Monday, April 16, 2012


Little Paulie Krugman was back on it today.  Just as the yield on Spain's 10 year crossed 6.00%  Paulie was calling "insane" the manner in which Europe continues to approach the crisis.  I continue to be all over the arrogant snot because...well...because he deserves it but also because of his reputation he provides a terrible disservice to a fuller understanding of what is going on in the world today.  Krugman's unwaivering Kenysian approach is not based on an attempt to find a solution for Euroland but, as I have said before, a complete capitulation to the policies of The Leader and his party as to local economic governance and an attempt to apply what does not work here to a region where it cannot work.  Paulie has built a box for himself.

On one thing he is correct:  under the present approach there is really no solution in Euroland without strong growth and the crushing austerity programs being implemented in Greece and now Spain are hardly condusive to a growth agenda in the short term.  But focusing on capital flows being required he completely ignores the source of those flows.  Time and again Krugman babbles on as if Euroland's capital markets are equal to those of the United States.  Time and again I tell you they are not.  European governments are funded by their banking systems; the banking systems of Europe are broke.  They can fund no one; they cannot fund themselves.  The EUB is now the largest bank in the world with a balance sheet of over 3 Trillion Euros repesented by assets to busted banks whose assets, in return, are loans to busted countries.  The EUB can print Euros but the dollar is still the currency of trade. At what level do dollars become unavailable?  3.5 Trillion?  Four Trillion?  Five?  Keynes doesn't work in this scenario; to be fair I'm not sure what does.

Have the German's dumped all over their fellow Euros as Krugman claims.  To be sure but in their defense,they saw the road far sooner than anyone else and took it.  Should they have dragged their Euro breathern along?  I leave that for self-examination.  They (and recently, the Swedes) were simply smarter and more organized than anyone else.  Now it seems to me that they can make up for whatever ill they have caused by simply dropping out of the Euro zone, reinstating the D-Mark at a substantial premium to the Euro and becomming the importer of last resort and the Mad Max capital supplier to the zone.  Neat, quick, workable and resulting in the first annual Friend of Little Paulie award for sound economic statesmanship.  Somehow I think we may not see that happen.

The result of all of this is, to coin a phrase, "Brussels, we have a problem." What I have always expected to be the end game may be closer than I realized.  I suspect there is little to be done than watch it play out which of course we will.

As an addumdum to Spainish finances, Argentina nationalized it's national oil company, YPF, today.  Who got the short end of the stick?  Reposol, the Spanish oil company.  Whenit rains it pours.  We'll talk about that tomorrow.

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