[Public Service Announcement]: Gold Stocks Are Cheap – Dirt Cheap

by Jeff Clark - Casey Research  November 11th, 2011 

Despite the pullback this fall, gold has been performing well this year. The price of the yellow metal is up 28% YTD, driven in large measure by strong demand in Asia and the dim economic outlook in the west. Gold miners are reporting good third-quarter bottom lines. In this ointment, however, there is a fly: gold stock performance, which has massively lagged the underlying commodity price surge over the year. This has been ongoing for months, now bringing us to the point where gold mining stocks look notably undervalued.

Technically, we might say, they look dirt cheap. Even Doug Casey, who's a serious bottom feeder, is admitting that compared to the metal itself, gold stocks are looking cheap again.

Consider these charts:

The average price/earnings ratio in the industry – a valuation ratio of a company's current share price compared to its per-share earnings (quarterly figures are used here) – is going down while the price of gold is increasing. This situation has persisted for several quarters; and now gold stocks look cheap on a P/E basis.

This big divergence between companies' earnings and the underlying commodity price won't last: Either gold will retreat or P/Es will catch up, or both. Since the fundamental trends driving gold upward are still very strong, the second scenario looks more probable, raising the prospect of a huge rally of mining stocks somewhere in the short- to mid-term. Comparing changes in the AMEX Gold Bugs Index against gold leads to a similar conclusion: in the second half of 2011, gold stocks have been lagging. See the chart below.

If they are on sale, why aren't we seeing a rush into these equities?

One opinion on why gold stocks are not recognized by the general investing public as being cheap is concealed in the way stocks are estimated. Most analysts prefer to use an unrealistically conservative gold price, which is far below what we have been observing for quite a while now. From Pierre Lassonde, in a Mineweb article:

"Most analysts are using their economist's projections for gold and for the last 10 years it's always been way under the reality. For example today the average is probably looking out five to 10 years as they're using $1,100 gold vis-à-vis a real gold price of $1,600 so what do you expect... they put out recommendations using $1,100 gold, so therefore the price that most of the stocks are trading at on a net asset value is around $1,100 to $1,200 gold and that is not going to change until, either the street uses todays' [sic] gold price, or even the contango."

This is a fancy way of saying that a price-moving plurality of gold analysts and investors don't expect gold prices to stay this high, let alone go higher. In our view, these people are driving forward looking in the rear-view mirror, rather than understanding what's going on in the global economy and therefore what's likely to happen in the future.

We see global economic uncertainty and currency crises sweeping the whole planet, providing investors – and even some central banks – with incentives to build positions in bullion. In their turn, gold stocks have a leverage effect on the underlying asset prices, courtesy of our friend volatility.

This confluence of trends, to use a tired but apt phrase, is shaping up into a perfect storm. Mining stocks look undervalued, and gold is headed higher. Something's got to give, and we think it could produce a spectacular move in gold stocks before too long – one that could spark the real Mania Phase Doug's been predicting to cap this bull cycle. It's time to take a contrarian stance and buy gold miners while others are selling.

[Jeff Clark, editor of BIG GOLD, increased the value of his mother's IRA by employing this "booster shot" effect to gold investing. Learn how to take advantage of it yourself.]

_________

Related:

Gold Picture “Bullish” as Rumors Spread of ECB “Nuclear Option”, Signs of Contagion “Already Visible in France”

New Gold Target: $2330

$40 Silver Predicted By Year End

 

Gold Demand Soars On Fears Of European Debt Defaults

 

Turd Ferguson: The Inexorable March Higher For Precious Metals

 

Now you can get paid to invest in gold

 From Frank Holmes of U.S. Global Investors:

With money markets and Treasurys yielding next to nothing these days, investors are finding income in new places. One area those investors should consider is gold mining. With gold rising in value, mining companies are reaping record profit margins, yet the stock prices are depressed due to lack of investor interest. A solution for both gold companies and investors may be dividends, specifically gold-linked dividends.

Several top-tier gold producers that are benefiting from higher gold prices have begun to share a portion of their profits with shareholders via a dividend payout. Thirteen of the world's largest gold producers are expected to pay nearly $2 billion in dividends this year, according to MineFund, making it the largest payment in gold stock history...   Read full article...

