Comment: Don’t be fooled – our economic woes haven’t gone anywhere
The Conservatives always give me stick for not turning up to 'parliamentary' economic and monetary affairs committee meetings. Well, it's true I don't.
I have my reasons. For a start no one in the committee really understands money, economics or regulation and its limitations. So I have no great inclination to listen to these people debate the issues, my job is to turn up to cross-examine the equally ignorant commissioners and banksters who address the committee. It might be worth looking at these as I am the only member who asks even remotely relevant questions.
Forgive me if I return to some old themes, but repetition of how and why we are heading for another banking disaster at least salves my own conscience.
I do not intend to try and answer the important questions, I might do that another day. I intend here to merely pose them. A role public service broadcasting or the so-called quality newspapers should fulfil but never do.
The reason no regulator or impossibly busy and self important member of any ‘committee’, London, Brussels or Basel can find any solutions is because the establishment are wedded to a failed economic, monetary and banking model.
Fractional reserve banking is doomed to a boom bust cycle, unbroken since politicians colluded with central bankers to degrade money by printing and borrowing. I do not intend to beat that drum again here. Let me just draw to your attention some facts for those of you who take the view that the worst is over.
There are two geo-political dynamics at work within the eurozone, 'German Nordic' and the 'Southern Mediterranean'. As one might expect these two groups are represented in the ECB's governing council. The euro is a political currency. Funny how everyone claims they know that, but I was vilified for offering that view in academic and business circles in the 1990s and early 2000s. The ECB majority view is Mediterranean, with whom I include the French.
The German constitutional court is only too aware the ECB has driven a coach and horses through not only the German constitution but the European Union's own rules on the purchase of sovereign debt. Not indeed a new phenomenon. The German court has passed the buck to the European Court of Justice. It's interesting to see appeasement on a scale last practised by the British in 1938, but then the whole project has historical connotations from the 1930s.
The ECB is soon to take over 'macro prudential' oversight of the eurozone banking system. The EU Commission with the tacit or implicit support of the G20, IMF and the Bank of International Settlements. That most European Banks and indeed sovereign states are completely insolvent is a point I have made before, yet the figures get worse and the media silence remains deafening.
I will not revisit the shadow banking debts to Germany (€800 billion at last count) but look at some other aspects of impending disasters. Derivates in FX and interest rate swaps are estimated at $700 trillion. Deutsche Bank has €55 trillion of gross national derivatives. This is over 200% of German GDP.
Incidentally if you are struggling with these numbers – fear not. The human mind fails to comprehend them because they are virtual infinity, a concept with which we all struggle. But even the layman or committee member can appreciate only a few things need to go wrong to bring the whole ponzi scheme tumbling around our ears.
Nearly ten years ago I was in correspondence with previous ECB chairman, Otmar Issing, who has albeit too late, acknowledged the enormity of the problems we now face. Sadly I did not keep the correspondence but I was politely sidelined.
Before my political opponents accuse me of just putting the boot into the EU, ECB and ECJ: the spreading catastrophe is global. Awesome money printing by the Fed has naturally led to a collapse of confidence long term in the dollar as a reserve currency. America's two largest creditor nations are dumping dollars in ever greater quantify. Yet foreign holdings of US treasuries increased in December! How can this be? Indebted nation Belgium rode to the rescue with massive treasury purchases, enough to move the numbers up $5716.9 billion to $5794 billion.
This deal, of course, will require quid pro quo at some stage in the future. US Treasury yields are higher now than when QE2 was initiated in 2010. The only way to turn this around is for the Fed to contract its balance sheet, yet look what happens when there is even a threat of a modest taper never mind contraction.
What we are dealing with is a massive global Enron style accounting scam. One wonders if they are just thick at the Wall Street Journal or playing the long game when they report unchallenged that the ECB earned a net €1.4 billion profit last year. Below the Fed and BoE, but that is how central banks present their accounts. They print the money by monetising a government bond, the government pays off the bond with printing more money and the central bank slots the interest in the profit column. Directors of a private company would go to prison for this style of accounting. Indeed some have.
The Far East central banks and governments have seen the writing on the wall and continue to suck in the world's gold. The end is nigh. Don't hold paper money when the music stops and certainly not in a conventional bank.
I delivered a lecture to some charming bright eyed and bushy tailed Cambridge University undergraduates last week, mainly historians but a few economists, still being force-fed the Keynesian/Monetarist claptrap by their down-at-heel dandruff-dusted dons. I asked one youngster at drinks if he felt you could continue to print money, issue bonds and borrow indefinitely to simply keep the welfare state afloat for his generation. I wish I could have bottled and displayed the uncomprehending stare of bewilderment on his face.
Stock up on corned beef, cartons of cigarettes and bottles of whisky – the currency of the next decade.
Godfrey Bloom is an independent MEP for Yorkshire & North Lincolnshire
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