Flashback to a 2011 Report on Greece, the Central Banking System, the Euro, and Big Government Debt

Americans can also learn from Europe. Borrowing and printing money to finance big government  policies makes the problems worse. And bailing out banks with tax money after the system fails isn’t just wrong, it’s self-destructive. Yet even as these facts are being acknowledged in Europe, the U.S. government is growing faster than ever before in history — financed by massive debt and out-of-control currency creation. While it’s almost unthinkable that America would end up like Greece or Portugal, on our current path, there are few long-term alternatives. Of course, there is one difference: When nobody will lend the United States any more money, and when running the printing presses leads to an inevitable currency crisis, a bailout for our own federal government will be impossible to find.

Lessons in Statism from the European Crisis

“By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” - John Maynard Keynes, The Economic Consequences of the Peace, 1919

By Alex Newman, Crisis Magazine
June 30, 2011

Europe is a mess. 

The ongoing economic crisis has sparked violent riots and growing turmoil, particularly in harder-hit nations like Greece, where demonstrators have taken to throwing home-made bombs at police. And the worst may be yet to come.

Analysts now say there is a real chance that the Greek government will default on its obligations. Former U.S. Federal Reserve boss Alan Greenspan recently said it looks like there’s no other way out for the beleaguered regime in Athens. Ratings agencies have already downgraded Greek bonds to “junk” status and are warning that they could go down even more.

A default, or whatever the government might try to call it, would make the bad situation worse. First, Greek banks — having been essentially coerced into buying loads of government debt — would all be wiped out and become insolvent. Analysts predict that the regime would have no alternative but to nationalize the entire banking sector and declare a “bank holiday.” Such a scenario would make the current clashes in the streets look moderate by comparison as furious depositors demanded their money.

The implications for world markets, and especially for the Euro, could be catastrophic. French and German banks are said to be among those heavily invested in Greek bonds.

Experts have been warning for more than a year that if Greece goes down, a domino effect might topple the whole region. The single currency could even collapse, and the economy of the European Union (EU) may go down with it, as banks and governments exposed to Greece’s government debt began to tumble.

Other indebted European governments — Portugal, Spain, Ireland, and Italy, among others — might start defaulting on their own obligations. Even without the problems in Greece, more than a few governments in the region are precipitously close to the edge. A Greek default could be the push.

To avoid that scenario, the EU establishment has been working to paper over the problem by throwing taxpayer money at it. Thus far, it doesn’t seem to be working. The socialist regime in Greece is still devouring money like a black hole and effectively holding the region hostage.

The first Greek bailout last year, orchestrated by Euro-zone governments and the International Monetary Fund (IMF), totaled almost $150 billion. It was supposed to last for three years, but it wasn’t even close to enough. Greece is now begging for another handout, and it appears virtually certain that a second rescue package — estimated as high as $170 billion — will soon be on the way.

Even with the next round of bailouts, however, analysts say it’s only a matter of time before the inevitable default arrives and bond holders are forced to take a big cut. Indeed, the Greek government’s debts are growing faster than the economy is. If something doesn’t change, it will be impossible for Greek taxpayers to end the cycle without a default.

Greece, of course, is just one of many European countries grappling with staggering amounts of debt. And while the Greek tragedy may be dominating the financial headlines, the situation in several larger economies is equally grim.


Late last year, Ireland negotiated a bailout from the IMF (read: U.S. taxpayers) and the Euro-zone of more than $110 billion. Incredibly, the European Central Bank (ECB) also allowed Ireland to print more than $70 billion in new money to prop up its own failing banks.

The Portuguese government also got a massive rescue package from the IMF and European taxpayers in mid-May totaling over $110 billion. That bailout was supposed to be the last one, the “eurocrats” assured their restless populations. That may not turn out to be the case. Fears that the Spanish government could be next are growing, despite politicians’ protestations.

Early in the crisis, the ECB was reportedly rescuing Spanish banks by gobbling up illiquid assets. With big deficits and an “official” unemployment rate above 20 percent already, the government has been forced to implement severe austerity measures. The prime minister claimed the scheme may have spared the government from requiring an outside lifeline.

But not everyone is buying it. And since Spain is the EU’s fourth largest economy, investors are justifiably jittery. If the regime makes a public request for a bailout, it might well be the Euro’s death knell. Indeed, any problems in European bond markets may trigger a bigger crisis.

