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Posts Tagged ‘EU’

Brexit Consequences to Come

Posted by Steve Markowitz on July 2, 2016

The political elites and many in the economic community warned of dire consequences should Britain vote to leave the European Union.  Immediately following the announcement of the vote equity markets worldwide drop significantly.  However, one week later they have rebounded and are about back to where they started.

The action of the equities markets suggest either the predicted dire consequences were severely exaggerated, or as an alternative, equity markets with the assistance of continuous central banker interventions no longer believe that stock valuations can go down.  Neither is very comforting.

How the UK’s exit from the EU will affect the world economy remains to be seen.  The Daily Reckoning suggests that political elite Progressives will take a play out of Obama associate Rahm Emanuel strategy book, who infamously said: “You never want a serious crisis to go to waste.”  Using this strategy, they will use the Brexit vote as an excuse for more central bank spending and interventions into the economy.  Why not, that strategy has failed for the last eight years so let’s double up on it.

The Daily Reckoning reports that since 2009 central banks have printed over $12 trillion.  In addition, they have made 654 interest cuts worldwide.  This has succeeded in creating equity bottles that have made the wealthy wealthier.

The Daily Reckoning expects more Quantitative Easing, QE 4, and an even more radical policy called “helicopter money” where the Fed basically froze money to the masses.  These radical steps are not taken out of stupidity.  Instead, they are an acknowledgment by central banks that we are reaching the end game.  Without continuous and more aggressive interventions, the rebalancing of the economy will begin and it will be painful.  Irrespective of the central banks’ actions, that rebalancing will occur.  It is only a matter of time.

Posted in economics | Tagged: , , , , | 1 Comment »

Brexit Vote Explained

Posted by Steve Markowitz on June 28, 2016

Last week’s vote by the British people to extricate themselves from the European Union (Brexit) seems to have left many, including the political ruling class on both sides of the Atlantic, in shock.  It is a wonder that a vote that has two possibilities would create any such consternation when it goes one way or the other.

Governments of all sorts of philosophical directions have proven often throughout history an inability to hear the people.  At the same time, they have created an elite ruling class that has benefited substantially from their positions.

Nigel Farage, a British member of the European Parliament, has been a strong proponent for Britain to leave the EU.  During today’s Parliamentary session, Farage made a speech in which he did a victory lap, taunting other members of the European Parliament, posted below.  While his aggressive approach can be questioned, the logic he lays out helps explain the People’s anger building in the EU, as well as other countries.

Posted in European Union | Tagged: , , , , , , | 2 Comments »

UK Says “Yes” to Brexit

Posted by Steve Markowitz on June 24, 2016

Yesterday the United Kingdom held its referendum as to whether it would stay or exit the European Union.  The vote is in and the British decided to leave the EU.

Today, markets throughout the world have experienced turmoil, seemingly surprised by Brits’ decision.  This reaction is curious given that the various indicators, except the polls, pointed towards a British exit.

The British electorate’s decision to leave the EU is part of a broader worldwide phenomenon.  Governments and bureaucracies in many countries have been growing at increasing rates over the decades.  This has enriched and given additional power to ruling elites.  The masses accepted this until recent years when their standard of living stagnated.  Two changes affected the mentality of the masses:

  • A growing number of middle class in Western Europe and the United States have seen decreasing living standards.
  • Bureaucracies, unelected shadow governments, have exerted more influence through regulations.

Born of dissatisfaction, is a new type of revolution enhanced by social media and the Internet is occurring.  In the United States the phenomena is epitomized by the popularity of Donald Trump and Bernie Sanders.  Their popularity is resounding “no” vote for the status quo, irrespective of the potential consequences of electing untested populists.

Similarly, Britain’s decision to leave the EU is a resounding vote against the status quo.  The British people no longer will allow unelected bureaucrats in Brussels to create laws and regulations for the UK.  They also indicated their desire for stronger border controls.

