By Howard R. Gray, Guest Contributor

When Debt’s Called Credit (1), (2) and (3) looked at the follies of the modern mortgage. In the following piece, Howard R. Gray, Chartered Surveyor and Barrister at Law of Lincoln’s Inn and the Middle Temple, discusses the alternatives to foreclosure.

Why should mortgages be hostages to fortune?

The concept of a loan secured upon real estate has been a standard feature of our society: Common law systems have used real estate as a fundamental element of wealth. The engine of society must be production, distribution and sale of goods and services, and these need to be financed. Loans come in two main varieties, secured and unsecured; as would reasonably be expected, security is preferred and thus the mortgage provided the very best security for commercial transactions.

So what exactly is the mortgage? The dead pledge is that the real estate is held in a shell form by the home purchaser until the loan is paid, while ownership in real estate terms is recognized to be in the hands of the owner of the property. However, the truth is the mortgagee has the power in theory to reclaim his money should the mortgage payments fail to arrive on time. We’re used to the situation, though there have been very serious problems with the way mortgagees choose to bundle mortgages, treating them as negotiable securities. This has become such a problem in the U.S. that situations have arisen where mortgages are so muddled administratively that it is frequently impossible to know who has title to the income stream as mortgagee.

Foreclosure and Perpetual Institutions

Let me tell you what happened during one of my property cases many years ago. My client owned two properties in London, one in Camden Town and one further north towards Alexandra Palace. He was behind in his payments on the Camden property and found himself in court in foreclosure proceedings:  the usual method was to repossess the property, sell it cheap and recoup the difference, if possible, from the mortgagor.

I thought this innately unfair and frankly inequitable. I therefore broached the perpetual nature of banks: the mortgagee (a recently converted building society) took great umbrage at this idea. The question was simply: if a bank is a perpetual institution why is it selling property on the cheap when it could quite as easily hold onto it until the market turned as it always does, recoup the loan plus any ancillary expenses and, of course, hand back the difference to the mortgagor. Does this not appear to be a thoroughly equitable solution to a very unpleasant financial situation? The response was most alarming: defending counsel was spat upon by the solicitor for the bank!

Moral of the story

Banks generally are perpetual so long as they are properly managed. The truth is that banks being in the real estate business should be better equipped to be in that market during a recession or depression. Writing off loans, attacking mortgagors’ equities, often negative or thoroughly underwater during a recession, results in spectacular losses. Most mortgagees (the banks) ignore the benighted borrowers unless so large they threaten the bank’s viability: so why not immunize against such threats?

If Freddie Mac and Fannie Mae had been disenfranchised from foreclosure in the first instance and had been made to stand back and look into the future and consider the possibility of managing underwater real estate, loans would have been factored to take that possibility into account. Given that recessions come and go and that banks are perpetual entities, by smoothing out repossessions over time very large elements of risk in real estate finance would disappear.

Since banks in any event hold onto properties in excess of 20 to 30 years why should they be shy of holding onto a property for three or four years to await a return to normality during a recession? While it is true that such a procedure might tie up funds, nevertheless a smoothing process which prevents a precipitous collapse in value through inimical short-term behaviour can only improve investment strategies for lender and borrower let alone the nation.

It would behoove the banking system to come up with this sort of arrangement rather than ask the government to do it for them. Now that gold and silver are becoming increasingly valuable it is high time to back up this process by ensuring some more rational security is built into the real estate market. By way of example, multigenerational mortgages exist in France, meaning that longer time horizons do not have to be a problem even for the shorter terms we are used to: this suggests that there are means of ensuring that foreclosure procedures could be smoothed out, as well as ensuring that the market waves are taken into account ab initio when the mortgage is granted.  

Money out of nothing – or gold?

Governments which overspend do not have a clue how to operate other than by creating money out of nothing or raising taxes. By having a mortgage market that can ride out economic waves there would be potential for underwriting the real economy as opposed to the fantasy economy of economically predatory governments. It won’t prevent government from fiscal irresponsibility but it might slow down the crash a while.

Introducing some form of gold valuation as an ancillary method of making real estate credible and tradable, should the currency collapse completely, ought to be carefully considered: this is a question of innovative contract design. Revaluing English real estate in the rental sector with regular rent reviews has, for example, been largely successful in dealing with inflation. If value is going to diminish significantly over time because of recession, why not make allowances for it and use some form of valuation based upon gold, coupled with foreclosure extension. This could be a short term method for the duration of a currency collapse.

