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Ireland Unveils 4 Year Budget Details, Riots Imminent
Assorted Currency Notes
http://www.zerohedge.com/article/ireland-unveils-4-year-budget-details-riots-imminents
A bunch of completely irrelevant numbers released by Ireland. At best these will achieve nothing but will kick the can down a few more months. At worst violent rioting will be a daily occurrence in Dublin within a week.
From RTE:
* The Government strategy aims to make savings of €15bn over the next four years, with a €10bn cut in public expenditure and a €5bn increase in taxes. (riots)
* It said that 40% of the measures (€6bn) will be frontloaded in the Budget, which will be delivered on 7 December.
* More than 24,000 jobs will be cut in the public sector over the four-year period.(riots)
* The public sector pay bill will be reduced by €1.2bn and pay for new entrants will be reduced by 10%. While public services retirees face significant cuts in their pensions. (riots)
* Ireland will raise VAT rate to 22% in 2013, and 23% in 2014 (riots)
* Ireland may tap pension reserve fund for infrastructure plan (kiss that retirement money goodbye
* It says the numbers of people paying tax must increase, but that an income tax system where more than 45% of tax units pay no income tax is not sustainable (riots)
* Ireland promises to maintain a 12.5% company tax rate (this will be revised soon courtesy of Olli Rehn and the European overlords)
* And the funnitest thing you will see today: the government expects to grow at just under 3% for the next 4 years.(laughter)
As Portugal is currently gripped in its biggest general strike in history over precisely the same issue (austerity budget), sit back, and enjoy the Dublin riots to cause Waddell and Reed to sell some ES soon to quite soon.
http://vidrebel.wordpress.com/
Irish application for IMF/EU rescue package approved
Brian Cowen, the Taoiseach of Ireland.
KILIAN DOYLE and EOIN BURKE-KENNEDY
Sun, Nov 21, 2010
Taoiseach Brian Cowen tonight confirmed the European Union has agreed to Government request for financial aid package from the European Union and the International Monetary Fund.
European finance ministers held an emergency conference call tonight to consider a Cabinet request for aid, during which the application was approved.
Speaking at a press conference in Government Buildings in Dublin with Minister for Finance Brian Lenihan tonight, Mr Cowen said the rescue package, which will run for three years, will be tied to a restructuring of the banks and a deficit reduction plan.
The amount of funding being applied for will be decided during the negotiations, the Taoiseach said. Earlier today, Mr Lenihan said the figure would be in the “tens of billions” but would be less than €100 billion.
Mr Cowen also said Ireland’s 12.5 per cent corporation tax rate did not form part of the negotiations.
“A central element of the programme will also be to support further deep restructuring and the restoration of the long term viability and financial health of the Irish banking system,” Mr Cowen said.
The loan will be arranged through the IMF and the European Financial Stability Facility, a €440 million fund that can be accessed by EU member states in financial difficulty. Mr Lenihan said the UK and Sweden have also offered to help fund the package.
The Taoiseach said the Government will publish its four-year recovery plan for the economy early next week. The 160-page document charts how the State will reduce its outgoings by €15 billion between now and the end of 2014.
In Brussels, EU economic and monetary affairs commissioner Olli Rehn said the finance ministers welcomed the Government’s request for aid. “Providing assistance to Ireland is warranted to safeguard the financial stability in Europe,” he said.
Mr Rehn said a team of European Commission, European Central Bank and IMF experts in Ireland would prepare the details of the assistance package by the end of the month, adding it would be a three-year loan programme. “The programme under preparation will address both the fiscal challenges of the Irish economy and the potential future capital needs of the banking sector in a decisive manner,” Mr Rehn said.
In a statement tonight, Central Bank Governor Patrick Honohan said tonight’s announcements allow Ireland’s course of economic and financial policy to be set on a more secure path. “We can be reassured that the Irish banking system retains the support, not only of the Central Bank of Ireland, but of the European Institutions,” he said.
Labour Party finance spokeswoman said Joan Burton described the agreement as “the final epitaph for a Fianna Fáil Government that has plunged the country into the financial abyss and that has consistently and deliberately lied to the Irish people”.
The Cabinet met this afternoon after Mr Lenihan said he would seek its approval for a financial bailout. Following several days of negotiations with IMF, EU and ECB officials in Dublin, Mr Lenihan said he would recommend the State applies for the bailout to ensure Irish banks had enough “firepower” to function.
He dismissed pressure on Dublin from other euro zone countries to raise low business taxes that have attracted many multinational companies to Ireland, saying changes to the 12.5 per cent corporation tax rate were off the agenda and would hamper growth.
In an interview on RTÉ Radio’s News at One, Mr Lenihan declined to be drawn on the exact size of the loan but he indicated it would be in the tens of billions. He also said it would not be a “three figure sum”.
The Minister said the interest rate charged on the loan had yet to be agreed but would be significantly lower than the rate currently available to the Government on international bond markets.
Mr Lenihan admitted for the first time the banks had become too big a problem for the country to resolve on its own. “The key issue all the time for the Government is to ensure that we do not have a collapse of the banking sector.”
He said Ireland may not fully draw down any funds it gets from the EU and IMF, which would simply serve as “a powerful demonstration of firepower behind the banks”.
Experts estimated Ireland may need €45-€90 billion, depending on whether it needs help only for its banks or to cover general Government spending too. The main concern for EU policymakers is Ireland’s problems spreading to other euro zone members with large budget deficits like Spain and Portugal, threatening a systemic crisis.
In May, the EU and IMF launched a €110 billion rescue package, the first of a euro zone country, aimed at pulling Greece back from the brink of bankruptcy. In return, Athens promised harsh austerity measures which brought large numbers of Greeks onto the streets in protest.
Yesterday, French president Nicolas Sarkozy predicted Ireland would raise its corporate tax rate but said he did not anticipate an increase would be made a condition of the international bailout. “It’s obvious that when confronted with a situation like this, there are two levers to use: spending and revenues,” Mr Sarkozy said.