The European Union was a mismanaged creation of the political class.  The goal was to create a United States of Europe increase economic activity and lessen the likelihood of armed conflicts, as so often happened in Europe.  Unlike the United States with a powerful central bank, European countries still control much of their monetary policies, irrespective of the single currency.  Also unlike the United States where the central government is elected by the people, Europeans have no vote concerning the bureaucracy in Brussels that creates laws and regulations that member states must abide by.  The British say “no more”, irrespective of the consequences of leaving the EU.

Since World War II the world has traveled through two different periods.

  • The Cold War between the United States and the Soviet Union for all practical purposes divided the world into two spheres. This period effectively ended in 1991.
  • Since the end of the Cold War, the political class worked to create a new world order where sovereign borders would be made moot. The beginning of the end of this period started in 2008 with the great financial meltdown.  This meltdown exposed the weakness of this new order that in part was built on flawed policies and excessive debt.

We are in the early stages of the next phase that involves rejection of the political elites’ vision for the world since 1991.  It is likely that the UK’s Brexit vote will be viewed historically as the start of this next phase.  It is difficult to visualize what this new reality actually means, other than significant change.  Progressives overreached in a power grab for themselves and their bureaucracies.  History has shown that this type of action generally leads to overreaction from the other side.

This Blog has repeatedly written of the illogic of the European Union from an economic standpoint.  One posting in October 2013 titled Noble Peace Prize Awarded to European Union reviewed rather incredulously of the European Union being the Nobel Peace Prize.  The turn of events since helps show just how far out of touch the political elites are, including those that award the Nobel Peace Prize.

Posted in European Union | Tagged: , , , , , , | Leave a Comment »

European Progressives Never Learn

Posted by Steve Markowitz on February 7, 2016

Thomas Piketty , a renowned economist from France who posted an op-ed in the New York Times titled “A New Deal for Europe”.  While Piketty’s topic is important, his conclusions are misplaced.  His logic shows just how unapologetic Progressives are for the problems their policies have inflicted on the world.

Piketty expresses concern for the growth of the far Right in Europe.  This Blog has been concerned for some time with the potential for fascism to once again rear its head in Europe.  This concern stems from Europe’s unsustainable economic path that has led to the large sections of its population being negatively impacted, creating a breeding ground for discontent.  This path started long before the meltdown of 2008 that Piketty refers to.  Its roots stem from the Left’s Progressive policies that have dominated European politics for decades.

Piketty blames mismanagement by European governments for not only poorly creating the EU, but also managing their economic policies.  While true, the EU’s creation was so poorly done that it guaranteed the current result, as economist Milton Friedman predicted in 1997:

The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues.”

Piketty concludes that Europe’s challenges can best be addressed by governments now doing the “right thing.”  Expecting the same group that created the current mess to do a better job this time is incredulous.

Piketty states: “Only a genuine social and democratic refounding of the eurozone, designed to encourage growth and employment, arrayed around a small core of countries willing to lead by example and develop their own new political institutions, will be sufficient to counter the hateful nationalistic impulses that now threaten all Europe.”  He also says: “The objective would be to reduce public debt as a whole, starting with a system of allocation of payments based on the increases in debt that have occurred since the crisis began.”

Nicely said, but politically and economically unrealistic.  Europe’s political, social and welfare programs make this kind of reform impossible.  Reducing government debt will cause pain to much of society.  Piketty ignores this, much like some of the BS we hear from Republicans in this country who believe that we can grow ourselves out of the excessive debt.

Piketty also concludes: “Such a process demands a new form of democratic governance, one that can assure that such disasters are not allowed to recur.”  Economic realities are disconnected from a “form of democratic governance”.  The laws of supply and demand will prevail in the long run, irrespective of interventions.  While Piketty acknowledges that governmental interventions caused the problems in the first place, he then suggests that further interventions in infrastructure, universities social welfare, etc. are the appropriate response now.  Again, why should we expect these next interventions to work better than the last ones?

Irrespective of one’s belief as to the appropriateness of governmental spending on any particular project; military, green energy, social programs, etc., from a macro economic standpoint the issue is straightforward.  Governments; i.e. the people, can only borrow so much from the future to pay for today’s lifestyles.  We have hit the economic wall with additional borrowing and deficit spending becoming a drag on growth, not simulative, as suggested under Keynesian economic theory.

