Quo Vadis, Britannia?

How Long Until People Raise The Alarm About Britain?

By Ilargi

There is a relative silence in the international financial press when it comes to Britain.

The economic situation of continental Europe gets almost all the attention.

Every now and then someone in France or Germany states that Britain, too, should be downgraded, like when S&P cut the ratings of 9 European countries, but such statements attract hardly any interest at all. This might not be overly wise, though.

At the end of last year, Tyler Durden at ZeroHedge published a graph from Haver Analytics/Morgan Stanley that should probably have sounded alarm bells quite a bit louder than it did.

Taking risks and embracing freedom

Licensed to censor performance art

By treating adults like children, the 2003 Licensing Act is being used to undermine the freedom of both artists and audiences.

by Manick Govinda 

During the twentieth century, performance art developed a reputation for being both powerful and provocative. Originating as an underground movement, and witnessed by small audiences in basement and warehouse spaces, it was also highly influential. The likes of Martin Scorsese, Samuel R Delaney, Don DeLillo, The Beatles (John Lennon married a performance artist) and many other cultural luminaries were drawn to its secret world. It was controversial, puzzling, life changing and, in some cases, extremely physically violent (usually to the artist, not the public).

In this tradition of anti-establishment art, a few contemporary young British performance artists such as Thomas John Bacon continue to forge ahead. Finding grassroots venues or spaces, such as Lock Up Performance Art, a garage on a council estate in Bethnal Green, young up-and-coming performance artists continue to challenge and provoke, and they do so in environments unburdened by the demand for bums on seats or big audience numbers.

Populist Politics in a Digital Age

Running scared of the English Defence League

‘We talk about apathy, then these guys get into politics and we shit ourselves.’ 

by Patrick Hayes 

It’s a worrying sign of the times when the first large-scale study of the make-up of the English Defence League (EDL) – a right-wing group that is fiercely opposed to radical Islam – has to top its policy recommendations with ‘Do not ban the group’.

While he doesn’t think that the police or government are planning to impose such a ban, Jamie Bartlett – head of the violence and extremism programme at UK think-tank Demos and co-author, with colleague Mark Littler, of the report Inside the EDL: Populist Politics in a Digital Age– recognises that there are groups lobbying for the right-wing organisation to be added to the government’s list of proscribed organisations.

Indeed, UK home secretary Theresa May did ban the EDL from marching through the London borough of Tower Hamlets in September last year. (Perhaps out of a warped sense of fairness, May then banned all other groups from marching there, too.) Following the riots in London in August, UK prime minister David

How to prepare a Greek Salad

Greece’s creditors seek end to deadlock

By Kerin Hope 

Greece’s international creditors are considering an appeal to the French and German leaders to break a deadlock in negotiations over the size of the losses to be taken by banks and other bondholders as part of a €100bn deal seen as crucial to bringing the country’s debt under control.

The move to involve German chancellor Angela Merkel and French president Nicolas Sarkozy comes after restructuring talks with official investors broke down on Friday raising concerns that Greece was moving closer to becoming the first developed country in nearly 60 years to default on its debt.

In a sign of urgency, Guido Westerwelle, German foreign minister, flew to Athens on Sunday for talks about the so-called private sector involvement (PSI) negotiations with Greek premier Lucas Papademos.

Europe 201

How Much Risk Do You Want in a Government Bond?

By John Mauldin

Government bond investors are a curious breed. They invest in government bonds because they actually think there is not supposed to be any risk. They want their money to be safe. If they wanted risk, there are lots of opportunities to invest with the potential for more reward.

The moment that government bond investors begin to think they might be at risk, they leave. And history suggests they tend to leave seemingly all at once. It is the Bang! moment. Someone fires the starting gun, and they all head for the exits. They start selling their bonds to speculators at discounts, which makes the effective interest rates in the market rise, sometimes by a lot. That means that if a country wants to borrow more money, it will have to pay the effective price in the market, or maybe as much as 15-20% IF – a big IF – it can even get someone to buy the bonds, which of course makes it even more difficult to pay their debt as interest costs rise.

