EUROPE: DIAGNOSIS AND PRESCRIPTION
SUMMARY | INTRODUCTION | DIAGNOSIS | PRESCRIPTION | EPILOGUE
European nations have some severe problems with debt (just like all other developed nations). European nations are now suffering of 20 years of mostly artificial credit based growth, with very little real economic growth. This is being corrected these days. Europe should not pay the past by weakening the future (traditional QE), but should use Energy QE to solve the problems of the past while enforcing the future.
Traditional QE doesnít fix/solve nothing: it just postpones solutions while deepening the problems. Starting with backing the Euro with energy investments will bring Europe back in a global leading position without contaminating everything and everyone in the Euro Zone with debt. Energy QE will restore the economies of Europe, prevent the collapse of financials and by this all prevent a collapse its economies and governments. By walking further on the Traditional QE way and/or further internation bailouts that doesnít deliver any economic progress (aka without the use of Energy QE) the probability of an European Spring (with all its economic damage for all economies involves) grows every day.
If youíve never seen a balance sheet in your whole life, or have worked your whole life in science or government we advice to read the Diagnosis. If youíre already convinced that Europe is in structural dire straits, just skip the Diagnosis and go straight to the Prescription. The Prescription is one line to redirect the money creation away from the constipated/declining real estate realm towards the emerging/growing energy realm.
The tone of voice chosen for this Diagnosis and Prescription is just the plain speaking English style. Why? Economic language would limit the reach to only economists and by that nothing will be changed and all efforts invested in it will be wasted. Even no footnotes either for the same reason of not limiting the reach. This Europe: Diagnosis and Prescription proposal is made in a cradle of economic, governmental and monetary analyses and modelling. See http://www.planck.org/testimonials for third party assessments of the quality of this cradle.
This Europe: Diagnosis and Prescription should be neutral in any sense/facet, it has to be just generic: so it can serve left, right, segregationists and integrators all together as it delivers them analyses and solutions above their differences. Choosing to take a side for any political flavour would be stupid to do for us: it would limit the reach aka the impact of the work we invested, something we donít want to see, so we stayed away from any political colour and also from any monetary colour too for the same reason. Any solution that could not convince anyone would be not a solution.
Making a Prescription that a) works and b) anyone would like was the only target we had in working on this, the Diagnosis is just and only a wide road towards the Prescription to get everybodyís maximal attention. Where someone rides on the Diagnosis road is not that important: the destination aka the end conclusion will be the same for all.
Therefore itís the Prescription that counts as thatís something that could bring change, not only rescue. This because rescue plans often donít deliver rescue as they are focused on the problem and not on the solution. The Prescription could bring the market advice on the Euro back on Buy (from: Sell). In plain English: If both Mr. van Rompuy (european integration leader) as Mr. Farage (european segregation leader), and both Mr. Draghi (Governor ECB) and Mr. King (Governor BOE) donít like it: weíve failed. Weíve tried to stay away of any political (left, right, segregationists and integrators) or monetary (market based central bank or government based central bank) vision, branding or organization as far as possible. When weíre not able to serve all together, weíve wasted your and our time as no other solution than one that convinced ever will be implemented.
This Diagnosis is just economic aka neutral and has no political flag what so ever. It has no left flag, no right flag, no integration flag nor segregation flag. It just describes the actual status regardless any political flavour. Still this realistic and fact driven analysis is one no one (in any political or monetary camp) wants to hear. This we call short blindness aka denial. We see the world as we are. But the world sees what Europe donít see or donít wants to see. And the world acts in line with their observations. Time to stop fooling ourselves and get real. Than we start to consider prescriptions in line with the diagnosis and not in line with our pink coloured mainly on wishes build narratives. If thereís one big mistake Europe is making these days is not recognizing the mood aka the perception of the world on Europe: the rest of the world sees Europe as a burning house with no solutions at hand. We have a lot of monetary contacts in the USA, in Russia and in China. Itís sure that in those regions the mutual feeling is that Europe not has just a small/short cold.
Recession is in Europe to stay for at least one or two decades to come. Anyone telling otherwise is telling pink fairytales based on wishes instead on facts. If you disagree with some of the points of the diagnosis: just forget those points: just take what you like and eat all you can. Some disagreement on some diagnosis will not change the narrative at all. The diagnosis in just one line is: The last 20 years of the European economy where build not on real growth but on artificial credit. Europe has to face due to that artificial one time credit based Ďgrowthí several not so pleasant developments (regarding any political and/or economic and/or monetary action that will of will not be taken).
How much of such not so pleasant developments can be analysed? We described 38 in total, but there will be probably more we didnít mention nor described. So see below for the 38 ones we described and take your pick, itís not of any effect on the conclusion if you disagree with some of those 38 development descriptions. Just drop those and forget them but cherish the remaining descriptions you like. Why this facultative approach? This diagnosis doesnít want to have any political nor monetary colour at all. Why? This would limit the reach of it which would harm the goal of a wide understanding of the current situation. Even if you forget say 90% of those 38 listed developments as they donít fit into your narrative of you donít like the them: the 10% of those left are enough to get very worried (as the house will be still in fire).
The only purpose of this Diagnosis is tearing down denial, washing away the ignorance on the current status of Europe. If youíre no longer in denial on the structural problems that face Europe: just skip this 38 short part Diagnosis and go directly to the Prescription. Or just walk through the headers and read only that parts of the headers that have your interest.
1) Europe is in decline. Europeís economy will retract to real economic levels from the artificial by credit pumped up levels (delivering a huge set back: as most of the growth of the last 20 years was just credit driven artificial growth). Growth is a word of the past for Europe. Contraction is a reality for Europe. The air will be deflated out of the system. This will hurt, not a little, but deeply and everywhere. Growth is widely absent in Europe and where itís still there itís low growth that when taken inflation into the calculation is negative Ďgrowthí too. Other parts of the world have growth figures of 5 till 8%. Europe is at least underperforming big time. The price of fake credit based growth is not cheap.
2) Europe is in debt. The credit that is burned in those last 20 years to maintain fake credit driven growth is in many cases due and canít rolled over by refinancing it that easy anymore (delivering in a time of economy contraction from credit driven artificial levels to real levels an extra and severe heavy burden). The price of fake credit based growth is not cheap ones again. Paying back from quite some less output canít quite called a party. Some debt is not a problem although debt is giving some sovereignty by definition. Too much debt occurs when too high payments on interest and amortization poison the budget space aka make budgeting sour. Add by this the bazooka effect of the fact that most of the long term governmental debt is financed with short term paper. From financier of the world to debtor of the world. European leaders on road trip to emerging nations to collect funding is the current zeistgeist. Quite some change.