Excess debt is the basis of our current macro-economic problems.  Central banks worldwide have likely come to this same conclusion, which is why some in Europe and Japan, and likely to come to the United States, are going to negative interest rates.  Given the ineffectiveness of historically low interest rates in the past eight years, central bankers understand that pushing the rates still lower will unlikely to lead to economic growth.  Irrespective of this they are taking this radical step in an attempt to debase fiat currencies, which will lead to a crisis that would enable governments to create a new currency (currencies) that will result in writing off the debt that is unrepayable.  While not a pretty solution, this method for sovereign debt abandonment does not require political will or approval.

The European Union as created will likely not survive.  It has only been held together this long because member countries fear the results of undoing the union.  The Europeans may continue to use Band-Aids to hold off the inevitable, but they do not have the political will or courage to take the steps necessary to make the EU viable. This will have serious consequences.  The blame rests solely on those Progressive politicians who created an entity based on desires, rather than economic and political realities.  Still they have the gall to suggest that the same approach going forward will work better this time.

Posted in economics, European Union | Tagged: , , , , , | Leave a Comment »

Debt, Conflict and the European Dilemma

Posted by Steve Markowitz on January 28, 2015

Europe has is encountering another canary the mine. The Greeks have voted in a radical Leftist party called Syriza. They won as an opposition to the so-called austerity measures placed on Greece since the 2008 economic meltdown that resulted in it not being able to pay its debt.

The 2008 economic calamity was initially caused by a meltdown in the US mortgage markets. Thhis crisis was not by happenstance or caused by normal market forces. It was inflicted on financial markets worldwide as a result of broad-reaching governmental interventions in the economy. This included bailouts of equity markets and industries when the markets attempted to rebalance supply and demand through normal recessionary action. In addition, central banks, particularly the US Federal Reserve, intervened with artificially low interest rates, again in efforts to forestall the normal corrective market actions through recessions.

As a result of the intervention, not only has the recovery been the weakest since the Great Depression, but at the same time the financial imbalances have not been corrected. Instead, they (the debt) have been moved from the private sector to sovereign debt. The most recent economic manifestations that have now become systemic include the significant turmoil in currency markets. However, a potentially more serious issue has surfaced on the geopolitical front, especially in Europe, where the euro and European Union itself is in jeopardy.

George Friedman of Stratfor.com has published an article titled The New Drivers of Europe’s Geopolitics that offers insight into the current building crisis within Europe that is posted in full below. Friedman’s concludes that “I am focusing on fragmentation partly because it is happening before our eyes” referring to the fragmentation of the European Union. In addition, “The coalition of the Radical Left party, known as Syriza, has scored a major victory in Greece.  ….  It is drawing along other left-wing and right-wing parties that are united only in their resistance to the EU’s insistence that austerity is the solution to the ongoing economic crisis that began in 2008.”

Friedman discusses two views within Europe as why the financial crisis of 2008 continues in the EU.

  1. The German version, and the one that became the conventional view in Europe, is that the sovereign debt crisis is the result of irresponsible social policies in Greece, the country with the greatest debt problem. These troublesome policies included early retirement for government workers, excessive unemployment benefits and so on. Politicians had bought votes by squandering resources on social programs the country couldn’t afford, did not rigorously collect taxes and failed to promote hard work and industriousnes
  1. The other version that is beginning to gain traction, especially in the poorer European countries is: “The loans German banks made to countries such as Greece after 2009 were designed to maintain demand for its exports. The Germans knew the debts could not be repaid, but they wanted to kick the can down the road and avoid dealing with the fact that their export addiction could not be maintained.”

Friedman points out that problems caused by government-imposed austerity in countries like Greece have been amplified by governmental intrusion into their economies. For example, many workers in fields such as medicine and other services are state-controlled with these workers being employed by governments. Therefore the austerity programs have more significantly affected the middle class then would have been the case had the private sector controlled a larger part of the economy.

