E3.0 trillion rescue package for the Euro?

I was thrilled to learn from briefings in today’s papers our problems are all to be solved by a E3.0 trillion rescue package for the  Euro. Banks will be recapitalised, sovereigns in need  lent more money, some bad sovereign debts written off. I have just two simple  questions. Where does the E3.0 trillion come from? Who pays the bills?

If there is a spare E 3.0 trillion hanging around, you would have thought they would have spent it already.

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67 Comments

  1. Posted September 25, 2011 at 10:23 am | Permalink

    They will push a few buttons and create it – magic money – but the repayments will be real and will have to be made by taxpayers across Europe (including the UK). What it will do as well is kick off inflation, which will help inflate away the debt. But anyone who didn’t rack up loads of personal debt and has some savings is going to be royally shafted.

    They have no mandate to do this, of course. They will enforce more regulation by unelected and unaccountable Eurocrats – one step closer to the the Federal Union they want – and Call Me Dave will do nothing to stop it.

    The current Prime Minister, just like the previous 4 Conservative Prime Ministers, has and is betraying the British people.

    • Posted September 25, 2011 at 10:42 am | Permalink

      Boudicca, you hit the nail on the head – I wish you were wrong, but you are bang on the money.

    • Posted September 25, 2011 at 1:58 pm | Permalink

      Pretty much on the button……

      Zorro

      • Posted September 25, 2011 at 8:02 pm | Permalink

        I agree with you all. It’s a deliberate policy to inflate away the debts whilst imposing the worst ever cut in living standards in 100 years through higher bills and frozen wages. They’ll print the money. We may all have to consider buying Japanese Yen, Australian dollars or Swiss Franks. The £/Euro/$ will fall through the floor.
        Actions speak louder than words and I can’t see our illustrious Tory leaders making any challenge to the Lib Dems or trying to repatriate powers from our EU (German/French) masters.

  2. Posted September 25, 2011 at 10:27 am | Permalink

    Where does the E3.0 trillion come from?

    A. Typing numbers into a computer.

    Who pays the bills?

    A. The tax payer, of course. Who else?

    The Greeks are bound to default eventually. I wish they would get it over now. Delaying the default will just make things worse.

  3. Posted September 25, 2011 at 10:27 am | Permalink

    That’s the thing with being a corrupt government or federal state. You can produce “money” out of thin air and then steal it back from the tax payer later.

    • Posted September 25, 2011 at 9:32 pm | Permalink

      Sue: ” .. federal state.”

      feral state?

  4. Posted September 25, 2011 at 10:29 am | Permalink

    Surely it is another reason to expect rampant inflation. MV=PT and all that.

  5. Posted September 25, 2011 at 10:39 am | Permalink

    “Where does it come from?”
    The EU Ponzi scheme where everybody lends everybody else money to pay of their debts, so that they can borrow more money to pay back the money they’ve just borrowed.
    “Who pays the bills?”
    The British Taxpayer, of course, because we are the only countries with leaders who are stupid enough to do so. We seem to pay everybody’s bills, even those of countries which are richer than us.
    I was always taught “Charity begins at home”, and if we have any “spare” money, that is where it should be spent.

  6. Posted September 25, 2011 at 10:40 am | Permalink

    You might have thought they would have “spent” it already I would have assumed they would have “wasted” it all ready.

    Clearly any money will come for ripping of savers and over taxing the productive and depressing the future “growth” figures into negative ones.

    I assume Cameron will the be chucking more taxpayers money into the, dust bin shaped hat – will be be getting assurances of the profit we will make again this time from Osbourne? How are his “Greek investments” getting on?

  7. Posted September 25, 2011 at 10:46 am | Permalink

    Whither the E3 million?

    From the same place as…

    The Euro is and will continue to be a remarkable success.

    Ireland? Bail out? Nonsense.

    Greece? Problem? Minor difficulty. Default, never.

    I think it is called Cloud Cuckoo Land.

  8. Posted September 25, 2011 at 10:46 am | Permalink

    3 Trillion eh !

    Wow thats a lot of money, so where is it held at the moment ?

    My guess, it is a figment of imagination, an educated (or not) guess of what is required to resolve the debt problem of certain Country’s within the EU.

    Quite how lending more money to someone who is bankrupt but continues with the same spending mantra and habits as before, is going to help them, I have no idea.

    I ony hope the UK is not invoved in this absolute madness, those who lend on this scale are never ever going to get a full return on this money, simple.

    Time for us to simply get out of this members club for socialist fools, and financial incompetents, before its too late.

    Do not worry about global warming raising sea levels, this lot will drown in a sea of debt.

    Notice how we no longer talk in hundreds, thousands and millions of pounds any more.

    Now its common place to talk of Billions and Trillions, that just shows how far out of control it has all become.

    What a bloody farce.

    Will there be a debate and vote on any participation of the UK do you think John ?.

    Reply: I trust so. I will vote against any future bail out, having opposed the Irish one and the past EU ones.

    • Posted September 25, 2011 at 2:34 pm | Permalink

      Just goes to show how far we have gone backwards with our trust of democracy.

      I have actually asked in the above bog, if we are going to have a debate about “The possible spending of our share of Trillions of Pounds” in the House of Commons !

