The Monster Has Awakened

Brussels issues a War Declaration

"I was answered through the stillness of night by a loud and fiendish laugh. It rang on my ears long and heavily; the mountains re-echoed it, and I felt as if all Hell surrounded me with mockery and laughter."

                                               -Mary Shelley, Frankenstein
by Mark J. Grant

The most significant event of yesterday was not the Spanish banking system unlocking the door to the horror chamber and clicking the melt-down button that it found on the wall but what happened at the European Union. That which had been created woke and in its new found consciousness sat upright and staring into the void it turned upon its Master. It should not have come as a surprise, I suppose, but the mockery of the beast was a frightening sight.

For thirteen years the nations of Europe had worked, slaved, propped up their egos with their ministrations and yesterday the Creation came into its own mind and threw off the shackles in which it had been bound and leapt up upon the table and announced that it no longer belonged to any man and that the chains that had held it would not enslave it any longer. Brussels turned, and looking Berlin squarely in the eye, it used impolite words and gestures and essentially said:

"Stick it."

Are You Ready?

Europe Is About to Implode... 

By Graham Summers

I've warned time and again that the EU would collapse in May-June. That collapse is here right on schedule. And NO ONE will be able to stop it.

Here's why:

1) According to the IMF, European banks as a whole are leveraged at 26 to 1 (this data point is based on reported loans... the real leverage levels are much, much higher.) These are a Lehman Brothers leverage levels.

2) The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).

It's Not Our World

The World America Made

By Mark Steyn

There is a great deal of ruin in a nation, and even more of it in the nation's publishing catalogue. Robert Kagan has noticed the resurgence of declinism; he doesn't care for it; and The World America Made is his response to it. For the record, I am not a declinist: I'm way beyond that, and am more of a collapsist, as may be adjudged from the title of my own contribution to the genre, After America, and even more from its subtitle, "Get Ready for Armageddon." As I'm always at pains to point out, an author doesn't get into the apocalyptic doom-mongering biz because he wants it to happen. As anyone who's tried enforcing his copyright in China or the old Soviet Union or your average nickel-'n'-dime Third World basket case well knows, in a world without Western civilization the royalty checks are going to be a lot smaller. So you write the head-for-the-hills stuff in hopes of preventing the need to.

Debt, Austerity and Recovery

Debt, the enemy of growth

By Robert Huebscher

Global economies are experiencing unsustainable debt disequilibrium, according to Lacy Hunt.   Economic textbooks preach that equilibrium, rather than transition, should be the predominant condition.   But our attempts to reduce our indebtedness by taking on more – and less productive – debt are weakening our economy and creating unstable conditions.

“If we take on debt, either in the private sector or indirectly in the government sector, to finance current consumption, the net result is that we will make the economy weaker and weaker,” Hunt said. “That is basically the path that we are on.”

The Truth About Europe

There Is No Solution

By Raul Ilargi Mendoz

I like that title, The Truth About Europe: There Is No Solution. But I don't think it can all be summed up, the reasons why I mean, in one article. So I think I'll make it a running series. Still, whatever data we can look at, past, present and future, none of it will make an essential difference. The title stands: There Is No Solution For Europe. Period.

All I can do is keep pointing to news and stats and data that confirm that. All of them do, so that should make it a lot easier, even if most voices out there never tire from pointing out the opposite.

Nor do I need to limit my topic to Europe; it's not as if the US, or Australia, or any other industrialized country, has any other fate to look forward to. This global debt deflation is truly global, the only thing that differs is the exact time the hammer comes down. Maybe those people are best off who never had much, though they will be sure to be squeezed ever harder by us, the declining rich.

Wall Street Food Chain

Plankton Disappearing, Food Chain at Risk

By William H. Gross

The whales of our current economic society swim mainly in financial market oceans. Innovators such as Jobs and Gates are as rare within the privileged 1% as giant squid are to sharks, because the 1% feed primarily off of money, not invention. They would have you believe that stocks, bonds and real estate move higher because of their wisdom, when in fact, prices float on an ocean of credit, a sea in which all fish and mammals are now increasingly at risk because of high debt and its delevering consequences. Still, as the system delevers, there are winners and losers, a Wall Street food chain in effect.