Greece cannot repay its debt. This is not only because they barrowed too much capability under normal conditions, but also because with unemployment rates exceeding 20% in many industries, their economy generates little revenue to maintain critical social services, let alone repay debt.

What started as an economic problem caused by excessive debt is now morphing into social issues that are rocking European stability. This is a major theme Friedman’s article as he concludes:

  • “Europe’s mainstream political parties supported the European Union and its policies, and they were elected and re-elected. There was a general feeling that economic dysfunction would pass. But it is 2015 now, the situation has not gotten better and there are growing movements in many countries that are opposed to continuing with austerity. The sense that Europe is shifting was visible in the European Central Bank’s decision last week to ease austerity by increasing liquidity in the system. In my view, this is too little too late; although quantitative easing might work for a recession, Southern Europe is in a depression.”
  • “Virtually every European country has developed growing movements that oppose the European Union and its policies. Most of these are on the right of the political spectrum. …. The left has the same grievances as the right, save for the racial overtones. But what is important is this: Greece has been seen as the outlier, but it is in fact the leading edge of the European crisis. It was the first to face default, the first to impose austerity, the first to experience the brutal weight that resulted and now it is the first to elect a government that pledges to end austerity.” 
  • The issue then is not the euro. Instead, the first real issue is the effect of structured or unstructured defaults on the European banking system and how the European Central Bank, committed to not making Germany liable for the debts of other countries, will handle that. The second, and more important, issue is now the future of the free-trade zo 
  • “There are then three drivers in Europe now. One is the desire to control borders — nominally to control Islamist terrorists but truthfully to limit the movement of all labor, Muslims included. Second, there is the empowerment of the nation-states in Europe by the European Central Bank, which is making its quantitative easing program run through national banks, which may only buy their own nation’s debt. Third, there is the political base, which is dissolving under Europe’s feet.”

Friedman is concerned about the specter of war once again raising its ugly head in Europe. Most find this a very improbable. However, the history of Europe has been one where peace has not been the norm. Further, during the Clinton administration there was a war in Yugoslavia and today it is occurring in the Ukraine. Add to this history the toxic mix of economic hardship and what is considered unlikely increases in probability.

Today’s instability of Europe, both economic and geopolitical, has its roots in Progressive activism that created unstable borders and economic rules within the continent. This is similar to what the Europeans created in the Middle East after World War I. The resulting mess in the Middle East has led to decades of violence that continues today. Unraveling the mess the Europeans created within its own borders will be just as complex.

The New Drivers of Europe’s Geopolitics is republished with permission of Stratfor.

The New Drivers of Europe’s Geopolitics, By George Friedman

For the past two weeks, I have focused on the growing fragmentation of Europe. Two weeks ago, the murders in Paris prompted me to write about the fault line between Europe and the Islamic world. Last week, I wrote about the nationalism that is rising in individual European countries after the European Central Bank was forced to allow national banks to participate in quantitative easing so European nations wouldn’t be forced to bear the debt of other nations. I am focusing on fragmentation partly because it is happening before our eyes, partly because Stratfor has been forecasting this for a long time and partly because my new book on the fragmentation of Europe — Flashpoints: The Emerging Crisis in Europe — is being released today. Read the rest of this entry »

Posted in economics, European Union, Greece | Tagged: , , , , , , , , | 1 Comment »

Cypriot Parliament Rejects European Bailout

Posted by Steve Markowitz on March 19, 2013

Yesterday we posted Cyprus Bailout Taxes Bank Deposits that reviewed the proposed bailout of Cypriot banks by the European Union.  The entire banking system in Cyprus is insolvent and requires a bailout from the European Union, which means from Germany.  Germany has a case of bailout fatigue after the bailouts of Ireland, Greece and Portugal.  Prior to agreeing to the proposed Cypriot bailout, the EU placed some unique demands on Cypriot bank depositors in the form of taxing the deposits.

