Tuesday, July 10, 2012

570 Soros: Euro crisis caused by surrender of right to print money. Schacht solution urged

Soros: Euro crisis caused by surrender of right to print money. Schacht
solution urged

(1) Trade: Rhine/Asia Model economies as a cause of the Financial Crisis
(2) John Craig argues that Asia Model economies were a cause of the
West's Financial Crisis
(3) City of London is offshoring itself in readiness to fend off EU
(4) Southern Europe at risk of social explosion, with millions of bored,
unemployed youths
(5) Soros: Euro crisis was caused by member states’ surrender of right
to print money
(6) Soros: Germany's imposition of austerity on Euro periphery is a
threat to Europe
(7) Soros: Eurozone needs a new treaty with a common Treasury
(8) Inventor of 'Quantitative Easing' urges Adoption of Schacht's recipe
to save the Euro
(9) Schacht offers a way to resolve Depression & Financial Crisis -
Richard Werner
(10) QE3: Fed purchase of banks' toxic assets. Benefit the people
instead - Ellen Brown

(1) Trade: Rhine/Asia Model economies as a cause of the Financial Crisis
Peter Myers, January 17, 2013

John Craig argues below - correctly in my view - that the West's
financial troubles cannot be fixed without addressing the Current
Account Deficit. The two main components of the Current Account Deficit
are (a) the Trade Deficit and (b) the Income Deficit, ie. net payment of
dividends & interest to Foreign investors.

Rhine Model countries (ie Germany) and Asia Model countries (Japan,
Taiwan, Singapore, South Korea, China) have chronic Current Account
Surpluses. They strain out all the value-adding operations, keeping them
for themselves, while relegating everyone else to the role of suppliers
of raw materials - hewers of wood and drawers of water.

But for American military power, they would be the new colonial masters
of the world.

John is right, but the world's financial statistics are hopelessly
distorted by Transfer Pricing and Tax Havens.

Transfer Pricing is an accounting trick which distorts trade statistics,
by pretending that production or value-adding occurred in an offshore
low-tax jurisdiction. Companies rig their books so that they appear to
make a loss, or very little profit, in high-tax Western countries; thus
they pay little or low tax there.

Many "Foreign Investors" in a country may be its own wealthy citizens,
purporting to be "Foreign" by pretending to be based offshore.

With Governments starved of taxes, and indebted via Government bonds, a
turning point has been reached. The end of Thatcherism and Reaganonimcs
is at hand. Selfishness is increasingly preceived not as good, or even
ok, but a threat to the entire Capitalist system. To save it, a complete
reversal of the Laissez-Faire policies of recent decades is being called

(2) John Craig argues that Asia Model economies were a cause of the
West's Financial Crisis

From: "John Craig" <john.cpds@gmail.com> Subject: RE: China, Japan
"save" the West?
Date: Sat, 23 Jun 2012 08:33:58 +1000

Peter, I am happy for you to circulate anything that I send on, but
would appreciate it if ALL links to related documents were made
available to readers because otherwise they will not be able to get a
proper understanding of what I am trying to say. Usually significant
emails that I circulate wind up on my web-site.

Thus an alternative to adding in all links would be to include a
reference to where the item appears (with all links) on my web-site
(which I would always be happy to provide). For example, item (6) below
is at http://cpds.apana.org.au/Teams/Articles/globalization.htm#20_6_12

Reply (Peter M.):

John, I did intend to include a link to your your writing on this topic,
<http://cpds.apana.org.au/Teams/Articles/AsiaSustainable.htm>, and
thought that I had done so. Only after I sent the bulletin did I realize
that I had not. But I will put out this clarification from you.

(3) City of London is offshoring itself in readiness to fend off EU

From: "Peter Wakefield Sault" <peter.sault@odeion.org>
Subject: Re: UK becoming third-world? Australia's Mining "boom" creates
Current Account Deficit
Date: Tue, 12 Jun 2012 19:03:32 +0100

Hi Peter, I think you'll find the City of London is offshoring itself in
readiness for the inevitable EU directives which would criminalize most
of what they do. I suspect that Bermuda is the bolthole of choice.
Convenient flight time from Heathrow, no income tax, still "subjects" of
the Wavey Hand Gang and, last but most certainly not least, NOT a member
of the United Nations therefore NOT subject to UN tax justice initiatives.

