Should Austrians Embrace the Euro?

Good as Gold?

By Pater Tenebrarum

Introductory Remarks

As we have often pointed out in these pages, to our mind the euro area crisis is not a currency crisis. It is primarily a debt crisis; a crisis of the bloated European welfare states and the fractionally reserved and way overextended   banking systems they harbor. Due to the supra-national status of the central bank it is no longer possible for member nations to simply 'paper over' their economic policy mistakes and so their errors have been revealed for all to see. Instead of being able to surreptitiously impoverish the citizenry by means of inflation and devaluation, the political classes have been forced to face facts.

In this sense, the euro is a great success: it has so far averted an inner-European outbreak of 'beggar-thy neighbor' devaluations. The usual robbing of savers had to be at least partially shelved.

It is entirely mistaken to argue that the monetary union can only work if a so-called 'fiscal union' is established. It is true that the monetary union will work better if its members were to adhere to the rules of the fiscal  pacts they have signed – be it the Maastricht treaty or the latest iteration of the 'fiscal compact'.

However, this is not the main goal of the people pushing for a full fiscal, and presumably political, union. Their aim is to abolish subsidiarity altogether in order to create a European superstate – a giant transfer union in which all tax and regulatory competition is suppressed. Moreover, they want to enable the central bank to do what it currently can not do – namely finance the deficits of governments by means of money printing.

The euro is a medium of exchange. There is no reason whatsoever that  two or more agents using a common medium of exchange need to enter into a 'fiscal union', pooling their debts in order to be able to continue to use a common medium of exchange. The gold standard worked perfectly well for a century before governments deliberately ruined it in order to finance enormous wars. No-one ever suggested at the time that the nations on a gold standard should enter into a 'fiscal union'. It would have been regarded as an utterly absurd demand.

You can review our critique of the various ideas forwarded by the 'centralizers' and our ideas regarding a free market solution to the euro area crisis in a previous article: 'The Euro Area – False Dilemmas and False Choices', where  the above points are discussed in more detail. A further addition to this discussion can be found in 'Growth versus Austerity – A Phony Debate'.

Is There 'Austerity' in Europe?

It has become fashionable among interventionists to take aim at Angela Merkel and the German Bundesbank and accuse them of forcing euro area member states into 'unbearable austerity' by continuing to refuse to bail out all and sundry without preconditions.

Among other things, commentators are lately frequently dragging up the example of Heinrich Brüning's government that was in charge of Germany just prior to the election that brought Hitler to power. A recent example is this article at Bloomberg: “Ghost of Nazi Past Haunts Austerity-Gripped Europe”. The article states: 

“Under Germany’s austerity policies in the 1930s, taxes rose, benefits and wages were reduced and unemployment soared, stoking the popular ire that Hitler harnessed. Extremists are gaining ground now as unemployment in Greece passes the 20 percent mark after five years of recession. The far-right Golden Dawn won 6.9 percent of the vote and 18 seats in the country’s most recent elections. France’s anti-immigrant, anti-euro National Front won two seats in parliamentary elections June 17.

Creditanstalt in 1931, like Spain’s Bankia now, was created by mergers with lenders weakened by toxic loans and capital shortfalls. After Creditanstalt failed, the government stepped in to prop it up, fatally hurting its own credit. A run on Austria’s bonds and the schilling ensued, according to Michael Bordo, national fellow of the Hoover Institution on campus of Stanford University in Palo Alto, California.

“Creditanstalt had been forced into a merger with an insolvent bank, which felled it,” Bordo said. “Really, Austria had a financial system set up to service an empire which was no longer there. The bank was too big.”

Marx Madness

Greece is collapsing, the Iranians are getting aggressive, and Rome is in disarray. Welcome back to 480 BC

By David Galland
Burn the Boats, Kill the Chickens

Although I did manage to squeeze in a few hours in the Portuguese sun chasing a little white ball, the purpose of my just-concluded whirlwind trip – a Sunday-to-Sunday jaunt with stay-overs in four different countries, including two of the PIIGS, Ireland and Portugal, and pending PIIGS member France twice – was mostly business.

As you might expect at this pivotal point in European history, I wasted no opportunity in questioning the locals – from widely followed economists to taxi drivers and everyone in between – about their views on the European Union and the common currency that serves as the glue holding it together, albeit barely.

