With these monetary actions the ECB followed the central banks of the US and UK with supplying the market with cheap and abundant money. The purpose of the ECB is however not only to furnish the market with abundant and cheap money to stimulate economic growth, but also to prevent a possible financial collapse of the financial system after a violent Greek default.

Last week, for the first time, European politicians claimed that an uncontrolled Greek bankruptcy would not be a disaster; the European financial system will survive. Apparently the ECB and European politicians have reached an agreement that is sufficient to withstand an uncontrolled financial collapse of Greece. When that happens the banks undoubtedly will be supplied with more cheap liquidity from the ECB to withstand a bank run. As long as the banks have enough cash there is no real risk the financial system will collapse. Supplying banks with adequate money is actually noting more than an administrative action by the ECB.

The European banks have already agreed to write off 80% of their Greek bonds, so all the European banks are by now solvable enough to withstand a violent Greek default. On Thursday the Greek Prime Minister Luca Papademos told the ECB and the European Union that Greek government agreed on the conditions for a 20% pension cut, lowering the minimum wage and other financial measures and therefore they complied to receive the next round of loans. However the EU has sent Papademos back home with the demand that another 300 million would have to be cut in government spending and that all political parties must agree in writing that all the foreseen cut backs will be implemented.

It is clear that EU and the ECB have taken adequate measures to secure the financial system within the EU. Whether Greece complies and receives the financial aid or leaves the Euro and collapses financially is for the EU not the main issue anymore; they warn other countries to keep strict budgetary balance or ..... With the demand that the political parties of Greece have to agree in writing that the measurements will be implemented in the future (upcoming elections in April) the EU has placed an explosive in the Greek political scene that might blow Greece out of the Euro.

The parliamentary elections of Greece are planned in April 2012. The public of Greece, innocent of the financial debacle brought on them by corrupt politicians and the rich Greek, has to suffer severely because of the budgetary measurements to be taken in order to comply for financial aid of the EU; wage cuts, pension cuts, increasing taxes etc. The economic suffering of the ordinary Greek is already severe and that is probably for the EU not good enough because of the applied “logic” that Greece can only economically survive and revive when the Greek government budget is cut below a certain level of BNP. These budget cuts have severe negative effects on the Greek economy; so severe that every cut has to be followed by an other and an other and ….... The ordinary Greek has to pay the price for the incompetence and corruption of their political and industrial “leaders” and are rightly unsettled.

Greece, once the center of the world, produced the greatest philosophers of all times like Plato, Aristotle and Socrates; philosophy is a Greek creation on which all scientific knowledge is based! The first great physicist Archimedes was a Greek. An almost endless list of great Greek achievements can be draft. One wonders whether the Greek have degenerated?

Of course that is not the case. The potential of the Greek people is still exceptional, but they have been betrayed. In the Old World the morality was not only focused, like in the New World, on greed and self-interest; standards have changed. In short the morality of the New World is enrichment at the cost of anything, while in the Old World other values were also appreciated. Greece the country of thousand islands, the Mediterranean Sea and climate, history and culture, olives and feta, solidarity, …........

The Greek people have been betrayed and robbed by their “leaders” and have to pay for their crimes; the “leaders” transferred their booty abroad. When Greece stays in the Euro and accepts the suffocating economic limitations of the “rescue” deal, the economic growth, if realized will be exported in the coming decades with paying interest and debt. Greece is now in a recession for 5 years and the economic decline in the 4th quarter of 2011 was a stunning -7%!

Those who read other articles I wrote know that the ever recurring factor, in all the articles, is that the capitalist economic system, which provided in the past tremendous economic growth, is passe because economic growth, within a capitalist economic system, is forced to an end when the capitalists refuse to let the ordinary people share in their wealth; investment and consumption become structural unbalanced with the consequences that growth ends and high unemployment rates become structural.

When Greece stays in the Euro the Greek have to pay for many many decades, and probably even then cannot repay their debt, because economic growth will not return. The best the Greek can do is go bankrupt and start all over with a clean sheet and a financial/economic system that allows their economy to grow even beyond the 21^th century.

Carel's post heeft 0 comment(s). Voeg uw eigen mening toe!

