Ambrose Evans-Pritchard both dangerous and insane.

[globaleconomicollaps]

America and China must crush Germany into submission

By Ambrose Evans-Pritchard Economics Last updated: November 9th, 2011



Barack Obama greets Hu Jintao, the Chinese President (Photo: AP)

As we watch Italy's 10-year bond yields near 7.5pc and threaten to detonate the explosive charge on €1.9 trillion of debt, it is time for the world to reimpose order.

You cannot allow the biggest bankruptcy in history to run its course – with calamitous domino implications – before all options have been exhausted.

One can only guess what is happening in the great global centres of power, but it would not surprise me if US President Barack Obama and China's Hu Jintao start to intervene very soon, in unison and with massive diplomatic force.

One can imagine joint telephone calls to Chancellor Angela Merkel more or less ordering her country to face up to the implications of the monetary union that Germany itself created and ran (badly).

Yes, this means mobilizing the full-firepower of the ECB – with a pledge to change EU Treaty law and the bank's mandate – and perhaps some form of quantum leap towards a fiscal and debt union.

Germany will of course try to say no. But it will pay a catastrophic diplomatic and political price, and will fail to save its economy anyway if it does so.

Having followed the German political scene closely for the last five months, it is clear to me that almost the entire German political establishment is out of its depth, ideological, sometimes smug, apt to view the EMU debt-crisis as a Calvinist morality tale, and lacking in deep understanding of what it has got itself into.

One can understand German worries about money printing – and especially the loss of fiscal sovereignty and democratic control – but matters have already moved on. It is too late for that.

As for the EU authorities with their mad contractionary fiscal and monetary policies in an accelerating slump, they seem to have achieved little by toppling two elected governments in one week.

In Italy they have already made matters worse. I doubt that much will change with "technocratic governments" in either Greece and Italy, yet immense damage has been done to democratic accountability.

The EU Project has become both dangerous and insane.

http://blogs.telegraph.co.uk/finance...to-submission/

[astonas]

Re: Ambrose Evans-Pritchard both dangerous and insane.

It really is funny to watch Ambrose Evans-Pritchard write a self-righteous, ideological rant about Germany's self-righteous, ideological stance.

He's ignoring the fact that Germany (where a full 85% of voters want to cut bait on Greece and similar profligate nations) would rise up in revolt against any leader that tried to openly do what he is proposing.

[ASH]

Re: Ambrose Evans-Pritchard both dangerous and insane.

It really is funny to watch Ambrose Evans-Pritchard write a self-righteous, ideological rant about Germany's self-righteous, ideological stance.

He's ignoring the fact that Germany (where a full 85% of voters want to cut bait on Greece and similar profligate nations) would rise up in revolt against any leader that tried to openly do what he is proposing.

Yeah... this is especially ironic, given what he's recently written about democracy and the Greek referendum which didn't happen. When the political needs of the EU trump democratic sentiment in Greece, it's a travesty -- but when German leaders represent the democratic sentiment of their constituents, they need to be leaned upon.

Still, Evans-Pritchard is pretty convinced that behind Door #2 lies depression, so I can forgive him for an ill-thought-out blog post.

[astonas]

Re: Ambrose Evans-Pritchard both dangerous and insane.

Still, Evans-Pritchard is pretty convinced that behind Door #2 lies depression, so I can forgive him for an ill-thought-out blog post.

I agree with him about Door #2. I just think he's blind to the fact that depression also lies behind Door # 1.

[oddlots]

Re: Ambrose Evans-Pritchard both dangerous and insane.

Is there a door number 3? It seems to me that a lot of this stuff is somewhat "technocratic" in nature (i.e., abstruse, arcane etc., as Central Banking is by nature.) In other words, it's incumbent upon governments to lead because the man-on-the street view is likely going to be just disastrously wrong. The Calvinist, moralistic lens on this crisis that seems to dominate the discussion would be a case in point.

"For every subtle and complicated question, there is a perfectly simple and straightforward answer, which is wrong." H.L. Mencken

Another way of putting it might be by analogy to acrobatic spins. The first guy to master this from my understanding was Lincoln Beachey who was also the first pilot to realise that you needed to turn into the spin to come out of it. Completely counter-intuitive.



Evans-Pritchard is I think right about the ECB being the proximate author of the crisis. Edward Harrison has been writing some very good posts on this lately. It goes some way to explaining the cascading nature of the crisis: the only entity able to stop this is the ECB because only the ECB can act as a true backstop through the threat of monetisation. The fact that the ECB is forbidden from doing this by its charter was - especially in the absence of very rigid fiscal controls across the EU - a momentous blunder. What's scary is that the ECB needs to somehow vault over the limitations of its own charter and philosophy in order to save the day, something that seems a very remote possibility.