3) Europe experiences a credit crunch. The problem with credit driven artificial growth is that it finally gets detached of the underlying economic reality (aka the in this credit boom created not good loans moves towards default en the system halts (aka a credit crunch period starts). A credit crunch is sometimes also called: have passed PeakCapital. When this happens normal interbanking credit growth becomes impossible and central banks steps in with quantitative easing (creating money without increasing prosperity). Quantitative Easing this way is purely defensive in characteristics and just has as goal preventing collapse. Defensive use of Quantitative Easing is just watering down the value of financial assets and therefore not popular by those who owns financial assets (as the relative value of those declines), but when their financials assets move towards the cliff too, holders of financial assets favours the partial value lost of QE over losing the asset at large. A credit crunch means that the money supply to any other activity than financial holdings is tightened. This impacts the real economy severely. A credit crunch aka peak capital is the price that the real economy pays for over crediting. The price of fake credit based growth is not cheap.
4) Europe has a leverage problem. The problem with artificial credit driven growth is that it keeps growing till it hits the barriers of capital supply aka till the model runs out of other peopleís money. While artificial credit driven grows expands the leverage ratios will be lowered (needed to get the game going). This has not only happened by lowering capital demand for banks (which delivers higher leverage ratios). This has be done by a whole toolbox of other instruments that bypass the capital demand legislations. Financials with less that 1% equity became normal and where seen solvent by the market. Itís not hard to understand that having less than 1% equity is a recipe for problems (any relative small event could deliver an insolvency risk: no build-in buffer available). Governments have been no better than banks: governments run even steady budget deficits for decades. Both the banks and the governments in Europe were counting on the concept of ever growing wealth. They forgot that the world was changing, that emerging markets would take over. When growth stops the high leverage model collapses.
5) Europe is insolvent. Debt can rise as long the funding goes well. But when debts rise and economies decline youíve got a problem. Regardless who to blame: you will reach insolvency sooner or later. Ho, ho, ho the northern european nations will say: weíre solvent and we got those days even finance at 0% interest, so donít call us insolvent, weíre maximal solvent, more solvent than ever before in our history. Unfortunately this is not the case. If funding markets cool down by internal of external developments (and by this interest rates go up/north) this hits double hard: a) less refinance/rollover so significant more amortization and b) very fast much more higher interest rates. Both developments drains any governmental budgeting to zero spending levels: the whole budget will consumed by amortization and interest payments. The consequences of such a situation are gigantic. When governments try to cover this with higher taxation economies will decline. Separate from this: such an immediately stop on governmental spending (regardless if someone thinks this is good or bad) will lead to civil unrest which will decline economic output severely: see the economic data of the nations that have been visited with the Arabic Spring.
6) Europe has a funding problem. When one sovereign debt defaults in Europe, the capital market will stop funding any government in Europe. All European sovereign debt will be downgraded and by that will be disposed at all costs. New funding will not be expensive, but just be impossible. This delivers also a problem for Northern Europe which has financed more than 25% of their long term debt in short term paper as that was Ďcheaperí. This penny wise but pound foolish strategy will break their solvency. They will not only have budget deficits that they must finance, they also must refinance all at least 25% of their sovereign debt each year. When the markets are not willing to do so, this paper expires without refinance/rollover and all European nations will become insolvent. Governments who face this will not survive that easy: there will be more striking hours than working hours in those nations. Unless politicians can impress the people by honesty on the status quo and future plus attached alternatives/inspiration/leadership, the reduction in governmental budgets due the too much debt and attached funding situation will drive the people towards resistance/strike/turbulence.
7) European banks will go broke. Quite a statement. But anybody who calculates the vanishing of all financial asset values couldnít make any other conclusion. Average leverage ratios of 5% are not sufficient to handle a 50% write down on the assets. Will a 50% write down become reality. Just add all these described down sides all together and a 50% write down ratio will seem even too positive. Banks need a new trick otherwise they will all go broke. No government can bail them out in the level needed. Europe will run interbanking deficits to banks outside Europe and money transfers will not be honoured by the counter parties outside Europe. This dark sky is why financial values hold outside the Euro Zone are retracted the last month out of Europe. If thereís one big mistake Europe is making these days is not recognizing the mood aka the perception of the world on Europe: the rest of the world sees Europe as a burning house with no solutions at hand. This capital drain is what the banks hurt once again and big time. Where there are alternatives possible they will be taken: everybody is running to the exit door. Monetary swaps with other central banks and guarantees of the ECB towards other central banks are the pillars that keep the building standing. Europe is on the edge of a monetary winter. As bailouts are will not be possible anymore as the governments are broke too, most of the banks will taken in receivership by the governments (this is quite some other status than nationalization). Bank holidays (freeze of operation) will be common.
8) European pension funds will shrink beyond any expectation. Quite a statement. But anybody who calculates the vanishing of all financial asset values couldnít make any other conclusion. The response will be that the flow of incoming capital will stop as nobody wants to continue paying monthly in the knowledge that the money paid will just disappear to cover losses. The whole pension fund industry will become something of the past, just administrating the old assets and claims. With no new funds coming in they will go in hibernation status. In a world where 68% of all assets are in different types of financial assets (Global Wealth Report of Credit Suisse), any blow out of the value of these assets will hit the financial asset holders big time.
9) Europe has lost itís industrial production. And by that itís position in the world: the things Europe could deliver are now made elsewhere. We really thought that financial Ďengineeringí was the best product/sector a nation could achieve. This neglecting of its production base comes automatic with artificial credit driven growth. When consuming gets more important than production, capital assets are declining in rapid speed, hard capital assets are replaced by fake growth based fake/soft capital assets, debt pills up, but even more important: the economy is exported. A combined economic/monetary/governmental disaster will mathematical certain occur. You canít abandon economic supply without paying the price of collapse. The credit driven consumption focus was a bad idea with heavy consequences. The price of fake credit based growth is not cheap ones again. Paying back from quite some less output, out of less economic capacity is not a party.
10) Europe has lost its head start positions. On all the non capital based facets like education levels, innovation levels among the other things that makes a region economic successful: Europe is no longer the global leading region. As other parts of the world accelerate in rapid speed on those non capital based assets. Not only Europe has lost itís capital based economic head start, it also has lost itís non capital based economic head start. Unfortunately Europe sees itself still as top of the world, as top of the economic food chain. Europe its self-image is inflated too. The view of Europe on the rest of the world is still colonial. The reality is that even Africa has near double digit growth figures and Europe will have near double digit decline figures. The price of fake credit based growth is not cheap ones again.
