EU Debts Anchor Sinks Global Investment Schemes

World markets crashed a tad today.  No surprise.  Italy  has stepped into the same debt abyss that Greece slid into.  Led by one of the most irresponsible rulers on earth, the Italians thought they could have days of wild teen sex, gallons of expensive wines and mountains of delusional roses and all would come out perfectly fine.  Of course, society has had a moral collapse there just like in Japan and the US, the two top debt/irresponsible living giants.  The world is nervous about Italy going bankrupt but if the US and Japan both do this at the same time, world economic systems will cease to exist, except for whatever China decides to create or run.


Money exists in this queer void where it functions if capitalist systems function.  If they stumble or fail, the money vanishes into thin air since it is all numbers, not even pieces of paper.  If paper, the relative value of money depends on the condition of desirability of all ‘assets’ which are, to bankers, DEBTS owed to bankers!  When debtors default, the value of the assets used to capitalize debts falls and this causes all other debtors to fail, one by one.  The collapse of many housing markets here, there and everywhere, is a major motor causing ‘money’ to vanish into thin air.



So, in just one day, Stocks lose $37b on Italy fears.  So, ‘fear’ causes billions to vanish!  Isn’t that bizarre, when we look at it realistically.  What everyone fears is, the ‘assets’ which are considered to be ‘capital’ by lots of banks will suddenly become worthless.  If this happens, the banks can’t lend out more magic money made out of thin air.  So the banking system collapses.  The recent collapse in 2008 saw these banks recapitalized by cannibalizing the collective value of entire nations.


Most big banks managed to shovel all of the bad housing and business debt into various central banks and governments.  For example, the entire government of the US and the US taxpayers took a $100+ billion haircut when the bankers handed back billions in bad loans back in 2009.  This loss leader is still losing money and will continue to lose money until it finally dies off entirely or the US government ceases its relentless warfare against working citizens who are seeing all their jobs being offshored or terminated.  So, this quarter, more billions vanished:  Fannie Mae loss widens, asks taxpayers for $7.8B


Back to the New Zealand story about how Stocks lose $37b on Italy fears there is some discussion about how the housing bubble/collapse has finally reached New Zealand and Australia.  Of course!  All housing bubbles are the same.  They all eventually pop.  The hotter the markets, the worse the free fall when rationality reasserts itself and prices fall back to normal levels.  But this causes banks to lose asset value and in turn, prevents them from lending money since their ‘capital base’ vanishes.


  • 12.30pm: One reason why miners aren’t doing too well is that key commodity prices are tumbling, such as copper:
  • Shanghai copper traded on the Shanghai Futures Exchange (SHFE) fell more than 5 per cent at the market open, weighed down by poor sentiment after international copper prices slumped to a two-week low on Italian debt worries.


  • Selling momentum enveloped the wider industrials complex on the SHFE, dragging zinc down over 5 per cent, lead down over 3 per cent and aluminium down over 1 per cent.
  • 12.25pm: Among the major sub-indexes, financials are off 3.5 per cent, materials 3 per cent and energy 3.1 per cent. Even gold miners are off 2.2 per cent, with spot gold hovering below $US1770 an ounce.
  • 12.20pm: Among major stocks, here are the percentage falls: BHP 3.2, Rio 3.9, Fortescue 5.7, CBA 2.9, Westpac 3.6 and Macquarie Group 5.7 per cent. Telstra, off 1.1 per cent, is among the better performers.
  • 12.14pm: Across the region: Seoul, Tokyo, Taipei are all joining the global retreat, dropping between 1.7 and 2.8 per cent or so.
  • 12.10pm: Entering early afternoon trading and the two main share indexes are off about 2.8 to 3 per cent. That leaves the market off about $37 billion or so for the day…which we’ll monitor and change the headline to this piece accordingly.11.52am: More on NZ, actually. There’s an interesting feature from MacroBusiness running on BusinessDay looking at how the slide in New Zealand house prices might be a portent for Australia.

The writer has this summary:

  • I consider the New Zealand “slow melt” to be the base case scenario for Australian housing, with worse outcomes likely should external conditions deteriorate significantly.
  • 11.47am: From across the ditch, some news – even with a rugby connection:
  • The New Zealand manufacturing sector contracted in October to its worst level since June 2009 as the Rugby World Cup distracted business and the construction sector ebbed.
  • The BNZ-Business New Zealand performance of manufacturing index (PMI) fell 4 points to 46.5 in October from 50.5 in September. A figure below 50 indicates a contraction. The index was 50.9 in October 2010.


