Engpasskonzentrierte Strategie

It would appear that we are all now expected to find work "fun" into our seventies to fulfil our mission as state unsubsidised (and progressively less healthy) consumers - even if there is no work available outside of a supermarket check-out counter - as most people trying to get a new job at 60 might confirm. And as these jobs are now staffed by recent university graduates there's not much of that about. To what end are we working then? The vast majority do it to get into and then out of debt - a microcosm of today's financial market model. The product of Politicians and their economic advisers that have read Ayn Rand (incomparable nincompoop) as non-fiction. And we've recently seen where that leads.

Economists are now spewing forth the should have, could have, would have insights that the whole resultant catastrophe was predictable using the very same indicators that they invented to create it in the first place. The commander of the 18th Panzer Division said, after the battle for Smolensk, that they were winning themselves to death. Free market economics have succeeded in doing just that. Not very surprising then that Goldratt espoused the "weakest link" theory by following on from the German Wolfgang Mewes' "power-oriented management theory " and his later "Engpasskonzentrierte Strategie" - both of which the Wehrmacht could, would, should have borne in mind when they got into but not out of Stalingrad. And that's the Germans and the Euro for you.

There is a geo-strategic phenomenon called the "Eurasian Funnel" that illustrates the inability of a given Western force as it advances East to saturate and control terrain leading eventually to the isolation, exposure and destruction of that force. The same could be said of Economic Globalisation. Unfortunately the cheerleaders for Globalisation didn't follow the first law of military success - Never invade Russia - or, indeed, never march East.

What we have in Goldratt is a Bottleneck theory that ends up as a Funnel - most, if not all, Growth theories do this. That all of this is blindingly obvious doesn't appear to have prevented numerous repeats - the result of over-imagination rather than a limited one. Which brings us to that other financial market chestnut - Risk. Risk is always used to explain why we lost not how we won. It is a weasel word. While banks and bankers thrive and corporations sit on a pile of money a large part of the population is told to expect to spend their old age behind a checkout counter or stacking shelves. Which is the logical conclusion of a finance/retail economy when Economics relies solely on a selfish Dogma.

Work, then, is so that you can buy things you don't need to impress people you don't like. Its the best marketed product in the world, unfortunately for the majority of workers, its not the best paid. Which brings us back to the fundamental Market Economy sine qua non of Supply and Demand. If there is no demand there is no supply so there is no work and thus even less demand- no amount of Goldratt can fix that.

The modern Olympic Games have yet again demonstrated that they are simply an expensive giant monopoly advertising campaign decorated with athletes wearing product. This is best illustrated by the 100m and 200m sprinters wearing wrist watches - what for? These folk shave off their arm and leg hair to go faster. It takes less than 10 or 20 seconds but as they get into their blocks the cameras linger on their arms and hands settling behind the start line. Product gets air time and the athletes get a few more bucks.

It cost NZ an estimated $4 million a medal in London (a rounding error in what it cost London to stage the Games) - a few hip replacements there - so there is very little justification to continue this sporting nonsensical extravaganza - when slashing every other budget. The Ugandans, Kenyans and Ethiopians won a few medals while millions of their fellow Africans starved.

A load of outdated Nation State bollocks that brought us 2 world wars. Move the games to Greece permanently (they really could use the money) and select the athletes on ability not nationality. Also get rid of all this French language waffle - slows the ceremonies down and confuses the Chinese.

Beware of gifts bearing Greeks

While the story line goes that it's all about saving the Euro it is really all about saving Banking. The ECB, with or without the assistance of other Central Banks, announces it has printed some fictional money and gives it directly to the banks exposed to Greek debt so they don't go bankrupt and the financial system doesn't collapse in Domino fashion. In order to pretend that this money is real they call it a loan to Greece and tell the Greeks they will have to pay it back with heaps of interest. This allows previous, unrepayable, Greek debt to be written down on the banks' balance sheets and makes them look healthier. It will keep going until the banks don't hold enough Greek debt to take them down along with the financial system when the inevitable happens. Then the Greeks will be allowed to default and leave the Euro. The Central Banks will by then own most of the Greek debt, write it off and invent more money to cover the gaping hole - they are the only ones that can do it. Until this happens the Greeks will continue to have the shit kicked out of them - austerely speaking - without getting so much as a sniff at the money. You'd be on the streets too.

