Unknown Photographer ‘He 111 Shot Down Over England’

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.

Winston Churchill

The one fact about parties is that they all end. The cocaine runs out. Everyone has to go home.

In the Eurozone and elsewhere, the cheap credit has run out. What remains is the hangover and daunting task of sobriety. Along with the credit, gone is the gasoline. Things will never be the same.

‘Never be the same’ are fighting words for the Establishment which entrenches itself more deeply into the present even as it becomes less relevant. Because it has lost the ability to reform itself, the establishment lashes out in a reflexive attempt to preserve its vanishing prerogatives. This is self-evident: if reform was possible it would have already taken place, the reforms would have prevented the crises.

Comes now the political endgame in the EU. Merkel and Sarkozy must make their way to Greece, Italy, Ireland and the rest to reassure the citizens of these countries that their sacrifices are not in vain, that there will always be a euro, that they will be a part of it, that there is some sort of light at the end of a long tunnel. Merkel and Sarkozy must go to the people and treat them as partners rather than subjects of the banking cartel.

So must the leaders in Washington, New York, in Japan and even China. The consequence of failure to reach out is for them to become bystanders in the affairs of their own countries.

The policy makers of the Eurozone must start holding the financiers accountable. The present criminal conditions cannot be endured any longer. If the establishment refuses to act the citizens will take matters into their own hands, there will be revolutions.

The policy makers must also toss outmoded sovereignty fantasies into the trash. The time for posturing is past, nobody is in a separate boat, there is not one labeled for Germans or Italians or ‘others only’. Like it or not Germany is a part of the world and must carry its burden of responsibility, which it currently refuses to do.

The economic managers do not grasp the currency risk. Economies are containers of value, shared understanding built upon edifices of trust. Within economies a collective suspension of disbelief takes place that insists pieces of colored paper or bits of electronic data have ‘value’. The trust emerges as more people share the same ‘value’ idea and gain benefits from it.

Presently, the trust vanishes fast along with everything else. Administrators carelessly devalue one group’s sense of worth then another. At some point that is impossible to predict the idea of value evaporates along with the trust. The economy and its components cease to be useful, even if exchange values are indicated ‘by the numbers’.

Germany cannot afford to gamble with euro risk. It holds trillions of EU liabilities both in the form of currency and credits in its banking system along with ongoing business relationships with companies outside of Germany and the Eurozone. German wealth is nothing more or less than the trust earned over the entire post-war period. Germany pretends it controls its destiny but this is something it cannot guarantee. The trust Germany cultivates carefully with one hand it casually undermines with the other.

Whatever else Germany does it must affirm trust of others in itself, its leadership and its euro project above all else. Right now Germany plays the part of Europe’s enforcer. As it acts out its blows rebound against itself. Instead of leading by sacrifice, transparency and encouragement, it lashes out; the outcome of this is German self-liquidation.

The impaired assets on European balance sheets outweigh capital and bondholder credit together. Europe is past the point of insolvency to the level of worthlessness. Liabilities are looking for a place to hide. The logical destination is Germany whether there be a euro or not. Germany is not Switzerland, it cannot devalue against the euro, it cannot escape its neighbors’ liabilities. It has no choice but to succeed at its unification endeavor or the worthlessness of the others’ balance sheets will be marked up against its own.

The Europeans have reached the debit end of the gang plank: there are no returns on the waste-based economies, insufficient European monies with which to pay European bills. Coming soon is no European money value with which to obtain imports. The Europeans tremble at the edge of beggary with petroleum ‘subsidies’ from Cesar Chavez and Ahmadinejad and spare change from the US Fed.

Where is that ‘Vision Thing’? Gripping onto the present is unacceptable, the status quo is waterlogged. Germany is the responsible party, it is EU’s paymaster and the long-time primary beneficiary of the Euro-economic activity. Mercantile Germany sits at the center, German euro surpluses are the consequence of the other trading nations’ deficits. Meanwhile, German currency risk is no different from Greek risk, both countries do business in a foreign currency.

The idea that Germany can integrate Europe around its economy then somehow pull up the ladder when convenient is a dream.

‘United States of Eurozone’ has a nice ring to it. Why not yesterday? A European federation would not by itself solve a Europe unable to manage its energy gluttony but would buy the continent some valuable time. This time could then used to build a new EU economy around conservation.

Valuable resources that would have enabled a shift away from the current consumption scheme to something less self-destructive have already been wasted. Common sense would have the so-called managers acknowledge this loss and move on to something else.