The economic system falters and some consider that the US might reinstall a Golden Standard and even might confiscate foreign gold. Whether true or not, it is obvious that when Goldman Sachs, Christine Lagarde and many others consider that a severe collapse of the financial economic system is possible, probable or even imminent there must be something seriously wrong.

When an economic collapse in a country is severe enough the whole financial, economic, social and political system is at risk; the establishment will do anything to secure their position. Considering re-installing the Golden Standard is however nonsensical because gold is nothing more than a commodity with some sentimental value. The Golden Standard was abandoned in the first half of the 20^th century because it was impossible to continue. In that perspective nothing has changed; on the contrary because the economies have grown further, so there is by far not gold enough. Economists and politicians who think a Golden Standard can be reintroduced to save the financial system and economy are living in the past century and have brains that function improper.

What will happen when a Golden Standard is reinstalled? The demand for gold will rise enormously and the price of gold will stagger. It will be impossible to maintain stable prices for all other commodities or products. The financial system will be destabilized even further. Inflation and deflation will be determined by the price of gold! You must be out of your mind to think gold is the answer.

A financial system and economy cannot be saved by artificial measures; only neutralizing the causes for the financial instability and potential economic collapse can give redemption. The economic value of a currency is determined by the goods you can buy for it. Stable purchasing power of a currency is the only monetary goal that makes sense.Not having a Golden Standard is not the cause for the financial crisis of 2007 or the Euro-crisis and therefore it cannot be the solution. The cause is the structural imbalance between savings and consumption.

The Dutch government owns approximately 30 billion worth of gold that can be used in an economic sensible way. In times of crisis governments should act rational and decisive to prevent the economy to fall back further. The Dutch economy is in recession and the house market is locked dramatically because in the past financial institutions where too eager to provide too high mortgages. Since 1995 the house prices are a factor 2.5 higher. The decline of the house prices in the Netherlands, since the financial crisis in 2009, is just 10% and yet owners cannot sell because the mortgage loans, for many, are far beyond the value of the house. The eagerness of banks to provide mortgages up to 125% of the market value drove up the prices; the higher mortgages were used for consumption!

House owners cannot sell their houses because then they face a substantial debt. House holdings which can afford to buy an other house cannot sell either; the market is locked because banks changed lending conditions substantially. The banks have taken the house market hostage. The “efficient” market system fails again. The locked real estate market puts the economy under further pressure.

The commercial rate for a 10 year mortgage loan in the Netherlands is about 5,2% for mortgages up to 75% of the market value of the house. The Dutch government lending rate for 10 years is 2.2%. When the government would lend to house owners at 3% a positive margin of 0.8% is established. The lenders to the Dutch government will certainly not object because the bonds are good secured and that is normally not the case. The government could even lend out at a rate of 2.2% when the income tax deduct-ability is refrained. In this way the highly disputed tax deduct-ability of mortgage payments can be eliminated. Or the government could use some of their overvalued and potentially confiscated gold bullion.

The free competitive mortgage market lent too much in good times and blocks the market now at bad times, with the result that the house market is locked and the building industry goes bankrupt. The government should act because with their passive attitude and wishful thinking it only gets worse.

Without costs the government can unlock the house market, stimulate the building industry and start the elimination of the disruptive and costly tax-deduction of mortgage payments.

It is a widespread misconception that free markets are always efficient and this is certainly not the case in the financial sector, where the only goal is short term profit and the word “society” is not in the dictionary. The government can point the free market in a direction that is not only aimed at self-interest at the cost of others.

Carel's post heeft 2 comment(s). Voeg uw eigen mening toe!

The Euro-crisis is not helping to end the stagnation of economic growth, but this is not the primary cause for the glooming second worldwide recession. When there is abundance of capital available against very low interest rates and yet the economy refuses to pick up momentum than there must be an other cause.

In previous articles we argued and explained that the financial crisis, the Euro-crisis and the lack of economic growth find their origin in a gradual shift, over the past 30 years, to a (partial) consumption saturated society. Apart from money to invest, an investor also needs a market to sell his product. Economic growth can only be realized when markets grow and that implicates that demand has to grow too. Over the past decades the economic growth was financed by loans to consumers and countries. Instead of lending more money, after the crisis of 2007, to keep the economy growing investors stopped financing consumption because they begin to understand the risks! The growth of economies in the Western world has come to an end and production levels will be for the coming years at best at the 2007 level.

