Category: Currency

Syriza Wins Election

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He formed a (rather odd) coalition with the, “populist right-wing Independent Greeks party,” as he secured only 149 seats in the 300 seat assembly, Syriza chief Alexis Tsipras has been sworn in as Prime Minister:

A new chapter in Greece’s uphill struggle to remain solvent – and in the eurozone – has begun in earnest as anti-austerity politicians assumed the helm of government following the radical left Syriza party’s spectacular electoral victory on Sunday night.

Ushering in the new era, Alexis Tsipras was not sworn in, as tradition dictates, in the presence of Archbishop Iernonymos but instead took the oath of office in a civil ceremony. At 40, he becomes the country’s youngest premier in modern times.

The leftist, who surprised Greeks by speedily agreeing to share power with the populist rightwing Independent Greeks party, Anel, was on Monday afternoon handed a mandate by president Karolos Papoulias to form a government following his investiture at the presidential palace. Afterwards, the new prime minister pronounced that he will give his all “to protect the interests of the Greek people”.

Earlier, Panos Kammenos, Anel’s rumbustious leader, emerged from hour-long talks with Tsipras saying the two politicians had successfully formed a coalition.

“I want to say, simply, that from this moment, there is a government,” Kammenos told reporters gathered outside Syriza’s headquarters.

This was a bit of a surprise.

It was generally expected that the centrist/center left The River (To Potami) party would be a likely coalition partner, who would be expected to be more attuned with Syriza’s stated policies.

I think that there were 7 reasons for him to go with Anel:

  1. To Potami was formed roughly a year ago by a TV news personality, Stavros Theodorakis, and as such its existence beyond this election cycle is not by any means a sure thing.  (Anel is only a bit older, having been formed in 2012)
  2. Theodorakis is very much not a Euroskeptic, and drew “Red Lines” (German) on leaving the Euro and a deposit levy, and taking the first item off the table fatally weakens the Greek negotiating position.
  3. To Potami has very much focused on “Structural Reforms” (which appear to be defined as the reduction in patronage and corruption) to the exclusion of everything else, which would also make them an unreliable.
  4. Anel has a history of working left wing parties on issues of common interest. (Panhellenic Citizen Chariot)
  5. Anel is Euroskeptic, and really hates the Germans. (It has a demand for reparations from Germany for WWII).
  6. The founder of Anel is a long term politician, the founder of To Potami is a news talking head.  I think that the latter is far more likely to channel the behavior of pastry chefs.
  7. To Potami seems to be kind of a “Seinfeld” party, in that it doesn’t seem to be about much beyond platitudes, and Theodorakis’ personality.

 In any case, it is significant that Tsipras’ first act as PM was pretty clearly a bit “F%$# You” to the Germans:

His first act as prime minister was to lay flowers at the National Resistance Memorial at Kaisariani, which commemorates 200 Greeks who were killed by Nazis there in the second world war. The highly symbolic act was interpreted by Greek TV commentators as “another up yours to the Germans”.

I would call it a very well deserved “Up Yours” to the Germans.  Merkel has been “n***er baiting” the southern tier of the Eurozone for domestic political consumption, .

As to what it means, a lot of ink (electrons?) has been spilled about how little leverage Greece has, but this has been the same media sources who try to cast Syriza as the new Khmer Rouge.

Two Nobel Prize economists, Joseph Stiglitz, and Paul Krugman, have both weighed in on the damage inflicted by “confidence fairy” based austerity today, and they both gave it a thumbs down.

Stiglitz is very clear, and he blames Germany, not Greece for the disaster that is the policy for Greece: (And Ireland and Portugal, and to a lesser degree, Spain and Italy)

Nobel Prize-winning economist Joseph Stiglitz told CNBC on Monday that the euro zone should stay together but if it breaks apart, it would be better for Germany to leave than for Greece.

“While it was an experiment to bring them together, nothing has divided Europe as much as the euro,” Stiglitz said in a “Squawk Box” interview.

………

Greece is not the only economy struggling under the euro, and that’s why a new approach is needed, Stiglitz said. “The policies that Europe has foisted on Greece just have not worked and that’s true of Spain and other countries.”

………

He said the real problem is Germany, which has benefited greatly under the euro. “Most economists are saying the best solution for Europe, if it’s going to break up, is for Germany to leave. The mark would raise, the German economy would be dampened.”

Under that scenario, Germany would find out just how much it needs the euro to stay together, he added, and possibly be more willing to help out the countries that are struggling. “The hope was, by having a shared currency, they would grow together.” But he said that should work both ways.

I’ve been saying that Germany is the problem, and not the solution for a while.

Prof Krugman sees it as primarily a failure of policy brought on by adherence to thoroughly discredited economic theory:

To understand the political earthquake in Greece, it helps to look at Greece’s May 2010 “standby arrangement” with the International Monetary Fund, under which the so-called troika — the I.M.F., the European Central Bank and the European Commission — extended loans to the country in return for a combination of austerity and reform. It’s a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. And the Greek people have been paying the price for those elite delusions.

You see, the economic projections that accompanied the standby arrangement assumed that Greece could impose harsh austerity with little effect on growth and employment. Greece was already in recession when the deal was reached, but the projections assumed that this downturn would end soon — that there would be only a small contraction in 2011, and that by 2012 Greece would be recovering. Unemployment, the projections conceded, would rise substantially, from 9.4 percent in 2009 to almost 15 percent in 2012, but would then begin coming down fairly quickly.

