Barcelona 15th October 2015 – in conversation with Monica Terribas

Submitted by Yanis Varoufakis  –  The Yanis Varoufakis Blog

YV and Monica at the Barcelona talkFOREX NEWS kindly took notes of the main points of my conversation with Monica Terribas at the El Born Cultural Centre in Barcelona. I used their notes as a template for notes that I superimposed – see below. To watch the video of the discussion, click here.

  • The common currency was constructed like the gold standard
  • Just like 1929 brought the gold standard down, setting one proud nation against another, 2008 is doing the same with the euro.
  • In the US, each crisis brought the Americans closer together while in the eurozone the opposite is happening.
  • The eurozone was wrongly constructed – resembling as it did the gold standard.
  • A state’s role is to stabilise a political economy and to mediate the conflict between different social classes and groups
  • The EU institutions were different. They were not meant as a means of absorbing such conflicts – they were instead intended to manage the affairs of a cartel, initially of coal and steel (that was later expanded to include large farms and, of course, finance).
  • Fixed exchange rates were necessary to stabilise this cartel. The failure of the attempts to create a fixed exchange rate system led to the creation of the euro.
  • The Eurogroup is, for this reason, a democracy free zone – a monetary union that was the extension of a cartel’s bureaucracy
  • The European Parliament is not a real parliament.
  • In Greece, we suffered the greatest depression since the 1930s.
  • Only 9% of the Greek unemployed has ever received unemployment benefits.
  • The Eurogroup told us that we, the new Greek government, could have any reform&fiscal program we liked as long as it was the… old program they have been implementing (with spectacular human costs) for the past few years
  • In 1967 Greek democracy was overthrown with the tanks. In 2015 they used the banks.
  • We were threatened with the closure of the banks, that threat was realised and yet the brave Greek people still voted NO.
  • Tragically, our government decided to surrender.
  • By surrendering, we did a lot of damage to other left wing European parties.
  • In Brussels, the truth is spoken when microphones are off.
  • In Spain, you rescued the banks and paid with austerity, home requisitions and mass unemployment.
  • When you have different economies and bind them together with a common currency, a tsunami of money begins at the surplus countries heading for the deficit countries.
  • This flow of money comes in the form of loans.
  • In Spain, it came through developers building houses. House prices rose as Spaniards were offered new mortgages, and people felt rich.
  • In Greece, the money went into the state sector. The government built high highways, Olympic stadiums, with corruption ensuring that much of the money was siphoned off to the richer neighbourhoods.
  • This tsunami of loans to Spain, to Greece, to Ireland etc. originated mainly from the surpluses of Germany.
  • It had to be lent because, if it stayed in German banks, German interest rates would have stayd very low. Bankers, naturally, took it and lent it in the countries starved of capital, where interest rates were much higher. Periphery debt, in this sense, is the other side of German, Dutch, Austrian surpluses.
  • When the music stopped, Spanish developers went bankrupt, then the banks and then the state.
  • In Greece, the state went bankrupt first, then the banks follows. But the result was the same as in Spain: self-defeating austerity.
  • In the US, state banks were saved by the Fed while unemployment benefits and pensions were paid by the Federal Government. This is why there was no domino effect in the US beginning in Nevada or Missouri and spreading to, say, California
  • We need to break down the unholy alliance between bankers and national politicians – everywhere in Europe.
  • A banker must know that if ‘his’ bank goes bankrupt, he will have to go home. After 2008, we bailed out not the banks but the bankers – in the US and in Europe. Except that in Europe, it was the insolvent states that saved the bankers, pushing their populations into utter misery.
  • Here is something we could do:
  • Split member-state public debt between: (A) the Maastrict ‘legal’ or compliant level (debt = 60% of national income) – call this the ‘good debt’, and (B) the rest – call this the ‘bad debt’
  • Then Europeanize the ‘good debt’ How?
  • From now on, the ECB services the ‘good debt’ on behalf of the member-stateby operating as a go between the state and the money markets.
