Is the E.U. on the Brink?

[Beingist]

So, lately, we've seen Greece, Ireland, Portugal, Spain, and now Italy (the E.U.'s 3rd largest economy) suffer from debt issues. Greece's Papandreau has resigned, as has Italy's Berlusconi. The bankers have moved in to run those respective countries. Spain appears to be next to see their own debt bubble. Moody's is talking about downgrading France for all their talk about bailouts. Britain is talking about how great they are for not submitting to the Euro, though Germany is telling them "yeah, but you still have to help".

So, the question, and this thread, goes out from this debt-laden American to my European friends--what in the world is going on over there? Is Europe on the brink, or what?

[Peterw]

It's a big nasty complicated mess. A bunch of countries have maxed out their credit and can't afford the repayments. Bankruptcy isn't an option as the banks that they owe the money to will collapse causing a worse crisis than we had in 2008.

[Beingist]

Originally Posted by Peterw

It's a big nasty complicated mess. A bunch of countries have maxed out their credit and can't afford the repayments. Bankruptcy isn't an option as the banks that they owe the money to will collapse causing a worse crisis than we had in 2008.

Are you over there, Peter, or do you have a good line as to some specifics?

[Peterw]

Originally Posted by Beingist

Are you over there, Peter, or do you have a good line as to some specifics?

I'm in the UK so kind of yes and no. The news is changing every day and the markets are absolutely crazy.

Right now it looks like Italy/Greece are being taken over by Brussels and Germany are pulling most of the strings. Germany and the UK are locking horns over this financial transaction tax thing and everyone here is screaming to get out of the EU but our politicians won't let us vote on it.

It's a tough situation when you have one country with little debt and a very good economy and work ethic having to bail out others where they have huge corruption, a very uncompetitve economy and a very slow way of life.

The whole thing is one massive rolloercoaster at the moment and I hope they can get themselves organised soon but that is a huge project in itself which should have really been done at the beginning.

This is quite a good timeline of the crisis:

BBC News - Timeline: The unfolding eurozone crisis

I think we could all do without another really bad recession..

[Beingist]

Originally Posted by Peterw

I'm in the UK so kind of yes and no. The news is changing every day and the markets are absolutely crazy.

Right now it looks like Italy/Greece are being taken over by Brussels and Germany are pulling most of the strings. Germany and the UK are locking horns over this financial transaction tax thing and everyone here is screaming to get out of the EU but our politicians won't let us vote on it.

It's a tough situation when you have one country with little debt and a very good economy and work ethic having to bail out others where they have huge corruption, a very uncompetitve economy and a very slow way of life.

The whole thing is one massive rolloercoaster at the moment and I hope they can get themselves organised soon but that is a huge project in itself which should have really been done at the beginning.

This is quite a good timeline of the crisis:

BBC News - Timeline: The unfolding eurozone crisis

I think we could all do without another really bad recession..

Thanks for the update and for the link.

I'm often looked at askew around here for saying stuff like this, but I still think it's all due to the venture into printed currency. Bankers are still greedy, and no one benefits from such a venture as they do. Now, they're finally running the show, as no doubt they'd prefer. The problem is, so much greed and concentrated wealth can only lead to inflation and devaluation and, as is currently seen, debt bubbles made insurmountable through monetization.

I know the world doesn't need any more economic difficulties. It's just that I don't see how it can be avoided, as long as the bankers continue to just keep printing money.

[SnerpGoodWord]

The Eurozone crisis demonstrates the abject failure that is centralized hard money policy. When you have a a run on cash like this, you must be able to increase the money supply to get things moving again. The Euro is effectively designed so that can't be done due to political paralysis, and as a result the're about to experience a 19th century style bank panic. At this point it seems inevitable that most if not all of the PIIGS will leave the Euro, and that Europe will end up in recession.

Which once again demonstrates the comparative wisdom of US monetary policy.