The main problem with global free trade is, all countries need to export as much as possible.  And then, when things go bad, they all collapse like a house of cards.  All trade is not mutually beneficial.  The US has stupidly clung to free trade for many years now and every year of this period has been characterized by trade deficits which turned totally toxic during the Bush tax cut years.


If the US cuts free trade’s balance so that the US ceases to run in the red, the rest of the world will see a collapse in trade profits and this, in turn, would cause global chaos.  Which is what is happening now.  Greece doesn’t affect world trade hardly at all.  Italy is a biggish economy, yet its role in free trade isn’t as the #1 consumer, it is far from that!  The #1 consumer, bigger than anyone or anything is…the US.  And only the US.  By far and away, the US.


The US cuts back by 50% or more in 2009-2010 and lo and behold, the entire world goes into contraction due to them all, nearly every nation, runs trade surpluses with the US.  File:Cumulative Current Account Balance.png – Wikipedia, the free encyclopedia:  We see that the nations with trade surpluses and thus, increasing sovereign wealth, are oil pumping nations, a huge number of which are menaced by or invaded by NATO, and the only one free of NATO menace is giant nuclear power Russia and the Scandinavian energy producers.


China is by far and away, the huge winner in this trade war.  Note that the only other dark green country is Germany.


Then there is this chart showing the top ten export powers and bottom ten.  Note that the countries in the news today about the market panics are all in the bottom ten along with the true monster in all this, the US.













The gulf between the deficits in the EU nations and the US is obvious.  The US owes ten times the red ink debts than these countries.  Canada, who runs a huge trade surplus with the US, is one of the worst off nations in running trade deficits with mainly Asia.  Ditto, Australia who, like Canada, is a major commodity export power.  They export metals and farm goods, like the US, and then buy Asian manufactured goods and end up in debt.


This sad fact of life ends up in headlines like this one:  US weapons ‘full of fake Chinese parts’.  Who buys these cheap frauds?  US executives are buying this crap.  They, not the Chinese, are cheating the US taxpayers and the Pentagon.  These executives pay Congress millions of dollars so they can get away with selling the government foreign crap that is cheap and thus, increases their profit margins!  Arrest them all!


And no, what really happens is, China is held up as a boogeyman rather than the real crooks here, US executives who cheat the government.  And so Americans don’t produce these things, they are made in China and then sneaked into the country so that US executives can make more money for themselves.




Increasingly, in Europe, everyone is expecting the EU experiment to crash and burn.  Why?  Well, it has one half that is making big trade profits and one half that has the world’s biggest 10 deficits!  This is impossible to run and is doomed, doomed long ago, before the banks and then the governments crashed and burned:  Goldman: euro could split apart – Telegraph


Just look at this headline from today in the UK!   Everyone is scared but has not the slightest idea what is causing all of this mayhem.  The blame is put on national debt, not national TRADE DEFICITS.  Yet, why would a nation be in debt unless it is also running trade deficits?


Japan has huge budget deficits but owes itself this money but Italy, like the UK and US, sells off its bad debts to trade partners who then hold this while hoping to continue these trade imbalances.  So, a UK economist, Ambrose Evans-Pritchard goes insane, howling about how America and China must crush Germany into submission –


As we watch Italy’s 10-yearbond yields near 7.5pc and threaten to detonate the explosive charge on €1.9 trillion of debt, it is time for the world to reimpose order.

 You cannot allow the biggest bankruptcy in history to run its course – with calamitous domino implications – before all options have been exhausted.
One can only guess what is happening in the great global centres of power, but it would not surprise me if US President Barack Obama and China’s Hu Jintao start to intervene very soon, in unison and with massive diplomatic force.


My reply:


The irresponsible bankers in the City of London, the various Queen Elizabethan islands and of course, Manhattan’s infamous Occupied Wall Street all want industrious Germans to bail out the massive debt/asset bubble system set into motion but these same bankers.

Germany has sovereign wealth. China and Germany are on the same side of the fence, both being the #1 and #2 sovereign wealth nations on earth.

The UK and US people, on the other hand, represent TOTALLY BANKRUPT nations so deep in debt, the only nation deeper than they is poor old fumbling Japan! This troika of red ink maniacs are the true cause of the increasing global banking collapse!

NOT the sovereign nations, the huge debtor nations which isn’t Italy or Greece or any of the PIIGS, collectively, they barely hold a candle to the tens of trillions in debt owed by the US, UK and Japan!




To continue, Germany and China have a lot in common and will make common cause eventually.  And the US can’t force Germany to do much of anything suicidal because Germany  has no need to go suicidal!  Germany does have trade partners, especially all the oil exporting nations such as those in the Middle East including Iran and of course, giant Russia!