Europe 101

Getting Simple About Europe

By John Mauldin

Let's assume a country that has a gross domestic product (GDP) of $1,000. In the beginning it taxes its citizens about 25% of GDP and spends the money for the public's benefit. But alas, it spends about 30% of GDP, so it must borrow the overage (about $50) from its citizens or from the citizens of other countries. Because the country starts out with relatively little debt, interest rates on this loan are low, because those who buy the debt can easily see that the the country can pay them back. If the debt of the country is only 5% of GDP ($50) and the interest rate is 4%, then the amount that must be paid as interest is only about $2 per year. Not a whole lot, about 0.2% of GDP.

Brutal and Ugly

Fleeing the Clutches of the U.S. Empire

By Robert Wenzel

As the United States attempts to influence keys sectors of the globe, those areas of influence are turning into wastelands, as people flee to freer lands. This weekend's WSJ has two instructive examples.

First, in Europe, where banksters are attempting, through US-controlled institutions such as the IMF, to impose heavy regulation and taxes on the people, the most productive people are leaving. WSJ reports:

Economic distress is driving tens of thousands of skilled professionals from Europe, and many are being lured to thriving former European colonies in Latin America and Africa, reversing well-worn migration patterns... The exodus is raising concern about a potential long-term cost of the economic crisis—a talent drain that could hinder the euro zone's weakest economies as they struggle to climb out of recession....

The toll is mounting in Spain and Portugal, countries losing skilled workers to their former colonies. More people are emigrating from Spain, Portugal, Ireland, Slovenia and Cyprus than are moving to those countries, and in Greece officials worry that a similar trend is taking hold there...

Last year, with unemployment topping 20%, Spain became a net exporter of people for the first time since 1990, according to Spain's National Statistics Institute. Some 55,626 more people left the country in the first nine months of last year than arrived, the institute said.

Spaniards are scattering to better-off European countries and beyond, particularly to Latin America. Of the estimated 37,000 Spanish citizens who left the country in 2010, nearly 60% emigrated to countries outside the European Union...

At least 100,000 of Portugal's 11 million citizens moved abroad in 2011, after a decade of anemic growth and rising debt in Western Europe's poorest nation. In Africa, Angola's burgeoning economy has absorbed 70,000 Portuguese since 2003, according to the government-backed Emigration Observatory in Lisbon.

The number of Portuguese in Brazil on work-related visas shot up by 52,000 in the 18 months through June 2011.

Likewise, the cocaine growers are leaving the area where the Empire pushed down its thumb. From WSJ:

Once concentrated in Colombia, a close U.S. ally in combating drugs, the cocaine business is migrating to nations such as Peru, Venezuela, Ecuador and Bolivia, where populist leaders are either ambivalent about cooperating with U.S. antidrug efforts or openly hostile to them.

If you want war, prepare for war

U.S. troops quietly surge into Middle East

By David S. Cloud

The Pentagon has quietly shifted combat troops and warships to the Middle East after the top American commander in the region warned that he needed additional forces to deal with Iran and other potential threats, U.S. officials said.

Marine Corps Gen. James Mattis, who heads U.S. Central Command, won White House approval for the deployments late last year after talks with the government in Baghdad broke down over keeping U.S. troops in Iraq, but the extent of the Pentagon moves is only now becoming clear.

Thou shall not default, the ECB commands it

Dealing with Greece’s biggest holdout

by Joseph Cotterill 

If you didn’t believe us that the European Central Bank will do everything it can to achieve seniority for its Greek bonds in the country’s debt restructuring, hopefully Thursday’s ECB press conference convinced you.

