The Impossible Is Still Impossible


So let me guess — when you have a fishwrapper called “The Economist” you don’t actually have to analyze, think or deduce, you can just claim things — over and over again, in the face of contrary evidence?

The battle to save the euro has led to the centralisation of powers over banking, taxing and spending; and, while most euro-zone voters want to keep the euro, they have made it quite clear that they oppose the accretion of ever more intrusive powers to the ECB, the European Commission and the European Parliament. The EU’s abandoned constitution and its successor, the Lisbon treaty, were together rejected in three out of six referendums; ten governments broke promises rather than hold votes on the final version. In France, a founding member, the EU today attracts even more resentment than it does in famously Eurosceptic Britain. The populists’ appeal in the European elections is based largely on rising hostility to interference by Brussels.

This is an issue of democracy, not of economics. Voters are not impressed when they toss out an incumbent government only to be told by the EU that its replacement must stick to the same fiscal rules and economic policies. Since the transfer of powers to the centre has come about as a result of economic failure, and not of broader political debate or of resounding success, the chances of its being meekly accepted are slim.

What, pray tell, did you expect when you sold this “trade union” to the people through fraud and then tried to back it up with force?  That they’d simply kneel down before Zod and take it in whatever orifice you wished to abuse?

Give me a break.  The entire premise of the Euro was bogus from the outset.  The precept that Nation “A” with a large export surplus (because it actually makes things) and Nation “B” with a large export deficit (because it doesn’t) can share a currency without also being part of apolitical body that enforces level taxation and policy across both, thereby perpetually giving some of “A”‘s output to “B”, is a farce.

No matter how much money you start with in the account if you continually drain it you will run out.  We can argue over the amount of time on the clock but not the outcome.

This, at its core, is the bogosity behind the Euro and, for that matter, trying to make the US Dollar the center of the trade universe, which some take to calling “The Petrodollar.”

Both are in fact an expression of Imperialism, or if you prefer, a claim of The Divine Right of Kings.

Why is anyone surprised that someone — or lots of someones — want to shoot the King, even if only politically and not physically?  For exactly how long do you get to loot a population before someone sets a trap behind the next door you come to kick open with the intention of plundering the contents?

What amazes me isn’t that this is happening.  It’s that it took this long to happen.

But don’t worry, when the population gets restive and starts muttering “The King is dead; long live the King” under its breath you can count on the government to double-down with a new round of plundering — they just hope you’ll fail to analyze what they’re actually up to:

A negative deposit rate would help the European Central Bank in its fight against low inflation (ECCPEMUY), according to former Executive Board member Jose Manuel Gonzalez-Paramo.

“I don’t know why it should have negative effects,” Gonzalez-Paramo, 55, said in an interview in London yesterday. “Firstly, if this measure helps to contain the appreciation of the euro, this is good. Second, if this measure helps to revive the interbank market, as it should, that’s good also for the stressed countries because banks would have access to more liquidity at better prices.”



See, in a free market people borrow because they believe they can invest the borrowed funds and earn a higher return than the interest cost of the money on a discounted basis.  That’s fancy talk for “If I make a bigger factory I can sell more goods fast enough to pay the loan back, plus make more of a profit than if I don’t borrow the money.”

Of course this is a gamble; the expected demand for the goods may fail to materialize, there might be an earthquake or fire, the product design faulty and require a recall or the consumer may simply decide that your fruity fad is not worthy of their money, spending it on booze and hookers instead.  In any of those cases you fail to pay back the loan and lose your collateral; the lender loses some part of his or her capital.  That’s the price of being wrong — bankruptcy.

When governments — or bankers-cum-governments — stick their finger on the scale they are trying to tamper with the demand for said lent funds.  They do this because they know that despite the claim made in the literature that banks loan out deposits this is an abject fraud — a fraud that, incidentally, universally goes un-prosecuted.

What really happens is that banks create money through lending and by doing so defraud the public twice — first by usurping the claimedseigniorage right of governments in currency (for which they allegedly compensate the public via the provision of orderly markets and the rule of law) and second by claiming their acts are neither inflationary or deflationary because they allegedly have “statutory reserves”which in fact do not exist at the time the loan is made but are double-dipped by the seller of the good or service that was bought with the borrowed funds when he deposits the gross proceeds of the sale for safe-keeping!

The deception is completed by the publicly-repeated and even taught to school kids lie that the function of a bank is to take in deposits and make loans with them, when in fact no such act takes place.

And yet this lie is never prosecuted as the fraud that it is throughout the world.  Not here, not in Europe, not in Japan, not anywhere.  This fraud is not even prosecuted when it is perpetrated on our school children — a fraud that was fed to me decades ago and is still repeated


Because politicians are addicted to spending money they don’t have and the only way to deceive the public is to find an apparent source of those false funds.  That source is the bank that created them, whether it be the bank on the corner or the central bank down the street from the Treasury.

Such policies are inherently unstable; the attempt to do the impossible cannot be otherwise. Eventually the cycle of lower and lower rates enticing people to borrow ends, because the people are either so indebted that they cannot afford to borrow any more or the lenders cannot earn a return that’s worth anything.  Then, as now, we see the ECB and Fed step in to make possible the claimed “financing” of deficit spending when in fact nothing of the sort is going on.

The word finance implies that you borrow money and then pay it back; that is, that you have engaged in a time shift — nothing more.  You finance a car to have it now and pay for it later; once you buy the car you don’t need another one.

But governments don’t do that.  They buy it now and pay for it immediately when they engage in obtaining the money by rate manipulation or never-paid-back “debt” through the act of currency depreciation.

Functionally in the economy this is exactly identical to a tax increase sufficient to cover the deficit, spread across all users of that currencyby force.

It’s just hidden.

What happens when the effective rate of taxation rises?  Eventually you get to the point where there is no purpose in going to work because you are better off sitting on your ass.  Remember that an economy is made up of individual actors — millions of them — some with more earnings power than others.  As you destroy purchasing power through these machinations a greater and greater percentage of the population finds no purpose in attempting productive output and instead either chooses to sit on their ass or effectively has no choice at all as their work output is insufficient to result in a positive caloric balance (that is, they can’t feed, clothe and shelter themselves with the purchasing power they are able to earn.)

This isn’t all that complicated, and neither is the end-point of such stupidity.

That the ECB appears ready to take this train right over the clearly-out bridge shows exactly how desperate the Eurozone’s political machinery is to maintain the mirage of an impossible reality.

Now, as in the past through history, however, such policies will with certainty lead to ruin and likely bloodshed — not because the people are inherently bloodthirsty heathens, but because there is no such thing as a Unicorn that craps out pretty colored candies and the truth of what is being done must be eventually faced and the bill for same paid.

Hungry bellies inevitably lead men to choose revolt over starvation; after all, as the logic goes, if you’re going to die anyway you may as well do it trying to take some of the bastards responsible with you to the gates of Hell.  

It’s hard to argue with that logic if you’re the intellectually-honest sort.

The Market Ticker

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