It is a travesty of justice what the technocrats, the nanny-zone supporters, and the politicians have done to Greece.
Mish

It is said that one cannot borrow one’s way out of debt, that more debt is not the solution to a debt crisis. These remarks are truisms, that is, they make sense at the surface and have the ring of truth but are completely false.

At a personal or even the enterprise level it is hard to make a living from continually taking on more debt but this is due to the finance rule which requires debt service at the smallest scale to be more costly than debt service at the largest. Even so, the debts of an individual are extinguished practically by the end of the debtor’s life. It is possible for creditors’ demands for repayment to outlive the debtor leaving no one and nothing from whom to collect.

For finance and sovereigns, there is no other way for the debts to be retired or serviced other than by the taking on of new debts. The idea is not to borrow oneself free of debt which is absurd but to maintain a level of perpetual indebtedness as a manageable state of affairs, to gain as necessary the monetary benefits of debt, to escape the pit that repayment represents. The understanding here is that finance entities such as governments outlive their creditors, that debts eventually fade into meaninglessness.

The suggestion of the Good German is that there is some sort of debt-free utopia where obligations are purged by dint of Teutonic hard work and suffering inflicted upon others, that the Good Germans have themselves endured these things many times, it is a bitter medicine but must be swallowed. This suggestion is also a lie: not the simple untruth of childhood corrected by the cane and some bawling, but materially destructive falsehood punishable by national ruin!

Such a debt-free state has never existed anywhere on Planet Earth, has certainly never included any industrial nation, has certainly never included Germany whose last encounter with austerity and Bruning deflation led to a particularly Pyrrhic brand of military Keynesianism which began and ended with massive debts that the same Germans took on then defaulted upon!

The Good Germans will find out on their own account soon enough when all of Europe’s debts come knocking first upon their doors then crashing down upon their heads: there is no practical difference between a Greece and a Germany that make use of the same debt-money system.

Any distinction is a matter of timing: the Good German gets to watch his fate spinning out in real time on television. The half-constructed Greek economy is identical to the German version but for the layer of smug certainty that ripens in the German. What is underway in Greece is inevitable in Germany. As with the rest of the EU, Germany has no organic credit but must borrow from its neighbors, right now its sales pitch is a bit better than the Greeks’. Germany is another ‘failed auction’ away from the sickening slide, the inability to beg some ‘confidence’ from gimlet-eyed bond speculators bent on gain.

Germany’s finance minister Wolfgang Schäuble wishes to expel Greece from the euro … “We can’t keep sinking billions into a bottomless pit,” he said on Friday.

Sinking billions is precisely what they must do! There is nothing else. The “billions” is simply a number so is trillions and more. There is no end to the numbers, there is nothing precious about them. Looking to give numbers meaning ends with ashes and dust, not billions not even thousands. Germany cannot support its own debts, only a fool believes in childrens’ fantasy, that a consumer economy like Greece’s — or Spain’s or Italy’s — can support its own finance debts by way of labor … ‘competitiveness’!

The more Germans hammer at the failure of the Greeks the more obvious this is the failure of the euro:

EU to punish Spain for deficits, inaction

Julien Toyer and Paul Day (Reuters)

The European Union is likely to take action against Spain’s newly installed government by May for delaying austerity measures ahead of a regional election next month, sources familiar with the situation have told Reuters.

Spanish and EU officials said in response to Reuters’ story that the government in Spain was working hard to reduce its deficit and that it was premature to say the country might be punished.

Three senior EU officials told Reuters that a final decision still has to be made, but the European Commission believes the new government overstated the deficit figures for 2011 so the current year’s data would look better. Spain is also not addressing quickly enough the deterioration in public finances expected in 2012, risking the country’s longer-term growth, the officials said.

Asked if the European commissioner for economic and monetary affairs, Olli Rehn, would take action and recommend that the bloc’s 27 finance ministers adopt sanctions against Madrid, one of the officials said: “It is very likely.”