      Just shows how much faith I have lost in our Governments workings.

    • Posted September 25, 2011 at 5:19 pm | Permalink

      €3 trillion is indeed a lot of money, even in the context of the total GDP of the 17 eurozone countries which is about €9.2 trillion.

      As for your question, “where is it held at the moment?”, the answer is that some of it is existing money which is held by international investors, some of it is existing money which is held by the ECB, and a large chunk of it doesn’t yet exist but would if necessary be created by the ECB.

      I wearily repeat my capitalised comment from the other thread:

      THE EFSF OPERATES BY BORROWING MONEY FROM INTERNATIONAL INVESTORS AND LENDING IT ON TO DISTRESSED EUROZONE STATES

      which is why only a very small part of the money which might be required for eurozone bail-outs is presently held by the EFSF, and the rest would have to be borrowed from the international investors or the ECB.

      Here’s the EFSF website:

      http://www.efsf.europa.eu/about/index.htm

      and in the “Operations” section there are details of the three bond issues to date, a total of €13 billion borrowed from international investors so far, and the disbursements to Portugal and Ireland, a total of €9.5 billion lent on so far.

      It’s all totally illegal under the EU treaties; but that’s of no direct concern to the international investors, including the Finance Ministry of Japan, provided that they can trust the eurozone governments to keep their word and ensure that EFSF bondholders are paid everything they are due, if necessary with stronger countries like Germany picking up the tab if/when weaker countries can’t live up to their guarantees.

      Whether those EFSF bonds would keep their present AAA rating if they were being issued by the hundreds of billions rather a few tens of billions is another matter, as there must be a limit to even Germany’s capacity to step in and come through on its guarantees.

      • Posted September 25, 2011 at 6:56 pm | Permalink

        These so-called international investors, would never lend that money, even if they had it. They would never get it back, or if by some miracle they did, it would be in devalued paper mache. Did you note china cried uncle on europe, and said they cannot bail them out. ?

        The taxpayer is paying for this. There is no representation. They govt colluding with bankers do it by decree. And let us not be smug, the Bank of England is doing exactly the same.

        This bailout, if it ever materializes, won’t even touch sides. The derivative implosion will eat that as a starter and burp it out. This banking black hole can likely consume ALL the capital in the world.

        The utterly incompetent politicians and malevolent bankers are setting the scene for a replay of France 1789.

        • Posted September 26, 2011 at 9:06 am | Permalink

          Well, so far what I call “international investors”, for want of a better term, have been very willing to buy the bonds issued by the EFSF.

          Here’s the press release about the last issue on June 22nd:

          http://www.efsf.europa.eu/mediacentre/news/2011/2011-010-efsf-places-3-billion-bond-in-support-of-portugal.htm

          “Luxembourg – European Financial Stability Facility (EFSF) today placed a €3 billion bond with a 5 year maturity to fund the EFSF’s second disbursement as part of the financial assistance package to Portugal.

          Christophe Frankel, CFO and Deputy CEO, commented: “Despite volatile market conditions, the response of the investor base to the announcement of the transaction, the speed of the bookbuilding process and the high quality placement confirms the continued support for EFSF amongst the global investor base”.”

          “Investor interest was very strong with the order book growing in less than two hours to a final size in excess of €7 billion from nearly 70 investors. Distribution was well diversified globally, thus highlighting EFSF’s broad appeal to high quality investors. As anticipated and in line with previous transactions, demand was particular strong from Asia with a notable €550 million from the Japanese Ministry of Finance.”

          The reason is that the EFSF bonds are rated AAA, thanks to the “credit enhancement mechanisms” which have been adopted, but offer slightly better interest than other AAA rated bonds such as those issued by the German government.

          One “credit enhancement mechanism” being that each of the participating eurozone countries gives bondholders a guarantee of full repayment not just for its own pro rata share of the sums due, but instead for 120% of its pro rata share in case any of the other countries failed to meet their guarantees, a clear breach of Article 125 TFEU.

          Under the amended EFSF Agreement the extent of that over-guarantee would be raised from 120% to 165%, so that according to this:

          http://ftalphaville.ft.com/blog/2011/06/21/600681/europe-calibrates-its-bailouts-comforts-markets/

          EFSF bondholders would be sure of getting full payment of everything due to them even if the entire burden fell on just the six eurozone governments which presently have AAA ratings (Germany, France, Austria, Finland, Netherlands and Luxembourg).

  9. Posted September 25, 2011 at 10:58 am | Permalink

    I was wondering the same thing (“Where does the E3.0 trillion come from? Who pays the bills?”) and if it was now safe to come out from hiding behind the sofa. On second thoughts perhaps not.

  10. Posted September 25, 2011 at 11:11 am | Permalink

    First we bailout the banks, then we bailout a few countries and some of their banks and now we are going to bailout a whole swathe of Europe and more of the banks. I do hope some rich aliens from space turn up soon so they in turn can bailout the whole planet and all the of banks.

  11. Posted September 25, 2011 at 11:25 am | Permalink

    Where does the E3.0 trillion come from ?

    The same place where all the other bits of paper came from.

