Following up on my last, John Dizard takes a different line from Ambrose. What Dizard wants is a sovereign default system, and he wants it now, not in 2013. The starting point is last week’s Eurobungle:
Last week’s crisis in “peripheral” euro area bond markets was the consequence of a series of own goals by the Brussels team. By attempting to postpone critical decisions on bank insolvency resolution, and on euro-area sovereign default procedures, the political leaders and their minions have brought one on.
And Dizard thinks a fix is really urgent. So far, I cleave more to the rolling minicrisis view of European prospects, so I’d love to know more about the background to this forecast, implying a credit crunch that will take in more than Portugal:
Within a month or so, the seize-up in the peripheral bond markets will lead to serious and immediate operating issues for the financial system. So the political leadership has no choice but to clarify how Europe will deal with sovereign default, and banking system insolvency.
Dizard doesn’t think the solution should be to stretch the ECB to fit whatever gaping holes the solvency crisis reveals in Euroinstitutions, a la AEP, but a proper default mechanism. Legal templates for this do exist, but, given the dilatoriness of the Eurocrats and the time pressure, Dizard thinks it better to devolve the legislative task to national governments:
This will likely take the form of a euro group announcement that, while Europe itself can take its time devising default rules, there would be nothing inappropriate about national governments passing legislation to impose “aggregated collective action clauses” on bond issues that are governed by national law.
More good stuff in the article – do go and read the original, if you have a sub. Basically the idea is debt writedowns endorsed by a majority of bondholders, plus some Euro variant on Brady bonds.
If Dizard is right about the urgency, I imagine the chances of this getting put together in time are close to zero.
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This thread that you and Yves have been following nails the central lawlessness at the heart of the EU: appointed central bankers are entirely running the zone’s economy with only rear guard electoral or legislative input. This compares to the US where private bankers and corporate managements have essentially purchased a form of government that gives them free reign to do as they choose. These contrast, but only in form not substance, with China the only major economic system where the central powers seem to have any fear of popular response to policy. There lawlessness takes the form of an essentially religious caste trying anything to sustain growth without giving up the faith and the perks that come with it.
Which of these systems establishes the rule of law and enfranchises its populations both with the vote and with incomes to express demand in a market economy (all three systems are really monopolistic command economies at present where demand is managed by those who can dictate both the location of production and to a large extent price) will be the dominant system coming out of the crisis.
Markets are only meaningfully free where the maximum portion of the population served by them is free to express demand by spending into the economy: this spending by decentralized free individuals into the market to define demand is “the invisible hand”, it is why working free markets attend the needs of everyone in a society, not just the rich and powerful. Where the ECB, Walmart or the Party can tell people what their choices are, a free market economy does not exist.
• john said: “…China the only major economic system where the central powers seem to have any fear of popular response to policy.”
No small number of political theorists have asserted that overt authoritarian regimes give their leadership class less wiggle room than nominal “democratic” regimes. With nominal “democratic” regimes, it can always be argued that the people made their own bed, and therefore must sleep in it. That argument doesn’t work with overt authoritarian regimes.
• john said: “Which of these systems establishes the rule of law and enfranchises its populations both with the vote and with incomes to express demand in a market economy (all three systems are really monopolistic command economies at present where demand is managed by those who can dictate both the location of production and to a large extent price) will be the dominant system coming out of the crisis.”
True, unless we have a paradigm change.
In The Populist Moment, Lawrence Goodwyn argues that Jeffesonian democracy died in the United States the day in 1986 that the People’s Party convention, co-opted by William Jennings Bryan and the silver-mining interests, endorsed Bryan. After McKinley’s impressive victory, the central command regime was consolidated into American culture, only to be further consolidated by the Progressive Movement (1900-1930) and the New Deal.
But if the high priests of our current economic order want to preserve that order, and their lofty positions perched upon its pinnacle, then they must keep their part of the bargain. Could we call this bargain a sort of “social contract”? And that contract has two parts:
1) They must keep the prosperity (unending economic growth) bandwagon going, and
2) They must achieve some reasonably equitable and fair sharing of the prosperity.
