The repeated rescue attempts by Europe’s chief lifeguards – Angela Merkel and Nicolas Sarkozy – may be in vain although the struggle continues. It looks like Greece may be headed for bankruptcy in the near future – despite Merkel’s recent statement: "We refuse to acknowledge Greece's bankruptcy. We can't accept this." Such determination is always admirable in a lifeguard.
However, with the bankruptcy application of Hostess Brands last month, it was clear that the sweet taste of confectionary does not last forever. Afficionados of Hostess Twinkies reportedly began hoarding them against a dreaded day when they might no longer be available. The difference between Greece and Hostess Brands, however, is that Hostess Brands has been through bankruptcy before.
There are some similarities between these situations. Hostess owes pension funds almost $1 billion while its assets are far less than that. The problems of the Greek government, of course, are far more than that. Despite the efforts of Greek Prime Minister Lucas Papademos, Greek politicians have been reluctant to accept the stiff medicine being prescribed by the European Union, the International Monetary Fund, European Central Bank and other fiscal physicians.
Greece’s dismal future has preoccupied Europe. In January, The Economist observed: “Nicolas and Mario. Angela and Nicolas. Mario and Angela. The year is starting with a burst of speed-dating among the leaders of the euro zone’s three biggest economies. Their talk is of the single currency, which is threatened by economic failings in Mario Monti’s Italy, Nicolas Sarkozy’s France and in even weaker Mediterranean countries—but also by dogmatism in Angela Merkel’s Germany. The three leaders accept that they have not averted all the dangers, but claim to be making progress. ‘We have laid the groundwork for the medium term but have not yet won back trust,’ said Mrs Merkel after her meeting with Mr Sarkozy on January 9th.”
Their efforts appear problematic although hope springs eternal among European politicians. The problems of Greece are not easily resolved. As anti-gold economist Barry Eichengreen wrote recently in Foreign Affairs, “[S]outhern Europe has been left to implement brutal fiscal cuts that are pushing its economies deeper into recession, further impairing their capacity to service their debts. Many southern Europeans, suffering severe hardship, have rebelled against their own governments, and accused northern Europe of sacrificing their well-being. Many northern Europeans, meanwhile, see their southern neighbors as spendthrift, lazy, and corrupt. Those northerners have become increasingly vocal in saying so and have concluded that more rescue operations would amount to pouring money down a rat hole.”
The Republican presidential contest this year has demonstrated that there is a second life for political candidates whom the elites deemed politically bankrupt. So, there may well be a second life for Greece and Hostess in or out of bankruptcy. But instead of pouring money down a rat hole, it may well be time for a little bankruptcy prevention. Taking the medicine of the gold standard is the place to start. And lay off the Twinkies!
To most Americans, the term "quantitative easing" is arcane economic jargon, introduced following the global financial crisis and, like most policies intended to spur recovery, yet to make much progress in reducing unemployment.
Yet to author James Rickards, QE, as it is known, is the United States' secret weapon in an unfolding global war — one fought not with soldiers, tanks or drones but with currencies.
In driving down long-term interest rates by flooding the market with freshly printed currency, the policy, Rickards says, is a combative attempt to boost U.S. exports by weakening the dollar while undermining the competitiveness of China and other U.S. trading partners.
As he argues in his new book, Currency Wars: The Making of the Next Global Crisis, QE is an "exercise in deception" that offers little chance of promoting long-term economic recovery. Worse, it has left the dollar highly vulnerable to speculation and, ultimately, a cataclysmic crash.
David Stockman, former Director of the White House Office of Management and Budget during the Reagan Administration, has in recent years become a prominent and outspoken critic of the Fed, central banking policies generally, government finance schemes, and other aspects of the world’s screwed up financial regimes. Mr. Stockman’s perspective on these issues is unique. He played an integral role in government in the early days of the long running credit and government finance bubble which led to the mushrooming multifaceted financial crisis now engulfing the world.
Mr. Stockman subsequently spent many years on Wall Street in the investment banking and private equity arenas, as well as the corporate world, where he gained a perspective on the impacts of government policies on the financial system, and the perverse behaviors that result from bad policy. He has been a proponent of fiscal sanity for decades, even during a time when many politicians and economists believed that deficits didn’t matter. He issued stern warnings about runaway deficits 25 years ago which ring all too true today. We now face the dire consequences of the practices he warned against.
After leaving the Reagan Administration Mr. Stockman wrote frankly and critically about his role and experiences in the Administration in his book, The Triumph of Politics. The book is still relevant today as an historical study of the origins of the economic philosophies and government processes that led to the ever worsening mess in government finance.
The BBC reports:
Venezuela has received its first shipment of gold bars, after President Hugo Chavez ordered the repatriation of 85% of the country's bullion reserves.