Now, I am not going to go on at great length on the policy experiments that have brought Europe to its knees, and certainly won't weigh in with a tourist's opinion on how the whole mess will resolve: there are hundreds of media darlings in the wings, clearing their pipes in the hope of being called upon to opine this way or another on just those topics.

Rather, what I would like to do is encapsulate, in as few words as I am capable, the essence of the problems facing Europe, and leave it to you to draw your own conclusions. To assist in that regard, I will use my observations on the ground in Portugal.

For those of you who are unfamiliar with the place, physically and meteorologically, Portugal is about as good as it gets.

The weather is almost identical to Southern California, and the country has a long coastline complete with stunning (and largely empty) beaches. As with Southern California, the land is rich and supports the growing of pretty much any crop.

The people are friendly and well educated, with most speaking three or even four languages (Portuguese, English, German, Spanish are fairly standard). The food is fantastic, especially the fresh seafood, prepared to perfection even when just cooked over coals in a fisherman's shack.

Supplementing the local culture is a robust expat community: in the Algarve, where I stayed, most expats are refugees from the rest of Europe, with what seems to be an extra measure of Brits. Crime is low and, thanks to the crisis, there are bargains aplenty for houses and recently constructed (but now largely empty) apartment buildings, even near the water.

The storied cities of the Old World, Paris, Dublin, Madrid, Rome, Zurich, London are only a short hop by plane, and thanks to the hard-charging Michael O'Leary and his cut-rate Ryan Air, a cheap hop at that.

Which had me wondering, what's the problem? The same thought had come to mind while wandering about the bustling streets of Dublin a couple of days earlier.

Extortion Economics

Boo !!!

By Wolf Richter   

One thing Greek politicians have taught other European leaders: fear mongering for the purpose of extortion is the way to go. It might not work, and it might be counterproductive, and it might destroy confidence in the economy and give investors goose bumps and blow up markets, and it might cause spooked consumers to hold back on purchases and worried businesses to freeze hiring plans, thus exacerbating the situation, but it’s nevertheless the way to go.

Greek politicians learned it from Treasury Secretary Hank Paulson who'd walked into the Capitol in September 2008, threatening that the whole world would collapse if his demands weren’t met. Soon, they expertly issued a series of escalating threats to extort the maximum amount in bailout euros from the Troika. It didn’t work very well as the Greek economy continued to spiral out of control, and as the frustrated Troika halted bailout payments from time to time, and as tempers flared, and as the people in Greece became increasingly edgy. But it was the way to go. Then came Spain. And now Italian Prime Minister Mario Monti.

Austrian Capital Theory

Why It Matters

By Peter Lewin

With the resurgence of Keynesian economic policy as a response to the current crisis, echoes of past debates are being heard—in particular the debate from the 1930s between John Maynard Keynes and Friedrich Hayek. Keynes talked about the “capital stock” of the economy. He argued that by stimulating spending on outputs (consumption goods and services), one can increase productive investment to meet that spending, thus adding to the capital stock and increasing employment.

Hayek accused Keynes of insufficient attention to the nature of capital in production. (By “capital” I mean the physical production structure of the economy, including machinery, buildings, raw materials, and human capital—skills). Hayek pointed out that capital investment does not simply add to production in a general way but rather is embodied in concrete capital items. That is, the productive capital of the economy is not simply an amorphous “stock” of generalized production power; it is an intricate structure of specific interrelated complementary components. Stimulating spending and investment, then, amounts to stimulating specific sections and components of this intricate structure.

Japan and Europe Are Killing Themselves

They are taxing themselves to death

By Jeorge Giddeon

Can the U.S. lead the world back to prosperity? The global economy is lurching toward the cliff. Twice before over the last 75 years Washington took the necessary action, and after November, with a new President and Congress, there will be the opportunity—and imperative—to do so again.

The 1970s were a decade of economic turmoil and stagnation. The 1930s were far worse. And now the world is headed to the brink again.

After the Great Depression and the Second World War the U.S. helped create and nurture the institutions that enabled war-torn Europe and Japan to make rapid recoveries. The gold-based Bretton Woods monetary system provided the currency stability necessary for the resumption of international trade. The General Agreement on Tariffs & Trade (and then its successor, the World Trade Organization) systematically reduced trade barriers. At home we ended wartime controls and rationing, cut taxes and slashed government spending. Almost seamlessly, millions of veterans came home to productive civilian employment. For the next 25 years Japan and Germany repeatedly reduced their tax burdens and became economic global giants.

Greece Asks Troika For Moon

Time Means Money

By MIKE SHEDLOCK

It will be interesting to see how long the coalition in Greece will last after Germany shoots down Bailout Easing Proposals by Greece to ....

       ·         Cut the VAT
·         Freeze layoffs
·         Extend timeline to reduce its deficit by two years
·         Recapitalize lenders
·         Provide more help for the unemployed
·         Accelerate payments to providers of government services.

Bloomberg reports Greece Seeks at Least Two-Year Extension to Bailout Goals noting that: 

"New Democracy, Pasok and the Democratic Left agree that plans to cut 150,000 public-sector jobs should be scrapped."

Loosening of Pledges Unacceptable
The coalition parties (New Democracy, Pasok, Democratic Left) can agree to whatever they want. They may as well agree the moon is made of green cheese while requesting slices on a platter.

Second thoughts of an environmentalist

Global warming smoke dreams 

Fritz Vahrenholt, one of Germany's earliest green energy investors, is not convinced that humanity is causing catastrophic global warming.

By Fritz Vahrenholt

Scientists of the Intergovernmental Panel on Climate Change (IPCC) are quite certain: by using fossil fuels man is currently destroying the climate and our future. We have one last chance, we are told: quickly renounce modern industrial society – painfully but for a good cause.

For many years, I was an active supporter of the IPCC and its CO2 theory. Recent experience with the UN's climate panel, however, forced me to reassess my position. In February 2010, I was invited as a reviewer for the IPCC report on renewable energy. I realised that the drafting of the report was done in anything but a scientific manner. The report was littered with errors and a member of Greenpeace edited the final version. These developments shocked me. I thought, if such things can happen in this report, then they might happen in other IPCC reports too.

Black people will remain poor for ever

The Other Side of Socialism

An eloquent indictment of the primary destructive principle of socialism and social welfare – dependency and the entitlement mindset.

Red Plenty

Inside the Fifties’ Soviet Dream

“The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western Europe.”

                                                 - by Mikhail Gorbachev

By Francis Spufford

Cultural historian Francis Spufford’s Red Plenty is a novel about the reform of the planned economy in the Soviet Union during the years of the Khrushchev thaw. It is one of the oddest books written about economics—a fictional approach peopled by computer researchers, planning bureaucrats, Communist Party apparatchiks, and factory managers. While fact and fiction in Red Plenty can initially be difficult for the reader to distinguish, the fictional parts breathe life into the economic reasoning. The author provides an extensive set of notes explaining the historical facts and also where his poetic license diverges from them.

The Future of Money and the Death of Banks

The present fiat money economy is ripe for some Schumpeterian ‘creative destruction’.

by DETLEV SCHLICHTER

UK Chancellor George Osborne and Bank of England Governor Mervin King last week announced another round of fiscal and monetary stimulus measures, including steps to ease the funding for banks and allow them to extend more loans.

If these measures were hoped to instil confidence they must be classified as a failure. We have lived through quite a few years of unprecedented and fairly persistent monetary accommodation and occasional rounds of QE by now, and I doubt that yet another dose of the same medicine will cause great excitement. Furthermore, observers must get confused as to what our most pressing problems really are. Have we not had a real banking crisis in the UK in 2008 because banks were over-extended and in desperate need of balance sheet repair? Is a period of deleveraging and a rebuilding of capital ratios not urgently required and unavoidable? Let’s not forget that the government is still a majority-owner of RBS and holds a large chunk of Lloyds-TSB. If banks are still on life-support from the taxpayer and the central bank, is it wise to already prod them to expand their balance sheets again and create more credit to ‘stimulate’ growth?

Europe 1-2-3

The Simplification of Europe

“Paying attention to simple little things that most men neglect makes a few men rich.”

