Draghi The Dummkopf – Here Comes More Beggar-Thy-Neighbor

The world’s most dangerous central banker is scheduled to unleash more financial mayhem tomorrow. But there is only one possible result from Mario Draghi’s plan to drive the ECB deposit rate deeper into ZIRP-land from an already absurd level of -0.2%.

Namely, it will cause a whoosh of short-term flows out of the euro, thereby driving the EUR exchange rate downward against the dollar and other major currencies. That used to be called beggar-thy-neighbor. And it still is.

Just take the word of a leading European bond manager for the truth that Draghi will never utter:

“One of the reasons why the ECB is so keen on cutting the deposit rate is it is such a very effective tool for weakening the currency,” said Jack Kelly, head of government bond funds at Standard Life Investments, which oversees £250 billion in assets. “Probably more so than the asset purchase program.”

There you have it, and there ain’t no more. The whole drama scheduled for tomorrow at the ECB is about nothing more than plunging deeper into crank economics and the age-old fallacy that nation’s can make themselves wealthier by trashing their own currency.

At this particular juncture, however, we have reached a remarkable threshold. The ECB is the legatee of the stoutly anti-inflationist tradition of the Germany’s Bundesbank. Yet in a few short years a foolish former Italian Treasury bureaucrat, and one-time Goldman Sachs trainee, has turned the ECB upside-down——-morphing it into a desperate engine of inflation, and for no rational or plausible reason whatsoever.

Yes, the eurozone CPI has come in at a 0.2% increase over the past year, and as a matter of arithmetic that’s 180 basis points below the ECB’s vaunted 2% target.

So what!  There is not one iota of proof anywhere that on a sustained basis 2.0% inflation is better for prosperity than 0.2% inflation. This endlessly repeated policy mantra is just central banker ritual incantation.

Besides that, what’s wrong with a brief spell of flattish CPI readings when they are self-evidently a result of plunging global oil and commodity prices? Any fool can see that Europe has not suffered on a trend basis from anything that remotely resembles deflation. In fact, its 5-year CPI rate is 1.7% per annum and it’s 2.2% since the turn of the century. Continue reading

The Success of Irish Austerity: The Joke is on Krugman.

Submitted by Michael Pento – Pento Portfolio Strategies

During the late 1990s, Ireland’s economy was booming. This was mostly due to a low corporate tax rate of just 12.5% and an international real estate bubble that boosted global Gross Domestic Product (GDP). For a myriad of reasons Ireland was a magnet for foreign direct investment and the envy of Europe.

Buoyed by cheap money, the Irish government embarked on a debt-fueled property boom from 1997 to 2006, which caused the price of an average house to jump more than four-fold. Flush with tax revenue the government also went on a spending binge: investment in Ireland’s health service soared by five times and pay for government workers doubled.

Unfortunately, the world-wide financial crisis sent Ireland’s boom economy to bust almost overnight; GDP declined more than 14% in the following two years. And, the government’s budget went from surpluses during 2006 thru 2007, to a staggering deficit of 14.3% of its GDP in 2008.

In response to this economic crisis the Irish people and elected officials did something few countries are willing to do: they embraced fiscal austerity. The government slashed spending and raised taxes. Since 2008, seven budgets have taken €28 billion ($38 billion) out of the economy in spending cuts and tax hikes, which amounts to 17% of today’s GDP. Continue reading

The Deep State and the War on Cash

Submitted by William Bonner, Chairman – Bonner & Partners

An Attention-Grabbing Headline

“The first shot in the War on Cash?”

The headline caught our attention. We’d just finished researching and writing about the “Deep State” for the latest issue of our monthly publication, The Bill Bonner Letter.

This is something you’re likely to hear more about. The Deep State describes the way the U.S. government really works, rather than the way it’s supposed to work.

Over the years – hardly noticed by the press or the public – a group of insiders has taken control of Washington.


DeepGovernment_SocialCard_BWOriginally the term “Deep State” was coined to describe various anti-democratic coalitions within the political system of Turkey (Turkish: derin devlet). In them meantime the term is widely used to describe all types of “state-within-the-state” type arrangements, the real power behind the throne, so to speak.