Big Government PIGS

Most of Europe’s economies are struggling right now, some worse than others. But the so-called PIGS (Portugal, Ireland, Greece, and Spain) are tottering on the brink. So what happened?

What Portugal, Spain, Ireland and other failing European states have in common — other than the Euro and membership in the EU, of course — are huge governments that spend well beyond their means.

In the 1980s and 1990s, the Irish government adopted a series of pro-growth policies — slashing corporate tax rates, for example — that allowed the productive economy to rapidly expand. Ireland went through a period of fantastic growth that led to its description as a “Celtic Tiger.” In the early 1990s, however, the government embarked on a massive spending spree, fueled by the private-sector wealth creation, that eventually saw public expenditures increase by more than 600 percent.

Until about 2000, with the productive economy growing so fast, government spending as a percent of GDP was actually on a moderate decline, despite the enormous growth of the state. Then came the global economic crisis. Spending shot through the roof, and as a percent of GDP, government expenditures also soared. The central government made matters worse when it agreed to bailout the big banks, putting taxpayers on the hook for monstrous debts.

Irish government spending still makes up around half of GDP, but politicians have recently started to cut spending to deal with economic realities. The nation has also resisted calls for new and higher taxes, so it may yet emerge from the crisis. But it’s clear that statist policies — bank bailouts, skyrocketing spending, and interest-rate distortions — played a key role in Ireland’s woes.

In Spain, the harmful effects of big government are even more pronounced. The nation has been governed by a statist coalition headed by the Spanish Socialist Workers Party since 2004, when it took over from the slightly more moderate People’s Party. The ruling socialists promptly expanded an already-oversized state.

Government spending in Spain accounts for close to half of the nation’s GDP. Harmful regulations and central planning, such as failed efforts to create a “green” economy, have made matters worse. Meanwhile, the productive sector continues to contract and public debt levels are growing.

Portugal is another example of big government gone wild — the nation has been governed uninterrupted by “democratic” statists since the early 1980s. The Portuguese Socialist Party, with just a few years in opposition, has been in power since 1995.

Earlier this year, the Socialist Party was replaced by the slightly less statist Social Democratic Party, though government spending still makes up close to half of GDP. Plus, Portugal’s economy remains one of the least free in Europe, according to the Index of Economic Freedom. Portugal’s debt load is also among the worst in Europe.

In Greece, the situation is similar. Its economy ranks close to the bottom in terms of economic freedom among European nations. Harmful regulations, high taxes, and state-run industries are the norm. Government continues to make up around half of the nation’s GDP under the ongoing rule of the Socialist Party. The public sector is incredibly bloated, and the Socialist regime’s hostile attitude toward business has contributed to the accelerating decline of what remains of the productive sector.

The effects of big-government policies are clear to honest observers — though not to the socialist ideologues who contributed to the ruin of their economies. Greek Prime Minister George Papandreou tried to blame tax dodgers and “speculators” for his regime’s failed policies, even after it was revealed that his government had been conspiring with major banks to conceal the true scope of its debt woes.

Likewise, Spain’s Socialist prime minister comically ordered the country’s intelligence agency to find out whether there was an “Anglo-Saxon conspiracy” plotting to hurt the government’s standing. Anyone or anything can become a scapegoat for statist rulers — except, of course, their own failed policies.

A review of other European economies makes it clear that socialist rulers are engaging in deception when they blame their problems on “greed” and “capitalists.” Consider Luxembourg, one of the wealthiest nations in the world. It uses the Euro and is a member of the EU; but unlike the PIGS, its economy is among the freest in the world. Even after “stimulus” spending, government expenditures were only slightly more than one third of GDP.

Then there is Switzerland, a country that vexes statist ideologues worldwide. The Swiss economy is doing remarkably well compared to the continent as a whole, even without many natural resources. Government spending at all levels accounts for less than a third of GDP — lower than any nation in Europe. Its economy consistently ranks at or near the top in terms of economic freedom and competitiveness.

Switzerland’s economic performance illustrates perfectly the benefits of smaller government and freer markets. Unemployment in Switzerland is half of the EU average. GDP per capita is about double that of the EU. The nation also enjoys budget and trade surpluses, while other European governments struggle to borrow more money to prop up their bloated spending sprees.

Of course, the Swiss are not part of the suffocating EU regulatory regime. They also have their own currency, the Swiss franc, one of the strongest and most stable currencies in the world. Those two factors contribute to the confederation’s success, but it’s also significant that Switzerland is not governed by socialists.

