Dr. Frankenstein's Europe

“What the hell are they thinking?”

by John Mauldin

"Had I right, for my own benefit, to inflict this curse upon everlasting generations? I had before been moved by the sophisms of the being I had created; I had been struck senseless by his fiendish threats; but now, for the first time, the wickedness of my promise burst upon me; I shuddered to think that future ages might curse me as their pest, whose selfishness had not hesitated to buy its own peace at the price, perhaps, of the existence of the whole human race."

– The musings of Dr. Frankenstein about his creation of a monster, in Mary Shelley's 1818 novel, Frankenstein

Cost of Losing Athens Can't Be Calculated

What is the cost of throwing good money after bad?

By CARL BIALIK

As Greece girds for elections next month that could lead to its exit from the euro zone, economists are acknowledging an unsettling reality: No one knows what the bill will be.

A wide range of potential price tags has been reported, anywhere from €150 billion to €1 trillion euros ($1.27 trillion). But none of these are comprehensive, nor are they meant to be—they don't, for instance, weigh the cost of an exit against the cost of avoiding one. By comparison, the 2008 Troubled Asset Relief Program, known as TARP, was a $700 billion program initiated in response to the U.S. financial crisis.

Capitalists and other Psychopaths

A Faible for Socialism

by Pater Tenebrarum

We have often remarked on the soft spot the New York Times has for socialism. It is after all the ideology that is most popular among the self-proclaimed intelligentsia, as can be easily ascertained by observing the unbroken support it enjoys in academe – in spite of the fact that the communist system has collapsed in what was the biggest bankruptcy in human history. Apparently they just failed to 'implement Marxism correctly'. It is easily forgotten today that Western intellectuals were cheering for the Soviet Union throughout its seven decade history, from the Lenin era until its ignominious demise.

The mass murderer Stalin was highly popular with our vaunted intellectuals, who gleefully quoted the strong growth in industrial production reported by the Soviets while the West was mired in the Great Depression. That Stalin used a reserve army of slaves from his Gulags to accomplish his alleged economic miracles was silently glossed over. The fact that Soviet production was completely chaotic due to the socialist economy's inability to calculate never rated a mention. The 'data' looked good, that was all that counted.

Pay Up Or Else – Tsipras Plays Hardball

Waving the Default Threat

by Pater Tenebrarum

Alexis Tsipras continues to throw spanners into the works, or let's rather say he seems to be on a mission to fray the nerves of eurocrats and investors alike. This must of course be seen in the context of ongoing electioneering on his part: now that he has been thrown into the limelight, he has to play the role he has assigned to himself to the hilt.

The WSJ reports that there is now a 'defiant message from Greece':

“The head of Greece's radical left party says there is little chance Europe will cut off funding to the country and if it does, Greece will repudiate its debts, throwing down a gauntlet that could increase tensions between Greece's recalcitrant politicians and frustrated European creditors.

Euro area official sector exposures in excess of EUR290bn

Germany EUR 84bn ,France EUR 63bn , Italy EUR 55bn , Spain EUR 37bn

By MIKE SHEDLOCK

Euro area official sector exposure

According to the French Finance Minister, F. Baroin, Greece's exit from the euro area "would cost France EUR 50bn net, in addition to the securities held by banks and insurers in their portfolios." In the German press, it is reported that a Greek exit would cost approximately EUR80bn (EUR16bn from bilateral KfW loans, EUR20bn from the EFSF, EUR12bn from the SMP and EUR30bn from Target 2, based on December 2012 data, source: FAZ).

Here, we estimate the euro area's official sector exposure to Greece (bilateral loans, EFSF guarantees and Eurosystem) and show that the cost estimations mentioned in the press match the exposure if you consider a 20% recovery rate on Greek holdings. 20% is rather low, but not unrealistic given the outcome of the PSI and devaluation of the new Greek currency in the event of an exit. However, because of the accounting treatment of the different exposures and the presence of some financial buffers within the Eurosystem, the one-off, year-end shock on public accounts will be much smaller, probably around EUR100bn (1% of GDP).