And then, after a pleasant stopover in Hamilton, a short flight to
Nassau, Bahamas and the sunny Tax Haven Islands beyond. Isn't life

(4) Southern Europe at risk of social explosion, with millions of bored,
unemployed youths


Europe’s moment passes

Posted by Delusional Economics in European Economy, Featured Article on
June 19, 2012

I been covering the European crisis for over two years and throughout my
commentary I have been very clear that I consider the policy responses
to the crisis to be misguided, delusional and dangerous. One of my major
concerns has been that the implementation of what I see as a deluded
ideology would eventually lead to a breakdown of cvil society in
periphery nations that are being forced to endure these failings. As I
stated previously:

One of my greatest concerns is that there are now literally
millions of bored, unemployed and socially disenfranchised youths across
southern Europe. These numbers will continue to grow as the mix of
government austerity and deflating private sector economics pushes down
periphery GDP. …

Obviously this is an economic disaster and I have been at the front
of the queue screaming about misguided economic ideologies in Europe
that have led, and continue to lead, to this situation. However, it
doesn’t take much of an imagination to realise that this has the
potential to become something much more sinister than just ugly looking
charts and that is my real concern.

It would seem that Greece’s New Democracy party leaders have similar
concerns about the direction of Greek society under the pressure of

“My biggest fear is of a social explosion,” said a senior adviser
to the country’s likely next prime minister, New Democracy leader
Antonis Samaras.

“If there is no change in the policy mix, we’re going to have a
social explosion even if you bring Jesus Christ to govern this country.”

(5) Soros: Euro crisis was caused by member states’ surrender of right
to print money


The Accidental Empire

George Soros

June 7, 2012

NEW YORK – It is now clear that the main cause of the euro crisis is the
member states’ surrender of their right to print money to the European
Central Bank. They did not understand just what that surrender entailed
– and neither did the European authorities.

When the euro was introduced, regulators allowed banks to buy unlimited
amounts of government bonds without setting aside any equity capital,
and the ECB discounted all eurozone government bonds on equal terms.
Commercial banks found it advantageous to accumulate weaker countries’
bonds to earn a few extra basis points, which caused interest rates to
converge across the eurozone. Germany, struggling with the burdens of
reunification, undertook structural reforms and became more competitive.
Other countries enjoyed housing and consumption booms on the back of
cheap credit, making them less competitive.

Then came the crash of 2008. Governments had to bail out their banks.
Some of them found themselves in the position of a developing country
that had become heavily indebted in a currency that it did not control.
Reflecting the divergence in economic performance, Europe became divided
into creditor and debtor countries.

When financial markets discovered that supposedly riskless government
bonds might be forced into default, they raised risk premiums
dramatically. This rendered potentially insolvent commercial banks,
whose balance sheets were loaded with such bonds, giving rise to
Europe’s twin sovereign-debt and banking crisis.

The eurozone is now replicating how the global financial system dealt
with such crises in 1982 and again in 1997. In both cases, the
international authorities inflicted hardship on the periphery in order
to protect the center; now Germany is unknowingly playing the same role.

The details differ, but the idea is the same: creditors are shifting the
entire burden of adjustment onto debtors, while the “center” avoids its
own responsibility for the imbalances. Interestingly, the terms “center”
and “periphery” have crept into usage almost unnoticed. Yet, in the euro
crisis, the center’s responsibility is even greater than it was in 1982
or 1997: it designed a flawed currency system and failed to correct the
defects. In the 1980’s, Latin America suffered a lost decade; a similar
fate now awaits Europe. ...

(6) Soros: Germany's imposition of austerity on Euro periphery is a
threat to Europe


Europe’s Crisis of Values

George Soros

December 31, 2012

NEW YORK – Xenophobia and extremism are symptoms of societies in
profound crisis. In 2012, the far-right Golden Dawn won 21 seats in
Greece’s parliamentary election, the right-wing Jobbik gained ground in
my native Hungary, and the National Front’s Marine Le Pen received
strong backing in France’s presidential election.

Growing support for similar forces across Europe points to an
inescapable conclusion: the continent’s prolonged financial crisis is
creating a crisis of values that is now threatening the European Union

When it was only an aspiration, the European Union was an immensely
attractive idea that fired many people’s imagination, including mine. I
regarded it as the embodiment of an open society – a voluntary
association of sovereign states that were willing to give up part of
their sovereignty for the common good. They shared a common history, in
which the French Revolution, with its slogan of liberty, equality, and
fraternity, left a lasting legacy. Building on that tradition, member
states formed a union based on equality and not dominated by any state
or nationality.

The euro crisis has now turned the EU into something radically
different. Far from being a voluntary association, the eurozone is now
held together by harsh discipline; far from being an association of
equals it has become a hierarchical arrangement in which the center
dictates policy while the periphery is increasingly subordinated;
instead of fraternity and solidarity, hostile stereotypes proliferate.

The integration process was spearheaded by a small group of farsighted
statesmen who subscribed to open-society principles and practiced what
Karl Popper called “piecemeal social engineering.” They recognized that
perfection is unattainable; so they set limited objectives and firm
timelines – and then mobilized the political will for a small step
forward, knowing full well that when they achieved it, its inadequacy
would become apparent, requiring further steps. That is how the European
Coal and Steel Community was gradually transformed into the EU.

France and Germany used to be in the forefront of the effort. As the
Soviet empire disintegrated, Germany’s leaders recognized that German
reunification was possible only in the context of a more united Europe,
and they were prepared to make considerable sacrifices to achieve it.
When it came to bargaining, the Germans were willing to contribute a
little more and take a little less than others, thereby facilitating

At the time, German statesmen would assert that Germany had no
independent foreign policy, only a European one. This stance led to a
dramatic acceleration in European integration, culminating in the
adoption of the Maastricht Treaty in 1992 and the introduction of the
euro in 1999. A period of consolidation (which included the introduction
of euro banknotes and coins in 2002) followed.

Then came the crash of 2008, which originated in the United States but
caused greater problems in Europe than anywhere else. Policymakers
responded to the collapse of Lehman Brothers by announcing that no other
systemically important financial institution would be allowed to fail,
which required substituting state credit for frozen markets.

Shortly thereafter, however, German Chancellor Angela Merkel asserted
that such guarantees had to be provided by each state individually, not
by Europe collectively. That marked the beginning of the euro crisis,
because it exposed a flaw in the single currency of which neither the
authorities nor financial markets were aware – and which is still not
fully recognized today.

By creating the European Central Bank, the member states exposed their
own government bonds to the risk of default. Developed countries that
issue bonds in their own currency never default, because they can always
print money. Their currency may depreciate, but the risk of default is

By contrast, less developed countries that borrow in foreign currencies
may run out of currency reserves. When a fiscal crisis hit Greece, the
financial world suddenly discovered that eurozone members had put
themselves in the position of developing countries.

There is a close parallel between the euro crisis and the Latin American
debt crisis of 1982, when the International Monetary Fund saved the
international financial system by lending just enough money to the
heavily indebted countries to enable them to avoid default. But the IMF
imposed strict austerity on these countries, pushing them into a
prolonged depression. Latin America suffered a lost decade.

Today, Germany is playing the same role as the IMF did then. The setting
differs, but the effect is the same. The euro crisis pushed the
financial system to the verge of bankruptcy, which has been avoided by
imposing strict austerity and lending countries like Greece just enough
money to avoid default.

As a result, the eurozone has become divided into creditors and debtors,
with the creditors in charge of economic policy. There is a center, led
by Germany, and a periphery, consisting of the heavily indebted
countries. The creditors’ imposition of strict austerity on the
periphery is perpetuating the eurozone’s division between center and
periphery. Economic conditions are continuing to deteriorate, causing
immense human suffering. The innocent, frustrated, and angry victims of
austerity provide fertile ground for hate speech, xenophobia, and all
forms of extremism.

Thus, policies designed to preserve the financial system and the euro
are transforming the EU into the opposite of an open society. There is
an apparent contradiction between the euro’s financial requirements and
the EU’s political objectives. The financial requirements could be met
by replicating the arrangements that prevailed in the global economy in
the 1980’s and dividing the eurozone into a center and periphery; but
that could not be reconciled with the principles of an open society.

