–The EU searches for yet another Rube Goldberg solution to simplifying trade

Mitchell’s laws: The more budgets are cut and taxes increased, the weaker an economy becomes. Until the 99% understand the need for deficits, the 1% will rule. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

For those of you too young to remember, Rube Goldberg was a cartoonist best known for creating enormously complex machines to accomplish trivial tasks. In today’s post I give you two examples:

The first example, an automatic napkin for soup eaters:

Monetary Sovereignty

The second example, the euro, an incredibly complicated machine, the purpose of which is to simplify cross-border trade in Europe. Cross-border trade in Europe had existed for far longer than the life span of any of the euro creators, but under the theory, “If it ain’t broke, by all means fix the heck out of it,” the euro was created.

Today, the euro and most euro nations are “broke” (in every sense of the word), so to make cross-border trade even simpler, the EU plans to complexify the euro even further.

New York Times 6/4/12

BERLIN — Pressed by a banking crisis and turmoil in the markets, Germany has indicated that it is prepared to accept a grand bargain that would provide greater support for its most indebted euro zone partners in exchange for more centralized control over government spending in Europe.

The worsening crisis has led to a sweeping effort to chart a new path forward for the union, one that encompasses fiscal integration, Europe-wide banking supervision, and tighter coordination of economic policies.

German leaders have not provided details of a potential deal — and not every country may be eager to sign on — but it would be likely to mean an expansion of executive power in Brussels over fiscal targets in member states and supervision of their banks, along with Europewide deposit insurance. It would go far beyond what was contemplated for Europe even six months ago.

Translation: The euro already has ruined your economies by taking away your most valuable asset: Your Monetary Sovereignty. Now, to fix that problem, we will take away your next most valuable asset: Control over your banks.

Changes on this scale would not be easy, involving an arduous process of treaty alterations that could take years, and it is unclear if they would be enough to reassure markets of the stability of the euro. But as Ms. Merkel has repeatedly made clear, Germany would be open to rescuing ailing banks and member states in the region only if that were part of an overhaul of the basic architecture of European governance.

Translation: You think you know what a Rube Goldberg machine is? No, we’ll show you a real Rube Goldberg machine: Treaty alterations that could take years.

While the weaker countries might be expected to sign on, it may well be opposed by Britain, which opposed an earlier effort to increase fiscal discipline out of concern for the effect on its banks.

Translation: Britain, which was smart enough not to surrender its Monetary Sovereignty, now for some strange reason, doesn’t want to surrender its banks to the whims of the people who caused the euro crisis. One must admire the restraint of the British, for not screaming, “I told you so,” at all those foolish nations that surrendered their sovereign currencies.

Even less certain are the positions of Italy and, most problematic, France. Neither wants to find itself in the position of answering to fiscal and banking authorities that, fairly or not, will almost inevitably be deemed an arm of the German government.

Translation: It took more than 70 years, but at long last, Germany will have its chance to rule Europe.

But almost everyone agrees that something has to be done, and quickly. Predictions of the euro’s demise in the absence of bolder action have grown louder as global growth slows, banking-sector woes compound and governments wobble.

As the troubles mount, all sides turn to Germany, the only country with the financial wherewithal to calm the turbulence and guarantee the currency zone’s collective solvency.

Translation: So far, so good. We’ve slowed global growth, compounded banking woes and wobbled governments. Now, trust us with your banks.

[Ahem, I hate to mention this, but Germany is just another monetarily non-sovereign country. The only entity with the “financial wherewithal” is the EU. It is Monetarily Sovereign, and has the unlimited ability to create euros. At the touch of a computer button, the EU could solve the entire euro debt problem. Just sayin’.]

German officials worry that without safeguards on spending and deficits, the country would quickly be bled dry by overspending partners. To forestall that danger, a proposal by the government’s independent council of economic experts to pool excessive debt has garnered increasing attention.

Under the plan, largely ignored when it was introduced late last year, the debt overhang in the 17 members of the euro currency union — defined as any debt exceeding 60 percent of gross domestic product, or nearly $3 trillion by some estimates — would be transferred into a fund that would be paid off over roughly 25 years.

Translation: In the U.S. this is known as “debt consolidation.” People combine all their little, short-term loans into one gigantic, long-term, truly unaffordable debt. In this way, they can spend the rest of their lives trying to get out from under their debt burden — or go bankrupt. Works great.

(José Manuel Barroso, the president of the European Commission) said it was necessary to signal that the euro zone “will do whatever is necessary to assure the stability of our currency. We need to do things faster and we need to go further. It is now evident that also for the stability of the euro we need some concrete measures regarding the euro area and the European Union in general.”