Image via gadflyonline.com


Some of them are familiar government hacks and politicians. Some, largely anonymous, are in the private sector. And some represent foreign governments, foreign businesses (notably banks), and foreign organizations. Continue reading

Good-Bye To Western Living Standards

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

My column, “Capitalism At Work,” about Greek women being forced into prostitution by banksters and the IMF produced a number of responses from women, who report that austerity is having the same effect all over Europe.

This is from a letter from Portugal:

“Your article ‘Capitalism At Work’ shows absolutely what’s happened here in Portugal. It is common for young women to sell their body to pay the University fees and for food.

“About the submarines, we had also that experience. The person responsible for this purchasing was Dr. Paulo Portas, who, despite that ‘affair’, was nominated Vice Prime Minister until recently. Now they are Socialists at the Government but believe me, they are so corrupt, even more than the previous right-wing government. In fact all left parties are, even the PCP. They are interested only in self benefit and they give some crumbs to the people. We are a banana republic governed by bastards. We deserve this situation as long as we tolerate it.”

The European socialist parties, which over decades of struggle humanized European capitalism and European society, are no more. Europeans are experiencing a modern version of the Enclosures of the past when they were uprooted from the land in which they had use rights in order that land could become private property and be financialized with debt instruments. Continue reading

Ending Recovery

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

On November 9, the OECD issued its twice-yearly Economic Outlook statbook, updated for projections into Q3 for most national economic accounts. Despite past enthusiasm for global prospects in 2015, the narrative has not-so-subtly shifted, a major transformation coming from an orthodox bastion like the OECD.

Global growth prospects have clouded this year. Global growth has eased to around 3%, well below its long-run average. This largely reflects further weakness in emerging market economies (EMEs). Deep recessions have emerged in Brazil and Russia, whilst the ongoing slowdown in China and the associated weakness of commodity prices has hit activity in key trading partners and commodity exporting economies, and increased financial market uncertainty.
Global trade growth has slowed markedly, especially in the EMEs, and financial conditions have become less supportive in most economies.

It is difficult to simply accept these limitations lacking comprehensive causative processes put forth, but the fact that they are at least being recognized represents a (small) step forward. These are portrayed as if they are “things” of themselves; commodity price collapse, “financial market uncertainty”, global trade growth collapse, etc. Despite the unexamined “mystery” of all those, or maybe because of that intentional obtuseness, the OECD still expects global growth to accelerate in 2016 and really 2017. That is, of course, the same pattern that plays out year after year after year, only 2015 has already held more than the typical amount of setbacks and “unconnected” financial mysteriousness.

To this point, the organization is unwilling to see anything more than a visible economic problem for EM’s alone. Brazil and Russia have their recessions, and China its unexplained slowdown, but the rest of the “developed” world is expected to remain rather steady in growth (well, except Canada perhaps?) no matter all the global turmoil. It is the stated “risks”, however, that suggest much about the inner turmoil at these economic outposts:

Growth would also be hit in the euro area, as well as Japan, where the short-run impact of past stimulus has proved weaker than anticipated and uncertainty remains about future policy choices.

There are increasing signs that the anticipated path of potential output may fail to materialise in many economies, requiring a reassessment of monetary and fiscal policy strategies.

Continue reading

Advice to the Prime Minister/President

Submitted by Alasdair Macleod – FinanceAndEconomics.org

Your country faces a stagnating economy. Let us assume your Prime Minister (or President if that is who holds the executive power) seeks advice from two imaginary economists.

PM: You two economists have different views on what our economic policy should be. What is your advice?

FIRST ECONOMIST (Austrian school): Prime Minister, the reason we face a stagnant economy is your central bank perpetuated the credit cycle by suppressing interest rates when the economy turned down after the banking crisis and lending risk escalated. That has left us with a legacy of under-performing businesses, which should have been left to go bankrupt. Instead they are struggling under a burden of unrepayable debt. Capital is not being reallocated to the new enterprises of the future. The dynamism of free markets has been throttled.

The extra money and credit created by the banking system has not been applied to the real economy. Instead they are fuelling a financial boom in asset prices, which have become dangerously separated from production values.

