 | | The Daily Reckoning | Monday, November 7, 2011 |
- Greece gets ready to “mail the keys” back to the Eurozone,
- Passports: An abuse of human rights and common decency,
- Plus, Bill Bonner on ‘Papandenomium’ and twenty-first century depression...
Special Daily Reckoning Holiday Gift Set: One Ounce of Gold, Ten Ounces of Silver
As a special thanks for being a long-suffering Dear Reader, the DR team wants to give you a special Holiday Gift set.
It contains an ounce of 99.99% pure gold and ten ounces of pure silver.
There are only 99 available, so go here to see what the catch is as soon as you can...
 | | Joel Bowman |
Joel’s Note: In case you missed it over the weekend, you might want to take a look at the third and final installment of the Daily Reckoning’s“Farewell Euro Tour.”
My colleague, Eric Fry, conducted person-on-the-street interviews from Amsterdam to Venice — asking ordinary folks about the extraordinary monetary crisis that is roiling the euro zone.
The responses — though merely anecdotal — provided some very worthwhile insights...and a couple of laughs. Check it out...
|  | | | | Don’t Pity the Greeks | | Understanding the Real Implications of a Greek Default | | |  | | Eric Fry |
Papandreou to Merkel: “The keys are in the mailbox.”
Just like an “underwater” homeowner, the Greeks are simply walking away from their obligations and telling their creditors, “It’s yours.”
While it’s true that the Greeks haven’t actually walked away yet, Prime Minister George Papandreou walked away today...and that’s the first step.
“Wait a minute!” you may be saying. “Didn’t the Greeks strike a bailout-salvaging political deal over the weekend? Didn’t Papandreou agree to step down in order to enable an interim, power-sharing government to secure the EU’s 130 billion euro rescue package?”
Absolutely, if you believe American or Northern European press reports. Absolutely not, if you believe most Greek press reports...or listen to your common sense.
Papandreou did not step down to “make way for the rescue package.” He stepped down to get out of the middle of a firefight. As the Greek newspaper, Ekathimerini, put it yesterday, “Let’s not forget what prompted George Papandreou’s ill-fated and panic-stricken effort to unburden himself of the weight of government by calling a referendum: the need for radical reforms, the popular rage that this has provoked and the sporadic violence of small but persistent groups...”
No one wants to be the “austerity candidate.” Politics is about dispensing goodies, not about taking them away. Papandreou clearly understands this reality and wants nothing to do with it.
“It is no coincidence,” Ekathimerini continues, “that both times that Papandreou tried to throw away the burden of government were during widespread demonstrations and violence. Last June, during the parliamentary debate on harsh new austerity measures, which were accompanied by violence in Syntagma Square, Papandreou suddenly told New Democracy party leader Antonis Samaras that he would resign as prime minister in order to make way for a government of national unity; the second followed the demonstrations of October 28 and the cancellation of the annual military parade in Thessaloniki, just after a deal with our EU partners and the IMF to write down a large part of our debt.”
Not surprisingly, Papandreou would much rather hand over the keys and infuriate Greece’s creditors than pay the mortgage and infuriate his own people.
Publicly, most Greek politicians keep talking as if the country will continue paying its mortgage. But that’s an easy thing to talk about as long as their creditors are continuing to extend fresh credit. Just wait until the money runs out.
That’s when the Greeks will walk away and the keys will land in the mailbox.
But don’t pity the Greeks. The Germen “repo men” can’t evict them. And there’s nothing to repossess. The lenders should have asked for collateral, but they didn’t. Which means the Greek borrowers get to “keep their house,” even after defaulting, while the lenders will have to mark their bad loans down to zero...exactly like a defaulted mortgage.
So why shouldn’t Greece hand over the keys? That’s what millions of American mortgage-holders have done since the housing bubble burst. That’s what capitalism is all about: free exchanges of capital and/or services between consenting adults. Sometimes these exchanges produce wealth; sometimes they produce capital losses. That’s capitalism.
When a bank loans money to a homebuyer, the bank understands that it will receive either monthly interest payments...or the house itself. The borrower understands that he must either make monthly payments...or give the house to the bank. That’s the deal. It’s a contract. It’s not a moral obligation.
Sovereign finance is no different. When a bank loans money to a sovereign borrower, the bank understands it will receive interest payments for as long as the sovereign borrower remains solvent. After that, nothing. That’s the deal. It’s a contract. It’s not a moral obligation.