So what about Sweden and Norway? Everybody knows the two Nordic nations have large governments, and despite the crisis, they seem to be doing well. However, in addition to the fact that neither nation uses the Euro, there are several important differences.

Norway’s government, despite its reputation, has maintained spending levels at barely 40 percent of GDP. It also has vast oil reserves and a tiny population. Sweden, with government spending at around 50 percent of GDP (including a big “stimulus” package), also has significant natural resources. Plus, after decades of failed statist policies, the center-right Swedish government has for years been privatizing state industries, cutting taxes, and shrinking government in many areas. Like Germany, both nations have done a fairly decent job of living within their means.

Of course, the phenomenon of big-government policies leading to failure is not unique to Europe. A quick review of Latin America’s situation shows that the same is true there as well. Consider Venezuela, where socialist strongman Hugo Chavez has waged a relentless campaign to increase the size and scope of government. Even with huge oil revenues, the economy is in a tailspin, and foreign investment has evaporated as the regime seizes businesses and property. Unemployment and crime are running rampant, and the government can’t even keep the electricity on in the capital city. Cuba is even worse.

Not so in Chile or Costa Rica, where government spending is around 20 percent of GDP. The differences in prosperity are remarkable. Asia is similar: Just compare Singapore or Hong Kong to North Korea.

Other Factors

To argue that only big-government policies, profligate state spending, and out-of-control borrowing plunged the flailing European economies into crisis would be naïve. As discussed, Sweden and Norway both have huge governments, and neither face riots and possible default or bankruptcy. Clearly there are other factors at work.

The banking system, dominated at the top by central planners in central banks, played a significant role as well. With the legalized system of fractional-reserve lending, combined with a fiat monetary system based on debt, economic crises are near inevitable in the long run.

The single currency deserves at least some of the blame as well. The Euro and the ECB wildly distorted interest rates across the Euro-zone, leading to artificial booms and massive malinvestment. In fact, many economists argue that the monetary union could have been the single most important factor in the PIGS’ crisis.

While low interest rates set by the ECB might have been appropriate in Germany or Finland, they were wildly off the mark in Greece and Ireland. But once again, central planning under ECB monetary policy, not free markets, should be held responsible.

Lessons Learned for the Future

As the statist authorities in PIGS countries try to contain exploding government debt by foisting “austerity” on the population — higher taxes, slightly reduced government salaries, and a little less public spending — dependent citizens have erupted in rage. The pain will probably get worse as those same taxpayers are forced to repay the massive obligations incurred by their officials.

Indeed, the political consequences of the bailouts — which are technically illegal, according to article 125 of the EU Treaties — have not been good for governments or the EU. Outrage is sweeping the continent. German taxpayers, who contributed the most to the wealth transfers after living within their means for years, are furious. In Finland, the True Finn party rose to power in April on a platform of hammering the EU — and the bailouts in particular.

Even in countries on the receiving end of the handouts, citizens are angry, partly because the money has come with so many strings attached. The IMF and the Euro-zone are now virtually dictating the policies of bailed-out countries. Bankrupted populations, however, still refuse to accept the fact that their governments spent them into oblivion with fanciful but impossible-to-keep promises.

Europe is at a crossroads. It can continue to bail out drowning governments to placate rioting hooligans, socialist ideologues, integration advocates, and bankers holding state bonds — or it can learn a lesson from the experience, suffer the consequences of mistakes, then rebuild on a more solid foundation.

In the end, a default might not be the worst-case scenario. It would teach investors not to finance reckless government spending while teaching governments to live within their means. More handouts simply encourage the madness by eliminating the consequences.

The dissolution of the Euro would also be a step in the right direction. Of course, smaller central banks engaged in economic planning would hardly be ideal, but it’s better than the current state of affairs. Eventually, European governments may even work on adopting sound, honest money — especially if a large country took the lead.

Americans can also learn from Europe. Borrowing and printing money to finance big government  policies makes the problems worse. And bailing out banks with tax money after the system fails isn’t just wrong, it’s self-destructive.

Yet even as these facts are being acknowledged in Europe, the U.S. government is growing faster than ever before in history — financed by massive debt and out-of-control currency creation. While it’s almost unthinkable that America would end up like Greece or Portugal, on our current path, there are few long-term alternatives. Of course, there is one difference: When nobody will lend the United States any more money, and when running the printing presses leads to an inevitable currency crisis, a bailout for our own federal government will be impossible to find.