At best, because consumers and countries have to pay back loans and that puts the demand side of the economies structural below the 2007 level. The demand side of economies can be stimulated with government spending or consumer loans but the reverse is also possible and that is going to happen worldwide in 2012; fortified by higher unemployment and less spending due to decreasing return on investment.

The Dutch are more depressed about their financial future than ever before. This is even so while the Dutch economy, with low unemployment (5,8%) and low interest rates, is one of the healthiest economies in the world. The Dutch (intuitively) realize the good times have passed. Our economy is open and therefore 50% of our national product is from abroad where the economic prospects are worse. On top of that we have a liberal government that is simple minded and thinks the economic problems will be solved when the budget deficit is cut .

I wish it was that simple; but it is not! Furthermore 40% of Dutch pensioners will, apart that they are not compensated for inflation, see their pension cut up to 7%, because the financial reserves of the pension funds are not sufficient anymore. Private mortgage debt on houses is considered much too high, this is true, yet this debt increase kept the economy, on the demand side, going the past decades. The depressing low stock market prices are not helping either. There is no cure in our present economic system to solve the problem for a consumption saturated economy.

The crash of our economic system is imminent. When you ask some one: “Would you like to die sooner or later?” normally the answer is “later”, but politicians have decided for us that sooner is better. Look at the last Euro-top where it was decided that the budget deficit of any country cannot exceed 3% of GDP. This bureaucratic measurement will accelerate the downward economic process. The recession can only be avoided when government spending compensates for the structural consumption deficit of the higher income class in society.

The prospects for Europe are glooming, but for the US they are not better. When Obama wins the elections the deadlock on public spending will continue; the triangle President, Senate and Congress will see to that. When the republicans win, drastic government cutbacks are expected and the negative economic spiral of more cuts in government spending, more unemployment, less tax income, higher budget deficit, more drastic government cutbacks etc will accelerate the downturn.

Do not forget that the economic growth over the last 67 years was only possible because the working class gradually participated more and more in the wealth. That process is reversed! The difference between the low and high incomes has never been so great. The difference between poor and rich is even worse; the poor in the past had nothing, now they have debt!

Don't make the mistake to think that the positive economic spiral of the past 6 decades cannot change to a long term negative growth. Economics is a social science and should describe the human behavior in a changing economic and social environment. However mathematical models, incapable of describing the changing human behavior, determine economic policies instead of common sense and logic. All economic signals, worldwide are full red!

Governments and monetary authorities have proven, many, many times, they cannot control the economic process.

Carel's post heeft 1 comment(s). Voeg uw eigen mening toe!

The inefficiencies in Western democratic economies are enormous. Shouldn't governments try to manage the economy and eliminate these inadequacies? I don't think anyone disagrees on this! Businesses must continuous stay sharp and reorganize repeatedly to stay competitive. Why is the economy of a country not optimized? To be able to manage the economy one has to understand how the economy works, and that is apparently, despite all our knowledge, still not the case.

History learned us the lesson that free markets are most efficient. Not totally free markets of course, because we also learned that with capitalism the blessings are restricted to a few, limits the wealth of the nation structurally, creates poverty, exploitation of employees etc. Free markets must therefore coincide with regulating laws to enforce fair play in the economic process.

The regulating laws can enforce fair play, but these laws do not eliminate macro-economic inefficiencies. Suppose that in an economy 90% of the workforce of the nation is employed by the financial industry, marketing and advertisement sector and 10% of the workers produce tangible goods and services, I think you can conclude that nationwide the production is not efficient; although all the individual companies are very competitive and efficient.

A financial industry, although limited, is necessary. Marketing and advertisement can be useful. When companies are competitive and efficient on micro-level this doesn't implicate that the whole economy is functioning efficiently; no guarantee maximum wealth is achieved. For example the expenses of marketing and advertising in the economy do not increase the standard of living; actually they are “production” costs. What would be the effect when marketing and advertising costs and efforts were doubled? The result would be that nationwide producers and consumers can produce resp. consume less tangible goods, because more production capacity and costs are spent on marketing and advertising without any additional material results.