There are ways in which the policies pursued to preserve the euro could
be modified to meet the EU’s political objectives. For example,
individual countries’ government bonds could be replaced by Eurobonds.
But, insofar as the contradiction remains, the political objectives
ought to take precedence. Unfortunately, that is not the case. The
financial problems are pressing – and monopolizing politicians’
attention. Europe’s leaders are so preoccupied with the crisis of the
day that they have no time to ponder the long-term consequences of their
actions. As a result, they continue on a course that perpetuates the
division between center and periphery.

This is such a dismal prospect that it must not be allowed to happen.
Originally, the EU was conceived as an instrument of solidarity and
cooperation. Today, it is held together by grim necessity. That is not
the Europe we want or need. We must reverse this intolerable
transformation. We must find a way to recapture the spirit of solidarity
and shared values that once inspired the European imagination.

(7) Soros: Eurozone needs a new treaty with a common Treasury

The Road from Depression

George Soros

Sept 29, 2011

NEW YORK – Financial markets are driving the world towards another Great
Depression with incalculable political consequences. The authorities,
particularly in Europe, have lost control of the situation. They need to
regain control, and they need to do so now.

Three bold steps are needed. First, the governments of the eurozone must
agree in principle on a new treaty creating a common treasury for the
eurozone. In the meantime, the major banks must be put under the
direction of the European Central Bank in exchange for a temporary
guarantee and permanent recapitalization. Third, the ECB would enable
countries such as Italy and Spain temporarily to refinance their debt at
a very low cost.

These steps would calm the markets and give Europe time to develop a
growth strategy without which the debt problem cannot be solved. Indeed,
the importance of developing a growth strategy cannot be overstated,
because the debt burden – the ratio of debt to annual GDP – rises and
falls in part as a function of the rate of economic growth.

Since a eurozone treaty establishing a common treasury will take a long
time to conclude, in the interim the member states must appeal to the
financial authority that already exists, the ECB, to fill the vacuum. In
its current form, the embryo of a common treasury – the European
Financial Stabilization Facility – is only a source of funds; how they
are spent is left to the member states. Enabling the EFSF to cooperate
with the ECB will require a newly created intergovernmental agency,
which will have to be authorized by Germany’s Bundestag and perhaps by
other eurozone members’ parliaments as well. ...

(8) Inventor of 'Quantitative Easing' urges Adoption of Schacht's recipe
to save the Euro

August 23, 2012 • 6:26AM


Richard Werner, a German-born economist at the University of
Southampton, called for a genuine Schachtian plan to save the euro, in
an interview with the Aug. 16 Daily Telegraph. Werner is credited for
having invented the term "quantitative easing" in 1994, in proposing a
money-expansion policy to Japan.

Reporting on Werner's proposal, James Hurley wrote in the Telegraph:
"Hitler's central banker, Dr. Hjalmar Schacht, knew how to deal with a
Great Depression, Prof. Werner tells us. He argues it's about time we
revived his sage economic ideas now.

"Firstly, the plan involves the European Central Bank buying the banking
system's bad assets at face value, which Prof. Werner says would not
cost taxpayers or cause inflation.

"Next — and here's Dr. Schacht's 1930s magic — the Spanish government
and others should stop selling pricey government bonds entirely.

"Instead, they should fund themselves through loan contracts from banks
in their countries, which Prof. Werner says would result in cheaper
sovereign borrowing.

"All very appealing — but shouldn't we be wary of using ideas favored by
the Nazis?

"'If we don't want to adopt economic policies on the basis that they
were favored by Hitler's government, which is an understandable
viewpoint, then we should not have introduced the euro in the first
place,' Prof. Werner responds.

'The introduction of a single European currency, with the central bank
located in Germany, was, after all, favored by Hitler and his technocrats.'"

(9) Schacht offers a way to resolve Depression & Financial Crisis -
Richard Werner


Pre-war Germany has blueprint to end debt crisis

Dr Schacht’s 1930s magic says the Spanish government and others should
stop selling pricey government bonds entirely.

By James Hurley

8:00AM BST 16 Aug 2012

Professor Richard Werner, of the University of Southampton, says he has
found a way to resolve Europe’s financial crisis, and Germany had it all

No, German Chancellor Angela Merkel hasn’t been keeping it all to
herself; the blueprint is a little older, and more controversial than that.

