European Debt Crisis

How would the Eurozone function under a gold standard?

rafifarber Eurozone Crisis, Gold and Silver , , ,

How the Eurozone functions now:

  1. Government of Country A wants money to bribe citizens of A for votes.
  2. Government A goes into debt by selling bonds, and gives money to people of A, and gets reelected.
  3. Government A needs more money, so it sells more bonds, and gives it to people of A.
  4. Government A sells so many bonds that debt surpasses GDP of A. People get worried that A will not pay bonds. Interest rates rise.
  5. ECB buys hundreds of billions in bonds of A to “stabilize the system”, and gives A the money it printed to buy them, in exchange for going even deeper into debt.
  6. A defaults, ECB stops giving them Euros.
  7. A leaves the Euro and prints its own currency.
  8. Currency A plummets in value because nobody else wants it. People of A have nothing to exchange for goods and services. They starve and riot.

Debt is encouraged in a fiat system because in the back of their minds, investors always know the central bank will guarantee the bonds, enabling countries to go so deep into debt that they will never be able to pay it back. How would it work under a gold standard?

  1. Government of B wants to bribe its citizens for votes.
  2. Government A goes into debt by selling bonds for gold, gives gold to people of A, and gets reelected.
  3. Government A needs more gold, so it sells more bonds. But they can’t sell as much since investors are trying to conserve gold rather than keep lending it to A. Interest rates rise.
  4. Investors in A’s bonds are literally running out of gold. They stop buying bonds in order to conserve gold for other purposes.
  5. ECB does not buy any bonds either since ECB does not exist. Gold is money and it is spread around, given in exchange for goods and services.
  6. A’s debt is large, but manageable, because nobody allowed them to go too deep into debt in an attempt to conserve their gold reserves.
  7. A cuts its budget, stops borrowing gold, and begins to pay back its debt in gold by exchanging goods and services for gold. Life is harder, but the budget is eventually balanced and the debt is repaid.
  8. In the next election, people of A elect fiscal conservatives who understand that it is a bad idea to go too deep into debt.
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World War III will be started with a printing press, not a bomb

rafifarber Eurozone Crisis , , ,

Aside from the fact that the mantra is repeated by virtually every media outlet, mainstream and otherwise, why should any Eurozone country defaulting have anything to do with that country leaving the Euro? Except for Yanis Varoufakis, who is virtually the only Keynesian econometrician who seems to have a workable solution for Europe, everyone else just assumes that default equals exit. Why should this be?

Take the United States for example. The US is a dollar zone. All fifty states use the dollar, and California is about to go bankrupt. Is anyone seriously discussing California leaving the dollar zone if it defaults on its debt? No. Miami, where I come from, declared bankruptcy when I was a kid. Did anything happen to my family? No, because we weren’t stupid enough to buy the municipal bonds of a bankrupt municipality. And by the way, Miami did not exit Florida after it went bankrupt. As it should happen in a bankruptcy, those who own the debt lose the money. That’s it.

So why are we even discussing Greece “leaving the Euro”? Why should they? How does that help anything? Who decides if they are going to be kicked out? Who is in charge of the Eurozone who makes these decisions? Why should it even be an option? What is going on here, has anyone asked these questions?

If Greece did “exit,” it wouldn’t be Greece leaving of their own accord. What would happen is that the European Central Bank would stop giving Greece euros to fill their ATMs, and the country would literally run out of currency and they would have to start printing their own. So the answer is whoever is in charge of the ECB makes these decisions.

Who is in charge of the ECB? Mario Draghi, an Italian? I doubt he’s the one who’s going to make the final decision to stop giving currency to a Eurozone member.

Whoever has his hands on the switch is probably in Germany. The implication is that the Germans literally control Europe. They decide who’s in, who’s out, who starves, who lives, who dies. Germany conquered Europe. Again. Without anyone noticing. It’s August 31, 1939, but instead of Poland, the Krauts are about to invade Greece.

