to pack up and move to a rebel-occupied territory. This somehow became garbled into a request for citizens to relocate to a “possessed” (as in, by the devil) area of Libya.

It is possible that the continued embargo, shortage of fuel and downgrading of Libyan utilities will create a humanitarian crisis inside Gadhafi’s Libya so severe that his followers have no choice but to turn on him for their own survival.

However, if that indeed transpires it will be impossible for the West to justify this as being a humanitarian intervention.
__________

Related:
Libya: Psy-Ops and War Games – Live Report
Clinton: Libya, Syria show ‘smart power’ at work

Libya and the end of western illusions

Eurocrats to hurl democracy into the volcano to appease the market gods

From EUobserver, 16.08.11

By Leigh Phillips

Pacific islanders never actually threw virgins into volcanoes to appease angry gods; it was only ever a TV trope of bad American sketch comedy and Saturday-morning cartoons. But you remember how it worked? However many damsels were chucked in to the fiery pit, the lava would keep flowing, yet the only lesson those silly actors in their semi-racist Tiki-Lounge outfits and drinks in bamboo glasses with paper umbrellas learnt was that not enough ladies had been lobbed in.

Despite the certainly apocryphal nature of such behaviour in the South Pacific, European leaders seem intent on embracing the model. Indeed, I am half convinced that the European Commission has some super-secret-squirrel committee of experts locked in a room somewhere studying Joe vs the Volcano and re-runs of Gilligan’s Island to learn exactly how it’s done.

 

But it’s not vestal maidens (or, in the case of Joe vs the Volcano, Tom Hanks) that Berlusconi, Sarkozy and company are pitching into the magma; it’s public services, it’s decent wages; it’s democracy. And if one, two, three rounds of austerity are not enough, well, we need a fourth and a fifth! They just keep pitching more austerity packages into the rumbling crater.

In a crisis cabinet meeting on Friday night, the Italian government agreed to a €45.5 billion package of fresh austerity measures over the next two years in an attempt to soothe the market gods. Like the pre-rationalist conduct of our grass-skirt-wearing stereotypes, Berlusconi pays no heed to results. The package of spending cuts, privatisations, tax hikes and labour market deregulation is the second one in as many months. In July, Rome passed a €48 billion austerity bill.

 

Similarly, atop multiple austerity packages in France and Spain, last week, French President Nicolas Sarkozy ordered his ministers to come up with yet another round of cuts, giving them a schedule of just one week to cobble something together, while Spanish premier Jose Luis Rodriguez Zapatero is planning a new austerity budget saving an additional €20 billion.

As Europe tips over into a second recession, with anaemic growth of just 0.2 percent in the EU in the second quarter revealed on Tuesday, it is manifest that austerity has not worked, so the response, naturally, is: ‘More austerity!’ (Cue Temple-of-Doom-style pounding drums in the distance)

Speaking of the Temple of Doom, (just to further attenuate an already stretched metaphor), guess who gets to play villainous high priest Mola Ram in this drama, thrusting his fist into the chests of chained-up victims/welfare-states and ripping out live beating hearts? That’ll be the European Central Bank!

Last week, the ECB came to the rescue of Italy and Spain by buying up bonds after the rates investors were demanding hit record levels. But Frankfurt’s quid pro quo was Rome’s aforementioned fresh austerity measures and market liberalisation, including making it easier to fire people and slashing wages. In a secret letter from ECB chief Jean-Claude Trichet and his incoming successor, Mario Draghi, to Berlusconi, the central bank told the Italian government exactly which measures must be instituted, by what schedule and using which legislative mechanisms.

The ECB, unelected and unaccountable to any voters, is now directing Italian fiscal and labour policy. In secret. The only reason we know about any of this is that the letter was leaked to Italian daily Il Corriere della Sera.

The letter also ordered Berlusconi to enact the radical measures through emergency decree, in order to speed the process up. Going through parliament with the necessary checks, scrutiny and amendments is simply too down-tempo, too slow-groove. Italy needs to up the BPM. The prime minister has agreed and the emergency decree is set to be enacted during a special cabinet session on 18 August.

Read that last para again. Yes, that’s right: the Italian prime minister is in this one instance ruling by decree at the command of the European Central Bank.

Berlusconi has at least made something of a show of trying to resist slashing wages, saying “They made us look like an occupied government.”