  • Member-states benefit because the ECB has a good name and it can borrow at near 0% interest rate.
  • So, 40% of total eurozone debt (measured in net present value terms) just goes away without anybody losing money.
  • Now, the ECB is printing money, at the rate of 60 billion per month, to buy debt, causing a major conflict between the ECB and the Bundesbank.
  • The Bundesbank took the ECB to court.
  • The mere announcement of the proposed scheme, to replace the ECB printing scheme, could make the debt crisis would go away and placate the Bundesbank
  • With the public debt crisis resolved, we need to Europeanise aggregate Investment: lack of investment os possibly Europe’s greatest long-term problem.
  • Europe has a great deal of debt (private and public). But at the same time Europe also has a great deal of  accumulated money. Too much idle money!
  • Rich Europeans have more money than ever.
  • But this mountainous money is idle.
  • Interest rates are below zero, in many places. Rich people with lots of money do not know where to place it – they are too scared to invest it, too fearful to keep it in banks, and when they buy German bonds they often have to pay the German government to borrow from them!
  • German pension funds are a good example of organisations that suffer under these negative yields.
  • The solution would be to invest in productive capacity, including green causes.
  • The problem is that investors fear that, if they invest in the production of commodities, nobody will be able to buy these commodities. So, they do not invest. But then there are no new jobs and people, indeed, cannot afford to buy commodities, thus confirming the negative expectations of investors.
  • Clearly, we need to kickstart investment. For this we cannot rely on private finance. Not can we rely on the member-states to stimulate investment: France is over its spending limits, the southern states are effectively bankrupt, even Germany is reluctant to add to a level of debt that is much above the Maastricht maximum.
  • The European Investment Bank should, and could, ignite investment, with funding of green energy projects as the spearhead.
  • There is no political will behind the EIB to do so, presently. This is a political matter. The EU Council could give the EIB the green light to implement a Green New Deal, by issuing a large number of EIB-bonds for the purpose
  • The ECB could then buy these bonds in the secondary market, if there was a need to support their market value. Doing this would not violate the ECB charter at all – and the Bundesbank would be happier with this than with the ECB buying government debt.
  • When rich Europeans see this investment, they will jump in and that will kickstart the whole eurozone economy.
  • It is what the New Deal achieved in the 30s.
  • China saved Europe, Germany in particular, after 2008. The Chinese government cranked up investment to 50% of GDP – unprecedented.
  • German exports grew, making amends for their decline within Europe, thanks to China.
  • The Chinese knew that they were buying time – 5 years to create demand within and without China.
  • But we, Europeans, have failed to mend Europe’s economy and to help the Chinese to help us.
  • Now China is deflating while Europe is nowhere near recovering.
  • The current situation is a gross failure of the eurozone and of European governance.
  • The Eurogroup, as an institution, is not distinguished by its collective intellect. It may contain intelligent individuals but the whole is far less than the sum of the parts.
  • They just repeat the rules and don’t consider changing the rules even when it is clear they have failed. But at the same time they make up new rules whenever it suits the powerful…
  • Luis de Guindos is a clever man who knows what the problems are. But in the Eurogroup he is contrained to repeat the mantra.
  • Schäuble is also an intelligent man but he too keeps repeating the ‘rules mantra’ without allowing for a any debate on the rules’ appropriateness.
  • We Europeans should be ashamed of the level of poverty that has risen as a result of the mismanagement of an inevitable crisis. And we should be ashamed of the way Europe treated refugees.
  • Poverty is a political issue, and aids the rise of the extreme right.
  • If Draghi were to write a cheque to poor families, that could be used to buy food, this would have a major unifying effect for Europe. Should the ECB print this money?
  • The ECB is not allowed to do this. But we could agree to use the billions that accumulate every year in the ECB’s Target2 account to fund a US-style food stamp program.
  • The very announcement of such a scheme will make Europeans feel better about Europe. They would be proud to beling to it. Unlike now…