We live in a free world where free choices can be made. Any company can decide to spent more on marketing and advertisement to increase sales and boost profits. The company is free to spend part of the profits to enlarge turnover. Being free is good. However being free and boost profits should not be at the cost of others. Marketing and advertising are not production costs, but the tax office considers them tax deductible. Why? If someone wants to earn more, then they should pay for it themselves and not partly at the cost of society. There is no general benefit for a nation to support these industries, so why are these expenses tax deductible?

I would prefer less phone calls at dinner time and less junk mail everyday in my postbox and less …. Why is marketing and advertising subsidized by the government when in macro-economic perspective nobody benefits. People and businesses should be free to do with their money what they want, but not at the cost of the tax payer. When the government would decide that the tax deduction of marketing and advertising costs, over a period of 5 years, is reduced to zero, because there is no macro-economic benefit, then people would be less bothered and the material production capacity of the nation would be enlarged.

In the Netherlands, and other countries, the age by which employees can retire is prolonged because society cannot afford too many non-productive citizens. If it is inescapable to increase the age at which employees retire then it must be, but should politicians not first find a way to decrease inefficiencies in the economy? At the same time that the retirement age is increased there is structural unemployment. Should a government not first manage the structural unemployment rate to a lower level? The wealth of a nation is only maximized when all productive citizens are at work! Politicians can create a diversity of fiscal stimulants to manage the economy.

Governments have, with regulating laws, fiscal stimulants and monetary policy tools vast possibilities to manage the economy much more efficiently.

Carel's post heeft 1 comment(s). Voeg uw eigen mening toe!

Who is right and who is wrong?

The problem with economics is that it is a social science; it should describe the human behavior of the economic process. In economics, like with almost all sciences, math has taken over; the economic processes are described with formulas that provide limited insight in how the economy works. The mathematical approach gives multiple ambivalence interpretations for the same economic phenomena. Different causes for the same economic phenomenon, like inflation, are possible according to the mathematical approach; so there is confusing how to solve economic issues. Furthermore the approach being used in mathematical economics (econometrics) cannot detect (slow) fundamental changing trends.

Germany experienced in 1922-1923 hyperinflation because money was printed like it was toilet-paper and therefore it became toilet-paper. When welfare is low, and that was the situation in Germany after the first world-war, and you give people money they buy food, cloths and everything else they need. The production cannot handle the strong growth in demand; the result of printing money. The logical consequence is that the prices rise; inflation. So the Germans are afraid that printing money leads to high inflation and then to economic depression with negative consequences like high unemployment, fascism, racism and nationalism. Therefore their opinion is that printing money should be avoided at any cost. Very good reasons.

That is the fear of Angela Merkel. The perspective of Nicolas Zarkozy is different. He sees an economy in or nearby a recession and argues that the economy, and therefore also the finance of the government, will become worse when government spending is further restricted. Economic stimulation by means of higher government spending can prevent an economy to go into recession and prevent further deterioration of budget deficits that would initiate further cuts in spending etc. Very good reasons.

Mathematical economics doesn't give the answer which arguments are valid. Math cannot do the job; only logical economic reasoning can.

Since 1982, when Reagan became president in the USA, the national debt of the United States of America has been rising dramatically; especially during republican administrations. Reagan started stimulating the economy with lowering taxes, increasing government spending and easing (financial) regulations; Reaganomics.

The two wars on terror, Iraq and Afghanistan, are completely financed with debt. Since the Financial Crisis started in 2007 the the Federal Reserve Bank of the United States is “printing” money as never before. Since the Second World War the national debt hasn't been, until now, above 100% of GDP. The interest rate on 10 year government bonds is less then 2% (January 3 2000 6,58%), while the inflation in October 2011 was above 3% (inflation in 2000 was 3,4%).

Analyzing the USA government spending in relation to inflation we must conclude that the strong increase of government spending and the increasing of government debt in the USA did not drive up consumer inflation. How is that possible? The answer is simple and explains the economic reality. The spending/printing of government money went into the pockets of the rich. If you make the wealthy richer they will not consume more. The conclusion must be that the consumer inflation is not affected when money is printed and given to the rich because they already have everything they want!

