●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
The euro nations, like the U.S. states, counties and cities, are monetarily non-sovereign. Unlike the U.S. government, which is Monetarily Sovereign, they cannot create their sovereign currency; they have no sovereign currency to create. The euro is an “alien” currency, used by courtesy of the European Union.
As has been discussed often on this blog, a monetarily non-sovereign government, being unable to create money, needs money coming in from outside its borders. U.S. states survive either by receiving dollars from the U.S. government, or by net exporting to receive dollars.
This blog has stated there are two, and only two, long-term solutions for euro nations. Either:
1. Revert to their own sovereign currencies
2. Join together in a fiscal union (ala the United States), in which the EU supplies euros to member nations, as needed.
There are no other long-term solutions, and certainly not the “solution” currently being used: Repeated loans to excessively indebted nations plus insistence on economy-crushing austerity.
Given that those are the only two solutions, the euro nations have selected a third “solution,” a non-solution: A banking union. It supposedly will protect banks and their depositors, but will do nothing for the nations themselves or for their citizens.
Eurozone moves a decisive step closer to banking union
European leaders seal agreement to put the European Central Bank in supervisory authority over financial institutions in the single currency area
Ian Traynor in Brussels
The Guardian, Thursday 13 December 2012
European leaders were expected to push ahead with plans for winding up or shoring up weak eurozone banks on Thursday night, hours after sealing agreement to put the European Central Bank in supervisory authority over financial institutions in the single currency area.
In what was being hailed as one of the most important and systemic responses in three years of battling to save the currency, finance ministers early on Thursday embarked on the first stage of a eurozone “banking union”, burying acute Franco-German differences to establish the first single banking supervisor.
But more ambitious schemes, drawn up by the summit chair, president Herman Van Rompuy, to move towards a eurozone fiscal and political federation were watered down and delayed amid strong German resistance to any pooling of risk and costs among the currency’s 17 countries.
Translation: “The most important goal is to save the euro, the banks, and the wealthy, not to save the euro nations. After all, banks are owned by rich people, so we must defend them. As for the nations, who cares if the citizens suffer.”
The European commission was told to draw up legislation for dealing with weak banks over the next year and the law should come into force in 2014. There was also talk of a common eurozone deposit guarantee scheme, the third plank in the banking union scheme, safeguarding people’s savings anywhere in the single currency area.
After more than 14 hours of fractious negotiations, the ministers agreed on the single supervisor as the first stage of a more comprehensive banking union. The next two stages may turn out to be more difficult to realise because of German-led reluctance to bow to the mutualisation of risk involved. But without them, it will also be difficult to see the new regime being effective, officials and diplomats say.
It will be another 15 months before the new regime starts operating properly.
Translation: “We have taken the most minute baby step toward fiscal union, but even that baby step will take more than a year.”
Merkel did not rule out supplying “financial incentives” for eurozone countries pledging to undertake structural reforms of their economies, policed by Brussels. But she added: “This should not be misunderstood. This can’t be used as a pretext for delivering new sources of money. That’s not on for Germany.”
The leaders also disbursed more than €34bn in bailout funds to Greece, six months after it was due, while postponing a decision on a bailout for Cyprus until next month.
Translation: “God forbid we allow the EU to provide euros to impoverished nations, though this would cost nothing and is the only rational solution to maintaining the euro. Instead, we’ll lend Cyprus, a nation that can’t pay its debts, even more money to renege on later.”
Perhaps we should view any move toward real merger, however slight, as good news, although the citizens of the euro nations will continue to suffer for many years.
Meanwhile, the ministers, the bankers and their wealthy friends will do just fine, thank you.
Because of austerity, the euro nations will continue to be the “sick men” of the world, just as the U.S. will be when deficit cutting proceeds.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports