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Generational Dynamics Web Log for 18-Mar-2010
18-Mar-10 News - Euro sniping over finances

Web Log - March, 2010

18-Mar-10 News - Euro sniping over finances

The FBI reveals a new online scam

Euro-sniping grows, as Greece financial situation flounders

"There was no Greek bailout deal on Monday – Eurogroup statement was essentially a lie," said EuroIntelligence. "We are wondering how long it can go on for – that political leaders pretend there to be an agreement in principle over a bailout of Greece, while in reality there no agreement at all. The financial markets still seem to believe that a deal has been brokered on Monday, but the news we are getting suggests the very opposite." The article concludes, "Germany only favours a bailout that is not really a bailout."

It's true that there's no bailout going on, but there's plenty of sniping going on over the non-bailout. And as the last sentence of the preceding paragraph hints, Germany is increasingly becoming both the sniper and the target of the sniping.

Germany is at the center of all the bailout discussion for two reasons:

Germany has the biggest economy in Europe, and many consider it to have the strongest economy, so everyone would look to Germany to be the biggest donor in case of a bailout.

Germany is a country of savers, and thus exports most of its manufactured goods. Some people are claiming that Germany is harming the rest of Europe by exporting so many goods that other companies are unable to grow their own economies, and therefore that Germany should help the rest of Europe by spending more, and consuming more of its own goods.

As I reported on Monday, tension is growing between France and Germany over a bailout. French Finance Minister Christine Lagarde has urged Germany to cut its trade surplus, something that the Germans are calling "Germany-bashing."

Lagarde's attack has caused Britain to join in the fun. Lombard Street Research’s Charles Dumas says the following in a note quoted by FT Alphaville, accompanied by a chart that shows that Germany has the second lowest GDP growth of major countries since 2001:

"The comic aspect of the attempts by Germany to make the rest of Europe converge on German practice is that the German economic performance has been dismal. What is now being enforced is that nobody else in the Eurozone – or its irrational aspirant members – is to be allowed any growth either. Europe is being forced into a German lowest common denominator.

The question Mme. Lagarde is rightly asking is: how much longer do we have to put up with being lectured by this bunch of policy failures? The chart above shows real GDP growth from the end of the last recession. ...

Why does Germany depend for its demand on other people’s readiness to run up debts? Because its own spending is crushed by budget-balancing. GDP growth over the recent cycle may have been pathetic, but consumer spending growth is worse: non-existent. Now, not least because of EMU-driven measures, other people will not be running up debt. Germany will do even worse than before. And yet we are all expected to take their policy views seriously!"

Now the German magazine Der Spiegel is striking back:

"Greece's budget deficit is impossibly high. But Great Britain's is even higher. Prime Minister Gordon Brown has his work cut out for him in this election year -- and the coming cuts will be painful. ...

The British pound is tottering. The economy finds itself in its worst crisis since 1931, and the country came within a hair's breadth of a deep recession. Speculators are betting against an upturn. Instability in the banking sector has had a more severe impact on government finances in Great Britain than in other industrialized countries. London's budget deficit will amount to Ł186 billion (€205 billion, or $280 billion) this year -- fully 12.9 percent of gross domestic product. ...

The country that was once referred to as "Cool Britannia" is in a serious crisis, with a hole in its budget even bigger than Greece's budget deficit, now at 12.2 percent. And nobody knows how to fix the problem."

The growing sniping is appearing more and more like a race to the bottom, and with good reason: Nobody knows how to fix ANY of the problems facing Europe right now.

And a crunch is approaching quickly. Here's a list from Der Spiegel of the value of bonds due from the "P.I.I.G.S." countries by the end of May, in billions of euros:

    Italy          70.0
    Spain          32.5
    Greece         20.5
    Portugal       12.8
    Ireland         7.2

These are huge amounts of money that have to be paid by these countries to prevent bond defaults. The countries will have to borrow the money to to meet these payments, and they'll be competing with one another for investors' money.

The article quotes Dominique Strauss-Kahn, head of the International Monetary Fund (IMF), as saying, "We have countries with huge deficits, the US for example, but also several European countries. They need to save more, having less domestic consumption to rely more on exports." But he added that in countries with large current account surpluses, such as China and Germany, "it has to go the other way round: Domestic demand has to go up with more consumption and investment."

That's a nice formula, but it's exactly the kind of thing that Generational Dynamics says can't work. The U.S. people were savers in the 1920s and 1930s, but it didn't do them any good in the Great Depression, so they became spenders after the war. Meanwhile, Germany was a spending nation, and they had catastrophic bank failures in 1931 and 1932, leading to Naziism, and so they became a saving nation after the war. So now we're to expect a speech by the head of the IMF to change all these things around. It doesn't work that way.

As for Greece itself, Harvard University Professor Martin Feldstein says that Greece’s austerity plan will fail and the country may quit the single currency to fix its fiscal crisis, according to Bloomberg. "The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy. The alternatives are to default in some way or to leave, or both."

From the point of view of Generational Dynamics, what has to happen is a major panic and financial crisis. I've come to believe that the panic is just as likely to start in Europe or in China as on Wall Street. Nobody knows what will trigger a panic, but with all the sniping and finger-pointing going on in Europe, it could start there at any time. And then it will spread to the U.S. faster than you can say Jack Robinson.

The FBI reveals a new online scam

The FBI's Internet Crime Complaint Center (IC3) is reporting sharply increased online crime, according to Fierce CIO.

A new scam that's becoming more widespread works as follows: You receive a request to participate in a survey about the status of employee/employer relationships in a tough economy. You are asked to submit a pay stub to prove your place of employment. The scammers then use the pay stub to get into the employer's bank account by means of fake checks.

However, the biggest scams are still occurring through Facebook, by means of powerful data mining techniques, according to the NY Times. The article points out that "Computer scientists and policy experts say that ... seemingly innocuous bits of self-revelation can increasingly be collected and reassembled by computers to help create a picture of a person’s identity, sometimes down to the Social Security number."

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Hitler, Naziism and the Nazi cross are becoming increasingly popular in Pakistan and India, making German visitors cringe. Der Spiegel

Recent moves in the United States and Sweden to declare that Turkey was guilty of genocide against the Armenians during World War I are so infuriating the Turks that they've recalled their ambassadors to both the U.S. and Sweden. And now, an angry Turkish Prime Minister Recep Tayyip Erdogan is threatening to deport 100,000 Armenians living in Turkey without citizenship. Times Online

It now turns out that, just a few months before the collapse of Lehman Brothers, officials from the S.E.C. were in the bank doing a thorough audit, and were aware of the massive "materially misleading" Repo 105 transactions that we discussed a few days ago. But, as in the case of Bernie Madoff, they did nothing about it. NY Times

(Comments: For reader comments, questions and discussion, see the 18-Mar-10 News - Euro sniping over finances thread of the Generational Dynamics forum. Comments may be posted anonymously.) (18-Mar-2010) Permanent Link
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Generational Dynamics Web Log for 18-Mar-2010 18-Mar-10 News - Euro sniping over finances

Euro-sniping grows, as Greece financial situation flounders

The FBI reveals a new online scam

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Generational Dynamics Web Log for 18-Mar-2010
18-Mar-10 News - Euro sniping over finances