What actually transpired was an economic and human nightmare. Far from ending in 2011, the Greek recession gathered momentum. Greece didn’t hit the bottom until 2014, and by that point it had experienced a full-fledged depression, with overall unemployment rising to 28 percent and youth unemployment rising to almost 60 percent. And the recovery now underway, such as it is, is barely visible, offering no prospect of returning to precrisis living standards for the foreseeable future.

………

Still, in calling for a major change, Mr. Tsipras is being far more realistic than officials who want the beatings to continue until morale improves. The rest of Europe should give him a chance to end his country’s nightmare.

I’m inclined to go with Stiglitz’ here. 

I think that once again, the German sense of exceptionalism has screwed up the Eurozone from day one, and until the rest of the member nations get together to challenge Merkel’s fairy tail, the Euro will continue to circle the drain.

This Does not Bode Well for the Euro or the Eu

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As you are no doubt aware if you follow the financial papers, the Swiss Central Bank abruptly ended its peg to the Euro, and then all hell broke loose:

One does not normally see sharp right angles in financial charts, but you could pretty much cut yourself on this chart of the volatility of the Swiss franc against the euro:



One straightforward takeaway is: Whoa, that volatility is super high! But perhaps a more useful takeaway is: Whoa, it was super low for a really long time! This is of course because the Swiss National Bank capped the franc’s value against the euro: The SNB wanted a price of no less than CHF 1.20 per euro, and the euro itself wanted a price of no higher than CHF 1.20 for reasons of its own, so the result was pretty much a peg at slightly above 1.20. In the 12 months ending on Wednesday, the euro traded in a range of 1.20095 to 1.23640 francs:

 ………

 That chart looks more jagged than it is, because you’re standing too close to it. Here, I’ve zoomed out by two days:

………

 On the other hand! Imagine being a retail foreign-exchange broker and letting your customers day-trade Swiss francs with lots of leverage. How much leverage would you feel comfortable giving them? Well, if daily moves are typically less than 0.1 percent, then that means that 95 percent of the time their positions will move by less than 0.2 percent in a day. So if you required 2 percent margin — that is, you demand $2 of cash from them for every $100 worth of Swiss francs that they trade — you’d feel pretty safe. That would mean that, 95 percent of the time, customers couldn’t lose more than one-tenth of their equity in a day — so if they lost money and skipped out on you, you’d be able to liquidate their positions without getting close to losing any of the money you’d lent them.

On the other hand when the euro/franc moves by 19 percent in a day, they’re gonna get utterly smoked, and so are you. This is roughly the boat in which FXCM Inc. finds itself. Like many other retail foreign exchange brokers, it offered 50:1 leverage on FX trades. And yesterday its “clients experienced significant losses” on the Swiss franc move, and “generated negative equity balances owed to FXCM of approximately $225 million.” id=”footnote-1421429157415-ref”>  And now it’s in talks with Jefferies Group for a large cash infusion to fix the problem. FXCM is also distinguished by just an unbelievable sense of irony:

FXCM Chief Executive Officer Drew Niv, in remarks published in Bloomberg Markets magazine’s December issue, said individual currency traders are enticed by the chance to control large positions with little money down.

 “Currencies don’t move that much,” he said. “So if you had no leverage, nobody would trade.”

Famous last word words. FXCM is basically insolvent now, and is relying on a loan from a “white knight”, in exchange for who knows what concessions.

Here is the scary quote about this:

As realized volatility gets lower, estimates of future volatility — and so estimates of future losses — get lower. And so position limits get higher, as banks feel safer with the risks they’re taking, because, on a historical basis, they don’t look that risky. And then the risk that didn’t look risky becomes the one that gets you.

So, what we have just had a major case of “It’s different this time” contagion because a non-EU member dropped a peg following months (years?) of denials.

We have another player, and one who is one of the EU’s  “stronger” members who is not on the Euro, but is on a peg, Denmark, which retains the Krone.

And Denmark is promising to do whatever it takes to keep their peg:

Denmark moved to quash speculation it may follow Switzerland and abandon its euro peg, delivering a surprise interest-rate cut to prevent the krone gaining further.

“We have the necessary tools to defend the peg,”Karsten Biltoft, head of communications at the Copenhagen-based central bank, said by phone. Asked whether Denmark could ever consider abandoning its currency peg, he said, “Of course not.”

Since the Swiss National Bank shocked markets on Jan. 15 by jettisoning its three-year-old euro peg, Scandinavia’s biggest banks have fielded calls from hedge funds and other offshore investors asking whether Denmark could be next. Danske Bank A/S (DANSKE) has sought to dispel the speculation, noting Denmark’s three-decades-old currency regime is backed by the European Central Bank, unlike the SNB’s former system.

………


The Danish bank today cut its deposit rate to minus 0.2 percent, matching a record low, from minus 0.05 percent and lowered its lending rate to a record 0.05 percent from 0.2 percent. While the bank can adjust rates at any time, it traditionally announces changes on Thursdays and mostly in connection with ECB moves.