    Will the Toy Barge still be making it’s way up here from China this year ?

    • Posted September 25, 2011 at 11:53 am | Permalink

      In time for Christmas ?

    • Posted September 26, 2011 at 8:37 am | Permalink

      Electro-Kevin: “The same place where all the other bits of paper came from.”

      A lot is made from the supposed wealth of China, I don’t believe China is as wealthy as the general consensus might have us believe.

      For a start.
      They are a command economy. That means the mal-investments and corruption will be orders of magnitude greater than is apparent in our economies.

      Secondly they need our trade, but demand in the West is dropping off a cliff. That is really bad news for the Chinese economy.

      Much formerly prime agricultural land has been developed for factories and towns that were predicated on demand from the west. Recession/depression on the European continent means job queues in China. A western democracy [are there any left] would have difficulty dealing with that circumstance, how is a totalitarian state going to manage?

      • Posted September 26, 2011 at 8:18 pm | Permalink

        Not so sure I agree with you on the trade front. Demand will also come from within China, as the population begins to become (relatively) wealthier and demands the toys of the West.

        You could argue the Chinese have been quite astute by developing the infrastructure for industrial manufacturing on the back of foreign demand in order to lift their own population out of the middle ages.

        • Posted September 26, 2011 at 10:28 pm | Permalink

          Jon Burgess: “Demand will also come from within China .. ”

          Yes certanly. I believe that was the aim of the Chinese government right from the start. Build up an affluent middle class of their own to take up the ‘economic’ slack – (a) in the event of a Western recession, (b) eventually to build a self sustaining economy.

          Have they managed (b)?

          What we do know is that there have been extraordinary large mal-investments in China, being a totalitarian regime an’ all.

          I guess we will find out soon.

        • Posted September 30, 2011 at 11:06 am | Permalink

          Jon Burgess: “You could argue the Chinese have been quite astute .. ”

          You could argue that point of view. But then you would have to look at what exactly is going on in China now.

          They too are suffering a credit crunch. There it seems business men are either being killed or committing suicide because unable to get commercial loans they went to loan sharks.

          I suggest you have a read of this article from Mike Shedlock’s global economic trend analysis blog.

          http://globaleconomicanalysis.blogspot.com/search?updated-max=2011-09-29T13%3A22%3A00-05%3A00&max-results=3

  12. Posted September 25, 2011 at 11:50 am | Permalink

    JR if you are thrilled by the news that the rescue package is to increase by the trillion imagine what the Germans feel as it is they who will shoulder most of the financial burden!

    That Greece will default is now academic as the main focus is now to stabilise Spain and Italy from the contagion. This requires this eye watering expansion of the rescue package. The western economies have gradually slipped from an anemic recovery to stall speed and now into contraction. We are in a double dip recession and the only question is for how long this time.

    It remains unclear where the increased funds for the latest rescue package will come from but given Madam Lagarde has been leading talks I would assume the IMF, of which the UK is a major contributor with the rest coming from the eurozone members.

  13. Posted September 25, 2011 at 11:59 am | Permalink

    Currently, Secretary Pickles is asking local government to make a list of non operational assets including land. I expect the Cabinet Secretary is doing the same for national assets of any kind. Let’s see what we have got left to sell to emerging and developing Johny Foreigners. Most of the UK has already been sold but Europe must have loads of assets with global brand names that could go under the hammer.

    “Ratan Tata, the chairman of the Tata group, said the chance to own the Jaguar brand was “irresistible”. (Economist: Role Reversal, 24/9/11). Three trillion Euro, no problem.

  14. Posted September 25, 2011 at 12:09 pm | Permalink

    My dad used to tell me about this big pit full of money at the bottom of the garden. We moved house before I needed to find it, but my grandsons tell me it is in a big hole at the back of Sainsbury’s in Winnersh. Clearly the eu bureaucrats and our leaders believe the same.
    John, you MUST make more noise about this.

  15. Posted September 25, 2011 at 12:18 pm | Permalink

    That it would cause inflation and increase the costs to tax payers seems obvious, but there would be other effects.

    If additional loans are made to the member states, their indebtedness increases. The blindingly obvious may not have yet occurred to the politicians, but debts have to be services. One of the current problems is they cannot pay their running costs let alone service existing debt.

    If the funds are used to recapitalise banks then the state institutions which pay the money or provide the letters of credit are effectively the owners. So the French banking system would become even more controlled by the state than it is now. That would mean their past over trading and unfair competitive practices against Anglo Saxon banks (which do not need recapitalising by the state) would be retrospectively approved and confirmed for the future. German banks are also reported to be weakly capitalised.

    Whatever will Cable say then – I bet he will continue demanding salary cuts, bank levies and disintegration of British banks so the Euroland ones can better compete.

    There is no limit to the amount of our money the politicians will spend to put off the reconing for their past errors and vanities.

  16. Posted September 25, 2011 at 12:59 pm | Permalink

    The Political construction of the EU is based on the premise that Europe’s past is tainted by democratic mistakes, (Such as the election of Herr. H) and that therefore, in order to maintain stability, democracy should be avoided where possible.

    The European elite believe that the European people are unable to democratically govern themselves and that someone should do it for them.

