Europe: New Thinkers Required

German magazine 'Der Spiegel' recently reported on a 'mini-summit' if you will, of 'leading European intellectuals' in Paris, who were discussing Europe's future – just before another one of those 'crucial' EU summits was taking place (this time on the bloated EU budget, see further below). One of the intellectuals in attendance was Bernard-Henri Levy, known among other things for:

“Early essays, such as Le Testament de Dieu or L'Idéologie française faced strong rebuttals, from noted intellectuals such as historian Pierre Vidal-Naquet and philosophers Cornelius Castoriadis, Raymond Aron and Gilles Deleuze, who called Lévy's methods "vile". Their most common accusation towards Lévy is of him being one-sided and, ultimately, shallow as a thinker. Vidal-Naquet went as far as saying: "BHL's intellectual dishonesty is properly unfathomable".

More recently, in the essay De la guerre en philosophie (2010), Lévy was publicly embarrassed when he used, as a central point of his refutation of Kant, the writings of French "philosopher" Jean-Baptiste Botul. Botul's writings are actually well-known spoofs, and Botul himself is the fictional creation of a French living journalist and philosopher, Frédéric Pagès, as is easily guessed from his thought-system being botulism.”


(emphasis added)

Inn attendance was also Italian writer Umberto Eco, who apparently veered off into a rambling, “baroque” speech that was received with thin and somewhat distracted applause”.

In summary, Der Spiegel had this assessment:


“The event was titled "Europe or Chaos?" and the program listed an entire exhibition of famous intellectuals. Top billing went to philosopher Bernard-Henri Lévy, who appeared on the radio that morning beating the drum for himself and his friends, including Italian writer Umberto Eco and his Hungarian colleague György Konrád, Spanish journalist Juan Luis Cebrián and Bulgarian-French psychoanalyst Julia Kristeva, as well as the two German writers Peter Schneider and Hans Christoph Buch. On the radio program, Lévy said that they were all going to sound the alarm that evening and call for the rescue of Europe.

And that was exactly what happened.

Well, actually, today's Europe wasn't exactly being rescued at the meeting so much as buried in verbose and nostalgic ranting about the glorious past. The historical references and erudite allusions to Athens ("cradle of democracy") and Rome ("source of the constitutional state") practically bubbled out of Lévy, wearing one of his trademark white shirts, unbuttoned halfway down, which his butler presses for him at his home in Saint-Germain.

In their remarks, the attendees mentioned Goethe and Herder and Husserl and Voltaire, Pushkin and Freud, and Adenauer and de Gaulle and Schuman and De Gasperi. In the face of so much name-dropping, smartphones and Google turned out to be an audience member's best friend.

Europe, said the poets and thinkers, as if they had read a few articles on Wikipedia just before the event, stands for enlightenment, humanism, universally applicable values and the separation of church and state. In fact, as Peter Schneider said in broken French, Europe boasts "the noblest of all cultures in the world."

And Umberto Eco? He read a long, baroque, confusing text, which met with thin and somewhat distracted applause. György Konrád? He mumbled something about the "murderous, old dualities" that continue to exist in Europe, and about the conflicts between East and West, and between North and South. And so on. And so forth.”


(emphasis added)

Actually there's nothing wrong with harking back to Adenauer, Shuman and de Gasperi, as their vision of the EU was quite different from what it has mutated into. As we have pointed out in the past, these gentlemen wanted a Europe that returned to its liberal (in the classical sense) past prior to the destruction wrought by fascism and socialism. They wanted free trade and the free movement of people and capital to be reintroduced. Nothing is wrong with that, one would think. If Europe could return to the vision of these three gentlemen, a lot of what is worth criticizing today would disappear. Other than that however, we would agree with Der Spiegel that 'new thinkers' may be needed. Someone of the caliber of Ludwig von Mises would be a good start for instance. Unfortunately such people are rarer than hen's teeth.