[Beingist]

Originally Posted by SnerpGoodWord

The Eurozone crisis demonstrates the abject failure that is centralized hard money policy. When you have a a run on cash like this, you must be able to increase the money supply to get things moving again. The Euro is effectively designed so that can't be done due to political paralysis, and as a result the're about to experience a 19th century style bank panic. At this point it seems inevitable that most if not all of the PIIGS will leave the Euro, and that Europe will end up in recession.

So, you think they'd be wiser to just keep printing up the money, and bailing everyone out? When would (or even could) that ever stop?

[Acting Like Godot]

Umm ... basically you don't really understand any of this stuff.

Originally Posted by Beingist

It's just that I don't see how it can be avoided, as long as the bankers continue to just keep printing money.

Bankers don't print money. That would be illegal, in exactly the same way that it is illegal for you to print money using Photoshop and your colour printer at home.

Governments print money.

[Beingist]

Originally Posted by Acting Like Godot

Umm ... basically you don't really understand any of this stuff.

Bankers don't print money. That would be illegal, in exactly the same way that it is illegal for you to print money using Photoshop and your colour printer at home.

Governments print money.

And put it... where, exactly? Under some big mattress in some big building?

Banks need to maintain capital reserves, per the authority of the central bank (at least in the U.S.) Where do they get those reserves? From the government that just printed it.

btw, thank you for reminding me that I don't understand any of this stuff. Perhaps if any of us can get some answers to some simple questions, that issue might be resolved.

[Acting Like Godot]

Mmmm, it generally works like this.

In each country, it is generally illegal to print your own money. Normally it's called counterfeiting.

Usually, only a specific government body can print money. This body is called the "central bank". Despite the name, it is not a banker like, say, Citicorp or Deutsche Bank or JP Morgan. You can't go there and get a mortgage or apply for a credit card, for instance.

The central bank "feeds" money into the system, through the banks. The central bank also "sucks" money out of the system, when there's too much money leading to inflation.

Yes, money is printed and stored in vaults. A retail bank that wants plenty of currency notes could simply, say, sell government bonds worth $500,000,000 back to the central bank, and the central bank could pay by using the notes that it has printed.

The notes are then delivered by truck, with security guards etc etc, to the retail bank. Which can then take the money and load it into its ATMs around the city.

[Acting Like Godot]

Originally Posted by Beingist

Banks need to maintain capital reserves, per the authority of the central bank (at least in the U.S.) Where do they get those reserves? From the government that just printed it.

Beingist can also maintain capital reserves. In fact, he should.

Let's use a simple illustration. Suppose Beingist wishes to go to college. He wishes to study a four-year course that will cost $50,000 a year. So he needs $200,000.

Beingist does not have $200,000 right now. He does have some savings. He intends to use some of those savings; his parents will contribute some money; and finally, Beingist plans to work part-time while studying, to earn some money to finance his own studies.

Analysing his 4-year plan, Beingist decides that he must also set aside some capital reserves. This simply means that after thinking about his costs for the 4-year college course, Beingist decides that he will take $X from his savings and keep it under his mattress. This is in case any other part of his plan goes wrong - in that case, he will have some "backup" money to rely on.

That's "capital reserves".

For the banks, the government has lots of complicated rules. But the basic idea is that generally for every business transaction that the bank gets itself into, it should set aside a certain amount of money, as "backup" money, in case the transaction goes wrong.

[Beingist]

Originally Posted by Acting Like Godot

Usually, only a specific government body can print money. This body is called the "central bank". Despite the name, it is not a banker like, say, Citicorp or Deutsche Bank or JP Morgan. You can't go there and get a mortgage or apply for a credit card, for instance.

I see. So, it's a bank ... that's not really a bank.

Well, you'll have to forgive me, ALG, but a "Central Bank" is still a bank in my book, and as long as it's called a "Central Bank," and as long as it maintains the authority to print money, then I don't think that it's entirely justified to claim that anyone who says that "banks print money" doesn't "understand any of this stuff."

I mean seriously, is it any wonder that anyone would be confused after hearing this kind of stuff? I honestly have a hard time believing that it's not intentional.