    I cannot find the exact quotation from Thomas Jefferson in his inaugural speech, but he said words to the effect of;

    “If mankind believes himself to be unfit to govern himself; how then should he consider himself fit to govern others.”?

    Europe’s disasters came to pass when democracy was subverted by leaders who made sure that they were NOT subject to the democratic will of the people.

    There is a lesson in that which needs to be remembered by those at the head of Europe and those who live under them.

  17. Posted September 25, 2011 at 1:08 pm | Permalink

    Is this this another bookkeeping fiddle or are they borrowing it from the Chinese or from our great grandchildren or all three?

  18. Posted September 25, 2011 at 1:29 pm | Permalink

    Do the Conservatives not realise ANY large scale tax on our sobs and daughters to save the Euro is unacceptable. I think it will drive millions of voters to UKIP. The Conservatives will make themselves unelectable for TWO generations – as our children live with their negligence.

    Let me make it clear … A Euro bail out is …

    A TAX ON CHILDREN

    It is against over very beings as humans. It is against the laws of nature to cripple our children with a tax that holds us in a twisted and corrupt political union.

    Cameron would be taking an eye or hand from each child in this country if he supports this perverted tax.

    • Posted September 25, 2011 at 10:36 pm | Permalink

      I do wish that Labour had won. The effect would have been two fold:

      – the Conservatives would have restructured

      – Labour would have got the blame good and proper.

      • Posted September 26, 2011 at 8:39 am | Permalink

        Electro-Kevin: “- the Conservatives would have restructured”

        They already have EK, they are the New blue Labour party. With the Tory equivilent to the perpetually grinning Anthony Blair, AKA David [cast Iron promise] Cameron.

    • Posted September 25, 2011 at 11:09 pm | Permalink

      You are absolutely right – we are placing a Tax Burden on future generations which will never be sufficent to pay of the”Debt.

      I suspect that Labour would follow an almost identical policy, so voting the Conservatives out would not solve anything.

      There are painfully simple solutions to these problems which are currently being discussed by only a few Politicians (both Conservative and Labour).

      Unfortunately – my own local MP refuses to discuss this issue with me; either because he does not understand it fully or does not have the time. Monetary Reform is a long term investment in time by Politicians and many cannot afford to consider it unless they are effectively forced to by their electorate.

      The ignorance of the electorate is partly (or even) mostly to blame for this, but many people are beginning to understand that money is NOT created by the Government and are quite prepared to blame the Government for inflation even though Banks are the ones inflating the money supply.

      The Government pretends to control the Economy through Interest Rates – but as has been proved many times over the last couple of years; does not and cannot control the economy if it allows private institutions to control the quantity of money in the system. It is like the Tail trying to wag the Dog.

      Reply: The government in a fractional reserve system does control the amount of money, because the regulators decide how much gearing banks are allowed to do. Labour’s regulatory system introduced in 1997 went way over the top, allowing far more gearing than previous regulators, with disastrous effects.

      • Posted September 26, 2011 at 9:57 am | Permalink

        Thank you for your Reply.

        The Government does not directly control the quantity of money – for if they did; they would not be complaining that the Banks are not lending enough to Businesses.

        The Government (and the Public) also does not have the Privelege of creating it’s own money – it has to Rent it from the Banks – at Interest.

        Why doesn’t the Government just create the money and spend it directly into the economy ? Surely this would stabilise the system and reduce the need for continual debt growth.

        The austerity measures – in the form of Public Services Cuts and Tax Hikes; are required to pay the ever increasing interest on the debt burden.

        This is not being solved by the current Policies. Labour would make it worse but this is not a Party Political Issue – it’s a Failing Financial System where cross Party Agreement is required for a remedy.

        Reply: The government through its wholly owned Bank of England can create money by entries in an electronic ledger. That’s what Labour did. They chose to buy gilts with them, but they could have spent the money in other ways.

        • Posted September 26, 2011 at 11:52 am | Permalink

          Thank you again for your reply.

          Exactly – so we already have the ability to create the money – debt free but; instead as you say, Labour chose to buy Government debt with it and “hoped” that the Banks would then use this as reserves for increasing lending, and therefore hoped that the Public would increase their personal and commercial debt.

          The option which we could have chosen (I mean Labour should have chosen) was to make up the shortfall in the money supply – whatever that amount was (no less and no more) and spent this on Public works so injecting capital directly into the economy debt free. This would have increased the Liquidity and averted the slump in the economy permanently. The Bank of England created this money electronically – from nothing due to the power given it by Parliament. Northern Rock and RBS should have been Nationalised 100% temporarily to protect the economy and then broken up into smaller competing private Banks. Fractional Reserve Banking should have been discussed as the cause and was not. There is no shortage of workers or work or resources – there is only a shortage of money. An end to Fractional Reserve Lending and a Government created debt free money would solve this. Continually borrowing from Peter to pay Paul will have to end sometime. The current system is unsustainable.

      • Posted September 26, 2011 at 5:57 pm | Permalink

        The current system allows a smokescreen to descend on a relatively simple task. (Targets/Forecasts etc etc). Why not create money immediately and directly as stated by spending money in and taxing it out.