11) Europe is getting old. Europe is getting demographic older each year while other parts of the world have much more vibrant young population. Young people work hard. Old people do not work or work less hard. Working hard or working not or slow delivers quite another economic output. Being adaptive or being static delivers quite another economic output too. An older demographics doesnít have to be a problem for a continent (even with the attached higher healthcare costs, even by a declining economy) if the capital situation of the elder people and the nations are solid. Both are the opposite. The price of fake credit based growth is not cheap ones again.
12) Europe is getting less healthy. Young people are more healthy and old people are less healthy. This one line has huge financial consequences for any existing health care model in Europe. Health costs will explode in Europe. No state with a declining economy can adopt this huge exploding health cost growth. Health costs and elderly people state benefits will become a huge weight on the European economy. This is very sour for both states, the elderly people involved which have worked there whole life and sees at the evening of it their build-up benefits disappear as snow in the sun and the younger generations. State issued care for elderly people will shrink towards levels beyond any expectation right now. Health care will become more a family affair than a governmental task. But in other demographic groups thereís another cost bomb building tension: obesities will become a huge health cost in Europe, like it has become one in the USA already.
13) Europe is getting poor. The capital of the elder people is (or should we say: was) in savings/pensions which are destroyed by above and below described facets. The nations have bankrupted themselves in denial based responses when the debt iceberg came to the surface. So Europe has an older population which is robbed of their capital position by the global casino of debt and governments that canít take care of them due to excessive debts. The financial situation (and thereby the purchase power) of most of the elder people will collapse. They will be left with nothing in nations with no budgets. Europeís elderly people will live by the grace of their children. This will wipe out a huge part of the economy, as the upside of old demographics (the economic demand by aka purchase power of elderly people) will vanish. The price of fake credit based growth is not cheap ones again.
14) Europe has become spoiled. The European population has become very spoiled: Credit driven fake growth has changed our attitudes. Weíre not that competitive anymore, we think anything comes easy, weíre not used to hard work and head winds anymore. One big exception are the young professionals and young workers: the group from 25 till 40 years works really hard. Especially the two job families are working very hard just to meet their family demands. But in general the credit based consumption had changed our view on life and economy. Weíre focused on security, no longer on innovation. Weíre institutionalized. The price of fake credit based growth is not cheap ones again.
15) Europe has become arrogant. The self perception of european people is not the realistic anymore in quite a changing world. The idea of western superiority is still too deep too wide existing in the mindset of the european people. By this misconception they underestimate the rest of the world big time. Europe is broke, old, spoilt, etc, but still thinks that they are superman and superwomen. Even while the have bag Ďsecondí and Ďthirdí world nations to bail them out, still theyíre not realizing their own arrogant perspective on the world. Other parts of the world have become richer, smarter, more productive. The colonial past of Europe has delivered them almost 60 years later a huge bill. Not presented by someone else, but just grown into the mind of the European people: false perspective. The black and yellow people outperform the caucasian people more and more. The superior attitude of letting the in their wrong perspective Ďdumbí regions in the world do the production work for the Ďsuperiorí western people was a misconception. They as smart as the Europeans, they younger, less spoiled and want to achieve a better life and for that they learn/work harder. Arrogance is a huge problem for Europe. The superior Ďinnovationí industrial direction for Europe was just a misconception of both own weak performance and other regions high potential.
16) Europe has become too expensive. Being expensive is possible as long as other regions are outperformed in quality and/or service. If the other regions catch up with quality and/or service being expensive is no longer an option. Only for strong brand sensitive products this is different, but this also change as brands started producing also in other regions. Europe is not only in wages (related to the world market), but in everything. The whole chain of costs has to go down, not only the wages. Food should become cheaper. Housing should become cheaper. Government should become cheaper. Everything should become cheaper. Life should become less expensive in Europe. Taxation should go down too as that is the biggest cost fact of Europe. Taxation down is not an option with big governments, governments should go to ĎWeight Watchersí too. Smart governments reduce their spending while maintaining service levels. But becoming a smart government is not that easy aka very hard. The whole cost chain of Europe should go down. As we speak it only goes up and not with small numbers. Bailouts of banks and nations have super sized governmental debts significant. Europe is moving regarding the becoming too expensive facet very fast in the wrong direction. This extra load due to bailouts on the becoming too expensive without delivering significant better products/services process will hurt Europeís position on the world market big time the next decade.
17) Europe has an immobility problem. As housing prices are declining and mortgages are taken to the max, moving to others places for a new job is not an option for most Europeans as the than must pay off the price difference between the mortgage and the sales price. This job immobility problem is not good for any economic up side development. Inflated prices have nasty effects when they deflate. The price of fake credit based growth is not cheap ones again. This immobility hurts the demand/supply mechanism of the human resource part of the European economy and by that itís output.
18) Europe has a monetary problem. As growth is absence, money supply contracts, which will bring anything/anywhere within Europe in the danger zone. This is caused due the fact that all money in circulation is created as debt and that by the money creation only the principal of the loan is created and the money creation for interest payments should be done by further growth (of credit). If this process slows done problems occur instantly: the money supply will become too less to service the interest payments and defaults occur with mathematical certainty. In our financial system itís growth or collapse: thereís nothing between in. Those who not understand this should not be in politics. There are two possibilities to address this: a) doing nothing: due to less capital supply existing credits will default and new credit will become expensive (destroying state budgets, bank solvencies and economic activities), or b) printing money (also called QE): but when endless QE money is created, money will lost it value in rapid speed (wiping out savings and pensions). Both solutions are not nice and have severe down sides with huge impact. The price of fake credit based growth is not cheap ones again. By the way: Thereís a third way which is extended described in the Prescription part.
19) Europe has no global reserve currency. This lack make the problem solution bandwidth in terms of money creation for Europe very limited comparing with the bandwidth the USA has in money creation. The USA can make almost any quantity of money and this money will be accepted by the global markets. Even the fact that the USA stopped publishing money creation data (the so called M3 data) in 2006 has not stopped the market acceptance of the USD. This gives the USA an unlimited credit card towards the world, something Europe donít have. By this fact Europe canít solve it problems as the USA does: the market will not allow it: de Euro is not the global reserve currency which the dollar is.
20) Europe has an identity problem. Europeís divers history is quite different from the one of the USA: Europe has no melting pot mechanism: (almost) everybody in the USA left their motherland and started their life again in a new land, something that certainly delivers a common bounding towards the new land. The problem for Europe is the absence of such melting pot (which can be made artificial, how hard one would try: a melting pot works only by intercontinental movements). Thereís no one European identity, but there are numerous different identities in Europe. This simple fact is overlooked big time by the architects of european integration. This is not a political statement, but just an objective observation of reality.