We Must Crush Ambrose Evans-Pritchard, Nouriel Roubini, Martin Wolf, the Army of Krugmanites into Submission; Reflections on "Dangerous and Insane"

From Mish, Friday, November 11, 2011:

Two days ago, Financial Times columnist Martin Wolf made an attempt at Thinking through the unthinkable. The "unthinkable" was the breakup of the Eurozone.

Reflections on the Easily Thinkable

For starters, a eurozone breakup is hardly unthinkable given that no currency union in history has ever survived in the absence of a fiscal union, and the Eurozone has no such fiscal union.

I suppose one might not want to think about history while praying for a miracle union, but the German Supreme court gratefully put a kibosh to the bureaucratic nanny-zone of never-ending regulation with a definitive ruling that no more German taxpayer funds can be out at risk without a common voter referendum.

Please see Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers for details.

I do not want to dwell on the "easily-thinkable unthinkable", I want to focus on poor economic theory within Wolf's post in regards to proposed solutions to the crisis.

Four Proposed Solutions

Wolf quoted Nouriel Roubini's proposed list of solution.

1.       Restoration of growth and competitiveness through aggressive monetary easing, a weaker euro and stimulatory policies in the core, while the periphery undertakes austerity and reform.

2.      A deflationary adjustment in the periphery alone, together with structural reforms, to force down nominal wages

3.      Permanent financing by the core of an uncompetitive periphery

4.      Widespread debt restructuring and partial break-up of the eurozone

Wolf points out that option 2 will morph into option 4. I concur while pointing out that is the path we are on, also in agreement with Wolf.

Wolf points out that German would veto option 3 but fails to point out the absolute silliness of the idea in the first place, which I will get to in a moment.

Option 4 is where we are headed, and the debate ought to be how to do that correctly instead of how to achieve the impossible option 1 which Germany would also veto.

I propose, as has Michael Pettis before me, that the best solution is to have Germany exit the Eurozone rather than Greece, then, Portugal, then Spain exit in succession.

Breakup Inevitable but How?

Here is a snip from France, Germany have "Intense Consultations" on Smaller Eurozone; Breakup Inevitable, but How?

Realization the Eurozone is no longer tenable is at long last at hand. In fact, "intense discussions" have been underway for months but are just now admitted to by senior EU officials. ....

The Eurozone is a failed experiment. A breakup is inevitable just as it has been from the beginning. Structural flaws were too great, built up over the years. No currency union in history has ever survived unless there was also a fiscal union.

The key question now is how?

It would be best for all involved if Germany left the Eurozone and went back to the Deutschmark. Germany would have an immediately credible currency. Should Greece or Spain leave first, those countries might experience hyperinflation or massive inflation.

Breakup Scenarios and Logistics of Denial

It's important to remember that Germany suffers regardless. As long as the Eurozone stays intact (it can't and won't over the long haul) German taxpayers have to keep acting bailing out foreign countries, foreign banks, and their own banks.

On the other hand, were Germany to leave, the debts to German banks will not be paid back in Deutschmarks but rather deflated Euros.

On the whole, Germany exiting the Eurozone would be less disruptive, than massive inflation scenarios in Greece, Portugal, and Spain.

If France wants to stay in the Euro, let them. They can have the ECB as well. Then the ECB will print money to bail out the French banks (just as French president Sarkozy wants).

Logistics of Denial

Micahel Pettis presented a more detailed discussion of various breakup scenarios as well as a discussion on the "Logistics of Denial", in my September 16 article Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied)

In his opening gambit, to the lead question "Will the eurozone survive?" Wolf surmises "I suspect the answer is, no."

Thus, it would be more helpful to debate the merits of "how" a breakup should happen, which countries should leave, and details on how that happens rather than hoping it won't.

Unfortunately, Wolf pines near his conclusion "[we] must go back to the first on the menu of options laid out by Mr Roubini. Potentially solvent countries would be financed and the eurozone would grow its way out of the crisis."

History and Common Sense

As noted earlier, unless there is a complete fiscal-nanny-zone with a one size fits all policy, option 1 cannot possibly work.

Germany would veto option 1, for solid reasons. Moreover, and more importantly, option 1 would not work anyway for the same reason option 3 cannot work: Printing money never solves anything.