The central bank "feeds" money into the system, through the banks. The central bank also "sucks" money out of the system, when there's too much money leading to inflation.

Right, well, as I understand economics (which is limited, I'll admit), inflation is the actual increase in the money supply, which leads to higher prices, not the higher prices themselves.

Also, as I understand it (since I have read some of the current Fed Head's speeches), price increases are a good thing, because it's not price decreases (heaven forfend anything should decrease in price ), and so it is maintained at a constant positive level through the increase of the money supply.

Yes, money is printed and stored in vaults. A retail bank that wants plenty of currency notes could simply, say, sell government bonds worth $500,000,000 back to the central bank, and the central bank could pay by using the notes that it has printed.

The notes are then delivered by truck, with security guards etc etc, to the retail bank. Which can then take the money and load it into its ATMs around the city.

Okay. Thanks for the explanation.

So, from now on, I'll just have to remember that Central Bankers aren't really .. bankers. Got it.

[Beingist]

Originally Posted by Acting Like Godot

For the banks, the government has lots of complicated rules. But the basic idea is that generally for every business transaction that the bank gets itself into, it should set aside a certain amount of money, as "backup" money, in case the transaction goes wrong.

Yes, I follow.

And, of course, the money that serves as those capital reserves is printed by the Central Bank, which is ... not really a bank, at its sole discretion. Got it.

The point is that several major countries of Europe are deeply in debt (including Italy, with the 3rd largest economy of them all), and the Central Bank just keeps printing money and bailing out these flagging economies. So, I'm asking, what is that likely to lead to, and is it ever going to stop?

Unlike Central Banks, if Beingist is maxed out on his debt, he doesn't have the luxury to simply print up more money.

[Acting Like Godot]

No, you don't understand.

Every company has capital. Eg let's say you and a business partner decide to set up a company to bake cakes and sell cakes.

You contribute $20,000 and he contributes $20,000. So now the company has $40,000. You decide to use some of it to hire employees; buy baking equipment; renovate the shop etc.

And you also decide to set aside some of the capital, for emergency purposes, by placing it on fixed deposit or investing it in a low-risk money market fund. That's "capital reserves".

Would you say that the government printed that money for you? If you insist. All money is printed by the government anyway.

[Beingist]

Originally Posted by Acting Like Godot

Would you say that the government printed that money for you? If you insist. All money is printed by the government anyway.

Right, the government that's called a Central Bank, but ... not really a bank, like ... a bank.

Point is, the Fed (i.e., the U.S. Central Bank) raised the capital reserve level, if I recall, in 2008, after the housing bubble burst, and all the banks would have gone bankrupt had those banks not been loaned all this money that, of course, had to be printed by the Bank that's not a real bank. Regular folks I know call it the "big bank bailout" (much of which, as you have noted in other threads, has been paid back, though I'm wondering now where that money went?--back into reserves?).

Anyway, I haven't been following Europe closely until recently, and am wondering if this is the equivalent of their housing bubble/bank crisis, or is it a harbinger of something that could easily happen in the U.S.? We have our own debt issues here, too, see, and the Fed here keeps coming up with ever cleverer ways to monetize it.

[Acting Like Godot]

Greece debt crisis has nothing to do with banks. Google "cause of Greek debt crisis" and you will see. Banks are such small players in the overall Greek economy I bet you probably can't even think of the names of more than one or two Greek banks, if any at all.

Europe is in trouble because for decades, it has been giving its people a level of social welfare and support which Europe's economic growth cannot justify. Unemployment benefits, heavily subsidiaed healthcare and education, lifelong pension schemes etc. The debt has accumulated over decades and the system has reached crumbling point.

[JSB]

Beingist,

Despite your sarcastic comments in this thread, there really is a difference between a Central Bank and say, an investment bank or commercial bank. Their functions and structures are very different, even though they can all be called "banks".

A penguin, an ostrich, and a hummingbird are all birds, but nobody is going to confuse one for the other.

Originally Posted by Beingist

Right, the government that's called a Central Bank, but ... not really a bank, like ... a bank.