Neither the Greeks nor the Spanish can pay finance debts by any means other than borrowing. Here is some bad news for Mr. Schäuble, the Germans cannot pay the Greek finance debts either! When it comes to it and it shall as inevitably as Monday, the Germans will borrow billions and throw them into the bottomless pit or become beggars living in the streets.

Schäuble does not understand the basics of economics:

The wealth is those who lend to German banks: the debtor Greeks are the counterparties on the banks balance sheets, the pitiful objects of Minister Schäuble’s pointless class war,

The twenty- or forty or so trillions in euro debts are equal to European wealth —

When the Greeks fail, this will not be success for the rest of the Eurozone. Europe is in a recession, this is not Greece’s fault but rather the failure of consumption waste-based economies that have no organic return.

Here is the precarious state of euro wealth, dependent upon the financial health of Europe’s least citizens:

– Europe is in the grip of an energy crisis that the same establishment refuses to acknowledge. Because Europe has some fragment of credit remaining to it, Europe pretends it has access to crude oil at any price.

– European policy-makers strangle access to credit for inexplicable reasons, fuel availability diminishes. What is underway in Greece and elsewhere is fuel conservation by other means.

– Credit bids the price of fuel on the asset markets: (TFC Charts, click on for big):

Figure 1: The outcome of high fuel price is demand destruction which has its own diminishing effect upon credit.

Dispense with the LTRO right away: it is the means by which non-cash assets are swapped for currency, it is a money laundry. As a by-product of the laundering process, there is a temporary bending of the EU’s self-destructive rules: “that Euroland is now strong enough to withstand contagion, and that the European Central Bank’s `Draghi bazooka’ for lenders has eliminated the risk of a financial collapse.” says Ambrose Evans-Pritchard in describing it. What frees the Germans to smash the Greeks in the face is the ‘success’ of the central bank’s criminal enterprise!

Euro debt is a system, claims against what appears to be a shrinking pool of funds within Europe. These funds are euros, it does not matter if the claims are against Greeks or French, the obligations in euros are fixed against those who have the euros, not those who have lost them. The claims are made by the banks. If the claims cannot be paid or financed then the banks who are due the money must be bailed out. The cost of their failure is too high. Claims are by one bank against another, they are direct in the form of debt by one bank to another or indirect by way of derivatives such as Credit Default Swaps.

The claims multiply against the largest pool of euros which is Germany. As with dollar claims in America, the individual euro issues are ‘sliced and diced’ into components and re-assembled into a rattatouille. Parts of each obligation are assigned to all debtors. The same way all dollar claims can be made against the US government because of its guarantees to depositors, so are euro claims made against the German government and German citizens. There is no ‘Greek debt’ that is not also German debt.

The German’s choices are stark: he can attempt to hold euros against multiplying claims and be ruined by them or he can not hold euros. This has nothing to do with the German’s character or morality but is a flaw of the euro-finance structure, with the euro itself. If the German holds the euro he will accept the euro-costs, he will be the fool in the market, the bag-holder in the euro scheme. If/when Greece fails, Germany will have to pay. Same with all the other countries in Eurozone. Germany pays because they are the only country that has any money.

Germany pays because they are so stoutly defending the euro. If they defend it they are immolated by it.

If the German decides he cannot bear the euro-debts he will change his euros for Deutschmarks. By doing so the euro claims are fixed. The German can also refuse to entertain any claim that is not German in origin. The German can protect his own economy as a natural right, he can do this or follow the Greeks and the others.

The Greeks will repudiate their euro debts and redenominate them in drachma. Greece lacks the euros to service and retire its debts and cannot borrow more from non-Greek lenders. The euro-using German will lack euros but will face massive euro-denominated obligations. All of its banks will require euro-bailouts, so will all the other banks that have ‘bought’ pieces of German guarantees. Germany will be in a recession, unemployment will be rising. There will be a failed German auction and the interest rates will increase. The Germans will be unable to borrow from lenders who are not German.