                           -Henry Ford

by Mark Grant

I am under no delusion nor are they my audience; nothing that I write will change much of anything for the public and so I am not passing out knowledge at the supermarket. There are a few of you however that pay attention not to who I am but to what I think. Europe has become so complicated and so riddled with the obtuse and the fractured that I thought I would take some time today to try to simplify the process. All of my life I have listened to economists, who always seem to want to make things more and not less complicated to make themselves sound more intelligent I have always supposed, and I have read research reports that offered forty pages of excuses mostly in an attempt to sell you something. To be perfectly honest; I have never found either of these tacts useful. I would guess that ninety-five percent of what I write is to warn you away from the pitfalls and very occasionally I think something is of interest and might be useful and I point it out. The point of my commentary is to try to keep you out of trouble which is an increasingly difficult task these days as the European Union is the most confusing government on Earth bar none.

An Austrian Defense of the Euro

An Almost Golden Currency

by Jesus Huerta de Soto

1. Introduction: The Ideal Monetary System

Theorists of the Austrian School have focused considerable effort on elucidating the ideal monetary system for a market economy. On a theoretical level, they have developed an entire theory of the business cycle that explains how credit expansion unbacked by real saving and orchestrated by central banks via a fractional-reserve-banking system repetitively generates economic cycles. On a historical level, they have described the spontaneous evolution of money and how coercive state intervention encouraged by powerful interest groups has distanced from the market and corrupted the natural evolution of banking institutions. On an ethical level, they have revealed the general legal requirements and principles of property rights with respect to banking contracts, principles that arise from the market economy itself and that, in turn, are essential to its proper functioning.[1]

All of the above theoretical analysis yields the conclusion that the current monetary and banking system is incompatible with a true free-enterprise economy, that it contains all of the defects identified by the theorem of the impossibility of socialism, and that it is a continual source of financial instability and economic disturbances. Hence, it becomes indispensable to profoundly redesign the world financial and monetary system, to get to the root of the problems that beset us and to solve them. This undertaking should rest on the following three reforms:

1.   the reestablishment of a 100 percent reserve requirement as an essential principle of private-property rights with respect to every demand deposit of money and its equivalents;

2.   the abolition of all central banks (which become unnecessary as lenders of last resort if reform 1 above is implemented, and which as true financial central-planning agencies are a constant source of instability) and the revocation of legal-tender laws and the always-changing tangle of government regulations that derive from them; and

3.   a return to a classic gold standard, as the only world monetary standard that would provide a money supply that public authorities could not manipulate and that could restrict and discipline the inflationary yearnings of the different economic agents.[2]

What’s next…

Nearly every western nation on the planet is insolvent

by Simon Black

One of the things that’s really unique about this part of the world, Esthonia, is having access to so many people with first-hand experience of living under Soviet rule.

It’s a bizarre thing to say, but the stories they have to tell are extraordinary.

Last night I had dinner with some friends, including one woman who was just a child at the end of World War II.

She explained to me that her family had been wealthy landowners near the capital city… until the Soviet-controlled government came in, confiscated all of their property, and shipped the adults off to Siberia.

“There were so many opportunities to leave beforehand,” she explained, ”but they just never thought things would ever get that bad here. Everyone saw what happened in other countries, but my family never expected that it would happen to them.”

While most people probably aren’t going to end up in Siberia anytime soon, the lesson is still valuable.

It’s easy to look around the world and think “It can’t happen here. It won’t happen here.” But this is really foolish thinking.

Governments steal, then spend, other people’s money with reckless abandon. They conjure paper currency out of thin air, rob the future earnings of generations which have not even been born, and create mind-numbing barriers to real growth.

These are not people who can be trusted to do the right thing.

Here in Europe, the Greek government is helping itself to its citizens’ bank accounts; the Italian government is working with banks to freeze customers out of their accounts without warning.

Europe Still Doesn’t Get It

The Continent’s latest solution points back to the problem—the euro itself.

βυ NICOLE GELINAS

Europe faces withered economies and double-digit unemployment rates from Ireland to Italy. Now, after yet another summit, Europe’s wise men and women have hit upon yet another fix. This time, they’re pushing universal deposit insurance across the Eurozone, in which the people of any nation in trouble would be bailed out by people in other euro nations: Spanish bank depositors, for example, would pay for rescues of Greek bank depositors if Greek banks failed, and vice versa. The new idea, like many before it, ignores the problem at the root of the European crisis: the euro itself.