Not only did ECB chief Mario Draghi obsfuscate — twice — on whether the bank is prepared to take losses on its Greek debt, but Vitor Constancio, the vice-chief, made a point of emphasising that Greece is negotiating private sector involvement.

The implication being that the ECB’s €40bn-plus holdings should not be seen as private, despite having originally been issued by Greece as private bonds. (The ECB bought the bonds in the secondary market.) Since that suggests the ECB shouldn’t be affected by any

Dark Inventory and other Nightmares

Fear and Loathing in the Financial Markets – What Happens to the Economy When the Oil Bubble Bursts?

By Philip Pilkington

In 2008 profits in the US economy crashed out. But they soon bounced back. This bounce was largely due to the profits being reaped in the financial sector – which sickened many given that 2008 was in large measure caused by the financial sector. This always struck me as odd – not to mention unsustainable. If the ‘real’ economy is in the doldrums you can be sure that, in the medium to long run, the business class will go down with it.

In what follows I will draw on Chris Cook’s post on this site the other day to argue that, if he is correct (and I think he may be), judgment day is just around the corner for the profiteers. Soon they will have to learn that you cannot financial engineer your way to profitability forever, especially when the rest of the economy is withering. Who knows, this may even inspire what has come to be called the 1% to focus their attention on the problems that have arisen in the global economy in recent months – for they have been truly burying their heads in the sand for the past three years.

But first, let us look at this incredible post-2008 resurgence of profitability.

From Profit Bust to Profit Boom

When the world financial markets crashed out in 2008 profits hit the wall. Yet, they did not hit it quite as hard as one might expect. As the below graph shows profits did not even reach the levels they did during the 1983 recession as a percentage of GDP.

The nature and cause of economic development

The History of “Underdevelopment”

Underdevelopment Theories Have Generated Disastrous Policies

By Stephen Davies

Perhaps the most important feature of the modern world is its sustained, intensive economic growth. This produces most of the other distinctive features of modernity. Although there were earlier episodes of such economic efflorescence (to use Jack Goldstone’s term), it was only with the “industrial revolution” of late eighteenth-century Britain that it became a permanent and prominent feature of the world economy. Following the advent of this transformative process, questions soon arose elsewhere. The first was that of how to achieve the same kind of growth and dynamism. Soon this led to further questions: why other parts of the world did not show these qualities and why their attempts to do so ended in failure.

The debate engendered by these questions and the answers given has been one of the most important of the last 200 years. Known as the “development debate,” it consists of such topics as the nature and causes of economic development and the reasons it occurs at some times and places but not others. This is not simply an academic debate. It has obvious implications for public policy and, through its impact on policy, for the lives and circumstances of ordinary people.

Since the early 1950s much of this debate has been dominated by “dependency theory” and its offshoot “world system theory.” Developed by several people, this was a theory that explained the economic success or failure of different parts of the world by the nature and structure of the economic relations among them. The argument is that the relations of trade between different parts of the world are inherently exploitative and inevitably create inequality and lack of development in certain places. Certain parts of the world (the “core”) dominate high technology and high profit activity such as manufacturing. The rest (the “periphery”) is left to produce raw materials and primary products.

Central Bankers of the World Unite

Gadhafi’s Gold-money Plan Would Have Devastated Dollar

BY ALEX NEWMAN      

It remains unclear exactly why or how the Gadhafi regime went from “a model” and an “important ally” to the next target for regime change in a period of just a few years. But after claims of “genocide” as the justification for NATO intervention were disputed by experts, several other theories have been floated.

Oil, of course, has been mentioned frequently — Libya is Africa‘s largest oil producer. But one possible reason in particular for Gadhafi’s fall from grace has gained significant traction among analysts and segments of the non-Western media: central banking and the global monetary system.

According to more than a few observers, Gadhafi’s plan to quit selling Libyan oil in U.S. dollars — demanding payment instead in gold-backed “dinars” (a single African currency made from gold) — was the real cause. The regime, sitting on massive amounts of gold, estimated at close to 150 tons, was also pushing other African and Middle Eastern governments to follow suit.

