The E.C.B.-I.M.F. bailout being compared to TARP and the fall of the Greek’s government’s solvency capacity’s parallels to the domino fall that became the Great Depression.
10 May 2010 | InfoShop News
The European Central Bank and International Monetary Fund (I.M.F.) have committed €750bn (~$963bn) to bail out the Greek government and its vulture banksters. R.A. details at his Economist blog:
The plan consists of several parts. Euro zone nations agreed to the creation of a special entity that can raise up to €440b by issuing debt, which will be guaranteed by European governments. That money could then be lent out to countries struggling with debt (who would not be a part of the system of guarantees). The I.M.F. chipped in an additional €250b, and the European Union—including, interestingly, the E.U. governments not a part of the euro zone—has ponied up €60b, from the E.U. budget, which can be used immediately.
The U.S. government commits to supplying 20% of I.M.F. funding. Initially, it looked as if the U.S. bill would be $8bn—under the initial ~$150bn bailout plan—but the I.M.F.’s share demands $64,185,000 from the U.S. government to print out of thin air and hand over to the global poli-financial class.
The banksters are setting up Portugal and Spain’s toxic governments for a similar downfall, R.A. continues:
Meanwhile, the Federal Reserve re-opened currency swap lines it established during the crisis of 2008. And the Spanish and Portuguese governments are putting together plans to trim their deficits.
These lines were “wound down” in February, but re-opening them is set to swap up to $30bn with the Bank of Canada through January 2011, Jeannine Aversa reported at the Associated Press, adding:
Figures weren’t provided for the other central banks….
The Fed’s balance sheet ballooned to $2.3 trillion, more than double where it stood before the crisis struck. The program reopened on Sunday will expand the Fed’s balance sheet, economists say.
She reports these economists add that the “program poses little credit risk to the Fed because the arrangements are with other central banks”, but Neil Barofsky, inspector general of the Troubled Asset Relief Program [TARP], said the 2008 bailout with the swaps that followed added $23.7bn in taxpayer risk to the financial system. These weren’t arrangements directly between central banks, but with Wall Street as intermediaries in many indirect deals between the Federal Reserve and other central banks. There is little argument against Mr. Barofsky’s audit and it should be noted this was in July 2009, six-to-seven months before the swaps “wound down”.
The Euro Question
The value of the euro will be volatile for a while. No matter how Wall Street takes the swings, the short-term up’s and downs shouldn’t be taken too seriously and the strength of the U.S. dollar will be distorted as the euro continues a downfall. Swapping within the market will see short-term surges—like today across Europe and in the U.S.—that will tell nothing other than surging confidence in financial institutions to pass their liabilities onto to the global plantation.
The euro had an intra-day surge, but ended where it began the day, Vincent Fernando posted at Business Insider (B.I.). These patterns will continue, but be more drawn out over days and weeks. The overall trend will continue over 2-, 3-, 5- and 10-year spreads, but more along the pace of the U.S. in relation to gold. Joe Weisenthal posted “what it looks like when a market gives up on a currency” at B.I. last week:
The Dollar Question
If there’s one lifeboat for the U.S. dollar, it’s a massive inflation of the euro. I’d call it a stay of execution. All in all, inflationary effects from participation in the Greece bailout won’t be much of a factor as the dollar will look good for some years against the euro, according to the Deutsche Bank chief economist Thomas Mayer—and there’s little reason to disagree. The direct effects will be more international Wall Street gambling that the Federal reserve will eventually bailout for more trillions.
This isn’t a bailout of the Greek people’s so-called ‘welfare state’, the government’s unfunded liabilities to veterans and teachers and such. This is a bailout of the “shadow banking system”, Ezra Klein points out at his Washington Post blog, and the propaganda machines throughout Europe are doing a very good job of concealing this:
Remember that this is no more a bailout of Greece and Spain and Portugal than TARP was a bailout of subprime borrowers….
Rather, this is a bailout of the European banking system (and possibly some international banks), much like TARP was a bailout of our banking systems (and some international banks). The way people understand the European crisis is that a few countries hold much too much debt. But you can flip that around, too: Many banks loaned a few countries much too much money. And if those banks don’t get paid back, they’re going to go insolvent, and the banking system is going to freeze.