Related:

Radical Greek Socialists Rise to Power as EU Crisis Grows (January 26, 2015) 

The Emerging Global Fed [Excerpt]

By Alex Newman, The New American
September 16, 2010

The Federal Reserve has been a nightmare for the American people. It inflates the money supply, thereby devaluing already-existing money and placing a massive hidden tax on the people via rising prices. It also uses its monopoly power to cause interest rates to go up or down, usurping the rightful place of the market, and causing massive malinvestment and, generally, an improper and unproductive allocation of resources.

The Fed also causes the boom-and-bust cycle through its manipulations of the currency and credit supply. It serves as the government’s partner in perpetually expanding the “welfare-warfare state,” allowing the state to spend far more than it could ever hope to reasonably raise through direct taxation. And of course, the fact that all Federal Reserve notes enter the economy as debt with interest attached (but never created) has led to a situation where it is literally mathematically impossible to pay off the debt. In sum, the consequences of such a system have been disastrous for average Americans — hence the growing calls to audit and even end the Fed.

But now, imagine such a system at the global level. And it isn’t just a mental exercise; the global central bank is already emerging. As bad as the Fed has been for America — and indeed the world — a similar system at the international level would be far worse. Disaster might even be an understatement.

International Liquidity and Inflation

One of the most serious threats posed by a global central bank and world fiat currency is the fact that it would allow the emerging planetary regime to print its own money and finance its activities independently. That means wealth could be secretly siphoned away from all of humanity to pay for armies, tax collectors, courts, bureaucracies, law enforcement, wealth redistribution, propaganda, and much more. With no limits. But to advocates of such a system, that is one of its primary benefits.

“A super-sovereign reserve currency not only eliminates the inherent risks of credit-based sovereign currency, but also makes it possible to manage global liquidity. A super-sovereign reserve currency managed by a global institution could be used to both create and control the global liquidity,” wrote Chinese central-bank boss Zhou Xiaochuan in his public paper calling for a world currency. “The centralized management of its member countries’ reserves by the Fund will be an effective measure to promote a greater role of the SDR [Special Drawing Rights, the International Monetary Fund’s first effort at a world currency] as a reserve currency.”

Of course, communists have always supported control of “liquidity” (Karl Marx was a strong advocate of central banks with a monopoly on currency and credit). But to people who care about freedom and prosperity, the communists’ support should be a huge red flag.

The United Nations has also backed global currency proposals for the same reason. In a report earlier this year calling for the end of the dollar’s status as a reserve currency and a new monetary regime controlled by the International Monetary Fund, the UN’s World Economic and Social Survey for 2010 points out that,

“Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development.”

The term “sustainable development” — especially when used by the UN — is often used to refer to stronger central planning, population reduction, more land in government hands, and other ideas repugnant to average Americans and the U.S. Constitution. Other schemes for “international liquidity” could be even worse.

Hiding behind the passive voice, a separate report by the UN Conference on Trade and Development adds in the concept of wealth redistribution:

“It has been suggested that in order for the SDR to become the main form of international liquidity and means of reserve holding, new SDR allocations should be made according to the needs of countries.”

It then promotes worldwide central planning to “stabilize global output growth” by issuing more SDRs or retiring them as the emerging global government deems necessary. As it stands, wealth redistribution around the world is bad enough. Surrendering that power to a global institution would be a nightmare.

In its report published earlier this year, the IMF also recently came out in favor of allowing it to print its own money to provide “international liquidity.”

“A global currency, bancor, issued by a global central bank, would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy,” the paper says. “The global central bank could serve as a lender of last resort, providing needed systemic liquidity in the event of adverse shocks and more automatically than at present.”

In laymen’s terms, the IMF, with its power to “emit liquidity” out of thin air, would be empowered to “bail out” companies, governments, and whomever it wished. If you thought the Fed handing out trillions of dollars to the big banks and other insiders was bad, just wait until a global central bank exercises that power.

[...]

Noting that there would be critics of the development of a world central bank, especially in America, Council on Foreign Relations insider and global fiat currency promoter Jeffrey Garten points out in an article for Newsweek,

“Among their many charges, critics will protest the establishment of ‘world government.’ But we have a World Trade Organization with legally binding powers over trade disputes. We have a World Health Organization for communicable disease with the ability to quarantine entire countries. And a World Court functions today that has considerable legal and moral clout.”