War is the Health of the State

Iran: Oh, No, Not Again

By Chris Martenson

Randolph Bourne

In each of the years 2008, 2009 and 2010, significant worries emerged that Western nations might attack Iran. Here in 2012, similar concerns are once again at the surface.

Why revisit this topic again? Simply because if actions against Iran trigger a shutdown of the Strait of Hormuz, through which 40% of the world’s daily seaborne oil passes, oil prices will spike, the world’s teetering economy will slump and the arrival of the next financial emergency will be hastened. Even if the strait remains open but Iran is blocked from being an oil exporter for a period of time, it bears mentioning that Iran is the third-largest exporter of oil in the world after Saudi Arabia and Russia.

Once again, I am deeply confused as to the timing of the perception of an Iranian threat, right now at this critical moment of economic weakness. The very last thing the world economies need is a vastly increased price for oil, which is precisely what a war with Iran would deliver.

The True Believer

Ron Paul: “we can take this party back.”

Patrick J. Buchanan

Last May, Ron Paul filed his financial disclosure form, and The Wall Street Journal enlisted financial analyst William Bernstein to scrutinize his investments.

“Paul’s portfolio isn’t merely different,” said an astonished Journal, “it’s shockingly different.”

Twenty-one percent of his $2.4 to $5.5 million was in real estate, 14 percent in cash. He owns no bonds. Only 0.1 percent is invested in stocks, and Paul bought these “short,” betting the price will plunge. Every other nickel is sunk into gold and silver mining companies.

Bernstein “had never seen such an extreme bet on economic catastrophe,” said the Journal.

“This portfolio,” said Bernstein, “is a half step away from a cellar-full of canned goods and 9-millimeter rounds.”

“You can say this for Ron Paul,” conceded the Journal. “In investing as in politics, (Paul) has the courage of his convictions.”

Indeed, he does. Paul’s investments mirror his belief that the empire of debt is coming down and Western governments will never repay — in dollars of the same value — what they have borrowed.

And here we come to the reason Paul ran a strong third in Iowa and a clear second in New Hampshire. He is a conviction politician and, like Barry Goldwater and George McGovern, the candidate of a cause.

Aware it is unlikely he will ever be president, the 76-year-old soldiers on in the belief that this cause will one day triumph in a party where he was, not long ago, seen as an odd duck, but a party where today he speaks for a national constituency.

It is easy to understand why the young are attracted to him. There is a consistency here no other candidate can match.

Republicans may deplore the GOP Great Society of Bush 43. Paul stood almost alone in voting against every Bush measure. By two-to-one, Americans now believe the Iraq War was a mistake. Paul, alone among the candidates, opposed the war.

The Command-and-Control Economic Model

Dangerous Historical Myths

By Stephen Davies

One of the most powerful influences on human affairs is historical myth—beliefs about the past that are simply wrong. Some historical myths have far-reaching and baleful effects because they shape the way people understand not only the past but also the present, leading them to make harmful or even dangerous decisions. This seems to be especially so with economic history.

Take the standard account of the Great Depression and the New Deal. In many ways the New Deal itself was one result of another historical myth: the widely received account of what had happened to the German economy in the first half of the twentieth century, particularly during World War I and the Third Reich. That myth probably did more harm than almost any other in that century.

In the case of the Third Reich, the widely held perception even now is that whatever else may be said about his regime, Hitler managed to bring about a dramatic revival of the German economy. After 1933 Hitler and his finance minister Hjalmar Schacht stabilized the economy and managed to solve the huge unemployment crisis that had destroyed the Weimar Republic’s legitimacy. This was partly due to Schacht’s imaginative monetary policy and partly to massive public works programs, such as the autobahnen. There was a sharp move away from free markets to a much more interventionist economy that worked better than what had gone before. During World War II this economy was able to achieve great success in terms of war production, notably under Hitler’s armaments minister, Albert Speer.

