Pity the poor Europeans, saddled with incompetent governments who cannot get out of their own way, who refuse to consider the easy solutions, those on the easy-side of easy. History will consider these — Nicolas Sarkozy and Angela Merkel — harshly, the way history now judges Pierre Laval and Heinrich Bruning.

The EU is faced with severe problems and has many structural defects, first among these is its excessive energy waste which it pays for by borrowing excessively. The return on the waste is insufficient to service the debts; this is the EU’s — as well as the US’s — Great Problem! To address this problem the EU needs time and better administrative instruments. It needs to turn away from the great auto-mobilization, away from waste, cartels and finance, to become decentralized and locally focused again, as Europe was before money, credit and ‘finance innovation’ arrived. Instead of making rational decisions the EU is caught up in the momentary frenzy of crisis. The EU cannot act responsibly, it ‘cannot find the breathing space that would let it address underlying energy causes and effects directly.

The leadership refuses: the EU sits anxiously by the fireplace waiting for the Santa Claus of money to arrive and disgorge the trillions of euros needed to get Europe wasting furiously again as during the ‘good old days’ … which were never good, never old and never days but rather ‘good old lies’ ripped from the pages of comic books.

The dilemma at the center of the current frenzy is really a misconception: here’s Ilargi at Automatic Earth:

In order to save Italy and Spain from being downgraded by the ratings agencies and attacked by the bond markets, Europe needs to come up with a huge pile of money. It’s really as simple as that. But Europe either doesn’t have that kind of money or is not willing to spend it, depending on your point of view. The difference between financial capital and political capital; the chasm may not be that wide.

The “official tools” such as the European Financial Stability Facility, and the European Stability Mechanism it is set to give birth to, are woefully inadequate.

The total size of Italy and Spain’s bond markets is €2.1 trillion ($3 trillion), while PIIGS bonds due in the next 2 years add up to €795 billion ($1.145 trillion).

Government financing should be taught in high school but isn’t because the sense behind the process is actually too simple: “The mind recoils” as John Kenneth Galbraith remarked. The EU does not have to come up with a great pile of money because that pile is already there, waiting to be put to use! The highlighted part is completely wrong: the EU needs to come to its senses and craft a fiscal agency that allows it to borrow on its own account which it currently cannot do.

Compare the United States and the EU. The US is a country that borrows in its own currency. Any questions about United States ability to borrow involves the cost of servicing debt, not about constraints on the debt itself. This is because there are none! The US borrows in dollars that it can issue at will — dollars that cannot be had elsewhere else on Planet Earth but are limitless in America. This fact is why American debt is always ‘Triple A’ it will always be repaid.

Folks become upset about the gross amount of US government debt believing that the state must borrow from Bankers from Mars in the amount of ‘$15 trillion’ in order to ‘pay off’ this debt. This belief is completely false, the only cost is the amount needed to service the debt, that is, pay interest upon it. This service amount can also be borrowed or ‘monetized’. The ‘silly’ limit to US borrowing — or to any other nation such as Japan or the UK or China — is the willingness of citizens to accept free money along with the inflationary effects of continuing issuance and monetization.

Since the inflation tends to line the pockets of the wealthy there is little opposition to it: both lenders and borrowers accept it. Wealth in pocket becomes an ‘inalienable right’ as the decline in money value liquidates the value of loans to borrowers while the creditors have the freedom to lend at a higher cost.

A more practical limit is the eroding credibility of officials which takes place as the numbers become huge. US policy-maker credibility is being questioned now because the trillion$ in debt under discussion represent a number outside the grasp of ordinary citizens. Americans live within thousand-dollar economies; the management of tens-of trillions simply does not compute.

Monetizing does not cause inflation by itself as long as the amounts in question are those needed to subsidize the coupon rate: this being the smallest percentage of the total amount of the debt in question. Interest rates can rise and cause a problem if the sovereign ceases to borrow and by doing so reduces the supply of credit overall. Deleveraging takes place because there aren’t sufficient public funds made available to service private debts.