Here's some of Ed Harrison's pieces:

So, how the heck do we get out of this morass? My argument has been that with the central bank as a lender of last resort, solvency is meaningless for a government borrowing in a currency its central bank creates. In a nonconvertible floating exchange rate world, the adjustment mechanism is the exchange rate, not the interest rate. The last twenty years in Japan tell us that.

Translation:

"… all countries which issue the vast majority of debt in their own currency (U.S, Eurozone, U.K., Switzerland, Japan) will inflate. They will print as much money as they can reasonably get away with. While the economy is in an upswing, this will create a false boom, predicated on asset price increases. This will be a huge bonus for hard assets like gold, platinum or silver. However, when the prop of government spending is taken away, the global economy will relapse into recession.

-Credit Writedowns, Oct 2009

That’s a soft depression scenario where the countries with a true lender of last resort can backstop without problems. In the euro zone, the ECB is not a lender of last resort… yet. And so the solvency issue cannot be postponed, monetised or inflated away and comes to a head. In fact, had the ECB been allowed to intervene as a lender of last resort earlier when just Greece was on the line in March 2010, we wouldn’t be here at all. Since then, the ECB has intervened only as a quid pro quo for more economy-deflating austerity, making things worse. And when they have bought periphery bonds they have been timid to prevent the currency-weakening moral hazard of ‘fiscal profligacy’. Credible lenders of last resort use price, not quantity signals. Everything in the sovereign debt crisis that has transpired since March 2010 is directly attributable to the ECB’s not acting as a lender of last resort."

http://www.nakedcapitalism.com/2011/...alian-job.html

This second piece was a particularly helpful summary:

http://www.creditwritedowns.com/2011...our-peril.html

[don]

Re: Ambrose Evans-Pritchard both dangerous and insane.

I heard a European political-economist (sorry I can't remember his name) say that Europe's economy has been a Corporatist one for decades. He was asked isn't that the same as fascism and he answered yes, except today the national element, so prominent in the 30s and 40s, is absent.

Wonder if it will show up with the breakup?

More of that 2 step forward, one step back tango.

[astonas]

Re: Ambrose Evans-Pritchard both dangerous and insane.

Is there a door number 3? It seems to me that a lot of this stuff is somewhat "technocratic" in nature (i.e., abstruse, arcane etc., as Central Banking is by nature.) In other words, it's incumbent upon governments to lead because the man-on-the street view is likely going to be just disastrously wrong. The Calvinist, moralistic lens on this crisis that seems to dominate the discussion would be a case in point.

"For every subtle and complicated question, there is a perfectly simple and straightforward answer, which is wrong." H.L. Mencken

Another way of putting it might be by analogy to acrobatic spins. The first guy to master this from my understanding was Lincoln Beachey who was also the first pilot to realise that you needed to turn into the spin to come out of it. Completely counter-intuitive.



Evans-Pritchard is I think right about the ECB being the proximate author of the crisis. Edward Harrison has been writing some very good posts on this lately. It goes some way to explaining the cascading nature of the crisis: the only entity able to stop this is the ECB because only the ECB can act as a true backstop through the threat of monetisation. The fact that the ECB is forbidden from doing this by its charter was - especially in the absence of very rigid fiscal controls across the EU - a momentous blunder. What's scary is that the ECB needs to somehow vault over the limitations of its own charter and philosophy in order to save the day, something that seems a very remote possibility.

Here's some of Ed Harrison's pieces:

So, how the heck do we get out of this morass? My argument has been that with the central bank as a lender of last resort, solvency is meaningless for a government borrowing in a currency its central bank creates. In a nonconvertible floating exchange rate world, the adjustment mechanism is the exchange rate, not the interest rate. The last twenty years in Japan tell us that.

Translation:

"… all countries which issue the vast majority of debt in their own currency (U.S, Eurozone, U.K., Switzerland, Japan) will inflate. They will print as much money as they can reasonably get away with. While the economy is in an upswing, this will create a false boom, predicated on asset price increases. This will be a huge bonus for hard assets like gold, platinum or silver. However, when the prop of government spending is taken away, the global economy will relapse into recession.