Draghi Ponders Strong Euro

Ahead of yesterday's ECB meeting,  ECB president Mario Draghi was 'counting the cost' (according to press reports) of the 'euro rescue', which apparently consist mainly of a 'too strong currency'. Good grief. Since when is a strong currency a 'cost'? Isn't it rather a sign that the market has a positive assessment of the monetary and economic policy backdrop, misguided though it may turn out to be?




The euro against the Japanese yen – via Bloomberg – this cross rate is no doubt weighing on the eurocracy's mind – click for better resolution.



Bloomberg reports:

“Mario Draghi is discovering that confidence in the euro area comes at a cost.

Since the European Central Bank president talked up the economic outlook last month and signaled that the worst of the debt crisis is over, the euro has surged to a 14-month high against the dollar. Banks have fueled the euro’s rally by paying back more emergency loans than forecast, shrinking the ECB’s balance sheet just as the Federal Reserve and the Bank of Japan expand theirs.

That’s threatening to stymie Europe’s recovery before it has begun, highlighting the tightrope Draghi is walking as he seeks to boost confidence without encouraging euphoria. With looser monetary policy in the U.S. and Japan weakening the dollar and the yen, the ECB may soon come under pressure to enter the so-called “currency war” and rein in the euro, economists said.

“The euro-zone economy needs a rising euro like it needs a hole in the head,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “If verbal intervention does not stem the euro’s upward trend, the central bank may eventually once again consider rate cuts.”


(emphasis added)

Saints preserve us! Draghi promptly talked the euro down in his press conference:


“European Central Bank President Mario Draghi has found his most effective weapon is the sound of his own voice.

Draghi yesterday caused the euro’s biggest drop in seven months by suggesting its recent appreciation could damp inflation, a signal that further interest-rate cuts remain a possibility. His pledge in July to buy government bonds precipitated a sea-change in sentiment that helped to shore up the 17-nation euro economy, yet the ECB hasn’t spent a cent so far in its so-called Outright Monetary Transactions program.

The ECB “is becoming a master of verbal intervention,” Danske Bank economists wrote in a research note. Draghi yesterday “managed to dampen recent de facto tightening without taking any action, much as was the case with the OMT program, which has so far managed to lower Spanish and Italian bond yields without buying a single bond,” they said.”


(emphasis added)

It is without a doubt better when intervention is only 'verbal' instead of the actual version, however, the mere fact that the central bank president is worried that the currency is becoming 'too valuable' and 'inflation is too low' is rather disturbing. How can inflation ever be 'too low'? We happen to know for a fact that 100% of all consumers prefer lower to higher prices.


EU Budget Summit –  Cameron Pushes Spending Cuts Through

For once a piece of ever so slightly positive news emerges from a EU summit: the UK's prime minister David Cameron was able to persuade the other members that the budget should be cut. Of course they all have no money, so in that sense it was probably easy to get them to agree. The EU's bureaucracy in Brussels is among the most molly-coddled and overpaid in the whole world. The best thing would be to abolish it altogether, but the next best thing is without a doubt to give it less money. Unfortunately, in a 'concession to France', some of the savings were 'steered toward agriculture'. The EU's bloated agricultural subsidies are an expensive ongoing policy error that should be eradicated altogether as soon as possible.

“European Union leaders agreed to a seven-year budget that cuts spending for the first time, bowing to U.K. Prime Minister David Cameron’s insistence on thrift.

The deal was struck after 25 1/2 hours of talks in Brussels, according to a post on Twitter by EU President Herman Van Rompuy today. While he didn’t disclose a figure, the final draft blueprint for 2014-2020 included a spending ceiling of 960 billion euros ($1.3 trillion), down from an original proposal of 1.047 trillion euros and less than the 994 billion euros spent in the current budget cycle.

At the center of the controversy was Cameron, making his first EU summit appearance since announcing plans for a referendum that could result in Britain leaving the 27-nation bloc as early as 2017. Britain’s demands for savings ran into opposition from France, Italy and eastern and southern European economies keen to tap EU subsidies.

“The numbers that were put forward were much too high,” Cameron told reporters before the summit started yesterday afternoon. “They need to come down, and if they don’t come down, there won’t be a deal.”

Van Rompuy’s final proposal sliced spending on transport and energy projects and research to 126 billion euros from the original proposal of 156 billion euros. Part of the savings was steered to regional development, in a concession to eastern Europe, and to agriculture, in a concession to France.”


(emphasis added)

Well, at least the budget was genuinely cut in both nominal and real terms. That has to be seen as progress. Let's get it down to zero as quickly as possible. No-one needs the Moloch in Brussels.


Japan: Shinzo Abe Meets Resistance

As we have noted before, some people in Japan are getting cold feet in the face of the yen's recent free-fall. The question foremost on their minds is: what if the JGB market should follow the yen? This is indeed worth pondering at this stage (so far the JGB market isn't worried much though). Reuters reports that there is now some pushback regarding Abe's preferred choice for the new governor of the BoJ:

“The Japanese prime minister's push for a governor who will lead a radical policy shake up at the Bank of Japan is meeting resistance from his own cabinet and financial bureaucrats, who fear extreme measures from the central bank may trigger a damaging rise in bond yields.

That tussle is testing Shinzo Abe's resolve to push through with his pledge for an overhaul of the monetary policies that have so far failed to jump start Japan from years of economic malaise. The delicate political maneuvering needed to ensure parliamentary approval could mean that Abe may have to settle for someone who is not his first choice, officials close to Abe and those involved in the selection process say.

"Abe will have the final word. Still, it will be a close call with a lot of complexities involved," said a government official with knowledge of the negotiations. It is virtually a given that whoever takes over in coming weeks as head of the Bank of Japan will pursue monetary easingwith more vigour than outgoing governor Masaaki Shirakawa.

Having cut interest rates almost to zero, the BOJ has adopted policies that inject cash into the economy. At stake is how far the new BOJ chief will be prepared to push the central bank into untested policy waters in answer to Abe's call for an all-out assault to break Japan out of years of grinding deflation and its fourth recession since 2000.

In the bureaucrats' corner is Toshiro Muto, 69, a former top-level financial official expected to push harder on the gas pedal than Shirakawa but to watch out for potential potholes and speed bumps. He advocates the BOJ buying more longer-dated government bonds and expanding asset purchases more aggressively. But he has also warned that printing money to finance public debt could backfire and trigger a sharp bond yield spike.

That could significantly add to Japan's public debt burden, already the highest in the industrialised world at more than twice the size of the economy. For the former top finance ministry bureaucrat and BOJ deputy governor, it is the second chance to land the top job at the central bank. His candidacy was struck down in parliament five years ago, allowing Shirakawa to come in as a compromise candidate.

In Abe's corner, there is a small group of hopefuls advocating unorthodox and sometimes controversial steps, such as buying foreign bonds and more risky assets, to help Japan's new leader make good on his pledge to revive the stagnant economy with powerful monetary and fiscal stimulus.”


(emphasis added)

Never underestimate the Japanese bureaucracy. It has far more staying power than the politicians of the day and its methods and views are deeply entrenched. Although 'Abe has the last word', we doubt he can simply ignore the bureaucrats if they are strongly opposed to his choice.


Mark Carney – The UK Gets Another Inflationist

Mark Carney – widely hailed as having steered Canada's monetary policy to success (as long as one thinks record high consumer debt and a housing bubble for the ages are the definition of 'success') appears set to implement a heavy dose of 'stimulus' now that he has arrived at his new job at the BoE. The Financial Times will surely love him. We think he's just as big a charlatan as most of the other central bankers, he merely evinces a better sense of timing so far (by e.g. skipping Canada before the bubble there had a chance to implode).

Bloomberg reports on his first BoE testimony:

“Bank of England Governor-designate Mark Carney signaled a preference for combining flexible inflation targeting with policy guidance over a more sweeping overhaul of the U.K.’s monetary regime.

As the institution he will soon run was saying it would sustain stimulus, Carney told lawmakers in London today that taking longer to meet inflation goals if necessary was “superior” to refocusing on other aims and that providing insight into future policy can enhance its potency.

“Flexible inflation targeting — as practiced in both Canada and the U.K. — has proven itself to be the most effective monetary policy framework implemented thus far,” Carney, currently governor of the Bank of Canada, told Parliament’s Treasury Committee. “As a result, the bar for alteration is very high.”

Poised to become the first foreigner to run the British central bank since its founding in 1694, Carney will succeed Mervyn King in July as policy makers grapple with a stagnant economy and the prospect of a fourth year of above-target inflation. He spoke as the Monetary Policy Committee he will soon lead said it will reinvest maturing gilts it bought in its quantitative-easing program to help a “slow” economy.

“Carney is not a conjurer and cannot pull a rapid recovery out of a hat,” said Robert Wood, chief U.K. economist at Berenberg Bank in London. “But we continue to expect modest further easing after he takes over in July, which should boost the growth outlook.”

Having preceded his testimony by saying two weeks ago that monetary policy isn’t “maxed out” and kick-starting a debate in December over the bank’s 2 percent target, Carney today said “slack in the economy warrants considerable monetary stimulus for some time.”

“It is entirely possible — I hedge because I’m not expert enough on the current situation in the U.K. — in fact probable, that the current stance of policy is consistent with the economy achieving escape velocity,” Carney said.”


(emphasis added)

Given that the UK economy is about to dip into its third official recession in a row, you can bet that they will keep doing more of what has totally failed thus far (of the above mentioned 'superior policy'). When central bankers speak of an economy reaching 'escape velocity', they mean that enough malinvestment and bubble activities have been set into motion that the official data show all sorts of 'activity' taking place, never mind if any of the activity actually makes economic sense.

We should perhaps translate what is meant by 'flexible inflation targeting': this means that even though a central bank may pursue an 'inflation target' (which is as impossible as it is dangerous), it should actually ignore that target as it sees fit. In other words, 'play it by ear' a la Alan Greenspan.

That indeed produces the occasional huge bubble, as both Greenspan and Carney have shown. However, this is not to say from our point of view that one form of central economic planning is necessarily better or worse than another. Central banks should simply be abolished and the banking system should be transformed into a free banking system, based on a market-chosen money (or monies). Central Banks are a blight and need to be done away with as quickly as possible. They do just as much damage as GOSPLAN once did. These socialist islands are the scourge of the market economy.  They have caused untold misery, are the main reason for a redistribution of resources from poor to rich, and are the main reason that we are experiencing boom-bust cycles of unsurpassed, never before experienced amplitude. Most of them are led by charlatans of the first water (for instance Ben Bernanke, or now Mark Carney at the BoE). You might as well hand over the reins of the economy to a witch doctor from the African bush. In fact, that may turn out to be better.




We hereby plead for actual witch doctors to be put in charge of central banks. It couldn't possibly be any worse …

(Image via




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2 Responses to “Tidbits, February 8 2013”

  • SavvyGuy:

    I have heard this quote, “if you are complaining about something, you have already lost!”

    So it seems we need to factor-in CB machinations and manipulations into the bigger scheme of things, from an overall systems engineering viewpoint. Try as they might, the CB tail cannot wag the market dog.

  • No6:

    The current bout of loony credit expansion must dwarf previous mis-allocations of capital by a wide margin. It will be a boom for the ages. So will the bust.
    It really should be obvious that a central bank is a legally sanctioned counterfeiting cartel. It is an out in the open racket.
    It is a marvel that the Carney’s and Benanke’s of the world can spin the deception so well for so long.

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