So…NATO will slowly disintegrate as the mighty US goes bankrupt due to a corrupt Congress and inept Pentagon.  True, the US can invade any oil pumping nation it wishes so long as they first dutifully disarm but those days of easy conquests are rapidly drawing to a close.


The US is seeing its internal wealth vanishing as the value of US real estate collapses:  Ten Million Families Sliding Toward Foreclosure » Counterpunch: Tells the Facts, Names the Names


Greider says the solution is to forgive the debtors: “Write down the principal they owe on their mortgage to match the current market value of their home, so they will no longer be underwater. Refinance the loan with a reduced interest rate, so the monthly payment is at a level that the struggling homeowner can handle.”

Forgiving the debtors is the right thing to do, Greider continues, “because the bankers have already been forgiven. The largest banks were in effect relieved of any guilt for their crimes of systemic fraud or for causing the financial breakdown—when the government bailed them out, no questions asked.”

Far from a show of gratitude, Greider notes the response of the banks has been ugly. “Right now, these trillion-dollar institutions are methodically harvesting the last possible pound of flesh from millions of homeowners before kicking these failing debtors out of their homes—the story known as the ‘foreclosure crisis.’”


If all the people not paying for their homes are ‘forgiven’ and given cheaper loans, this will infuriate anyone who is paying for their homes or didn’t fall for the real estate bubble in the first place.  Banks will not collapse due to all these losses coming out of the Federal Government which holds these mortgages.  So, this would cost another trillion dollars due to the fact, NO ONE will pay their mortgages if they can get them reset at a cheaper level and cheaper interest rate!  No, maybe $10 trillion will be lost as everyone rushes to get reset at government expense!


Japan has basically done this and thus, ran up many, many trillions in debts this way.  The US is already trillions of debt dollars in the red to itself and many foreign powers and so it can’t simply suck up the entire US housing debt losses and still remain solvent.  This would definitely bankrupt the US and this, in turn, would bankrupt much of the world, big time.


We see from other governments that fail, no good comes from going bankrupt: No Interim Government as Greek Disarray Goes On and Italy basically has no government, either.  Nor does Japan, that is, it becomes a revolving door.


ZIRP lending during inflation periods like the one we are in now (shopping is expensive when looking for food or fuel!) so due to ZIRP rates on savings, in the UK, Savers lose £43bn in ‘slow motion bank robbery’ with worse to come.  We can’t escape ZIRP without whole sectors of the world’s economy, especially the US, going bankrupt!  Meanwhile,  The Billionaires Are Betting On Internet Gambling – Forbes…to make profits now that they destroyed all the other less illicit systems.  Next: they go into peddling whores and collecting their share of these poor prostitute’s hard-earned cash.


Here is one typical example of a collapsing bank that used to be, for hundreds of years, a top bank in the UK:  Lloyds Banking Group’s culture saps the energy and enthusiasm of even the keenest staff – Telegraph.  The article is all about the nit-picking pricks who run Lloyds and how they abuse their workers mercilessly.  But the best part of this article is actually one of the comments from one of the shareholders of this dying institution:


Wow, look at this ten year graph!  It went from nearly 800 to 24!  Shareholders fled in early 2011 because they realized they were doomed.  But when Lloyds bailed out other bankers back in the 2008-2009 crash, its stock plummeted nearly instantly to near-worthlessness.  The poor holders of this stock went from being rich to being quite poor.  The money vanished into the infinitely huge stomach of the Derivatives Beast.  Who then burped quite happily.



And this monster is devouring one of the US institutions of supposedly smart investment making:  Berkshire Hathaway Q3 profit falls on derivatives – Yahoo! News.  HAHAHAHA.  The poor guys running this dying entity thought they were so very smart.  And then stuck their head into the maw of the Derivatives Beast after being told, this would protect them from losses!  HAHAHA.  Delusional, no?


Yes, the brightest and richest people on earth are quite delusional.  And the biggest delusion of all is the idea that they could float above nations supporting and protecting them all, while running these places ever deeper into TRADE debts…not government debts but trade debts.  No taxes to keep governments running and no jobs for workers due to free trade.  What a catastrophe!  What a non-surprise to me!  And this is exactly what is NOT being fixed.  Both the GOP and DNC are howling about how they will create jobs.  Well, they can’t do it with free trade destroying jobs!  It is impossible.  Totally impossible.