This is the dilemma faced by US policy makers who pretend they can cut public deficits without any effect on the private surpluses (wealth) the debts represent!

The EU cannot borrow in euros because there is no ‘Eurostate’ or central borrowing authority. All of the individual EU members borrow in a foreign currency — the euro — with the issue of the currency dependent upon the whims of currency intermediaries: banks and foreign currency speculators. The current EU ’emergency’ began with Spain, Ireland and the rest borrowing euros from German banks to buy German luxury cars along with more roads, tract houses, shopping centers and office towers. These countries now must borrow from the German banks to service the loans… not to buy new products.

The countries must borrow because high fuel costs accompanying the new infrastructure leaves them with no way to earn. The banks must continue to lend as the price of not doing so is their own failure. Meanwhile, the EU countries must borrow additional amounts to buy expensive fuel for the cars they borrowed to buy because they still owe on the cars … YIKES!

The total size of Italy and Spain’s bond markets is €2.1 trillion ($3 trillion), while PIIGS bonds due in the next 2 years add up to €795 billion ($1.145 trillion).

The amount under controversy is not the €795 billion but rather the COUPON on the €795 billion. The issue is with the difference between the pre-crisis interest rate and now! The interest cost is the ‘new money’ the ‘system’ has to come up with.

The coupon on €795 billion prior to the crisis was 3% (x €795 billion) = €23.85 billion. That is the pre-crisis rate of interest. The ‘new’ coupon which is the ‘line of death’ is 6% (x €795 billion) = €47.7 billion: all the panic is about 24 billion lousy steenkin’ euros!

Keep in mind, the principal amount is available, it’s alway ‘available’ because the €795 billion has nowhere else to go and more euros can be created simply by the Eurostate borrowing more! Not only that, there are trillions of additional euros sloshing around the world F/X markets looking for a home.

People don’t understand sovereign finance: suppose you decide to lend €1 million to an ‘EU Fiscal Authority’: you take euros out of your bank and put them in a bag then walk down the street and give the bag to the nice Euro lady behind the counter at the Eurozone Treasury. You’ve just given up your euros for a worthless recipt, right?

This is what Merkel and Sarkozy are saying: that money is put at risk by taking immense sums out of taxpayers’ pockets …

What happens is the lady puts the euros PLUS 3% in an account in YOUR NAME where it is held for the amount of time agreed to when you handed the bag to the lady. You get 3 of 4 or more percent simply to open an account in the Treasury, basically another bank! Government lending does not take away anything, it increases your (money) wealth instead.

With the ‘Brand X’ banks you might get a toaster or a gym bag. With the ‘Brand X’ bank there is also the chance of deleveraging failure, with the Treasury there is no chance. Your euros are always safe because the EU Fiscal Authorities can simply put euros in the gym bag and give them back to you. If they had to they could replace ALL the euros outstanding but most people are convinced easily that that the borrowing facility can come up with euros on demand. People keep their euros in the accounts because there is no better place for them.

That’s how finance works, money simply changes custody with new money created as necessary. The EU’s €795 billion is always there. If need be, €795 trillion are available! Meanwhile, any deal the Eurostate can offer on the €795 billion is going to be better than what any other entity can offer! This is true as long as the lending authorities aren’t boobs. The market demands a product the EU can offer at small cost that the bosses refuse to consider! No wonder the European investors hold their noses and demand higher interest rates? They are voting their dissatisfaction: it’s like McDonalds refusing to produce Big Macs.

Euro needs the Eurobonds yesterday. What Merkel is saying she has to come up with €795 billion which is simply not true she has to allow the ECB to ‘borrow’ on Germany’s account €24 billion.

If Merkel had to come up with €240 billion a Eurostate could borrow in Germany’s name €8 TRILLION! How does one think the US borrows such immense sums as $14 trillion, $55 trillion, $110 trillion? How about Japan borrowing 200% of GDP?

These countries borrow IN THEIR OWN CURRENCIES: THE EU MEMBERS CANNOT DO SO. Germany’s head is in the oven just like Greece’! Only a European lending authority can borrow in euros. That is why the EU needs a fiscal authority, a treasury and taxing authority. The EU as a fiscal entity can borrow far more than the individual states can on their own in the ‘foreign’ euro currency.

