Cina e crisi: chi ha paura dell’agnello cattivo?

Cina e crisi: chi ha paura dell’agnello cattivo?

di Alberto Bagnai, Sbilanciamoci, 01/12/2010

Crisi e guerra delle valute: tutta colpa della Cina? Contestazione di alcuni luoghi comuni sui cattivi cinesi che spendono poco e risparmiano troppo

Dopo la crisi per un po’ siamo diventati (quasi) tutti keynesiani, e tutti esperti di Cina, e i risultati si vedono. Ad esempio, vorrei commentare un recente intervento di Luigi Zingales sulla "guerra delle valute" pubblicato dall’Espresso. Secondo Zingales dall’inizio della crisi “ogni paese vuole svalutare la sua moneta per aumentare le esportazioni e ridurre la disoccupazione”, ma questa “è una politica miope ed egoista” perché “scarica il costo della crisi sui partner commerciali”. La Cina tiene lo yuan “artificialmente basso rispetto al dollaro”, ma “la soluzione non è in una rivalutazione dello yuan”, poiché “il vero problema è che la Cina nel suo complesso consuma molto meno di quello che produce”. Mentre “nello scorso decennio l’eccesso di consumo negli Usa ha compensato l’eccesso di risparmio in Cina”, ora “gli Usa non possono più permettersi” di assorbire l’eccesso di produzione cinese. Questo genera quindi “un eccesso di offerta a livello mondiale, che forza una deflazione”. Sintesi: la colpa è della Cina e gli Usa hanno generosamente difeso il mondo finché hanno potuto. Questa visione apologetica suscita qualche riflessione basata sui fatti.

1. La Cina non sta svalutando lo yuan rispetto al dollaro, come l’esordio di Zingales vuole far credere. Da quando ha iniziato a fluttuare (luglio 2005) il cambio yuan/dollaro si è rivalutato del 17.6% in tre anni. La rivalutazione si è arrestata per ovvi e leciti motivi nell’ottobre del 2008, non volendo la Cina aggiungere all’incertezza causata dalla crisi globale anche quella dovuta alla fluttuazione del cambio. È ricominciata nel giugno 2010, e da allora lo yuan si è rivalutato di un ulteriore 2.5%. È molto? È poco? Discutiamone. Prima, però, chiediamoci perché tutti i media, di “destra” e di “sinistra”, stanno veicolando l’idea cara agli Usa che la Cina negli ultimi tempi stia svalutando, quando è successo l’esatto contrario.

2. Questo è tanto più vero, in quanto il commercio non dipende dal cambio nominale (cioè da quanta valuta estera si compra con un’unità di valuta nazionale), ma dal cambio reale (cioè da quanto costano le merci estere in termini di merci nazionali), e quindi anche dai prezzi delle merci nazionali ed estere. Ora, dal dicembre 2004 al novembre 2008 il cambio effettivo reale cinese si è rivalutato (cioè la competitività della Cina è diminuita) di quasi il 30%. Un’evoluzione dovuta alla rivalutazione nominale (punto 1) e alla dinamica dei prezzi: nel periodo in questione l’inflazione cinese è stata in media superiore a quella degli Usa, dell’area euro, del G7, ecc., com’è fisiologico per un paese in surplus con l’estero.

3. Prima di rivalutarsi (punto 1) lo yuan è stato agganciato al dollaro per undici anni (1995-2005). Certo, in questo modo la Cina ha, in certi periodi e entro certi limiti, “difeso” la propria competitività verso gli Usa. Ma questi assorbono solo un quinto delle esportazioni cinesi, con una quota stabile nel tempo (dal 18.7% del 1996 al 19.2% del 2008). E l’ancoraggio al dollaro ha determinato una perdita di competitività della Cina verso il restante 80% del proprio mercato estero. In effetti, quando dal 1995 al 2002 il dollaro si è apprezzato del 30% in termini reali, lo yuan ne ha seguito le sorti, apprezzandosi del 27%. Se l’unico scopo dei cinesi fosse stato quello di manipolare “slealmente” la propria competitività, l’ancoraggio al dollaro non sarebbe stata una mossa intelligente.