        Maybe less bank-bailouts as they would all be full reserve banks and could be liquidity supported and wound down.

        Conrad- pleased someone else is batting for a debate on this fractional reserve banking system.

        • Posted September 27, 2011 at 11:53 am | Permalink

          @sm
          Me too.

          Steve Baker MP and Michael Meacher MP are also interested in this subject.

          Thanks.

  19. Posted September 25, 2011 at 1:38 pm | Permalink

    Of course this is no longer just a game of follow the money – as paper money is being devalued. My guess is that Northern Europeans, and the English, will pay. But in a way that denies democratic support or accountability. It will in effect be a form of theft.

    We can expect 2-4 weeks of the crisis being talked up and resolute statements from governments followed by a weekend of compromise and the destruction of wealth on the EU bonfire.

    Who pays ? Anyone who can and lacks the political clout to avoid being robbed.

    PS Care to comment on the odd behaviour of the Gold market and restrictions in Austria ?

    • Posted September 26, 2011 at 5:33 am | Permalink

      Just as in 2008, as shares plunge, gold being liquid, is being sold to cover margin calls. That and some profit taking.

      What Austrian restrictions do you refer to?

  20. Posted September 25, 2011 at 1:56 pm | Permalink

    As you know full well, it will be created from nothing, as we have been saying for a long time. Despite all the huffing and puffing, Greece will stay in the Euro, and Germany will stump up with suitable security. The pantomime has all been agreed in advance…..

    Zorro

  21. Posted September 25, 2011 at 2:01 pm | Permalink

    £3tn that’s scary. Sounds like a massive bailout of private debt with taxpayer debt. Maybe its enough to get them to a point of full fiscal and monetary union.

    Ever close union marches on. The new EU sovereign is emerging.

    Its Surely In or out Time?

  22. Posted September 25, 2011 at 3:52 pm | Permalink

    Is there really anyone who believes that the Greeks will work harder, pay their taxes and retire later? They won’t. So this bailout, no matter how big, will not work. The only way out is to expel the Greeks from not only the Eurozone, but from the EU.

    • Posted September 25, 2011 at 5:44 pm | Permalink

      backofanenvelop

      The only way out is……

      Sounds like a sensible idea.

      I wonder how they still manage to pay their European subscriptions, but then guess its the highest priority payment, so they can then get some more money after all they would not want to be excluded from the club for non payment of fees..

  23. Posted September 25, 2011 at 3:55 pm | Permalink

    Can’t recall the recapitalisation of the British (failed) banks falling to the EU membership. Seems however the English will contribute £2 billion (one via the IMF) to bail out the Eurozone banks and the French banks in particular. What hold is it precisely that the EU has over our not very competent politicians?

  24. Posted September 25, 2011 at 5:03 pm | Permalink

    i have spent all but 2 of the last 46 years of my life running my own business.
    in common with many people the earlier years included wasted time spent on pleasures but i have for the last 19 years been with my third wife since when we have both devoted our life to each other and work.
    we are both so busy that we have always left politics to others and just accepted the frustrations of watching mistake after mistake in policies and seen our contry go downhill from one economic crisis to another.
    my wife goes in for her 9th operation in a few days since last february when she contracted necrotising fasciitis from which she was probably less than an hour away from dying.
    yet still she worked from a laptop within hours of gaining consciousness after being in a coma for several days and then on a life support machine.
    i will confess that maybe i could have got more personally involved in the past with the outside world but i hope it is not too late now.
    the majority of the public have no idea about what goes on outside their hedonistic lifestyles and will be swayed to vote either by tribal loyalty or by baser personal motives.They can be bribed by promises of spending other peoples money.
    i except john and a handful of other principled polititions who say it as it is but many more than is healthy simply pander to whatever they think will get them voted in next time with no regard for long term issues.
    in the same way that there seems no simple solution to the worlds spending and borrowing binge so i suspect there is no answer to the problem of getting people into positions of power and responsibility who have integrity.This is especially so long as the undereducated and politically and economically ignorant hold the votes to vote in their placemen.
    when i was told my wife could die i fell apart but prayed to god for another 30 years together.
    whatever time we have i shall be doing my best to pass on the simple message that somehow we must find a way that ignorance and self centred greed for money and power must not be the criteria to decide how we elect those who run our country.
    i am not optimistic but realise that by opting out for many years i have allowed damaging views to prevail.i dont imagine that me getting involved would have made one iota of difference
    however if i can get my message to 2 persons per day and those persons do the same and so on then in a year a geometric calculation will mean that reason,or at least what i think is reason, will have spread far and wide.it is a staggering calculation.
    what is incredible is that we are funding in the unions and by making it in many cases comfortable to be out of work the ability of those on the left to peddle the doctrines that will ruin us. Yet those affected and working all hours to pay for all this are too tired from the nighmare of regulation and interference in running their businesses to put forward the views of financial and moral discipline and personal responsibility we are so badly lacking.

    • Posted September 25, 2011 at 10:41 pm | Permalink

      Very moving.

    • Posted September 25, 2011 at 10:52 pm | Permalink

      There is a solution to the financial chaos we are now witnessing and it is so simple:

      1. Instead of the Government renting the nation’s money from Private Banks, the Government can create the Nation’s money – like King Henry I of England and Abraham Lincoln in the United States.