Linking the value of real estate to gold through an underwriting formula is not an unreasonable proposition. Whatever the dollar or pound price of a good such as a Saville Row suit, pricing it in gold does not change much in the simple weight of gold. Real estate would work in the same manner: while for the most part the price of the real estate may go up or down, nevertheless, there would remain a component of the price that wouldn’t change much in real value over time, although it may change by significant amounts when measured in fiat currency terms.

Sustaining value

The simple conclusion is that banks are perpetual entities: they will be around after all the mortgagors have passed out of this world. It is not unreasonable to suggest that foreclosure should not entail the complete destruction of a loan contract. Given that recessions, depressions and booms are the norm in real estate as they are in the rest of the economy, nor should it be unreasonable to take account of this nature of the market by using a smoothing process to deal with a failure of the mortgagor to make his payments in full and on time. Since so many mortgagors have considerable equity in buildings this situation should have some form of protection in the loan recovery process. The market will develop ways to handle a creative process to allow a mortgagor to at least recover his investment just by allowing the market to turn back to an upward move in value.

By sustaining the value of buildings and preventing mortgagors from defaulting while awaiting a market turn coupled with creative processes to handle this there will be far fewer buildings coming onto the market in a distressed condition thus destroying overall building values during the pit of a depression.

By Mark Rogers

At the end of the post on the U.S. Federal Reserve’s non-existent gold I quoted C.H.V. Sutherland on paper money, which he points out  ”is not money at all, in any true sense, but an extension of credit”, hence “credit currency”. The latter term now of course encompasses electronic money, the device which makes quantitative easing so much easier.

The idea that paper or electronic money is really nothing more than an extenstion of credit, a promise to pay, raises an interesting point: to borrow money is in effect to take out a mortgage on the paper credit you hold and earn, that is, to extend credit on the basis of credit currency earnings is to extend credit on credit.

This raises the issue of trust that lies behind such a system to the level of the most important practical as well as moral feature of that system, and potentially compromises any sense of value that the monetary system embodies.

This post is by way of reflecting on some basic ideas about value and how it arises and what systems best embody it and allow it to function. These are introductory ideas merely, and the examination of this problem will continue in later posts, embracing history and anthropology as well as economics.

Hernando de Soto (whose work has already been referred to here and here) makes the interesting claim that we are only beginning to understand the nature of money, what brings it into existence and what supports it. His work in the extra-legal economies of the developing world has thrown up this question in sharp relief. His discovery that the poor, some 87% of whom live and work outside any formal legal structure, are camping on assets worth trillions (the value of which cannot be realised because of the absence of workable legal systems that realise title to those assets), raised the question of how assets are dissociated from their potential value.

There would appear to be a formula that runs from assets to value to capital to money, and that the jump from the first to the second of these, which in turn gives rise to the latter two, is a jump over a very large gap. That jump is taken very much for granted in the developed world because we do it all the time without necessarily realising it, so secure are our legal arrangements; but the gap effectively immobilises the poor in developing economies. They have assets in the form of unrealisable savings, which renders them, therefore, essentially worthless.

There is an interesting anthropological speculation arising from the idea that without property there can be no money system: that is if the formula suggested above turns out to be a true and fruitful one, then the common understanding that things such as cowrie shells and cattle were a form of pre-currency is a misunderstanding of the functions of money. That is, they may have been no more than a more highly stylised form of bartering and possibly, again against previous understandings, a less efficient one, not a rationalisation that led in time to formal money currencies.

If money only arises against a property system, and that in turn is the result of the development of formal legal systems, there can be very little connection between any system of bartering and formal money. The idea that money is a realisation of value inherent in property means currency is the result of a property holding system which, to be realisable, must have clear title. Then, on the basis of that title, the value of the asset can be ascertained and then realised as capital which then has a representational form as currency. That is, money as a representation of value, as a means of realising that value and being a store of that value is the result of a legal system that can render property fungible – that is, that the asset can be more than one thing.

This, of course, means that property is a form of savings, and that savings are therefore at the root of money. As we have seen in earlier posts, savings have been under attack throughout the twentieth century, with Keynes as a cheerleader of that attack, an attack which has been redoubled recently with quantitative easing and with measures against the purchase of gold being enacted in Europe. Even George Bernard Shaw saw through the paper money promise and recommended the purchase of gold! 

The failure to realise the necessity of savings and their wider functions in a workable economy is at the root of the financial crisis.

Those wise Cantonese grandmothers in Hong Kong understood the vital nature of savings – and, moreover, the best way to store them as gold.