Dismissing critics protesting the establishment of a world government by pointing out that it already exists in rudimentary form is hardly likely to pacify those critics.

But what would a global currency really mean aside from the destruction of the dollar and the U.S. economy?

“A global central bank would be a disaster,” financial guru Bob Chapman, editor of the International Forecaster, told The New American. “It means the acceptance of world slavery.”

Chapman also pointed out that the present international monetary system was being deliberately destroyed precisely to bring about a global currency like the bancor.

“It’s just not fiscal and monetary policy. It is every facet of your life that these elitists want to control.”

And they’re moving rapidly toward that goal.

In addition to printing money, the emerging global central bank and its affiliates are already usurping other powers traditionally exercised at the national level. In his Newsweek article, Garten calls for the new planetary central bank to be the “lead regulator” of all sorts of financial institutions, monitor risks, push national authorities to “modify their policies,” coordinate national “stimulus programs,” orchestrate a “global-stimulus plan,” force taxpayers around the world to bail out companies, and even act as a bankruptcy court. The IMF, in its own report, called for global “imbalance” taxes, capital controls, and a true world financial regulatory regime. A lot of that is already coming into being, but as the new monetary order develops, the agenda will only accelerate.

And as if all that wasn’t bad enough, there is no accountability for this newly empowered IMF. Jim Rickards, the director of market intelligence for Omnis, explained that, while the IMF has articles of association and some governance rules, the true power structure behind it is the G20, which is “completely unaccountable.”

As the international monetary crisis unfolds with a collapsing dollar, there will need to be some sort of reforms. The question is which ones. Instead of “currency reform” coming “from the marble palaces of the monetary elites,” economist Lew Rockwell of the Mises Institute points out,

“Private currencies traders the world over could, on their own, give rise to a new currency rooted in gold and traded by means of digital media.”

This would be far superior for numerous reasons, he argues.

“Under a gold standard, the physical metal is the limit and the market is the master. Under a global paper system, the paper provides no limit whatsoever and the politicians are the masters.”

And indeed, while the elites push their fiat world currency, entrepreneurs have already been working on making gold a sort of currency without the need for government dictates.

“Money was invented in pre-history by people interacting peacefully with one another to help improve their situation by trading. Money is not an invention of government,” explained James Turk, founder of GoldMoney, a company holding over a billion dollars in assets that allows customers to purchase, store, and trade precious metals. “There is a better solution. It was the one created by Sir Isaac Newton and given to King William III. We now call it the classical gold standard, which lasted from circa 1700 to 1914. If governments are to issue currency, it must be tied to gold. It is this link that provides essential discipline needed to rein in the aspirations of politicians to spend money, even money the government doesn’t have,” he told The New American, adding that the bankers pushing for a world fiat currency “will do everything they can to continue this special privilege that they have assumed for themselves.”

Omnis’ Rickards also has some ideas about how America can put a freeze on the emergence of the global paper currency: cuts in taxes and spending; higher interest rates to strengthen the dollar; and, eventually, getting back on the gold standard.

“The U.S. is in the best position to go back to the gold standard,” he explained, pointing out that, with an estimated 8,000 tons, America has more gold than any other country. “The first country that goes to the gold standard will — in effect — dominate the world of finance because they will have the currency that everybody wants. ... Would you rather have a gold-backed dollar or a paper SDR?”

What’s missing right now, he said, is just the political will to do it.

“What you’re going to see over the next few years is a global struggle between the forces who want to create new forms of paper and just give it a different name and a different issuer and continue to flood the world with paper liquidity and keep the game going on the one hand, versus people who will recognize that the only true form of money is gold and will start bidding up the price of gold against the dollar,” Rickards predicted.

John McManus, president of The John Birch Society, has a similar view of how to rectify the current situation without moving toward an international central bank to manage a global fiat currency.

“If the currency is a commodity like gold or silver, it does not have to be managed. The free market place will manage it,” he explains in Dollars and Sense, a short video presentation on the monetary system. “Money should be a commodity valuable to all people; and there’s no management needed.”

It is ironic that the likely imminent collapse of the world’s current fiat “reserve currency” is being used as an excuse to implement a global fiat currency. But it is extremely serious. Escaping the elites’ clutches would become almost impossible as wealth is steadily transferred from humanity to the banking oligarchy and its ever-expanding global government. And so the scheme must be prevented.