Euroland on the Brink of Reason

Posted by: on Dec 8, 2014 | No Comments

mr draghiLets be under no illusions, Quantitative Easing QE is monetisation of sovereign government deficits, lets be even clearer, QE is government printing potentially limitless amounts of paper money to pay for its own hubris, incompetence and overspending.  History tells us it always starts small and controllable but quickly as the drug takes hold, diversions and side shows are created to allow its continued consumption, welcome to our brave new world where everything you thought was untrue or impossible is now possible and very real. Maybe QE is the government and bankers financial Soma.

At this fork in the road, one path requires the Euro to face its problems, either form a fiscal union or disband the currency, the second path is potholed with denial, QE and the inevitable destructive forces it unleashes.

Classical accepted economic thought dictates that if real interest rates fall to zero or even negative all saving would be stopped and that saver would bring forward consumption from the future instead. This rationale is over simplistic and flawed. Negative real rates signal to the hard working saver that the financial system does not value its money, and the extension of that thought leads to the belief that something somewhere must be very very wrong. Confidence in the game of fiat money has been shaken regardless of whether people actually understand the minutiae of the system.

After the Bretton Woods agreement ended in 1971 and later the Glass Steagall Act was repealed, fiat money and the financialisation of the world ballooned and has lasted nearly 40 years. The 2008 Financial crisis represented a bursting of a bubble, a smashing of the mirror, a lifting of the mirage that is fiat money. Ever since, the Federal Reserve and politicians have sort to maintain confidence in the system at all cost, including bank recapitalisation, government deficit financing and direct or circuitous rigging of systemically important markets. Too big to fail remains unencumbered by scrutiny. Nobody likes to fail but those with rampant ego and hubris and “skin in the game” like it less than most it seems.

The implications of monetization of government deficits include distortions which run deep to the core of human nature itself. Money without limit or intrinsic value means that failure, if your big enough, has been cancelled, as long as there is paper in the world the government can print a number on it, and as long as others accept it for what its supposed to represent, more can always be printed to pay for any trouble. With the precedent now set, surely no problem is too small to be solved, no project too big to be completed, in this brave new world. Risk, for a few, has been repriced to zero resulting in the new maxim: if it cannot be copied buy it, if its in finite supply buy it, if its a financial instrument of systemic importance to prolong the longevity of the system, for example major stock or bond markets, buy it. To protect the vested interests and designers of this hubris the bottom line is “they” cannot let these markets go down. When I say “they” I mean the antithesis of a modern day living Goddess, the Federal Reserve chair Mrs Yellen, and I don’t mind telling you, she is so wondrous in power, importance and scope I think about her everyday.

It has always been part of being human to want to value the unknown or “risk”. Risk has always had a price, just ask Icarus or Bernie Madoff. To be beholden to rigged markets, mispriced risk and too big to fail means we affectively cease to be human and act more like automatons. The automaton exists in a zombie like state, performing futile functions in an endless process of decay.

When the “big” is protected from failure this distortion will pervert events and corrupt everything in its path. Failure is to be human as success is to be applauded, both possible in a lifetime. Only when both have been experienced can a true balance be achieved. QE, too big to fail, fiat, unsound money is the distortion which has reversed human progress, productivity and the march of time.

Unless corrected, the financial system and big government will draw a noose tighter round the neck of freedom and liberty, evident in legalisation seen all round the world. To discuss any other issue is a distraction from the problem at hand. Our leaders must solidify their resolve and resist this dead end we are being driven down.

Over the English Channel in Euroland, Germany currently stands alone, the last bastion of sound money, balance and reason. The European Union is about to take another lurch to the left by contemplating letting Mr Draghi turn on the printing press in pursuit of prolonging power, privilege and the status quo of the Euro project. The Euro stands at a fork in the road and pressure is mounting on Germany to capitulate. The choice is now clear and thank goodness the Germans will be making it. German memories can win the day for truth, reason, logic and those who want to improve the lot of the many, not just the few.

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