4. L’idea che l’eccesso di risparmio cinese sia il motore della crisi è cara agli americani, ma a parte questo fatto, che le garantisce cittadinanza su certi media, non ha alcun merito scientifico ed è incompatibile con dimensioni e scansione temporale dei dati. Primo, gli Usa sono in deficit estero dal 1982, mentre la Cina è in surplus dal 1994. Difficile argomentare, al di fuori di un contesto teologico, che qualcosa che viene dopo (il surplus cinese) possa causare qualcosa che è venuto prima (il deficit Usa). Secondo, nel periodo dal 1994 al 2007 il surplus cinese mediamente si è attestato sui 77 miliardi di dollari, a fronte di un deficit americano sui 409 miliardi. Terzo, l’eccesso di consumo Usa ha cominciato a diminuire proprio quando l’eccesso di risparmio cinese è diventato notevole: dal 2006 al 2008 il surplus cinese è aumentato di 183 miliardi di dollari, ma il deficit Usa è diminuito (non aumentato) di 135. Lo si vede bene nella figura.

1. 

   Quella che gli Usa si siano indebitati per assorbire l’eccesso di produzione cinese si rivela quindi una corbelleria, figlia di due errori di valutazione.

   5. Il primo consiste nell’immaginare che il mondo sia composto da due paesi, i buoni (Usa) e i cattivi (Cina), di peso sostanzialmente identico. Questa impostazione, avvalorata anche da recenti interventi su questo forum, è consona al mito americano della frontiera e funzionale al dibattito politico interno agli Usa, ma travisa completamente la realtà (ovviamente, in senso filoamericano). Basta osservare i dati appena citati (punto 4) per rendersi conto del fatto che nel periodo in cui è maturata la crisi il deficit Usa è stato il quintuplo del surplus cinese. Le lamentele degli Usa sono quindi quelle del lupo verso l’agnello (“cur turbulentam fecisti mihi aquam bibenti”): ma nel mondo di Zingales i ruscelli scorrono verso la fonte e gli agnelli mangiano i lupi (anche se questi pesano cinque volte di più).

   6. Il secondo errore consiste nell’ignorare volutamente la relazione fra crisi e asimmetria del sistema monetario internazionale. Come ho ricordato altrove, a Bretton Woods gli Usa vollero basare sul dollaro questo sistema, ignorando la proposta di Keynes di adottare la creazione centralizzata di riserve da parte di un organismo sovranazionale. Questa scelta, maturata quando la guerra aveva posto gli Usa in posizione di surplus strutturale, e motivata dall’aspettativa di trarre profitto dal potere di signoraggio, si è rivelata miope. Imponendo al mondo di usare i dollari, gli Usa hanno dovuto scegliere se dimensionare l’offerta di dollari alla propria economia (lasciando il resto del mondo a secco, e causando un collasso del commercio), o all’economia mondiale (stampando una tale quantità di dollari da rendere inevitabili periodiche svalutazioni del dollaro, a partire da Nixon in poi). È il dilemma di Triffin (1960). Cosa c’entra con la Cina?

   7. Intanto, osserviamo che l’accumulazione di dollari presso la People’s Bank of China (PBOC) non deriva esclusivamente dal commercio bilaterale fra Cina e Usa. Nei 15 anni dal 1994 al 2008 il surplus annuo della Cina verso gli Usa è stato in media di 61 miliardi di dollari, per un totale cumulato di circa 900 miliardi. Le riserve cinesi nel 2008 erano un po’ meno di 2000 miliardi, di cui il 70% (1400 miliardi) investito in dollari, e il resto in altre valute. Di conseguenza, solo il 65% dei dollari detenuti dalla PBOC proveniva direttamente dal commercio con gli Usa.