Intra-European resentment is probably going to protect the banks from becoming the villains here (Germans would prefer to blame the Greeks than Deutsche Bank), but they’re a big part of the story. Note The New York Times‘ report on the market’s reaction the bailout: “European banks were the early winners. In France, BNP Paribas soared 14 percent and Credit Agricole rose 16 percent; Germany’s largest bank, Deutsche Bank, gained 10 percent.”
As much hysteria’s been made regarding Greece—and it is a catastrophe—the government’s assets-liability ratio in better shape than the average household in the U.S., Canada and Japan, Robert Samuelson points out in a doomsday article at Newsweek. He lines up the Greece failure with events that preceded the Great Depression, but almost blames the gold standard to equate it with today’s welfare state.
The China Question
The common thread, if there is one to take from this article, isn’t the gold standard, but the centralization of a global economy to a falling empire. Reading it in this context, there’s a lot to take from his article. It’s a more realist look at the geopolitical climate emerging in the East as the U.S. began to expand its sphere of influence after World War I.
The I.M.F. and World Bank have unsuccessfully colluded to prevent this, as I wrote during their October meetings:
At the Pittsburgh G-20 Summit less than two weeks ago, the Anglo-American call to the I.M.F. was for it to implement policies to force down the exchange rate of China’s currency (the renminbi) to save their own, [Krishna Guha] reported after the Summit. With Chris Giles, he followed up on his report that the G-20 was “unable to agree” on a currency agreement at the Summit, I.M.F. Managing Director Dominique Strauss-Kahn “reiterated his criticism of China’s ‘undervalued’ currency… [T]he U.S. and Europe believe the renminbi needs to appreciate to help reduce China’s still large trade surplus.”
The World Bank and I.M.F. are being used by the Anglo-American factions to forcefully prevent the implosion of the intrinsically worthless greenback and euro. Nothing of relieving the odious debt inflicted upon Western workers and the Third World. Only the preservation of the “Euro-Atlantic” financial oligarchy over us.
If we see the Third World—and developing countries— go to East Asia and the Middle East for solvency, away from the I.M.F. and World Bank, these currencies will actually strengthen in a de facto debt transfer. A basic truism in geopolitics is that “balancing behavior tends to predominate in international politics, but that especially weak and/or isolated states were somewhat more likely to bandwagon than strong states are”, Professor Stephen Walt noted at his Foreign Policy Magazine blog last week. “Because weak states can do little to affect the outcome of a contest and may suffer grievously in the process, they must choose the side that is likely to win. And where great powers tend to have global interests, weak states worry mostly about the balance of power in their immediate region. They may be willing to stand up to a stronger power if they are assured of ample allied support, but a weak state left to its own devices may have little choice but to kowtow to a larger and stronger neighbor. That is how ‘spheres of influence’ are born.”
It isn’t a coincidence that the U.S. is focusing on military partnerships in Colombia, Brazil, Afghanistan and Pakistan; protecting unlawful, covert nuclear proliferation in India and Israel (of course); and President Barack Obama recently nominated a top former government intelligence specialist on Iran to head intelligence at the Treasury Department.
Understanding the facts—which are, of course, contrary to any narrative suggesting this bailout is for the welfare of the Greek people, global economic stability in people’s daily lives—that this is a de jure bankster bailout, here are the takes that seem valid to interpret the geopolitical theater:
- The Anglo-American institutions colluded to create parity among the U.S. dollar and euro, unable to reach a deal with China to overprice the renminbi; or
- The European Central Bank is playing on the false sense of security in the euro because of the U.S. bailing out Wall Street for up to $23.7bn in U.S. dollars.
Both seem to be the dominant driving forces behind the nation-state authorities in control of international banking institutions to further prop up the “shadow banking system”, Mr. Klein quoted earlier, in short term as the E.U. and U.S. continue to make failing attempts at convincing China to undervalue its productive capacity.
“China appears to be doing something akin to what we did during the latter part of the 19th century,” Prof. Walt noted late last month. “To be specific: Beijing is seeking to build its economy, then expand its military capacity, achieve a position of regional dominance, and then exclude other major powers from its immediate neighborhood.”