It’s interesting. We always thought World War III would be started with a nuclear bomb. It looks more and more likely that it will be started with a printing press.

World War II was the Flood; the Eurozone is the Tower of Babel

rafifarber Eurozone Crisis, The Jewish Libertarian Blog, Uncategorized

The picture to the left is an actual Eurozone ad campaign.

The parallels are uncanny. In the 1930’s, Europe, led by Germany, descended into violent chaos. Everyone killed everyone for every reason. A flood came, the biggest war ever fought on planet Earth. 60 million were killed – 2.5% of the global population at the time. Then things calmed down for a bit. Then Europe wanted to unite, to build a giant monetary Tower of Babel, to secularize and to expel God from the continent. The European Union and the Eurozone were born…

Eurenesis, Chapter 11

1) And the whole of Europe was of one union and one purpose. 2) And it came to pass, as they journeyed to Germany, that they found a valley in the land of Frankurt am Main; and they dwelt there. 3) And they said one to another: ‘Come, let us make money, and distribute it thoroughly.’ And they had paper for money, and tokens had they for coins. 4) And they said: ‘Come, let us build a European Central Bank, and a currency with its top in heaven, and let us give it the name Euro; lest we be scattered abroad upon the face of the whole of Europe.’ 5) And the LORD came down to see the ECB and the Euro, which the children of Europe built.

6) And the LORD said: ‘Behold, they are one Union, and they have all one currency; and this is what they begin to do; and now nothing will be withheld from them, which they seek to do. 7) Come, let us go down, and there confound their Eurozone, that they may not understand one another’s currency.’ 8 ) So the LORD scattered them abroad from thence upon the face of all Europe; and they stopped using the Euro.

The sin of the Eurozone was that it was trying to control too much, to mold the world in its image and to expel God from the planet by replacing Him as Creator, to conquer the  economy through unity, just like the people of Babel did. But the project was too much for man to handle. Now Europe will fragment, and life will go on.

Yanis Varoufakis and Economic Morality in the Eurozone

rafifarber The Jewish Libertarian Blog , , ,

I ran into a rather amazing find last week when I heard an Australian radio interview with a Greek economist named Yanis Varoufakis on the topic of the insanity in the Eurozone. Aside from having an awesome name, Dr. Varoufakis is sharp, articulate, and a contrarian. He was saying things I generally agree with but with an angle I hadn’t heard before, and what he said made a lot of sense.

You can listen to the interview here. It really is worth the time. The gist is this: Varoufakis holds that the entire structure of the bailout and so-called austerity is twisted. Greece’s debt keeps going up, so the austerity isn’t working obviously. The reason it isn’t working is that the bankrupt Greek state keeps borrowing money from the EFSF bailout fund to repay the ECB on bonds they bought from Greece to support Greek debt when no one else was buying those bonds. So in repaying the ECB via money from the EFSF, the ECB makes $800 million, and the Greek government goes deeper into debt.

Read that again, and you’ll see that the bailout fund is actually serving to drive Greece deeper into debt while letting the ECB profit off of it, and Greece is only “privileged” to continue this rape if it keeps it’s “austerity” which isn’t balancing its budget anyway.

That is why, says Dr. Varoufakis, the way things are going, the Eurozone will disintegrate entirely, as this domino effect will hit the rest of the PIIGS and the EU will self destruct along with the Eurozone.

Varoufakis’ solution is simple: Europeanize every bank in the Eurozone and have the ECB issue bonds in their name that people will buy. So you don’t have Spanish banks anymore – you have Eurobanks in Spain. The ECB issues bonds and becomes the switchboard, everything goes through the ECB, and now totally centralized, they can navigate forward. Wow does that sound Keynesian.