Today the Cypriot Parliament not surprisingly rejected the bailout plan with not one politician voting in favor of it.  Even if taxing bank deposits was reasonable, no politician could survive in a democracy by agreeing to such terms.

The European Union and its Central Bank should have understood the political realities of their proposed Cypriot bailout, but instead with arrogance proposed a plan that could not be approved by the government.  There is a more dangerous aspect to this error than merely bad judgment.  Should depositors in other European banks fear for the safety of their deposits, contagion could result in runs on banks far outside of Cyprus.  Should that type of panic begin it is hard to determine where will end.

It would not be surprising to see upward pressure on the price of gold as a result of the Cypriot bailout fiasco.

Posted in Bailouts, Banks | Tagged: , , , , , , | Leave a Comment »

Cyprus Bailout Taxes Bank Deposits

Posted by Steve Markowitz on March 17, 2013

Cyprus is a miniscule part of the 17 country European Union accounting for only 0.2% of the EU’s total economic output.  Its total economy is valued at only €18 billion.

Cyprus has become the fourth EU country requiring a bailout after Ireland, Portugal and Greece.  Spain has so far avoided an official bailout, but its banks have been given assistance by the European Central Bank.  Other countries are not far behind including Italy with a much larger economy.

This weekend the European Union announced a bailout of Cyprus that includes an unusual requirement.  In return for €10 billion, CNN reported that all depositor accounts in Cyprus’s banks will be taxed a one-time fee on Tuesday.  Those with less than €100,000 in deposits will pay a tax of 6.75% and those with over €100,000 will pay 9.9%.

Not surprisingly citizens of Cyprus have responded with panic, mobbing ATM machines in attempts to withdraw deposits.  However, the banks placed a limit on withdrawals of only €400 and it is reported that there is a shortage of cash.

After making the announcement, Cyprus’s President Nicos Anastasiades justified the action Sunday saying, “A disorderly bankruptcy would have forced us to leave the euro and forced a devaluation”.  In other words, Anastasiades offered the same Progressive doubletalk that the steps were required to protect the people.  However, this justification will be more difficult to accept given the tax levied on depositors.

The reality of the Cypriot bailout is similar to bailouts that have occurred for banks and sovereign debt throughout the world in recent five years.  These actions were taken to protect the banks and their investors, both private and sovereign investors. These flawed policies have also resulted in economies worldwide jumping from one crisis to crisis in a downward spiral.

Attempting to pay for bailouts by taxing bank depositors is a ratcheting up of wealth redistribution towards the financial sector, protecting large banks and fiat currencies.  While the policies may have some success in the first two goals, this move in Cyprus will increase the pressure on fiat currencies.  It is only a matter of time until fear contagion spreads.  If the Cyprus can take money from bank depositors to pay for the irresponsible behavior of others, it is only a matter of time until other countries take similar steps.

In justifying bailouts and irresponsible government spending, those supporting these actions often refer to the learned economist John Maynard Keynes who was a proponent of government spending to offset slowdowns in the private sector.  However, such rainy day Keynesians ignore the second half of Keynes’ theory that requires governments to save for a rainy day during more vibrant economic times.  This part of the equation has not been met in decades.

Economist Keynes was well aware of the dangers of inflation and the related issue of governments debasing a fiat currency.  Keynes’ written below in a 1919 essay says it all.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some…. Those to whom the system brings windfalls… become “profiteers” who are the object of the hatred…. the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right.  There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Posted in Bailouts, European Union | Tagged: , , , , , , | 2 Comments »

Sarkozy Booted by French Voters

Posted by Steve Markowitz on May 7, 2012

This past weekend French president Nicolas Sarkozy was voted out of office and was replaced by Socialist François Hollande.  While Sarkozy is a center-right politician, his replacement by a socialist was not related to political differences.  The French people, like other Europeans, expressed their frustration with the ongoing economic problems of their country and Europe that have not been resolved after nearly four years of significant governmental interventions and efforts.