   8. Ciò significa che la Cina ha investito in dollari anche buona parte dei surplus generati dal restante 80% del suo commercio. I dati (punto 3) mostrano che questa scelta non può essere stata dettata dal desiderio di manipolare il cambio, e il dilemma di Triffin (punto 6) avverte che essa potrebbe rivelarsi pessima (data la tendenza del dollaro a svalutarsi). Ma la natura dollarocentrica del sistema la rende quasi obbligata, perché i dollari rimangono la forma di investimento più liquida sui mercati internazionali e la principale cartuccia da sparare in caso di crisi valutaria. Quando l’accumulazione delle riserve cinesi è iniziata, nel 1995, l’euro (la principale forma di investimento alternativa) non esisteva, e a partire dal 1997 l’esempio degli altri paesi asiatici ha suggerito alla Cina l’opportunità di dotarsi di una massa di manovra da utilizzare in caso di attacchi speculativi, e più in generale l’opportunità di non finanziare lo sviluppo col risparmio altrui. I fatti le stanno dando ragione: tutti i paesi che si sono sbriciolati negli ultimi anni lo hanno fatto dopo un periodo di crescita finanziata coi soldi altrui (indipendentemente dalla natura pubblica o privata del debito).

   Conclusione: per la Cina il dilemma di Triffin si è trasformato in quello del prigioniero. La PBOC non svela il “crimine” del proprio “complice” Usa, cioè non diversifica verso l’euro, perché se lo facesse innescherebbe una fuga generalizzata dal dollaro, forzandone una svalutazione che si tradurrebbe in una enorme perdita in conto capitale nel suo portafoglio, con conseguente contrazione monetaria e deflazione interna. E questo la Cina, che è ancora un paese in grande parte rurale e povero, non se lo può permettere. Non sono gli Usa a comprare generosamente beni cinesi per evitare una deflazione mondiale (punto 4). Sono i cinesi a investire a denti stretti in dollari americani, sostenendo il dollaro per evitare una deflazione interna. E lo fanno perché non hanno altre alternative, nella speranza che gli americani sappiano cosa farci, con tutti quei soldi. Speranza delusa, pare.

Sintesi: la favola del gigante Usa buono, raccontata da Zingales, mi sembra meno plausibile di quella del lupo e dell’agnello. È anche intrinsecamente contraddittoria: perché mai il risparmio dovrebbe essere un vizio in un’economia capitalistica? E perché se c’è un problema di sottovalutazione la rivalutazione è inutile? Comunque scegliete voi, facciamo finta che qui contino le opinioni e non i dati. Certo, agli americani non si può chiedere di praticare Fedro (e a maggior ragione nemmeno la logica di Aristotele). Ma almeno Spiderman dovrebbero conoscerlo! Come dice lo zio Ben, “da un grande potere (di signoraggio) derivano grandi responsabilità (di gestione della liquidità mondiale)”. Con buona pace degli apologeti, non è molto elegante, quando si arriva al momento di esercitare queste responsabilità, rovesciare il tavolo (come Nixon) o scaricare la colpa sugli altri (come Obama).

La riproduzione di quest'articolo è autorizzata a condizione che sia citata la fonte: www.sbilanciamoci.info
Vuoi contribuire a sbilanciamoci.info? Vai qui

Ellen Brown Response to Gary North

Ellen Brown Response to Gary North: QE2 IS the Populist Solution

Economics / Quantitative Easing Nov 25, 2010 - 07:02 AM

By: Ellen_Brown

Gary North, who purports to be an expert on the errors in my book “Web of Debt,” has evidently not actually read it. In an article posted on the Market Oracle on November 23, he says that in calling QE2 (the Fed’s new quantitative easing program) a “bold precedent,” I have switched sides. He apparently missed the entire chapter I wrote on this subject, first published in “Web of Debt” in 2007, saying exactly what I am saying now.

The Federal Reserve is finally using its quantitative easing tool to good purpose, and I’m endorsing that, not just for our central bank but for any central bank anywhere that would be so bold. We are trapped in a web of debt devised by an international banking cartel that has hoodwinked us into believing that we have no recourse but to use money created by their banks as loans. We do have recourse. Money today is simply a legal agreement, an acknowledgment of services performed and debt owed. Every country can and should issue its own money and its own national credit. This would NOT inflate prices, for reasons I have explained again and again. If “money” originates as a receipt for goods and services delivered to the government -- rather than in speculative leveraging by banks not attached to real productivity -- supply and demand will increase together, and prices will remain stable. If the money supply increases beyond GDP, the excess can be taxed or otherwise drawn back to the government.

