Posted on 03/23/2013 4:01:55 PM PDT by Starman417
Apparently it takes a former Federal Reserve senior economist to ground everyone in reality. The European Union is no more and disintegrating rapidly:
"The European project is crashing to earth,” Athanasios Orphanides told the Financial Times in an interview. "This is a fundamental change in the dynamics of Europe towards disintegration and I don’t see how this can be reversed.”...This week’s events had made “a mockery” of EU treaties, he added. “It suggests that in Europe not all people are equal under the law.”
“We have seen other eurozone countries, the Netherlands, for instance, put national interests ahead of the European interest by trying to bring down the economic model of countries such as Cyprus or Luxembourg.”
He also called into question the credibility of the ECB’s threat to pull the plug on the Cypriot banking system. On Thursday, the ECB warned that if an EU-IMF rescue programme was not agreed by Monday, it would ban the use of “emergency liquidity assistance” to prop up the Cypriot banking system.
According to Mr Orphanides, about €10bn of ELA is being provided via Europe’s Target2 payments system used by its central banks. “If you say it is no longer authorised, it would force the Central Bank of Cyprus to default on its Target2 obligations. Cyprus would then have to leave the euro area.”
“The ECB will have forced Cyprus out. This is the one thing Mario Draghi doesn’t want to happen – he does not want to be the ECB president who triggers the break-up of the euro. It is painful to watch.”
Meanwhile, in Cyprus, they figured out that confiscating money from every depositor wasn't such a good idea so now they plan on instituting the Obama plan. Just take the money from the rich. Plus they have put in place capitol controls, meaning once the banks FINALLY do open up they will limit how much you can take out and transfer. Capital controls are also being talked about in Spain and Greece. The EU was premised with open borders for all, including money....no longer.
The EU is dead.
And that will have repercussions at home.
The coming economic crisis in Japan will also have repercussions at home:
(excerpt) Read more at floppingaces.net...
Pimp.
ping
The overwhelming consensus among the world’s economists is that quantitative easing (QE) has saved the day in the U.S. and that Japan needs to follow suit, on a larger scale. I beg to differ and suggest this policy will almost certainly lead to a hyperinflationary disaster in Japan. If that’s right, it will have serious ramifications for other countries, dragged down by an acceleration of the so-called currency wars. More broadly though, it is likely to destroy the myth pushed by today’s economists that QE is a cure-all for downtrodden economies. It isn’t and Japan will become the template to prove it.
…Government debt to GDP in Japan is now 245%, far higher than any other country. Total debt to GDP is 500%. Government expenditure to government revenue is a staggering 2000%. Meanwhile interest costs on government debt equal 25% of government revenue.
There’s no way that Japan will ever repay this debt. It has two main options: either go through extraordinary pain by cutting back on government expenditure or print substantial money to inflate some of the debt away.
Japan is choosing the second option, as are most governments around the world. It would rather print money than cut spending and doom the economy to a substantial contraction. The choice to print money though will result in an even more painful and drawn-out outcome.
It’s inevitable that the yen will fall further from here, potentially much further. I’ve previously said that the yen at 200 or 300 on the dollar would not surprise. This could prove optimistic.
It also seems inevitable that Japanese interest rates will rise and bonds will sell off. Yields have to rise to just 2% for interest costs on government debt to take up 80% of government revenue. The jig will be up well before that though.
Those that argue this won’t happen as 91% of Japanese government bonds are held by domestic investors are missing some key points. Foreign ownership of bonds is rising as domestic investors need more money to fund their retirements (Japan’s rapidly ageing population). Foreigners will demand higher yields for the risks that they’re taking on. And even domestic investors aren’t going to sit by earning 0.6% on a 10-year bond as hyperinflation takes hold and the currency tanks.
Japan has been on life support for over a decade. Aging, shrinking population, no desire or even cultural ability to absorb outsiders to stanch the bleeding. But, no wild collapses or social upheavals associated with this, it's just the nature of Japanese, or at least has been since the end of WWII.