21) Europe has a cultural problem. In the North the yearly winters have thought the people to save in times of sunshine / harvest for surviving the times of cold / winters: in the North it was preparing or dying: working to the max and not enjoying live to the max became the DNA enabled leading culture in the North. The fact that in the North the mid winter and mid summer holidays are celebrated as main events proofs this even more. In the North people lived to worked. In the South the climate with no hard winters has made the people more open to life. In the South people work to live. People of the South knows for example food much more better that those of the North. They have a more integrated society model. Etc. This huge climate drive gap can never overcome. It are two total different ways of life that can be understood totally in the perspective of the climate difference between North and South. The North is not better: they are different. The South is not better: they are different. Mixing those two can not be done overnight. Everybody who tried to make mayonnaise knows: two each other not attracting components (oil and water) can only be merged slowly: speed ruins the process and therefore the outcome. Unless some binding agent (egg) is used.
22) Europe has growing unrest within its nations. In the North the unrest will be absent as long banks and pension funds are still standing. In the South itís quite a different story. Broken economies with high unemployment is not a recipe for rest. Add to that the austerity measures and civil unrest is going each day. Unemployed youth drove the Arabic Spring. This will not be different in Europe. South Europe has a youth unemployment ratio of 50% and with no real perspectives for the next decades. People who think this nations will not Ďexplodeí havenít paid attention to the yeast whatís rising there.
23) Europe has growing friction between nations. The European project has been build on three roots: a) Germany and France traded the uniting of Germany against the Euro, b) large businesses pushed more liberalization and more easy access to governments by centralization so that Europe would more fit their business models, c) all businesses wanted a free trade zone very much and c) the never war again idealists wanted to create a post-war Europe that ensured peace. It seems that the never war again idealists (the author is one of them) have lost. The current status of Europe is no longer one of every year less tension between nations, but unfortunately since 2007 each year the tensions between nations is increasing again. Abolishing the nation state to fix this will not help: itís not a nation problem: itís a population problem. Living in one continent can be great, being different in one continent is great. But when it comes to capital, the relation is to weak to burry this. Paying for other people parties in the Ďeuropean houseí is a bridge too far for most nations. The people of the North donít want to pay the economies of the South. The people of the South donít want to pay back the banks of the North. Capital is about income, about future security. Capital is why friction between nations is increasing rapidly and there no wonder fix that could calm it down except solving the cause aka the capital issue.
24) Europe has a management problem. Managing a very economic/social/cultural divers continent as Europe is quite impossible, even without big problems, but certainly with current big problems. Europe is maybe too divers to micro manage, certainly itís too divers to mesa or micro manage. To make things even more complicated: Europeís management hasnít find itís goal/position/status yet. Managing without recognition of the management makes things hard to manage, even on micro level. There are two management visions on Europe: a super state with huge central power and a cooperation of nations without any central power. Managing Europe is getting nowhere without getting consensus on one of those two total different directions. It seems that the European and national bureaucracies has chosen for the central power concentration model and the national parliaments and national populations has chose for the decentral no on power but on cooperation model. The management of Europe can overplay their position and by that achieve the opposite of their goals. Europe certainly has management problems. If one is regret this or one is happy about this depends on their vision on Europe. Furthermore makes the democracy deficit caused by the top down design of Europe it not that easy to manage. The possibilities of management are by definition limited: any management has it capacity limits. Management always will try to limit options to keep things manageable. If limited options something is what Europe needs is a subject of discussion.
25) Europe has a democracy deficit. As Europe as one nation was an artificial project of governmental elites, business elites and never war again idealists without demand from out the European population it started without any form of democracy is working towards more democracy. Europe has to been sold towards itís population. For the free trade zone that was easy, for the open borders that was less easy but it was realized, for the current political and financial unity direction that is very hard (and even can become proven to be impossible aka not realizable). If this happens the European project has gone to far from out electoral perspective. For the first time since WWII Europe is a major election subject, which is understandable as there are huge volume of money are moved from the North to the South. Aside from the money transfers: politics worldwide has huge representation problem: never in the history of democracy populations and politics where that far apart from each other. Not only regarding the European issue. This maybe caused by the fact that democracy and distance are reversely proportional factors: the bigger the geographical distance to the voter the lower the democratic character of a government and the higher the influence of bureaucracy and corporations. This is why in the USA the Gov@Home movement is growing steadily: which aim is re-location of the offices of federal politicians back into their home states and make them more open for the people and less open for lobbyists. Making Europe democratic could be a destination that never can be really reached. Democracy canít be the marketing jacket for bureaucracy and corporatism, as it than is a tree without roots and will dry out.
26) Europe has a bureaucracy problem. As the European State model is born in the cradle of governmental elites, corporate elites and european never war again idealists and is not grown from grass roots gradually by democratic processes, the Europe as State cradle created bureaucracy to produce the European State. This is why bureaucracy is powerful in Europe. They are the side that has the ball the most of the time of the game. They have the initiative, the rest are just and only responders. Having a good bureaucracy is vital for any nation and so for the European State in itís current birth phase too. But when the bureaucracy structural rules over democracy tensions are build up and conflicts are waiting to happen. When the agenda of the bureaucracy gets completely different of the agenda of the democratic governments in the member nations the system derails or slow or with a big bang. A very good example out of the market is the european food legislation (focused on large food corporations) that outlawed local traditional food traditions and by that cut the rural areas of both their economic revenues and their culture. Police raids on food markets created a lot of resistance and the rural areas where by this shut down economic. Or the outlawing of cucumbers that didnít had some sizes/shapes. Also outside the food sector there are multiple other examples of the damage of too big grown bureaucracy too.
27) Europe has a corporate/government merge problem. As the idea of an European State is born and raised in the cradle of governmental elites and corporate elites the influence of corporations on european policies is significant. On top of that corporations have full time lobbyists and the people have full time jobs: quite a time to influence gap. For those who had problems with the military industrial complex or the pharma industrial complex or the genetic industrial complex and there eroding influence on governmental choices and budget: itís time to measure the new cuckoos in the nest: Bad performing banks and bad performing states (with exception of Greece mainly due to massive bailouts of banks) takes huge volumes in dedicated new budget pools. Banking is currently the cuckoo in the nest that eats so much economic output and pushes by this all other facets out of the nest. Banking problems transform to state problems transform to pension problems: creating a downward chicken / egg situation. When sectors occupy governments subsidizing is what happening. One of the main cause of this is the Ďrevolving doorí practice between government and corporations. This corporate/governmental merge is not a small problem and solving it will be not done/realized that easy.
28) Europe has a subsidy problem. In the artificial credit driven growth model that Europe was running the cleaning of the market mechanism of inefficiency has been postponed, as the financial system could not handle times of zero growth. The absence aka postponing of cleaning periods has given the problems that should be cleaned away as soon as possible to grow steady much more bigger. First took agriculture 50% of the european budget (so much for innovation), now the banks deficits and state deficits demand total new budget pools. The creative destruction delivered by market mechanisms has been eliminated. The result is a) large governmental spending and b) no correction. Subsidies are polluting market mechanisms and by that spoiling both the present and the future.