      Afterall, it is the Government that allows Private Banks to create money so why not just create the money without the debt associated with it?

      The only reason our current monetary system seems legitimate is because we are all born to it and know no better, but the alternatives are found from History.

      It is ironic that a System created almost 900 years ago using lengths of wood with notches carved on them proved fairer and more stable than our highly computeriesd and unstable Fractional Reserve alternative that we use today.

      The point here is that only the Government should be authorised to create the money and spend it for the common good without the associated debt.

      • Posted September 26, 2011 at 8:39 am | Permalink

        Unfortunately, presidents or leaders who did this or intended to often got a bad case of lead poisoning. I don’t think that the banking powers that be would approve of losing their free profits…..

        Zorro

  25. Posted September 25, 2011 at 5:04 pm | Permalink

    I think it’s coming from the well-spring of all EU dreams and ambitions – cloud-cuckoo land…

  26. Posted September 25, 2011 at 5:15 pm | Permalink

    Condensing all the comment together on this subject and the previous one ,which from my perspective is 99% against what the elite want to [WILL] do ,just shows this old codger [ME]
    that I am not wrong to get so ANGRY about everything,and I know I am taken to task and censored in my language about and for what I believe WILL be the BAD outcome which will be much worse than anyone imagines.But as I have said I was in South Africa when the country went up in flames from 1985,I had to deal with staff who came into work from the Townships against the ORDERS of the political organisers,to deny their labour to aid the cause,BUT who had to earn to feed their families and keep a roof over their heads.I will give one example which is bad but not as bad as the worst examples of what happened to those poor people.One of my best lady staff [In Retailing] was made to drink Bleach she had bought from a white business,which was found when she re entered the township
    half a litre of it,luckily her family had the sense to immediately get her to drink lots of water to dilute it’s effects ASAP,nevertheless she was very ill,I overrode company policy to pay her full pay all the time she was off work,against my fellow directors by threatening to go back to the UK and take my expertise with me,which made the CEO back me.Other examples
    ended in Death,this was done by Black people TO their own,the reason[and I am not excusing them] was that the genuine reasonable demands of the NON WHITES were
    ignored and the Black leadership saw no other course than to violently rebel.I believe
    millions of people are close to that point here and in Europe because the Rulers ignore them and break all their promises made to get elected.Another poster asked What is it that our Mp’s see that makes them give in to THE PROJECT maybe it is something like “The
    Presidents’ book from National Treasure the movie OR something like Area 51 shown to an incredulous President in Independance Day,if so the RULERS think we are all akin to Children.
    Electro Kevin many thanks for your thoughts and others of sympathy after my previous Rants ,I actually am not thinking of me but my 5 children and 5 grandchildren and as I am only 66 my great grandchildren and so on.The Rulers are STEALING from them.

  27. Posted September 25, 2011 at 6:04 pm | Permalink

    I suspect that inflation has been the game plan for years – the great and good will index their salaries and pensions and let the rest of us rot.

  28. Posted September 25, 2011 at 6:30 pm | Permalink

    Whilst we have been told that our exposure to Greece is small there are bound to be UK banks that will face W/Os and will then in turn press the Government to help them in some form or another – if 3T is to be raised is the UK exected to make a contribution/underwrite or Gtee a part thereof.
    Essentially its another baking bailout – save the banks and wreck the savers. And all this before another round of UK QE – which might stimulate growth but it will pile inflation on inflation. Its getting more and more like Germany in 1920s.

  29. Posted September 25, 2011 at 6:49 pm | Permalink

    While it is a good question to ask where those fabulous three trillion are going to come from, I’d be interested to know where the trillions have gone which were already given to banks through various ‘stimulus’ schemes and QEs?
    And why we’re still in desperate economic straits, in spite of all that money …
    And why anybody thinks these new three trillions will make any difference …

    Rampaging insanity is what this is.

    There’s this excellent book called ‘When Money dies’, on the hyperinflation of Weimar Germany. Looks like the whole of Europe is on its merry way to hyperinflation, heedlessly forgetting what happened next in Germany …

  30. Posted September 25, 2011 at 8:14 pm | Permalink

    The third European War is being fought by Buracrats. Armed with Power point presentations and led by consultants.

  31. Posted September 25, 2011 at 9:08 pm | Permalink

    I have a couple of questions:

    1. As John said: where is the money coming from?

    2. If the UK proposes to contribute will UK MPs get a vote on it?

  32. Posted September 25, 2011 at 9:53 pm | Permalink

    Apparently, British Taxpayers will be funding this EURO Bailout:

    “At this stage, a new bail-out programme would be devised for Greece – with cash coming at least in part from the International Monetary Fund, in which Britain holds a 4.5 per cent stake.

    This could mean British taxpayers paying out more than the £1billion they are already slated to have to contribute under the terms of the first Greek bailout fund.”
    http://www.telegraph.co.uk/news/worldnews/europe/eu/8786945/1.75-trillion-deal-to-save-the-euro.html

    So Greece Defaults and British Taxpayers pay the Banks.