The monetary policy in the USA is focused on trying to get the economy growing by keeping the interest-rates (prime rate is 0.25%) very low and the money supply high. The philosophy behind this monetary policy is to keep money as cheap and abundant as possible to stimulate new investments; new investments would implicate economic growth and employment. This policy isn't working at all, because it is useless to stimulate investments when there is no market. Consumers don't have the money to spend more; actually they have to decrease consumption to pay back loans. The demand side of the economy is not stimulated; consumers pay 16% on credit-card debt!

The monetary policy in the USA and the United Kingdom, despite that budget deficits soared, demonstrates that such monetary policies do not, in the present economic situation, stimulate the economy to grow and neither increases inflation nor interest-rates. Redeeming, for example Italian loans, will not increase inflation because the investors are not suddenly going to spent all that money or give it to the poor! Actually there is no difference for the real economy whether Italy redeems the loans or the ECB does. These loans concern Italian government over spending from the past!

This argumentation is not valid for future budget deficits, because then new money will flow into the economy that could increase demand and therefore stimulate the economy and/or inflation.

Carel's post heeft 0 comment(s). Voeg uw eigen mening toe!

South Europe is in general pro Euro-bonds because they had less discipline in the past concerning their yearly budget deficits, while the Northern countries showed more restraint. This resulted in higher interest rates for the Southern countries. With the introduction of Euro-bonds the Northern EU-countries will be confronted with higher interest rates.

Every country strives for their own benefit, so their position is determined by the interest rates they are going to pay when Euro-bonds are introduced. However if you look objectively at the consequences, when all the Euro-countries will be financed with one kind of Euro-bond, the budgets of the individual countries must be monitored and finance agreements must be enforced.

This will implicate that sovereign countries lose their in-dependency concerning budget and finance; a financial union is unavoidable. Strict budgetary and financial control for the Euro-countries must be enforced and therefore individual countries, in principle, will lose control over finance and budget.

On the other hand one argues that if you do not introduce Euro-bonds and stringent government finance rules the Euro-crisis will reappear later; history will repeat itself because financing the deficit at the cost of other countries is an easy opportunistic way out for (some) politicians.

This scenario is however not necessarily true; the Euro-crisis could arise only because the financial markets were not efficient. The over finance of countries like Greece and Italy only has been possible because the financial market lacked efficiency.

The shortcomings of the financial system, why the Euro-crisis could develop, are:

1. The financial markets had the opinion, which appeared to be correct, that over finance of countries in the Euro-zone would be backed-up by other countries, which is precisely what is happening!
2. Banks are allowed to leverage their assets; borrow money on securities in possession. The amount they can borrow is dependent on the risk of the security. Government securities are considered, in the present banking system, without risk! So when banks buy government securities these investments put hardly any restraint on the banks ability to lend. Banks are allowed to value government bonds at the nominal value. It is therefore very attractive for banks to buy government bonds of financially weak countries within the Euro-zone; they receive higher interest rates but there are no additional restraints. To boost profit and bonus it is opportune for banks to buy a lot of high return government bonds.
3. Rating agencies determine the risk of securities! When it is profitable for these agencies to give false high ratings, because their profits are then boosted, these ratings become (highly) unreliable and increases, undetected for regulating authorities, the risks of financial institutions.

When the European Union makes it clear that every individual country is solely responsible for their debt, puts restraints on the financial stimulation for banks to over-finance weak countries and furthermore, when the EU provides the market with accurate financial/budgetary information of the individual Euro-zone countries, the financial market is be able to finance individual countries efficiently according to risk.

Then, like before the introduction of the Euro, every country is responsible for its own finance. There is no principal difference between Europe with the Euro and a vast country with one currency and different states. Of course there will be regions that are rural or urban, rich or poor, dry or wet. That however doesn't implicate these states cannot be one nation.

However Europe must expect and accept that geographical and cultural differences can result in substantial difference in wealth.

Carel's post heeft 1 comment(s). Voeg uw eigen mening toe!