Maybe that can change, but they're thoroughly export dependent for revenue and thoroughly import dependent for oil and even food now. Not likely to see a repeat unless allied with a substantial source for both, assuming they can raise an army.
“Meanwhile interest costs on government debt equal 25% of government revenue.”
Lots of room still for Japan to borrow before the interest cost increase rises faster than revenue.
The problem is this gimmick can only be done once. You don’t get a do over and if you screw up on this - Japan is finished. And even if you get 20 years out of this, what happens then?
60 years ago Japan was SO poised to own the planet ... what happened ?
Southern Europe will spell such doom, if our northern culture countries continue to be socially and economically entangled with it. We’re northern, so we tend to be more naturally technically inclined.
As for Japan, it is considered by many to be part of cultural China, having once been settled by Chinese. Might be a clash there in the future if allowed to ferment.
China took over the world , already happened. not sarcasm but truth.
Globalism is not working for Nations. I hope it is the end for the EU.
I’m thinking unity is not working for the states and people anymore, either. I want to live in a constitutional Republic with a culture and legal system that reflects that.
I make a terrible socialist widget.
These untouchable EU bureaucrats thought that they could go God’s plan for mankind. There’s a reason why God split the nation of Israel into,thirteen tribes, instead of amalgamating it into one tribe.
Nationhood is part of God’s plan for man.
Northern Europe is pretty much doomed as well. Maybe some countries could survive a Euro economic collapse, but the Muslim takeover and the destruction of civil society will eventually bring down even the most stable 1st world nations.
I believe that the entire Western World is heading for a dark age. Much like the Roman Empire dissolved, the civilized west will go down the same path. Expediency, profligacy, cultural relativism, open borders, and moral decay. The weak shall inherit the Earth, and from the ashes, we’ll be back to square one.
Good arguments. Well said and agreed in great part. But some cultures do tend to tinker with things more than others. Colder climate, for one condition, make such low-tech fiddling a compelling necessity. Will people closer to the equator be more likely to rebuild faster, or will it be people further to the north?
City-building, industrial development and even general personal industriousness tend to be characteristic of populations with at least a temperate climate if not a cold one.
The warmer it gets, the easier basic subsistence gets with minimal effort (unless you’re talking very dry or desert), so the drive to improve isn’t quite as strong.
Get into the tropics with food growing on trees practically year round and it’s almost nil. They don’t have far to fall though, so the rebuilding such as it is will be easier and accomplished more quickly.
Yeah, I know ... but the Japanese were waaayyy ahead of everybody in early electronics and cheap labor.
American companies went to Japan for cheap and quality work force ... old school ... Honeywell, GE, Motorola ... etc.
Their rule will be very short-lived.
Hard to say. My analysis is as follows
Economically, both north and south have the potential for flourishing economies outside a currency union. The Southern Europeans will never have the same mindset and work ethic of the Germans, but as long as their economic structure is not geared towards industry, they shouldn’t have problems. These countries have wonderful locales and climates. Their economic structures should be geared towards tourism and services. Further north, people are more geared towards industry and manufacturing, although in recent times, this has dropped off in some places. Take the UK for example. There was a time when they did a lot of manufacturing. Not anymore.
All of these countries have to be peeled away from the welfare mindset. This is especially important for the southerners, whose economies will be smaller, and in no way will be able to support such things. Unless Europeans embrace capitalism and achievement-based distribution of wealth, they will never see prosperity, as more and more take advantage of the government’s ‘generosity’.
All of this has to be built on a backbone of spiritual and cultural awakening. Europeans need to embrace basic nationalism again. They need to re-institute the traditions and values that built the continent, and give that teaching to the next generation. This is where the southerners have an advantage, because the Catholic Church has thankfully stuck to the Bible throughout what I call ‘the radical secularization nightmare’. The Catholic Church is a very strong institution, a rock if you will. Northerners have no such thing. Eastern Germany, Sweden, and the UK are perhaps the most dire places with regards to values. It will take strong leaders. The family unit has to be rebuilt. Abortion has to be deleted from society, if not for moral reasons, then for population replacement needs. All of the Third World immigrants who came in the past two and a half decades have to be deported, especially Muslims. These individuals are either there for the welfare state, or to turn Europe into an Islamic colony. Get rid of them. Israel is for the Hebrews. There’s nothing wrong with Norway being for the Norwegians. That’s how it should be.