North writes:

Ellen Brown initially stood with the Greenbackers in their call to end the Federal Reserve. . . . She now says that the FED is on the government's side. "It is the Fed funding the government virtually interest-free, allowing the government to do what it needs to do without driving up the interest bill on the federal debt – an interest bill that need not have existed in the first place." . . .

If she tries to defend herself by saying, "This is consistent with what I have always said," then she is dumber than dirt, or else she thinks her followers are dumber than dirt. If she says, "Yes, I switched. So what?" then she is just another lawyer. . . .

She never had a clue about economic theory or monetary theory. She has therefore switched sides with ease – we might call this intellectual quantitative easing.

Her only hope now is to insist that she never meant anything like this. "No, no, no, I meant something completely different. It's all a big misunderstanding." A lawyer who can't make herself clear needs to find another career – maybe as an economic guru.

I have not switched sides, as anyone who had actually read my book “Web of Debt” would know. Chapter 40, which is all about Ben Bernanke’s helicopter money, says in part (again this was first published in 2007):

[I]n a speech he delivered when he had to be less cautious about his utterances, Dr. Bernanke advocated what appeared to be a modern-day version of Lincoln’s Greenback solution: instead of filling the balloon with more debt, it could be filled with money issued debt-free by the government.

The speech was made in Washington in 2002 and was titled “Deflation: Making Sure ‘It’ Doesn’t Happen Here.” Dr. Bernanke stated that the Fed would not be “out of ammunition” to counteract deflation just because the federal funds rate had fallen to 0 percent. Lowering interest rates was not the only way to get new money into the economy. He said, “the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

He added, “One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies.”2 If the government was inexperienced with the policies, they were not the usual “open market operations,” in which the government prints bonds, the Fed prints dollars, and they swap stacks, leaving the government in debt for money created by the Fed. Dr. Bernanke said that the government could print money, and that it could do this at essentially no cost. The implication was that the government could create money without paying interest, and without having to pay it back to the Fed or the banks.

Later in the speech he said, “A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.” Dropping money from helicopters was Professor Friedman’s hypothetical cure for deflation. The “money-financed tax cut” recommended by Dr. Bernanke was evidently one in which taxes would be replaced with money that was simply printed up by the government and spent into the economy.

QE2 is not quite replacing taxes with money printed up by the government, but as I wrote in the article criticized by Mr. North, in our current system it is the functional equivalent and the next best thing. The Fed is funding the federal deficit by buying long-term government bonds with money created with a computer keystroke, and the Fed rebates its profits to the government after deducting its costs, so this funding is nearly interest-free. These bonds never have to be paid back, because the federal debt is never paid back. An interest-free debt rolled over indefinitely is the functional equivalent of debt-free, government-issued money.

As Dick Cheney famously said, “Deficits don’t matter.” The federal debt not only never DOES get paid back but it CAN’T be paid back under our current debt-based monetary regime. This is because, in some sense, it IS our money supply. As I’ve explained in another article I’m writing now:

Virtually all money today originates as debt, and private debts eventually get repaid, so somebody has to be in “permanent” debt to maintain a stable money supply. The federal debt serves this role. (Compare charts below.) The federal debt has been the basis of the U.S. money supply ever since the Civil War, when the National Banking Act authorized private banks to issue their own banknotes backed by government bonds deposited with the U.S. Treasury.

To meet the demands of an expanding economy, the money supply must be able to expand; and when the money supply is created as a debt (as it is today), that means the federal debt must be able to expand. This was confirmed by Marriner Eccles, Governor of the Federal Reserve Board, in hearings before the House Committee on Banking and Currency in 1941. Representative Wright Patman asked Eccles how the Federal Reserve got the money to buy government bonds.

“We created it,” Eccles replied.

“Out of what?”

“Out of the right to issue credit money.”

“And there is nothing behind it, is the­re, except our government’s credit?”

“That is what our money system is,” Eccles replied. “If there were no debts in our money system, there wouldn’t be any money.”