Is it just me, or do the assurances of the bankers at Copenhagen not sound particularly credible right now?

If Denmark is forced to drop its peg, all hell breaks loose, because it opens a Pandora’s box of asymmetries that have been growing in the Euro zone, and the EU over the past 3 decades.

It will not be pretty.

Pass the Popcorn

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The Greek Parliament failed to elect a new President, which means that snap elections need to be held, and it looks like the left leaning Syriza Party, which has been dismissive of the “stay in the Euro zone at all costs” of the mainstream parties looks likely to win:

Greece will hold early national elections on Jan. 25, stoking concerns over the future of the country’s financial bailout, after lawmakers failed to elect a new president in a third and final round of voting Monday.

 The conservative-led coalition government’s candidate for the presidential post, 73-year-old former European commissioner Stavros Dimas, garnered 168 votes from parliament’s 300 seats — short of the 180 votes needed to win.

 According to the country’s constitution, parliament must now be dissolved within 10 days. Prime Minister Antonis Samaras said national elections will be held “at the soonest possible date” — Sunday, Jan. 25.

 ………

 Investors are worried that the main left-wing main opposition Syriza, which is consistently ahead in opinion polls, might try to renege on the terms of the bailout deal that is keeping the country afloat.

 Syriza has pledged to roll back some of the reforms the country has implemented in order to qualify for billions of euros in rescue funds from other eurozone countries and the International Monetary Fund — although it has recently somewhat softened its rhetoric about unilaterally pulling out of the bailout deal.

Seeing as how the “bailout deal” has Greeks chopping down their forests to stay warm in the winter, massive unemployment, and hospitals without necessary equipment or drugs in order to repay German and French bankers, I understand why the Syriza party is a bit skeptical that this is in their best interests.

BTW, the IMF is already trying to influence the election:

The International Monetary Fund announced Monday that it would suspend the disbursement of financial aid to Greece until a new government takes power following next month’s elections.

 In a communique, IMF spokesman Gerry Rice said that talks with Greek authorities over the international financial bailout would be resumed as soon as a new government is chosen after parliamentary polls are held in late January or early February.

 The announcement came shortly after the sharply divided Greek parliament once again failed to elect a consensus candidate to occupy the largely ceremonial office of the presidency, making the legislative elections originally set for 2016 inevitable.

Tell me that this is not a flat out threat from the so-called “technocrats” at the IMF.

If Syriza were smart, they would promise an aggressive program of going after the big name tax evaders and soaking the rich.

Technically, it would fit the requirements of the bailout, and it could very allow for sanctions against the foreign banks who have facilitated the hiding of assets.

A few bounties to people who leak bank data, and some snatch and grabs of particularly egregious offenders among the Greek upper class by the national constabulary, and they would be well on their way to solvency.

Euro Exit Enters Italian Political Mainstream

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There are an increasing number of people who have questioned whether the continued existence of the Euro Zone makes sense, but in the countries that are large enough to matter (i.e. not Greece or Portugal) none of the mainstream parties (i.e. not the National Front) have even begun to question the currency union, until now:

………

Many analysts have come to believe that the big danger to the Eurozone is political, not economic, that the loss of sovereignity, the continued squeeze of ordinary workers and the inability of countries to depreciate their currencies to help exports, make the benefits of Eurozone membership look questionable relative to the costs. But most political commentators have downplayed this risk, arguing that the benefits of Eurozone membership are so large that no incumbent would relinquish it. And indeed, the noise-making has come from parties like UKIP, who have no realistic odds of forming a government. Up until now, France’s Marine Le Pen, leader of the National Front, has seemed like the most likely contender among Eurozone-exit-favoring party leaders, but she is seen as more able to move France’s Overton than get France out of the Eurozone.

But Wolfgang Munchau, in the German edition of Der Spiegel, argues that a real shift has taken place in Italy. Unlike other countries, where the anti-Eurozone parties are seen as fringe players, in Italy, two factions that could realistically rule are both pushing for leaving the Eurozone.

From Munchau’s article, translation courtesy Google Translate:

One of the reasons why we even have the euro, was the broad political consensus in all countries who would later take part in it. No matter whether government or opposition, they were all for it. Just the consent of the opposition parties was important because in the course of 15 years, all have times over the government – the SPD in Germany, and the Socialists in France and Spain. The euro has characterized the many changes of government since its inception nearly 16 years ago survived.

………

 Unlike in Italy. There are now all opposition parties against the euro. First, the does not mean anything. The Italian Social Democrats under its chief Matteo Renzi have a large majority in parliament. And they enjoy a great, albeit not overwhelming support in the population. But in democracies oppositions come eventually to the government. And then of course it is important to know whether such a government would implement its anti-euro policy.

 The five-star Party, the largest opposition party, had spoken before the European elections for a referendum on the euro. The party was by then EUR critical, but the positions were not then as hard as now. Party leader Beppe Grillo has revealed its stance recently. His party, the euro zone as soon as possible to leave.

 In the regional elections in the northern Italian province Emiglia Romana Although Renzis party won almost, but the Northern League came on 30 per cent, which no one would have expected. The Lega is not just for a separation of northern Italy and southern Italy. It is now also include a separation from the euro. And this position was rewarded by voters.

 Italy’s exit would be the worst of all scenarios.

 And that has now brought Silvio Berlusconi on the taste. Really friendly europe Berlusconi was of course never. Opportunistic as it is, after all, he is now the future of the euro in question. Moreover, he and his party Forza Italia, the second largest in Italy, have an elaborate plan. Berlusconi wants to win back the monetary sovereignty by introducing home a parallel currency which is freely traded against the euro. Wages and salaries and of course the prices in the shops would be enrolled in this new currency.

 One would exchange their legacy euro and the new Italian Euros first one to one. Then the new currency would be released, whereupon its foreign currency would collapse immediately, probably 30 to 50 percent. The Italian economy would be competitive again with one blow.

This is a credible scenario, even if the name Berlusconi is invoked.

The problem is and remains, as Paul Krugman trenchantly observes, the Germans, and its leaders who are approaching the economic realities as a morality play for partisan electoral benefit:

………

 The point is a simple but important one: at this point any European imbalances associated with the surge in capital flows to the periphery after the formation of the euro have been worked off via extremely painful and costly disinflation. If we look at the whole period from 1999 to the present, most of Europe has had cost growth and inflation just about consistent with the ECB’s long-standing just-under-2 percent inflation target. There’s just one big outlier:

At this point the European imbalance problem is a German problem, caused by Germany’s persistent failure to have wage and price increases in line with what the euro requires. This German undervaluation is in turn exporting deflation to the rest of Europe. By contrast, France, Spain, and even Italy have been playing by the rules.

If you want to save the Euro, you have to kick Germany out.

Jared Bernstein Calls for Dropping Reserve Currency Status for the Dollar in the New York Times

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His argument is rather similar to the one that I have, that the dollar’s status as a reserve currency artificially inflates the value of the currency, along with contributing to the excessive financialization of our economy, but the fact that a former Obama staffer is doing it in the Times is significant:

There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world’s reserve currency. It’s a core principle of American economic policy. After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve?

But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.

………

In 2013, America’s trade deficit was about $475 billion. Its deficit with China alone was $318 billion.

Though Mr. Austin doesn’t say it explicitly, his work shows that, far from being a victim of managed trade, the United States is a willing participant through its efforts to keep the dollar as the world’s most prominent reserve currency.

………

Note that as long as the dollar is the reserve currency, America’s trade deficit can worsen even when we’re not directly in on the trade. Suppose South Korea runs a surplus with Brazil. By storing its surplus export revenues in Treasury bonds, South Korea nudges up the relative value of the dollar against our competitors’ currencies, and our trade deficit increases, even though the original transaction had nothing to do with the United States.

………

But while more balanced trade might raise prices, there’s no reason it should persistently increase the inflation rate. We might settle into a norm of 2 to 3 percent inflation, versus the current 1 to 2 percent. But that’s a price worth paying for more and higher-quality jobs, more stable recoveries and a revitalized manufacturing sector. The privilege of having the world’s reserve currency is one America can no longer afford.

It’s really nothing new, but the fact that it’s Mr. Bernstein and the New York Times does appear to indicate that this idea is gaining currency.

About f%$#ing time.

How is that Euro Working for You?

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It appears that the Euro, and the associated austerity, has precipitated a depression that exceeds what was seen in Europe the 1930s:

As I was arguing last week, it’s time to call the eurozone what it really is: one of the biggest catastrophes in economic history.

There have been plenty of those lately. And it’s not just the Great Recession. It’s the way we’ve struggled to make up the ground we lost since. The United States, for one, has had its slowest postwar recovery. Britain has had its slowest one, period. But, six and a half years later, Europe has distinguished itself by not having much of a recovery at all. And, as you can see above, that’s about to make it worse than the worst of the 1930s.

‘ve taken the chart above from Nicholas Crafts, and extended it a bit to put Europe’s depression in, well, even more depressing perspective. Eurozone GDP still hasn’t gotten back to its 2007 level, and doesn’t look like it will anytime soon. Indeed, it already wasn’t clear if its last recession was even over before we found out the eurozone had stopped growing again in the second quarter. And not even Germany has been immune: its GDP just fell 0.2 percent from the previous quarter.

It’s a policy-induced disaster. Too much fiscal austerity and too little monetary stimulus have crippled growth like almost never before. Europe is doing worse than Japan during its “lost decade,” worse than the sterling bloc during the Great Depression, and barely better than the gold bloc then—though even that silver lining isn’t much of one. That’s because, at this rate, it’ll only be another year until the eurozone is well behind the gold bloc, too.

So how is Europe making the Great Depression look like the good old days of growth? Easy: by ignoring everything we learned from it.

The Euro is a paper gold standard, and much like the German overreaction to the hyperinflation of the early 1920s led them to on stay on the gold standard too long, which created misery and social unrest, we are now seeing the Germany’s current paranoia about inflation creating misery and social unrest.

The historical echoes to both world wars is deafening.

Gee, You Think?!?!?!?

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In an exercise worthy of Captain Obvious, the CFPB is warning people that their Bitcoins are probably not safe from hackers:

“The CFPB advises consumers to be aware of potential issues with virtual currencies such as unclear costs, volatile exchange rates, the threat of hacking and scams, and that companies may not offer help or refunds for lost or stolen funds,” the government agency announced in an advisory on Monday . Consumers who’ve experienced problems with the virtual currency can also submit a complaint with the bureau, the CFPB said. “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market,” it warned.