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Filed under .money matters, Free Trade

15 responses to “EU Debts Anchor Sinks Global Investment Schemes

  1. adamm

    delusional infinite debt looks like this:

    Tis a queer time we are in, and its only beginning ….. its going to be some trip ahead.

  2. payAttention

    and the only one free of NATO menace is giant nuclear power Russia and the Scandinavian energy producers.

    Are you kidding us? NATO parked land-air interceptors in Poland. Putin sent back his physicists to Iran. Nato put in troops in Bulgaria, Romania and Kyrghiz. Putin is coming back in March. What sort of mood do you think he is in. I realize that to you, these places might as well be Rumplestiltskin, but they are not to Putin, since two have long borders.

    Also, I do not have very dear friends in Chile, but I do have a decent friend in Lombardy who had a family electroplating business that was started in the twenties. He is busted. Why don’t you go to Lombardy and take a drive through the countryside. Industrial real estate is very cheap. Berlusconi is hated for giving away thousands of family enterprises to Chinese exports. And contrary to the media pabulum, Italians are not lazy peiple at all. They got killed by the scale of the megaliths in China. How do you expect Italy to compete with China when they are outscaled ten to one. EU, which was supposed to prevent that, failed.


    ELAINE: When US workers were thrown to the wolves, this was blamed on them by our ‘betters’ claiming, US workers are lazy, too. The pursuit of bigger profits led to free trade which led to China becoming the dominate industrial power on earth.

  3. Elaine with regards to Greider’s point would you care to name an example in which debts that could not be repaid actually were? The ancients recognized the utility of the Jubilee and thrived, how have we forgotten this lesson?

    Remember Elaine, a debt is but an agreement and agreements can be, and often are, renegotiated as conditions change.


    ELAINE: They did NOT ‘thrive’ at all! Lending collapsed except if it was at a 100% interest rate over less than 7 years!!!! It led to great poverty.

  4. OC


    Jubilee? Never heard of this concept in Asia all my life. Confucian and Buddhist idea towards debt (or karma) is full payment even through generations…no cheating allowed!!

    Re-negotiations of debts ..yes but conditions are always worse than up front payment…not good if u plan on using Jubilee to discharge debts..loose your face big time!!

    I wonder who came out with this idea without checking with Asian historical context??


    ELAINE: The idea of erasing debts was for the rich who would skip out of their obligations. Never, ever have the poor skipped out on their debts, they were literally enslaved if they went into debt! This ‘jubilee’ idea is just one of many wishful thinking ideas cooked up by people deep in debt.

    It doesn’t work. It leads to no lending if it is imposed even once.

  5. payAttention

    Today US votes to let Russia join the WTO. The multiple personality disorder rages on unmedicated.

  6. KnovKnows

    It’s interesting to examine the root causes of the US trade deficit. Is it because we “allow” free trade, and fail to protect ourselves with tariffs? Is it because our corporations are led by non-patriotic sell-outs who only care about money for themselves (or their shareholders)?

    Or is it more fundamental, that the US system is non-competitive with other countries? What do we need to do to make ourselves more competitive so we can produce things, export things, and give people jobs?? THIS is what the politicians should all be focused on – what policies or systems promote growth and job creation?

    Michael Hudson, my favorite economist, has an excellent essay on updating Ricardo’s trade theory to deal with the “financialization” of our society, i.e. dealing with the rentiers. Basically, it updates trade theory to deal with the other costs of doing business besides labor.

    “These transfer payments to the FIRE sector and government agencies have transformed international cost structures, absorbing roughly 75% of U.S. family budgets. This helps explain the deteriorating U.S. industrial trade balance as the economy has become financialized.”

    According to Hudson, the main factor causing us to be un-competitive is that so much of our money goes to the finance / government (pensions/health care) / war industries, instead of on productive assets. So, one factor leading to US being un-competitive is the huge debt service causing lack of capital for other things; basically the bankers / system dump debt over all of us, and we pay them money = interest instead of investing in productive assets;

    I think some good solutions to make the US more competitive to start would be:

    – Get rid of the financial parasites, the head of which is the Federal Reserve. This is the extractive and oppressive force of our financial system and government that OWS, tea-partiers, anti-war folks, and others are rioting about. Stop bailing out the gambling banks. Make a stable system: no fractional reserve banking so no bank runs or need for bail-outs; no more private creation of money; allow private banks but don’t let a bank gamble and take down depositors (reinstitute Glass Seagall); add a financial transaction tax; regulate derivatives; put some of the crooks in jail! Overall the extractive, non-productive FIRE sectors of our economy need to be reduced at least in half.