The gold was unloaded from a plane and taken under heavy guard to the Central Bank in the capital, Caracas.
President Chavez has explained the move as an act of sovereignty that will protect Venezuela's reserves from global economic turbulence.
However critics say it is expensive and unnecessary.
Much speculation has swirled around what Mr. Chavez is up to. The shrewdest assessment may be that of investigative journalist Richard Miniter, in Forbes.com who observed last September:
The mystery only deepens the more one thinks about the costs and risks. An insurer, if one can be found, could easily charge 4% of the market value of the stockpile, plus security and shipping charges. All told, that could be almost $100 million. And moving the gold will almost certainly lower Venezuela’s credit rating, which Moody’s Investors Service puts at B2—well into junk-bond status. Standard & Poor’s also rates the nation’s creditworthiness as junk. Making Venezuela’s government assets more opaque will only lower their value. So shipping bullion makes matters worse and means Venezuela will pay even more in borrowing costs.
Don’t forget the risks. A bold pirate could seize tons of gold in a single brazen raid. Or a storm could take it to the muddy bottom of the Atlantic.
So why is Chavez moving his gold? What’s the strongman’s real reason?
Foreign investors are harassed and work under the ever present threat of expropriation. Coca-Cola, PepsiCo, McDonald’s, Wendy’s, ExxonMobil, ConocoPhilips and more than a dozen other publicly-traded American companies have seen their assets seized. The total value seized tops $23.3 billion, according to Ecoanalítica, a Caracas-based research firm. Since 2007, the rate of nationalizations has climbed 924%, according to Coindustria, the equivalent of Venezuela’s chamber of commerce. The World Bank, in its 2011 Doing Business Report, finds that Afghanistan is a better place to do business than Venezuela.
Meanwhile, a Spanish judge has found that Chavez’s regime is linked to two terrorist groups, ETA in Spain and the FARC in Colombia. When Walid Makled, a drug lord with family roots in the Palestinian territories, was arrested in Colombia, he admitted to paying some $40 million to the Chavistas. He is also suspected of financing terror plots.
Finally, at the World Bank’s International Center for Settlement of Investment Disputes (ICSID), American and European companies have filed at least 18 claims against Venezuela for illegally seizing their properties. Those claims total more than $14 billion.
The value of Venezuela’s overseas gold reserves? Roughly $12.3 billion.
So let’s connect the dots and solve the mystery of the moving gold.
Spain held elections Sunday. The Spanish Socialist Party (PSOE) was, as expected, thrown out and replaced by the Partido Popular (PP), led by Mariano Rajoy. With four out of ten young Spaniards out of work and the government imposing tough fiscal discipline, the result was hardly a surprise. His party is so unpopular that Prime Minister José Zapatero did not even seek reelection to a third term.
Citizens of Europe, like citizens of the United States, are unhappy. In Spain, the unhappiness is express through “los indignados” There is a lot of outrage, frustration and electoral discontent in Europe after the continent’s economic problems.
France won’t hold its elections until next April when French President Nicolas Sarkozy is up for reelection. As in Spain, change is in the air with Socialist François Hollande now ahead of Sarkozy by 38-24% in the first round and 65-35% in the second round in May.
Politics in Italy is complicated as always – even with technocrat Mario Monti in office. Elections aren’t scheduled in Italy until next April – the only sure thing is the Silvio Berlusconi won’t lead one coalition.
But the big political question mark is what happens in the autumn of 2012 when German Chancellor Angela Merkel must hold elections. She has led two coalition governments. Her current coalition partner, the FDP, has fallen in popularity, while Merkel’s Christian Democrats now lead the opposition Social Democrats by only a few points. If the increasingly popular Green Party continues its current rise in the polls, the Social Democrats could be position to form a coalition government with the Greens next fall.
The only constant on the European political horizon is change. There is a great deal of talk in Europe these days about union and disunion. The underlying disorder in the political system reflects disorder in the monetary system.
“Today’s currency disorder is technically no kind of system at all,” writes economist Judy Shelton in her new book, Fixing the Dollar Now. “Although the very reason the IMF was brought into existence was to oversee a fixed exchange rate monetary system anchored by a dollar convertible into gold, today’s IMF permits its 187 members to choose any form of exchange arrangement they wish. Nations can allow their currencies to float, or be pegged to another currency or basket of currencies, or they can adopt the currency of another country, or participate in a currency bloc, or form part of a monetary union. Perversely, the IMF imposes only one restriction: member nations are not allowed to peg their currency to gold.”
As Europe’s voters concentrate on changing political parties, they might also consider changing monetary systems. Or, as Shelton suggests, actually choosing a system to replace the current disorder.