Eventually, current monetary policy will lead to a fall in the purchasing power of the currency, and the central bank will be forced to raise interest rates to a level that will precipitate the next financial crisis, if the crisis has not already occurred by then. Overvalued assets become exposed to debt liquidation. It happens every time, and if you think the last crisis, which led to the Lehman collapse was bad, on current monetary policies the next one will be much worse, just as Lehman was much worse than the aftermath of the dot-com boom.

A monetary policy that relies on the transfer of wealth from savers to debtors always fails in the end, as certainly as death and taxes exist. It is also the real reason the bankers are getting wealthy while ordinary people become poorer. The time has come to recognise that your central bank, by licencing and encouraging the banks to create credit out of thin air, is the source of the problem.

Sadly, your central bank seems blissfully unaware of the debilitating effect of monetary inflation on your voters’ wages and savings, and if I may say so Prime Minister, your administration pays little regard to the natural injustice of rewarding profligate borrowing and penalising thrift.

I advise you to stop your central bank from manipulating interest rates and to let the markets sort themselves out. Furthermore your central bank must stop debasing the currency as a cure-all. So this is what I suggest. Continue reading

Gold Is Real Money That Protects The Wealth of Nations

Submitted by Mark O’Byrne  –  GoldCore

Editors Note: With the New York Times once again trying to convince us that the Gold Standard is a barbarous relic from the past (see below), we are happy to publish an interesting and informative piece by one of our contributors David Bryan.

GoldCore: Einstein Think

Gold is real independent money that can be explained in terms of physics and ensures the economic health of a nation. Counterparty liability money is a monetary ideology that empowers central bankers who issue currency that destroys the economic wealth of nations.

Science invalidated belief five hundred years ago and proved the earth is round.

Science has since advanced knowledge that the entire universe is comprised of energy and matter.

Economic Science is an attempt to understand how the dynamic of energy and matter contributes to the economic benefit of one and all.

Enterprise is the energy that drives productivity and creates real economic wealth. To sustain life there is no scientific substitute for enterprise and yet banks and socialist politicians would have us believe that enterprise is not needed for wealthy creation.

Banks and socialist politicians have us believe in a monetary ideology that uses fake money so that we lose monetary independence, economic freedom and wealth security to their central planning and control.

Money defines our prosperity, financial independence and economic freedom, to protect us from harm it must have real wealth.

Counterparty money is the liability owed to the issuing central bank and it has no value apart from a legal stipulation that prevents real money from being used in competition. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• China Has Reached ‘Peak Debt’ (David Stockman)
• Manufacturing in US Unexpectedly Shrinks Most Since June 2009 (BBG)
• 7 Years After The Crisis, Britain Is Still Addicted To The Drug Of Debt (Ind.)
• British Workers Will Have Worst Pensions Of Any Major Economy (Guardian)
• Volkswagen US Sales Plunge 25%, S&P Cuts Rating (AP)
• Piketty: Inequality Is A Major Driver Of Middle Eastern Terrorism (WaPo)
• Saudi Arabia Accounted For 75% Of Value Of Official Gifts To US In 2014 (ITP)
• Saudi Arabia’s Campaign To Charm US Policymakers And Journalists (Intercept)
• Pope Orders Unprecedented Audit of Vatican Wealth (BBG)
• China Needs More Users For ‘Freely Usable’ Yuan After IMF Nod (Reuters)
• A Reserve Currency Brings Boom and Busts (BBG)
• ‘Sound Finance’? The Logic Behind Running A Budget Surplus (Steve Keen)
• Greece Threatened With Schengen Expulsion Over Refugee Response (FT)
• Denmark To Vote On More Or Less EU (EUObserver)
• Merkel Accused In Germany Of Kowtowing To Erdogan (EurActiv)
• Turkish Military Says Secret Service Shipped Weapons To Al-Qaeda (AM)
• Russia Wants To Stop ISIS’ Illegal Oil Trade With Turkey (RT)
• Turkish Stream Gas Pipeline Freezes (Reuters)
• Puerto Rico’s Financial Crisis Just Got More Serious (WaPo)
• Human Rights Watch Demands US Criminal Probe Of CIA Torture (Reuters)
• 4-Year Old Girl Drowns As Refugee Boat Tries To Reach Greek Shores (Kath.)