That explains why the federal debt never gets paid off but just continues to grow. The federal debt hasn’t been paid off since the presidency of Andrew Jackson nearly two centuries ago. On Jan. 8, 1835, six years into Jackson's presidency, the debt actually reached zero. According to the Bureau of Public Debt, this officially lasted one day. Not long after, America plunged into a depression. By 1838, the debt was $3.3 million. By the end of the Civil War, America owed $2.7 billion.

Economist John Kenneth Galbraith wrote in 1975:

In numerous years following the [civil] war, the Federal Government ran a heavy surplus. [But] it could not pay off its debt, retire its securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply.

In all but five fiscal years since 1961 (1969 and 1998 through 2001), the U.S. government has actually exceeded its projected budget, adding to the national debt. The debt soared to record proportions during World War II. By the end of the war, the U.S. debt was more than 100 percent of GDP.

This obviously did not hurt the economy. The productivity generated by record government spending during World War II created the infrastructure that allowed the country to dominate industry globally for the next half century. We are seeing the same sort of rapid infrastructure development today in China, which may well fill the role of world productivity leader in this century.

The U.S. debt incurred during World War II was never paid off but just continued to rise. This too did not hurt the economy; the debt just became a smaller and smaller percentage of GDP as the economy expanded.

Indeed, that is the secret to adding “money” to the system without inflating prices: it needs to be used for productive rather than speculative purposes. Inflation results when “demand” (money) exceeds “supply” (goods and services). When money is used to “make money” (speculation) without adding to goods and services, prices are driven up. When the money is used to produce goods and services, supply and demand increase together and prices remain stable.

The issue posed by QE2 is the sovereign right of a country to print its own money, debt-free and interest-free. Whether conservative, liberal, or populist, any true patriot would support that; and we should support it not just for the United States but for all countries.

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.

WikiLeaks, Bank of America Rumors

WikiLeaks, Bank of America Rumors Send Stock Dropping

The Huffington Post, William Alden, 12- 1-10

Bank of America's stock took a hit on Tuesday, as rumors circulated that WikiLeaks could release a trove of the bank's secret -- and potentially "unethical" -- documents next year.

As WikiLeaks founder Julian Assange cooly contemplates how best to "present" the data he says he has, investors in Bank of America are nervous: The bank's share price dropped 3.18 percent on Tuesday. The information-leaking organization is sitting on a massive pile of internal documents from one of the big U.S. banks, Assange told Forbes, and an interview he gave last year suggests the big bank could be the country's biggest, Bank of America.

According to Assange, his organization had five gigabytes of Bank of America documents in 2009, which the New York Times notes is roughly equivalent to 600,000 pages of information.

"You could call it the ecosystem of corruption," Assange told Forbes about the upcoming release. "There will be some flagrant violations, unethical practices that will be revealed." He noted, also, that "the great value is seeing the full spectrum" of how the bank operates.

Bank of America released a statement that expressed skepticism.

"More than a year ago WikiLeaks claimed to have the computer hard drive of a Bank of America executive," the statement says. "Aside from the claims themselves we have no evidence that supports this assertion."

If the documents do contain embarrassing information, they'll come at a bad time for the bank -- or perhaps they won't reveal much that the public doesn't already know. Amid disclosures that it employed "robo signers," who approved thousands of foreclosure documents without reading them, the bank temporarily halted its foreclosures, and it now faces a Federal racketeering lawsuit. In a recent court case, a bank employee said the mortgage company that Bank of America now owns failed to deliver key mortgage documents when it sold those mortgages.

As the mortgage and foreclosure controversy drags on, investors and homeowners alike are challenging the way Bank of America handled vitally important paperwork.

SPECIAL REPRINT OF "PIECES OF EIGHT"

ANNOUNCING A SPECIAL REPRINT OF "PIECES OF EIGHT"

By Dr. Edwin Vieira, Jr., Ph.D., J.D.
December 1, 2010

NewsWithViews.com

Thanks to the generous support of James Turk and the GoldMoney Foundation (www.GoldMoneyFoundation.com), Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution is now in the process of being reprinted by R R Donnelley, one of the premier printers in the United States. This is a special run of the 2002 revised edition of the two-volume, 1,700+ page study of American monetary law and history which has been out of print and virtually unavailable (except at scalpers’ prices) since 2006.

Those who have had an opportunity to peruse this book know that there is nothing equivalent on the market, and likely never will be again. And those who have not seen it will find it to be as comprehensive and complete a study of money and banking in the United States as could be desired by anyone who wants to inform himself as to how sound money and honest banking were subverted and then largely eliminated in this country, where this process of planned degeneration has led us, and what might be done to return America to her constitutional roots. See the reviews posted at amazon.com.

I expect that books will be ready for delivery by mid-January, 2011, and will be available only from me.

• The price per two-volume set, delivered by USPS media mail to any address within the continental United States, will be $149.95 plus $10.00 shipping and handling, for a total of $159.95.

• For orders shipped by media mail to an address within Virginia, add 5% sales tax ($7.50), for a total (including shipping and handling) of $167.45.

• For orders shipped to Alaska or Hawaii, outside of the United States, or within the continental United States by other than USPS media mail, arrangements can be made for delivery by FedEx, UPS, or other means, as the customer desires.
Please write “special shipping” on your order, and supply a telephone number and/or e-mail address, so that you can be supplied with the available options and their costs.

• To secure your pre-publication order, send a personal check or money order, dated no earlier than 2 January 2011, to:

Edwin Vieira, Jr.
52 Stonegate Court
Front Royal, Virginia 22630

No checks or money orders will be cashed until the books are in my hands and ready to ship.

Please note that this offer may be modified or withdrawn at any time.

Abuso del diritto per la banca che usa strumenti finanziari

01/12/2010

Abuso del diritto per la banca che usa strumenti finanziari per conseguire vantaggi fiscali

AteneoWeb, a cura di: eDotto S.r.l.

La Commissione tributaria provinciale di Reggio Emilia, con sentenza n. 242/01/10 del 29 novembre 2010, ha respinto il ricorso presentato dalla Holding Credito Emiliano Spa avverso un avviso di accertamento con cui il Fisco le aveva contestato, per l'anno d'imposta 2004, un reddito ai fini Ires maggiore rispetto a quello dichiarato.

La vicenda discende dall'utilizzo, da parte della Banca, di alcuni prodotti finanziari grazie ai quali la stessa aveva conseguito un vantaggio fiscale. In particolare, detti strumenti erano strutturati in maniera tale che chi partecipava all'operazione, grazie all'utilizzo della ripartizione pro-quota, poteva monetizzare i crediti d'imposta riconosciuti con un effetto moltiplicatore su più beneficiari. L'utilizzo degli strumenti finanziari – secondo il Fisco – era volto proprio alla riduzione del conto fiscale attraverso operazioni su titoli brasiliani generatrici di credito di imposte figurativo e operazioni su azioni di società residenti nel Regno Unito quotate nei mercati regolamentati.

La messa in atto di dette operazioni è stata qualificata dai giudici della Commissione provinciale come un abuso del diritto in quanto, nella specie, era stato ravvisato un uso improprio delle convenzioni contro la doppia imposizione. Inoltre, non erano ravvisabili “valide ragioni economiche” a supporto delle operazioni stesse.

Ireland's debt servitude

Ambrose Evans-Pritchard: Ireland's debt servitude

Submitted by cpowell on Wed, 2010-12-01 02:30. Section: Daily Dispatches

By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, November 30, 2010

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/ir...

Stripped to its essentials, the E85 billion package imposed on Ireland by the Eurogroup and the European Central Bank is a bailout for improvident British, German, Dutch, and Belgian bankers and creditors.

The Irish taxpayers carry the full burden, and deplete what remains of their reserve pension fund to cover a quarter of the cost.

This arrangement -- I am not going to grace it with the term "deal" -- was announced in Brussels before the elected Taoiseach of Ireland had been able to tell his own people what their fate would be.

The Taoiseach said afterwards that Brussels had squelched any idea of haircuts for senior bondholders: a lack of "political and institutional" support in his polite words, or "they hit the roof," according to leaks.

One can see why the EU authorities reacted so vehemently. Such a move at this delicate juncture would have set off an even more dramatic chain reaction in the EMU debt markets than the one we are already seeing.

It is harder to justify why the Irish should pay the entire price for upholding the European banking system, and why they should accept ruinous terms.

I might add that if it is really true that a haircut on the senior debt of Anglo Irish, et al., would bring down the entire financial edifice of Europe, then how did any of these European banks pass their stress tests this summer, and how did the EU authorities ever let the matter reach this point? Brussels cannot have it both ways.

Ireland did not run large fiscal deficits or violate the Maastricht Treaty in the boom years. It ran a fiscal surplus (as did Spain) and reduced its public debt to near zero. German finance minister Wolfgang Schauble keeps missing this basic point, but then we don't want to disturb a comfortable -- and convenient -- German prejudice.

Patrick Honohan, the World Bank veteran brought in to clean house at the Irish Central Bank, wrote the definitive paper on the causes of this disaster from his perch at Trinity College Dublin in early 2009. Entitled "What Went Wrong In Ireland?," it recounts how the genuine tiger economy lost its way after the launch of the euro, and because of the euro.

"Real interest rates from 1998 to 2007 averaged -1 percent [compared with plus 7 percent in the early 1990s]," he wrote.

A (positive) interest shock of this magnitude in a vibrant, fast-growing economy was bound to stoke a massive credit and property bubble.

"Eurozone membership certainly contributed to the property boom, and to the deteriorating drift in wage competitiveness. To be sure, all of these imbalances and misalignments could have happened outside EMU, but the policy antennae had not been retuned in Ireland. Warning signs were muted. Lacking these prompts, Irish policymakers neglected the basics of public finance."

"Lengthy success lulled policy makers into a false sense of security. Captured by hubris, they neglected to ensure the basics, allowing a rogue bank's reckless expansionism," he wrote.

Let me add that the ECB ran a monetary policy that was too loose even for the eurozone as a whole, holding rates at 2 percent until well into the credit boom and allowing the M3 money supply to expand at 11pc (against a 4.5 percent target). The ECB breached its own inflation ceiling every month for a decade. It did this to help Germany through its mini-slump, and in doing so poured petrol on the bonfire of the PIGS. So please, no more hypocrisy from Berlin.

The truth is that the EMU venture is one of shared culpability. Yes, the Irish should have regulated their banks properly and restricted mortgages to a loan-to-value ratio of 80, 70, or 60 percent, forcing it down as low as needed -- as Hong Kong and Singapore do -- to stop idiotic bubbles.

But almost nobody understood the implications of monetary union: in Dublin, in Berlin, in Brussels, and Frankfurt. They were almost all beguiled (though I doubt that the ECB's Axel Weber and Jurgen Stark ever were).

Given this, why should the Irish people accept the current terms? As Citigroup said in a note today, the EU part of the package will come at around 7 percent -- higher than the fee paid by Greece. By 2014 interest payments on Ireland's public debt (then 120 percent of GDP) will be E10 billion, while tax revenues will be E36 billion. This ratio is well above the average default trigger of 22 percent, as calculated in a Moody's study.

Nominal Irish GNP has contracted by 26 percent since the peak. It is nominal, not real, that matters for debt dynamics.

Ireland is in a classic debt-deflation trap, as described by Irving Fisher in his 1933 study.

Yes, it has a very vibrant export sector, and can perhaps claw its way out of the trap -- which Greece and Portugal cannot hope to do in time, in my view. In a way that makes the choice even harder.

The question is: Should the Dail vote against the austerity budget on December 7, Pearl Harbour Day? And should the next government -- with Sinn Fein in the coalition? -- tell the EU to go to hell, do an Iceland, wash its hands of the banks, and carry out a unilateral default on senior debt by refusing to extend the guarantee?

The risks are huge, but then the provocations are also huge. And there is a score to settle. Did the EU not disregard the Irish "no" to Lisbon, just as it disregarded the first Irish "no" to Nice? Did it not trample all over Irish democracy?

It is not for a British newspaper to suggest which course to take. Both outcomes are ghastly, but as one Irish reader wrote to me: If Eamon De Valera could defy world opinion in 1945 by sending condolences to Germany for the death of the Fuhrer, today's leaders need not worry too much about scandalizing those who made them swallow Lisbon.

Compliance is traumatic. Default is traumatic. What the Irish have before them is a political choice about what they wish to be as a people, and a nation.

Let me finish with a few words from Dan O'Brien, the economics editor of the Irish Times, that caught my eye:

"Nothing quite symbolised this state's loss of sovereignty than the press conference at which the ECB man spoke along with two IMF men and a European Commission official. It was held in the government press centre beneath the Taoiseach's office. I am a xenophile and cosmopolitan by nature, but to see foreign technocrats take over the very heart of the apparatus of this state to tell the media how the state will be run into the foreseeable future caused a sickening feeling in the pit of my stomach."

My sympathies.

The Dual-Mandated Failures of the Fed

The Dual-Mandated Failures of the Federal Reserve

By The Mogambo Guru

11/30/10 Tampa, Florida – I thought I knew everything about the foul Federal Reserve in that I knew they cause inflation in prices by deliberately creating too much money, which is the One Big Thing (OBT) that you do not want because of the social upheaval of people starving to death and rioting in the streets.

And I thought I knew that the Federal Reserve was originally charged with preserving the value of the dollar, but apparently that is not so. Ergo, the Federal Reserve was not prevented, or warned, or even suggested to refrain from actually being evil, in that we have had continuous inflation in prices since the inception of the Federal Reserve in 1913 because of the vast increase in the money supply since 1913, and only a vast and expensive expansion of the welfare state has kept starvation and rioting under control… So far.

So I was happy to learn a few things from The Wall Street Journal, like how only since 1978 has the Fed been given a so-called “dual mandate” to achieve both price stability and full employment, where “in the original Federal Reserve Act of 1913 Congress asked the central bank to supervise banks. It did not mention explicit economic goals. Even in the Keynesian heyday of the Employment Act of 1946, Congress did not ask the Fed to manage the economy.”

Of course, there are those who ask, “Why quibble about whether the Federal Reserve is a failure in both its ‘mandates’ of maintaining stable prices and high employment now that the horrible Federal Reserve is actually beginning their promised creation of another $600 billion in the next six months, and by extension another $1.2 trillion in the next year, and in fact will be buying a total load of almost $2 trillion in Treasury debt in the next twelve months, when you should be working and not standing around discussing this stupid stuff on company time?”

As I was slumping back to my desk, I was muttering under my breath, “The reason is because of inflation in prices from all of this inflation in the money supply and how it is going to destroy us, you moron!”

I’ll bet that if I was in China, my stupid Chinese boss wouldn’t be asking me such a stupid question, as David Stevenson in the Money Morning newsletter notes that “the official figures showed China’s cost of living climbing by 4.4% year-on-year.” Yikes!

And all of this inflation in prices is because, “In the last seven years, China’s M2 money supply measure – how much cash is sloshing around the system – has increased more than threefold. In other words, there’s been a massive credit bubble” that has not only produced alarming inflation in prices, but “rapid economic growth – China is growing at around 10% a year just now,” which means more demand and higher prices still! Yikes!

And as bad as that is, Mr. Stevenson goes on that “a member of the Chinese Academy of Social Sciences, one of the government’s top think tanks, said that by its own calculations the country’s consumer price index had been understated by more than 7% over the past five years,” which means that the terrifying 4.4% inflation is grossly understated, and has been estimated by others to be as high as 10%!

This probably comes from the fact that “Food prices are already rising at 10% year-on-year. The Xinhua news agency reported that a basket of 18 staple vegetables cost 62% more during the first ten days of November than in the same period last year.”

They did not mention anything about pepperoni prices, sausage, bacon, cheese or any other ingredients of pizza, so I imagine that’s why food riots have not broken out, plus the fact that the Chinese are said to be buyers of gold, protecting themselves against the debasement of their money by their banks and government.

And since the same strategy of buying gold, silver and oil when so much money is being created works everywhere, I imagine that in Chinese they say something that sounds like “Ah-so! Oy chow wan go!” while we here in America say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning