Reprint: “Systemic Contradictions”: The Eurozone De Facto Currency Peg, and the Death Spiral We Are Currently Witnessing

This originally appeared in naked capitalism on April 11, 2010—right smack in the middle of the Greek debt crisis. My basic point still stands: The euro is essentially a very complex currency peg among a group of disparate nations that happen to share a continent, but little else. And though the IMF and the EU put together a rescue package for Greece, the stresses and strains of that currency peg still remain.
  

Critics of free-market capitalism, especially of the Marxist persuasion, love talking about its “systemic contradictions”. Especially European critics—they adore using that steam-roller phrase: “systemic contradictions”. It sounds so thrillingly lapidary, so discussion-ending, so terminal. Nothing can escape its grasp, or the base indignity of it. “They will fail because of Systemic Contradictions!!”—like a cross between a nasty form of cancer, and some unmentionable venereal disease. And of course 100% fatal.

It’s ironic that European critics of free-market capitalism love that phrase—because it aptly describes the Europe of today, and the European monetary union that was hailed as the way of the future.

I would argue that, with the way things are going, it’s Europeans and their Eurozone which will soon be relegated to the dustbin of the past. Precisely because of its “systemic contradictions”.

The end of the Eurozone will be a tragedy—and I would argue, we are currently witnessing it.

Let’s review: 

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Reprint: The Chilean Earthquake from a First Person Perspective

This post originally appeared on Zero Hedge on the morning of February 27, less than eight hours after the Great Chilean Quake of 2010. It certainly was a “Great Quake”—the second most intense earthquake ever in Chile, after the 1960 Valdivia Earthquake, which is acknowledged to have been the greatest earthquake in recorded history. 

Hello Gringos!

I've been under the weather for the last few days. So last night I went to sleep early, around 11pm.

Around 3:15am, I suddenly woke up, even though I usually sleep straight through until the dawn. There was no obvious reason to wake up at such an odd hour. Claire, my dog, was sound asleep. Out my window on the 15th floor of my building, all the buildings across from the Los Leones golf course were quiet.

But I was wide awake.

So finally, I decided to make the best of it—I got my laptop and surfed the net, wide awake, reading (of all things) about what the iPad might mean to newspaper publishing—when the earthquake hit.

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“Extend & Pretend”: Where Are We After One [and a half] Years of the Suspension of the FASB Rules?

Note: I originally posted this on Yves Smith’s blog naked capitalism, last April 4. The original post is here.

Recently, William Black has more or less pointed out the same thing, as reported by Mish Shedlock here: With the financial industry having pressured Congress, the accounting rules have been softened to the point where they cannot discern a healthy bank from an insolvent one. Hence, zombie banks, and a Japanese-style lost decade.

My April 4 post:

In 1982, many of the banks hit by the Latin American debt crisis were effectively insolvent. Paul Volcker, as the then-Chairman of the Federal Reserve—charged with overseeing the banking system—effectively cast a blind eye on this banking insolvency.

Volcker’s reasoning seems to have been that the US banks were not broke—they were just getting temporarily squeezed. Volcker seems to have concluded that time would heal the balance sheet wounds caused by the Latin American defaults. Therefore, to hold the banks to the letter of the accounting rules would likely drive one or more of them broke, to no useful purpose—and it could potentially cause a bank panic and general financial crisis. But to pretend (for a while) that all was right with the US banks would avoid a potential panic—so long as the crisis sorted itself out and the banks repaired themselves by writing off and renegotiating their toxic Latin American debt.

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