How many times does this have to be proven before it sinks in?

Japan offered mammoth quantities of fiscal and monetary stimulus and all it has to show for it is debt in excess of 200% of GDP. Economist Richard Koo pines the lesson was Japan did not do enough stimulus. Sheeesh.

Cash-for-clunkers, multiple tax credits for housing, QE 1, QE 2, a trillion in fiscal stimulus and a myriad of other fiscally insane programs did not create jobs or a lasting recovery.

No amount of stimulus would work because the problem is debt. Yet, the Army of Krugmanites propose we need to do more.

Greenspan resorted to loose monetary policy and it created the biggest housing bubble the world has ever seen.

Now Cristina Romer proposes GDP targets by the Fed to which I responded in Dear Christina ... in light of the facts I presented above in regards to the experiences of Japan, the excess reserves at the Fed, the increase in inflation with no increase in jobs, and the number of people on fixed income destroyed by the rise in price level while getting 0% on their CDs, you have a hell of a lot more explaining why "It's different this Time".

For starters the Fed does not control GDP so the suggestion in and of itself is blatantly idiotic. The Fed can encourage spending but cannot force it. A trillion dollar mountain of excess reserves of banks is proof enough, yet the Monetarists want more.

No matter how much money one throws at a problem it is never enough. We had a housing bubble followed by a crash. Throw enough money around and we will have another bubble and a bigger crash, or simply a massive debt problem from which there is no escape.

The average eighth-grader can easily understand this. The average economist cannot because they are so tied up in monetary theory that has no real world application.

In September, Bernanke himself said he was puzzled by weak consumer spending.

Bernanke is puzzled over something an eighth-grader can easily figure out. Consumers have a mountain of debt and are underwater in their mortgages. Debt is made worse by declining real wages, global wage arbitrage, and a dearth of jobs.

ZIRP did nothing to create jobs but it did affect food and gas prices and effectively destroyed anyone on fixed income.

I would think that should be obvious, but obviously it's not because Bernanke is puzzled over it. This is what happens when academics become addicted to economic models that do not work in periods of debt deflation (assuming they ever worked at all).

Original Sin

Krugman is a big believer in the idea "debt does not matter". He made the mistake of using Italy as the prime example. Oops!

Guess what? Debt matters. Now Krugman is attempting to pass off a foolish statement by blaming Original Sin for the Euro Crisis.

One question that keeps coming up is, how can I reconcile my scorn for warnings about bond vigilantes with what is happening to Italy? This seems especially pointed because I have in the past used Italy’s ability to carry debt exceeding its GDP as an illustration that debt concerns were overblown.

The answer lies in the concept of original sin. Not the Pope’s kind, but the economics kind — the long-standing notion that developing countries were especially vulnerable to financial crises because they borrowed in foreign currency.

The key point is that by joining the euro, Italy took a bite of the apple — it converted its advanced-country status, as a nation issuing debt in its own currency, into original sin, with debts in someone else’s currency (Europe’s in principle, Germany’s in practice). That is the root of its new vulnerability.

Krugman finishes with "More on all this later, I hope."

I hope so too, starting with my questions

·         When did you realize Italy gave up the Lira?

·         Did you not understand Italy was on the Euro when you used it as an example?

·         Are you looking for excuses after the fact?

Krugman Joins the Euro Cannot Work Parade

For all Krugman's pissing and moaning about imposed austerity measures on Europe, he now has the gall to blame the mess in Italy on "Original Sin" (which I might add also applies to Greece, Portugal, and Spain).

Oh well, it's a start. Perhaps we can get Krugman discussing the best way to break up the Eurozone instead of everyone pretending Roubini Option 1 is still in play.

As an aside, if Krugman turns to Japan for his "debt does not matter" model, he will be wrong again.

Two Things We Can Say for Certain

1.       Japan's Debt Does Not Matter Now

2.      It Will, and in a Major Way (we just do not know when, as with Italy)

All it takes to crush Japan is rising interest rates or a collapse in its export model. Given the cyclical nature of a great many things, one or the other or both will. And when it does, Japan will not be able to get financing.