Both crisis have the same origin; investors too eager to invest. Investors have, because of lack of investment opportunities, no idea where to deposit their huge sums of money, so they invest shortsighted in anything that is advised by “professional financial advisers” with expected high return and no risk! Too late institutional investors, like pension funds, realize the risks are much and much higher than the professionals, who earned on selling the securities, had indicated.

I wonder whether banks analyze the products they sell and invest in? They are THE professionals and should not later argue the products are too complex. They hire the brightest quants (=mathematical physicists) so they can and should know what they are doing. Neither can they claim they didn't know that Greece, Italy and other countries were over financed. It is their “professional” business to know, but selling products and making money is probably more appealing than doing business in a honorable way.

The rating agencies Fitch, Moody's and S&P rated junk securities as Triple A not because they didn't know it was junk, but they took money to give false ratings. These highly corrupted institutions are not in any way punished for their fraud; it is business as usual for them and everybody still considers them experts! The banks are no different. They pretend not to know and are bailed out when their balloon explodes.

We have two major financial crisis caused by financial institutions, both costs society trillions, and yet politicians have not taken any measurements to confine the threat the financial system is for society!

Instead of some modesty, after they rip society for trillions, the rating agencies sing a song higher than ever before. These deplorable institutions now systematic downgrade countries. With what purpose? To inform society of the risks involved? In the past their crooked advise was solely for boosting profits at the cost of others. Why should they change this profitable strategy? There are plenty of opportunities to do business as usual and with no repercussions at all; they steal, get caught and keep the money!

Unbelievable but true, the rating agencies, despite their proven corrupted past, did not lose any credibility. Their opinions are still highly valuated by the financial markets, at least that is what you think when you see the financial markets reaction when they downgrade banks or countries.

You should think that rating agencies, with their track record, would be ignored totally. This is however no the case because many institutional investors, like pension funds in the Netherlands, are statutory required to invest in securities with a rating not less than Triple A or AA+ or ... Almost all institutional investors are still obliged to follow the dodgy ratings of the rating agencies. It takes years and years for these institutions to admit they were stupid to impose such stringent investment rules. These institutions are huge, predictable and very, very rigid.

So even when there is undeniable proof these rating agencies are corrupt, institutional investors still are obliged to follow their ratings. Their opinions are still “valued” by the markets. When they downgrade financial markets react accordingly. Manipulation is a very profitable activity. Without hardly any news and little investment, with the help of the leverage of the future markets, financial markets can be manipulated.

If you do not believe this is possible look at the share market. The AEX-index gained 20% in the period September 22 until October 27, lost 14% until November 24 and gained 12% to 305.1 until December 6 2011. The losses and gains of some individual shares are much higher. For ING the percentages were +58%, -34%, and +34%. And what was the news during this period? All the news was made by rating agencies putting pressure on markets and governments.

The neurotic state of the financial markets, the leverage of the future markets and the statuary obligation of institutional investors to follow the advise of corrupted agencies gives investment funds and banks plenty of the opportunity to manipulate the markets. Why not? They earned huge sums in the past with fraudulent actions without getting any punishment. So why not do it again and again and …., or have they suddenly become honest because they feel ashamed and cannot enjoy their stolen money, or are they still playing the same crooked game. Maybe I'm just paranoid.

Carel's post heeft 0 comment(s). Voeg uw eigen mening toe!

Italy, the third economy in the Euro-zone, agreed to take measures to reverse soaring long term interest rates which threatens Italy's possibilities to finance redemption and further budget deficits. Rising interest rates are the result of increasing fears on the financial markets that Italy is not able to control its finance. When you realize that the financial crisis of Greece, a small economy, almost lead to the fall of the Euro, then Italy will be disastrous.

The fear of the financial markets concerning the Italian financial situation is expressed by the rise of the long term interest rates; in the end of October 2011 the interest rates on 10 years government bonds was up to 6.18% from 3.80% one year earlier. With a debt of 120% of GDP and a budget deficit forecast of 4% in 2011 (4,6% in 2010) the financial situation of Italy becomes problematic. Prime Minister Berlusconi pledged that the budget deficit in 2013 would be 0% while in 2014 a structural budget surplus would be achieved (forecast 2013 -1% and 2014 -0.7%).

