Why I Oppose Financial Stability


Democracies are supposed to strive to deliver outcomes that advance the greater good of society.

In a number of posts here on baobab2050.org I have been making the case that reining in public sector deficits (the fiscal austerity) and curing the persistent imbalances in the external accounts of Eurozone countries (Northern Euro / Southern Euro) are necessary but not sufficient prerequisites for the return of growth.

The third essential prerequisite is that the great losses caused by the past debt-financed excesses will have to be written off and banking systems restructured or forcibly recapitalized as necessary.

This is also the central argument of blogger London Banker in his latest post Why I Oppose Financial Stability, which I recommend to readers. Here is the gist of his post on the subject:


Too Late for A Sinking City?

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Bangkok, the megacity capital of Thailand, lies on the delta of the Chao Phraya river. It is one of the most important commercial centers in South East Asia and a gateway and principal destination for many visitors. It has more than 400 richly decorated temples and six universities. Its numerous canals, many of which are home to floating markets, give Bangkok the name “Venice of the East.”

And like the original Venice, Bangkok too is slowly sinking. The TIME magazine article Rescuing a Sinking City describes some dramatic events in flood-ridden Bangkok:

Two people are shot when a group of desperate families raids a flood-control embankment. The wounded raiders are seeking to drain the water from their suburban Bangkok district; the gunman is protecting his dryer neighborhood. Elsewhere in the sodden Thai city, slumdwellers stage boat races in water fouled with raw sewage, and medical teams distribute antityphoid vaccine and foot-fungus ointment. It is monsoon season in Southeast Asia, and as this year’s rains have made all too obvious, Bangkok (pop. 5.5 million) is slowly sinking.


Sir Mervyn King: Most Serious Financial Crisis At Least Since The 1930s, If Not Ever

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Sir Mervyn King was speaking after the decision by the Bank’s Monetary Policy Committee to put £75billion of newly created money into the economy in a desperate effort to stave off a new credit crisis and a UK recession. Sir Mervyn said the Bank had been driven by growing signs of a global economic disaster.

“This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever. We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.”


Michael Pettis and Mish Sign Up For The Indecent Proposal


The indecent propsal (made here, elsewhere and elsewhere) to split up the Euro into two currencies through the departure of Germany, Austria, Finland and the Netherlands, followed by recapitalization of banks as necessary, appears to be gathering more supporters.

Once the current lunacy (“no bank bondholder left behind”) runs its course, ending the careers of a few Eurozone periphery presidents and prime ministers along the way, a new crop of European leaders may finally be left with no option other than to do the right thing. More

Bundeswehr Peak Oil Report Now Officially Translated in English

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Official English translation

Last November, 2010, senior German military officers approved for release a report on Peak Oil by a team of analysts at the Bundeswehr Transformation Centre, a top-level German military think-tank. However, the original report was written in German and though it was translated by third parties, there was no official English translation. A few days ago, the Bundeswehr released an official English translation which can be downloaded directly from their site.

The existence of this report was originally leaked prior to publication by Der Spiegel last summer (see the baobab story German Military Study Warns of Potential Energy Crisis). Senior German military officers later approved it for public release, yet this report was nevertheless generally ignored by the global mainstream media. The real reason that the global media largely ignored the story might be stated in the Bundeswehr Peak Oil report itself.


Fate of the Euro: More Indecent Proposals


Hans Olaf-Henkel, the former head of the Federation of German Industries (BDI) who has joined about 50 other business leaders in a legal challenge at Germany’s Constitutional Court against the Greece rescue package, wrote an opinion piece for the FT where he calls for a European hard core – Austria, Finland, Germany and the Netherlands – to break away from the Euro.


The Synchronized Global Jenga Block Games


In Australia, economist Steve Keen describes the RBA’s upcoming meeting as “High Noon Tuesday”.

In Europe, Mike Shedlock covers the ongoing escalation of the Euro’s existential nightmare, as Italian, Belgian and Spanish bond yields hit Euro era highs in what at this stage may have become a self-fulfilling crisis.

In China, property loans in 2nd and 3rd tier cities have been halted, driving another nail in the coffin of their property bubble.

In Canada, GDP has unexpectedly contracted.

And the USA appears to be on the verge of a significant slowdown, with a Dow Jones ESI indicator and a fall in petroleum products consumption adding to the mounting evidence that a recession is a real risk.

Some might call this a chance coincidence of unrelated events. Some might be wrong: please consider the Baobab post titled Avalanches of Sand for a related discussion on the theory of catastrophic network failures.


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