What is wrong about the euro, and what is not

Photo of Angela Merkel

Every Monday morning the readers of the UK’s Daily Telegraph are treated to a sermon on the benefits of Keynesian stimulus economics, the dangers of belt-tightening and the unnecessary cruelty of ‘austerity’ imposed on Europe by the evil Hun. To this effect, the newspaper gives a whole page in its ‘Business’ section to Roger Bootle and Ambrose Evans-Pritchard, who explain that growth comes from government deficits and from the central bank printing money, and why can’t those stupid Europeans get it? The reader is left with … [Read more...]

The fallacy of nominal GDP targeting

Book cover Cantillon An Essay of Economic Theory

In a truly remarkable piece for the Financial Times yesterday, Wolfgang Münchau took another swipe at the Euro-sceptic and ECB-critical community in Germany, which he accuses of inflation-paranoia and of simply not getting 'modern central banking'. Well, I know of many qualified commentators - many non-German - who swallow a tad harder when reflecting on the new reality of unlimited and open-ended QE in the US and unlimited bond buying by the ECB. As the central bank bureaucrats declare that they will not stop printing base … [Read more...]

Germany’s economy is only king in the blind valley of the Eurozone

Photo of Angela Merkel

On Tuesday, July 3, London business paper City A.M. ran an editorial I wrote on Germany. The text is below. In the present debate on the Euro crisis, Germany is frequently portrayed as a model of economic strength, a beacon of fiscal prudence and a proponent of structural reform. Her resources seem endless and her government debt an indisputable 'safe-haven'. If only Germany shared her strength and resources more generously, the Euro debt crisis could be solved. But this is an optical illusion. Sooner or later, markets will … [Read more...]

The short of the century – The bubble in government bonds is finally bursting

Government bonds

"The government can always pay." This is a statement that has no basis in fact. Any rational analysis will quickly expose it to be a fallacy. Economic theory, economic history, and plain good old horse sense can demonstrate effortlessly that this statement is an illusion. Yet, it is today a widely held and deeply cherished illusion in the world of finance (and, incidentally, the world of politics). In fact, it has become one of the defining myths of the modern fiat money era. It has for decades provided portfolio managers … [Read more...]

Infinite stupidity

dollar notes falling from sky

"The unlimited resources" of the European Central Bank (ECB) is quickly becoming the new magic mantra in political commentary and financial market analysis, now that the bigger euro-dominos are beginning to wobble and everybody realizes that nobody has the firepower to bailout Italy, or to 'recapitalize' (i.e. bailout again) all the banks that lent to the country. So the chorus that demands that the printing press finally be put to good use is getting louder by the day. Robert Peston, the BBC economics expert, last week … [Read more...]

Europe’s future is coming into focus: hyperinflation

Hyperinflation In Hungary

As you know, my expectations were low to begin with. I did not expect the EU summit on the debt crisis to provide a solution. There is no solution. The situation is beyond repair and the crisis will continue to unravel. What struck me most when reading the first responses to the EU summit was this: most of what you get from the mainstream media pundits or from the financial economists on Wall Street or in the City of London not only misses the relevant points, it usually gets things completely the wrong way round. What … [Read more...]

Götterdämmerung – Germany is finished.


 What disturbing and nauseating image greeted us this morning from the covers of the morning papers: a smiling and moved Angela Merkel surrounded by a bunch of suited, self-satisfied, sycophantically grinning parliamentarians happily signing their country's economic future away, burdening their fellow countrymen and women with financial obligations the grotesque size of which have long ago surpassed the average German's grasp of large numbers - all in the name of Germany's "responsibility for Europe", and for personal … [Read more...]

A Band-Aid for a cancer patient


This was another hectic week for financial markets, and nerves were calmed somewhat over the past 24 hours with another liquidity injection from the central banks - this time the provision of dollars from the U.S. Fed channelled through a few other central banks, most importantly the ECB. This is certainly not a solution but again the doctoring of symptoms. Pumping ever more fiat money into the system to avoid - or rather postpone - a much needed recalibration will not solve the underlying malaise. Four years into the crisis … [Read more...]

Divinely comical

Image of Dante

"Italy, long a bystander to the euro-zone's debt woes, was thrust into the eye of the storm on Monday, as investors fled the country's bonds and Europe's leaders struggled to keep the crisis from infecting the Continent's third-largest economy." Thus reports the Wall Street Journal Europe this morning. What?, I was thinking. Bystander? Investors fleeing the country? --  Was anybody still holding Italian bonds? That Italy was next in line was so obvious, how can anybody truly be surprised? What were you thinking, sitting … [Read more...]