Eurobonds and a fiscal authority would solve the Greek default problem in a very short time. Again, the EU would not have to buy all the Greek bonds but only enough to effect the market and lower the coupon cost. If the Greek debt is €180 billion the EU fiscal authority would only have to effect ‘the margin’ which sets the price for the rest. It would have to get the message across that Greece isn’t on its own but is a part of ‘Europe’. It would probably not take the ‘purchase’ of 10% of Greek bonds but that number is easier to use:

EU bonds for 10% of Greek debt @ €180 billion (x 10% which is marginal amount under controversy) = €18 billion x 3% (coupon) = €550 million: less than €20 billion solves the Greek problem and ends the crisis. Remember the MONEY IS ALWAYS THERE TO LEND FOR THE PRINCIPAL. If not the central bank(s) can print some.

Another thing the EU could do — but won’t because they are too timid — is to subsidize the coupons directly. If Italy is forced to borrow at 5% or more, the ECB can simply refund the amount to Italy over 3%: a few lousy, steenkin’ euros which it can print up at will. Subsidizing rates would only cost the fraction of what buying Italian — or Greek or Spanish — debt outright would cost.

The ECB could buy the debt then turn around and swap it to the Federal Reserve. Bernanke will buy anything on a piece of paper including ‘slightly used’ porno mags: there is no reason why he wouldn’t buy Italian bonds …

The world needs energy restraint along with fiscal liberty, so that an economy of husbandry and capital formation can emerge from the current ruin. Instead, the establishment demands the exact opposite: additional waste along with fiscal austerity which amplifies the maladies that are bankrupting everyone! It then wraps this nonsense in ‘civic virtue’. The bosses have an ‘imagination gap’!

Speaking of waste, the latest furor has the ‘starry eyed’ Paul Krugman demanding a fake galactic war as a means to ‘stimulate’ the corpse called the US economy. Krugman and his stimulus: presumably, this effort would allow Americans to run out and buy more SUVs and gigantic pickup trucks, plastic and cardboard McMansions, bleak space-invader office towers and the shiny new ‘NAFTA superhighways to link the mess together.

Professor Krypton conveniently forgets the two real wars plus the dozen or so half-wars in the current US inventory here on Planet Terra, all of them stimulating the same dozen or so defense contractors! Krypton also conveniently ignores the fuel part of the equation that cannot be ‘stimulated’, only ‘wasted faster’.

The Professor is actually onto something, he just doesn’t think far enough outside of the box: if Americans could ever be pried from behind the wheel and out from in front of televisions some OTHER things would be possible. One scenario would have humans invading Mars (Wikipedia):

Early human missions

Early human missions to Mars, such as those being tentatively planned by NASA, FKA and ESA would not be direct precursors to colonization. They are intended solely as exploration missions, as the Apollo missions to the Moon were not planned to be sites of a permanent base.

Colonization requires the establishment of permanent bases that have potential for self-expansion. A famous proposal for building such bases is the Mars Direct plan, advocated by Robert Zubrin. The Mars Society has established the Mars Analogue Research Station Programme at sites Devon Island in Canada and in Utah, United States, to experiment with different plans for human operations on Mars, based on Mars Direct. Modern Martian architecture concepts often include facilities to produce oxygen and propellant on the surface of the planet.

Economics

As with early colonies in the New World, economics would be a crucial aspect to a colony’s success. The reduced gravity well of Mars and its position in the solar system may facilitate Mars-Earth trade and provide the rationalization for continued settlement of the planet.

Mars’ reduced gravity together with its rotation rate makes it possible for the construction of a space elevator with today’s materials, although the low orbit of Phobos could present engineering challenges. If constructed, the elevator could transport minerals and other natural resources extracted from the planet.

A major economic problem is the enormous up-front investment required to establish the colony and perhaps also terraform the planet.