What should we do?

  • The old political system, based on national parties, that then create alliances in Brussels doesn’t work.
  • Idea: Create a pan-European front or movement which will then find expressions at the local, regional and member-state levels
  • It should be based on a common program of what we want to do. It should be as inclusive as possible.
  • We want to democratize Brussels.
  • The idea of one person one vote is radical in today’s undemocratic Brussels, where true democracy is treated like a threat.
  • The Eurogroup should be accountable to a parliament.
  • At the current stage of Europe’s degeneration, these simple ideas are radical.
  • There are 4 timeframes (see below) for taking action throughout Europe – but we don’t need a top down party to do this.
  • I am going all around Europe to spread the word.
  • Greece is important to me for the effect it had on our people. But to Europeans Greece is important because it is the laboratory in which terrible policies are tried and tested before being exported to the rest of Europe.
  • People came to talk to us not because of pure solidarity to the Greeks but because of fear that what happened in Greece will happen to them.
  • The mentality of old party politicis is no longer useful or progressive.
  • Our movement should aim to be a European network open to members belonging to different national parties.
  • Even incorruptible conservatives who are sick and tired of the lack of democracy/transparency should be encouraged to join us.

The four timeframes for action:

Very short run (e.g. next week)

We should demand

  • Full transparency – cameras in the EU Council meetings, live streaming of Eurogroup meetings
  • Publication of meeting minutes
  • TTIP negotiating should become fully transparent and available on the web

Short run (e.g. three months from now)

We should demand

  • Implementation of  the four policies mentioned above that do not require treaty changes but can stabilise and reverse the crises of public debt, banking, investment and poverty.

Medium run (e.g. in two years time)

  • Creating a European Assembly where elected officials can debate the future European Constitution

Long run (e.g. eight to ten years)

  • A United Europe based on the principles of Decentralised Europeanisation – of a Europe in which democracy operates at the level of cities, regions, states and the Union itself. On the one hand, we should aim at institutions that Europeanise (with minimum discretion for the bureaucrats) public debt management, a proper banking union, aggregate investment management and anti-poverty fighting schemes. On the other hand, this Europeanisation of Europe’s four large problems will allow for authentic, decentralised democracy at the level of communities, cities and regions.

If we agree on such a minimal program for democratising Europe, and we shape it in  way that reflects public opinion across Europe, our Pan-European front, movement or network will take a life of its own, it will evolve, and we will be amazed by what it will come up with.


  • Q: How can you mobilize people
  • A: What happens in Catalonia was what happened in Greece – Greek felt ‘alone’ in Europe. Like Catalans do. Onlu we are not alone. The problems of the Greeks, the Catalans, the Germans are too alike. But only a Pan-European movement can annihilate that feelng of loneliness which paralyses us into inaction.
  • Q: How do you encounter the media?
  • A: By articulating a solid, rational program and ignoring their propaganda. Europeans will respond to it and the media will be shamed in following us or risk ending up like the Soviet media that no one believed after a while.
  • Q: Are you frustrated?
  • A: The Eurogroup is a very unpleasant place. But I was never downhearted in the Eurogroup. No, the sadness and the disappointment was felt at home, in Athens, when some of my comrades began, from April onwards, to prepare for the eventual surrender. That’s whay I found unbearable and frustrating. But I am happy that I stood my ground till the end. Those six months were just a skirmish in a long war for Europe’s integrity, dignity, democracy and soul.



Look Back in Anger

Submitted by Doug Noland – Credit Bubble Bulletin 

October 16 – Wall Street Journal (Alan S. Blinder and Mark Zandi): “Don’t Look Back in Anger at Bailouts and Stimulus… Logic dictates that the size of any stimulus be proportional to the expected decline in economic activity—which was enormous in the Great Recession. The Recovery Act and other stimulus measures were costly to taxpayers, and thus much-maligned. But the slump would have been much deeper without them. The Federal Reserve has also come under attack for its unprecedented actions, especially its quantitative easing or bond-buying programs. Yet QE lowered long-term interest rates and boosted stock and housing prices—all to the economy’s benefit. Yes, QE has possible negative side-effects, but for the most part they have yet to materialize. Policy makers who botched the regulatory job before the crisis and shifted to fiscal restraint prematurely in 2011 can hardly be considered flawless. Yet one major reason why the U.S. economy has outperformed the plodding European and Japanese economies is the timely, massive and unprecedented responses of U.S. policy makers in 2008-09. So let’s get the history right.”

Getting “history right” has been a CBB focal point From Day One. In last week’s media barrage, Dr. Bernanke repeatedly stated that fiscal policy had turned contractionary – (or at best neutral) suggesting that fiscal stringency was a key factor in the Fed sticking with ultra-loose policies. In Friday’s WSJ op-ed, Blinder and Zandi write: “Policy makers who botched the regulatory job before the crisis and shifted to fiscal restraint prematurely in 2011.”

Since the end of 2007, outstanding Treasury Securities (from Fed’s Z.1) have increased $8.302 TN, or 137%. As a percentage of GDP, outstanding Treasuries almost doubled to 83% (from 42%) in seven years. By calendar year, Treasury borrowings increased $1.302 TN (8.8% of GDP) in 2008, $1.506 TN (10.4%) in 2009, $1.645 TN (11.0%) in 2010, $1.138 TN (7.3%) in 2011, $1.181 TN (7.3%) in 2012, $858 billion (5.1%) in 2013 and $736 billion (4.2%) last year.