Debt matters when it matters, and it eventually will. Until it does, we have to put up with foolish statements from major economists that it doesn't, followed by excuses when they are proven wrong.

America and China must crush Germany into submission

Wolf's article was hard enough to take but it was followed by an even more preposterous article by Ambrose Evans-Pritchard.

Please consider America and China must crush Germany into submission

As we watch Italy's 10-year bond yields near 7.5pc and threaten to detonate the explosive charge on €1.9 trillion of debt, it is time for the world to reimpose order.

Yes, this means mobilizing the full-firepower of the ECB – with a pledge to change EU Treaty law and the bank's mandate – and perhaps some form of quantum leap towards a fiscal and debt union.

The EU Project has become both dangerous and insane.

Reflections on "Dangerous and Insane"

·         What's dangerous and insane is economists like Prichard demanding treaties be tossed to the wind to test poorly thought out economic ideas.

·         What's dangerous and insane is economic theory that says printing presses are the answer. It has never worked in history and will not work now.

·         What's dangerous and insane is more leverage. Didn't Lehman and LTCM prove that? How many more times do we have to prove that before it sinks in?

·         What's dangerous and insane is the idea is that central banks can impose their will on the world.

·         What's dangerous and insane is doing the same damn thing over and over and over again hoping for a different result

·         What's dangerous and insane is the moral hazard policy of time-and-time-again forcing the 99% to bail out the 1%.

The world will not end if banks fail. Forcing the 1% (banks and bank bondholders) to take a hit will not cause the world to end either, nor will it cause lending to cease.

Please, let's stop the blatant hyperbole that suggests otherwise.

The ECB could have and should have let Greece default. "We Say No To Default" said a dangerously arrogant ECB president Jean-Claude Trichet.

Trichet loaded up the ECB balance sheet with Greek debt against the advice of Axel Weber. Trichet's move blew up in his face, and I for one am glad to see it. If only he would have learned something from it.

The hubris of central bank wizards and economists is dangerous and insane. Indeed it is central bank wizardry combined with fractional reserve lending and insane levels of government bureaucracy that is at the root of the problem.

Corruption, Bloated Bureaucracy, Poor Productivity

My advice for Pritchard would be to stop writing dangerously insane ideas and start reading fellow columnist Nick Squires who has the common sense to write Italy's debt crisis: doomed by corruption, bloated bureaucracy and poor productivity

Insane Welfare System

I would also recommend Pritchard, Krugman, and Wolf read Eight Reasons Why Italy Is Such a Mess

Wacky Welfare System

The root of Italy's problems, the Wall Street Journal argues today, is that the country "financed generous entitlements with high taxes and towering piles of debt," and now finds the money running out as the economy sputters. Indeed, Italy has more pensioners than workers and currently spends about 14 percent of GDP on pensions -- more than any other country in the Organization for Economic Cooperation and Development (OECD).

Silvio Berlusconi pledged to raise the retirement age in Italy to 67 as part of his raft of austerity measures, but it's a controversial move. In late October, two Italian lawmakers exchanged blows in parliament during a debate about whether to revamp the country's pension system. House Speaker Gianfranco Fini had noted on television that the wife of the Northern League's Umberto Bossi had taken early retirement at 39 and cashed in on Italy's generous benefits.

Public Union Pension Woes

Bear in mind that is just one of the eight reasons Foreign Policy Magazine mentioned. The author called the pension system "wacky". I call it fiscally insane.

Italy currently has more pensioners than workers. Is that insane or what?

In light of the above, can someone, anyone explain how Roubini's option number 3 "Permanent financing by the core of an uncompetitive periphery" can possibly work?

By the way, the same public union pension problem exists in the US and it is the cause behind massive state and city deficits. Our system will blow up as well, just give it time.

Instead of focusing on those problems (and for the US I propose scrapping Davis Bacon, ending all prevailing wage laws, and ending collective bargaining for public unions) Krugman wants more freaking fiscal stimulus.

Quite frankly, it's insane. Want a compromise? Give me those three things and I will even take higher taxes.

Exceptionally Sound Advice

My friend Pater Tenebrarum offers exceptionally sound advice in The 'Technocrats' Are Coming

What's the EU All About?

“One keeps hearing demands for more centralization – tax 'harmonization', which is new-speak for 'let's impose the highest possible taxes everywhere', more 'redistribution', and above all, 'more regulation', especially of the evil financial markets where all sorts of bad things are happening to sovereign bonds nowadays.

Naturally, fractional reserve banking and the inflationary boom-bust sequences it has brought forth doesn't even rate a mention – since it has also enabled the growth of this huge statist moloch the EU and many of its member nations have become.

What is really needed is some introspection and remembering what the EU was originally about. Its founders wanted to restore 19th century liberalism to Europe – free trade and freedom of movement for people and capital within Europe.

They emphatically did not want to erect some sort of socialist super-state. They wanted to bring back to Europe what the mad socialist and fascist ideologues of the 20th century had destroyed.

Now we have a bureaucratic monster in Brussels that has produced nearly 300,000 new regulations over the past decade, in addition to the hundreds of thousands of pages of 'administrative law' and other regulations the member states themselves produce every year.

It is a miracle we still have a functioning civilization.

If we want the problems to be solved, the most important question should be: what is needed to enable the production of new wealth? What kind of environment will be most conducive to reviving the entrepreneurial spirit? It should be simple enough, but it would of course threaten a great many vested interests.”

Crush Into Submission

You cannot fix a problem unless you understand it. Moreover, even if you do understand the problem, you cannot fit it with unsound theory.

The discussion from Wolf, Pritchard, Roubini, Romer, the vast army of Krugmanites, and the smaller army of equally misguided Monetarists suggests they do not fully understand the problem, nor do they understand sound economic theory as to what it takes to fix it.

To use Pritchard's catchy title, I respond "We Must Crush Ambrose Evans-Pritchard, Nouriel Roubini, Martin Wolf, the Army of Krugmanites into Submission."

That is the mission, and it is a desperately needed mission at that. To accomplish the mission we must prove to the group, to their satisfaction, their solutions are nonsensical.

Unfortunately, the only way I can think of doing that is to give the group everything it wants, then watch it blow sky high. That means turn on the global printing presses, bail out the public pension plans, pour more money into Medicare and Medicaid, create a "living wage" indexed to inflation, give Krugman his tariffs, and declare China a currency manipulator. Not enough jobs? No problem, the government can easily create them. That's what the vast army of Krugmanite Borgs thinks.

There is only one problem with the idea. When the plan blows sky high, Krugman would say "It wasn't enough".


Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

IS TURKEY'S ERDOGAN A CRYPTOJEW?

From Aangirfan, Thursday, November 10, 2011:

Erdogan with his Jewish classmate Rafael Sadi. They studied economics together.

Why has Turkey's prime minister, Recep Tayyip Erdogan, helped the USA and Israel in their attacks on Syria and North Africa?

Why do 'anti-Americans' in Turkey hate Erdogan's AKP political party?

Allegedly, Erdogan and his wife are crypto-Jews, secretly working for the New World Order.

According to Ergün Poyraz, in his book The Children of Moses:

1. Erdogan has spoken to the Anti-Defamation League and the American Jewish Committee.

The American Jewish Congress gave Erdogan a 'profiles of courage award'.

2. The Erdogan family has Jewish roots.

Erdogan and friends.
Necmettin Erbakan, a former Prime Minister of Turkey, claims that Erdogan's tough line on Israel is a façade to deceive the Turkish public.

( Erbakan criticizes Israel, accuses Erdoğan of being part of Jewish plot.)

Erbakan says:

"Why on earth did Erdogan's AK Party give a ‘go ahead' to the membership of Israel in the Organization for Economic Cooperation and Development (OECD) and not block membership?

"Why did the Turkish government consent to multi-billion dollars worth of defense contracts with Israeli firms?

"Erdogan says ‘one-minute' to Peres during Davos but conducts business as usual with the Jewish state. This is hypocrisy."

Turkish Prime Minister Erdogan (Left) attends a CIA-Al-Qaeda meeting in Libya.
Reportedly, the CIA-Mossad wants its agents and assets to run each of the Moslem countries.

Reportedly, Turkey is the model.

Gulen and friend.

On 6 August 2011, The Economist reports on a Moslem who is friendly towards Israel (A hard act to follow).