It’s all terribly pragmatic.
In simple hunter-gatherer societies it is very easy to tell who’s bringing the bacon home. In complex societies like the U.S. it’s infinitely more difficult. The fact that we operate in a global economy makes it even more difficult. But eventually people figure it out.
Siggy often accuses me of being too philosophical. And maybe he’s right. Do the American people care about the mechanical and philosophical minutia of our economy and our polity? Maybe not. They just want a regime that works, and by “work” I mean one that brings the bacon home. Such are the priorities when one lives in a society where the cardinal virtue is growth—-ever increasing consumption.
So Americans exchanged freedom for material prosperity.
But the paradigm faces a challenge in the form of resource limitations and limitations of the biosphere. These limitations may preclude further growth. Plus it seems like the entire globe wants to jump on the prosperity bandwagon.
So I can envision a situation where the entire paradigm implodes.
Oops!
should read “Jeffesonian democracy died in the United States the day in 1896 that the People’s Party convention
I allways thought it interesting that the final nail in the coffin wasn’t driven for nearlyanother 100 years:
–When silver quoted at 50 USD (US Dollars) in January 1980, the atmosphere for precious metals was really euphoric. It was the Hunt Brothers (Nelson Bunker & William Herbert), who were the most famous bull market operators in those times, who invested a bigger part of their multi-billion USD fortune in the white metal. And it was already in the early 1970’s that the Hunt brothers started to build up gigantic physical positions in the silver sector.
In the sequel they expanded their stocks in stages, on the analogy of the increasing price for silver. During the final stage, they tried to keep the price for silver high, by buying up a large part of the current production on the options market. In the end, a state intervention caused the collapse of their silver price speculation. On January 21st 1980, COMEX (Commodity Exchange) announced, that new contracts on silver couldn’t be concluded any longer. This factual deactivation of the futures exchange was the main reason for the end of the biggest silver boom of all times.
On March 14th, 1980 the silver price sank on 21 USD per ounce.
Because of increasing interest rates, done by the chairman of the FED (Federal Reserve System), Paul Volcker, the Dollar became stronger and so increased in value. Now Nelson Bunker Hunt tried to win new business partners for further silver purchases, but he didn’t succeed.
Finally, the Hunt brothers didn’t have left enough liquidity to fulfill their additional cover obligation, so they sold silver worth a hundred million USD the next morning.
It became evident that it has not just been a one-sided manipulation by the Hunt brothers, but also, according to rumours, nine directors of the COMEX being involved with “short”- positions, and logically, earning on the crash as well.
The Hunt brothers declared private bankruptcy in 1980 and left it in 1989,being in debt amounting to 90 million USD. These debts had to be paid back within 15 years.
In August 1988, the Hunt brothers were convicted because of “conspiracy aiming at manipulation of the market”. —
There were other mechanisms for dealing with the Hunt Brothers, but they would not have been as profitable for “Corporate America” and various insiders.
But the paradigm faces a challenge in the form of resource limitations and limitations of the biosphere. These limitations may preclude further growth. Plus it seems like the entire globe wants to jump on the prosperity bandwagon. DownSouth
Why do you drag “resource limitations” into the argument? The problem is a mal-distribution of wealth which has unsurprisingly resulted from a government backed counterfeiting cartel. Neither an excessively large government (the Austrian red-herring) or “resource limitations” are the proximate cause of our problems. Ocram’s Razor strongly suggest that excessive and unjust debt is the problem, nothing else. Now, injustice probably has led to excessively large government and waste of resources but those are symptoms, not the root cause.
The paradigm of banker run world is problematic, because bankers do not enjoy running fiscal policy. Bankers make loans. Debt saturation and extended servicing as perpetual dull and diminishing returns of servicing means an extension of the pain.