Point is, the Fed (i.e., the U.S. Central Bank) raised the capital reserve level, if I recall, in 2008, after the housing bubble burst, and all the banks would have gone bankrupt had those banks not been loaned all this money that, of course, had to be printed by the Bank that's not a real bank. Regular folks I know call it the "big bank bailout" (much of which, as you have noted in other threads, has been paid back, though I'm wondering now where that money went?--back into reserves?).

Anyway, I haven't been following Europe closely until recently, and am wondering if this is the equivalent of their housing bubble/bank crisis, or is it a harbinger of something that could easily happen in the U.S.? We have our own debt issues here, too, see, and the Fed here keeps coming up with ever cleverer ways to monetize it.

[Beingist]

Originally Posted by Acting Like Godot

Greece debt crisis has nothing to do with banks. Google "cause of Greek debt crisis" and you will see. Banks are such small players in the overall Greek economy I bet you probably can't even think of the names of more than one or two Greek banks, if any at all.

Well, actually, I did do that a couple of months ago, and read this, among other sites:

Economy of Greece - Wikipedia, the free encyclopedia

Which explained this--

In early 2010, it was revealed that successive Greek governments had been found to have consistently and deliberately misreported the country's official economic statistics to keep within the monetary union guidelines. This had enabled Greek governments to spend beyond their means, while hiding the actual deficit from the EU overseers. In May 2010, the Greek government deficit was again revised and estimated to be 13.6% which was one of the highest in the world relative to GDP and public debt was forecast, according to some estimates, to hit 120% of GDP during 2010,[60] one of the highest rates in the world.

--and which tells me that, one way or the other, the problem is still debt, which no one wants to default on, so they monetize it by borrowing ever more, until the whole thing becomes unsustainable. If there were no central banks willing to continue to print the money to monetize the debt, then it would have gone down long ago, and wouldn't likely be in the bigger mess than they are now, would they?

Europe is in trouble because for decades, it has been giving its people a level of social welfare and support which Europe's economic growth cannot justify. Unemployment benefits, heavily subsidiaed healthcare and education, lifelong pension schemes etc. The debt has accumulated over decades and the system has reached crumbling point.

Yes, I can understand this, and I think we've been doing the exact same thing in the U.S., which is why I'm concerned.

But, thanks for the input, ALG. It's direct answers like the above that I'm actually looking for.

The problem I have with the Central Banks, though, is that they just continue to print the money, as if to tell the rest of the government "go ahead, spend away!!" and I think that such is irresponsible, at best.

[Beingist]

Originally Posted by JSB

Beingist,

Despite your sarcastic comments in this thread, there really is a difference between a Central Bank and say, an investment bank or commercial bank. Their functions and structures are very different, even though they can all be called "banks".

A penguin, an ostrich, and a hummingbird are all birds, but nobody is going to confuse one for the other.

I understand this perfectly well, JSB. But, though their functions may be different, I would suggest that their structures shares some striking similarities (for example, Central Banks still have Balance Sheets, and stockholders and yes, even a profit margin, however minimal). Moreover, they're still called Banks, so I think your analogy fails somewhat. A better one might be the difference between hummingbirds, gambirds, and birds of prey--they're all obviously still birds, whatever they're characteristics.

[Acting Like Godot]

One big difference is that central banks are not commercial organizations. They are generally created by an act of statute (i.e Parliament or Congress created them) and their staff are all government employees. They are not-for-profit organizations.

[Peterw]

What I'm getting from this Beingist is that it seems like you want the national debt problems to be the fault of the banks and are looking for any ways to connect government spending with corporate greed.

They're both very bad things but are not one and the same. The debt problems that Europe, UK, US are facing are down to governments spending more than they should for years and now it's come home to roost.

[garentee]

Originally Posted by Peterw

What I'm getting from this Beingist is that it seems like you want the national debt problems to be the fault of the banks and are looking for any ways to connect government spending with corporate greed.