This Moslem reportedly has links to heroin. (Funded by Heroin Via the CIA ...)
"These days the religious teacher who wields most influence over the Turks is Fethullah Gulen," says The Economist.

In 2010, nine Turks, taking supplies to Gaza, were killed by Israeli commandos.

Gulen said it was partly the Turkish side's fault: the flotilla should not have defied Israel.
Gulen lives in America and has been accused of having links to the CIA.

The Gulen movement "forms the apex of a huge conglomerate that includes NGOs, firms, newspapers and college dormitories in Turkey, plus schools across the world."

Several journalists who have tried probing Gulen have found themselves prosecuted or jailed.
People who criticise the movement "can face nasty smear campaigns."

Obama visiting a Gulen school in Washington.
On 29 June 2010, Paul Williams PhD wrote: " Gulen Movement Funded by Heroin Via the CIA ..."

According to paul Williams:

1. "Court records and the testimony of former government officials show that Fethullah Gulen, who presently resides in Pennsylvania, has amassed more than $25 billion in assets from the heroin route which runs from Afghanistan to Turkey.
2. "Sibel Edmonds, a former FBI translator, testified that the drug money has been channeled into Gulen’s coffers by the C.I.A."
According to Sibel Edmonds: 'A lot of the drugs were going to Belgium with NATO planes.

'After that, they went to the UK, and a lot came to the US via military planes to distribution centers in Chicago, and Paterson, New Jersey.'

"Ms. Edmonds further said that Turkish diplomats, who would never be searched by airport officials, have come into the country 'with suitcases of heroin.'

3. "According to Ms. Edmonds and other government witnesses, Gulen began to receive funding from the CIA in the wake of the collapse of the Soviet Union when federal officials realized that the U.S. could not obtain control of the vast energy resources of the newly created Russian republics because of deep-seated suspicion of American motives.

"Turkey, the U.S. officials came to realize, could serve as a perfect 'proxy' since it was a NATO ally that shared the same language, culture, and religion as the other Central Asian countries...

" The only way to provide Gulen with sufficient funds to topple Turkey’s secular regime and to conduct education jihad within the Russian republics came from the poppy fields of Afghanistan...
"The Obama administration has opted to turn a blind eye to Gulen and his mountain fortress in Saylorsburg, Pennsylvania...

"In his native Turkey, Gulen’s vast fortune has been used to create the Justice and Democratic Party (Adalet ve Kalkinma, AKP), which has gained control of the government...

" Abdullah Gul, Turkey’s first Islamist President, is a Gulen disciple along with Prime Minister Recep Tayyip Erdogan, and Yusuf Ziya Ozcan, the head of Turkey’s Council of Higher Education...

4. "Gulen has purchased newspapers, television networks, construction companies, universities, banks, utilities, technological outlets, pharmaceutics, and manufacturing firms throughout the country.

"In addition, he has established thousands of madrassahs (Islamic religious schools) throughout Central Asia where students are indoctrinated in the tenets of militant Islam...

5. "But the Gulen movement is not confined to Turkey and Central Asia.

"Eighty-five Gulen schools have been set up in the United States as charter academies funded by public funds.
6. "Is Gulen really affiliated with the CIA?

" In support of his application for permanent residency status, Gulen obtained letters of support and endorsement, from Graham Fuller and other former CIA officials.
"His petition was also endorsed by former Under Secretary of State Marc Grossman, and former Ambassador to Turkey Morton Abramowitz."

~~

aangirfan: THE NEW WORLD ORDER AND TURKEY

Martin Armstrong: Government is Living in a State of Debt Denial

Speak See Hear Nothing 11-09-2011

Eurocracy: A Financial Coup d'etat

From New Economic Perspectives,  Thursday, November 10, 2011

By Marshall Auerback

It is said that the European Union is a remarkably inefficient organization in terms of organizing economic rescue packages, but when it comes to subverting democracy, they are as ruthless and efficient as a well-oiled crime syndicate.

Consider the following:  in the space of less than 2 weeks, the eurocrats have managed to eliminate two troublesome elected leaders, whose actions dared to interfere with their broader objectives of finalizing the “European Project” – a project which, to put it bluntly, is looking more and more like a financial coup d’etat.

