Friday, December 2, 2011

Debt Will Grow As Little Gets Accomplished

By Bob Chapman
TheInternationalForecaster.com
Dec 2, 2011
http://www.gcnlive.com/wp/2011/12/02/debt-will-grow-as-little-gets-accomplished/

Except for the MF Global scandal Europe still stands at the forefront of world debt problems. Up until now little has been accomplished toward solving these problems and the traditional Christmas season is upon us, which stretches from December 7th, to January 10th, a period in which very little will be accomplished.

It is reminiscent of last summer. The only thing that the elitists have accomplished is the placement of Bilderbergs as the head of the ECB and the appointments of two more as PM’s in Italy and Greece.

Over the last ten years we saw all debt grow, but in particular among the southern members of the euro zone. The imbalance was predictable, but the northern countries just ignored the problem. Those in the north blamed the difference on culture and work ethics. Thrown into the mix was government and banking profligacy and growing lack of competitiveness. All of that was true, but it did not alter the fact that great imbalances existed and still exist and that certainly contributed to the underlying non-competitiveness.

Financial mismanagement certainly had a profound effect in the six countries in serious trouble and you can also include France in the group. The problems were also compounded by the wild growth of indebtedness lorded over the banking community. The latter just loved one interest for all. The banks were particularly the blame in Ireland and Spain where unnecessary building went absolutely berserk. Through this period, Germany and the Netherlands, in particular, couldn’t lend money fast enough to those who shouldn’t have been borrowing it. This, as we reflect back, it was malinvestment, a misallocation of capital instituted by the banking community, which was leveraged about 70 to 1. We continue to ask what could they have been thinking of? The performance of the banks was at the very core and heart of what we see today.

Two to three years ago Germany reached the conclusion that this could not continue and they attempted to Germanize Greece and to instill discipline. That ended up being unsuccessful, due to the great cultural differences. That brought about the EFSF, which provided loans to those countries that were unacceptable to the bond market. This, of course, was just another effort in avoiding reality. The northern Euro Zone members want to continue to export to these countries, but they cannot do that and that is why they have no money. They are finding that collectivism doesn’t work. There is no such thing as collective responsibility. These new world order geniuses forget that when you have austerity GDP falls and you have a recession. In addition, it also brings about added inflation, which had and has the ECB very concerned, because their mandate is to keep inflation in check. This then has put the ECB at cross-purposes.

This points out why the ECB does not want to act as lender of last resort to governments. The six nations in trouble have been forced kicking and screaming to accept austerity government changes and to reveal the terrible condition that their banks are in. Greece, as an example, went into the stage one bailout and austerity, which forced revenues lower and the ability to pay interest lower as well. Wages were cut 40%, government wanted to take licensees from taxi drivers and turn their businesses over to a Germany consortium, which forced the largest demonstrations to date. We wrote more than two years ago that Greece should default, return to the Drachma and straighten their economy out. No one wanted to hear that and now the situation is much worse.

We have six countries on the ropes. Contagion has set in. Stress tests are a scam and meaningless. Dexia passed with flying colors and two weeks later went bankrupt.

Due to outright lying by bankers and politicians money is going to be much harder to raise in the future. If Germany’s auction was real last week, and if they could only raise half of what they wanted to raise, how can those in trouble believe they can raise any funds at over 7% on 10-year bonds?

The simple solution is to end the euro, a poorly thought out experiment; which its creators thought would become a one-world currency. If currencies are managed properly, central banks do not need to be a lender of last resort. All the lender does in creating money and credit out of thin air is inflate away excesses by the bank and fiscal policies. A cap of 3% annually in central bank monetary creation will bring only limited inflation and allow for growth.

A break up of the euro zone does not have to be disorderly. Every two months, over a one-year period, one of the six nations can be allowed to leave the euro in full default. The second year the remaining 11 members can decide whether they want to keep the group together, or return to their original currencies. This is essentially what 65% of German citizens want.

The remaining states cannot coordinate fiscal policy, because it means a loss of sovereignty and internal fiscal control would be given to an 8-man committee in Belgium. These are the same characters and leadership that assisted the euro zone into trouble in the first place, along with the banks, who thought they had a license to steal.

Yes, there will be a depression whether these elitists like it or not. Not only in Europe, but in the UK and US as well, which will occur in varying degrees worldwide no matter what solutions are found. Depression is inevitable. When bond yields reach current levels raising money is prohibited, which means the game is over no matter which way you cut it. Recapitalization of the current system is an exercise in futility. Create more debt to pay off existing debt – how stupid. The system has to be purged – there is no other way. The bankers do not want that because they’ll lose the key to their power base from which they control everything. The politicians and bureaucrats do not want it because they’ll have to find real jobs. Recognizing that recapitalization at this level cannot work. It will only work when all the malinvestment is removed from the system, and today’s group of bankers cannot be allowed to even participate in their former capacity again. This vicious deflationary cycle must end. We have found that increasing money and credit does not work. You cannot escape deflationary depression indefinitely, because hyperinflation eventually takes over and the collapse that follows is even worse. Just look at history and the Weimar collapse. There is no easy way out and this is what has to be done. Incidentally, only those with gold and silver related assets will be left with any wealth.

Bob Chapman on GCN’s Radio Liberty (28 November 2011)







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