-Credit Writedowns, Oct 2009

That’s a soft depression scenario where the countries with a true lender of last resort can backstop without problems. In the euro zone, the ECB is not a lender of last resort… yet. And so the solvency issue cannot be postponed, monetised or inflated away and comes to a head. In fact, had the ECB been allowed to intervene as a lender of last resort earlier when just Greece was on the line in March 2010, we wouldn’t be here at all. Since then, the ECB has intervened only as a quid pro quo for more economy-deflating austerity, making things worse. And when they have bought periphery bonds they have been timid to prevent the currency-weakening moral hazard of ‘fiscal profligacy’. Credible lenders of last resort use price, not quantity signals. Everything in the sovereign debt crisis that has transpired since March 2010 is directly attributable to the ECB’s not acting as a lender of last resort."

http://www.nakedcapitalism.com/2011/...alian-job.html

This second piece was a particularly helpful summary:

http://www.creditwritedowns.com/2011...our-peril.html

Thanks for posting these pieces. However, I can't help noticing that Ed Harrison appears to be making the same mistake that all the participants in the FIRE economy, both in Europe and the U.S., have. Acting as lender of last resort to Greece would NOT have stopped the crisis at all, but merely postponed it more effectively. And while postponing the problem might mean that you have a CHANCE grow your way out of debt, it also means that the problem gets bigger still if you don't. And the bottom line is that I simply have not encountered a single believable argument that Greece could ever have grown out of its debts.

So as painful as it is to be confronting the problem now (and it will be awful) it is STILL better for all concerned than finding a way to burden Greece with yet another decade of debt, and THEN confronting the problem.

You don't have to be a moral Calvinist to think that pulling the band-aid off quickly is better than doing so slowly. There are indeed plenty of those around, but I think Calvinists are found more among the electorate than the technocrat crowd.

[oddlots]

Re: Ambrose Evans-Pritchard both dangerous and insane.

Thanks for posting these pieces. However, I can't help noticing that Ed Harrison appears to be making the same mistake that all the participants in the FIRE economy, both in Europe and the U.S., have. Acting as lender of last resort to Greece would NOT have stopped the crisis at all, but merely postponed it more effectively. And while postponing the problem might mean that you have a CHANCE grow your way out of debt, it also means that the problem gets bigger still if you don't. And the bottom line is that I simply have not encountered a single believable argument that Greece could ever have grown out of its debts.

So as painful as it is to be confronting the problem now (and it will be awful) it is STILL better for all concerned than finding a way to burden Greece with yet another decade of debt, and THEN confronting the problem.

You don't have to be a moral Calvinist to think that pulling the band-aid off quickly is better than doing so slowly. There are indeed plenty of those around, but I think Calvinists are found more among the electorate than the technocrat crowd.

I'm of at least two minds about all of this but here's what's at issue as I see it:

- the market recognises that, as Hudson would say "debts that can't be repaid won't be"
- I think the market is right
- but I also know that the aggregate effect of that recognition being played out without any moderator is - at least in part - exactly the sort of self-sustaining death spiral that central banking is meant to forestall (a liquidity crisis) in the Bagehot sense
- I think that Harrison's point is simply that the ECB seems unable to grasp that only an open-ended threat is able to actually "backstop" the system, especially given all the leverage available to put additional pressure on the bond markets versus the shaky tax receipts of individual nations during an (frankly, "open-ended") recession. (Note that his "soft landing" is a small d depression.)
- further, I don't think that he's arguing that such a volte face from the ECB is sufficient to deal with the crisis, just necessary (The kicker here is that the Troika's incoherent prescription for Greece - shrink to solvency - would have more not less credibility in the market as the crisis unfolds if the ECB was willing to become activist.) In other words, Europe needs massive and painful adjustment from all players, but it also needs a creative central bank to give it TIME to do this.
- I don't even think that this is actually prima facie in contradiction to the role of a "hard money" philosophy. (Where were they when all this debt was run up? Or, more to the point, once you've allowed this to happen it doesn't seem contradictory to think you have to get out of your comfort zone to get out of it.)

[jk]

Re: Ambrose Evans-Pritchard both dangerous and insane.

Thanks for posting these pieces. However, I can't help noticing that Ed Harrison appears to be making the same mistake that all the participants in the FIRE economy, both in Europe and the U.S., have. Acting as lender of last resort to Greece would NOT have stopped the crisis at all, but merely postponed it more effectively. And while postponing the problem might mean that you have a CHANCE grow your way out of debt, it also means that the problem gets bigger still if you don't. And the bottom line is that I simply have not encountered a single believable argument that Greece could ever have grown out of its debts.

So as painful as it is to be confronting the problem now (and it will be awful) it is STILL better for all concerned than finding a way to burden Greece with yet another decade of debt, and THEN confronting the problem.

You don't have to be a moral Calvinist to think that pulling the band-aid off quickly is better than doing so slowly. There are indeed plenty of those around, but I think Calvinists are found more among the electorate than the technocrat crowd.

a burst of inflation => honey, i shrunk the debt.