Greece, Spain, and others are in trouble because they—and their banks—borrowed so much money so recklessly during the boom years. Global money managers thought these nations’ euro membership made investment in their debt a sure thing. Strong countries like Germany, the thinking went, would never countenance defaults on government or big-bank debt issued in the common currency. Easy money, in turn, allowed much of Europe to avoid hard questions on unaffordable retirement benefits and inflexible labor markets.

When the bust came, the euro fetters compounded the problem. Fifty years ago, a country like Greece would have dealt with a debt burden by printing up more money to pay off bonds in cheaper drachmas. The subsequent fall in the value of the Greek currency would have encouraged foreigners to buy Greek products and to visit Greece, ameliorating the country’s economic contraction. Of course, such a solution wouldn’t have been good for Greek savers, and it would present tremendous risks if carried too far.

We’re mortgaging the future of the younger generation'

If young Americans knew what was good for them, they would all be in the Tea Party

Just say no: the young can unwittingly argue against their own long-term economic interest.
 If young Americans knew what was good for them, they would all be in the Tea Party. 

Uncontrolled public debt threatens to rupture society as the older generation thrives at the expense of the young.

By Niall Ferguson

Critics of Western democracy are right to discern that something is amiss with our political institutions. The most obvious symptom of the malaise is the huge debts we have managed to accumulate in recent decades, which (unlike in the past) cannot largely be blamed on wars.

According to the International Monetary Fund, the gross government debt of Greece this year will reach 153 per cent of GDP. For Italy the figure is 123, for Ireland 113, for Portugal 112 and for the United States 107.

Britain’s debt is approaching 88 per cent. Japan – a special case as the first non-Western country to adopt Western institutions – is the world leader, with a mountain of government debt approaching 236 per cent of GDP, more than triple what it was 20 years ago.

Often these debts get discussed as if they themselves were the problem, and the result is a rather sterile argument between proponents of “austerity” and “stimulus”. I want to suggest that they are a consequence of a more profound malaise.

The heart of the matter is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn. In this regard, the statistics commonly cited as government debt are themselves deeply misleading, for they encompass only the sums owed by governments in the form of bonds.

Dithering Europe is heading for the democratic dark ages

A Greek economy run by Brussels will ignore the lessons of history, leading to more misery.

By Boris Johnson

It is one of the tragic delusions of the human race that we believe in the inevitability of progress. We look around us, and we seem to see a glorious affirmation that our ruthless species of homo is getting ever more sapiens. We see ice cream Snickers bars and in vitro babies and beautiful electronic pads on which you can paint with your fingertip and – by heaven – suitcases with wheels! Think of it: we managed to put a man on the moon about 35 years before we came up with wheelie-suitcases; and yet here they are. They have completely displaced the old type of suitcase, the ones with a handle that you used to lug puffing down platforms.

Aren’t they grand? Life seems impossible without them, and soon they will no doubt be joined by so many other improvements – acne cures, electric cars, electric suitcases – that we will be strengthened in our superstition that history is a one-way ratchet, an endless click click click forwards to a nirvana of liberal democratic free-market brotherhood of man. Isn’t that what history teaches us, that humanity is engaged in a remorseless ascent?

On the contrary: history teaches us that the tide can suddenly and inexplicably go out, and that things can lurch backwards into darkness and squalor and appalling violence. The Romans gave us roads and aqueducts and glass and sanitation and all the other benefits famously listed by Monty Python; indeed, they were probably on the verge of discovering the wheely-suitcase when they went into decline and fall in the fifth century AD.

Conservatism Is Not an Ideology

And America is a country, not a creed.

By PATRICK J. BUCHANAN

In introducing his new book, Leo Strauss and the Conservative Movement in America, Paul Gottfried identifies a fundamental divide between neoconservatives and the traditional right. The divide is over the question: What is this nation, America?

Straussians, writes Gottfried, “wish to present the construction of government as an open-ended rationalist process. All children of the Enlightenment, once properly instructed, should be able to carry out this … task.”

For traditional conservatives, before the nation is born, ”ethnic and cultural preconditions” must exist. All “successful constitutional orders,” he writes, “are the expressions of already formed nations and cultures.”

To the old right, America as a nation and a people already existed by 1789. The Constitution was the birth certificate the nation wrote for itself, the charter by which it chose to govern itself. The real America had been born in men’s hearts by the time of Lexington and Concord in 1775.

In a recent issue of Modern Age, Jack Kerwick deals with this divide.

