The Dynamics of Doom: Why The Eurozone Fix Will Fail !

• This is a great article explaining in simple terms why the bailouts will fail ! Keep in mind that the Illuminist’s plan is for a collapse of the Eurozone and Euro. It is intentional and is to usher in global economic, financial and monetary collapse. The recent 2nd bailout of Greece is really about consolidation of power and the establishment of a Eurozone wide ‘Ministry of Finance’. It is simply a cover for destruction of national sovereignties and conquest. Jim Rickard explains:
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  In Europe for over ten years you’ve had the European Central Bank, which is the equivalent of the Fed, but they did not have the equivalent of a Euro Treasury. So the best way to understand the ESFS, for the first time we have a European-wide Ministry of Finance.  They don’t call it that, but that’s what it is, and it’s run by the Germans.  So in effect Germany will be dictating fiscal policy to all of the Euro system from here on out. …. The bad news at least if you’re Greece or Italy or Spain or Portugal is that from now on your fiscal policy is going to be dictated by Germany.  .. Germany has accomplished financially what it has never been able to do militarily since the days of the Holy Roman Empire, which is to basically gain control over Europe.”
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• The Dynamics of Doom: Why the Eurozone Fix Will Fail
  by Charles Hugh Smith, http://inteldaily.com/
  The only way out of the Eurozone end-game is massive debt forgiveness and a return to national currencies. The first will destroy the banks, the second will destabilize the German export economy. “Extend and pretend” is an endgame, not a fix.
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  Let’s dig into the dynamics of doom:
  1. The consequences of austerity. The kleptocratic “fix” is to divert more of the debtor nations’ national incomes to debt service. In other words, money that once went to labor (wages) and social services now goes to debt repayments and interest. What are the consequences of this massive diversion of  income? The economy shrinks. Less income means less spending, which means negative growth.
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  The Eurozone’s “happy story” counts on debtor economies “growing their way  out of debt.” If labor’s share of the national income is falling, and both private and government spending and income are falling, precisely where is the “growth” supposed to come from? As private income falls, tax revenues fall, causing the government to raise taxes and junk fees. This further reduces  private income, and so on in a self-reinforcing feedback loop of contraction.
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  Austerity sets up a positive feedback loop of less income and less  spending. The people in these debtor economies can look around and  see the consequences: everyone has less money, and less confidence that the “austerity fix” will do anything but put debt-junkies into fatal withdrawal. Once an economy becomes dependent on debt that rises faster than the  resulting “growth,” then that economy is set on an unwavering path to implosion. (The Cycle of Dependency and the Atrophy of  Self-Reliance).
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  As belief in the system fades (When Belief in the System Fades March 12, 2008) and institutions lose their legitimacy ( The Three Ds: Delegitimization,  Definancialization, Deglobalization July 1, 2011), then people naturally save more as insurance against an uncertain future. Fewer people are willing to risk their capital in new ventures, and as the economy loses vitality then these trends reinforce each other.
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  2. This loss of faith and confidence triggers hoarding and capital flight. As Ludwig von Mises noted long ago, the only way to organically “grow” an economy is for capital to accumulate faster than the  population, that is, capital increases on a per capita basis. Capital means savings/cash, not debt, that is invested in productive assets and enterprises. So what happens when you skim more of a nation’s income to service debt?  There is less capital accumulated, and thus less capital available for investment.
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  What happens when people lose faith in the financial institutions and their coercive “fixes”? They move their capital to less-risky, more productive climes. In other words, capital flight is another positive feedback: as people move their capital out of the country, then there is less available per capita for productive investment. Toss in a kleptocratic government which increases taxes while misallocating precious capital on crony Capitalism and corruption, and you get a death-spiral of capital flight and risk  avoidance. The irony of a loss of faith is people instinctively place their capital in non-productive savings: in gold, Swiss lock boxes, and so on. This instinct  removes capital from the pool of investments in productive assets.
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  3. Taxes must be raised to fund higher debt service. There is no other way to service sovereign debts, so taxes must rise, adding another positive feedback to the contracting economy: higher taxes reduce net income, create disincentives to earning more via productive enterprises and incentivizing tax avoidance and capital flight.
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  4. The frantic rush by the EU and European Central Bank (ECB) into a  domino-like series of short-term “fixes” effectively destroys the possibility of  long-term solutions. Injecting more debt into debtor nations is  like “fixing” the debt-junkie’s withdrawal symptoms with massive doses of euro-denominated smack: the “fix” dooms the “patient” in the long run, even as it “makes everything better” for a brief interlude of faux “normalcy.” But like any other addiction, resistance to the “fixes” rises and the  interludes diminish in length.
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  The dynamics of austerity without massive debt renunciation doom the EU, and the dynamics of using taxpayer-funded debt to “fix” over-indebtedness also dooms the EU. Massive debt renunciation will doom the big European banks, and of course those banks are the raison d’etre for the entire project: it’s all about saving the banks, isn’t it?
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  5. These dynamics set up a double-bind endgame. The EU Overlords and the ECB can busily move their last knight around their king, but the game is already lost. Austerity triggers a positive feedback of economic contraction, debt fixes to over-indebtedness launches a cycle of diminishing returns, and the reliance on short-term fixes over long-term solutions sets off self-reinforcing losses of legitimacy and faith in the system’s sustainability.

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