It is not the sovereign borrower’s fault that the banks demanded no collateral before extending the loan. It is the lender’s responsibility to collateralize his loans, not the borrowers.
Most of the Greeks on the street are hip to this reality, which is why they would prefer a default over austerity. Clearly, Papandreou is on the same page, which is why he asked for a national referendum on the bailouts. He knew the people wanted to hand over the keys and he had no interest in stopping them.
But the bankers in the north of Europe had every interest in stopping the Greeks from handing over the keys, which is why they pressured Papandreou into canceling the referendum. He did so, grudgingly...and then stepped aside.
This may be an event that “secures Greek’s rescue package,” just as the US press is reporting this morning, but it is also an event that moves Greece one step closer to its inevitable default.
All hope is not lost however. The Greeks did reaffirm their commitment to the gyro.
| | | Printing Money to Combat a Global Depression |  | | Bill Bonner |
Reckoning today from Paris, France...
Last week produced nothing but more disappointment. At the center of it was the Europeans’ inability to make their debt disappear. They had hoped that they could just announce a plan to take care of it...and that would be enough.
But then, the Greeks said they wanted to vote on it...and then, they didn’t. ‘Papandenomium,’ the papers called it. If the voters were allowed to give their opinions everybody knew what would happen; the whole fix would be unfixed quix. So, they all got together and twisted Papandreou’s arms...and his arms gave way.
And then, investors started getting nosey. They wanted details. They wanted to know how the French and the Germans could cover so many potential losses — from Spain, Portugal, Ireland, Greece, and Italy.
Italy is in the worst position. It has scarcely any more debt than the US, but it has an immediate problem. It has to turn over its debt...it has to borrow heavily just to keep the wheels turning. And it lacks America’s key advantage...it doesn’t have a printing press. It gave up the power to print money when it joined the EU. Only the European Central Bank can print money...and it’s controlled by the Germans!
What’s the matter with the Germans, anyway? Why don’t they get on- board with the Fed? Why don’t they want to print money? If they would just give the signal — ‘don’t worry, we’ll print the money’ — the whole crisis would be over. In Europe, as in America, bond investors would be reassured. They would know that they’d get their money. The ECB would buy Italy’s bonds, and Greece’s bonds, and Spain’s bonds... Heck, it would buy everyone’s bonds. Bond investors would get their money. They would stop hiking interest rates. Italy could cover its losses.
Everyone would be better off, no? Just like they are in the USA. Right?
It all seems so simple. Why don’t the Germans get it?
While US policy makers, official economists and jackdaw kibitzers are terrified of another Great Depression, Germany’s officialdom is afraid of hyperinflation. Hardly any Germans are still alive who remember it, but the experience of hyperinflation of the early ’20s is painted on the German character like graffiti on a national monument. They can’t ignore it. They can’t forget it. It will take generations for it to wear off. After the bitter experience of WWI, hyperinflation wiped out the German’s residual faith in their institutions. Working hard, saving your money, being a good citizen — none of it seemed to pay off. The ex-soldiers were bitterly disappointed. The ruling classes had let them down. The banks had betrayed them. The politicians had stabbed them in the back.
Even their money was worthless!
“How could 2,000 years of accumulated civilization have led to this...” (Or words to that effect) says the hero of Remarque’s famous All Quiet on the Western Front. Having no good answer, the Germans turned away from accumulated civilization, towards armed, mechanized zombieism.
In just a few years, Germany’s factories were working again — producing tanks and planes. It was a solution to the post-WWI unemployment and depression. Unfortunately, the solution was worse than the problem. The trains ran on time. But they were headed for disaster!
But that’s a long story.
Meanwhile, in the US, we have our race memories too. Few people alive today recall the Great Depression. But it still haunts economists’ sleep and troubles their vacations.
“Not on my watch,” says Ben Bernanke, or words to that effect.
And so, the Americans fight depression. The Europeans fight hyperinflation.
And what will they get? Depression AND hyperinflation!
Yes, dear reader, that was our forecast as few years ago. We stick with it. The world is entering a depression. Growth has stalled. Even the emerging markets are slowing down...suffering the consumer depression exported from Europe and America and trying to fight the inflation exported, by QE2, from the US.