Well duh!

This is the Typical Result of Libertarian Bullsh%$ Like Bitcoin

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You remember the Mt. Gox bitcoin exchange?

People nearly ½ a billion dollars in Bitcoin, and now we discover that the head of the exchange was convicted of fraud in France, and had been sentenced to jail:

While Mt. Gox owner Mark Karpeles was growing what would become the world’s largest Bitcoin exchange, he should have been serving time in his home country of France. He was sentenced to a year in custody in 2010 on fraud accusations.

A newly obtained French court document shows that Karpeles has a civil and non-civil judgment pending where, in addition to custody, he also owes €45,000 ($60,000). The document is being published jointly for the first time by Ars Technica and the French publication Le Monde. (Read the French original here and an English translation here.)

The case was brought by a former employer who accused Karpeles of stealing customer user names, customer passwords, and a domain name, among other grievances. Under French law, Karpeles is not considered a criminal but rather “un délinquant,” a delinquent offender. It’s a lesser label than “criminal,” because that word is reserved only for very serious crimes within the country.

The 2010 decision shows that Karpeles lost by default, and he was found liable of “fraudulent access to an automated data processing system” and “fraudulent changes to data contained in an automated data processing system.” The document also states that Karpeles admitted to French authorities that he had “pirated” a server.

At the time, Karpeles was living in Japan. But a year after the judgment, he’d taken over Mt. Gox, well before the exchange and digital currency had become a household name. The French court documents acknowledge that he was never notified of the case and did not defend himself—hence, he lost by default. Karpeles’ own blog states he moved to Japan in 2009, and it appears he hasn’t returned to France since.

“To be honest, I was not even aware of this,” he told Ars in May regarding the sentence. “I’ll investigate and see what has to be done.” Karpeles has not responded to numerous attempts for further comment since then.

Yeah. He, “Wasn’t aware of this.”

He was questioned by police, admitted wrongdoing, got out France when the getting was good, but he “Wasn’t aware of this.”

When you take a supporting role in a libertarian wet dream, you are painting a target on your back.

Bitcoin Has Had a Disasterous Week

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We’ve just had 3rd Bitcoin exchange robbery in a week, the suspicious death of the CEO of another exchange, the discovery the mysterious founder of Bitcoin, Satoshi Nakamoto, is actually a guy named Satoshi Nakamoto, and Japan has decided not to regulate it as currency.

I know what you are wondering why is Japan deciding not to regulate Bitcoin a bad thing?

Well, because if it is not currency, then it is subject to the VAT (sales tax) and the capital gains tax:

The Japanese government officially said Friday that it doesn’t consider bitcoin to be a currency and has no plans at present to regulate it as a financial product.

As it tries to cope with the fallout from the bankruptcy of the Tokyo-based Mt. Gox exchange, the government said that the crypto-currency would be treated like other goods and services, with commercial sales of bitcoin itself and bitcoin-based transactions subject to sales tax. In addition, any gains on exchange rates will be taxed as well.

“Any bitcoin transactions are taxable when they fulfill requisitions stated by laws on income tax, corporate tax and consumption tax,” the government said in its statement, which came in response to questions over how bitcoins will be regulated.

At the same time, the statement ruled out treatment of bitcoin as a currency or a financial instrument.

“Bitcoin are neither Japanese nor foreign currencies and its trading is different from deals stated by Japan’s bank act as well as financial instruments and exchange act,” according to a document released by Prime Minister Shinzo Abe’s cabinet.

(emphasis mine)

I don’t know if Bitcoin is done, but I think that a stake has been driven though the heart of the Randroid libertarian dream of completely unregulated and untraceable crypto currency.

Heh.

Remember that Platinum Coin Idea During the Debt Shutdown?? The Idea that the Obama Administration Dismissed Out of Hand?

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It appears that while they were publicly treating it as crazy talk, internally, they were seriously looking at the depositing a trillion dollar coin at the Federal Reserve:

The Obama administration was serious enough about manufacturing a high-value platinum coin to avert a congressional fight over the debt ceiling that it had its top lawyers draw up a memo laying out the legal case for such a move, The Huffington Post learned last week.

 The Justice Department’s Office of Legal Counsel, which functions as a sort of law firm for the president and provides him and executive branch agencies with authoritative legal advice, formally weighed in on the platinum coin option sometime since Obama took office, according to OLC’s recent response to HuffPost’s Freedom of Information Act (FOIA) request. While the letter acknowledged the existence of memos on the platinum coin option, OLC officials determined they were “not appropriate for discretionary release.”

 HuffPost submitted the FOIA request when there was increased speculation about the use of the platinum coin option ahead of the debt ceiling crisis this fall. Under the compromise reached between the House and Senate following the government shutdown, the U.S. will hit the debt ceiling once again on Feb. 7, though the Treasury can use extraordinary measures to extend that deadline.

 Supporters of the platinum coin option say that under a 1996 law allowing the Treasury Department to mint a platinum coin in any denomination, the president could order the manufacture of, say, a $1 trillion coin that would be deposited in the Federal Reserve. The Treasury Department would then use the platinum coin funds to meet government obligations without the need for Congress to grant any additional spending powers.

