The Curse Of The Euro: Money Corrupted, Democracy Busted – David Stockman’s Contra Corner 07-17-15

Salient to Investors:

David Stockman writes:

  • Germany has set fire to the Eurozone in order to save it. Lending another $96 billion to a bankrupt country makes no sense, while the fiscal targets set for Greece are ridiculous. Greece has a de facto public debt of $400 billion vs. $200 billion of GDP. Within days the entire banking system of Greece will be taken over by the ECB, meaning that depositors will be given a big haircut. Greece will become an outright debtors’ colony and its government will function as page-boys for the Troika occupiers, resulting in political and social upheaval which will spread throughout Europe as Greece implodes.
  • Another recession is coming to Europe. The Eurozone is a fatally flawed monetary union. If any sovereign state of the EU cannot pay its debts, those debts need to be written off or restructured.
  • The euro is the doomsday machine, or more precisely the rogue ECB behind it. The euro will eventually collapse and Keynesian policies will be repudiated and dismantled, but not before European prosperity is extinguished for a generation.
  • Europe had a de facto common currency before 1914 under the fixed exchange rates of the gold standard, which helped produce a multi-decade of prosperity not seen before or since.
  • The ECB printing press has fundamentally falsified the price of debt, produced phony economic growth in the early years and fiscal profligacy after the growth bubble burst after the 2008 crisis, resulting in only 0.9% annual rate of nominal GDP since. The EU-19 debt ratio has climbed steadily towards 100% of GDP since the financial crisis vs. the 60% debt-to-GDP target of the EU treaty.
  • Bond market discipline is fully compatible with national sovereignty and democratic fiscal governance and is a requisite for Europe.
  • Merkel was conned into believing that the original bond sell-off was due to the same speculators who supposedly caused the great financial crisis of 2008.
  • The burst global credit bubbles of 2008 and euro bond crash of 2010 and after had the same cause – central bank financial repression causing government bonds to be underpriced and global investors to scramble for yield; speculators could surf the financial bubbles on the back of cheap carry from the central bank pegged money market.
  • Superstate bureaucrats cannot meaningfully elevate economic growth rates and so enable insolvent state borrowers to grow out from under unsustainable debt. Portugal, Italy, Ireland Greece, Spain – PIIGS – and France prove that quasi-socialist welfare states in the contemporary European setting prove this.
  • When you destroy honest bond markets you eventually end up with Stalinist governance in the name of the free market.
  • Speculators who rode the Draghi bubble made hundreds of billions of profits buying PIIGS debt on 95% repo, and were then positioned to sell their bonds back to the ECB at the first sign of a market break.
  • Spain’s real GDP at the end of Q1, 2015 was still 6% below early 2008, but its debt ratio has risen sharply to near 100% of GDP. There is no possibility of honest fiscal governance in a social democracy like Spain when its debt price is blatantly falsified. Spain’s budget deficit in 2014 remained at 5.8% of GDP so won’t survive another recession, and will be bailed out fueling radical popular movements a la Greece.

Read the full article at http://davidstockmanscontracorner.com/the-curse-of-the-euro-money-corrupted-democracy-busted/

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