In nominal dollars, Federal expenditures increased from 2007’s $2.933 TN, to 2008’s $3.214 TN, 2009’s $3.487 TN, 2010’s $3.772 TN, 2011’s $3.818 TN, 2012’s $3.789 TN, 2013’s $3.782 TN and 2014’s $3.897 TN. Federal expenditures spiked during the crisis and remain about a third above 2007 levels.

“US Post Smallest Annual Budget Deficit since 2007” was a Thursday WSJ headline. “The deficit declined 9% from the prior year to $439 billion—around 2.5% of gross domestic product and below the average the U.S. has run over the past 40 years.” Continue reading

Billionaire Singer Says Gold Is “Under Owned” and “Only Real Money”

Submitted by William Bonner, Chairman – Bonner & Partners

“In a world where the value of paper money is affirmatively aimed at being degraded by central bank policy, it’s kind of surprising to me that gold can’t catch a bid,”
the billionaire and member of Bloomberg Markets 50 Most Influential said at the SOHN Investment Conference in Tel Aviv yesterday.

GoldCore: Paul Singer
Paul Singer, billionaire and chief executive officer of Elliott Management Corp.
(Photographer: Chris Ratcliffe/Bloomberg)

As reported by Bloomberg, Singer took aim at monetary policy makers for a staggered economic recovery from the 2008 financial crisis, and what he called the“cult of central banking” in which investors turn to regulators such as Janet Yellen and Mario Draghi to solve the ills of the global financial system.

And while those policies have “levitated” bond and equities, gold remains depressed and Singer is surprised by how little the investors he meets with own gold.

“I like gold. I believe it’s under-owned. It should be a part of every investment portfolio, maybe five to ten percent.”

Singer previously noted at this year’s Ira Sohn conference that it “feels like something institutional investors need to own,” adding that “the supply of gold cannot be radically expanded in a short period of time.”

Singer warned in August of 2014 of the “global monetary delusion” that would lead to higher gold prices – provided gold owners are patient.

“Although the levitation of financial assets has yet to levitate gold, we will grit our collective teeth on that score and await either ‘asset price justice’ or the ‘end times,’ whichever comes first.”

The “smart money” and by that we mean the more informed, aware and prudent investors and institutions internationally continue to have an allocation to gold and or add to existing allocations. The less informed continue to not understand or disparage gold and focus almost solely on gold’s short term price action rather than gold’s long term attributes as a hedging instrument and a safe haven asset. Continue reading

Gold and Gold Stocks – How to Recognize an Emerging Bull Market

The Current Situation

We have last discussed the gold sector in a series of posts between August 11 and September 1, arguing that an interesting risk-reward proposition could be discerned, both from a longer term investment perspective and a shorter term trading perspective. In particular, with a major support level nearby, and a great many similarities in the technical set-up to previous significant lows (plus a fundamental backdrop with growing potential to shift to a more bullish configuration), an opportunity combining potentially high return with minimal risk had emerged again (meaning that risk could be minimized by using the nearby support level as a stop).

Gold_Bull2Photo via

These posts can be reviewed here in chronological order: “Gold Stocks at an Interesting Juncture”, “A Playable Rally May be Beginning” and “Update on a Tricky Situation”. Considering that in the brief rally between late December 2014 to late January 2015, numerous individual gold stocks rose between 100-200%, opportunities of this sort are nothing to be sneezed at, even if the bear market resumes again later. This view was a fairly lonely one at the time, which is no surprise given the awful performance prior to the low being put in. In the meantime a worthwhile advance has indeed gotten underway, even if it has taken a few more retests of the low before things really got going:

1-HUI-1-yearThe action in the HUI index over the past year. During the recent period within the blue rectangle on the right hand side we discussed the emerging new opportunity (we incidentally did the same after the capitulation in late October 2014) – click to enlarge. Continue reading

The Fed Broke the Market … Now It Owns It

Submitted by William Bonner, Chairman – Bonner & Partners

PARIS – Not much action in world markets on Monday. The Dow was up 48 points. Almost everything else ended in the red. Today, another look at the absurdity of central planning. But first…

We visited Athens on Monday and then headed back to Paris, joining an Oxford Club group for dinner at one of the best restaurants in Paris – Le Jules Verne in the Eiffel Tower.