German chancellor Angela Merkel declined to say whether she believed the tax was in jeopardy if the Government tapped an international bailout fund. “Every country that’s in need of this mechanism can use it. Everything beyond that is the decision of each individual country,” she said.
Meanwhile, Sweden said it would consider a bilateral loan to Ireland if one was requested, prime minister Fredrik Reinfeldt said. On the question of Ireland’s low corporation tax, Mr Reinfeldt said: “It’s a decision for the Irish people and government to take.”
Additional reporting: Agencies
© 2010 irishtimes.com
Irish resisting EU bail-out pressure
15 November 2010 Last updated at 12:20 ET
One worker, who has recently been made redundant, took to the streets in DublinThe Irish Republic has insisted it does not need European Union assistance amid speculation it is under pressure to use an EU bail-out fund.
Dublin said it was in contact with “international colleagues”.
But it dismissed reports that it may approach the European Financial Stability Fund (EFSF) for up to 80bn euros (£68bn; $110bn) as “fiction”.
Meanwhile, Portugal has called on the Republic to act for the good of the eurozone, as well as its own interests.
The EU can only offer a bail-out if Dublin requests it – but there are fears that if this did not happen there would be greater contagion elsewhere.
However, a succession of Irish government ministers said there had been no suggestion of turning to Europe for help.
“The argument that Ireland is about to go banging on the door of the International Monetary Fund or needs to take an EU bail-out is simply wrong, but if it gets more legs, it could be very, very dangerous,” European Affairs Minister Dick Roche told Irish radio.
‘Vision’A spokesman for Economic and Monetary Affairs Commissioner Olli Rehn said that pressure on Dublin to take a bail-out was not coming from the European Commissioner, but from “another player”.
Continue reading the main story
“Start Quote
A bail-out would be a humiliation for a country that just a short while ago was the Celtic Tiger. Some see these days as critical for Irish fiscal independence”
End Quote
Gavin Hewitt BBC Europe editor
Last week, market anxiety spread to other heavily indebted eurozone nations, including Portugal and Spain, driving up their borrowing costs.
And Portugal’s Finance Minister Teixeira dos Santos told the Financial Times there was now a high risk that Portugal would have to seek foreign financial aid.
“The risk is high because we are not facing only a national or country problem,” he told the FT. “It is the problems of Greece, Portugal and Ireland. This is not a problem of only this country.”
Earlier, Mr Santos told the AFP newsagency he believed Ireland had “the vision to take the right decision”.
“I want to believe they will decide to do what is most appropriate together for Ireland and the euro,” he said.
The yield on Irish bonds – essentially IOUs sold by the government to fund state spending – were trading lower on Monday, suggesting a slight easing of concerns.
The yield on the bonds has soared in recent weeks, indicating that investors believed there was an increased risk of the Republic defaulting on its debt.
‘Concerns’ Continue reading the main story
What went wrong in the Irish Republic
- The 1990s were good for Ireland’s economy, with low unemployment, high economic growth and strong exports creating the Celtic Tiger economy, with lots of multi-national companies setting up to take advantage of low tax rates.
- At the beginning of 1999, Ireland adopted the euro as its currency, which meant its interest rates were set by the European Central Bank and suddenly borrowing money became much cheaper.
- Cheap and easy lending and rising immigration fuelled a construction and house price boom. The government began to rely more on property-related taxes while the banks borrowed from abroad to fund the housing boom.
- All this left Ireland ill-equipped to deal with the credit crunch. The construction sector was hit hard, house prices collapsed, the banks had a desperate funding crisis and the government was receiving much too little tax revenue.
- The economy has shrunk and the government has bailed out the banks. A series of cost-cutting budgets have cut spending, benefits and public sector wages and raised taxes. But there are still doubts about future government funding.
Ireland’s difficulties will be discussed by EU finance ministers in Brussels on Tuesday.
However, the BBC’s Europe editor Gavin Hewitt said that high-level talks had already begun, involving European Commission President Jose Manuel Barroso and his economy commissioner Olli Rehn.
“Some EU officials believe it would be better for the Republic to accept a bail-out package now rather than to allow uncertainty to continue,” Gavin Hewitt said.
Brussels fears that any delay risks repeating the Greek crisis that earlier this year threatened the entire eurozone, he added.
A commission spokesman confirmed that it regarded the Irish finance position as serious, but denied that the government was being put under pressure to accept help.
“Yes, we are in close contact with the Irish authorities, yes there are concerns in the euro area about the financial stability of the euro area as a whole, once again,” said Amadeu Tardio.
“But to say that there are strong pressures to push Ireland to any kind of scheme of this kind is an exaggeration,” he added.
Bank plan
Continue reading the main story
“Start Quote
There would not be a banking system in Ireland – and therefore not an economy in any conventional sense – if it weren’t for the generosity of the European Central Bank in providing loans to Irish banks that the markets won’t provide”
End Quote
Robert Peston Business editor, BBC News
Some reports suggest that the Irish Republic could seek help for its banking sector alone, rather than asking for help at a government level.
This, say observers, would save them the embarrassment of being rescued by the EU and avoid greater involvement by Brussels in economic decisions.
The Irish Republic’s trade and business minister Batt O’Keefe said the Republic must show it could “stand alone”.
“It’s been a very hard-won sovereignty for this country and this government is not going to give over that sovereignty to anyone.”
However the EFSF cannot be used to lend directly to banks, said European Central Bank vice president Vitor Constancio.
“The facility lends to governments and then the governments of course may use the money to that purpose in similar lines that exist for Greece,” he said.
“The same could be done for Ireland.”
The Irish government has all but nationalised the country’s banking system, which had lent recklessly to property developers at a cost of 45bn euros.
‘Stand alone’The government has consistently stated its determination to restore stability to the public finances and stressed that it was “fully funded” until 2011.
Meanwhile concerns persist about the state of the Greek economy, which received an EU bail-out worth up to 110bn euros.