It is all part of the same financial Shell Game. The Central Bank lends other banks invented money at zero interest to buy Government Bonds and accepts bad, invariably worthless, investments as collateral for the loans - a toxic for good paper shuffle.  The banking sector looks to have solid(ish) Government Bonds as investments. The Government is charged less interest on it's Bonds for which there appears to be a market, hopefully resulting in a negative yield. It also works the other way round - the banks issue paper and the government, by one means or circuitous other, buys or provides the money for them, thus injecting liquidity - it has to be this way since the public won't stand for another bank bail-out.  By this sleight of hand the risk is taken out of the private banking sector and made public. The theory being that the present system can survive a near-death experience - until things get better. Extend and pretend at it's best. Unfortunately for this scenario Greece isn't the only problem. There are several more countries on the brink of default. The hope is that the Central Banks can extract the banking sector out of the bad national debt, one debtor country at a time, by printing money in controlled quantities that doesn't result in massive inflation. This is what they mean by a controlled default. An uncontrolled default is one where the banks are still nostril-deep in bad loans when a nation implodes - nothing to do with the manner of the country defaulting. There is only one way a country can default and that is neither controlled nor uncontrolled it is simply "Goodbye!"

The question is how long will the public go on letting this happen before they rebel. Something that politicians, bankers, economists, fuck-wits and the rest of the 1% don't seem to have asked themselves. Not as long as you'd need is the answer, despite assurances that it'll all get better just so long as you do what we say and don't argue. If the Greeks manage to bring down their own government and default before the next round of loans then the game becomes extremely difficult if not cancelled due to bad economic weather. "Pour encourager les autres" is the great fear of Greece defaulting. The Portuguese, Irish, Spanish, Hungarians and even the Italians might see this as a good idea when Greece is still there the next morning. Why spend years paying off debt for money that went directly to banks.

It all gets a bit more emotionally complicated because the Germans are in charge - never overly popular in Greece - so it is a pity they're telling the Greeks what to do and insist on running their country - again. Especially as Germany is the main beneficiary of the Euro - and plays a big part in the reason several countries are now in the financial latrine. Wehrmacht dressed as bankers to most Greeks.

As recent research has shown, the poorer you get the stupider you get the more right wing and religious you become - doesn't bode well. A quick glance at the USA will confirm this. What are the odds that the Greek Army will make a comeback; this time it won't be communism but finance as the excuse the US uses to support a Junta. Spain, Italy and Portugal all have histories of Juntas. Will the real revolution come onto the streets after Armies try to usurp power to save Liberal Capitalist Democracy? An interesting proposition.

Of course an aristocrat fed-up with the nouveaux riche might follow the example of the derided Marquis de Sade. A man capable of not only deviant writings but of both philosophical and political musings that point to him as a materialist atheist, rabid left-winger as well as a sadist. He is rumoured to have played his part in the storming of the Bastille. Will Robespierre ride again?

Destructive destruction

As opposed to the "Creative destruction" long heralded as Capitalism's (oxymoronic) driving force we appear to have met Capitalism's opposite and equal (possibly greater?) force - Destructive destruction. While elected politicians (or unelected technocrats) are furtively attempting to "manage democracy" in the quest for sovereign fiscal survival and implementing, brazenly political, social engineering - the financial institutions are betting against them succeeding in a knee-jerk quest for profit. Unfortunately, whatever the governments do the very financial institutions they are attempting to save will manipulate the outcome to their own short-term financial benefit even if this leads to their own eventual, predictable, economic downfall. Free-market theory demands that even when facing the distinct prospect that the world's economic system is collapsing nothing should or can be done to prevent it committing suicide.

Rather than Bulls and Bears what we have is a Mad Dog that won't let go of the bone. The same financial machinations that brought us to the edge of darkness are still out there Trading, Shorting, Hedging and generally trying to find a way to make money at someone else's expense right up to and until the lights go out. A sort of financial "Doomsday" scenario where they keep firing financial missiles until there is nobody alive to claim victory.

Lemmings going over the Free-market cliff.

We're facing a somewhat stark choice. Democracy, Liberal Democratic Capitalism or Managed Democracy, State Capitalism. The present trend is towards the latter duo. Certainly the present Merkel/Sarkosy manifestation of a Euro solution is anything but Democratic and an attempt to save themselves and their banks by denying others their right to choose. By inflicting austerity upon the less fortunate they imagine they'll be able to avoid the same fate themselves. For this the others will pay. Those with the most money to lose will set and impose the rules and woe betide those that don't obey. Somehow I don't think this is going to work. Aren't they missing something here? Haven't they got this backwards? Isn't it those who must obey that can spoil the plan by just saying no more surrender of democratic rights and ask for the UK model - in the EU but out of it. Sadly if the errant, fiscally irresponsible nations (who loaned them the money in the first place?), chose to go for a UK model they'll take the UK down as a result - banks and all.  If you were looking to set up a brilliant "can't win" position this is it - a lose/lose situation.

So here we are entrapped by a system that we're trying to save whose very tenets prevent us doing just that - an oxymoron indeed. Or is the true oxymoron "Moral Hazzard"?

Pro tempore

In the same way as after "The Big One" Earthquake along the San Andreas Fault everything East of it, from the Rocky Mountains to New York City, sinks - Germany will leave the Euro. It may take a few small economies with it but France, Italy, Spain and the rest of them will be left floundering in Euro mire. Belgium, Hungary and Austria are about to admit defeat any day now. Angela is fervently denying she's riding that horse into town - all the more reason to believe she will. By extracting Germany it takes the Euro off the equivalent of a Gold Standard and immediately allows for it's devaluation. This will solve nothing for those left in it other than not have Germany tell them what to do. Brilliant!

The Euro is saved - pro tempore - somehow the beleaguered remnants have to come up with about half a trillion in new money a year for the indefinite future to save their rotten banks - even Binary Fission wouldn't suffice. As the ECB will have gone back to being the Bundesbank they'll have to open another central bank rapido, presto, tout suite to run the printing press.

Meanwhile the population of the remaining Eurozone take to the streets in an anti-austerity avalanche of protest and a bunch of Fascists get elected. All non-citizens are thrown out. The Deutschmark becomes the new reserve currency, forms a fiscal union with Switzerland, Lichtenstein and the Cayman Islands - the City of London empties and moves to Frankfurt. The pound overvalues against the Euro and everybody in Britain goes shopping in France and the Republic of Ireland - the UK borrows money from the Germans to survive under a deal where the Bundesbank runs Britain - ex-servicemen storm the Houses of Parliament - Chancellor of the Exchequer beaten to death with Zimmer frame. The USA foolishly pegs the Dollar to the Deutschmark in an attempt to keep oil priced in US Dollars, goes into a Depression and invades the usual suspects and several unsuspecting countries - they elect a Montana Militiaman as President and the Capitol is moved to a small shack near Helena. The Middle East falls apart. The Taliban invades Pakistan causing a war with India and China buys Africa when nobody is looking. The UN moves to Beijing and Israel is thrown out. The Greeks find oil. There is an Influenza pandemic started by a sick chicken in Baluchistan, due to a lack of funds a third of the world's population dies. Notts County win the FA Cup.

Is this something like the solution you are suggesting?

Return of the Gooh Gooh

The exchange rate is the least of it. Protectionism and all the monetary constraints of economic collapse ensue. But the gist of your argument is that, as with the UK, Sweden and Denmark, you're better-off out of the Euro so why then propose an expensive (unworkable, unaffordable) solution to save it? You're knocking down your own argument. Rather than a single economic zone the Euro is an economic chimera of smoke and mirrors developed from an original treaty designed for the benefit French farmers.

The UK's economic performance is abysmal - so unfair to Sweden and Denmark to compare their performance based solely on a shared ability to flex exchange rates. The only thing that keeps the UK out of an Italianesque tradgedy is, as you say, that it is fortunately not in the Euro -  as a result, they are able to devalue against it - the saving grace along the way is the US Dollar weakness - already ending as American money heads for home in panic. This does not mean that the UK economy is doing any better or that their banks aren't just as vulnerable as the likes of France's when debtor nations try to repay loans with garbage currencies - however they are aligned. By the way, aligned to what?

When you devalue your Mickey Mouse currency against the Euro you can't buy as much in Euros (or anything else) as you used to which then impacts on all those that remain in a real currency - badly if enough countries revalue - so they have to try to hold down the value of their real currency. This can't happen. Result Mickey Mouse inflates.

Usually the country invents a name for it's new Specie (I've always liked "Gooh, Gooh" - as in the Italian Gooh Gooh or the Spanish Gooh Gooh) and defaults on any debt not marked in that currency - basically declare bankruptcy without the discharge. Their economies immediately go into several years of ass tightening and reappear when enough time has passed for everybody to have gotten over being stiffed by them. Of course, up to now, this hasn't included the likes of Italy - new territory indeed.