Jules verneThe view from Le Jules Verne …

Photo credit: Le Jules Verne

Our Mediterranean cruise last week, aboard the Crystal Serenity, took us to gawk at the great monuments of classical Greek civilization – the Acropolis in Athens, Ephesus in Turkey, the Valley of the Temples in Sicily. At each spot, we craned our necks, in awe and wonder.

“How did they do that?” we asked ourselves, marveling at the engineering prowess and aesthetic refinement of people so long ago.

The Eiffel Tower took our breath away, too. Here was a monument to a different people, a different technology, and a different civilization – erected thousands of years later. You look down from the second level – where Le Jules Verne is located – and you wonder: How did they do that?

Still, this is the technology we are familiar with. It is what built the Brooklyn Bridge and formed the Manhattan skyline. It is something we understand.

Assembly lines and mass production… smoke, wheels, and cranes… men with tools in their hands. It has its heroes and its geniuses, too – Ford, Carnegie, Vanderbilt, Sloan… Continue reading

Gold(man) Simplicity

Goldman Sachs just reported an extremely rough quarter, and not just for a bank that has earned a reputation as being on the “right” side of trading. The bank’s (and it is a bank, now) annualized return on equity put it next to BofAML and below Citigroup, of all indignities. The reason, as always, is FICC. Reported revenue there was just atrocious, far worse than the firm’s peers which is illustrative of several points.

Goldman’s fixed income, currency and commodities traders had a worse time than their counterparts at larger rivals for the second quarter in a row. Revenue fell 27 percent from the same period last year, after stripping out a one-off gain. BofA and JPMorgan earlier this week reported top-line declines of just 11 percent, while Citi on Thursday said FICC trading revenue fell 16 percent.
The nature of Goldman’s customers hobbles the bank to some extent. It relies more than its peers on institutional investors and other big trading houses. These players are more likely to scale back their activity when markets are volatile than corporate clients whose daily business involves treasury services and commercial banking.

None of those factors are good for banking or for global liquidity, especially as the second straight quarter of it, but that still doesn’t account for what we see of Goldman or the “dollar.” Fitch comes closer (via Reuters):

The company’s FICC business was down during the quarter with net revenue decreasing 9% from the sequential quarter and 33% from the year-ago quarter as a challenging market environment and comparatively low levels of client activity impacted these businesses… While GS has a strong franchise as evidenced by market share positioning in league tables, in Fitch’s view this quarter’s results also continueto reflect the inherent cyclicality of the company’s activities. [emphasis added]

I think that unpacks the direction for Goldman and the firms like it, but stops just short of explaining the magnitude distinction. In other words, like Deutsche Bank and Credit Suisse, Goldman had clearly been betting on the ideal Fed (and fed) scenario. Just by count of its gross notional IR swaps book, the firm was moving up the ladder in terms of resources supplied in the eurodollar arena heading into what Fitch is calling a potential “cycle” turn.

ABOOK Oct 2015 Eurodollar Goldman IRs

Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Last 30 Years Of Global Economic History Are About To Go Out The Window (Quartz)
Nowhere in US Can A Single Adult Live On Less Than $14/Hr In 40-Hour Week (DK)
US Manufacturing Falls for a Second Month (Bloomberg)
US Export Industries Are Losing 50,000 Jobs A Month (Bloomberg)
Wrath of Financial Engineering: It’s Now Eating into Earnings (WolfStreet)
Megamergers Will Depend on Huge Amounts of Debt (Barron’s)
China’s Exporters Downcast As Orders Slow, Costs Rise (Reuters)
PBOC Data Suggest Capital Outflows Stayed Strong in September (Bloomberg)
Good News Is Bad News for China (Bloomberg)
Eurozone Inflation Confirmed At -0.1% In September (Reuters)
Party Time Is Over For Norway’s Oil Capital – And The Country (Reuters)
Africa’s Poor Grow By 100 Million Since 1990: World Bank (Reuters)
Stress Building in Kenyan Credit Markets Spells Doom for Growth (Bloomberg)
Ancient Rome and Today’s Migrant Crisis (WSJ)
Immigrants To Account For 88% Of US Population Increase In Next 50 Years (Pew)
Hungary Seals Border With Croatia to Stem Flow of Refugees (Bloomberg)
Remote Greek Village Becomes Doorway To Europe (Omaira Gill)
Turkey Pours Cold Water On Migrant Plan, Ridicules EU (AFP)

Read more here: Debt Rattle October 11 2015 –