I took Ambrose Evans-Pritchard to task twice recently, primarily for making monetary proposals claiming central banks could print their way out of this economic mess but also for unwarranted attacks on Germany.
My friend Pater Tenebrarum has done the same. Here are a few articles.
Mish: Has Ambrose Evans-Pritchard Lost His Mind?
Mish: We Must Crush Ambrose Evans-Pritchard, Nouriel Roubini, Martin Wolf, the Army of Krugmanites into Submission; Reflections on “Dangerous and Insane”
Pater: Central Banks and Monetary Cranks
Pater: The ECB and ‘Balance Sheet Recessions’
Here are a few snips from Pater’s Balance Sheet Recession link above.
If government debt is at some point monetized on a grand scale, there will eventually also come a point when the demand for money is overwhelmed by the increase in its supply. The supporters of money printing, such as e.g. Ambrose Evans-Pritchard, who has just penned another screed calling for ECB intervention, seem oblivious to this fact. Even if they are not au fait with economic theory, they should at least not pretend that Weimar never happened. After all, what is the central bank supposed to do when the effects of its intervention wear off, as they invariably do? Why, print more of course – until the bitter end, one presumes.
In addition, these ex-post rationalizations (which basically assert that ‘now that we’re in crisis we have to do what normally would be an error’) always avoid discussing why we have arrived at the point of crisis in the first place. It was after all the credit expansion of the fractionally reserved and central bank-backstopped banking system that has been the root cause of the boom and bust. It is not enough to just say that the euro has ‘design flaws’ (even though that is quite correct). Its major design flaw is that plaguing all modern fiat monies.
The question in the end comes always down to whether one wants to take the losses as soon as possible and begin again with a clean slate, or whether one wants to delay the day of reckoning by doing again – and usually on a bigger scale – what has led to the crisis in the first place. The choice is always between short term pain in exchange for long term gain or the avoidance of short term pain in exchange for long term misery.
Why everyone seems to favor taking the path to long term misery remains a mystery to us. As we keep saying, the focus, especially in Europe, should be on how to revive the currently taxed-and-regulated-to-death entrepreneurial spirit. In the end, only a resumption of genuine wealth creation can solve the economic problems of the region. This requires that the market economy be freed to do what it does best. Printing more money is not going to help this process.
I have also commented many times previously on how Koo has learned nothing in 20 years. The lesson of Japan is not what Koo suggests (more firepower), but rather forcing banks to take writedowns.
The amazing thing about the Japanese situation is that Greenspan and Bernanke both made statements that Japan should write down bad debts, but when the US faced the same situation, Bernanke not only did the opposite, but now says that letting Lehman collapse was his biggest mistake.
Excuse me! Letting Lehman collapse was the only thing Bernanke did correct. I might also point out the world did not end. Anyway back to Pritchard.
Ambrose Evans-Pritchard Back on Track
Please consider Germany is the ultimate victim of EMU by Ambrose Evans-Pritchard.
Ambrose: Enough is enough. Please stop defaming Germany out there in the blogosphere.
Mish: Since Ambrose cannot not mean me, perhaps he means himself. Regardless, I certainly agree.
Ambrose: The German people entered monetary union for honourable motives, believing they were acting as good Europeans. It is excruciating for them to see those Athens banners in Syntagma Square showing Chancellor Angela Merkel wearing the Swastika, or read that sign “Arbeit Macht Frei”.
They gave up the D-Mark reluctantly under French and Italian pressure, as the price for acquiescence in Reunification.
They entered EMU at an overvalued rate after the Reunification bubble, leaving them in semi-slump for half a decade. They slowly clawed back competitiveness the hard way, by squeezing wages and driving up productivity.
It is entirely understandable that they now think Club Med can and should do the same. (They are profoundly wrong, of course, because Germany was able to lower relative wages during a) a global boom, b) against other EMU states that were inflating c) and with benchmark borrowing cost that stayed low even during the dog days. None of these factors apply to Italy or Spain now. But this is hard to explain this to the man or woman on the Berlin tram.)