The pain of no growth becomes unbearable to the investor class and this class pushes reform that strikes a return to balanced government.
As far as paradigms it is problably best to draw a chart between private circuit systems and open space systems. A Likert scale would do.
Evolution toward further open space business and other organizational structures are evolving toward a octagon-shape from pyramid shape managment paradigm. Call it a 7 on a scale of 1-10.
Government, be it a gaggle of bankers or politicians are the last to catch on. That may be the dramatic paradigm shift your mentioning Down South. Reforms may take a decade on there own due to the pain of no growth, stagflation is probably the most realistic economic scenario short-medium term. A factor breaking some of the status quo will be the WWII and Boomer Generation dying off that are more reliant on institutions and government sponsored public-private relationships.
It is not that there isn’t enough to go around, the problem is the Golden Calf. Wealth concentration known in the crude sense as hoarding and sitting in funds all over the world isn’t capital formation for venture now is it? Ben Bernanke is asking the wrong question which is how to get lending moving again. The money multiplier is negative in the Central Bank model so it is a non-starter in any event.
What is needed is level playing field for capital investment, classic Save and Invest economy for the West. Sound money being a public utility instead of a store of value is needed meaning governments have to be sanitized first.
The only question in my mind is whether world war breaks out first as the pain mounts.
Those that have the wealth all feel it is theirs whether it was earned legitimately or not and such also feel they won’t reinvest in plutocracies outside of what is considered “safe” investments. That means commodities and government sponsored graft with a little investing in Social Media for efficiency thrown in.
The current phase we are in is in the form of taxation and fines to maintain supply chain participation. It is a big stick of fear such as the Healthcare bill that multiply the pain factor.
John says: “Which of these systems establishes the rule of law and enfranchises its populations both with the vote and with incomes to express demand in a market economy (all three systems are really monopolistic command economies at present where demand is managed by those who can dictate both the location of production and to a large extent price) will be the dominant system coming out of the crisis.”
You are dreaming …
The dominant system is already in place — it is top down global wealthy ruling elite gangster control through the central banking cartel’s corruption of all governments. China’s population becomes less of a threat as its citizens are shifted to the complicity inherent in deceptively packaged over leveraged derivative products based in debt and cheap credit. It is now a well established formula of control. Dizard won’t get his remedial fix, he drinks the kool aid or sells it.
The global markets are all now cross poisoned with this ‘too big to fail’ ‘complicity’.
The goal is herd thinning. When the rancher faces drought he sells off the herds. In this case the drought is global un-sustainability caused by the overgrazing mismanagement of the wealthy elite global central banking cartel, now, like any good rancher, they intentionally destroy the herds and at the same time impose a new ruler and ruled, full spectrum dominance, world order.
Deception is the strongest political force on the planet.
i on the ball patriot,
While I admire your consistency, evil is no more perfect than good. The position you take has in its essence been true my entire life, but the big die off has not happened yet. That it hasn’t doesn’t mean it won’t, I know, but if it was really so hopeless you’d be out fishing or drinking or what ever it is that a monomaniacally obsessed patriot does for fun at the end of times!
John, deception creates evil and good, we have a choice to rise above our deceptions by choosing good for the many and punishing the few who defile our societal alliances.
The big die off is well on its way — and includes all organisms as well as humans — but it is not hopeless if we first understand the wealthy elite parasitic dynamic that has caused it and work to change that parasitic free lunch dynamic.
Excerpt …
“The Big Die Off: Rate of Extinction Now a Thousand Times Faster
Somethin’s happenin round here and what it is–is all too clear.
The greed consciousness from which humanity is functioning is destroying life. The focus on huge profits for the elite few without regard for life and future survivability is bringing about a clear catastrophe in the form of a massive die off.”
More here …
http://blogs.alternet.org/grantlawrence/2010/05/09/the-big-die-off-rate-of-extinction-now-a-thousand-times-faster/
I have fun along the way John — I’m cool, I work out, I drink beer and chicks want me bad! Don’t worry about me, focus on the rich pricks who are stealing your lunch.
Deception is the strongest political force on the planet.
I would like to point out that the EU can print euros the same way that the USA can print dollars. As a consequence, the EU is and will always be able to bail out any country whose debt is in euroes.
It could let some states fail because of political reasons (say, fear of moral hazard in debtor countries), but this is different from an impending, no-way-out crisis.
But the EU is not the USA. Should the EU start monetizing the debt to the degree the USA Fed has, the world bond market’s will savagely punish them, precipitating a rapid disintegration of the EU. Not to mention that the most important Eu member state, Germany, is vehemently opposed to QE.
Additionally, ECB sovereign bailouts/QE are completely banned under Article 123 of the European treaty.
Should the EU start monetizing the debt to the degree the USA Fed has, the world bond market’s will savagely punish them, precipitating a rapid disintegration of the EU. YoYo
Let em. It is absurd and unjust that a sovereign government EVER borrow money. It is a gift to the rich of a risk-free return. It is a remnant of feudalism, imo. Cut off Royalty and the uber-rich from their risk-free returns extracted from taxpayers. No sovereign government should ever rent its money supply. It should simply spend it into circulation and tax it out of circulation.
Isn’t the entire idea of a single European currency obsolete? With computers and modern communications ANY NUMBER of different currencies is doable, I would bet.
This video explains it all, the entire banking malignancy that is consuming the world. Watch, learn and then make it viral: http://vimeo.com/14924997
Thanks, I’ve seen it. It is pretty good if I recall. But thanks for reminding me how much I like Eva Cassidy’s music.
Just to confirm the R.B.S estimate
http://ftalphaville.ft.com/blog/2010/11/11/401726/from-ireland-to-e2000bn-of-eurozone-contagion/
Ask yourselves why huge financial institutions around the world are actively undermining their respective national/international currencies…
The only solution any of them can find to keep their scrwny necks out of public nooses, is to obscure everything with hyper inflation.
I suspect that most national governments are in favor of this outcome as it will also absolve them of complicity long enough to hand of the reins of power to some unsuspecting reformers )suckers).
I suspect that most national governments are in favor of this outcome as it will also absolve them of complicity long enough to hand of the reins of power to some unsuspecting reformers )suckers). Paul Repstock
Reform won’t be that hard (for the US). All we need is:
1) Restitution with new debt and interest free United States Notes just given equally to every citizen combined with leverage restrictions on the banks to preclude price inflation
FOLLOWED by (after the debt clears)
2) Genuine capitalism including separate government and private money supplies.
Its only money folks, mere electronic bookkeeping entries. Furthermore, debt forgiveness is Biblical (Deuteronomy 15). Let the “Christian Right” oppose that if they dare when savers would receive an equal amount too.
BTW, I am Christian but I actually read the Old Testament.
F Beard wrote..Reform won’t be that hard (for the US).
A vollentary debt forgiveness/reconciliation would be the most just and painless solution to our catastrophy. However, because of it’s implications to the “Social Structure”, you will find very few people to support your solution.
Our very identities are based on this artificial stratification which is no more realistic than was the former aristocratic system it replaced. Humans seem to be incapable of finding self worth except as defined by some external standard. The fact that the external standard is artificial appears irrelevant.
There are few people who would willingly exchange the outright ownership of a one bedroom farmhouse for the appearance of owning a million dollar mansion with a $750,000 dollar mortgage. I don’t need to explain who is actually richer.
Well, if our society is suicidal, I can’t help that. I merely point out that there is a simple, just and Biblically inspired solution (bailout of the population followed by liberty) for our problems that should satisfy everyone worth satisfying.
Well FB: Since the majority are unwilling or incapable of thinking for themselves, how do you suggest we sell you ‘Better Mouse Trap’?
What you are suggesting is such a radical shift in a long held value sytem, that humans will not even be able to imagine their place in the ‘new system’. The sense of self and self worth has been so totally destroyed that most now exist only in the context of present wealth structure.
..And for most people, their very physical existence is dependant on that structure. If the debt structure collapses, then there would be world wide famine and war. Such is the leverage of the interlocking debt (Which logically must total zero), that the threat is always impicit: If the banks go down, then so does everything else.
This is pure extortion. The one solution is your suggestion “Blanket debt forgiveness”. The only impediment is overcoming the fear of the victims.
I think you got it right Paul. A “B” team will get all the blame for the discontinuation of the largesse and the reformers would share power through funding mechanisms for a Save and Invest economy. Who wants to run for office in 2012? I am seriously considering it. Someone gets the all work and no glory role, the sooner we get it over with the better.
How about opening up the central bank to competition? Why allow the Fed and other central banks a monopoly? This seems to be anti-free market.
What you are suggesting is such a radical shift in a long held value sytem, that humans will not even be able to imagine their place in the ‘new system’ Paul Repstock
There is nothing radical about it; just restitution followed by genuine free market capitalism this time instead of banker fascism. Who can oppose that?
The population would start off debt-free and free to innovate with regard to money. Most of US would continue on as usual till we died off, leaving a legacy of freedom for our children.
LOL…Just try convincing your neigbour that he nolonger “owns” anything! That his pension will not be paid. That his 401K is worthless. That he will nolonger eat except by his own labour or by largess of his freinds and family who are still able to find paid employment.
The Banksters are not the only ones shitting bricks here.
LOL…Just try convincing your neigbour that he nolonger “owns” anything! Paul Repstock
Take a few deep breaths and realize that I am advocating a BAILOUT of the ENTIRE population, not pure debt-forgiveness. All the debt would be paid off and with little price inflation risk either since leverage restrictions (ideally a 100% reserve requirement) would be placed on the banks.
Sorry, I am not explianing well.
Take your 401k.. It is comprised of investments that are almost totally predicated on debt. If these debts are not serviced there is no income. Therefore the investments are worthless. Poof! There goes your retirement. The same is true of pensions.
A massive bailout would enable all debt to be repaid and also enable 100% reserve banking WITHOUT deflation. People could earn high real interest rates on their savings since banks would not be able to multiply their savings via fractional reserves.
By that logic, we can declare everyone “rich” with a stroke of the pen.
The one solution is your suggestion “Blanket debt forgiveness”. The only impediment is overcoming the fear of the victims. Paul Repstock
A blanket debt-forgiveness would probably work but a more just solution (and more politically expedient) would be a blanket BAILOUT of the entire US population, debtors AND savers alike COMBINED with leverage restrictions on the banks to preclude serious price inflation.
And after the bailout, then fundamental reform.
When I commend your “solution” and speak in terms of justice and harm reduction, I do so on a very long term basis.
Mankind’s present conservationist path will lead to our demise as a species. The more wealth and power are concentrated, the less opportunity there will be for real growth. When an organism or a species ceases to grow, it dies! That is the extent to which I agree with you. The existing structure needs to be rejected, or atleast turned inside out.
But first, we will require the ability to accept change. That is not going to be easy. Fear leads us to make every facet of our society conservative or reactionary.
Fear leads us to make every facet of our society conservative or reactionary. Paul Repstock
Prudence dwells with wisdom (Proverbs 8:12) and with many counselors plans succeed (Proverbs 15:22).
Your “Book” has yet to creat a just solution!
Your “Book” has yet to creat a just solution! Paul Repstock
My you are in a bind; accept solutions based on the Bible or risk Great Depression II and WW III!
The God of the Old Testament is greatly misunderstood and slandered. It is He who says:
He has told you, O man, what is good;
and what does the LORD require of you
but to do justice,
to love kindness,
and to walk humbly with your God? >Micah 6:8
I suggest that if we’ll just “do justice and love kindness” that He’ll wait patiently for the remainder.
LOL, I’m not in a bind, nor am I conflicted. My weakness here is that I’m not competent to debate scripture with you.
I think that in your reliance on the bible perhaps you are presumptuous. The basic constitutions of all religions and most other organizations are just. However, they all fail because of artificial stratifications and exclusions.
Also, the United States of America do not exist in a vacum. This cancerous debt structure is woven around the globe.
Relieving Joe the Plumber from his mortgage debt will have negative impacts on European farmers, Chilean copper miners, and workers in Tiawanese sweatshops.
Relieving Joe the Plumber from his mortgage debt will have negative impacts on European farmers, Chilean copper miners, and workers in Tiawanese sweatshops. Paul Repstock
First I propose a BAILOUT of the entire US population not just the debtors. That should stabilize our demand for imports. Second, I propose genuine capitalism in the US which would benefit the entire population of the world eventually. Third, the foreign debt holders would receive full payment and not necessarily in cheaper money either.
So, in the short run the foreign workers get to keep their jobs and in the longer run their children live in a more just world.
Ok, I hope you are right and that it can be done in that way. It is always necessary to start somewhere. I hope that your fellow Americans can be persuaded to give it a try. But, it is beastly difficult to dislodge the ‘Dog from the Manger’..LOL
Correct again Paul and my longer commentary on the thread describes this process of pain being the catalyst of change.
But the organism known as mankind won’t completely die, perhaps 35% before a sense of sanity is restored but I really doubt it will be less than 10%.
I don’t advocate the “thinning herd” theory, it is merely a Golden Calf that won’t decentralize on its own to fund future growth. More like a “screw you buddy I have mine” mentality that is the polar opposite of collaboration. The pain forces capitulation that restarts growth without working sixty hour work weeks to accomplish it.
There are solutions for capitulation and collaboration but it is yet early in the pain-o-meter for them to be seriously considered. Pain reaches the Ivory Tower last but it surely comes.
LOL. “Ivory Tower”, has always had a connotation of learning and reason in my mind. I prefer to see the problem more in ‘Golden Towers’.
In the best of all possible worlds we would be able to convince the inhabitants of these towers that their best interest lay in an orderly dismantling of the tower, rather than wait for mob violence to crash it or to suffer the endless cycle of replacing the occupants of the penthouse suite.
Airy fairy nonsense I know. There are too many ‘wanna be’ residents in those apartments just below the top.
I think that in your reliance on the bible perhaps you are presumptuous. Paul Repstock
The Christian Right has been captured by the Austerians due to basic ignorance of the Bible, particularly the Old Testament. Debt forgiveness is commanded (Deuteronomy 15). How will the Austerians reason that away to Christians? They can’t. Remove the Christian Right from the Austerians and what remains?
Hey, every time the TSA feels up a 3-year old or a nun I wonder: “Why even bother?”. It makes me ill to even offer a way out for this country sometimes.
Keep doing your thing and expect it to take years to reach that level playing field. But it is worth it and besides, what else is there to do? It is a short life, far more interesting to charge the abyss and be a part of history than viewing it from the cheap seats.
Thank you for your patience fellow posters.
Wow! It is amazing how far people of good will can stray from the topic at hand without any shouting (capitals) and with no noticeible acrimony. Again I have not intentionally hijacked Yves’ blog. I really appreciate the forum.
In truth, I don’t think our previous discussion is irrelevant to the blog. It is just on another level of the same topic.
That’s what I enjoy about Yve’s blog. There’s a great deal of tolerance for a wide range of ideas and opinions from people seemingly from all walks of life, educational levels and social backgrounds.
Many people will not listen if they do not feel respected. With a little respect, there comes an opportunity to persuade or gain a little understanding for one’s opinions and for reflecting on others. Eventually this may lead to a moment of “Oh, I see now”, or a “maybe I am wrong about this, I’ve got to give this a little more thought” moment, and that’s a good thing.