But unlike in the Temple of Doom, there is no Indiana Jones and Short Round to swing in on a bull-whip, save Italian democracy then escape on a mine cart. Centre-left opposition leader Pier Luigi Bersani may have called for more transparency, demanding: “We want the truth…What are the ECB and the other international institutions exactly asking us for?” and liberal MP Antonio Di Pietro has said: “Italy is under the tutelage of the EU, and a country under tutelage is not a free and democratic one.” But despite voting against the last austerity package, the opposition voted through the government’s desired fast-track schedule for the bill out of a sense of “responsibility”. It is unlikely the Italian opposition will mount much resistance. Some of the strongest criticisms of the ECB’s trampling of Italian democracy, to the Left’s great shame, have come from the far-right Northern League.

The cancer of contempt by European elites for parliamentary accountability, for some two hundred years of the principles of responsible government, is metastisising as the eurozone crisis deepens.

Last Tuesday, Germany’s economy minister, Philipp Roesler, proposed the creation of a new EU 'overseer' that would crack the whip and impose sanctions on countries that do not adhere to rigid budget discipline and pro-business labour policies.

He told reporters that that the bloc should create a new EU institution, a 'stability council', of unelected supervisors that would ensure member states that stick to budget temperance and keep in check debt growth.

The body would also be empowered to carry out ‘competitiveness tests’ to measure how competitive labour markets are, how pro-innovation the business climate is. “If you fail them, there should be consequences," he said.

The proposal, which Roesler said would be presented at the next meeting of EU finance ministers in September, would set up the Stability Council as ‘independent’ from political influence, like the ECB is (for 'independent', read: unelected), so that it could slap sanctions on countries automatically.

According to European Commission sources, there is no active discussion by officials about Roesler’s idea at the moment, which appears to be something of a trial balloon. “But the idea is not completely new,” said one official. “Earlier in the crisis, there was some discussion of the creation of something like this. A number of member states already have some form of fiscal councils.”

A total of 17 in fact, with powers ranging from the advisory to sanction-wielding. One of the first acts of the Cameron-Clegg administration in the UK was a voluntary surrender of executive power to the Office for Budget Responsibility. Ireland has been forced by the EU and IMF to establish a Fiscal Advisory Council composed of outside “fiscal referees”, with “significant overseas representation”. A number of member states were ordered by the European Commission this year as part of the new ‘European Semester’ system to create their own fiscal councils.

The ECB’s Jean-Claude Trichet last week suggested the creation of a European finance ministry. Meanwhile, on Monday, the Dutch cabinet considered a proposal establishing an EU super-agency, a "European IMF", which would have the power to take control of member states’ economic policy, if a majority of leaders in the eurozone felt it necessary. According to sources close to the discussions, reported by AD newspaper, cabinet members are fully aware that this would mean the possibility of a state losing its economic independence. They are fully cognizant of how “very drastic” a measure this would be, but as one unnamed official said: “The market demands it.”

Whatever form such emasculation of democracies of their power of fiscal decision making ultimately takes (and, to be clear, fiscal policy comprises everything a government wants to spend money on, from education to healthcare to bridges to space programmes) - a Stability Council, a European Monetary Fund, a super-agency or an EU finance minister - none of these would be democratically accountable. The very point is to take fiscal policy out of the political arena. It is also clear that EU leaders are now intent on surgically removing fiscal policy from the realm of democracy, even if they haven’t yet quite agreed on how it should happen.

Just as a decade ago, it became the intellectual fashion to remove monetary policy from the democratic realm, because ‘the market demanded it’, today, it is the fashion to argue that voters are too stupid to know what is fiscally best for them. Better to leave such decisions to ‘experts’, ‘technocrats’, who know what the markets demand. But who are these experts? Are they really free from politics and ideology, or are they actually the same pro-free-market supplicants that managed our economies into the worst crisis since the 1930s?

Sony Kapoor, the director of Re-Define, a financial think-tank, said of Roesler’s proposal: “If a government doesn’t control monetary policy anymore, and doesn’t control fiscal policy anymore, what’s left for a government to do? That’s about all they do, other than foreign and judicial policy.”

There aren’t many virgins left to throw into the volcano.

Leigh Phillips is EUobserver's finance reporter.

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