Hitler’s central banker, Dr Hjalmar Schacht, knew how to deal with a
great depression, Prof Werner tells us. He argues it’s about time we
revived his sage economic ideas now.

Firstly, the plan involves the European Central Bank buying the banking
system’s bad assets at face value, which Prof Werner says would not cost
taxpayers or cause inflation.

Next – and here’s Dr Schacht’s 1930s magic – the Spanish government and
others should stop selling pricey government bonds entirely.

Instead, they should fund themselves through loan contracts from banks
in their countries, which Prof Werner says would result in cheaper
sovereign borrowing.

All very appealing – but shouldn’t we be wary of using ideas favoured by
the Nazis?

“If we don’t want to adopt economic policies on the basis that they were
favoured by Hitler’s government, which is an understandable viewpoint,
then we should not have introduced the euro in the first place,” Prof
Werner responds.

“The introduction of a single European currency, with the central bank
located in Germany, was, after all, favoured by Hitler and his
technocrats.” ...

(10) QE3: Fed purchase of banks' toxic assets. Benefit the people
instead - Ellen Brown

Date: Fri, 21 Sep 2012 15:48:46 -0700 From: Ellen Brown


The Circulating Money Supply: Why QE3 Won’t Jumpstart the Economy—and
What Would

By Ellen Brown

Global Research, September 21, 2012

The economy could use a good dose of “aggregate demand”—new spending
money in the pockets of consumers—but QE3 won’t do it. Neither will it
trigger the dreaded hyperinflation. In fact, it won’t do much at all.
There are better alternatives.

The Fed’s announcement on September 13, 2012, that it was embarking on a
third round of quantitative easing has brought the “sound money” crew
out in force, pumping out articles with frighting titles such as “QE3
Will Unleash’ Economic Horror’ On The Human Race.” The Fed calls QE an
asset swap, swapping Fed-created dollars for other assets on the banks’
balance sheets. But critics call it “reckless money printing” and say it
will inevitably produce hyperinflation. Too much money will be chasing
too few goods, forcing prices up and the value of the dollar down.

All this hyperventilating could have been avoided by taking a closer
look at how QE works. The money created by the Fed will go straight into
bank reserve accounts, and banks can’t lend their reserves. The money
just sits there, drawing a bit of interest. The Fed’s plan is to buy
mortgage-backed securities (MBS) from the banks, but according to the
Washington Post, this is not expected to be of much help to homeowners

Why QE3 Won’t Expand the Circulating Money Supply

In its third round of QE, the Fed says it will buy $40 billion in MBS
every month for an indefinite period. To do this, it will essentially
create money from nothing, paying for its purchases by crediting the
reserve accounts of the banks from which it buys them. The banks will
get the dollars and the Fed will get the MBS. But the banks’ balance
sheets will remain the same, and the circulating money supply will
remain the same.

When the Fed engages in QE, it takes away something on the asset side of
the bank’s balance sheet (government securities or mortgage-backed
securities) and replaces it with electronically-generated dollars. These
dollars are held in the banks’ reserve accounts at the Fed. They are
“excess reserves,” which cannot be spent or lent into the economy by the
banks. They can only be lent to other banks that need reserves, or used
to obtain other assets (new loans, bonds, etc.). As Australian economist
Steve Keen explains:

[R]eserves are there for settlement of accounts between banks, and for
the government’s interface with the private banking sector, but not for
lending from. Banks themselves may . . . swap those assets for other
forms of assets that are income-yielding, but they are not able to lend
from them.

This was also explained by Prof. Scott Fullwiler, when he argued a year
ago for another form of QE—the minting of some trillion dollar coins by
the Treasury (he called it “QE3 Treasury Style”). He explained why the
increase in reserve balances in QE is not inflationary:

Banks can’t “do” anything with all the extra reserve balances. Loans
create deposits—reserve balances don’t finance lending or add any “fuel”
to the economy. Banks don’t lend reserve balances except in the federal
funds market, and in that case the Fed always provides sufficient
quantities to keep the federal funds rate at its . . . interest rate
target. Widespread belief that reserve balances add “fuel” to bank
lending is flawed, as I explained here over two years ago.

Since November 2008, when QE1 was first implemented, the monetary base
(money created by the Fed and the government) has indeed gone up. But
the circulating money supply, M2, has not increased any faster than in
the previous decade, and loans have actually gone down.