This depression isn’t going away anytime soon. It will take years to work through, write off, default and foreclose on the mountain of household, business, and financial debt built up over the last 60 years. At first, we thought it would take 7-10 years. We’re in year 5 already...and, at the present rate, it looks like it might take another 15 years!
But the authorities aren’t going to take a depression sitting down. Even the Germans will probably decide that a little bit of printing press money is better than the defaults and bankruptcies that accompany a depression. They’ll all guarantee each other’s credits. The banks guarantee the debts of their big customers. The government guarantees the debt of its big banks. The central banks guarantee the debts of the governments...and all print money to cover them. What a great system.
Yes, that’s our prediction. Depression will lead to money- printing...which will eventually lead to hyperinflation.
But heck...the whole thing will take years to play out. By the time it finally comes to pass we’ll all probably have forgotten this forecast. We’ll be lucky if we can remember our names.
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| | The Daily Reckoning Presents | | Where Are Your Papers? | | |  | | Wendy McElroy |
“Your papers!” In old movies, the demand is barked at trembling travelers by a Nazi with a guttural accent. If the demand is made in the opening scene, then the audience knows immediately that they watching a totalitarian state in which travelers are in danger.
“Your papers!” now rings out at every American airport and border crossing. The accent is different but travelers need to recognize with equal immediacy that a totalitarian state is playing out in front of their eyes, and they must be careful.
A passport is where the security theater begins. Indeed, without a passport those who wish to fly or cross a border are not “allowed” to be scanned, searched, interrogated, or undergo a plethora of other indignities imposed by uniformed thugs. The hoops through which passport carriers jump are all prelude to “permitting” them to exercise a right belonging to every freeborn person: the right to travel.
Things were not always this way. It is important to remember that there once was a world in which people traveled freely across borders without paperwork to visit families, pursue education, conduct business, and mingle. Freedom worked once. It enriched the world economically, culturally, and psychologically.
European nations pioneered many if not most aspects of the modern passport. The passport as an official permission or protection, and not merely as identification, arose because of armed conflicts. In the 17th century, sea voyaging was key to trade, travel, and the maintenance of empire. With some frequency, war interrupted that flow. Therefore, neutral vessels were granted passports or “sea letters” from a port of departure, which permitted them to journey in safety.
By the mid-19th century, mandatory passports had largely disappeared from Europe and Asia, with Czarist Russia and the Ottoman Empire being prominent exceptions. The change was largely due to three factors. First, governments were pressured to open up borders so that goods and services could flow across an increasingly industrialized Europe. Second, the period between the last Napoleonic War (1815) and World War I was unusually peaceful. Third, railroads now dominated travel. Their speed and the sheer number of travelers made traditional methods of checking documents impractical.
Thus, with trade and peace, mandatory passports declined.
War brought them back to life. With World War I, European nations once more imposed requirements not only to identify “enemies of the state” (e.g., spies or the citizens of belligerents) but also to control the outward flow of skilled labor in order to maintain their own workforces. In short, passports once again became social controls and, like the United States, many European nations maintained their requirements after the War.
World War II made passports mandatory on a virtually worldwide basis. Although passport requirements loosened once more after the WWII, the war on terror in the wake of 9/11 has raised those requirements to unprecedented levels. The ebb and flow of passports is that of war itself.
The American passport was also rooted in war, specifically the American Revolution (1775-1783). The first one was issued in 1783; based on the French “passport,” it was designed and printed by Benjamin Franklin. It was a single page with a description of the bearer(s) and his or their signature(s). For example, when John Adams, Benjamin Franklin, and John Jay acted as ministers plenipotentiary in traveling to Great Britain to seal the terms of peace, all three names were on one passport. It was addressed “TO ALL Captains or Commanders of ships of war, privateers, or armed Vessels...”
During the Articles of Confederation period (1783-1789), passports were issued but not required. When the US Constitution was ratified, creating a new government, passports continued to be issued but not required. Many American states and cities also issued their own “voluntary” passports until 1856 when the Department of State exerted a federal monopoly, ostensibly to eliminate confusion.
Nevertheless, passports were not mandatory except for a period during the American Civil War (1861-1865) and during World War I (1914-1918). The latter can be seen as the beginning of the current American passport. On December 15, 1915, President Woodrow Wilson issued Executive Order No. 2285, “[r]equiring American citizens traveling abroad to procure passports.”
This was followed in 1918 by an act of Congress granting the president authority to require passports during time of war. Passports remained mandatory until early 1921.