What we have here is a problem that can't be solved within the Box of present economic theory - why? - because the Box is a mirage with vaporous walls of synthetic debt. A faith based belief economic system with one commandment - growth. The only requirement to be a supplicant is to have "confidence". No lasting solution can be found within the confines of this thinking - just more of the same. Given the all-pervading nature of the present belief system an alternative can not be found in time to prevent an economic equivalent of The Rapture, slash, End of Times.  If the Box is an illusion then there is no "outside the Box" to think in. As Weed used to say to the Flowerpot Men - "Time to go home" - or was that the Wooden-tops?

Germany's biggest advantage is that it's labour costs have remained reasonably flat (they started high in line with their productivity) while the others' shot up by 30% with little or no increase in productivity - who in their right mind drinks Retsina. Italy has gone nowhere in a couple of decades thanks to Berlusconi and a peculiarly Italian version of the free-market. One of the few things that sets Italy apart from the other failing economies was the lack of a property bubble. This is of little consolation.

I advise that in order to come up with a successful solution to the Euro shenanigans you might resort to recreational narcotics, hallucinogenic drugs or go into a trance - an induced coma might be a better long term condition.Which is what the likes of EC Commissioners and The ECB must have been in when they allowed Greece in.

Debt, Banks, Growth - pick any two

Your scenario of a new 2 speed European Economic Union of is wholly dependent on it creating growth - as in economic expansion permitting debt to reduce as a proportion of GDP. Unfortunately a return to assorted devalued national currencies will achieve the opposite as historical sovereign debt will still be measured in Euros and exports from the few remaining Euro countries (especially Germany) will be too expensive and trade will shrink not grow. The knock-on effect on China's exports would be significant - spreading the grief.

You can tackle sovereign debt, bankrupt banks and growth only by picking two of them to tackle at once not all three. There isn't enough money. Especially as regulation permitted European Banks to loan to European Community countries at leverage rates of up to 250:1 under the now miasma of "they couldn't default". Meaning banks are incapable of surviving either a default or a devaluation of currency by any of it's debtor nations (the equivalent of default). So given a choice of two out of the three the logical pick is to tackle sovereign debt and adopt policies for growth not austerity and let the Banks go under. Government then will have to cover the lost customer deposits up to a fixed value and not assume leveraged debt of untold trillions. This could be between 40 to 250 times cheaper than bailing out the banks. The retail divisions of the Banks would be nationalised to keep the branch doors open.

Alternatively, you could just run the printing presses and inflate your way out. This would, of course, destroy the personal wealth of the elite which is why we'll hang-in with the present fallacy as long as possible while they sort out a plan B. Primarily time to move their wealth into something or somewhere less likely to evaporate. Taxpayers will be milked to extend the transfer period of their wealth to a safer haven.  France will not be one of those havens - nor, probably, would it be a first team selection to remain in the new Euro given it's bank's exposure to Italy et al. The Irish, Portuguese and Greeks will sensibly default on their debts immediately they are relegated to the second division of Europe. This leaves you with Spain and Italy as the lead weight around the neck of Europe - sadly no matter what stroke they adopt the rest of Europe is likely to sink with them unless they cut them free.

However you cut it there is no elegant solution. The unpalatable fact is that we're in a Depression - a creeping one. Country by country until the tilting point is reached. Why anyone is surprised by this astounds me. We knew when the Global Financial Crisis struck that hundreds of trillions of debt were out there in the form of CDO and CDS and other assorted toxic, exotic, financial instruments conjured-up by banks looking to increase leverage to historic (lunatic) levels in the pursuit of profit and bonus - recklessly stoked by the Fed's cheap money window. Now we're looking to leverage sovereign wealth to historic levels to bail banks out of their atrocious bets, aka investments. Seeing that countries are vilified for debt at 1.2 to 1 then their ability to leverage at up to 250 to 1 to cover their banks' debt is less than nil. As is the belief that the solution to gargantuan quantities of debt is yet more debt. Pay off your credit card with another credit card.

Globalisation has exacerbated all this as with Lehman Brothers. Everybody cheated, either by borrowing more than they could repay or lending more than they could expect to get back. The choice is clear. Accept that the present financial structure has imploded and needs colonic irrigation or drown in an ocean of debt. Whatever the outcome we're not going to avoid walking around shoulder deep in shit for a long time to come. Although this may be more palatable than the present position of standing on your head in knee deep excrement.