    I don’t believe that George Osborne’s “Do something quick” attitude is constructive.

    The ability of a Nation to create it’s own money is what defines it as a Sovereign Nation. How many Sovereign Nations are there in the World? I would suggest NONE.

    Perhaps we should re-visit History and bring back the Split Tally Stick. It was a form of Money created by the Government and prevented Fraud.

    By the way Mr Redwood, you are correct about the Gold Standard; in our current Fractional Reserve System; backing money with Gold would not work as Banks would still be able to create new money so long as they could say that a small percentage of their lent out money had some Gold behind it. We need 100% Reserve Deposit Accounts with money created by the Government.

    The liquidity in Greece could have been solved years ago if Greece could create it’s own money. In fact, not even the ECB creates the EURO, it is created by Private Banks when generating loans. Short term profiteering by Banks has created this problem; attempting to solve it with more loans is madness.

    Monetary Reform is the only answer. Unfortunately, Private Banking Interests will not allow Politicians to do what is right for the Public, only what is right for their profits. Fractional Reserve Banking is hidden by such terms as “Capital Reserves”, as if the money lent out already existed and and their is a surplus. If that were true, Bank Runs would be impossible.

  33. Posted September 25, 2011 at 9:58 pm | Permalink

    Good speech on the BBC from Miliband. It’s not about cutting cost but increasing revenue. Millions on the dole and a nations youth wasted in some middle class cosseted cost cutting wet dream is not real. I keep telling you this. You would not last five minutes in your fantasies and the lack of replies to my comments confirms this. W$%^&*(!

    • Posted September 25, 2011 at 10:56 pm | Permalink

      Bazman – There is no choice because we’re stoney broke and also because they will not repeal the Human Rights Act.

    • Posted September 26, 2011 at 9:15 am | Permalink

      Bazman: ” It’s not about cutting cost but increasing revenue. ”

      With industry contracting where does the increased revenue come from?

      Bazman: “Millions on the dole and a nations youth wasted in some middle class cosseted cost cutting wet dream is not real.”

      The ‘wet dream’ was messers Blair, Brown & yes milibrain thirteen year credit expansion.

      It is possible to expand credit in proportion to the growth in GDP, but that is not what Labour nor the previous Tory administration did.

      They increased credit as a substitute for growth in GDP.

      For the last five decades, GDP of the UK has gradually declined but the government have disguised this by increasing borrowing and creating government jobs.

      Bazman: “W$%^&*(!”

      Could describe the policy persued by successive Labour and Tory governments to ‘manage’ our decline as an economic, rather than encourage growth.

  34. Posted September 25, 2011 at 10:00 pm | Permalink

    The UK has a small exposure to Greek debt – about $15bn according to the BIS – of which half is to the private sector, much of which will be loans to shipping companies secured against their vessels. For the UK, Greece is not a problem.

    Gross external debt in US$bn as at end Q1 2011 for selected EU countries BIS/JEDH data:

    (UK ~9,800: actual number awaited at BIS/JEDH – £6,145bn according to ONS)

    Germany 5,442
    France 5,367
    Italy 2,602
    Netherlands 2,547
    Spain 2,456
    Ireland 2,382
    Belgium 1,325
    Sweden 1,001
    Austria 867
    Denmark 626
    Greece 580
    Portugal 552
    Finland 505

    €/$ ~=0.75, so €3 trillion is about $4,000bn, compared with PIGS total debt of $5,970bn. That’s a VERY heavy write-off ratio, and even if we include Italy it’s almost 50%.

    Printing on that scale will devalue the Euro, so printing of pounds can be seen as beggar-by-neighbour devaluation tit-for-tat (and tat is an apt description). The US is also planning a large printing exercise, so the major exchange rates might not end up not too different in one sense. If we define QE as unfunded government/central bank spending including financial interventions then at first sight these numbers seem highly inflationary. However, there would be heavy deflation, contraction of loan portfolios and systemic bank failures were defaults and write-offs to occur without some funding as defaults finally hit the books. What we have is shock’n’awe too much funding, designed to create inflation.

    Another round of margin calls has led to a sell-off in commodities as investors have to generate additional cash to fund their positions. Once this has played through (it could become self-reinforcing for a while as over-geared positions are flushed out), printed money will likely return to those markets seeking a better store of value than £$€s.

    Any currency that isn’t fully backed by underlying commodity value (whether entirely fiat, or using fractional reserve banking) ultimately depends on trust. When that trust disappears, the value goes with it. That is what happened in Weimar Germany all of a sudden – in a matter of a few weeks. The Eurozone authorities are flirting with the same risk: their policies are literally incredible.

    There is a danger trap ahead: if we see consumers deciding to buy goods as a store of money it may appear that the economy is suddenly doing well. In fact, it might signal increasing loss of faith in currencies – something that can snowball very fast indeed.

  35. Posted September 25, 2011 at 10:22 pm | Permalink

    There is something else which is quite worrying about this 3 Trillion Euro bailout and the UK’s contribution to it – the fact that we will have to borrow the money (from the Banks or Markets?) inorder to give this money at low interest to the Banks in Greece.

    Mr Redwood rightly pointed out to me in another blog, that the Gold Standard would NOT solve these problems. I was skeptical at first, but I believe I now understand.

