King Canute was neither vain nor foolish. He ordered the tide to recede only to demonstrate to his court that even his awesome powers had limits. Vain and foolish politicians, however, aspire to preserve the myth of Euroland and still believe that, by hook or (especially) by crook, they might actually make it work.
Well, it can’t. Compare the export of identical articles produced, respectively, in Germany and Greece, both priced in euros. The factor cost of the German product is lower (for reasons concerning technology, work ethic, scale efficiencies, productivity-related wage structures and tax receipts).
Governments everywhere resort to the charade of printing their way to economic salvation
The problem for Greece is that it is locked into an exchange rate of parity with Germany, who also benefits from interest rates kept unrealistically low by the European Central Bank to help struggling nations.
For Greece to compete on price it would have to liberalize its working practices, relate wages to productivity and reduce tax levels to accommodate a far slimmer state sector. All this would be possible if they had their own currency, allowing the markets effectively to determine competitive pricing for their goods.
Numb to the numbers
But there is no incentive for change while they are locked into an insidious bailout mechanism that encourages them to delay reforms that alone will facilitate economic recovery. The growing mountain of debt inflicted by these bailouts can never be repaid and by now the Greeks are numb to the numbers.
Governments everywhere resort to the charade of printing their way to economic salvation. Fake money, whether in the form of treasury bonds or computer blips, obviously cannot conjure wealth that was not there before.
Banks buying up debt with a 1% coupon can lend it out to central and other banks at 7%, generating undreamed of levels of “profit”. There isn’t even a “trickle-down” benefit, apart from the bonuses that explain exactly why the gulf between society’s rich and poor yawns ever wider. At the top end, asset price inflation reaches a point where those outside this immense Ponzi-party will be unable to afford even life’s basic needs.
The music that drives the money-go-round in this danse macabre just keeps grinding away. While it lasts, banks channel vast tranches of spontaneously generated money into spurious outlets – paying millions in bribes to procure loans from Middle-Eastern potentates, rigging Libor rates, conning customers into buying bogus payment-protection insurance, or laundering billions from Mexican drug cartels through accounts opened with their own Cayman Islands subsidiaries . “Banking morality”? A contradiction in terms.
Banks fire compliance officers after every scandal, but despair about the uselessness of external audits. Any bank “too big to fail” is almost certainly too big to audit. For once I do not blame the auditors, other than for taking on assignments that, that in an age mired in complexity and corruption, they know they cannot possibly do justice to.
And who can blame banks when governments launder money on an even greater scale? “Aid” to underdeveloped countries is paid to the donor country’s own agencies and businesses engaged in infrastructure projects that will never benefit the poor masses who can’t afford electricity or cars anyway. The only local beneficiaries are landowners who gain tax-free incremental values while their artless governments tax incomes instead.
The music will stop. And then?