They're both very bad things but are not one and the same. The debt problems that Europe, UK, US are facing are down to governments spending more than they should for years and now it's come home to roost.

If you look at what the tax rate used to be in the US until Ronald Reagan became president it is no wonder we are in the financial mess we are in. Essentially the wealthiest have paid very little compared to what they used to and we have been borrowing money to fund all sorts of things. It is sheer insanity to not tax the people that can afford it more.The economy of this country is still the biggest in the world, it is just a fact that we have starved the beast and are just now starting to see the effects. I am in no way suggesting that we go back to a 70% tax rate (which is what Reagan had inherited) BUT I am suggesting that cleaning up some of the tax loopholes that many companies and the wealthier people enjoy would be a damn good start. In the end yes there are some very big spenders in government and a good bit of corruption and that too needs to be looked at, but it is time for the wealthy to get taxed more...

[Beingist]

Originally Posted by Acting Like Godot

One big difference is that central banks are not commercial organizations. They are generally created by an act of statute (i.e Parliament or Congress created them) and their staff are all government employees. They are not-for-profit organizations.

Of course, I can speak for every central bank structure, but in the U.S., this is not entirely true. The Federal Reserve Board has stockholders, and is guaranteed a 6 percent profit (though on exactly what, I'm still trying to figure out).

Oddly enough, there are a LOT of people, seemingly, who fight to death the idea that it's otherwise, and others who are quite adept at keeping that information obscured.

[Beingist]

Originally Posted by Peterw

What I'm getting from this Beingist is that it seems like you want the national debt problems to be the fault of the banks and are looking for any ways to connect government spending with corporate greed.

They're both very bad things but are not one and the same. The debt problems that Europe, UK, US are facing are down to governments spending more than they should for years and now it's come home to roost.

No, Pete, I understand that governments have been spending way too much money, but I also understand that they've been borrowing way too much of money that has to be printed, and the Central Banks have been more than accomodating to this end.

I also understand that no paper currency has ever withstood the test of time, that the founding fathers of the U.S. hated it, and that if the Central Banks didn't print so damn much of it, Europe and the U.S. wouldn't likely be in the mess it's in. I'm not saying the Central Banks are entirely at fault. But, if one wants to say that they're "the government", then they can't say, in the same breath, that they're entirely blameless for the debt crises these "governments" have created.

[Beingist]

Originally Posted by garentee

In the end yes there are some very big spenders in government and a good bit of corruption and that too needs to be looked at, but it is time for the wealthy to get taxed more...

I simply disagree with this, anymore, and the reason why is because you can't tax a country into prosperity. Most often, the way it works, is that you raise the tax rate, and those who are really sharp with tax codes figure out the loopholes and get even richer, while those who are simply "providing value" to the economy get screwed. The top corporate tax rate might be 35 percent, but I just read that General Electric (whose CEO doubles as a member of the President's "Economic Recovery Board") just paid 0 percent taxes on $14 billion profit.

No, I really think throwing out the tax code entirely, and starting completely from scratch is in order. Not that anyone, either businesses or government is ever really going to let that happen. It's not in their interest to do so, despite what they may say.

[JSB]

All National Banks in the US are required to provide a certain amount of funds to the Federal Reserve (a small percentage of their own value) and are issued non-tradable stock as compensation for this requirement, since the money the provide is unavailable for regular banking investments. This stock earns a 6% dividend, but any profits made by the Fed in the course of its operations are paid directly into the US Treasury.

Originally Posted by Beingist

Of course, I can speak for every central bank structure, but in the U.S., this is not entirely true. The Federal Reserve Board has stockholders, and is guaranteed a 6 percent profit (though on exactly what, I'm still trying to figure out).

Oddly enough, there are a LOT of people, seemingly, who fight to death the idea that it's otherwise, and others who are quite adept at keeping that information obscured.

[MariconesUnited]

Originally Posted by Beingist

Of course, I can speak for every central bank structure, but in the U.S., this is not entirely true. The Federal Reserve Board has stockholders, and is guaranteed a 6 percent profit (though on exactly what, I'm still trying to figure out).