These economic and/or financial food chains depend on lots of little fishes in the sea for their longevity. Decades ago, one of my first Investment Outlooks introduced “The Plankton Theory” which hypothesized that the mighty whale depends on the lowly plankton for its survival. The same applies in my view to Wall, or even Main Street. When examining the well-known wealth distribution triangle of land/labor/capital, the Wall Street food chain segregates capital between the haves and have-nots: The Fed and its member banks are the metaphorical whales, the small investors earning .01% on their money market funds are the plankton. Yet similar comparisons can be drawn between capital and labor. 

6 reasons Spain will leave the euro first

Spain is too big to rescue, and doesn’t want it anyway

By MATTHEW LYNN

The euro debt crisis, like any really spectacular geoeconomic event, is spawning its own special vocabulary.

We’ve already had Merkozy, now relegated to the footnotes, and are slowly getting used to the clunkier Merlande or Merkellande, as the oddly matched pairing of the German Chancellor Angela Merkel and the French President Francois Hollande has been dubbed. The Grexit, short for Greece finally giving up on the single currency, has been trending for the last few weeks. And coming up next: the Spexit.

What’s that? It’s shorthand for Spain quitting the euro — and we’re going to hear a lot of it over what promises to be a turbulent summer.

The Spanish are a lot more likely to pull out of the euro than the Greeks, or indeed any of the peripheral countries. They are too big to rescue, they have no political hang-ups about rupturing their relations with the European Union, they are already fed up with austerity, and there is a bigger Spanish-speaking world for them to grow into. There are few good reasons for the country to stay in the euro — and little sign it has the will to endure the sacrifices the currency will demand of them.

No one has any idea what will happen next

On Europe: "A Willing Lender Of Last Resort May Not Be Enough"

It is becoming clearer and clearer that some new policy option is required in Europe - but as JPMorgan's Michael Cembalest excellent cartoon description of the never-ending circular arguments among European leaders would put it - you would have to be a wide-eyed optimist to believe it will be a decisive one. Comparing the progress of the European Monetary Union with structural changes in the US around the end of the 19th century, it is arguable that more time is needed before judgment is passed but they may not get the chance.

The resolution of a staggering EUR10 trillion in peripheral sovereign, household, and corporate debt may not wait. Durable unions are signaled by signs of wage convergence and unilateral transfers of wealth to smooth regional income difference - while a lender of last resort appears to be most people's solution, it likely will not be enough given the competitive divergences.

"How long can this farce go on? It feels like a new policy option is needed (particularly in Spain, which looks terrible), but you would have to be a wide-eyed optimist to believe it will be a decisive one. Over the weekend, I reread an influential paper from the 1949 US Quarterly Journal of Economics which looked at how the US survived the Great Depression. A critical factor: US regional transfers undertaken by the US Treasury which were “unilateral in nature, akin to a capital movement, a gift or an indemnity in international trade”.

Green Requiem

Spain Ejects Clean-Power Industry 

By Alex Morales and Ben Sills

Spanish renewable-energy companies that once got Europe’s biggest subsidies are deserting the nation after the government shut off aid, pushing project developers and equipment-makers to work abroad or perish.

From wind-turbine maker Gamesa Corp. Tecnologica SA (GAM) to solar park developer T-Solar Global SA, companies are locked out of their home market for new business. These are the same suppliers that spearheaded more than $69 billion of wind and solar projects since 2004 that today supply more than 50 percent of Spain’s power demand on the most breezy and sunny days.

Saddled with a budget deficit more than twice the European Union limit and a ballooning gap between income and costs in its power system, Spain halted subsidies for new renewable-energy projects in January. The surprise move by Prime Minister Mariano Rajoy one month after taking office helped pierce investor confidence in stable aid for clean energy across Europe.

Rockefellers and Rothschilds unite

172 years of combined experience 

By Daniel Schäfer

Two of the best-known business dynasties in Europe and the US will come together after Lord Jacob Rothschild’s listed investment trust and Rockefeller Financial Services agreed to form a strategic partnership.

RIT Capital Partners is to buy a 37 per cent stake in the Rockefeller’s wealth advisory and asset management group for an undisclosed sum, giving Lord Rothschild’s London-listed trust a much sought-after foothold in the US.

The transatlantic union brings together David Rockefeller, 96, and Lord Rothschild, 76 – two family patriarchs whose personal relationship spans five decades.