First-class passengers on the Titanic

Massive Iceberg Ahead for the European Monetary Union
By MARSHALL AUERBACK

In the past, I have called the euro zone a “roach motel”. But as usual, I’ve been outdone in the metaphor design department by the Italians: Guilio Tremonti, the Italian Finance Minister, last week compared Germany and its small-minded Chancellor Angela Merkel to a first-class passenger on the Titanic. The underlying message is the same: You can be sailing in coach or you can be in the 1st class compartment. But when the ship hits the iceberg, everybody goes down together — Germans, Italians, Greeks, Irish and French alike. All euro zone members have an institutional wide problem of not being able to fund deficits, given that the countries of the euro zone have all acceded to impose gold standard conditions on themselves by forfeiting their fiscal freedom.

To repeat: this is not a problem confined to the periphery. The sovereign risk problem applies to the central core countries, such as Germany and France, as it does to the Mediterranean “profligates”. Once a run on the currency starts and moves into the banking sector, then none of the governments will be able to do anything other than to oversee financial and economic collapse while the fiddlers in Brussels and Frankfurt try to spin some line about “special circumstances” or something without admitting the whole system they imposed on the area is the cause of this crisis.

In the words of Stephanie Kelton:

The risk for the fiscal authorities of any member country is that the ‘dismal arithmetic’ of the budget constraint leaves few palatable alternatives. If the yield on government securities demanded by markets exceeds a country’s nominal income growth, then interest expense on the outstanding debt must become a relatively larger burden (Jordan, 1997: 3).

Why Do Zombie Banks Hate Writing Off Bad Loans?

Financial Frankness Is a Bad Dream for a Bank

By Jonathan Weil

There’s a simple explanation for why the world’s zombie banks remain so reluctant to write off worthless assets and tap the equity markets for fresh capital. They don’t want to end up like UniCredit SpA. (UCG)

This month has been a nightmare for the Italian bank’s shareholders. Since embarking last week on a 7.5 billion euro ($9.7 billion) stock sale at a steep discount to its Jan. 3 closing price, UniCredit shares have fallen 39 percent to 2.56 euros. It seems no good deed goes unpunished when it comes to lenders besieged by Europe’s debt crisis. A little bit of candor about the true state of a company’s finances can hurt a lot.

That undoubtedly is the message some other lenders facing large capital shortfalls will take from UniCredit’s troubles. The incentive now, just as most banks are undergoing their year- end audits, will be to stick with the pretense that all is well and there’s no need to raise additional capital.

Not that a lot of them have better options. There’s only so much private-sector capital available to go around. As sickening as the plunge in its share price may be, UniCredit secured an early-mover advantage by acting when it did. Even that might not be enough to ensure its survival without a taxpayer rescue.

Goods and Bads

Investment or Malinvestment?
by Igor Karbinovskiy

Every administration wants to create jobs. There can never be too many jobs, if you ask them, so they're always interested in making more, even in times of low unemployment. Every administration, therefore, proposes its own jobs bill. Last year, for example, President Obama spent some time touring the country to promote his own jobs bill as a way to address the deepening economic crisis. This seems like a no-brainer. After all, jobs are clearly and unambiguously a good thing, right?

Suppose I write an article on the economy that no one wants to read, much less pay me for. Now suppose that the government pays me for it anyway — as part of a jobs bill. Presto! A new job has been created; a person who was previously unemployed is now working. Better yet, that person is me! This job certainly increased my standard of living. But what have I produced? What have I contributed to the economy? Because no one wants my article, the value of my contribution to the economy is zero. The time I've spent in writing, and the money the government paid me, have been wasted. Worse, because this money allows me to consume things that I (and other people) want — things like food and shelter — the net effect on the economy is negative: zero value in, positive value out. This, then, is an example of a "bad" job.