Those whose property is the debt are generally those whose property is the currency. Only debts that can be inflated away by inflation are those ‘fixed’ externally by way of foreign exchange.

Because the euro is non-native to any European country, nobody actually ‘owns’ the euro. All of Europes euro-debts are external, all can be fixed by way of foreign exchange. Trillions in wealth in the form of paper euros are now hostage to countries suffering under the same paper euros.

As long as the euro provided benefits in the form of cheap credit, it was made use of. The credit never produced goods of any value, nothing that would allow a user to weather a euro-generated storm. The euro is monetary crack, it never did any country any good, not even Germany.

The product of the euro are excess houses in Spain and Ireland, some consumer sales in Greece and elsewhere, some extra car sales for Germany. The benefit was an abstraction, an airy advertisement of ‘European unity’. What actually arrived was an inflexible bureaucracy in Brussels and a horror-show from Berlin. The crack high is now gone with the wind. EU policy has become a mixed bag of bullying, threats and rear-guard actions. Nobody speaks of a grand European future under the euro anymore. The talk is of how to escape the onrushing euro-amplified depression. The euro politicians are to be thrown under the wheels. The inept Merkel will go, so will mafia-man Schäuble. The new German government will throw money down the bottomless German pit … if the euro lasts long enough for the Germans to elect a new government.

The technocrats and euro-enablers have failed. Nobody in the European establishment appears to grasp the ongoing economic unraveling is permanent. There will not be any growth. The fuel constraints mean an ongoing recession. The old measures of prosperity — carefree waste behind the wheel of a new car — are now obsolete.

The euro was intended as a means to obtain fuel on the same seigniorage terms as the Americans. The euro is revealed to be an economic dictatorship. If fuel cannot be obtained anyway for unrelated reasons, if credit cannot be obtained for structural reasons there is little use for the euro.

As countries such as Greece exit the euro, euro-debts will be shifted to those still making use of it, those who still have the means to repay. As more countries abandon the euro the bailout obligations multiply against a shrinking pool of euro-users. These users will have to issue credit or exit. If credit is extended at the last minute, the Europeans will ask at once, “Why now? Why not when it could have done some good, when it could have saved Greece (and others)?” Otherwise, the towel is thrown in and there is no more euro.

If the euro dies the vast, paper fortunes that were once euros will become other things. Governments will be intent on inflating the external euro debts into nothingness: only debts that can be inflated away by inflation are those ‘fixed’ externally by way of foreign exchange.

Euros into drachmas, lira, francs: that is some foreign exchange. Most of those holding euros are the German banks, they would be ruined, the Greeks would relentlessly devalue the drachma if only to crush external holders of Greek debt. So would also be the holders of euro ‘wealth’: their euro position too large to readily convert, with D-marks out of reach. The end of the euro would mean the end of any euro-dollar swap. The Euro-plutocrat would become the ex-plutocrat with bags of petit currencies rapidly falling worthless.

What is more likely is that Euro-credit will be extended in dribs and drabs. Greece will fail and the exit will be messy. This will be the excuse to pitch dullards Merkel and Schäuble into the fire. Debt will be taken on to repay more debt, there will be no collapse in Europe. Instead, the slow unraveling over time, a Japan-style deflation taking place over decades.

Is the euro the means to a criminal end? Such a thing is hard to imagine if only for reason of ambition. The appearance of LTRO along with the absence of institutions that would permit a euro debt-money system to function properly suggests a criminal scheme. First comes the flood of artificial currency as a means to gain assets cheaply. The euro flood is then withdrawn which leaves deflation and the demand that collateral be turned over. Ownership is shifted by way of debts to finance elites. If the gigantic mortgage financing scam had not already taken place it would be incomprehensible for such an ambitious fraud to take root. To create a currency and then persuade actual countries to make use of it, to take on trillions of debt is something far beyond the reach of the average bank robber.