This goal should be achieved by diminishing the administrative tape, abolish-ion of minimum tariffs in professional services, ongoing liberalization of local government and utilities. Furthermore Italy would reform firing rules and procedures and before end 2011 the fragmented unemployment benefits will be reviewed. In 2026 the pension age will be 67 and before end 2011 Italy would know how this is going to be realized. Further Italy will re-prioritize projects focused on education, employment and more.

Five days after the meeting Berlusconi already retracts his promise for elections and his resignation. What is a agreement of 17 Prime Ministers and Presidents worth when one of them is not to be trusted? In 1998 Berlusconi was convicted for 2 years and 4 months jail-time for fraud. He was also convicted for bribing tax-inspectors on three separated cases between 1989 and 1993 and sentenced for 2 years and 9 months and more convictions. At this moment there are 4 lawsuits pending!

Why is Don Berlusconi not in jail? He changes laws so his crimes of the past are no longer prosecutable. He bribes witnesses. He will do anything! His priorities are to stay out of jail, to keep in power, to preserve his ego, to …. His personal goals are his first priority; Italy let alone Europe are immaterial. In this perspective Don Berlusconi is extremely predictable. In my mind there is no doubt at all that his promises to restructure Italy are worthless.

In the end of 2011 it will be certain that Italy is the next country in severe financial problems. The Euro-crisis will be back in full. The ESFS with a leveraged capital of 1 billion Euro will be powerless. Further increasing the ESFS-fund is political and economical impossible. The collapse of the Euro-zone economies will drag the US-economy, China and the rest of the world into severe and long depression. Only when the world is a total mess the force of the people might provoke a financial revolution.

However investors do not mourn. There is lots of money to be earned when you bet on the destruction of society. Join the investment funds and banks, but be aware that not even you might escape the misery.

Carel's post heeft 0 comment(s). Voeg uw eigen mening toe!

We, the Dutch, are happy with almost all the treaties of the EU like Shengen and those that allowed free trade. We embrace the long standing peace between all states of the EU since WW II. We are grateful but that doesn't change the fact that many people opposed the Euro. We don't know exactly what percentage because politicians didn't want to hold a referendum.

I myself was opposed but wasn't allowed to vote on the matter, which is rather undemocratic when you consider the importance of the issue involved. Free-market, free-trade, free-travel, free ….. are issues which are consistent with wishes of all the people in Europe. However when you take away the currency the culture of your country is influenced and that is a different matter.

First the advantages of the Euro versus the local currency. They are limited. For citizens who go abroad the difference is you pin Euro's instead of the local currency. In principle you have lower costs but that advantage was annihilated because the banks were compensated for the loss of income on currency conversion; they raised the general expenses. The other advantage is that you can easily compare prices. Wow!

Now to the benefits of trade. Again they are quite modest because the banks were compensated for the loss of income. But you have to admit it is a bit more easy for businesses; you do not have to buy currency and hedge risks. However with the complete computerized administration nowadays this edge is modest.

According to politicians the growth of the national income would significant be higher for those who accepted the Euro in 2000 opposed to those who didn't. Now 12 years later there is no indication at all that countries like Denmark, Sweden and the United Kingdom, which didn't introduce the Euro, have a lesser growth the past 10 years. According to Euro-stat the average real GDP growth rate-volume of the Euro-zone was 1.2% over the last 8 years up to 2010 while for the United Kingdom, Sweden and Denmark the average growth was respectively 1.7%, 1.2% and 0.6%. When you take the expectations of Euro-stat for 2011 and 2012 the growth in the non-Euro countries is better.

The disadvantages of the Euro have been and will not be neglect able; all countries have to pay for the Greek debacle. The reason why Greece and other southern European countries get in trouble is to be found in the difference of cultures. The abolition of the national currencies took away the instrument that could compensate for contrast in perception.

Within the Euro-zone the Mediterranean way of life of the Greek had to compete directly with the disciplined German culture. We know the outcome and that would not have happened with the Drachma still in place. It is questionable whether Greece in the future, when 50%-60% of their debt is let of, is capable to adapt to the discipline of the northern European countries. Italy, Spain and France have like any country a different culture and we see that these countries also have much more trouble to adjust to strict budgetary standards. The Euro doesn't allow countries to implement their own cultural determined policies.