First, Greece, which has in a sense provided the template:  Prime Minister George Papandreou, had the audacity to seek the consent of his own people to decisions that would shape their lives via referendum.  Well, judging from the petulant reactions of German Chancellor Angela Merkel and French President Nicolas Sarkozy, this clearly wouldn’t do.  Blatantly interfering with the internal affairs of a fellow democracy (and an ostensible ally), both lobbied (and threatened) the Greek government, the end result being that Mr. Papandreou was duly shoved aside after backtracking.

And look who's the new PM in Greece: Lucas Papademos, a former ECB official, (naturally, with the requisite Goldman Sachs pedigree), in order to implement the latest set of “structural reforms”, which will almost certainly have the effect of deflating the Greek economy even further into the ground.  Of course, the privatizations will go ahead and Greece’s rapacious tax evading oligarchs will scoop them up at distressed values (presumably with the cash they’ve already stashed offshore in the London property market, or Swiss banks), thereby consolidating their control of an increasingly dysfunctional Greek economy.  The vast majority of Greeks will suffer horribly.  They have no say, in a sense being left with the choice of shooting themselves or a firing squad.  Still, it’s not a total loss:  no doubt Goldman Sachs will reap substantial fees as it helps to auction off these very same state assets.

Across, the Adriatic, it appears as if the “Merkozy” tandem has also played its cards successfully for Round 2, this time successfully eliminating its troublesome nemesis, Italy PM Silvio Berlusconi.  Say what you will about Mr Berlusconi, but in this instance he was right to object to a crude political ploy being foisted on him by the ECB, the French and Germans to accept an irrational and economically counterproductive program fiscal austerity program in exchange for “support” from the likes of the IMF.   Ask any Argentinean what IMF “support” entails.

All Berlusconi had to do was cast his eyes toward Athens to see the likely effect of a renewed assault on the Italian welfare state. But the markets’ euphoric reaction to his resignation was surreal: akin to turkeys voting for Thanksgiving.

In Rome, this Franco-German powerplay is being overseen by a canny ex-Communist, President Giorgio Napolitano, who is in the process of engineering  life-long eurocrat, Mario Monti, as the next PM in Italy.  Look at Monti’s background: Impeccable credentials:  a virtual “lifer” within the European Union’s technocratic governing structures, mingled with some private sector “experience” as a director of entities such as Coca Cola and, of course, an “international advisor” to Goldman Sachs.

What is taking place is nothing less than a financial coup d’etat by the Eurozone’s rentier class.  And it is one of history’s sad ironies that, at least in the case of Italy, this is all being engineered by an ex-Communist, who likely would have been chased out of the Italian Government (a la Juan Berlinguer)  by a Cold War-driven CIA had this taken place but 30 years earlier. 

How have we come to this pass within the EU?  It is hard to point to one person.  We have seen this vast project moved along by a handful of unelected bureaucrats for several decades or more.  Jacques Delors was a truly seminal figure, but he did not act alone.  The whole of the European project has been increasingly driven by these unelected  tenured eurocrats, who  have rotated in and out of various positions within the EU's governing structures and spent a few years' getting the requisite private sector training at a place like GS or JP Morgan. 

You could make the case that this started when then French President Francois Mitterrand came to power in the early 1980s, and tried to implement a genuinely fresh progressive economic direction for France. He was promptly undermined until he learned to "play ball" with the powers behind the throne.  Since then, the game plan has largely remained the same:  European Commissioners set up multiple diktats, rules, regulations, minus, of course, any real kind of democratic recourse when they encounter popular resistance.  You start small and build up gradually and create fait accomplis everywhere. 

When there is democratic backlash via a referendum, the setback is only temporary.  Countries, such as Ireland, which dare to vote the “wrong” way in a national referendum, do not have the results respected.   EU officialdom has generally responded, not by reflecting on a popular expression of democratic will, but ignoring the results until the silly peasants realize the egregious errors of their ways and re-vote the right way.  

If it takes two, or even three, referenda, so be it. Politically, the interpretation of any aspect of the Treaties relating to European governance have always been largely left in the hands of unelected bureaucrats, operating out of institutions which are devoid of any kind of democratic legitimacy.  This, in turn, has led to an increasing sense of political alienation and a corresponding move toward extremist parties hostile to any kind of political and monetary union in other parts of Europe.  Under politically charged circumstances, these extremist parties might become the mainstream.