There are a number of reasons for the Obama administration to fight the FOIA request:

  1. Their general fetish about executive branch secrecy.
  2. The OLC ruled that it was not legal, and they wish to retain ambiguity to help with the next round of negotiations.
  3. The OLC ruled that it was legal, and they wish to retain ambiguity to prevent potential legislative action, or a court case, until they use it.

My money* is on a dumb ass secrecy fetish.

The idea that a legal opinion on monetary policy (seigniorage) is somehow, “not appropriate for discretionary release,” is completely ludicrous.

The only potential harm that can come from a release is insider trading from an unauthorized release.

*My money in this case is about 50 Zimbabwean dollars.

The French Call for Germany to Leave the Eurozone

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It’s not the French government, but it is as close as it can get without a governmental imprimatur:

Suddenly, there’s the next solution. This one is attractively presented with graphs and in simple economic terms that even a politician might understand. It’s seemingly well-reasoned and has no visible partisanship attached to it. And it came from one of the largest megabanks in France, Groupe BPCE, that hardly anyone knows.

It was established in 2009 through a government bailout and a near-simultaneous merger between the Caisse Nationale des Caisses d’Épargne and the Banque Fédérale des Banques Populaires. These vast cooperative bank networks continue to exist with their separate brands. And that’s what consumers see. BPCE has €1.15 trillion in assets and owns about 20% of the retail banking market. It’s huge.

And now, its asset management and investment banking subsidiary, Natixis, released a zinger of a study designed to influence policy. It’s titled, “On a purely macroeconomic basis, Germany should leave the Eurozone.”

Germany should get out of the way so that the remaining countries can devalue in a big way what would remain of the euro. France, Italy, Spain, Greece, etc. have always done that, one way or the other, before the euro took that nifty tool of sudden money destruction away from them. It would be the ideal solution for France.

After conceding that there may be non-economic reasons to form a monetary union, the report lays out five reasons why Germany needs to exit. But it offers an alternate solution: if Germany wants to stay, it needs to pay.

  1. Asymmetries in the economic cycles.
  2. Weakening economic ties between Germany and the rest of the Eurozone.
  3. Structural asymmetries.
  4. Different needs in exchange rates.
  5. Incapacity in the rest of the Eurozone to impose “internal devaluation.”

Read the rest.

The Rest of Europe Begins to Realize that Germany, and Not Greece, is the Problem in the Euro Zone

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When Romano Prodi, generally known as “Mr. Euro,” says that, “Germany won’t sell another Mercedes in Europe,” it is clear that Europe’s “Very Serious People” are beginning to understand than Germany’s policy demands are fundamentally inimical to the continuing existence of the Euro Zone, and perhaps the whole EU:

The plot is thickening fast in Italy. Romano Prodi – Mr Euro himself – is calling for a Latin Front to rise up against Germany and force through a reflation policy before the whole experiment of monetary union spins out of control.

 “France, Italy, and Spain should together pound their fists on the table, but they are not doing so because they delude themselves that they can go it alone,” he told Quotidiano Nazionale

 Should Germany persist in imposing its contractionary ruin on Europe – “should the euro break apart, with one exchange rate in the North and one in the South”, as he puts it – Germany itself will reap as it has sown. “Their exchange rate will double and they will not sell a single Mercedes in Europe. German industrialists know this but all they manage to secure are slight changes, not enough to end the crisis.”

 Professor Prodi is the prime minister who prepared Italy for EMU in the 1990s, and then presided over the launch of the euro as European Commission chief.………

I would note that the German belief in their own inherent virtue and it’s destiny to dominate its neighbors has a very bad history.

Oskar Lafontaine Realizes the Error of His Ways

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The former German Finance Minister, who shepherded the implementation of Euro, has now declared that has declared that it is a truly bad idea:

“The economic situation is worsening from month to month, and unemployment has reached a level that puts democratic structures ever more in doubt,” he said.

 “The Germans have not yet realised that southern Europe, including France, will be forced by their current misery to fight back against German hegemony sooner or later,” he said, blaming much of the crisis on Germany’s wage squeeze to gain export share.

 Mr Lafontaine said on the parliamentary website of Germany’s Left Party that Chancellor Angela Merkel will “awake from her self-righteous slumber” once the countries in trouble unite to force a change in crisis policy at Germany’s expense.

………

 Mr Lafontaine said he backed EMU but no longer believes it is sustainable. “Hopes that the creation of the euro would force rational economic behaviour on all sides were in vain,” he said, adding that the policy of forcing Spain, Portugal, and Greece to carry out internal devaluations was a “catastrophe”.

 Mr Lafontaine was labelled “Europe’s Most Dangerous Man” by The Sun after he called for a “united Europe” and the “end of the nation state” in 1998. The euro was launched on January 1 1999, with bank notes following three years later. He later left the Social Democrats to found the Left Party.

You will note that his critique is not the standard political wisdom in Germany, which turns economics into a nativist morality play about the respective national virtues of different nations.

Seriously, we know what happens Germans base their policies on a vision of their own superior national virtue, there are still people who remember the last time, and it is not pretty.

There is No Medicine for Stupidity

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Click for full size


Much better than the Euro Zone

Because their currency floated

Paul Krugman has noted that Poland has done remarkably well by retaining its own currency and allowing it to float, (see chart pr0n).