The Real Debate On Gold And Money

Our economic system cannot remain both free and centrally planned

by Jeff Snider

Monetary adjustments, heavy as they have been in these past four years, will remain a permanent part of our economic landscape so long as central banks remain committed to their current course.  Now that the annual excitation of economists and their dreams of recovery are waning, and the “unexpected” decline in the economy has returned right on schedule, the discussion needs to turn toward those monetary interventions.  

I have had many discussions with clients and members of the general public on the topic of the gold standard over the past few years, especially in the past several weeks as Chairman Bernanke deliberately broadcasts his specific problems with it from the perspective of a central banker tasked with “saving” the economy.  Even getting past the glaze of apparent anachronism, largely that something so archaic seems utterly incompatible with our modern electronic society, the persistent, and otherwise extremely healthy, mistrust of banks prevents a further discussion of how the gold standard really works.  

Human existence as a terrible “cancer” destroying God’s good creation

Environmentalism Has Become a Religion 

by Robert H. Nelson

Earth Day, the environmentalist holy day, is approaching again, reminding us that environmentalism has become a kind of religion. Which raises a question: Why is it OK to teach environmental religion in public schools, while the teaching of Judaism, Christianity, and other traditional religions is not constitutionally permitted?

As Joel Garreau, a former Washington Post editor, wrote in 2010,

“faith-based environmentalism increasingly sports saints, sins, prophets, predictions, heretics, sacraments and rituals.”

From a world in which hatred is incidental and avoidable to a world in which hatred is central and inescapable

The Systematic Organization of Hatreds

By Robert Higgs

In the mid-1970s, I began to do consulting work in addition to my academic work. By that time, I had become familiar with how economists generally analyze cooperation and competition, in both the economy and the political realm. Economists put great weight on gains from trade. Nobody, they like to say, walks past a $20 bill he sees lying on the sidewalk. If a situation contains the potential for a trade or other arrangement that will bring gain to a decision-maker, he will embrace that trade or arrangement. This market process leads, in the theoretical extreme, to the happy condition known as the Pareto Optimum—the situation in which all potential gains from trade have been captured.

Notice that this view of mankind causes us to think of people as self-interested, but not as vicious. Individuals are seen as, in effect, indifferent to the welfare of their trading or cooperating partners, but intent on making themselves as well-off as possible. They do not seek to harm others, but only to benefit themselves (and those about whom they happen to care).

Money, Gold and Human Liberty

By abandoning the gold standard we embraced monetary central planning chaos

“..when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty.

by DETLEV SCHLICHTER

It is my conviction that the central problem with the present system is the high degree of elasticity of the money supply. A system of constant fiat money expansion, of ongoing injections of new money into the economy via financial markets – sometimes slow, sometimes fast – must systematically distort interest rates and disarrange saving and investment. This will lead to capital misallocations and the mispricing of assets. As these distortions are systematic, the resulting dislocations are bound to accumulate over time and thus progressively destabilize the economy. Elastic money is suboptimal, unstable and unsustainable.

The point is not that a gold standard is perfect or ‘perfectly efficient’ or even free of any disturbances or disruptions. The point is simply that by fading out gold as a fairly inelastic basis of the monetary system and replacing it with essentially fully elastic and unlimited fiat money, as happened around the world in the period from 1914 to 1971, we have made the financial system and by extension our economies substantially more unstable. While the system can appear stable on the surface for extended periods, the economy is constantly accumulating imbalances that will finally unhinge it.

The case against growth and freedom

The Face of Genocidal Eco-Fascism

by John Aziz 

I am not exaggerating.

This is Finnish writer Pentti Linkola — a man who demands that the human population reduce its size to around 500 million and abandon modern technology and the pursuit of economic growth — in his own words.

He likens Earth today to an overflowing lifeboat:

What to do, when a ship carrying a hundred passengers suddenly capsizes and there is only one lifeboat? When the lifeboat is full, those who hate life will try to load it with more people and sink the lot. Those who love and respect life will take the ship’s axe and sever the extra hands that cling to the sides.

He sees America as the root of the problem:

The United States symbolises the worst ideologies in the world: growth and freedom.

He unapologetically advocates bloodthirsty dictatorship:

Any dictatorship would be better than modern democracy. There cannot be so incompetent a dictator that he would show more stupidity than a majority of the people. The best dictatorship would be one where lots of heads would roll and where government would prevent any economical growth.