There’s a lot more I could get into, but this is a start. In short, Europe simply needs to follow what true American conservatives (and some European ones) are preaching. These basic principles made America great, before socialism began tearing it down. They will work for Europe as well.
If Europe needs to temporarily be in chaos while groups like Golden Dawn and this Grillo person purge the Marxists and cultural-relativists, then so be it. Like a cancer, the painful treatment has to be administered before there’s any hope of a recovery.
1. They kept a prefecture system that let farmers have up to 10 times as many votes as city dwellers. There was a lot of money wasted on infrastructure in the country, while the cities couldn’t expand and lower housing prices to a level that made more than one child practical.
2. A birth dearth that started after WW2, due to legalization of abortion and the prefecture system that limited the growth of cities.
3. A very tight network of keiretsu, banks control corporations who controlled each other. They improved their quality in the 1970s and 1980s. However, bad business practices were easily covered up through shady dealings, and saving face was more important than admitting business losses and then correcting for them. This is part of why their bubble burst in the late 1980s and never recovered. There were huge structural losses to correct.
4. The political clout of farmers didn’t help things by limiting the importation of food. You could pay four times as much for rice in Japan as elsewhere in Asia. Higher costs for consumers for necessities meant less money for domestic consumer spending.
5. Japan built its economy on exporting to the West, and to a lesser degree, the rest of Asia. South Korea caught up to China in the 1980s and 1990s, and China is catching up today. More Asian nations competing to export stuff to the West. And China beat Japan on low cost labor, and South Korea has more in-house innovation for its products. Japan still makes high quality electronics, and it exports some of this. But it is a more crowded export market, and Japan no longer owns it.
While those are certainly factors, I would posit that you missed a very large contributing issue:
Japan’s banks were insolvent when their real estate market crashed and their stock market followed... and the government has propped them up just as the Fed is doing here. This grows out of your point #3 - the banks too HUGE losses with the keiretsu. The BOJ is helping cover up these losses with their programs.
As for the farmer issue: In Japan, remember the caste system. Look at where farmers are on that hierarchy vs. businessmen. There’s no question who is going to get preferential treatment.
The problem with “extending and pretending” with large banks is that the bankers will NEVER admit the truth as long as you don’t force them to. Not “allow” them to admit, FORCE them to admit. If you want to clean out a financial sector after one of these debt deflations, you have only a few choices:
1. Provide no backstop. Banks fail, maybe the economy tanks with them. The economy recovers and the bankers that screwed the pooch are out of jobs.
The US did this in 1873... and before that in Andy Jackson’s term as POTUS. It works, but the adjustment downwards is sharp and severe. The good news is that it keeps the bankers in check.
2. Take over the banks and sort out the mess. Sweden did this in the early 90’s. We did this with the S&L crisis. When you do this, you can either socialize the losses, or pare out the bad paper and sell it off to speculators, and then set up “good banks” into which you put the good paper. The take-over allows the government to get complete access to the books, after which prosecutions can begin (as we saw in the S&L scandal).
3. Extend and pretend. Extend the bad debt by rolling it into new debt, longer duration, smaller payments, etc. Usually done by a central bank - such as the Fed has been doing since 2008, the BOJ since 1994, the ECB since 2010. Savers are screwed as interest rates are crushed to nearly nothing to provide a effective subsidy to the banks on discount and overnight borrowing to roll their book.
Options 1 and 2 both work. Option 3 is what Japan chose in the mid-90’s, and is what we and the ECB are choosing now. It obviously isn’t working.
the people of 60 years ago did not take time to have and raise children to replace themselves
Japan’s demography is its destiny
China is on the same path
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