    Governments should pass legislation to:
    1. Allow Government Created money to maintain liquidity in the economy.
    2. Prevent private Banks from creating money.

    Fractional Reserve Banking is the mechanism by which Private Banks Create money. It was used by Goldsmiths to artificially inflate the number of Gold Receipts in excess ot the amount of actual Gold held in their Safe Boxes so as to maximise their profits.

    Please have a look at: “http://www.positivemoney.org.uk/”

    A Draft Bill has already been created to return the right of the Government to Create the Nation’s Money, monitored by an Independent MPC. this will solve many problems at once:
    1. Economic liquidity
    2. National deficit
    3. It would then be possible to pay the National Debt.
    4. The Reduction of debt would provide increased disposable income which would generate employment.

    Tax hikes and Austerity Measures are the actions of an intellectually Bankrupt mindset. Shoving this debt onto University Students demonstrates supreme Political Talents but zero common sense as many great minds will be discouraged from entering such a vipers pit of debt.

    • Posted September 26, 2011 at 1:31 am | Permalink

      Please read Martin Shubik, the Yale professor who has studied money extensively, and particularly from a game theoretic point of view. This provides important insights on the incentives for monetary authorities and banks to cheat, and the sorts of penalties that are needed to prevent cheating and to handle the consequences of default and bankruptcy. He shows that with the right conditions, both fractional reserve banking and fiat money can be made to work, which is just as well, because there isn’t enough gold to use it as money.

      The important feature is that we need to have justifiable confidence in the monetary authorities. At present, that is being called into question: they are “cheating”.

  36. Posted September 25, 2011 at 10:59 pm | Permalink

    (unfair allegation re Bazman deleted-ed)As I said before I am very angry and get more so every day I make Victor Meldrew look angelic,if I had a time machine I would go back to 1965 and tell myself to just spend spend spend rather than let the current ruling class steal mine and other’s savings,
    one of the reasons I give NOTHING to charity,especially having seen what happens to it and foreign aid in Africa.

  37. Posted September 26, 2011 at 11:43 am | Permalink

    Quite apart from the question of where the large extra sums of money for the EFSF would come from, there is also the question of whether the EFSF could legally disburse €2 trillion if that became necessary.

    Yesterday the Sunday Telegraph editorial

    http://www.telegraph.co.uk/comment/telegraph-view/8786788/G20-offers-hope-on-Greek-default.html

    claimed:

    “The scheme has the huge advantage of not requiring endorsement by all the parliaments of eurozone countries.”

    Utterly disgraceful for a British newspaper to enthusiastically endorse such an anti-democratic proposal; but I now suspect also factually incorrect because the original EFSF Framework Agreement set a limit on total disbursements:

    http://www.efsf.europa.eu/attachments/efsf_framework_agreement_en.pdf

    “EFSF has been incorporated on 7 June 2010 for the purpose of making stability support to euro-area Member States in the form of loan facility agreements (“Loan Facility Agreements”) and loans (“Loans”) made thereunder of up to EUR 440 billion within a limited period of time.”

    And there would still be a limit on disbursements once the agreed amendments had come into force:

    http://www.efsf.europa.eu/attachments/efsf_framework_agreement_amendment_agreement.pdf

    “… with the Financial Assistance to be made under all Financial Assistance Facility Agreements being financed with the benefit of guarantees in an amount of up to EUR 779,783.14 million to be used within a limited period of time. This is intended to result in an effective capacity for EFSF to provide Financial Assistance of EUR 440,000 million.”

    The government of each participating eurozone state must provide written confirmation that the national law of that state permits the government to be bound by the Agreement, or the Amendment to the Agreement – for the original Agreement, the template is in Annex 3:

    “Dear Sirs,

    We refer to the EFSF Framework Agreement … signed on …

    We hereby notify you that we are duly authorised under our national laws to permit us to be bound by the above mentioned Agreement with effect from …

    Yours faithfully,

    [Name of euro-area Member State]”

    So if the current national law of a state explicitly or implicitly incorporates a numerical limit to the total sums the EFSF could disburse, and therefore to the total contingent liabilities that the government could incur through its guarantees – corresponding to either the original or the amended EFSF Agreement, depending on whether the parliament has already passed a law to approve the latter – then the government would have to go back to the national parliament and get that law amended to authorise its continued participation in the EFSF with a higher limit on the total disbursements.

    This is how it seems to me: that whether a government of a eurozone state could avoid involving its parliament would depend on the details of the law already passed by that parliament, and in most cases I suspect that the government would have to ask the parliament to amend that law if it was agreed that the EFSF should be able to disburse a maximum of €2000 billion rather than the previously agreed maximum of €440 billion or €880 billion.

    I stand to be corrected on this conclusion.

    Reply: As always you direct us to legal texts which do as you say constrain the politicians. We need to watch Germany, where opposition to bail outsis rising, as there these legal matters may become important. In the past the lack of a legal base for bail outs has been brushed aside, as we have seen.

    • Posted September 27, 2011 at 4:07 pm | Permalink

      But if we don’t check the details of the law then we won’t even know when they’re breaking it …

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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