Japan and Europe are Killing Themselves

They will tax themselves to death

by Steve Forbes

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.

The destruction of Bretton Woods in the early 1970s led to a horrific, inflation-wracked decade. The U.S. experienced a stagnant economy and rising inflation and was seen as a malaise-ridden nation in irreversible decline.

About Bears and Hamsters

'No biting the bear's sensitive parts' 

By John Helmer 

In the Kremlin corridors under the new management, it is generally acknowledged that one of the stupidest things former president (now premier) Dmitry Medvedev ever did was to order Russia's representative on the United Nations Security Council to abstain from the vote and veto of the no-fly zone resolution aimed at the Muammar Gaddafi regime in Libya. 

That was on March 17, 2010. Russian intelligence services already knew that United States and British submarines were in place under the surface of the Mediterranean, ready to fire missiles to start a war that was intended to end in Gaddafi's death. It did. 

A year later in 2011, when the campaign for Russia's parliamentary elections and the presidential succession was underway, that abstention almost ended in the death of
Medvedev's chances to stay under now President Vladimir Putin's protection. 

He didn't get the nod for a second term as president, but as prime minister he has survived in more lively shape than Gaddafi. 

However, Russian officials are now unanimous that the ill-fated effort by a Russian leader to allow a war of military intervention and regime change by the US and the North Atlantic Treaty Organization (NATO) alliance, funded by Arab sheikhdoms, should never be repeated. 

It's all about Pensions

Reframe the 'Growth vs. Austerity' Debate

By MICHAEL HODIN

From Athens, Greece, to Madison, Wisconsin, the common theme today is said to be “austerity versus growth.” In reality, we’re hearing little about what’s driving the growth side and a great deal about the disasters to come from cutting benefits. This dichotomy is perhaps most pronounced in Europe, where the “austerity versus growth” headlines rage. The terms “austerity” and “growth” have appeared within ten words of each other 380 times in major world publications in the past week alone, according to a Lexis Nexis search.

The discussion of these concepts continues to be framed as an either/or. There are the tight-fisted Germans led by Angela Merkel – and Mediterranean Europe that’s holding onto 20th-century ideas of work, life, and aging. The debate has become so entrenched that one can be forgiven for thinking it is either austerity or growth.

But there’s an alternative to this bifurcated rhetorical gridlock. If aging populations can break out of traditional roles of dependency to contribute to social and economic life, societies can find the magical balance of growth and what is now called austerity. Sound fantastical? It shouldn’t. It’s actually straightforward arithmetic and can be summarized in a 21st-century model of working life that connects to the fact we’re regularly living into our 90s.

Keynesianism is in a death spiral

The Case for Austerity

By Gary North

The Keynesians and declared anti-Keynesians have joined hands in order to promote an intensely Keynesian error: European fiscal austerity as a negative factor. One contributor in Forbes refers to austerity as a death spiral.

The word “austerity,” beginning with the Greek government’s debt crisis two years ago, has been used by the financial media in one sense, and only one sense: reductions in spending by national governments. The word is not used with respect to the economy as a whole.

More than this: the word has been used to explain the contracting economies of Europe. The reductions in government spending are said to have caused the contracting economies. This explanation is based on textbook Keynesianism.

Keynesians call for increased government spending. This is the heart of Keynesianism. Keynesianism rests on a mantra: “Government spending overcomes recessions.” All else is peripheral: monetary inflation, graduated taxation, and free trade. These peripheral issues will always be sacrificed to the supreme economic premise: “Government spending overcomes recessions.”

‘The real enemy is humanity itself’

At Rio+20, the world’s elites will meet with the aim of holding back human progress

by Ben Pile 

Forty years ago, two ideas about humanity’s relationship with the natural world caught the imagination of the richest and most influential people. The first was that the demands of a growing population were taking more from the planet than could be replaced by natural processes. The second, related idea was that there exist natural ‘limits to growth’. These two reinventions of Malthusianism became the basis of a new form of global politics, which has sought to contain human industrial and economic development ever since.