The back-and-forth of my argumentation why the Euro should not yet have been introduced is that the Dutch and many other nations have a certain respect and compassion for others. We have the perception that fellow citizens should be respected and be able to live a life worthy of a human being even if they are less educated, have a different culture, other appearance or background.

The abate of the local currencies deprived governments of the possibility to follow their own cultural determined social strategy. The country with the lowest wages, lowest social facilities and lowest healthcare wins the capitalists battle and forces other countries to adopt the same strategy.

The past 30 years the capitalist mentality has gradually gained ground and hardened society. There is a lot of space between the philosophy of socialists and capitalists. I personally do not feel comfortable seeing people unnecessary suffer and specific not in my own country; it doesn't make me feel good. This doesn't implicate I'm a socialist or that I'm not selfish.

Carel's post heeft 0 comment(s). Voeg uw eigen mening toe!

In the economy everything produced is for consumption or investment now or in the very near future. The debts consumers and countries accumulated in the past 20 years were financed with money intended for investments. The consumption of consumer goods was therefore in the last decades structural too high compared to the money available.

Everything produced must be sold. As soon as consumers or investors do not spend their money there are negative consequences for profits and employment. During the past decades the superfluous means available for investment were redirected to consumption; too much consumption and too little investment.

The financial world realizes now that something has gone terrible wrong, but that doesn't change anything about the real economy. The production capacity is still tuned on a consumer level that is much too high.

All money must be spent to keep the economy going so we envisage big problems. Investors need to invest but hardly can find opportunities; “investing” in consumer loans is passe. On the other hand money available for consumption is structural too low. Is there a fix?

The unbalance caused by a (partial) consumption saturated economy, that needs relatively less and less money for investments and more and more for consumption, is within the present perception of the economic system unsolvable. Just answer the following question: Are those who earn more than they consume willing to give it away? That is a no-brainer.

What is going to happen when investors realize there are no possibilities to invest?

We already see it happen; very low interest rates and monetary policies without any positive effect on the economy. Too much money for investments means in simple economic terms that the return on money is going to be structural very low; demand versus offer. However before a new economic balance can be found the economy first needs to adjust from the present turmoil. Before that can happen the derange between investment opportunities and available capital must be settled.

Besides new scams it will be hard to find investment opportunities. The economy needs to find a new equilibrium; a balance between the investment and consumption sector. For that to be possible the economy must adjust. The consumption of consumer goods must come down with declining employment, profits or losses as a consequence.

It is questionable whether the consumers can pay back their debts because of the decreasing consumption the production diminishes accordingly; profits and employment suffer. Declining profits will put pressure on stock prices and negatively influence expectations and spending. A declining economic spiral is initiated with increasing chances debts will not be paid.

The money “invested” in consumers/mortgages/country loans is still in the books. Banks and investors still value the claims fully in their financial statements; even when the money is already lost! It is hard to imagine these “investments” will be re-payed when the economy is going into a long severe recession or even depression.

The measurements politicians in the USA and Europe take are counter productive. Their deeds do not allow the financial economy to adjust which is absolutely necessary. They buy bad debts and with that they keep the money available for investments on a level that is unsustainable. In this way they support the imbalance of the financial economy and adjustment is postponed; the problem is not solved but worsened.

When you realize that in the past 20 years trillions of dollars have been “invested” in wars, sub-prime mortgages, consumer credits and country debts you feel it is bad, very bad. Investors want their savings back and therefore governments keep protecting these bad investments because they cannot be re-payed. The financial system is bankrupt and no one knows what to do. Goldman Sachs is right when they assume a huge financial collapse is imminent. I want to add that when a new equilibrium is achieved, where all savings can be invested, this only can be realized with structural high unemployment.

Long term recession or even depression can be avoided when the political/economic policy is focused on full employment. The wealth of a nation is at all times maximized when there is full employment; all citizens are better of irrespectively of the financial system.

Capitalists and liberals don't worry: It is not a socialist's scheme but a rational economic answer to optimize the economic wealth. Maximizing the cake is not political; dividing the cake is.

Carel's post heeft 0 comment(s). Voeg uw eigen mening toe!