The Euro UOwe

April 18, 2012

Why you should vote no against the Compact and the ESM:


I’m listening to the monitor, see link beneath this post, as I write. Its full of this fiscal adjustment re high debt, high deficit, not too fast, not too slow prescription. Austerity is the way to sustainable growth is the message. They want this virtuous circle of austerity fueled growth.

WEO does skirt around the central problem, eg

“The most important priorities remain fundamental reform of the financial sector; more progress with fiscal consolidation, including ambitious reform of entitlement programs; and structural reforms to boost potential output. In addition to implementing new consensus regulations (such as Basel III) at the national level, financial sector reform must address many weaknesses brought to light by the financial crisis, including the problems related to institutions considered too big or too complex to fail, the shadow banking system, and cross-border collaboration between bank supervisors.”

If the IMF wants to be taken seriously, it will address the fundamental problems related to financialisation that, in my view, are leading to the current global crisis. What are those problems? They exist primarily in the financial markets and relate to their operation, the financial instruments themselves, their reliability and durability.

The question as to durability, reliability and authenticity including freedom from manipulation and contrivance has grown since the early 70’s with floatation of the dollar and derivative based investment. The subprime scandal in 1970’s showed a lack of transparency and accountability and verifiability of OTC’s that led to the meltdown and domino effect of this across markets. Such problems have not gone away but have been heightened since then. Now its a question of not how opaque such instruments are, but its now a question through the new European approach of no bank allowed to fail, QE and LTRO targeting the financial sector plus evidence of gross financial manipulation in the commodities markets, of how much more dangerous is the state of global financial markets.

Specifically, there is more uncertainty because little has been done to correct the alignment of financial markets with their corresponding underlying economic realities. For example, across Europe, unemployment and growth are sliding to a halt and reversing; but LTRO and government bond sales and support of the financial sector would appear to have invigorated and resolved problems in the financial sector. The banks are back betting in the financial markets, but are not lending to real business.

Indices of GNP and employment and austerity measures together with the concealment of debt eg in Spanish cajas, loose stress testing for banks, mean that financial multipliers similar in effect to subprime OTC’s now exist, that bear no resemblance to underlying realities. This effect is similar to what happened in Ireland’s property bubble; in relative terms, the only difference is, Europe is creating a new financial bubble; a financial bubble is the last thing Europe needs to take investment away from the real economy and into the casino economy.

Without the reforms to the financial sector loosely and vaguely highlighted by the IMF doc, the austerity measures exacerbating the problems of Europe’s creation of a financial bubble to recover growth, will soon fail.

To illustrate the need to globally pierce the financial bubbles occurring in sovereign bond markets in Europe, leaving aside the question of ‘who bought’ the Spanish bond issue (European banks with LTRO?), consider the following

“Pimco co-founder Bill Gross told CNBC Tuesday he’s steering clear of Spain’s auction of two- and ten-year bonds Thursday because its” an artificially controlled market” that he doesn’t trust.”

Interbank lending between US and European banks has come to a halt before LTRO fed by fears of the liquidity of European banks; now sovereign bonds can’t be trusted?

That’s the problem the IMF document doesn’t address. Fiscal deficits are a problem, but the real problem, not dealt with by the IMF doc, is the question of out of control manipulation of investment bond markets, commodities markets, through the abuse of naked credit default swapping, OTC’s and currently loosely regulated LTRO and QE. It is these financial multipliers that generate dangerous financial bubbles that sofar have given 2008 and its domino effect.

As these practices slowly corrode and erode the global, financial system, as austerity is transformed into the creation of further fuel for these financial markets; global financial markets have become debt fueled casinos sucking money out of the pockets of governments, public services, the lower class and the middle class.

The question is how long before the IMF and the global financial system can continue the smoke and mirrors to hide the casino’s fixing of rules in its favour. This question has been lying around since the origin of private banking. Those who have views on the issue of public vs private banking going as far back as the 19th century who spoke out on such issues, would certainly see the chickens coming home to roost.


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