Of course, the response of the Polish leaders is to try to join the Euro:

Donald Tusk, Poland’s prime minister, took a big political gamble on Tuesday when he opened the door to a referendum on joining the euro, in the face of strong public opposition to the common currency.

The move is part of a campaign to prepared Poland to begin the final stages of accession to the single currency by 2015. Mr Tusk had previously opposed a public vote, arguing that Poles had already bound themselves to the euro when they voted in 2003 to join the EU.

The crisis in the eurozone has hit support for the euro – the latest opinion survey shows 62 per cent of Poles are opposed to joining, with scepticism increasing markedly since the financial and debt crises hit Europe five years ago.

But now Mr Tusk has publicly raised the possibility of allowing a referendum – demanded by rightwing opposition parties opposed to euro membership – in return for an agreement with the opposition to push through the necessary constitutional changes.

Seriously, they want a piece of this?

You see, what happened was that instead of creating inflation, the wild capital flows caused the Zloty to appreciate, and when those flows reversed, the currency depreciated.

In the Euro zone, what happens is inflation, and then the need for depression to contract the economy. Wanting to be a part of this is stupid and insane.

Seriously, we need higher quality elites running the world.

Platinum Coin Seigniorage Is Starting to Get Mainstream Coverage

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Joe Firestone notes that we are starting to see coverage in the media of the trillion dollar platinum coin:

Did the MSM’s new wave of commentaries on platinum coin seigniorage (PCS) miss the really big story about it? Of course, I think it did, and I’ll continue my review of the MSM commentaries with the efforts of Chris Hayes at MSNBC, substituting as host on the Rachel Maddow show (12/05 at 9:20 PM); and John Carney at CNBC (12/06 at 11:54 AM). This is my second review post on this subject.

Platinum Coin Seigniorage is the idea that the US Treasury can use its right to print coins or arbitrary value, (the Federal Reserve has this power with regard to paper and electronic currency) which can then be used to pay down the debt by depositing at the Federal Reserve.

I think that this is a good thing, and so does Firestone, but he takes issue with a couple of points made by Hayes and Carney.

First, he objects to their characterization that such an action is unlikely to happen. I disagree.

I understand his point, that the legal and economic barriers to doing this are not great, but the psychological and political barriers, particularly for two people as wedded to economic and financial orthodoxy as Barack Obama and Timothy Geithner does make the possibility that this strategy would be implemented to be vanishingly small.

The area where I disagree is his argument that using the coin won’t cause inflation.

While it is clear that if the coins are used exclusively to retire debt held by the Fed will not have much inflationary effect, Federal Reserve held Treasury Bonds are basically an accounting trick.

That being said, if you start retiring other debt, that money has to go somewhere, and if the trillions parked in US government securities need to find another place to park, one could expect these funds to slosh around and this would have an inflationary effect.

My more significant area of disagreement is his assumption that inflation is a bad thing, which is why he argues against the potential inflationary impacts.

I do not think that inflation right now is a bad thing. Given that we have a significant debt overhang, and inflation serves to devalue debt, favoring the debtor over the creditor, I think that inflation is a good thing.

In a very real way, we are in a position very similar to that at the end of the 1800s, when William Jennings Bryan gave his “Cross of Gold” speech.

Seigniorage is today’s free silver, and much like free silver, it is not a likely to be implemented, except as a bargaining strategy.

Thanks Merkel

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Not only is Angela Merkel’s hard money policies impoverishing much of the Euro Zone, which might cause the currency zone to break up, but it looks like it’s going to lead to the dissolution of Spain:

The center-right Catalan nationalist bloc CiU and the Catalan Republican Left (ERC) on Wednesday reached an agreement to call for a referendum on independence for Catalonia within two years.

The deal paves the way for Artur Mas to remain premier of the region. The CiU emerged as the biggest party in regional elections held last month but fell short of the absolute majority it was seeking. ERC was the second most voted party. The two sides still have to agree on the budget for next year. The accord on the referendum states that it must be held before the end of 2014 but does not give a specific date.

In a parallel development, the CiU, the ERC and other Catalan parties — with the exception of the local branch of the ruling Popular Party — reached an agreement not to implement the reform of the education system put forward by Education Minister José Ignacio Wert, which restores Castilian Spanish to the same level in the classroom as co-official regional languages such as Basque or Catalan.

The accord says the parties will adhere to the Catalan Education Law, which promotes immersion in the Catalan language. The parties described Wert’s proposals as “unacceptable” as they “prevent linguistic immersion by segregating pupils on the basis of language.”

Seriously, the pain caucus in the Euro Zone (Angela is their most senior member) is laying waste to everything that they touch.

God Help Us, Berlusconi is Italy’s Best Hope

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I know that this sounds like a joke, but I’m as serious as a heart attack.

The Euro (as it is currently structured, it should be called the Reichsmark, because it is structured by Germany to benefit it’s position as a predatory exporter) is of no real benefit to Italy, and Berlusconi is the only credible Italian political figure who is willing to say this:

The nation is richer than Germany in per capita terms, with some €9 trillion of private wealth. It has the biggest primary budget surplus in the G7 bloc. Its combined public and private debt is 265pc of GDP, lower than in France, Holland, the UK, the US or Japan.