More than any other question I casually is what I’ve just called ‘The China Question’: Is China the next superpower and when should we see this? My answer for about the last three years has been similar to the analysis of Prof. Walt’s:
I‘d expect China to speak softly (for the most part) while it builds a bigger stick. If they are smart, they won’t throw their weight around too much lest they provoke more vigorous balancing behavior by their neighbors (and the United States). I would also expect them to continuing developing military capabilities designed to make it more dangerous for the United States to operate near China, and eventually build power projection capabilities that will complicate our operations in other areas that matter (like the Persian Gulf). At the same time, look for them to forge relations in some areas that have been traditional U.S. “spheres of interest,” so that the United States has to devote more time and attention to these regions too. I’d expect them to play “divide-and-conquer” closer to home as well, and try to persuade some of their neighbors to distance themselves from Washington. Lastly, Beijing would dearly love to keep the United States bogged down in places like Afghanistan, distracted by disputes over Iran’s nuclear program, and stymied by the interminable Israeli-Palestinian conflict, while they exploit the anti-American sentiments that these problems exacerbate and stay focused on the bigger picture.
EDIT: Today, Prof. Walt points out at his blog that the “larger problem is longer-term” for the European Union:
In any case, whether Europe grows closer together or begins to spin apart, it’s going to carry a lot less weight in world affairs in the next few decades. Its population is shrinking and aging, its military power is increasingly hollow, and it’s going to be short on money for years to come. If U.S. officials think they are going to get a lot more help from NATO in the decades to come, they are living in a dream world.
EDIT2: “The Pragmatic Capitalist” has a rather vulgar analysis (h/t: B.I.) that shouldn’t distract one from a thesis somewhat consistent with mine that is sadly suppressed in the dominant narrative—that “market participants are keenly focused on the solvency issue here when in fact, this is a currency crisis” and the former “is a byproduct of the failures” of the latter. He adds:
The ECB is no longer independent and no longer responsible for price stability. Even with rumors of sterilization, with their bond purchases I believe they have crossed a line. Without their knowing it, they have all but admitted that the Euro is a failed currency experiment and have resorted to “last ditch” efforts to save it….
The Euro is broken. Single currency systems do not work and they must be killed. In the long-term, it is in the best interest of all involved. If the politicians in Europe are wise they will begin working on real structural reforms now that they have bought themselves some time. Unfortunately, I don’t think they recognize that this is a currency crisis and that’s why the risks in the market remain abnormally elevated.
EDIT3: At True Slant, Allison Kilkenny spoke to University of Athens Professor Yanis Varoufakis and does a great job of dispelling the scapegoat myth dominating the “vicious foreign media campaign depicting Greeks as lazy, corrupt, and ‘living the good life'”. It is only “partly true”, as Prof. Varoufakis notes [emphasis hers]:
If you go around the posh parts of Athens, you see a great deal of wealth. Its no difference between the wealth you’ll encounter here to what you’d see in Paris, Los Angeles, in London. You go to the poor areas, and we have third world country-like conditions. You have teachers, who teach in remote villages for the equivalent of $800 USD a month in a country where prices are sky high. And now, what we have is a situation where the government is asking of that teacher to lose 10 percent of his or her wages as a contribution to the overcoming of the crisis. While all along, the people driving their Porsches and their Mercedes Benz in the city center of Athens, will be paying very little simply because they are quite adept at not paying taxes at all.
She adds that “teachers are now being asked to cut their lavish $800/month paychecks in the spirit of bailing out Greece” and international banksters. Odd is she ignores the currency crisis at the root while informing the eurozone nation-states have “adopted the euro currency as their sole legal tender” yet the “burden of individual nations is hardly fairly shared” and the professor notes the intra-manufacturing of masters and slaves—that “my deficit is your surplus, and vice-versa” in the eurozone.
Worse, she tailspins into Keynesian voodonomics, but I wouldn’t hold that against her aritcle. It simply explains why the trickle-up destruction of currency manipulation is passed over in the analysis.
A common comparison is of Greece to California. This isn’t terribly inaccurate, but it’s more honest to describe Greece, California, the U.S. and the eurozone as microcosms of the global economy. Without this, the others’ ignorance of vital trends make myself extremely misunderstood as a determinist. I’m actually expressing that continued ignorance—on behalf of soi-disant progressives and conservatives—as to the dangers of money monopoly and being stronger proponents of attempting to strengthen monopoly are self-defeating and will be the root cause of painful currency collapses in the West.