Nouriel has completely lost it, as has Niall Ferguson.
Is it one minute to midnight in Europe?
The failure of German public opinion to grasp the dire state of affairs in Europe today is inviting a repeat of precisely the crisis of the mid 20th century that European integration was designed to avoid.
Really?
Pray tell then, why is it that all these banks in Europe were permitted to issue credit without a single thing backing it beyond the belief that a new sucker would appear and take it off the issuer's hands, thereby perpetuating a Ponzi Scheme of historic size?
I mean, it's not like the consequences of this on an arithmetic basis weren't known to everyone. Stable economic conditions require that you not do that, or if you do allow it that the people who do it (1) can't counterfeit the sovereign's currency and (2) can't become so intertwined in the financing of governments and major economic centers that their failure becomes an existential threat to your existence.
But both of those things happened, didn't they? And why? Because the governments and people sat back and allowed it.
What is the situation today? Europe's periphery is in depression. According to the IMF, gross domestic product will contract this year by 4.7 percent in Greece and 3.3 percent in Portugal. Unemployment is 24 percent in Spain, 22 percent in Greece and 15 percent in Portugal. Public debt already exceeds 100 percent of GDP in Greece, Ireland, Italy and Portugal. These countries, along with Spain, are now effectively shut out of the bond market.
Good. These nations lied to their people about what they could support and spend. They got caught. Now the pain comes. It is unavoidable -- all we are arguing over is whether the governments will face the music and so will the citizens and banksters that were involved, or whether someone will try to shove it off on someone else.
The process of political fragmentation is also speeding up. In the last Greek elections, seven in 10 voters cast their ballots for smaller parties opposed to the austerity program imposed on Greece in return for two EU-led bailouts. Established parties are also losing out to splinter parties in Italy, where the comedian Beppe Grillo's Five Star Movement has just won control of the city of Parma, and in Germany, where a maverick party called the Pirates is all the rage. Less frivolous populists now have substantial support in France, the Netherlands and Norway. This trend is ominous.
There's nothing ominous about it. The people got nothing in Greece for their acquiescence. The banksters got all the loot, and the people got ****ed. Royally, serially, repeatedly ****ed.
Why should they stand for this? What they should do is rise and remove some heads. Peacefully if possible, the old-fashioned way if necessary. Peaceful political process only works until the political process fails and is co-opted and stolen by the very people doing the looting. Then it's not a representative government anymore, it's a jackbooted fascist dictatorship and the people have every right to overthrow it, exactly as was demonstrated here in The United States in 1776.
Men and women tend to suffer these ignobilities for far longer than they should, and this is probably a good thing on balance, as resolution when a dictatorship has taken over your nation is almost always messy and fraught with the highest of risks. Nonetheless, if this is what has happened the solution is singular and clear to anyone who thinks clearly.
What we are left with as a question at this time is whether or not this has occurred.
The way out of this crisis seems clear.
First, there needs to be a program of direct recapitalization -- via preferred non-voting shares -- of euro-zone banks both in the periphery and the core by the European Financial Stability Facility (EFSF) and its successor the European Stability Mechanism (ESM).
No.
The institutions that lent money that cannot be paid back must take their losses. If they cannot then their stockholders and bondholders must be zeroed if necessary to cover depositors, and any alleged "superior" status on derivative instruments must be voided. In short, depositors must be senior to all; the rest of the capital structure falls where it does. And fall it will.
That's fine. These nations should, at the same time, both enact One Dollar of Capital for all institutions going forward and prosecute all banksters who blow sky high for effectively counterfeiting the currency, because that's exactly what they did. Put them all in prison.
Of course, over time, sound banks that restore capital through earnings would be able to buy back the public preferred shares. So this partial nationalization would be temporary.
There is no such thing as a "sound bank" that has lent out more than the sum of its collateral taken against loans and its capital. Such a bank has practiced an effective fraudulent device in that it has issued credit fungible with currency that it knows at the time of issue cannot be repaid in the present tense. It therefore has effectively naked shorted the currency.
This is a pyramid scheme as indefinite exponential growth, for any positive growth rate, is arithmetically impossible. All we are arguing over is when, not if, the scheme will collapse.
Pyramid schemes are broadly illegal and must be prosecuted. If the government will not do so then the government must be replaced with one that will.
Finally, given the unsustainably high public debts and borrowing costs of certain member states, we see no alternative to some kind of debt mutualization.
Nonsense.
None of the nations who are in the Euro agreed to this. Committing public frauds for years so as to force someone else to rescue you via "mutualization" and "integration" of political systems is tantamount to the taking of political power by force from the people and giving it to those who are not elected.
This is commonly known as an act of war and is full and fair justification for those who have this imposed upon them to take arms and repeal the literal subversion and replacement by force of their political process.
Giving up some sovereignty is inevitable.
No it's not -- those who committed frauds can be prosecuted and imprisoned instead. This is the correct course of action.
Ultimately, as Chancellor Merkel herself acknowledged last week, monetary union always implied further integration into a fiscal and political union.
Perhaps in Merkel's mind. But she does not speak for the other nations and their people. Simply put, she is not Fuehrer over Europe, and if this is attempted I expect that what Roubini "fears" will come to pass -- because it damn well should if Germany, or anyone else, tries to impose "political union" by fraud, threat, coercion or, most-unfortunately, force.