European and IMF officials will be in the country this week to decide whether to release the final tranche of the money.
But over the weekend, Greek Prime Minister George Papandreou signalled it may have to ask for permission to delay its repayments.
The scale of the problems still facing Greece were further underlined by the latest official European figures which showed that its budget deficit in 2009 was markedly higher than previously stated.
Cuts impactSince 2008, the Irish Republic has suffered a dramatic collapse of its property market.
House values have fallen between 50% and 60% and bad debts – mainly in the form of loans to developers – have built up in the country’s main banks, bringing them to the verge of collapse.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014.
Its current deficit is an unprecedented 32% of gross domestic product, if the cost of bad debts in the Irish banking system is included.
The Irish government, which has a flimsy majority in parliament, is expected to publish another draconian budget on 7 December.
This will impose spending cuts or tax rises totalling 6bn euros to bring the deficit down to between 9.5-9.75% next year.
Investors fear the budget cuts are likely to worsen the country’s already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
Global Economy
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The Global Monetary System in Crisis
"View in Wall Street from Corner of Broadway", New York. Engraving from Thirty Years' Progress of th...
The recognition of currency war, which has been going on for years, reflects the failure of international cooperation and the failure the G-20 to find a solution of the beggar-thy-neighbor policies of almost every nation. The result has been growing geopolitical dislocation, which G-20 has yet to find a solution for. These efforts, until recently, were turned upside down by the failure of the Copenhagen Summit in the summer of 2009, when it was discovered that global warming was a giant scam. This was proof positive that global leadership was nothing less than a group of common criminals. Economic and financial failure has brought about global austerity measures, and bickering over trade and currencies as well. As this transpired the economies of the US, UK and Europe slid downward in socio-economic, crisis, which in some cases has degenerated into violent demonstrations.
The US and UK are in economic paralysis due to the major changes anticipated in next week’s elections of House and Senate delegates. The President isn’t even going to be in Washington to witness the massacre of the Democrats. He just refuses to deal with it, as a long line of bureaucratic appointees head back to Harvard, foundations, think tanks, the Council on Foreign Relations and the Trilateral Commission. This as the Chairman of the Fed unveils plan two of quantitative easing, the creation of money and credit out of thin air, which in reality has been going on in the bond market since early June. Another bit of subterfuge dreamed up on Wall Street.
The Fed is monetizing a stimulus plan that the administration is no longer capable of assisting, due to an enraged public. On the other hand, large dollar holders are loudly complaining that the Fed’s policies will cause major inflation and a falling US dollar. Of course, the flip side is if the Fed doesn’t act in this manner the US economy will collapse and with it the world economy. The dumb Chinese, Japanese and oil producers should have long ago accumulated gold and gotten rid of dollars. That was not to be as they in fact enslaved to US leadership by yields and exports. The expenditure of $5 trillion over the next two years by the Fed will only take the US economy sideways at best, and in turn take the dollar to new lower levels. All the insiders know the plan won’t work, but it will buy time, perhaps so they can have another war as a distraction, as they have done many times before in history. Even the public knows it won’t work having been alerted by information pouring out of talk radio and the Internet. The US is already in austerity. Just look at real unemployment of 22-3/4%. This is getting worse not better and that means a change in control in the House and Senate could well bring about a constraining of fiscal and monetary policy.
The US is on a path to socio-political chaos as the dollar falls and the world monetary system comes unglued. Those countries in decent monetary and fiscal condition will pull away from dealing with the US and that has already occurred with Brazil that doesn’t want inflationary dollar investments entering their country, thus, they have implemented a dollar investment tax. The US cannot return to the past. Its leadership lost that opportunity in June of 2003 when they decided to go ahead and take down the economies of the US, UK and Europe in order to force the inhabitants of these countries to accept world government. A main cog in this plan was the implementation of free trade, globalization, offshoring and outsourcing, which has cost the US in just ten years 8.5 million jobs.
There is no chance now of return as countries pull away from US and UK financial markets. These moves will protect these countries for a time, but eventually they will feel the sting of economic failure and instability as trade wars and tariffs become the norm. Washington will cease to be the world leader. The currency and trade wars have only just begun. They could not be avoided by either side. There is about to be a convergence of problems. Things that previously were not connected that will burst forth without warning. That will eventually lead to the implosion of the system.
These factors will be accompanied by social unrest, which we have just seen the beginnings of in Europe. This time of social, monetary and fiscal turmoil will last at least into 2014 before any solutions are put on the table. An easy solution is multilateral revaluation, devaluation and default. This would be very painful, but would stop the power by today’s elites in the US, UK and Europe and the unmasking of their treachery.
Throughout Europe and the US there has and will continue to be a rise in patriotic movements, which those who control governments already have labeled terrorists. These are people like us who bring truth and exposure of facts to the attention of the public.
We are currently facing a new crisis in the US in the mortgage markets and in their securities, which has been aided and abetted by a disintegrating legal system. This comes to real estate at a time when it is on life support. The states cannot be of much assistance because most of them are broke, which is another distinct problem.
The US has already abdicated its role of world leader. Even leadership from Wall Street and banking is dreadful. Worse yet there is no one to take its place, as the world lies adrift in a sea of trouble. The atmosphere is explosive because no one wants to give up anything. The financial markets will all eventually fall and the flight to gold and silver as the only real money will gain acceptance, as we predicted long ago. Americans and others have failed to see the future and they’ll pay dearly for not paying attention.
One of the interesting developments of the new currency wars is a concept that, the nations that will be the most successful, are the nations that devalue the fastest. One of the things nations miss is that the cheap currency that propels exports; also raises the costs of imports. Another fallout is others won’t want to own your currency and if you devalue a currency enough it becomes worthless, or nearly so. A good example of that was in the 1930s where only tariffs were successful. As a rule those tariffs were not steep. The threat, of course, is that nations get mad at one another and war follows.
