True Economics Applied in the Real World
Nima and Dylan discuss the sectoral balance equation and how it helps us explain Eurozone troubles.
Sectoral balanced and private saving: https://www.economicsjunkie.com/sectoral-balances-and-private-saving/
Sectoral balances in Europe: https://econoblog101.wordpress.com/2016/07/14/sectoral-balances-of-the-eurozone/
Sectoral balances overview: https://en.wikipedia.org/wiki/Sectoral_balances
The WSJ reports ICAP Testing Trades In Greek Drachma Against Dollar:
NEW YORK (Dow Jones)–ICAP Plc is preparing its electronic trading platforms for Greece’s potential exit from the euro and a return to the drachma, senior executives at the inter-dealer broker said Sunday.
ICAP is the latest firm to disclose such preparations, joining the growing ranks of banks, governments and other key players in the global financial system whose officials are worried enough about the stability of the common currency to be making contingency plans for a possible break-up.
The firm has been testing systems that would allow dealer banks to trade the drachma against both the dollar and the euro, the ICAP executives said, cautioning that the measures taken in recent weeks were precautionary. They said the currency pairs would not be accessible for trading unless required by market events, and may never be used.
“What precipitated this were customer concerns about what would happen if a country pulled out of the common currency,” said Edward Brown, executive vice president in business development and research at ICAP.
The U.K. Chancellor of the Exchequer George Osborne said Sunday that the government has stepped up its own planning measures in recent months to be prepared for a possible collapse of the euro zone. The U.K. isn’t a member of the euro zone, but it is home to Europe’s financial hub and is the world’s biggest currency-dealing center.
It’s good to be prepared for the likely …
So long as people give moral justification to organized aggression, namely the concept of government, there will be governments. So long as there are governments they will grow and grow until they completely cripple the economy they are leeching on or until they become unable to meet obligations entered into, triggering a reset.
In the long run, government power always tends towards centralization, with more and more power consolidated with fewer and fewer people, with less and less representation of the governed in the process.
It is true that, prompted by public ire from past failures, bureaucrats have throughout history devised methods to try and limit and balance state power through things like constitutions, bills of rights, balance of powers, parliaments, etc. What these measures have accomplished has been to slow down the growth, centralization, and overreach of the affected governments, but they have happened nonetheless, and with catastrophic results in many respects one could argue (1.4 million dead Iraqis might agree with me, just to bring up ONE example).
This is why even a limited government is so dangerous, because all the wealth and economic growth it brings about simply supplies more potential tax loot and thus sets the stage for more and more taxation and indebtedness, and an all the more gigantic and imperialistic state. (This is, by the way, why in the long run, after having suffered from repetitive government depredations again and again, at some point people will have to accept the validity of voluntaryism.)
These are the theories that I have been working with for years now, and there is plenty of historical evidence over the past millennia to corroborate them. The most prominent current example is of course the federal government in the United States, which has grown from a tiny government (about 7% of US GDP back then with lots of sovereignty for individual states) to the largest, most powerful, and most imperialistic government in the history of mankind, with more and more power being centralized in Washington, with Democrats and Republicans complicit in skillfully supplying their respective reasoning in their respective areas of public policy in order to consolidate power in the fields of social and military policies, respectively.
Another contemporary example is of course the European Union. Brussels represents what Washington has been in US history. Each individual crisis has been supplying and will continue to supply Brussels bit by bit with ammunition to expand its powers over member states in their endeavor of building a European Empire.
The ESM that is being discussed now fits right into this pattern and you can find out more about it in this informative clip:
Mish writes in Europe Out of Time; Differences Impossible to Untangle; Merkel’s Mind is Fried; Eurozone Breakup Inevitable; “Let the Euro Die”:
Is the Euro Worth Saving?
Regardless of what you or I may think, that question is where European voters come in. From that standpoint it does not look pretty.
German Chancellor Merkel, Spanish Prime Minister Zapatero, Italian Prime Minister Berlusconi, and Greek President George Papandreou will all be gone after the next set of elections.
French President Nicholas Sarkozy may bite the dust as well, and if he does it may be to a vehemently anti-Euro candidate.
All it takes is one government to say “to hell with this” and the whole mess unravels.
The current set of politicians all want to “save the Euro”. But what did the Euro buy Greece, Ireland, Spain, or Portugal except misery?
Even German and Finland voters wonder what it bought them.
Eurozone Breakup Inevitable
Merkel’s half-baked proposal raises more questions than answers. The market (and voters) will not possibly wait for details of her proposal to get hashed out. If this is the best Merkel can come up with, a Eurozone breakup is inevitable.
I think that a complete political breakdown of the European Union would be the best thing that could happen to Europeans. Ditch all European political institutions, but maintain the free mobility of persons, capital, and goods across countries, really the only positive aspect of the Eurozone project. Oh, and you want one unified currency that actually works? I know I’ve been saying this over and over again, but … how about a gold standard? Anyone?
About 2.5 years ago I wrote:
The 3% ceiling won’t matter anymore from hereon. Consider the European stability treaty dead. One member state after another will violate the requirements. The fact that a bailout of some Euro states by others is discussed, just shows how torn this European Union really is, how severe its imbalances are. With discrepancies like these, it is completely unfeasible to maintain a currency union. The Euro will keep taking its beating for it.
The breakup of that currency union is now approaching at an ever accelerating pace.
Yesterday Mish issued a nice little note to Trichet:
Hello Mr. Trichet.
The odds 17 sovereign states “get their act together” quickly regarding a fiscal union is zero.
There is no agreement on Eurobonds even from Germany and France, so how are 17 countries supposed to quickly agree on that?
Finland and Austria want collateral, and pray tell why shouldn’t they? Is every country supposed to do exactly what you want?
Greece is going to default and you and your big ego made matters worse by refusing to accept that fact, so much so that you and the ECB failed to plan for it.
You want 17 countries to get their act together. How about one central bank, the ECB, led by you, get its act together and admit your policies have failed? How about the ECB coming up with a legitimate plan for dealing with it this crisis instead of illegally making demands on sovereign nations?
The market gave you fair warning on Greece and you refused to see it. Now the market has said “time’s up”.
Face the facts Mr. Trichet “The Euro has failed.”
Mr. Trichet, you better come up with a plan to deal with the aftermath, because odds of a Eurozone breakup are large and growing.
… actually, in my opinion the best thing that could happen to the Eurozone would be to for it to break up, and take those bureaucratic, corrupt, and destructive leviathans of the European Parliament, the Commission, the Council, and the ECB right with it and thus off the backs of Europe’s sovereign nations once and for all.