Quantitative easing has had beneficial effects on the stock market, but
these have been temporary and are evidently psychological: people THINK
the money supply will inflate, providing more money to invest, inflating
stock prices, so investors jump in and buy. The psychological effect
eventually wears off, requiring a new round of QE to keep the game going.

That is what happened with QE1 and QE2. They did not reduce
unemployment, the alleged target; but they also did not drive up the
overall price level. The rate of price inflation has actually been lower
after QE than before the program began.

Why, Then, Is the Fed Bothering to Engage in QE3?

If the Fed is doing no more than swapping bank assets, what is the point
of this whole exercise? The Fed’s professed justification is that by
buying mortgage-backed securities, it will lower interest rates for
homeowners and other long-term buyers. As explained in Reuters:

Massive buying of any asset tends to push up the prices, and because of
the way the bond market works, rising prices force yields [or interest
rates] down. Because the Fed is buying mortgage-backed bonds, the
purchases act to directly lower the cost of borrowing to buy a home. In
addition, some investors, put off by the rising price of the bonds that
the Fed is buying, turn to other assets, like corporate bonds – which,
in turn, pushes up corporate bond prices and lowers those yields, making
it cheaper for companies to borrow – and spend.

Those are the professed objectives, but politics may also play a role.
QE drives up the stock market in anticipation of an increase in the
amount of money available to invest, a good political move before an

Commodities (oil, food and precious metals) also go up, since “hot
money” floods into them. Again, this is evidently because investors
EXPECT inflation to drive commodities up, and because lowered interest
rates on other investments prompt investors to look elsewhere. There is
also evidence that commodities are going up because some major market
players are colluding to manipulate the price, a criminal enterprise.

The Fed does bear some responsibility for the rise in commodity prices,
since it has created an expectation of inflation with QE, and it has
kept interest rates low. But the price rise has not been from flooding
the economy with money. If dollars were flooding economy, housing and
wages (the largest components of the price level) would have shot up as
well. But they have remained low, and overall price increases have
remained within the Fed’s 2% target range. (See chart above.)

Some Possibilities That Might Be More Effective at Stimulating the Economy

An injection of money into the pockets of consumers would actually be
good for the economy, but QE3 won’t do it. The Fed could give production
and employment a bigger boost by using its lender-of-last-resort status
in more direct ways than the current version of QE.

It could make the very-low-interest loans given to banks available to
state and municipal governments, or to students, or to homeowners. It
could rip up the $1.7 trillion in government securities that it already
holds, lowering the national debt by that amount (as suggested a year
ago by Ron Paul). Or it could buy up a trillion dollars’ worth of
securitized student debt and rip those securities up. These moves might
require some tweaking of the Federal Reserve Act, but Congress has done
it before to serve the banks.

Another possibility would be the sort of “quantitative easing” first
proposed by Ben Bernanke in 2002, before he was chairman of the Fed—just
drop hundred dollar bills from helicopters. (This is roughly similar to
the Social Credit solution proposed by C. H. Douglas in the 1920s.) As
Martin Hutchinson observed in Money Morning:

With a U.S. population of 310 million, $31 billion per month, dropped
from helicopters, would have given every American man, woman and child
an extra crisp new $100 bill per month.

Yes, it would produce an extra $31 billion per month on the nominal
Federal budget deficit, but the Fed would have printed the new bills, so
there would have been no additional strain on the nation’s finances.

It would be much better than a new social program, because there would
have been no bureaucracy involved, just bill printing and helicopter fuel.

The money would nearly all have been spent, increasing consumption by
perhaps $300 billion annually, creating perhaps 3 million jobs, and
reducing unemployment by almost 2%.

None of these moves would drive the economy into hyperinflation.
According to the Fed’s figures, as of July 2010, the money supply was
actually $4 trillion LESS than it was in 2008. That means that as of
that date, $4 trillion more needed to be pumped into the money supply
just to get the economy back to where it was before the banking crisis hit.

As the psychological boost from QE3 wears off and the “fiscal cliff”
looms, perhaps Congress and the Fed will consider some of these more
direct approaches to relieving the economy’s intractable doldrums.


No comments:

Post a Comment