Varoufakis helped shed the light for me on the nature of this “bailout” and that’s why I like him, but he’s a Keynesian, and doesn’t realize that Keynesianism got us into this mess in the first place. Another example: I read another article he wrote about how Greece can’t be Argentina, which defaulted a decade ago, devalued its currency, and then rebounded. Greece, says Varoufakis, cannot be Argentina because Greece has no currency to devalue. He’s right, but the point is this:

Devaluing a currency, he says, is beneficial for any nation in debt, because it allows the nation to get out of debt. Well sure, a State can get out of debt by pillaging the value of its citizen’s savings and destroying its peoples’ wealth and paying debt back in garbage. They call that “devaluing a currency” in Orwellian language. What it really means is STEALING from citizenry. One day a government spends too much money so it decides to make your money worthless so it can pay back in worthless junk. Sounds great.

Varoufakis, for a Keynesian, is very smart, but he is a Keynesian nonetheless. He’s an economic tactician, recommending tactical moves to get out of a crisis without understanding the real, root cause of it all – a MORAL cause. Maybe Europeanizing everything and having the ECB issue bonds will technically get Europe out of debt in a mega Keynesian centralized way. But everyone will be dirt poor if it succeeds, because it means that the ECB will steal the value of every Euro in Europe by printing it into oblivion to pay the bonds it issues for the rest of Europe.

Why the circuitous Orwellian route of “ECB Bonds”? Just tell it like it is. Steal value from European savers. Just take it. Have the ECB issue bonds and then print the money to pay for them. Why not just do it more directly? Have the Eurozone completely centralized and pass a law that every Eurozone bank account has to give X% of their savings to pay the Euro debt. Just steal the money outright instead of printing it into oblivion.

So Varoufakis’ solution is basically: If European governments don’t get their act together and steal much more money much more quickly from the people, then the Eurozone will collapse.

Well OK. But the root cause of it all is the very fact that you allow a government to print money.

My solution? Get rid of the Eurozone and privatize money. Let people use what they want to use, and the best money will have the most value.

Never again will a government be able to simply steal your money by printing it.

Much like Leftists here in Israel who keep trying to find the perfect way to make peace, who do not realize that peace talks are inherently immoral if they give up Jewish land as a precondition, economic Leftists, or Keynesians, do not realize that the inherent structure of the system of currency backed by force is immoral and must be torn down. Israel leftists will never find peace beyond theft of Jewish land. Keynesians will never find economic solutions beyond theft either.

Europe and the entire Western economy is a Global Ponzi scheme

rafifarber The Jewish Libertarian Blog , , , ,

It hit me when I was reading an article about Italy “refinancing” its debt by selling bonds. Bonds are debt.

The definition of a Ponzi Scheme, as I’m sure we all know ever since Madoff ran away with $50 billion that never existed, is paying investors off with money from other investors.

In financial newspapers and other smart guy publications with articles written by people with $100,000 MBA’s that aren’t worth 50 cents, they’ll call it refinancing, or restructuring, or recombobulating, or whatever. Doesn’t make a difference. When a country like Italy sells bonds in order to pay off other maturing bonds, they are by definition engaging in a Ponzi Scheme. They are taking money from new investors – the buyers of the new bonds – to pay off old investors – the holders of the old bonds.

The reason the financial magazines and websites and newspapers call it “refinancing” is that they don’t want us to freak out and pull our money out of Europe by calling it what it is, because this would mean the reset button would have to pushed all the sooner.

It’s not just Europe. America pays off interest it owes to China and Japan with money that it borrows from somewhere else. It pays off old treasury bills by selling new ones. There’s no real genius to it.

Why can’t they pay off with real money? Because they’re busy using that to blow up rocks in Afghanistan and Iraq with billion dollar precision missiles.

The entire Western economy is nothing but selling bonds to pay off bonds. Paying off investors with other investors’ money. The clock stops when they can no longer attract new investors.

That’s when 1.5 quadrillion dollars in global derivatives gets wiped off the books in one shot.

Stay safe out there.