[c1ue]

Re: Ambrose Evans-Pritchard both dangerous and insane.

a burst of inflation => honey, i shrunk the debt.

by stealing from savers.

[globaleconomicollaps]

Re: Ambrose Evans-Pritchard both dangerous and insane.

I heard a European political-economist (sorry I can't remember his name) say that Europe's economy has been a Corporatist one for decades. He was asked isn't that the same as fascism and he answered yes, except today the national element, so prominent in the 30s and 40s, is absent.

Wonder if it will show up with the breakup?

More of that 2 step forward, one step back tango.

Le Pen is out-polling Sarkozy here in France. Berlusconi is an authentic fascist that speaks positively of Mussolini's Brown-shirts.

[unlucky]

Re: Ambrose Evans-Pritchard both dangerous and insane.

I'm of at least two minds about all of this but here's what's at issue as I see it:

- the market recognises that, as Hudson would say "debts that can't be repaid won't be"
- I think the market is right
- but I also know that the aggregate effect of that recognition being played out without any moderator is - at least in part - exactly the sort of self-sustaining death spiral that central banking is meant to forestall (a liquidity crisis) in the Bagehot sense
- I think that Harrison's point is simply that the ECB seems unable to grasp that only an open-ended threat is able to actually "backstop" the system, especially given all the leverage available to put additional pressure on the bond markets versus the shaky tax receipts of individual nations during an (frankly, "open-ended") recession. (Note that his "soft landing" is a small d depression.)
- further, I don't think that he's arguing that such a volte face from the ECB is sufficient to deal with the crisis, just necessary (The kicker here is that the Troika's incoherent prescription for Greece - shrink to solvency - would have more not less credibility in the market as the crisis unfolds if the ECB was willing to become activist.) In other words, Europe needs massive and painful adjustment from all players, but it also needs a creative central bank to give it TIME to do this.
- I don't even think that this is actually prima facie in contradiction to the role of a "hard money" philosophy. (Where were they when all this debt was run up? Or, more to the point, once you've allowed this to happen it doesn't seem contradictory to think you have to get out of your comfort zone to get out of it.)

That seems right to me. Bear in mind that in Europe as well as ideological blinkers we also have the complication of inter-governmental politics, which limits the capacity of pragmatically-minded politicians to act. For example in Germany we know that there are plenty of Calvinists who want to punish the profligates, but there are also pragmatists who realize that Germany must act to save Europe. Unfortunately they can't do this unilaterally- simply pumping more cash into Greece and Italy indefinitely will as Astonas says only delay the inevitable. They need cooperation from the governments of these countries, which as we see is not easy to get. And unfortunately the only leverage available to extract cooperation, is the threat of with-holding support and allowing the PIGS to slip into default.

If Italy succeeds in putting together a new government, and credibly promises to enact reforms, then the onus will be on the rest of the Eurozone to immediately provide the finance needed to prevent the death spiral. At that point we may finally get to see whether the Eurozone has a chance to survive, or not.

Bearing in mind that Italy is a founder member of the EU, one of the largest economies is Europe, and is widely considered to be solvent - if in these circumstances the Eurozone does not save Italy it will be a massive blow to European solidarity. Politically, if not financially, the Eurozone will be finished.

[Chris Coles]

Re: Ambrose Evans-Pritchard both dangerous and insane.

He is not insane; what he has done is voice the concern that the real "Banksters" will do or say anything to pass the responsibility for the mess we are all in, onto Germany, making it their fault, rather than accepting that the problem is the whole economy of the Western nations is about to collapse.

[cobben]

Re: Ambrose Evans-Pritchard both dangerous and insane.

America and China must crush Germany into submission

"Crush"? . . .well, a little armtwisting at least . . .


Crisis:Italy is a rich country,unlike Greece;Obama to ANSA
10 November, 12:01


He then made an appeal to European chancelleries, and especially those in Paris and Berlin, calling on them to fully take on their responsibilities. ''What we are trying to ask all of Europe, and first and foremost France and Germany as they wield the greatest influence, is to reach an agreement with Greece in a serious manner. And I think they are trying. As concerns Italy,'' concluded Obama, ''Europe needs to send a clear signal to markets that it will do its part, making sure that Italy gets past this liquidity crisis. So far Europe has not brought in the necessary structures able to ensure this market confidence. It is not too late, but it is necessary to act in a more aggressive manner.''

[unlucky]

Re: Ambrose Evans-Pritchard both dangerous and insane.

Sounds like he's not quite ready to deploy the nuclear arsenal yet, then