29) Europe has an auditing problem. Besides democracy is Europe also not that good on auditing. Auditing is like democracy something that is needed to make all things legal, but just like democracy is handled is auditing handled too: badly. Auditing of the spending of funds and research regarding their effects are below the norms that are mandatory for businesses. This is just a pity, as spending auditing and research into effects should help in limiting needed budgets (what the market aka the right wants) aka delivering more budget effects (what the idealists aka the left wants). Itís clear that the bureaucracy is not that good in setting up and maintaining a good auditing framework. Democracy should step in to force this, but theyíre also not that interested in this.
30) Europe has a corruption problem. The view of Europe on corruption is also quite neo-colonial: according to many Europeans corruption is an extra european problem. This is a misconception too. Due to this view there is no active research towards corruption. Only if some is found by newspapers (and therefore it canít be ignored any longer) it is addressed without any penalties (people gets early pension arrangements or something like that). Corruption is a wide and deep part of the european economy and we all (due to our superiority attitude) look the other way and cover it up. But the effects of European corruption on the european economy is the same as everywhere. Bashing good business practices and favouring less good business practices.
31) Europe has a lobbyists problem. Lobbyists are the soft/polite version of corruption. The results are the same: giving preferences to one market party and denying similar preferences to other market parties. These preferences can be less regulation for themselves, more regulation for others, no legal problems for themselves, more legal problems for others, more subsidy for themselves, less subsidy for others, less tax payments for themselves, more tax payments for others. Any time parts of government sleeps with parts of business they make bad practice. As the voter has to work to pay taxes, the lobbyists always will have the upper hand in influencing politics, unfortunately at the cost of less democracy and more parasitism.
32) Europe has an energy deficit. Europe has an energy deficit by the current energy sources. Diversifying both in geographical origin as in energy fuel a should be target number one. The current concentration move will have contra productive effects on this very important diversification. One big european energy directorate can be that diversified by nature. Concentrating european energy policies therefore should be done wisely and not just for concentration reasons as target in it selves. Energy imports has a lot to do with bilateral relations. Some nations can get along better with other nations. These windfalls should be exploited and not cut off. Energy imports have a nasty economic effect: it drains capital towards other nations. Thereís a wealth drain of the energy importing countries towards the energy exporting countries. Europe should explore itís domestic production to fix this. Geothermal to power on the geological hotspots of Europe can become the main european energy source, but unfortunately itís not even in the picture and it needs a power infrastructure. Europe should develop better relations with Russia. East Europe and Russia are just out of divorce of bad marriage. This should be addressed by Ďcounsellingí (diplomacy towards mutual interest cooperation). Wind energy in mega configuration has not only a cost down side (in the current business model) but also an power infra destabilizing effect. Solar energy will become huge, more huge that we ever expected. But the winner will be energy conservation: plenty of winners in this area. For example: making cars more lighter and saver by the use of new plastic materials as not eroding shape and body material and filled with better crash zones. The price of energy is no longer just the sum of extraction, transport and profit. Energy surplus nations want to benefit of this energy extraction too these days and are moving towards a 100% extraction fee or export tax. This energy deficit will Ďtaxí the european economy. Importing products is importing embedded energy, this is too often not taken into calculation.
33) Europe has a water deficit. South Europe has a severe water problem due ever more increasing irrigation practices. Water problems can be addressed by water investments. South Europe is not that capital rich anymore to address these investments. Less agriculture in South Europe due to irrigation water shortages will deliver less GDP for South Europe. More expensive water bills for hotels will deliver less turnover for the tourism sector and by that less GDP. Agriculture and tourism are two economic sectors that use the geographical location of South Europe to the max and deliver South Europe its UPS towards North Europe. Extra GDP decline in those two for them important sectors due to water shortage is not something South Europe can use right now. This water deficit will Ďtaxí the european economy. Importing food is importing embedded water, this is too often not taken into calculation.
34) Europe has a mineral deficit. Europe had a mineral deficit since the start of the industrial revolution. This mineral deficit strangely delivered colonialism itís second life cycle after slavery was abolished. As the western supremacy declines the mineral deficit becomes more and more a burden for the european economy. Mineral imports are just like energy deficits a continuous flow aka drain of wealth towards mineral surplus nations. The price of minerals is no longer just the sum of extraction, transport and profit. Mineral surplus nations want to benefit of this mineral extraction too these days and are moving towards a 100% extraction fee or export tax. This mineral deficit will Ďtaxí the european economy. Importing products is importing embedded minerals, this is too often not taken into calculation.
35) Europe has an beyond own size footprint. This could be handled when the rest of the world was not developed, but in times that almost any other nation is economic emerging this gets more difficult to handle. More demand equals higher prices. Higher prices by no economic growth means less wealth. Less wealth means decline. Declines means collapsing financials. The new global reality of decline of client states for Europe will hit the european economy hard. It makes Europe also vulnerable as Europe no longer controls the world, the high seas and the client states aka conquered lands. Other parties are calling the shots more and more. This process started after WWII with the emerge of the USA on the world stage, grown as the USA cut of all colonies of Europe and gets very big as Europe has to compete with the emerging states also in procurement. In energy, in minerals, in food (grain and soy) and in other agricultural commodities (like coffee and cotton) too. This too big relative to its own size footprint will Ďtaxí the european economy.
36) Europe becomes homogenous. The strength of Europe always have been it diversity. Just like in nature is delivers diversity also in politics and economics strength. Diversity aka heterogeneous systems/politics/economics delivers strength. Homogeneous systems are more weak. In this perspective Europe is getting significant less strong if centralization means a lost of aka goodbye to diversity. This mathematical certainty of nasty economic and/or political consequences is widely not recognized by the bureaucrats, by this Europe will pay the price for it. Energy imports goes much better (in volume and diversity) if not handled centrally. Mineral imports too. Food imports too. Access to global markets too. When governance gets ruling instead of serving things goes wrong and the price paid for that will be high. Diversity was Europeís strength. A drive towards homogeneity will decline this strength beyond expectation with all the consequences attached to it.
37) Europe has a diplomatic problem. The problem of getting too homogenous canít be better explained in the realm of diplomacy, homogenous diplomacy has low positive outputs and severe downsides (like inter governmental tension concentration). Diplomacy is very much about having things in common (culture/languages/food) or about having mutual interests or about serving each other with surpluses in exchanges for supply of deficits. Making european diplomacy homogeneous will erode Europeís good relations with the world big time. As long Europe has energy deficits, mineral deficits aka needs a bigger footprint than they have heterogeneous diplomacy will deliver those all very easily, something that homogeneous diplomacy never will able to do so. Making european diplomacy homogeneous will drive Europeís much more easier into conflicts too. Heterogeneous diplomacy relays most tensions very easily, preventing a build up of tensions.