Ministry of [Un]Truth

Stop listening to them Now

By Eric Sprott

Speaking at a Brussels conference back in April 2011, Eurogroup President Jean Claude Juncker notably stated during a panel discussion that "when it becomes serious, you have to lie." He was referring to situations where the act of "pre-indicating" decisions on eurozone policy could fuel speculation that could harm the markets and undermine their policies' effectiveness.¹ Everyone understands that the authorities sometimes lie in order to promote calm in the markets, but it was unexpected to hear such a high-level official actually admit to doing so. They're not supposed to admit that they lie. It is also somewhat disconcerting given the fact that virtually every economic event we have lived through since that time can very easily be described as "serious". Bank runs in Spain and Greece are indeed "serious", as is the weak economic data now emanating from Europe, the US and China. Should we assume that the authorities have been lying more frequently than usual over the past year?

When former Fed Chairman Alan Greenspan denied and down-played the US housing bubble back in 2004 and 2005, the market didn't realize how wrong he was until the bubble burst in 2007-2008. The same applies to the current Fed Chairman, Ben Bernanke, when he famously told US Congress in March of 2007 that "At this juncture… the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."² They weren't necessarily lying, per se, they just underestimated the seriousness of the problem. At this point in the crisis, however, we are hard pressed to believe anything uttered by a central planner or financial authority figure. How many times have we heard that the eurozone crisis has been solved? And how many times have we heard officials flat out lie while the roof is burning over their heads?

Once there was a stigma to going on the dole

Food Stamp Fiasco

“The Senate refuses to cut $20 billion out of $770 billion”.

By WSJ Editors

The next time someone moans about Washington "austerity," tell them about the Senate's food stamp votes on Tuesday. Democrats and a few Republicans united to block even modest reform in a welfare program that has exploded in the last decade and is set to spend $770 billion in the next 10 years.

Yes, $770 billion on a single program. And you wonder why the U.S. had its credit-rating downgraded?

When the food stamp program began in the 1970s, it was designed to help about 1 of 50 Americans who were in severe financial distress. But thanks to eligibility changes first by President George W. Bush as part of the 2002 farm bill and then by President Obama in the 2008 stimulus, food stamps are becoming the latest middle-class entitlement.

A record 44.7 million people received food stamps in fiscal 2011, up from 28.2 million as recently as 2008. The cost has more than doubled in that same period, to $78 billion, and is on track to account for 78% of farm bill spending over the next decade. One in seven Americans now qualifies.

Once there was a stigma to going on the dole, and it was seen as a last resort. But now the Agriculture Department runs radio and TV ads prodding people to get the free food, as in a recent campaign that says food stamps will help you lose weight. A federal website boasts about strategies that have "increased program participation" with special emphasis on Hispanics because "our data show that many low-income Latinos simply don't apply for [food stamps] even though they're eligible."

In the 1990s Bill Clinton boasted that welfare reform took Americans off the dole. The Obama Administration boasts about how many it has added.

You Can Lose Freedom Only Once

“Europe has crossed its peak.”

By Wolf Richter  

Poor Angela Merkel. The beleaguered German Chancellor just can’t catch a break. She has already committed hundreds of billions of German taxpayer euros to bailing out collapsing Eurozone countries, or at least their bondholders, which would be the ECB, various German and French banks, and the other usual suspects. In return, she wants these countries to live within their means and restructure their economies so that the bailouts would not have to continue ad inifinitum. While the ECB’s printing press—though it’s not supposed to have one—could solve the debt crisis in one fell swoop after the model of the US, Japan, the UK, and Zimbabwe, it would create a host of problems that Germans would rather avoid. Hence bailouts in return for structural reforms and efforts to whittle budget deficits down to some “sustainable level.”

Sounds reasonable. And yet, these laudable efforts have landed her in the company of Axis-of-Evil perpetrators and other maligned characters, according to the British magazine New Statesman, and it doesn’t appear to be, though it reads like, British humor:

Which world leader poses the biggest threat to global order and prosperity? The Iranian President, Mahmoud Ahmadinejad? Wrong. Israel’s Prime Minister, Binyamin Netanyahu? Nope. North Korea’s Kim Jong-un? Wrong again. The answer is a mild-mannered opera fan and former chemist who has been in office for seven years. Yes, step forward, Chancellor Angela Merkel....

And it came with this awesome Terminator-inspired cover art, which does, however, have certain humorous aspects:

Tinker Bell Economics in Europe

Truth is always politically painful after years of illusion

by Gary North

If you have seen the stage version of Peter Pan, you know the scene in which the audience is asked to clap if they want Tinker Bell to live. It's time.

Janet Daley wrote a provocative essay in London's The Telegraph on the day before the Greek election (June 16). She did her best to explain why the eurozone is in crisis. Europe's leaders are living in an illusion of their own making.

She began with what should be obvious to the financial markets by now. By entering into the eurozone, the politicians surrendered control over the money supply.

The problem is not that politicians surrendered control over the money supply. It is that they surrendered it to the European Central Bank. They should have surrendered it to the free market.

The politicians of Europe asserted control over the international money market in 1914, when they abandoned the international gold standard. They set the precedent. Everything that has followed has been one fiat money crisis after another. But only Austrian School economists teach this. In Europe, bureaucratic control over money has run the show ever since 1999.

The economy is now beyond the control of national governments, and therefore outside the remit of democratic politics. It has become truly global, and thus a law unto itself; nation states have gone broke in their attempt to feed its gargantuan appetites for consumption and debt.

Who owns you

Quote for the Day

“The free man owns himself. He can damage himself with either eating or drinking; he can ruin himself with gambling. If he does he is certainly a damn fool, and he might possibly be a damned soul; but if he may not, he is not a free man any more than a dog.”

                                                                  ~G.K. Chesterton

Abandoning Ship

The Eurozone Is Failing At An Accelerating Rate

by Alasdair Macleod

It will be no surprise to readers that the news coming out of the Eurozone just gets worse and worse. The reality is that Ireland, Portugal, Spain, Italy, Belgium, Greece, and France (in no particular order) are all in debt traps from which there is no escape. A debt trap is sprung when bankruptcy becomes the only outcome. With corporations, this usually becomes readily apparent and directors are forced by law to stop trading, but countries conceal this reality by printing money. Otherwise there is no difference in the two cases, despite what politicians and neoclassical economists would have us believe. This is why we are painfully aware that the Eurozone is in trouble, since nation states are unable to cover and conceal their obligations by printing money, having surrendered this role to the European Central Bank (ECB).

The ECB is meant to be independent of politics and political pressures. But the reality facing any central banker is that s/he cannot stand by and let politicians drown in their own mess. The politicians know this, and it's what is behind current attempts to move away from austerity towards Keynesian growth. The plea is exactly the same as that of the spendthrift who tells his bank manager that the only chance he has of getting his money back is to increase the overdraft to allow him to trade his way out of difficulty.

So the ECB knows, in its role as bank manager, that the argument is flawed. But unlike spendthrift individuals, politicians have real power, and the ECB has an ultimate responsibility not to upset the apple cart. And that is why the election of a new socialist French president is important. President Hollande is leading the charge away from austerity in Europe, and he has powerful allies, including President Obama in his own election year.

The greenest thing we can do is innovate

The Julian Simon Lecture

By Matt Ridley

It is now 32 years, nearly a third of a century, since Julian Simon nailed his theses to the door of the eco-pessimist church by publishing his famous article in Science magazine: “resources, population, environment: an oversupply of bad news”. It is also 40 years since The Limits to Growth and 50 years since Silent Spring, plenty long enough to reflect on whether the world has conformed to Malthusian pessimism or Simonian optimism.

Before I go on, I want to remind you just how viciously Simon was attacked for saying that he thought the bad news was being exaggerated and the good news downplayed. Verbally at least Simon’s treatment was every bit as rough as Martin Luther’s. Simon was called an imbecile, a moron, silly, ignorant, a flat-earther, a member of the far right, a Marxist. “Could the editors have found someone to review Simon’s manuscript who had to take off his shoes to count to 20?” said Paul Ehrlich.

Erhlich together with John Holdren then launched a blistering critique, accusing Simon of lying about electricity prices having fallen. It turned out they were basing their criticism on a typo in a table, as Simon discovered by calling the table’s author. To which Ehrlich replied: “what scientist would phone the author of a standard source to make sure there were no typos in a series of numbers?”

Answer: one who likes to get his facts right.