Thereafter, the United States continued its “no-passport-required” travel policy until another war: World War II (1939-1945). In 1941, passports became mandatory for travel abroad and remain so to this day. (Travel to Canada used to be an exception; until recently, proof of citizenship was all that was required to cross the border.)
Passports clearly function as an essential and effective means through which a state can control the person and property of its residents. Consider the United States. No one can legally leave without one.
And yet passports can be denied for a myriad of reasons that have nothing to do with being “an enemy of the state” but rest strictly on statutory grounds. Common reasons for denial include owing money to the IRS, a federal arrest, a state-criminal court order existing, a drug arrest, being on parole or probation. Law-enforcement databases are routinely checked against both passports and applications to weed out those who have committed such offenses as being more than $2,500 behind on child-support payments. Passports can also be revoked for several reasons, although revocation is far less common.
Those who meet the legal requirements for a passport move on to the next stage of social control. After handing over documents, a traveler is questioned about the reasons for travel, how much money he carries, his occupation, and virtually any other question a border agent wishes to ask. The traveler’s person and property are “searched” in various ways, including a strip search at the agent’s discretion. If the traveler questions or evinces disapproval, then he could be denied the “right” to board a plane, thus wasting an expensive ticket. Or he may be pulled aside for special treatment, including fines or interrogation by the police.
Requiring a passport as the key to freedom of movement is akin to gagging someone while maintaining that he retains freedom of speech.
The passport has grown into what is arguably the single most powerful tool of totalitarian America, second only to law enforcement itself. It no longer pretends to protect individuals; not a single terrorist has been apprehended as a result of passport checks. But it does cement the totalitarian state. The mandatory passport should be reviled and rejected as an abuse of human rights and common decency. A nation that requires one cannot be free.
Regards,
Wendy McElroy,
for The Daily Reckoning
Ed. Note: Wendy McElroy is a Canadian born individualist anarchist and individualist feminist. She was a co-founder along with Carl Watner and George H. Smith of The Voluntaryist in 1982. Her articles are widely published on libertarian websites. A version of this column originally appeared on mises.org on September 7, 2011.
| | | | | | | | | Bill Bonner | | The Disaffected Young Men of a Depressed Economy | | | | | Bill Bonner |
What does a modern depression look like? Take a peek. The Wall Street Journal:
Generation Jobless: Young Men Suffer Worst as Economy Staggers
The unemployment rate for males between 25 and 34 years old with high-school diplomas is 14.4% — up from 6.1% before the downturn four years ago and far above today’s 9% national rate. The picture is even more bleak for slightly younger men: 22.4% for high-school graduates 20 to 24 years old. That’s up from 10.4% four years ago.
For such men, high unemployment is eroding their sense of economic independence. Their predicament reflects that of a generation of Americans facing one of the weakest job markets in modern history.
“We’re at risk of having a generation of young males who aren’t well-connected to the labor market and who don’t feel strong ownership of community or society because they haven’t benefited from it,” says Ralph Catalano, a professor of public health at the University of California, Berkeley.
The share of men age 25-34 living with their parents jumped to 18.6% this year, up from 14.2% four year ago and the highest level since at least 1960, according to the Census Bureau. *** The WSJ article tells the story of young men who have been disappointed. In the boom years it was easy to make money — too easy. One made $14 an hour installing granite countertops. With plenty of overtime. Now, he’s making $11 an hour, when he can get work. And his marriage has broken up.
Capitalism, as he understands it, has been a failure for him. The Republicans have failed him. The Democrats have failed him. Education has failed him. Marriage has failed. It all must look like such a fraud...the American Dream...the hopes for a better life...the consumer society...the housing boom...the suburbs, the Hummer, the happy family. All of the promises of 2,000 years of accumulated civilization have disappointed him.
Since we, here at The Daily Reckoning, are making guesses...forecasts...and predictions...
..well, here’s one: These disappointed young men are on the cutting edge, so to speak...where politics and economics come together. Like the disappointed veterans of WWI, they are ready for a change...ready for revolution. For the present, they bide their time, playing video games such as Call of Duty. They are not sure whether the world has failed them...or whether they have failed. Surely someone will come along to straighten them out...explaining how it was not their fault...and telling them what to do about it.
What rough beast, his hour come round at last, slouches towards the Potomac...?
Regards,
Bill Bonner
for The Daily Reckoning
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