38) Europe is in denial of all of these facets. Having some problems is not that bad, even having huge problems isnít. Everybody everywhere has some kind of problems. But having problems and living in denial is bad: it takes time to overcome denial and this time all things continuously keep moving in the wrong directions.
So Europe has not a that very bright future. Or should we just/even call it dark? We can conclude that severe dire straits caused by those 38 facets is what Europe faces. The economic sun with itís warmth is setting on Europe and is dawning or shining in other parts of the world. Europe has lived through economic liberation, economic growth (till 1971), economic puberty (till 2007) and is now ready for economic adolescence towards the final goal of economic adulthood. Achieving the final goal of sustainable prosperity in a realm of being no longer the fastest, smartest, richest kid in class is a challenge. Certainly when windfalls are changed into headwinds. Europe needs a model to realize this. A model that eliminates collapse and delivers a change towards sustainable prosperity. If youíre interested in such a solution: read the Prescription part for a model that can facilitates this.
The Prescription is one line to redirect the money creation away from the constipated/declining real estate realm towards the emerging/growing energy realm. We thought we should find aka develop a Prescription that a) works, b) acts in a percolating up way instead of proven not delivering at all trickling down way, c) can be started in any stage, in any level (no start barriers) and d) anyone would like. These demands on the Prescription was the only target we had in working on this.
The Diagnosis is just and only a wide road towards this Prescription to get everybodyís maximal attention, to break through the denial fences that make even thinking of solutions impossible, as there are in the denial perception not that big problems that need to be solved. Where someone rides on the Diagnosis road is not that important: the destination aka the end conclusion will be the same for all.
Therefore itís this Prescription that counts as thatís something that could bring paradigmatic change for the better, not only just some relief aka rescue. This because rescue plans often donít deliver rescue (as they are mainly focused on the problem and not on the solution). The Prescription could bring the market advice on the Euro back on Buy (from: Sell). In plain English: If both Mr. van Rompuy (european integration leader) as Mr. Farage (european segregation leader) and both Mr. Draghi (Governor ECB) and Mr. King (Governor BOE) donít like it: weíve failed. Weíve tried to stay away of any political (left, right, segregationists and integrators) or monetary (market based central bank or government based central bank) vision, branding or organization as far as possible. When weíre not able to serve all together, weíve wasted your and our time as no other solution than one that convinced ever will be implemented.
This Prescription donít want to fix all problems. Thereís no answer that fixes all problems. Or is there such an answer? Maybe there is. We think that if we change one tiny piece in our monetary system (nothing on ownership, nor on politics, just one tiny facet) paradigmatic change will be the result. We should address all problems in the one common facet of all problem (thatís something else than calling it the core of all problems: we do not and will not say that).
So the answer lays hidden in the most common facet of all Diagnosis facets aka in our monetary system? If thatís the case we first should understand the monetary system. Unfortunately the most important facet of any economy is also the most unknown facet. Very strange, but very true. We should first understand the money creation process. Without knowledge on our monetary system weíre walking in the dark in the woods without any clue of direction and just will it almost any tree we find on our way. All other solutions are just partial solutions that canít deliver the wanted/needed paradigmatic change. If we want paradigmatic change we should find a monetary solution.
So how does the monetary system works? What we need to know first on this most common facet in all described problems before we can understand the Prescription? We need to know how money is created, not more, not less, if we understand that we understand the most important facet of our monetary and economic systems.
So letís start: Our monetary system is based on debt. All money in circulation is created as loan. All of it. You go to the bank for a loan. The bank creates the loan, you get the money and invest it, you pay back a part of the principal and the interest each month and at the end of this process the money volume created for the loan is reduced to zero again. The loan the bank delivered was not existing money, it was money created for the loan by a few keyboard strokes and it will be vanished if the loan is paid off.
The problem with this model is that the money for the interest payments is not created, that has to come from volume growth of the system. This is the Achilles Tendon of our monetary system: it needs growth, otherwise it gets into dire straits immediately. This is what happened in 2007. The money growth by to much credit based consumption focussing reached itís maximal point and growth stalled and immediately problems with payments occurred (as the money for servicing the interest payments no longer was created). The western world reached itís PeakCapital momentum.
When growth stalls collapse arrives with high speed around the corner. If this happens central banks should created money without economic performance as underlying process, just to prevent this collapse. This will water down the value of money (aka of debts, but also of savings and pensions), but prevents a otherwise mathematical certain systematic collapse. The central banks of the world where in 2007 totally blind for the fact that the West had reached their PeakCapital momentum, they where firm aka blind believers in endlessness of credit based consumption driven growth. This is something we all could blame the central bankers for: they should have know better (both the characteristics of their own system, as the limits of it regarding funding of real estate and credit based consumption).
So as growth disappeared and money supply contracted (as growth delivered the money supply). This brought anything/anywhere within Europe in the danger zone. As due to the design of our monetary system, an economic problem delivers directly not only a fiscal problem too, but also a monetary problem too. Without any direct solution the collapse goes on and on, so the collapse need to be stopped.
There are current/traditional two possibilities to address this: a) doing nothing: due to less capital supply credit will become expensive (destroying economic activities and state budgets), or b) printing money (also called Quantitative Easing aka QE): but when endless QE money is created, money will lost it value in rapid speed (wiping out savings and pensions). Both solutions are not nice and have severe down sides with huge impact. The price of fake credit based real estate and consumption focused growth has proven to be very expensive, one way or the other: the costs are very high.
Traditional Quantitative Easing comes in different forms, sometimes openly, sometimes in disguise. Money creation data would bring clearness in this field. On money creating data thereís a big difference between the dollar and the euro. The FED stopped publishing the so called M3 money creation data in 2006, while the ECB still publishes money creation data. This could give the dollar a firm hit and move the euro towards world domination as the financial world didnít like this delivered installed smoke screen around the quantitative easing on the dollar. Regarding the USA (aka de FED aka de USD) since 2006 we can only see the tip of this iceberg, as there are also not published interventions and we only can guess how much. Regarding to Europe (aka the ECB aka de EUR) we have also besides front door mechanisms (like the emergency window and more structural quantitative easing like LTRO) many back or side door mechanisms accepting bad quality collateral at 100% nominal value, b) Target2 which delivers credit between european central banks and c) currency swaps which delivers more credit between the ECB and central banks of other global currencies), but the balance sheet of the ECB is still public (no guarantees of the writer that the published ECB balance sheet is the real ECB balance sheet). We should emphasize that Quantitative Easing is just watering down the value of existing money in circulation. Something that is not understood by both media and politicians that much, as they lack the basic knowledge on our monetary systems.
Traditional QE has several severe disadvantages by itís nature: 1) Traditional QE is practice always a trickling down model. The problem is that this doesnít work. Capital input on Wall Street never reaches Main Street. It doesnít refinance businesses so the economy still keeps declining. 2) Traditional QE delivers more capital to those who have proven not to manage it that successful. Itís very much about rewarding bad business practice within the financials. As traditional QE can be described as bailing out with new loans, itís has become also a Moral Hazard issue. 3) Traditional QE is not that transparent, nobody is sure that the published data is correct. Bloomberg discovered trillions of not published lending. 4) Traditional QE delivers a model where the friends of the decision makers can be granted more than those who are not friends of the decision makers. The collapse of Lehmann Brothers (refusing them emerging lending) can in this light also be seen as eliminating a Goldman Sachs competitor. 5) Traditional QE enlarges instead of reducing the too big to fail issue (as it gives capital to certain market parties that they use as equity to lever this again to the max and by that grow even bigger. It enlarges the too big to fail risks aka enlarges systemic risks. 6) Traditional QE puts market mechanisms on hold (as it delivers artificial demand), by that the markets get more instead of less polluted with toxic assets. 7) Traditional QE is mostly used for carry trade: getting the funds at 1% or lower interest and investing them very easy in large volumes with almost no distribution costs in high risk areas where the interest is 5% or higher. By that it enlarges the risk within the global system.
But thereís a third possibility (beside doing nothing, or traditional QE) to address the current dire problems. Very unknown, yet very effective. Delivering the wanted/needed paradigmatic change. Without the downsides attached to traditional QE. Itís called Energy focused/narrowed QE or in short Energy QE. It facilitates a percolating up model. This one line is so important. Without a percolating up model, nothing ever will change. It facilitates the growth of a new currency backing model that will re-insure the trust in a currency both internally as on the world market. By practicing this model the Euro can become a global dominant currency. Other currencies will follow this model which will deliver international (currency) stability.
How does it work? In one line: it is somewhat similar as delivering to the energy market what Freddie Mac en Fannie Mae have done for more than half a century good for the housing market (till those two have gone crazy in the nineties). Itís a finance framework that can be used by all market parties to fulfil all market demand regarding energy investments. It has a percolating up nature which is unique towards any other purely trickling down characterized QE model practiced till today. Itís a combination of 5 different types of tools, they enforce each other, but they donít demand each other. Energy QE is in design is parallel and not serial, as there should not be barriers that stalls somewhat somewhere, but many only other not yet explored opportunities everywhere.
a) Legislative Tools. The legislative tools make the world more Ďsafeí for energy investments. As energy investments are new there is not that much protective legislation that is needed for a solid legislation foundation for a good energy investment environment. Itís about insuring the locations of energy investments, the energy investments and their output. Too much, too specific, too boring to describe here further. See the Energy Politics http://www.planck.org/downloads/Energy-Politics.pdf) and Energy Finance (http://www.planck.org/downloads/Energy-Finance.pdf) papers for possible facets of this legislative layer. Important is that this energy legislation is useful and can enforce the Prescription, but the absence of it is no barrier: it will be developed during the process, without any rush and thereby can be made perfectly fitted to the demand legislation demand. Good energy legislation will speed up the development/impact of the Prescription severely, but thatís just a bonus, as the legislative layer is an accelerator, not a must.
b) Quantitative Tools. The quantitative tools take care of money supply as thatís not enough available, but does this in a way that it doesnít water down the value of money. Due to PeakCapital thereís a huge credit crunch in Europe (as described and explained in the Diagnosis). In the USA this is not the case as they operate a global reserve currency and by that they can create any amount of money without the slightest effect of that on the market value of the dollar (operating a global reserve currency is like having a credit card with no limit). But in Europe the Credit Crunch is still having each day more structural effect. This is partial inevitable and just a needed correction on the credit driven artificial Ďgrowthí. Treatments aka cures hurt often. Sobering up from a credit bonanza is not pretty at all. But it delivers a vicious downwards cycle too that 1) destroys also good things (breaking the not credit based consumption real goods and services producing real economy too) and 2) destroys all savings and pensions due risks, collapses and inflation. There should be a better way out of this than Traditional QE. And thereís one: Energy QE. Redirecting the main stream of money creation away from stagnating aka bubble bursting real estate towards energy investments. Energy QE builds economies, stops wealth drains aka exporting wealth by energy imports. Delivers real value backing to a currency with the use of dead gold. Re-establish the trust in currencies. Brings back stability into the game. Asset driven money creating. Delivering the financials income they need to contract, delivering governments the economy and the taxation on that they need.
c) Securitization Tools. The securitization tools takes care unload the distribution layer of itís energy investment contracts if they can make more turnover in energy investments than their balance sheets can bear due to legislation. Itís not the mechanism used by the central banks to channel their Energy QE, as that is done directly (in line with ensuring the percolating up model). Itís about market places, collateral demands/transparency, regulation demands, etc, etc. Itís about transparency and liquidity. The big difference with Real Estate CDOs is the transparency of energy output and the transportability of the output. Real estate has a location market risk and not fixed ROI income. Energy investments donít have this downsides.
d) Distribution Tools. The distribution tools are take care of creating and handling demand in the energy market. Itís about delivering the financials access to both suppliers and media. Itís about changing the direction of money creation away from real estate towards energy investments in no longer than half a year. See the graph on http://www.planck.org/downloads/Energy-QE-diagram.pdf. Tools aka models aka templates that can be used by any financial or communication or supplying market party.
e) Investment Tools. The investment tools supports the actual investments takes place after the finance is arranged. Too much boring technological to describe here. Mainly spreadsheet and communication templates. Easing efforts. Channelling efforts.
This whole wide range of 5 families of parallel tools redirects money creation away from the constipated real estate realm towards the attractive energy realm and by that prevent the collapsing of the financial system, aka contributes to its recovery. The income the banks can earn with it will buy them time to contract from PeakCapital levels without collapsing, so it saves the banks and by that the financial system and by that governments by deliver banks and governments new income. Income not out of watering down other sources of income, but out of real new production. Energy investments donít need subsidies, they need finance, nothing more, nothing less. Subsidies are no longer a possible tool for governments with declining economies. Subsidies make market turbulence and destroys stable market growth and innovation too.