Fears about the possibility of global environmental catastrophe and its human consequences, as depicted by neo-Malthusians like Paul Ehrlich - author of the 1968 prophecy, The Population Bomb - and the Club of Rome - a talking shop for high-level politicians, diplomats and researchers - became the ground on which a number of organisations established under the United Nations were formed. In 1972, the UN held its Conference on the Human Environment, and began its environment programme, UNEP. In 1983, the World Commission on Environment and Development (WCED, aka The Brundtland Commission, after its chair, Norwegian politician Gro Harlem Brundtland) was formed, leading to the publication of its findings in 1987 in Our Common Future. Also known as the Brundtland Report, it became the bible of ‘sustainable development’.

Who Needs War for Oil?

Popular Illusions

By ROBERT P. MURPHY

For decades Americans have endured a steady drumbeat urging the need to wean the U.S. from its “addiction” to oil. The specific reasons differ, depending on the critic: leftists stress the environment and the social joys of a European-style mass transit system, while right-wingers worry about oil from a national-security standpoint. Yet both camps agree: left to its own devices, the laissez-faire American economy would rely too heavily on oil, and therefore there is an important role for federal intervention.

For a specific and recent example, let us turn to the group named SAFE, which stands for “Securing America’s Future Energy.” Its newly released report titled “The New American Oil Boom” explains:

The Future Is More Than Facebook

America's innovation engine is now focused on transportation, energy and manufacturing

By RICH KARLGAARD

In March 1986, Microsoft ended its first day as a public company with a market capitalization of $780 million. Its value grew more than 700 times that over the next 13 years and made Bill Gates, in 1999, the richest man ever with a net worth of $101 billion. When Facebook goes public this Friday its market cap could easily hit $100 billion, bringing founder Mark Zuckerberg's net worth to more than $18 billion. That's about 50 times what Mr. Gates was worth after Microsoft's IPO.

Facebook's big payday should be cause for celebration in a liberal democracy. Instead it has provoked two kinds of anxiety. Both imply America's best days are over.

Greece Will Reset

Think “Argentina” and you will see the same path for Greece

By Jeff Harding

There is no real solution for Greece. They are bankrupt and their economic foundation is rotten. They have bred a society that wants generous benefits on the one hand, and on the other, cynical producers who don’t want to pay taxes. They are similar to Eastern Bloc countries post-Soviet collapse. They need a similar revolution to shake off the socialists and forge a new government based on free market principles. They need a complete reformation of their economy. Anything else will just delay the inevitable.

The eurozone would be better off by jettisoning Greece and letting them fail. The money spent to save them will be wasted. One can only hope against hope that they will re-emerge without their social burdens and with a free market economy. Otherwise, and probable, will be a prolonged depression for Greece.

I haven’t been writing much about the eurozone, and especially Greece, lately because I don’t think I have much more to say than I already have, other than to report what “progress” has been made. Which is to say, none. And which is what I had expected.

That Which Is Unsustainable Will Go Away

Take a closer look at Pensions

Publicly funded pensions are examples of unsustainable systems that will go away in the decade ahead. 

by Charles Hugh Smith

One of the few things we know with certainty is that which is unsustainable will go away and be replaced by another more sustainable arrangement. Whether we like it or not, or are willing to accept reality or not, unsustainable public pensions will go away.

What makes "defined benefit" pensions unsustainable? 
1) Promised cash/benefits packages that are not aligned with the fiscal realities of what can be contributed annually to the pension funds 
2) New Normal low yields on low-risk investments and 
3) skyrocketing costs of healthcare benefits.

The breakdown of the Greek civil society

The Wisdom of Thucydides

Thucydides was probably born about 460 BC and was for a time a General on the side of democratic Athens against aristocratic Sparta in what is known as the Peloponnesian War in which most of Greece took a side. After being exiled he wrote his famous history. The passage that I’ve quoted in full below is, in my opinion, one of the finest passages of classical antiquity. I was somewhat surprised not to be able to find it elsewhere quoted online. 

It describes the breakdown of civil society and in doing so it perfectly describes every civil war and revolution that has taken place in the almost two and half thousands years since it was written including the English Civil War, French Revolution, American Civil War, Russian Revolution, and Spanish Civil War. Human nature, it seems is immutable.

I bring it to attention in the vain hope that those who have blindly pursued the policies which have brought Greece to the brink and risks plunging the whole of Europe into the abyss, might consider more keenly the consequences of their actions and change course before it’s too late.