The one figure who emerges as a tragic figure here is George Papandreaou.  However ineffectually, Papandreou had been deeply committed to making the October deal work.  But as Harvard economist (and Greek government advisor) Richard Parker has noted, Papandreou faced a firestorm on multiple fronts: competitors in his own party who wanted his job; parliamentarians in his party who threatened to bolt over new austerity measures; the wholesale intransigence of Samaras and New Democracy; to say nothing of economy that was deflating into the ground before any real help had arrived.  Calling for a referendum became his only instrument to put out multiple fires at once—by forcing Greek politicians and their powerful backers to back down and by forcing European leaders back to the table immediately to finalize a workable rescue plan in final form.

Of course, he was bound to fail, given the powerful opposition behind him.  The Greek PM was being punished on the one hand by his "allies" in the EU, who have imposed collective punishment on the Greek people because of decades of embedded corruption in the system, in spite of the fact that this Prime Minister had come clean. Making Greece a proper functioning democracy was Papandreou’s raison d'etre for in getting into Greek politics. 

And, on the other side, the parasite Greek oligarchs themselves, who saw his actions as frontal attack on their control of the Greek economy, fought to destroy him politically and in effect moving Greece one step closer to a failed state.

And now Greece has provided a convenient model.  You've now manufactured a crisis (that EASILY could have been solved by the ECB years ago - Greece is around 2.5% of Europe's GDP), which is now spreading, but providing ample opportunity to get rid of troublesome politicians who don't do what they are told (effectively embrace this "stability culture" that the Germans bleat on about, but which in reality is nothing more than consolidation of the rentiers' control of the various governments).  

Similarly in Italy, the European Central Bank has been buying Italian bonds, but in very half-hearted fashion and certainly not enough to stem the relentless rise in rates.  The ECB’s new chief, Mario Draghi (also an ex-Goldman man), kicked off his term with a blunt warning that Europe’s central bank would not act as a “lender of last resort” (hiding behind dubious legal technicalities) and thereby put his fellow countryman in a position where his resignation was the only course of action to salvage the country from an immediate financial crisis.

Berlusconi was also an easy target, given his colorful and dubious private history.  And his likely replacement, Mario Monti, is a perfect bagman for the financial oligarchs of Europe. He is, indeed, part of what one can rightly refer to as a “financial mafia” that has wrecked the world economy since 2008. These hatchet men of this murky and opaque financial world are now being appointed to implement austerity on poor working households to save the financial sector from a debt deflation --- an artificial crisis created because of the architecture of the Euro system, which as we know these same financial “markets” so much celebrated when the euro was launched in 1999. Sadly, a large number of Italians still see the euro as their saviour from a corrupt past, which many associate with the Italian lire and high interest rates, even if the corrupt Berlusconi has been himself intimately linked to the same Euro elite. 

And Draghi himself has a dubious past:  as we noted in a recent post, historically, Italy actively exploited ambiguity in accounting rules for swap transactions in order to mislead EU institutions, other EU national governments, and its own public as to the true size of its budget deficit. 

It seems indeed fitting that Draghi is now the man forced to deal with the consequences of this national accounting fraud.  But it’s hardly just for the people of Europe, all of whom will continue to get crushed under the boot of yet more fiscal austerity, by an increasingly detached and democratically unaccountable elite.  No wonder the streets of Madrid, Athens, Rome and elsewhere are beginning to burn. 

___________

Related:

Democracy is Being Sacrificed in Europe

 

The EU’s architects never meant it to be a democracy

 

Bob Chapman : The elite plans for Europe went upside down

Planning to Consolidate the EU

Eurozone turmoil: Enter the technocrats

Trilateral Commission influence in the Eurozone

Out Of The Ashes Of The Collapse Of The Eurozone Will A "United States Of Europe" Arise?

A financial collapse is most definitely coming to Europe.

It is going to be tremendously unpleasant.

But after it is over, the European elite are hoping that they will finally have what they have always wanted - a "new Europe" that is more tightly integrated than it has been at any point since the fall of the Roman Empire.