Hollande’s victory is the next step in the evolving European sovereign debt crisis that began with the worldwide economic meltdown in 2007.  In short, European countries piled on massive debt during the bubble years that they cannot afford to pay back.  Instead of writing off this debt, a requirement for insolvent companies in the private world, European leaders have attempted to create the illusion that the problem is resolvable with less drastic steps.

Within Europe there or two schools for problem resolution of the sovereign debt issues.  The one that dominated European politics since the beginning of the crisis took the position that through austerity the indebted countries could pay their debt back, although with some debt write-downs.  While politicians like Sarkozy pursued policies of austerity, the steps that they took were tentative and could not eliminate the debt, a requirement for renewed growth.  It has become clear that more drastic steps are required.  However, socialism is not the answer.

With the failure of the “austerity” efforts, Europeans are restless.  The French have elected their first Socialist president in 20 years.  Like Sarkozy before him, Hollande has promised voters that he will reduce the government’s huge budget deficit.  Unlike Sarkozy, Hollande has promised to do so by taxing wealthier French, thereby requiring less austerity.  However, any first-year student of economics understands that both austerity and higher taxes are contractive forces that ultimately reduces tax revenues and increases deficits.

Hollande’s election has ramifications that go beyond France’s borders.  Sarkozy had been an ally to German Chancellor Angela Merkel who promoted austerity to resolve European debt issues.  Hollande, on the other hand, wants to renegotiate European treaties.  This will likely place France on a collision course with Germany’s economic policies.  Germany’s experience with hyper inflation makes it unwilling to print money, part of the resolution suggested by politicians who want to end austerity.

When making his victory speech, Hollande said: “We will bring back Europe on a track for jobs, growth and the future.  We’re no longer doomed to austerity.”  While these words might seem reassuring, the United States has proven that governments cannot spend their way out of a recession that has been created by excess debt.

The problem for France, like other European countries, is their lack of competitiveness versus other European countries, specifically Germany.  While France’s trade deficit exceeded $90 billion for 2011, Germany had a trade surplus of over $120 billion.  If it was not for the European currency, the Euro, France’s competitive position versus Germany would have improved with a devaluation of its own currency.  This reality makes President-elect Hollande’s promise to create job growth a red herring.  Germany will not tolerate policies that increase the likelihood of inflation and it will not give France economic advantage at the expense of German citizens.  This creates a growing potential for conflict between France and Germany, the historic norm between the countries.

While the French election garnered most of the news headlines this past weekend, a similarly important event occurred in Greece.  On Sunday, Greece held its election and handed a humiliating defeat to both major political parties.  Neither received enough votes to govern and various fringe parties on the Right and Left gained significant votes.  Like the French, the Greeks are demanding problem resolution.  Unfortunately, I again that is not possible without the Greek debt be written down near zero and the country returning to its own currency.  However, even these required resolutions will inflict serious pain on Greek citizens, a reality that Europeans have not come to grips with.

The United States is not a mutant from fallout of the happenings in Europe.  President Obama and Nicholas Sarkozy had a close working relationship.  President-elect Hollande has already stated that he will fast-track withdrawal of his country’s troops from Afghanistan, i.e. he will place France’s interest first.

The events in Europe are starting to evolve more quickly.  They point to a fracturing of European politics and heighten the possibility of the breakup of the European Union.  While the problems of Europe surfaced with the worldwide economic meltdown, they were actually created by an ill-conceived union created by Progressive bureaucrats who understood little about national interests and economics.  Ultimately these two items will dictate how the politics and economics solutions in Europe play out.  European countries will individually evolve strategies to protect their national interests, with each country being concerned that others will gain advantage if they do not act quickly.  This has created a volatile situation that will quickly lead to a crescendo and lead to real problem resolution.  However, these forces are ultimately beyond the control of politicians.

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Consequences of Europe’s Latest Bailouts

Posted by Steve Markowitz on March 8, 2012

The European Central Bank (ECB) has acted decisively in response to the ongoing sovereign debt crisis facing various countries.  That action included an additional €529 billion of printed money that is on top of the nearly €490 billion printed in December.  The money printing presses of Europe are working more efficiently than even the rapid acting presses in the United States.