Mish: I am in general agreement.
Previously I wrote “Pritchard clearly has it in for Germany. Why I do not know.“
The above article shows otherwise. However, many people emailed in agreement. Will the above article change perceptions? Perhaps not. Pritchard has been a big German basher recently.
Pritchard: She [Merkel] is entirely right in one sense to continue ruling out Eurobonds as “unthinkable” under current structures, and a violation of German constitution, but that is not really an answer to the historical challenge that she faces in late 2011.
Germany cannot unwind the clock. It did take the fateful step of joining monetary union, and from that awful error follows a string of strategic imperatives.
As the wise professors warned at the time, EMU would lead ineluctably to full fiscal union because an orphan currency would not endure without an EU Treasury and government to back it up, but it would a fiscal union accountable to nobody, because no European democracy exists, or can exist.
It would lead to debt pooling and shared budgets.
It would lead – fatally – to loss of the Bundestag’s sovereign powers to tax and spend. The core functions of parliament would slip away to EU mandarins.
It would lead to the emasculation of Germany’s exemplary post-War democracy.
It would lead in essence to the abolition of Germany as a nation state, even if the window flowers remained in place.
All else was illusion and wishful thinking.
Mish: Precisely. And as I have asked before, Who made the rules? Whose fault is it that Germany was pressured to join the Euro? Did the 17 countries know the rules when they joined? Whose fault is it that 17 countries joined?
To partially answer the first question Jean-Claude Trichet was one of the architects. Perhaps we should blame France.
Here are a couple of interesting European Monetary Union References to further assist in placing blame:
Otmar Issuing, Chief Economist of the German Bundesbank Council, 1991: “There is no example in history of a lasting monetary union that was not linked to one State.”
John Major, British Conservative politician, Prime Minister 1991-1997, widely viewed as a failure and famous mainly for calling Eurosceptics bastards and shagging Edwina Currie. November 1996: “A single currency is about the politics of Europe. It is about a Federal Europe by the back door.”
Perhaps we should place some blame on John Major and the UK.
How about this quote?
Romano Prodi, EU Commission President [an Italian Statesman]. Interview in the Financial Times, April 1999: “[My] real goal [is to draw on] the consequences of the single currency and create a political Europe.”
Yes, indeed. The REAL GOAL was a political Europe that the German people did not want!
What else did Prodi say?
Romano Prodi, EU Commission President, speech to European Parliament, 13th October 1999: “We must now face the difficult task of moving forward towards a single economy, a single political entity… For the first time since the fall of the Roman Empire we have the opportunity to unite Europe.”
Romano Prodi, EU Commission President. Financial Times, 4 December 2001: “I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created.”
Here is one from Wim Duisenburg, President of the European Central Bank. Date uncertain. Note the choice of words “was always meant to be”, which communicates a false inevitability: “The process of monetary union goes hand in hand, must go hand in hand, with political integration and ultimately political union. EMU is, and always was meant to be, a stepping stone on the way to a united Europe.”
The idea the Euro is a German hatched plot to control Europe is patently false. Most German citizens (though unfortunately not all German politicians were extremely leery of a fiscal union and loss of sovereignty which is precisely why they insisted on a set of exact controls in the Maastricht Treaty to prevent the formation of a fiscal transfer union.
Pritchard: That is what monetary union always meant and means now, though the trick being played on Europe’s citizens was fudged by dishonest treaties, themselves dishonestly ratified.
It is why so many of us on this side of the Ärmelkanal have fought tooth and nail for twenty years to stop Britain being subsumed into this plaything of unaccountable elites, this Project so profoundly threatening to our self-government and constitutional order.
Mish: “dishonest treaties, themselves dishonestly ratified”
Hello Ambrose – you are 100% correct. So why the hell did you throw that all away with two recent articles? How about taking them back, right here, right now?
Ambrose: But this is where Germany now is. It must either immolate itself and dismantle the Bismarckian state for the cause of EMU, or prepare to finance an orderly withdrawal from monetary union (with the Finns, Dutch, and Austrians) so that the South can breathe again and hope to recover.