It scores top of the International Monetary Fund’s index for “long-term debt sustainability” among key industrial nations, precisely because it reformed the pension structure long ago under Silvio Berlusconi.

“They have a vibrant export sector, and a primary surplus. If there is any country in EMU that would benefit from leaving the euro and restoring competitiveness, it is obviously Italy,” said Andrew Roberts from RBS.

“The numbers are staring them in the face. We think the story of 2013 is not about countries being forced to leave EMU but whether they choose to leave.”

A “game theory” study by Bank of America concluded that Italy would gain more than other EMU members from breaking free and restoring sovereign control over its policy levers.

………

Rome holds a clutch of trump cards. The one great obstacle is premier Mario Monti, installed at the head of a technocrat team in the November Putsch of 2011 by German Chancellor Angela Merkel and the European Central Bank – to the applause of Europe’s media and political class.

Mr Monti may be one of Europe’s great gentlemen but he is also a high priest of the EU Project and a key author of Italy’s euro membership. The sooner he goes, the sooner Italy can halt the slide into chronic depression.

The sooner that someone who counts (not Greece, not Portugal, and probably not Spain) declares that the Euro is a failure, and that it needs to be abandoned, the better it will be for most of the people in the Euro Zone.

The Eurobanksters will lose, and Angela Merkel will lose, but the entire Euro Zone, including Germany, is now in recession because of German competitive needs, and German mythology. (it wasn’t the hyperinflation that brought the Nazis to power, it was the hard money contractionary policies, policies that the Germans are demanding for the rest of the EZ that did)

Absent Germany withdrawing from the Euro, the currency is doomed, and the sooner that it is abandoned, the better.

Romania Discovers that the Euro Sucks Wet Farts from Dead Pigeons………

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Romania is technically required to join the Euro at some point, but considering that they can set the date, my guess would be that date will be decades, if not centuries in the future:

………But as the euro crisis has deepened, it has also helped that Romania and the others have kept their own currencies.

That has given these still-developing countries a host of advantages, while many economists believe the euro zone’s one-size-fits-all monetary policy has hampered Ireland, Greece and Spain in restarting their moribund economies. Indeed, many of the post-Communist states are having strong second thoughts about their long-running goal of joining the euro.

Mugur Isarescu, the governor of the National Bank of Romania, said in an interview that maintaining its own currency had given Romania the flexibility to set interest rates, control liquidity and allow the currency to depreciate to help rein in the deficit. In the absence of control over monetary policy, he noted, euro zone countries like Greece are forced to rely primarily on fiscal policy: taxing and spending.

“Of course there is a backlash and disappointment because E.U. accession was seen as a panacea,” he said. “The dreams were too high.”

In Romania’s case, maintaining its cheaper currency, the lei, has made its exports — two-thirds of which go to the euro zone — more competitive and given it a lower cost of living that has made the country a sudden draw for highly qualified workers from struggling euro zone countries.

………

Seven of the 10 former Communist countries in the European Union have yet to adopt the euro. The Czech Republic, which uses the koruna, wants a referendum before joining and has cited 2020 as the earliest target date. Hungary has stuck with its currency, the forint, and said it would not adopt the euro before 2018. In Poland, Prime Minister Donald Tusk recently deemed the euro “completely unattractive.”

Romania’s previous target for joining the euro zone, in 2015, is now “out of the question,” is actually Mr. Isarescu said.………

The Czech Republic is potentially the most interesting case.

They have a very real possibility, both by virtue of their location and history, of becoming a manufacturing powerhouse that could be a very serious competitor to Germany.

If the Czech Republic drags its feet on Euro accession, and they start grabbing market share from the Germans, one wonders when the German politicians will start sounding more “Mediterranean”.

Greece is Imploding

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I’m serious. It looks like local scrip is breaking out all over the country as an alternative to the Euro:

In recent weeks, Theodoros Mavridis has bought fresh eggs, tsipourou (the local brandy: beware), fruit, olives, olive oil, jam, and soap. He has also had some legal advice, and enjoyed the services of an accountant to help fill in his tax return.

None of it has cost him a euro, because he had previously done a spot of electrical work – repairing a TV, sorting out a dodgy light – for some of the 800-odd members of a fast-growing exchange network in the port town of Volos, midway between Athens and Thessaloniki.

In return for his expert labour, Mavridis received a number of Local Alternative Units (known as tems in Greek) in his online network account. In return for the eggs, olive oil, tax advice and the rest, he transferred tems into other people’s accounts.

“It’s an easier, more direct way of exchanging goods and services,” said Bernhardt Koppold, a German-born homeopathist and acupuncturist in Volos who is an active member of the network. “It’s also a way of showing practical solidarity – of building relationships.”

Basically, we are seeing a wholesale flight from the regular economy, and the concept of the Greek nation state. (It’s also a repudiation of the EU, since it sets up a system where it’s impossible to purchase non-local products)

The Guardian presents this positively, but I see it as a step toward Greece, a barely function nation to begin with, moving in the direction of Somalia.

I’m increasingly coming to believe that the Euro currency experiment, and in particular German domination of this process will lead to another war in Europe (hopefully cold, and not hot) in the next decade, as my brother (Bear who swims) has predicted, .