The Rockefeller group traces its roots back to 1882 when John D. Rockefeller established one of the world’s first family offices dedicated to investing his wealth. It has since developed into a provider of wealth and asset management services to other families, foundations and institutions. It is majority-owned by the 19th century oil magnate’s family and has $34bn of assets under administration.

The partnership with RIT will focus on setting up investment funds, eyeing joint acquisitions of wealth and asset managers and granting each other non-executive directorships.

U.S.A. 2012. A nation of liars and thieves.

Is This What We've Become?

"Incentivize victimhood, fraudulent accounting of income/collateral and gaming the system, and guess what you get? A nation of liars and thieves"

By Charles Smith

Memorial Day is traditionally a day to speak of sacrifices made in combat. Like much of the rest of life in America, it has largely become artificial, a hurried "celebration" of frenzied Memorial Day marketing that is quickly forgotten the next day.

Instead of participating in this rote (and thus insincere) "thank you for your sacrifice" pantomime, perhaps we should ask what else has been sacrificed in America without our acknowledgement. Perhaps we should look at the sacrifices that need to be made but which are cast aside in our mad rush to secure "what we deserve."

The unvarnished reality is that most Americans have no idea what service members experienced in Iraq and Afghanistan, and they don't want to know. When 4,488 white crosses were erected on a hillside to remind us of all those who made the ultimate sacrifice in Iraq, people didn't like it, labeling it "unpatriotic."

Why The ECB Will Print

Never underestimate a desperate central bank’s willingness to print

By Jeff Harding

There is a lot of chatter about the eurozone, Greece, Spain, Germany, and the European Central Bank (ECB). And rightly so since we appear to be reaching a critical stage there. Some have raised the point that there is nothing the ECB can do to solve their problems. That is correct in the long run. But in the short run, never underestimate a desperate central bank’s willingness to print.

This morning I was referred to an article from Phoenix Capital Research that posited that “THERE IS NO ENTITY ON EARTH THAT CAN BAILOUT EUROPE.” I suggest you read it; it’s not long. It shows the complexity of the situation for a system that was born to fail. Phoenix has another article today on this topic on their web site. 

Their first point was:

Why Moral “Don’ts” Matter Most

Social harmony is directly related to the existence of clear standards for behavior
By David C. Rose

How important are moral values for the development and operation of a free-market economy? What follows is an explanation for why some moral values—the moral “don’ts”—are important to the conduct of economic activity, while other moral values—the moral “do’s”—can actually act as impediments. This distinction was first proposed in my book, The Moral Foundation of Economic Behavior. An interesting byproduct of this exercise is that it sheds light on what a moral framework that comports with libertarianism might look like.

“Moral do’s” are exhortations that tell us what to do if we are to be moral. Since the positive moral action they encourage is often a matter of degree, they tend not to be specific. For example, the moral exhortation “be generous” may induce you to give a beggar money, but it does not tell you how much to give in any given circumstance. Moral exhortations leave unanswered the question of how generous is generous enough to be moral. There are different degrees of generosity, and what you might think is appropriately generous in a given circumstance I might find inadequate.

Etan Patz: the case that changed America

The time has come to let the climate of fear go and to let Etan Patz rest in peace

Thirty-three years on, a man has been arrested for the murder of six-year-old Etan. But America is still reeling from that abduction.

by Nancy McDermott 

On 25 May 1979, a six-year-old boy named Etan Patz went missing on his first solo journey to school. Last week, almost 33 years to the day, New York police announced the arrest of Pedro Hernandez for Etan’s murder.

New Yorkers are greeting the news cautiously and with something like bewilderment. We’ve been down this road before. Thirty-three years of false leads and wild speculation have rendered this event so much larger than life. The disappearance of Etan haunted a generation. This was the story that changed everything. It was the abduction that came to define childhood in the years to follow. It seems almost impossible to imagine that it could, finally, be over.

It’s still possible to visit the corner of Prince and Broom where Etan disappeared so many years ago. Today the area is gentrified, with restaurants and expensive boutiques; barely a trace remains of the New York of the 1970s. Looking at the city today, it’s hard to imagine how different things were then, before its rise to become the de facto financial centre of the world.

The austerity that wasn't.