That is the choice. All else is can-kicking, denial, obfuscation, muddle, and self-delusion. As is now becoming obvious, the failure to resolve the matter one way or the other is becoming a danger to the global financial system. It threatens to uncork a global depression. Germany must at last decide.
It is a horrible choice. My sympathies go to the German people who were never given a vote on this ensnarement and infeudation of their peaceful country, and who were egregiously deceived by their own leaders, and who cannot now begin to understand why they suddenly are target of such furious and venomous global criticism.
The Germans too are victims of this ruinous project, the greatest victims of all. Their elites have led them into a diplomatic and economic Stalingrad.
All else, including Pritchard’s horrendous idea You are all wrong, printing money can halt Europe’s crisis is an exercise in can-kicking!
Ambrose, we both know Germany is going to pay a price. Indeed every country in Europe is going to pay a price, even the UK.
The idea is to make that price as small as possible. To do that we need an orderly (as orderly as possible) breakup of the EMU. The UK can help.
UK Should Exit the EU
The UK can start the ball rolling in the proper direction by exiting the EU. Why should UK citizens pay through the nose for inane trade regulations especially on agricultural goods?
The UK needs to send a statement that it has had enough. If France wants protectionist agricultural policies then France, not the UK should suffer the consequences.
Those who do not know what I am talking about can find a nice example in UK facing £20m garlic tax bill
The UK Government has received a European Commission ultimatum to hand over £20 million within two months or face legal action. The wrangle is over the fact that import tariffs on frozen garlic from outside the EU are lower than the rates for fresh garlic. And, according to the Commission, UK authorities carelessly levied the lower rate applicable to frozen garlic on imports of the fresh product from China, in breach of EU customs rules.
A Commission statement explained: “Between 2005 and 2006, the UK customs authorities allowed imports of fresh garlic from the People’s Republic of China under wrong authorising documents. They have erroneously stated that the goods imported were frozen garlic for which significantly lower import duties apply.
Why put up with this? What on God’s green earth does the UK get for these endless regulations other than higher prices and direct subsidies to French farmers?
John Law Mississippi Bubble
I also need to point out one major historical item that Pritchard seems to have forgotten about when he proposed his can-kicking printing solution. I invite everyone to read about John Law and the Mississippi Bubble: 1718-1720.
In 1716 Law convinced the French government to let him open a bank, the Bank Generale, that could issue paper money, or bank notes. The paper notes would be supported by the bank’s assets of gold and silver and would circulate as a medium of exchange. Paper money was a new concept for the French; money to them was silver and gold. Law believed that paper notes would increase the money in circulation, which, in turn, would increase commerce. These conditions would help revitalize and rehabilitate the finances of the French government.
Please read the article to see how printing paper money to revitalize the French economy ended.
Germany Needs to Exit EMU
The best solution for the EMU is for Germany to leave. If France wants the Euro it can have it. Let France have the ECB and let France print if it wants to. Perhaps the result will be better than last time.
Regardless, It will be far less disruptive for Germany to leave than for Greece, then Portugal, then Spain to leave.
Either way, German banks take a hit. So do French banks and any banks in general holding debts in Euros. However, the Deutschmark would be a credible currency right off the bat.
That makes it less disruptive for Germany to leave rather than Greece, Portugal, and Spain to leave. Those countries have no credible currencies to go back to.
Please see Eurozone Breakup Logistics (Never Believe Anything Until It’s Officially Denied) for further discussion of why things are better if Germany leaves rather than a piecemeal breakup.
Reflections on Credibility
We need to discuss Eurozone breakup ideas, not mindless printing schemes that will do nothing but kick the can down the road, bailing out the banks, and leaving the taxpayers saddled with the debt or the inflation (or both).
Pritchard lost a lot of credibility in those two recent articles I blasted. His latest article, referenced above helps, but a complete retraction of his can-kicking monetary printing proposal would help even more.
Mike “Mish” Shedlock
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