But thereís more needed than those a) till e) families of tools. Whatís needed is also is an insight view in the effects Energy QE. The main effect of Energy QE is backing a currency with energy investments aka energy output as collateral of money created. This is huge. It make fiat money to gold money without the dead asset characteristics of gold. Letís dig deeper in this by describing f) and g):
f) Currency Anchor. The currency anchor deliver an alternative non political trade/exchange value for the very much interconnected european economy. A currency anchor is not a currency: itís an anchor. As the Euro will dissolve or break up a new internation value anchor is needed. Europe can not without some currency anchor: they are economic too interconnected to not have one. As a political driven value anchor will be out of the question for decades, thereís a need for a non-political value anchor. Just like objective standards the meter, the kilogram, the litre, the pallet and the sea container have boost international trade more than anything else, such a standard for value is needed too. The kWh value will become the new international value reference/anchor. Totally non-political, just a value that can not be undermined nor manipulated by politicians, nor bankers. Just whatís needed as the trust in both those two will be at close to zero levels. Itís very important to understand that de kWh is not and will not be a currency: itís a rational international anchor/reference that delivers objective (timeless aka inflation free) valuating. Currencies will be backed by energy investments through the a) till e) measures/tools. The kJ as anchor is not a good idea as the measuring of kJ is much more complex than the very easy kWh measuring. Also because everybody/everywhere demands kWh the whole day. Nations aka their central banks aka banks aka everyone/everywhere will be able to exchange currencies just in the same way like they do now (directly or multiparty) and if this leads to imbalances the kWh value transported power lines will be used for settlements. Directly or in triple party (debit or credit) transactions. Nothing really changes by the use of kWh as anchor. An universal value anchor, that can be transported too.
g) Power Interconnection. As the kWh will not be a currency, but just an objective anchor, it still will become an internation payment flow, for situations in situations where the traditional multi party currency settlement deals will not provide closed balances. Therefore besides the regular international banking transfers, there will be also a need for international power (kWh) transport. Central banks will invest and operate international powerlines. Nations will have energy deficits or energy surpluses like they have today. Nations will invest a lot in geothermal to power technology to strength their monetary position/possibilities in a kWh value dominated monetary world.
As we stripped off any political sensitive issues from this Description, we donít discuss Ďsolutionsí like continuing the Euro Zone, nor a break-up of the Euro Zone, nor the EFSF/ESM, a bank union, a fiscal union, a political union, nor possible dollarization of the south european nations among many other political issues. This has much to do with the fact that we donít like big changes/collapses as inflation or revolutions. We like gradual changes towards better. We should implement a) till f) as soon as possible as they will deliver stability. And yes maybe they will restore some trust in currencies, politicians and bankers (as the approval rate of those three are as low as never before after WWII).
So the Prescription is not in favour of a gold standard. In our opinion gold holdings are only suitable for people that want to run away. We donít think the majority of people want to leave their cradle aka legacy. We see gold as a dead asset. Just an insurance, only protecting when holding mints or bullion (as paper gold is has as much value or is as much worthless in times of a collapse). After a collapse history tells us that all gold holdings are seized by the governments, on severe penalties if not done, so even physical gold offers no protection. Add to this the robbery risks of holding physical gold. Add extra on this that the survival changes in a Mad Max like world are not that high: I never met parents who wanted such a future for their children nor for themselves. Beside that gold is dead: it doesnít produce anything, it donít builds anything: it just occupies a capital position.
We firmly believe in building societies and economies, therefore we like active/producing/contributing assets aka an active foundation of the monetary system. Energy QE aka energy as monetary foundation delivers progress to nations. Quite a perspective.
So the Prescription is not in favour for nationalizing aka politicizing central banks either. We like the concept of independent aka non democratic central banks under circumstances. What circumstances? In our opinion governments and central banks should watch and control each other to the max. Full transparency is much more important than full democracy. Central banks and governments should not sleep in one bed. Than we got the present situation of you may play along as long you let me play along. The results of that Ďmutual interestí at the cost of the Ďpublic interestí can be seen all around us at present days.
Give central banks total monetary aka regulative freedom and youíve got the mess where right in now but even deeper. Total democratized monetary systems are plundering the public wealth for those with the best lobbyists (we should recognise that democracy is always polluted with corporatism). We should not give governments money creation power (as they will use it to favour some and deny the rest and go to war when lobbyists want war).
Give governments total monetary control and youíve got the mess theyíre now in, but even deeper. Total independent monetary systems plundering the public wealth for those with the best relations. We should not give central banks the money creation power (as they will use it to favour some and deny others).
We should give the money creation to banks, with regulation on max size (aka influence) and max risks (aka costs). We donít need above the law living cartels that rigs the game nor we need gamblers at other people/businesses costs. Banks that fail should be taken in receivership, not protected. Than moral hazard will disappear as snow in the sun. Governments and central banks should hold each other firm without any love. A critical press should follow the moves of both. Government should creates good legislation, good control and good jurisdiction with firm sanctions when legislation is not followed. Long performing investments in energy (and maybe a little in infrastructure, but better is to donít do this as it opens a clean system for pollution) and not real estate should be the growth sector of adult aka maturing economies. Than money creation develops gradually away from a rigged game towards becoming again a tool of progress.
So the only way to save the financial system in the Western World (hurt by declining economies) is to hedge their by current Quantitative Easing operations -strong in value declining- currency based assets, with -strong in value increasing- energy based assets by the 'Energy as ROI' model as described in the Energy Economics paper.
Energy focused/narrowed Quantitative Easing will stop the value decline of currency based assets, as they get strong backing by real (and in value increasing) further energy output. This also will stop their current strong increasing and continuous leaking wealth drain by foreign energy imports and give them independence/security.
Traditional 'trickle down' QE only leads to carry trade (capital export to high-risk/high-interest destinations) and thereby have no effect on local/national economies. It increases the risks of the financial system even more. Energy focused QE can be done in a 'percolating up' model and serves the national economies from their roots up.
Sustainable Prosperity: itís not that hard to realize. Just start with implementing energy investments as monetary foundation and that road is taken automatically. And yes: We need to teach monetary knowledge in our education system. The importance of both money and the future deserves that. This Europe: Diagnosis and Prescription analyse and model can used in other regions of the world too. Everywhere where economic growth is partial fake due a real estate boom it works in delivering real economic performance. As nations are getting more internally divers each year, one policy for a nation is no longer a valid approach: diversity (also in policies/regions) is the name of the game.
Gijs Graafland / Planck Foundation / Amsterdam
The 'Europe: Diagnosis' part is a transcript of the speech at the Planck Foundationís monthly Energy QE Seminar of March 2012
The 'Europe: Prescription' part is a transcript of the speech at the Planck Foundationís monthly Energy QE Seminar of April 2012
(texts can be republished freely when the source location is mentioned or the source link is provided)
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