The euro monetary union had obvious structural defects from the get-go admitted to by the Euromasters themselves. Now there is resolute refusal to address these defects even as the entire European enterprise accelerates to destruction. If not now, when?

Does Angela Merkel honestly believe the Greeks will ever trust the Germans again after such rough treatment at the hands of faceless Troika functionaries? What good can this portend for German business? How do German businessmen expect their enterprises to succeed, on what alternative planet?

The Greeks and others have long memories, the Germans are vulnerable (Germany Watch):

Ritschl: That’s what it looks like, but we were also extremely reckless — and our export industry has thrived on orders. The anti-Greek sentiment that is widespread in many German media outlets is highly dangerous. And we are sitting in a glass house: Germany’s resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims.

SPIEGEL ONLINE: You’re saying that Germany should back down?

Ritschl: In the 20th century, Germany started two world wars, the second of which was conducted as a war of annihilation and extermination, and subsequently its enemies waived its reparations payments completely or to a considerable extent. No one in Greece has forgotten that Germany owes its economic prosperity to the grace of other nations.

Dire times are when political instincts abandon professional politicians at a moment when these instincts are necessary. The Germans refuse to share any of the hardships their policies inflict upon their neighbors. Germans whine but their finance underwrote the bad loans, with eyes wide open, for the benefit of German manufacturers. German finance ignored the risks as it ignores currency risk today.

The Europeans can offer greater monetary autonomy with the euro taking second place in each European country to each country’s own currency. This would end the German-mandated liquidity squeezes.

Germany can do with its auto tycoons what it has done with its nuclear variety and put them out of business. No country or economist acknowledges the ongoing drain of European wealth overseas in an endless stream for petroleum energy to run Europe’s toys. Running out is running out: the EU has run out of credit. In doing so it runs out of petroleum at the same time.

The Germans need to recycle their massive euro deposits back to the EU periphery, to provide credit to small proprietors. This bank might lose money it is the flood of capital to Germany in the first place — seeking ‘safety’ in German accounts — which amplifies the crisis. The cost is in perpetuating the crisis and bank runs rather than in supporting business in customers’ countries. This is the Bundesbank’s job. It needs to get over its precious self and support business in the periphery today so as to support German businesses tomorrow.

The ‘First Law’ is the cost of managing surpluses becomes greater than the surpluses’ worth. Certainly the effect of this law or cost of Germany’s euro-denominated ‘foreign account’ surplus is the strangulation of the Continent’s flow of funds. The solution is for Germany to unwind its surpluses, reducing the costs. It can unwind its smug sense of institutional superiority at the same time.

Meanwhile, the ECB which has become a parking lot of euro-deposits and capital flight from rapidly decaying EU banks. These funds must be recycled back into circulation, to counteract the ‘runs’ out of deposits within the EU.

German banks and government are ‘getting rich’ but this is momentary. There is no possible way for the current conditions within German finance to survive the demise of the euro. Germany cannot simply pick up its luggage and move itself away from Europe with its own currency. There is no road map for Germany to get from where it is now to a substitute currency space The Germans and other creditor countries frozen to the spot: any sign that the Germans might abandon the euro would be the alarm for the others to do the same, to the instant ruin of German creditors, who are owed trillions of euros.

The end of the euro anywhere within the Eurozone casts into doubt the value of Germany’s bank deposits. Uncertainty would trigger a run on German banks. Germany would find itself ‘honor bound’ to defend the currency to the bitter end, to protect its depositors. Germany would become the fool of the market, the dumping ground for all European liabilities.

The alternative would have Germany racing Greece and Italy out the door. The survivor would be the first to grab a lifeboat on the Titanic. This is the nature of unraveling Ponzi schemes where the winners get out early: ‘et tu, Germany?’

Either outcome would be the destruction of German banking and German wealth. Maybe that is the plan: Götterdämmerung.

Add the currency trap to Keynes’ liquidity trap amplified by the political expediency trap. In its desire to party forever Europe is confronted with the persistence of liabilities. Euro liabilities pitch Germany’s tent on the lip of the abyss. With the passage of time and accumulating mis-management, holders question whether euros are ‘worth the hassle’ and ‘worth the risk’ or not. This is not the proper sort of inner dialog to have about any currency.

People would look to gold, but who runs hard currency regimes anymore? Nobody knows how! It’s another lost art like like plastering.