    – Debt-free and/or government created money to promote infrastructure spending – a productive asset; will create jobs; will not create inflation if it improves productivity along with the increase in money

    – Simplify the tax code, eliminate special interest loop-holes

    – End the stupid wars

    – blah blah blah; too many things need to be done to list

    Just wanted to share Hudson’s thought-provoking article.


    ELAINE: We can compete with cheaper labor by destroying the incomes of our workers. This is what has been happening relentlessly here as wages fall, workers become poorer and everyone exports to the US so this makes world economies collapse since the US workers can’t buy stuff anymore!

  7. oracle

    LOL…armageddon is upon us…what needs to happen is to eradicate the pure filthy evil corrupt species called humans…press the reset button…or face a hell beyond comprehension!!!!


    ELAINE: If your god wants this, he or it is a Dalek (the Dr. Who robotic aliens who say, ‘Exterminate’ all the time).

  8. “Jubilee? Never heard of this concept in Asia all my life.”-OC

    Sure you have OC, what happened to all of those multi-generational debts “owed” to the pre-revolutionary Lamas and land-lords in Tibet after the intervention of the Chinese Communists? Poof! Gone in a flash.


    ELAINE: That was a ‘revolution’ not a ‘jubilee’. 🙂

  9. payAttention

    Coldtype, are you referring to the line that’s for bank members only? Poof..

  10. OC


    Err..that is a really bad idea because Tibet became Chinese..since u don’t owe debts to yourself ..u write them off…is that your grand idea…become part of China??

  11. Again you’ve missed the point OC. What happened in Tibet was a revolution whereupon, unsurprisingly, the debts were repudiated. To borrow a phrase from Elaine: history is very clear on this. Were the odious debts of Batista’s Cuba repudiated? You betcha. How about Somoza’s Nicaragua or the Shah’s Iran? Ditto.

    Have you ever wondered how the debts or “obligations” owed to bondholders came to be regarded as sacred and entire nations must be reduced into debt peonage to make them whole, yet the debts owed to workers and pensioners are always conditional? Anthropologist David Graeber has provided an intriguing narrative in his most recent book Debt: the First 5,000 Years. In it he argues that debts between parties that are of relatively equal status are often open to renegotiation, however, where there is an asymmetry of power between the parties debts undergo a transformation and become moral obligations. Something to think about.


    ELAINE: 100% correct!

  12. OC


    U missed the point – it’s the Chinese context we are talking about and not the West…read my first post …does not happen in Asia…if the Chinese leaders let it go..they will be seem to be ‘weak’ in the eyes of their population and will get hit ‘Marie Antoinette’ style for them and their entire families…that is what happened to the Ching dynasty and those before them..

    Why else the Japanese government shit in their pants when they realize that the Chinese government is massively buying their debts and no one else…they know what will happen if they can’t pay up…


    ELAINE: Also 100% correct. The yen is strong, also, due to China buying Japanese government debt. Even so, the rich in Japan STILL refuse to tax themselves! Suicidal, indeed!

  13. OC

    Ever asked why the South Korean government keeps lending money to the North Koreans?? They were afraid that too much borrowing by the North Koreans from China will lead to Northern Korean territories being part of China..forever.

    Why doesn’t Vietnam borrow money from China in spite of hyperinflation and a stagnant home economy?? After all, they could do a Jubilee or is it because they know the Asian historic precedents better??

  14. KnovKnows

    “We can compete with cheaper labor by destroying the incomes of our workers.”

    Right, that’s the solution according to what Hudson describes as the neo-liberal (Ricardian) trade theory. I think we all can agree it isn’t working!

    He compares the old, outdated, unfair, Ricardian trade theory with the updated one he calls “classical / progressive”:

    Click to access Classical-v-neolib-theory.pdf

    Under neo-liberal trade policy, “Wage rates are the main variable. Cutting wages is the key to lower prices, as capital goods have a common world price.”

    versus the classical / progressive view, “The cost of living and doing business consists mainly of payments to FIRE. Cutting debt service, employment taxes and debt-inflated housing costs reduce
    employment overhead.”

    Hudson’s solutions are not to lower wages (which create a spiral where people can’t afford their own products, as you noted), but reducing business employment costs by lowering employment taxes (SS and Medicare) by shifting these taxes to the FIRE sectors. We can lower housing costs (so businesses don’t need to pay their people more to buy houses for themselves) by getting rid of credit-inflation by the financial system. Also, people / labor need less money if they aren’t stuck with such huge debt service costs.

    Interesting ideas.

  15. emsnews

    I.e.: Tax the rich! 🙂

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