What these nations have been doing is similar to quantitative easing, or simple fiat creation of money and credit. These actions are the antithesis of sound money.
The Forex, foreign exchange market, trades $4 trillion a day and its projected to trade $10 trillion daily in the next couple of years. Money flows are already wild to say the least. Many foreign currencies have been rising versus the dollar. Some nations such as Brazil have already instituted capital controls by putting taxes on foreign purchases of local sovereign debt. Those not into the foreign game are buying US Treasuries, gold, silver and commodities.
The FOMC and the Fed, even though they know it won’t work, are becoming more and more accommodative. You will get some idea of their plan next week. The result will be a falling dollar, which is not really monetary policy, but grasping at straws in the wind. You will find nothing of sound money here and as a result markets will ultimately not survive. Remember, we could return to the circulation of gold and silver. 76 years ago gold coins were widely circulated and silver was in everyone’s pocket just 47 years ago. It is not impossible. It could happen again over the next few years.
It was just two weeks ago that the dollar revisited 76.54 on the USDX. It had rallied over the past four months from 76.88. It is currently about 77.28. Every time it tries to rally it gets knocked down again. That is a long way from 89 where it was seven months ago. One thing is for sure, as long as we have ill-fated policies such as QE2 the dollar will continue to fall.
We also found it of interest that Bill Gross of PIMCO found the Fed has taken Charles Ponzi one-step further. He says, “Has there ever been a Ponzi scheme so brazen?” No, there has not, said Bill. When the Fed meets next Wednesday it could signify the end of a great 30-year bull market in bonds.
What should be noted is that the Fed is intent on generating another asset bubble to accommodate the sale of Treasury and Agency bonds and to give Wall Street and banking more funds to speculate with. This will renew the elitist wealth effect and in the process send the dollar lower, which in turn will increase inflation, which is already sapping consumer buying. The Wall Street gang plan to use Fed funds to jack up the market, which is already overpriced by 20%, is an act of pyromania. In addition, the average increase in 15 commodities yoy to October is 35%. Food costs are up 48% and energy 23%. Real inflation is up 7%, not the 1.6% the Fed lies about.
THE NEXT GLOBAL ECONOMIC CRISIS
Will the world experience a new economic crisis that will be even more serious that the one that we have just been through or enter a period of sustained economic growth?
It is now becoming clear that the Anglo-Saxon and some European nations have not recovered from the recent economic crisis as was expected a year ago, and will slide back into a double-dip recession. What has gone wrong? Why has not the economic stimulus packages worked? Many economists had expected that by now that the USA would be in economic recovery, not facing high unemployment and a faltering economy. Now, out of desperation the USA and UK are planning to print even more money in an effort to revive their faltering economies.
Meanwhile many other economies have recovered strongly from the recent recession. In Europe the Germany economy is recovering strongly, as have most of the Asian economies. Why have the Anglo-Saxon and some European nations not been able to do likewise?
The reasons are simple. It does not require an economist with a PhD to figure out that if a country spends more than it earns year after year, eventually they will be in trouble. While often economists disagree with one another on the causes and solutions, the fundamental problem why the English speaking nations are in the mess they are today is because for years they have lived beyond their means on borrowed money. Sadly, nothing has been done to correct this, which was the cause of the recent recession; rather the current economic policies of the Anglo-Saxon nations are only made the situation worse.
The reasons for the economic crisis were:
1. Large trade deficits – the Anglo-Saxon nations have been importing far more than they export.
2. To finance their imports they have borrowed money from creditor nations with trade surpluses, which they now need to repay along with the interest.
3. Much of the GNP growth up to 2007 in these nations was in consummation of imported goods, housing and the service sector, while manufacturing declined.
4. The cost of servicing this debt has escalated while government revenues have declined.
5. Over generous welfare programs which have drained financial resources from the productive sectors of the economy.
6. A break-down on the moral fabric of society and poor work ethics
7. Costly wars and expensive defense budgets.
In an effort to revive their economies from the recession governments have operated large deficits by creating stimulus packages with borrowed and printed money. They have continued to borrow off their creditor nations, increasing their international debt which is making long-term recovery even more difficult.
The UK and some European Governments have recently slashed Government expenditure, acknowledging they can no continue to borrow to finance their deficits. The UK is now insolvent, struggling to pay the interest on their enormous national debt, while still incurring further debt. The cut-backs have been so drastic that the UK economy will remain economically depressed for years.
Rather than accept responsibility for the financial mess many countries are now in, politicians have blamed bankers and speculators, instead of admitting it was their own fiscal policies that created the crisis in the first place. Bankers make their money by lending – if loose monetary policies create too much money in circulation then bankers will find new customers to lend money – the result being the prime-housing bubble and banking crisis. Existing loose monetary policies have continued, putting more fuel on the flames, with this time the governments themselves taking the risk, not the bankers.
Governments are like any business or household – if they spend more than earn they will eventually face bankruptcy. We now have a situation where some governments face the prospect of not being able to repay their debts, much in the same way many corporations failed during the recent recession. To add to their woes, to prop up the failing banking systems, governments have printed money to either lend to these insolvent institutions, invested in them, or have provided loan guarantees. As the US and UK economy continues to weaken, many of the institutions that their governments have propped up will fail, dragging down the governments themselves.
The next economic crisis will be bought about when nations default on their loans, rather than a banking crisis as was bought about with the last crisis.. Governments around the world have recklessly borrowed excessively to prop up their collapsing financial institutions; transferring much of the debt from these failed institutions to governments own balance sheets. While some of this debt has been financed by printing money, a considerable amount has also been financed through borrowing on international money markets. Governments around the world now owe over 57 trillion dollars in debt, not including local government and pension debt. Managing this debt will soon become unsustainable – governments will simply not have the money to repay the interest let alone repaying the loans. There will be a chain-reaction of sovereign bankruptcy.
Many nations outside the Eurozone have resorted to printing money to inflate their economies, injecting funds into propping up their banking systems and spending on infrastructure projects. The USA, Japan and the UK have been among the countries less able to afford such increased spending because of the level of their national debt, but other nations have also resorted to the same practice, including India and China. The consequence of this global printing of money will result in debasing the value of most currencies – we are already seeing a flight to gold by canny investors.
Already in Europe Portugal, Greece, Spain and Ireland their Governments face the possibility of defaulting. Other EU countries are being forced to live within their incomes, creating depressed domestic economic conditions. The Eurozone countries have not been able to print money and have had to slash government expenditure in an effort to balance their budgets. Such dramatic cut-backs in government expenditure has resulted in the contraction in their economies, rising unemployment, and the growing danger of political instability.
What will now unfold?
Many may not realise that the world is now awash with money. The increase in the money supply as a part of the economic stimulus package has resulted a weakening of the US dollar and now threatening to destabilize global trade. Other nations are now printing money to buy dollars in an attempt to prevent their currencies rising against the dollar. Eventually this will fail as printing money will not help in achieving sustainable economic growth, and will only cause a lack of confidence in the value of currencies, leading to inflation and financial collapse. Those nations that have linked their currencies to the dollar, especially the Asian currencies, will see the dollar reserves wiped out, and massive devaluation of their own currencies. This will create a new global economic crisis, much worse than what was experienced in 2008.
The collapse of the US dollar will bring on a period of considerable political of social unrest around the world, with many governments collapsing. With the collapse of government there will be wide-spread political unrest, as people demand a return to prosperity, even if it means giving up individual freedoms. People will look for a strong leader who can restore world peace and prosperity. Already in Western Europe civil unrest is spreading, as their populations refuse to accept the reforms required to enable countries to restore their economies.
The reshaping of Europe.
The European Central Bank which has adopted a more conservative fiscal policy than other Central Banks, as a part of their mandate to maintain a stable Euro; requiring its member states in the Eurozone to live within their incomes. This will eventually see the Euro replace the US dollar as the world’s reserve currency, because of sounder fiscal policies. It is also being dominated by Germany, leading the Eurozone becoming the dominant monetary power to restore a new world economic order.
The EU now consists of one group of European nations showing strong economic growth under-pinned by a re-emergent German economy, and another other group weighed down with debt, experiencing economic stagnation. There is a growing unwillingness by those Eurozone countries that have recovered from the economic crisis to continue supporting those nations struggling with unsustainable debt levels. Rather than the wealthier nations continuing to prop up those EU nations facing insolvency, the Eurozone is expected to restructure, with the German-led coalition dictating the monetary and political policies for the Eurozone, something that will be difficult under the existing structure. Those nations that cannot get their economies back into balance could be either forced out of the Eurozone, or have their economies controlled by the ECB or similar body, in return to being bailed out.
There has been a shift of power in the EU towards Germany, which is the largest and strongest growing economy (3.5% growth) and the leading exporter. The German economy has gone through several years of economic readjustment to where it is now one of the most competitive in the world, is the world’s second largest exporter, and has benefited from adopting more conservative fiscal policies than other nations. Germany is experiencing a growing self-confidence and becoming much more assertive in reshaping Europe into a cohesive political and economic union. With the support of France, Germany is pushing for further amendments to the EU constitution to bring this about a more cohesive European Union
Ireland, Spain, Portugal and Greece are being forced to restructure their economies in effort to recover. One option is to leave the Eurozone to allow their currencies to devalue and make the adjustments to their economies to enable them to recover. Other heavily indebted Eurozone nations such as Italy, Netherlands and even France could be threatened with expulsion unless they can get their budget deficits in order.
Even those Eurozone countries that have recovering economies have large national debts, which they need to reduce. They are not in a position or willing to support those Eurozone member countries facing insolvency.
Meanwhile a number of the EU countries outside the Eurozone are being forced to make painful adjustments to their economies. In particular the UK and the Eastern European nations (with the exception of Poland) have to learn to live with falling taxation revenue, high unemployment, and stagnant economic growth. The UK is unlikely to recover.
However it will not be till the collapse of the US dollar that the world will be thrown into the next economic crisis that will force the reshaping of the reshaping of a new economic and political landscape of the world. The dollar is expected to weaken significantly next year as the increase in the US money supply will stimulate consumer spending, creating inflationary pressures and widen the current account deficit. This will trigger off another global economic crisis.
A new economic order will replace the failed Anglo-Saxon capitalistic model. A German-dominated Europe will install a new economic order upon the world, with the Euro becoming the world’s only reserve currency. It is only from such crises will the Europeans be willing to accept a strong leader and provide the political support for such a leader to impose unity and reforms upon a politically fragmented EU.
This new global economic order under a German-led EU will impose upon the world reforms to create a new regulated world economy to manage international trade, enforce social, environmental and religious standards upon the world under the pretense of maintaining world peace, protecting the environment, and maintaining prosperity. Many individual freedoms will be suppressed for the sake of the State in bringing about a new world order. Germany will be the one nation that can lead the world to economic recovery, but will only do so on its terms.
Meanwhile the Anglo-Saxon nations will be forced to repay their debts, their assets sold off, and their people forced to live in poverty. There will be little sympathy for the plight of the bankrupt English-speaking world from their creditors, who will have lost much of their wealth because of Anglo-Saxon extravagance. The people of the UK, USA, Canada, Australia and New Zealand will be enslaved to their creditor nations, and will enter a time of great suffering and hardship.
History is unfolding right before our eyes, as a new economic order is forced upon the world to replace the old failed model. It will be a regulated system in an attempt to avoid the distortions in the market that has happened over the last few years. While this new economic system will bring in a period of global prosperity for a short time, it will also fail. It will only be when a new world government is installed upon the earth based on the Law of God, under the rulership of Jesus Christ, that the world will experience peace and prosperity.
Bruce Porteous
31 October, 2010
bruceport@xtra.co.nz
Jobless America threatens to bring us all down with it
Experiences from bank runs during the Great Depression led to the introduction of deposit insurance ...
My Comment:
“Former KGB General Primakov has a plan for America’s unemployed. He is Jewish and worked as a consultant to the US Dept of Homeland Security.
He noted that America sent tens of millions of jobs overseas. He said you could put tens of millions of Americans into concentration camps, but you could only throw cans of spam over the fence at them for just so long until you would have to start shooting them”.
by dan fey
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Jobless America threatens to bring us all down with it
A depression may have been averted, but nothing has been fixed. This is the depressingly downbeat message that came across loud and clear from last weekend’s annual meeting of the International Monetary Fund.
The destructive trade and capital imbalances of the pre-crisis era are back, banking reform appears stuck in paralyzing discord, public debt in many advanced economies remains firmly set on the road to ruin, and the spirit of international co-operation that saw nations come together to fight the crisis has largely disappeared.
This was not where we were meant to be in tackling the underlying causes of the crisis and returning the world to sustainable growth. Yet beneath this sense of frustration at lack of progress – and at international organizations such as the IMF and the G20 to bring it about – there is an underlying truth that’s often left unspoken; many of the problems in the world economy right now are not international at all, but US specific and can only really be solved by America itself.
I don’t want to belittle the difficulties faced by some of the peripheral eurozone nations, but in the scale of things they are a sideshow alongside the malaise which has settled on the world’s largest economy.
Ignoring the troubled fringe, Europe as a whole is to almost universal surprise starting to look in reasonable shape again, and for reasons that I will come to, Europeans are in any case not nearly as fixated by high unemployment as their American peers.
What applies to the eurozone is also true of the UK. As in Europe, the dominant issue in UK policy is not joblessness, but unsustainable public debt. There’s a real, and growing, trans-Atlantic divide in perceptions and rhetoric. And with good reason.
Europe had a much deeper economic contraction than the US – oddly, perhaps, given that the crisis originated in the US – but joblessness didn’t climb nearly as steeply, and in the main eurozone economies is now falling again. In Germany, unemployment is already below pre-crisis levels.
Even in the UK, this has so far been a relatively jobs rich recovery, backed by a reasonably robust pick up in manufacturing and investment. For us, things are not as bad as the doomsayers of America suggest.
Heathrow experienced record levels of cargo and passenger traffic last month, according to new figures from BAA, and in a key marker of returning business confidence, premium traffic is also well up again. This chimes with what UK bankers were saying on the fringes of the IMF meeting in Washington last week.
A year ago at the same event, they were still trying to convince each other that they were still solvent. This year, new mandates are being thrown around like confetti, and many of the inter-bank disputes of the crisis period are now being resolved.
Why America has failed to respond as positively is still not entirely clear, though continued deep recession in house building and other forms of private construction is obviously some part of it. These sectors have historically been a larger proportion of employment than in Britain and Europe, and won’t begin to recover until prices stabilize and unsold stock is cleared.
The house price collapse means people can’t sell and move to economically stronger parts of the country, as they’ve tended to in past downturns. High US unemployment – already at 9.7pc and getting on for double that on some wider measures – is becoming entrenched.
If there is one thing the crisis has reminded politicians of it is that they really must be running surpluses during the good times. Going into the downturn, Germany was better prepared than the US, and has therefore proved more resilient.
Whatever the explanation, realization that there may be a structural problem of unemployment in the US on top of the cyclical one has come as a rude awakening for a country raised on the merits of hard work and enterprise.
US Treasury forecasts, both for growth and the public finances, continue to be based on delusionally optimistic use of “the Zarnowitz rule”, which posits that deep recessions are followed by steep recoveries. Regrettably, it’s not happening this time around.
These harsh economic realities have combined with the relentlessness of the US political cycle to produce a tsunami of demands for job creative policy. It’s not just experience of the Great Depression which instructs American terror of unemployment. Very limited jobless entitlements make the pain of mass and prolonged unemployment very real indeed, another key difference with Europe.
Serious losses for the Democrats in the mid-terms are already pre-cooked. If there aren’t solutions over the next year, the Administration may in desperation turn to more populist measures.
Retaliatory action against China and other “currency manipulators” is unlikely to help US employment much, but that’s not going to deter a president who sees his chances of a second term going down the pan. It would on the other hand create chaos in China by depriving millions of their jobs.
The Chinese economy is only a fifth of the size of the US, and its consumption less than an eighth. Even assuming other Asian exporters are punished equally, currency devaluation and import tariffs are not going to solve the problem of US joblessness.
So what’s left? The Fed can act, by pouring more money into the economy (QE2), but the Hill is paralyzed. A second fiscal stimulus of any size is blocked by political division. More monetary stimulus is all very well, but it’s a blunt instrument which struggles to get through to the job creative bit of the economy – small and medium sized enterprises – and threatens new bubbles in emerging markets as abundant liquidity chases yield.
There’s no political appetite or will in the US for the long term entitlement reform and tax increases necessary to bring the deficit under control. Nobody believes US Treasury forecasts that public debt will be stabilized by 2014. Much more believable are IMF estimates which see gross US debt rising to well in excess of 110pc of GDP by 2015.
The US has no strategy for the jobless and no strategy for rolling back debt. Little wonder that a renewed sense of gloom has settled on international policy
http://vidrebel.wordpress.com/
IMF admits that the West is stuck in near-depression
If you strip away the political correctness, Chapter Three of the IMF’s World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain and America in slump for a long time.
By Ambrose Evans-Pritchard
Published: 8:00PM BST 03 Oct 2010
The IMF report – “Will It Hurt? Macroeconomic Effects of Fiscal Consolidation” – implicitly argues that austerity will do more damage than so far admitted.
Normally, tightening of 1pc of GDP in one country leads to a 0.5pc loss of growth after two years. It is another story when half the globe is in trouble and tightening in lockstep. Lost growth would be double if interest rates are already zero, and if everybody cuts spending at once.