Investment is ‘no problema’, we get Bernanke to write a check! Meanwhile, we put Krugman into a space suit and rocket him into the void to explain Keynes to the Martians. Freeways, office towers, pickup trucks and SUV’s make great sense on Mars which is already hostile to most forms of life.

Here’s a paper from NASA proposing colonizing the planet Venus:

Science on Venus

Venus, the “greenhouse planet”, is a scientifically fascinating place [Landis 2001, Landis et al. 2002]. In many ways it can be considered “Earth’s evil twin.” A huge number of important scientific questions need to be answered. At a temperature of 450 Celsius, and with 90 atmospheres of pressure of carbon-dioxide atmosphere, the surface of Venus is far too hostile to land humans upon, but we can put humans in the atmosphere to explore the surface via rugged telerobot.

– Before the runaway greenhouse effect, was early Venus temperate?
– Did Venus once have an ocean?
– What causes the geological resurfacing of the planet?
– What is the nature of the atmospheric superrotation?
– What is the “snow” on Venus mountaintops?
– Can we learn about Earth’s climate from Venus?

Venus Telescience Technologies

In the telerobotic exploration scenario [Landis 20031, the humans remain in a habitat, and use teleoperation to rove across the surface of Venus and explore. This requires a high-fidelity, highbandwidth connection to give the humans a fully-detailed virtual presence in the robotic body. Humans participate in the exploration both by direct operation of the telerobots across a high-fidelity virtual-presence link, and also by analyzing samples collected by the teleoperated robots in a fully equipped on-site laboratory. Because of the high wind velocity in the middle atmosphere of Venus, an atmospheric aerostat habitat would not stay over the same surface location, but would constantly move.

Although this would have some disadvantages, such as requiring a relay station if long exploration of a single spot is required, it would also have some advantages in constantly moving over new ground. A robot to explore the surface of Venus will require new technologies; specifically, it will require electronics, scientific instruments, power supplies, and mechanical linkages designed to operate at a temperature above 450 C h o t enough to meit fie soider on a standard eiectronic circuit board. This will require devices made from advanced semiconductor materials, such as silicon carbide, or even new approaches, such as micro-vacuum tube electronics. Such materials are now being developed in the laboratory. In addition, for a fully immersive virtual-reality, high-bandwidth virtual-presence technologies will have to be developed, as well as highly capable exploratory robotics.

While the human explorers could live in a habitat laboratory in orbit around Venus, a better location for exploration is an aerostat habitat. Teleoperation from the atmosphere allows near “real time” operation with minimum time delay, giving a virtual presence on the surface. An atmospheric habitat has an advantage over an orbital habitat of advantages of gravity (90% of Earth surface gravity) and atmospheric protection against cosmic radiation (same equivalent mass as Earth’s atmosphere), and the presence of useful atmospheric gasses, including carbon dioxide and nitrogen. Breathing oxygen for life support can be easily provided by separation of oxygen from atmospheric carbon dioxide, either by zirconia electrolysis or by Sabatier processes.

So it should be possible to explore the surface of Venus remotely from an aerostat habitat. An atmospheric location for the habitat has the addition advantage that it will be easy to bring samples up from the surface to be analyzed in the habitat. The atmospheric pressure is high enough that both airplanes [Landis 20011 or balloons could lift samples (assuming, of course, that the vehicles are adapted for high temperature and pressure operation).

Here, robots could actually do something useful rather than putting human workers out of jobs. We could also find use for our otherwise distracting ‘high bandwidth, virtual presence technologies’. Interplanetary projects would distract humans from their current immediate-term planet-raping activities here on Earth. Habitation of interplanetary space would require long time frames while holding out all the while the promise of new planets to ruthlessly exploit! On the way to ravaging Venus and Mars we could occupy the Moon: it’s already a moonscape! A few odd steel mills, strip mines, melting reactors, garbage dumps and freeways, malls, office buildings would be picturesque when viewed from Earth through a telescope.

Given enough time, enough economic growth and enough hermetically sealed performance sedans on Mars and Venus, the remaining humans on Planet Earth could look forward to invasions of Bankers from Mars bringing with them bags of euros to invest.

Oh happy day!