The Myths of the Interventionists

by Steven Horwitz

One of the most pernicious myths in the economic history of the twentieth century is the belief that the Great Depression was caused, or at least worsened, by Herbert Hoover’s dogmatic commitment to a “do nothing” laissez-faire policy in the aftermath of the stock market crash. This argument is part and parcel of the set of beliefs about the Great Depression that I have dubbed the “high school history” version of that event. (It includes the claims that laissez faire caused it, Hoover’s inaction worsened it, the New Deal did wonders, and World War II got us all the way out.) This claim about Hoover’s dedication to laissez faire is, as I have suggested, utterly false.

"Let’s teach these darkies about the rule of law"

The racial bias in international criminal justice

by Tim Black 

We’re midway through a debate on the future of the International Criminal Court (ICC), and Courtenay Griffiths QC is almost bristling. An audience member at the London conference has questioned whether Griffiths’ criticism of the international criminal-justice system is tantamount to defending impunity. ‘My critique is based on my love and respect for the law’, counters Griffiths, ‘and my disgust at the way in which international criminal justice is currently being practised’.

‘Africa has suffered enough’, he continues, ‘from the atrocities committed by its own people -  and I’m old enough to remember Emperor Bokassa. So yes, there is a need for an end to impunity. But in my mind, the push against impunity has to come from African people themselves, from the bottom up. The idea that the white man comes to Africa as he did during the nineteenth century - bearing the White Man’s Burden - to bring the benefits of international justice to black people… I reject that totally. It’s for black people to do it for themselves in Africa. That’s the start [of an end to impunity].’

Approaching the point of no return

"When the people find that they can vote themselves money, that will herald the end of the republic."

By Walter E. Williams

Our nation is rapidly approaching a point from which there's little chance to avoid a financial collapse. The heart of our problem can be seen as a tragedy of the commons. That's a set of circumstances when something is commonly owned and individuals acting rationally in their own self-interest produce a set of results that's inimical to everyone's long-term interest. Let's look at an example of the tragedy of the commons phenomenon and then apply it to our national problem.

Imagine there are 100 cattlemen all having an equal right to graze their herds on 1,000 acres of commonly owned grassland. The rational self-interested response of each cattleman is to have the largest herd that he can afford. Each cattleman pursing similar self-interests will produce results not in any of the cattlemen's long-term interest -- overgrazing, soil erosion and destruction of the land's usefulness.

Perestroika and Soviet Economic Reforms

An Inside Perspective

By Yuri N. Maltsev, March 1990

The crisis in the Soviet economy is now apparent to both Soviet and Western observers. The causes and manifestations of this crisis have been cogently described elsewhere. The response of the Soviet ruling class to the deteriorating economy and growing societal alienation was the program of reforms known as perestroika, which was initiated in 1985 and significantly amended in 1987 and 1989.

A number of scholars have provided interesting analyses of the perestroika reforms, drawing on the history of past attempts (in 1957, 1965, 1974, and 1979) to restructure and reform the Soviet economic system. Much less attention has been paid, however, to the problems involved in making the transition from a centrally planned economy to a market system. Understanding the challenges of this task is of crucial importance both for assessing the prospects for reform in the Soviet Union and Eastern Europe and for shaping a coherent policy toward events and reforms in these parts of the world.

Fast-moving events in the Soviet bloc hold out the promise of a possible end or amelioration of the decades- long conflict between East and West. In light of the stakes involved, it is urgent to understand accurately the nature of the declared reforms and prospects for their success.

The European nations have nailed themselves to the cross

The Buyers Have Left The House

“We are on strike against the morality of cannibals.”

                                                                                -Ayn Rand
by Mark J. Grant

Slowly, surely the largest investors in the world are no longer buying the debt of Europe. Recently the Chinese sovereign wealth fund, China Investment Corp., said that they were done and would no longer be buying European debt. The institutional readers of “Out of the Box” number somewhat more than 5,000 money managers and I can report that one after another they are either seriously pairing back on their holdings or exiting Europe.

Two sentences and the French ego balloon just got popped

Merkel Strikes Back Against Hollande

By Tyler Durden

Some thought that German chancellor Angela Merkel would quietly take the abuse heaped on her, and her program of "austerity" (or deleveraging as we call it, but that just does not have quite the negative connotations of a word that has become symbolic for all that is wrong with a massively over levered world) by the new French president and Germany's increasingly more insolvent "partners", without much of a fuss.