Translation: We don’t care about the people of Greece, France, Italy et al. The only thing we care about is the “stability of the euro.” And please don’t remind us that the whole purpose of the euro was to make trade simple and to make life better for the people of Greece, France, Italy et al. Oops!

Berlin wants commitments to deeper integration, which means individual states giving up sovereignty to a central fiscal authority. Yet, where Germans talk of safeguards, other Europeans howl about dominance and diktats from Berlin. Ms. Merkel also raised on Monday the prospect of “specific European oversight” for systemically important banks as a long-term goal.

Translation: What? Germany wants to dominate Europe? Don’t be ridiculous.

Nervousness within Germany, where record-low unemployment and borrowing rates have preserved a calm at the eye of the financial storm, has also begun to grow. Joschka Fischer, a former foreign minister, warned that “the European house is on fire,” and that Ms. Merkel, in her support for austerity policies, “prefers to douse it with kerosene rather than water.”

Translation: Don’t tell anyone, but we have made a remarkable discovery. Austerity never improves a nation’s economic condition. In fact, austerity guarantees poverty. But don’t tell the EU and the International Monetary Fund. They have been prescribing austerity for years. And pul-eeze don’t tell Greece what austerity has done to them.

(And finally, don’t tell the U.S. Tea/Republican Party. After seeing how well it works in Europe, they have been selling the austerity fiction in America.)
There continue to remain only two, long-term solutions to the euro problems:

1. Each nation return to Monetary Sovereignty by readopting their sovereign currency
2. Financial merger into a quasi “United States of Europe.”

That’s it. No other solutions.

But sadly, the twin goals of “trade simplification” and “euro stabilification” continue ever onward, while the people suffer from the ignorance of their leaders. With each gear, lever and pulley added to the Rube Goldberg euro machine, trade becomes more complicated and the euro less stable, and the euro nations plunge from recession toward depression.

Rodger Malcolm Mitchell

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 exports


4 thoughts on “–The EU searches for yet another Rube Goldberg solution to simplifying trade

  1. Straight up there’s a flat out lie with the claim German unemployment rates are at ‘record lows’. Didn’t take long to find out that it’s been much lower in the past, about 3.5% back in 1980, and probably lower in the 50s & 60s.

    Similar to the claims here in Australia we are close to full employment with an official rate of around 5%. As though the half a million plus people that number represents don’t exist, and ignores the historical performance through the 50s & 60s where the rate was consistantly around 2% which probably represents the frictional churn that is always happening in a labour market.

    I’d have to agree with you that all of these EU workarounds are very Rube Goldberg in nature, and I think that even though he is well intentioned, Warren Moslers proposals are a bit the same. It really looks to me that the monetary union was very prematurely applied, and a reversion to individual currencies would be the simplest solution.


  2. From my perspective, the euro currency has always been about centralizing POWER, not about facilitating cross-border trade. (Austerity is also about centralizing power and tyranny.) Bankers created the euro currency in order to centralize fiscal and financial control in Brussels (the EC) and Frankfurt (the ECB). And now the bankers have achieved their goal with the “European Stability Mechanism,” plus a new FDIC-like agency. Un-elected euro-crats (on the bankers’ payroll) manage the daily affairs of all nations that use the euro. National sovereignty is erased. Human life is meaningless. Everyone in the euro-zone exists to serve the bankers and bond traders. Yes, England had the sense to not surrender its sovereignty to the euro. So did Denmark, Iceland, Sweden, Switzerland, Norway, and North Ireland. In Eastern Europe, all nations avoided the euro trap except Cypress, Estonia, Slovakia, and Slovenia. However the bankers and bond traders want it all. They are putting extreme pressure on Latvia, Lithuania, Hungary, Romania, and Bulgaria to submit to the euro currency, meaning centralized tyranny. Again, it’s all about centralized POWER, meaning tyranny. If we refuse to face this reality, then we become confused by media chatter.


  3. Hi Rodger: Is there a way of showing
    Federal Deficits – Net Imports = Net Private Savings
    using data from FRED? I am not able to find net imports in a simple way in FRED data.


  4. Unfortunately, they don’t show it in a convenient form. They do show Federal Deficits (FYFSD), but in millions, not in billions. They also show Gross (not Net) Private Saving. And I don’t think the definitions are statistically compatible.

    But I didn’t invent this formula. It is well documented in the literature. You probably can Google it.


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