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“Not all countries can reduce the value of their currency and increase net exports at the same time,” it said. Nobel economist Joe Stiglitz goes further, warning that damn may break altogether in parts of Europe, setting off a “death spiral”.
The Fund said damage also doubles for states that cannot cut rates or devalue – think Spain, Portugal, Ireland, Greece, and Italy, all trapped in EMU at overvalued exchange rates.
“A fall in the value of the currency plays a key role in softening the impact. The result is consistent with standard Mundell-Fleming theory that fiscal multipliers are larger in economies with fixed exchange rate regimes.” Exactly.
Let us avoid the crude claim that spending cuts in a slump are wicked or self-defeating. Britain did exactly that after leaving the Gold Standard in 1931, and the ERM in 1992, both times with success. A liberated Bank of England was able to cut interest rates. Sterling fell. The key point is whether you can offset the budget cuts.
But by the same token, it is fallacious to cite the austerity cures of Canada, and Scandinavia in the 1990s – as the European Central Bank does – as evidence that budget cuts pave the way for recovery. These countries were able export to a booming world. They could lower interest rates, and were small enough to carry out `beggar-thy-neighbour’ devaluations without attracting much notice. We were not then in our New World Order of “currency wars”.
Be that as it may, it is clear that Southern Europe will not recover for a long time. Portuguese premier Jose Socrates has just unveiled his latest austerity package. He has capitulated on wage cuts. There will be a rise in VAT from 21pc to 23pc, and a freeze in pensions and projects. The trade unions have called a general strike for next month.
Mr Socrates has already lost his socialist majority, leaking part of his base to the hard-Left Bloco. He must rely on conservative acquiescence – not yet forthcoming. Citigroup said the fiscal squeeze will be 3pc of GDP next year. So under the IMF’s schema, this implies a 3pc loss in growth. Since there wasn’t any growth to speak off, this means contraction.
Spain had a general strike last week. Elena Salgado, the defiant finance minister, refused to blink. “Economic policy will be maintained,” she said. There will be another bitter budget in 2011, cutting ministry spending by 16pc.
Mrs Salgado has ruled out any risk of a double-dip. But the Bank of Spain fears the economy may contract in the third quarter.
The lesson of the 1930s is that politics can turn ugly as slumps drag into a third year, and voters lose faith in the promised recovery. Unemployment is already 20pc in Spain. If Mrs Salgado is wrong, Spanish society will face a stress test.
We are seeing a pattern – first in Ireland, now in Greece and Portugal – where cuts are failing to close the deficit as fast as hoped. Austerity itself is eroding tax revenues. Countries are chasing their own tail.
The rest of EMU is not going to help. France and Italy are cutting 1.6pc GDP next year. The German squeeze starts in earnest in 2011.
Given the risks, you would expect the ECB to stand by with monetary stimulus. But no, while the central banks of the US, the UK, and Japan are worried enough to mull a fresh blast of money, Frankfurt is talking up its exit strategy. It risks repeating the error of July 2008 when it raised rates in the teeth of the crisis.
The ECB is winding down its lending facilities for eurozone banks, regardless of the danger for Spanish, Portuguese, Irish, and Greek banks that have borrowed €362bn, or the danger for their governments. These banks have used the money to buy state bonds, playing the internal “carry trade” for extra yield. In other words, the ECB is chipping at the prop that holds up Southern Europe.
One has to conclude that the ECB is washing its hands of the PIGS, dumping the problem onto the fiscal authorities through the EU’s €440bn rescue fund. That is courting fate.
Who believes that the EMU Alpinistas roped together on the North Face of the Eiger are strong enough to hold the rope if one after another loses its freezing grip on the ice?
Wall Street Sees World Economy Decoupling From U.S.
Wall Street economists are reviving a bet that the global economy will withstand the U.S. slowdown.
Just three years since America began dragging the world into its deepest recession in seven decades, Goldman Sachs Group Inc., Credit Suisse Holdings USA Inc. and BofA Merrill Lynch Global Research are forecasting that this time will be different. Goldman Sachs predicts worldwide growth will slow 0.2 percentage point to 4.6 percent in 2011, even as expansion in the U.S. falls to 1.8 percent from 2.6 percent.
Underpinning their analysis is the view that international reliance on U.S. trade has diminished and is too small to spread the lingering effects of America’s housing bust. Providing the U.S. pain doesn’t roil financial markets as it did in the credit crisis, Goldman Sachs expects a weakening dollar, higher bond yields outside the U.S. and stronger emerging-market equities.
“So long as it doesn’t turn to flu, the world can withstand a cold from the U.S.,” Ethan Harris, head of developed-markets economic research in New York at BofA Merrill Lynch, said in a telephone interview. He predicts the U.S. will expand 1.8 percent next year, compared with 3.9 percent globally.
That may provide comfort for some of the central bankers and finance ministers from 187 nations flocking to Washington for annual meetings of the International Monetary Fund and World Bank on Oct. 8-10. IMF chief economist Olivier Blanchard last month predicted “positive but low growth in advanced countries,” while developing nations expand at a “very high” rate. He will release revised forecasts on Oct. 6.
‘Partially Decoupled’
“The world has already become partially decoupled,” Nobel laureate Joseph Stiglitz, a professor at New York’s Columbia University, said in a Sept. 20 interview in Zurich. He will speak at an IMF event this week.
Sixteen months after the world’s largest economy emerged from recession, the U.S. recovery is losing momentum, with factory orders falling 0.5 percent in August and unemployment forecast to increase to 9.7 percent in September from the previous month’s 9.6 percent, according to the median estimate of 78 economists in a Bloomberg News survey.
Their predictions don’t include another contraction, with growth estimated at 2.7 percent this year and some indicators showing progress. Orders for capital goods rose 5.1 percent in August and the number of contracts to purchase previously owned homes increased 4.3 percent; both were higher than forecasts.
China Manufacturing Accelerates
Even so, emerging markets are showing more strength. Manufacturing in China accelerated for a second consecutive month in September, and industrial production in India jumped 13.8 percent in July from a year earlier, more than twice the June pace.
“It seems that recent economic data help to confirm the story of emerging-markets outperformance,” said David Lubin, chief economist for emerging markets at Citigroup Inc. in London.
The gap in growth rates between the developing and advanced worlds is widening, he said. Emerging economies will account for about 60 percent of global expansion this year and next, up from about 25 percent a decade ago, according to his estimates.
The main reason for the divergence: “Direct transmission from a U.S. slowdown to other economies through exports is just not large enough to spread a U.S. demand problem globally,” Goldman Sachs economists Dominic Wilson and Stacy Carlson wrote in a Sept. 22 report entitled “If the U.S. sneezes…”
Limited Exposure
Take the so-called BRIC countries of Brazil, Russia, India and China. While exports account for almost 20 percent of their gross domestic product, sales to the U.S. compose less than 5 percent of GDP, according to their estimates. That means even if U.S. growth slowed 2 percent, the drag on these four countries would be about 0.1 percentage point, the economists reckon. Developed economies including the U.K., Germany and Japan also have limited exposure, they said.
Economies outside the U.S. have room to grow that the U.S. doesn’t, partly because of its outsized slump in house prices, Wilson and Carlson said. The drop of almost 35 percent is more than twice as large as the worst declines in the rest of the Group of 10 industrial nations, they found.
The risk to the decoupling wager is a repeat of 2008, when the U.S. property bubble burst and then morphed into a global credit and banking shock that ricocheted around the world. For now, Goldman Sachs’s index of U.S. financial conditions signals that bond and stock markets aren’t stressed by the U.S. outlook.
Weaker Dollar
The break with the U.S. will be reflected in a weaker dollar, with the Chinese yuan appreciating to 6.49 per dollar in a year from 6.685 on Oct. 1, according to Goldman Sachs forecasts.
The bank is also betting that yields on U.S. 10-year debt will be lower by June than equivalent yields for Germany, the U.K., Canada, Australia and Norway. U.S. notes will rise to 2.8 percent from 2.52 percent, Germany’s will increase to 3 percent from 2.3 percent and Canada’s will grow to 3.8 percent from 2.76 percent on Oct. 1, Goldman Sachs projects.
Goldman Sachs isn’t alone in making the case for decoupling. Harris at BofA Merrill Lynch said he didn’t buy the argument prior to the financial crisis. Now he believes global growth is strong enough to offer a “handkerchief” to the U.S. as it suffers a “growth recession” of weak expansion and rising unemployment, he said.
Giving him confidence is his calculation that the U.S. share of global GDP has shrunk to about 24 percent from 31 percent in 2000. He also notes that, unlike the U.S., many countries avoided asset bubbles, kept their banking systems sound and improved their trade and budget positions.
Economic Locomotives
A book published last week by the World Bank backs him up. “The Day After Tomorrow” concludes that developing nations aren’t only decoupling, they also are undergoing a “switchover” that will make them such locomotives for the world economy, they can help rescue advanced nations. Among the reasons for the revolution are greater trade between emerging markets, the rise of the middle class and higher commodity prices, the book said.
Investors are signaling they agree. The U.S. has fallen behind Brazil, China and India as the preferred place to invest, according to a quarterly survey conducted last month of 1,408 investors, analysts and traders who subscribe to Bloomberg. Emerging markets also attracted more money from share offerings than industrialized nations last quarter for the first time in at least a decade, Bloomberg data show.
Room to Ease
Indonesia, India, China and Poland are the developing economies least vulnerable to a U.S. slowdown, according to a Sept. 14 study based on trade ties by HSBC Holdings Plc economists. China, Russia and Brazil also are among nations with more room than industrial countries to ease policies if a U.S. slowdown does weigh on their growth, according to a policy- flexibility index designed by the economists, who include New York-based Pablo Goldberg.
“Emerging economies kept their powder relatively dry, and are, for the most part, in a position where they could act countercyclically if needed,” the HSBC group said.
Links to developing countries are helping insulate some companies against U.S. weakness. Swiss watch manufacturer Swatch Group AG and tire maker Nokian Renkaat of Finland are among the European businesses that should benefit from trade with nations such as Russia and China where consumer demand is growing, according to BlackRock Inc. portfolio manager Alister Hibbert.
“There’s a lot of life in the global economy,” Hibbert, said at a Sept. 8 presentation to reporters in London.
Asset Bubbles
The increasing focus on emerging markets may present challenges for their policy makers as the flow of money into their economies risks fanning inflation, asset bubbles and currency appreciation. Countries from South Korea to Thailand have already intervened to weaken their currencies, along with taking steps to restrict capital inflows.
Stephen Roach, nonexecutive Asia chairman for Morgan Stanley, remains skeptical of decoupling. He links the optimism to a snapback in global trade from a record 11 percent slide in 2009. As that fades amid sluggish demand from advanced economies, emerging markets that rely on exports for strength will “face renewed and formidable headwinds,” he said.
“Decoupling is still a dream in much of the developing world,” said Roach, who also teaches at Yale University in New Haven, Connecticut.
‘Year of Recoupling’
The Goldman Sachs economists argue history is on their side. The U.K., Australia and Canada all continued growing amid the U.S. recession of 2001 as the technology-stock bust passed them by, while America’s 2006-2007 housing slowdown inflicted little pain outside its borders, they said. The shift came when the latter morphed into a financial crisis, prompting Goldman Sachs to declare in December 2007 that 2008 would be the “year of recoupling.”
The argument finds favor with Neal Soss, New York-based chief economist at Credit Suisse. While the supply of dollars and letters of credit that fuel international commerce dried up during the turmoil, that isn’t a problem now, so the rest of the world can cope with a weaker U.S., he said.
“Decoupling was a good idea then and is a good idea now,” Soss said.
To contact the reporter on this story: Simon Kennedy at skennedy4@bloomberg.net
To contact the editor responsible for this story John Fraher at jfraher@bloomberg.net
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