The idea behind the ECB’s bailouts goes beyond the obvious, i.e. bailing out Greece who cannot pay back its debt.  However, the actual reason behind the bailout is to assist commercial banks in various European countries that hold Greece’s bad debt.  Once again powerful interest groups are being bailed out by Progressive governments.

It defies logic that a problem of excess debt can be resolved by creating more debt.  To believe this is akin to believing in alchemy.  At best the new debt kicks the can down the road when the problems will once again arise, but even larger.

The potential consequences of the ECB bailout is discussed in detail by economist John Mauldin in his piece titled “Unintended Consequences“.  Mauldin points out the following:

  • The ECB’s holdings of rather questionable debt that has increased fourfold in the past six months.
  • While the ECB has printed substantial amounts of money that has then been loaned at low rates to European commercial banks, these banks are not making loans to businesses.  Instead, they are buying European government bonds and earning the spread that may improve their balance sheets, but not stimulate economic growth.
  • The cost of short-term borrowing by the weak European governments substantially decreased with the ECB’s interventions.  As a result these countries have replaced their more expensive long-term debt with cheaper short-term notes supported by the ECB.  While on the surface this seems positive for the debtor countries, it is creating a dangerous situation whereby their debt will now mature in the nearer term.  This will create another crisis within a few years when the new debt comes due.
  • The bailout of Greece is not being unnoticed in the other problematic countries, including Spain, Portugal and Ireland.  This will likely lead to those countries asking for concessions requiring still additional European bailouts.
  • The ECB bailouts have placed draconian austerity measures on Greece that will further contract their economy making servicing the discounted debt more problematic.
  • Mauldin concludes that in unintended consequence of the European bailout is a higher likelihood that the European Union will be broken up.

As this Blog has proffered in the past, governments are not qualified to efficiently allocate capital (tax dollars), which is what they do when intervening with bailouts or picking winners and losers, such is with green energy companies.  John Mauldin more eloquently states this reality in the introduction to his Unintended Consequences” that is posting below.  Hold on and wait for the consequences.

“For every government law hurriedly passed in response to a current or recent crisis, there will be two or more unintended consequences, which will have equal or greater negative effects then the problem it was designed to fix.  A corollary is that unelected institutions are at least as bad and possibly worse than elected governments.  A further corollary is that laws passed to appease a particular group, whether voters or a particular industry, will have at least three unintended consequences, most of which will eventually have the opposite effect than the intended outcomes and transfer costs to innocent bystanders.”

Posted in Greece, Sovereign Debt | Tagged: , , , , , , | Leave a Comment »

EU Concludes Water can’t Prevent Dehydration

Posted by Steve Markowitz on November 20, 2011

The Daily Telegraph published a truly unbelievable story.  In a ruling that is over the top even for knucklehead bureaucrats, the European Union (EU) has banned bottled water suppliers from claiming that water can prevent dehydration.  Yikes.

Making this story even more outrageous, it took the EU three years for this investigation that included 21 professors to make the ridiculous ruling.  This EU’s finding indicates that should water suppliers claim that water can prevent dehydration, they can face a two-year jail term.

Some European scientists are reacting strongly to this outrageous ruling.  One, Professor Hahn of the Institute for Food Science and Human Nutrition at Hanover Leibniz University, said of the ruling: “The European Commission is wrong; it should have authorised the claim.  That should be more than clear to anyone who has consumed water in the past, and who has not?  We fear there is something wrong in the state of Europe.”  The good professor is adept at understatement.  There is indeed something terribly wrong in Europe.

The outrageous finding by the European Union and its appointed scientists is telling.  These are the same people are sure that their findings on man–made global warming are indisputable.

The European Union is in the midst of a financial crisis that may lead to a nasty recession or depression in Europe and even the breakup of the Union itself.  While real crisis are at work, the EU bureaucrats are ruling that water does not prevent dehydration. Perhaps there’s never been a better example as to why Progressives are our dangerous.

Posted in European Union, Progressives | Tagged: , , , , , , , | 10 Comments »