Oddly enough, there are a LOT of people, seemingly, who fight to death the idea that it's otherwise, and others who are quite adept at keeping that information obscured.

Making profit does not make an organization ''for profit''. It's just not the main goal of a not-for-profit organization. You need some level of profitability if you wish to continue operating after all. I don't think a fixed 6% profit would disqualify an organization from being ''not for profit''.

Originally Posted by Beingist

I simply disagree with this, anymore, and the reason why is because you can't tax a country into prosperity. Most often, the way it works, is that you raise the tax rate, and those who are really sharp with tax codes figure out the loopholes and get even richer, while those who are simply "providing value" to the economy get screwed. The top corporate tax rate might be 35 percent, but I just read that General Electric (whose CEO doubles as a member of the President's "Economic Recovery Board") just paid 0 percent taxes on $14 billion profit.

No, I really think throwing out the tax code entirely, and starting completely from scratch is in order. Not that anyone, either businesses or government is ever really going to let that happen. It's not in their interest to do so, despite what they may say.

There is some hope in the matter. Herman Cain is proposing what you're describing. Problem is his numbers don't add up. Ron Paul wants to do something similar I think. It's possible. Not likely I'll give you that much. Not now that corporations have been given legal personhood and the power to just ''lobby away'' (ie. buy politicians) with however much money they can use. Just think of the power 14 billion dollars can wield. And that's just GE.

Originally Posted by Beingist

The problem I have with the Central Banks, though, is that they just continue to print the money, as if to tell the rest of the government "go ahead, spend away!!" and I think that such is irresponsible, at best.

I think they're more of a symptom than a cause. Essentially all money created creates more debt. In other words if we could somehow gather all the available money and paid it back to the central banks we would still be in the red due to interests and other factors. I think the problem stems out of the underlying philosophy itself. Unlimited growth. On a world with limited resources. We're seeing more and more that most of this growth is imaginary. We're forgetting concepts like sustainability due to the myopic self-interested view that the system promotes.

[Beingist]

Originally Posted by MariconesUnited

I think they're more of a symptom than a cause. Essentially all money created creates more debt. In other words if we could somehow gather all the available money and paid it back to the central banks we would still be in the red due to interests and other factors. I think the problem stems out of the underlying philosophy itself. Unlimited growth. On a world with limited resources. We're seeing more and more that most of this growth is imaginary. We're forgetting concepts like sustainability due to the myopic self-interested view that the system promotes.

This is an interesting point, and indeed, all money created creates more debt.

But, who "creates" the money? Back in the days of the gold standard, no one "created" the money (it wasn't created at all, in fact, but mined and minted)--what there was, was held in reserve: limited money supply. Such might limit growth, but at the same time it limits debt.

And, for those who believe in the unlimited growth potential for fiat currency, well, as I ask in the O.P., what's happening in the E.U. right now?

But, we've been on a digression of sorts (not that there's anything wrong with that). I was really looking to see if any Europeans could chime in (but thanks again to Pete for doing so). Seems like they just don't want to talk about it.

[MariconesUnited]

Originally Posted by SnerpGoodWord

The Eurozone crisis demonstrates the abject failure that is centralized hard money policy. When you have a a run on cash like this, you must be able to increase the money supply to get things moving again. The Euro is effectively designed so that can't be done due to political paralysis, and as a result the're about to experience a 19th century style bank panic. At this point it seems inevitable that most if not all of the PIIGS will leave the Euro, and that Europe will end up in recession.

Which once again demonstrates the comparative wisdom of US monetary policy.

I love this post. It's really funny. It's as if nothing of note happened near the end of 2007 and early 2008 in the USA.

[Acting Like Godot]

Originally Posted by MariconesUnited

I love this post. It's really funny. It's as if nothing of note happened near the end of 2007 and early 2008 in the USA.

LOL, yes. And it's as if the USA is cruising along smoothly right now, the economy is singing happily, jobs are abundant, people's homes aren't getting foreclosed etc etc.