By Mark Rogers

In Gold in Iraqi Kurdistan, we mentioned the Iranian government’s facilitation of gold exploration in its Kurdish province. The mining of gold at Sari Gunay was abandoned in 2007 by Rio Tinto, because the mine was not commercially viable being apparently too small at a mere 16 tons. Proven reserves of gold in Iran are some 220 tons, with an annual production of about 2 tons. In January 2011 it was reported that Rio Tinto was to sell its 70% stake in Sari Gunay, having failed to dispose of it earlier when a deal with a Chinese investor fell through.

While this little venture has collapsed, there is some interesting news out of Iran – which may help explain certain mysteries about the Chinese purchasing of gold.

In February 2012, the question was raised as to how much gold the Chinese central bank was purchasing: Did China’s Central Bank Buy 139 Tonnes Of Gold In The Fourth Quarter?  In the last quarter of 2011 “China’s imports from Hong Kong, which account for the majority of its overseas buying, soared to 227 tonnes in the last three months of 2011 … That compares to demand of 191 tonnes for gold jewellery, bars and coins … Since China does not allow the export of gold, there was a domestic supply/demand gap of about 139 tonnes during the last three months of the year and central bank purchases likely accounted for some or all of that gap.”

The fact that the Chinese Central Bank prefers to go about the purchase of gold on the quiet, only revealing the size of its purchases long after the event, helps explain the uncertainty over the surge in buying at the end of last year. There is another intriguing fact, though, which may cast light on this purchasing  in the not-too-distant future.

In order to continue to facilitate its export of oil and minerals, “Iran’s central bank governor said on Tuesday [28 February 2012] Tehran was willing to accept gold as payment for its oil as sanctions imposed by the United States and Europe hamper the country’s financial institutions and force its trading partners to seek alternative ways to settle transactions.” (Full Reuters’ story here.) So a very interesting game is being played out, with results that are far from clear both for Iran and those who continue trade with it. “Iran used gold and oil to pay for shipments of grain earlier [in February], according to European grain traders. It has also used currencies such as the yen or the rouble to pay for grain imports, thereby skirting the need to employ either dollars or euros.”

And this is, potentially, where China comes into play. Although it is the world’s largest producer of gold, its mines cannot keep up with demand. Hence the Central Bank’s purchasing. The Reuters’ report quotes Ross Norman, CEO of the bullion dealer Sharps Pixley as saying: “China interestingly enough is under-resourced in terms of its gold reserves but, not withstanding that, it’s also the world’s biggest gold producer so presumably it’s got the ability to fund any purchases from Iran that it needs to put through. What the Iranians are saying is that there are other financial mechanisms out there for those who want to transact.”

Does this help explain the Chinese Gold Rush?

By Mark Rogers                 

On 27th January 2012, The Daily Telegraph reported that a Civil Servant with the position of Permanent Secretary for Tax at Her Majesty’s Revenue and Customs, delivered himself of the opinion that those who pay tradesmen in cash are “diddling” the economy, “allowing them to evade VAT or income tax”.

The Permanent Secretary for Tax stated what taxpayers’ money is spent on:  “Tax provides the funding to run the country: hospitals, schools and everything else,” he says. “Every time someone pays cash in order not to pay VAT, the nation gets diddled.”

The Permanent Secretary for Tax has a pension pot, paid for by taxpayers, of £1.7 million pounds. He also said that those who contribute to the cash economy have no cause to complain about austerity. Clearly, £1.7 million pounds is no austerity – and so is very much open to objection.

H.M.R.C. – Stasi-style

H.M.R.C. is planning a “major clampdown”. In order to perform it, the government is to encourage sneaking: The Daily Telegraph reports: “Mr Hartnett encourages anyone who suspects wrongdoing to telephone the Revenue’s whistle-blower hotline and tip off inspectors.  He says: ‘Cash has been a problem for a long time. The people who are worried about it should use our whistle-blowing line to tell us. We are getting better and better at finding people who receive cash.’” Furthermore: “Tax disclosure rules introduced in 2004 had ‘massively changed the environment for tax avoidance and business’, he says. ‘We have now got to do the same with individuals’.”

These are highly charged statements; whatever other tasks a Permanent Secretary for Tax may perform, making political remarks is not one of them: they are beyond the brief of a mere Civil Servant.

Where does it all go?

Let’s see what we can make of these allegations and proposals. In the first place, having taken it upon himself, as a Civil Servant, to tell us that our taxes go on “hospitals, schools and everything else”, before making accusations about “diddlers”, perhaps he should justify this statement: is he certain that the taxpayer gets value for money?

The “everything else” is a bit suspicious, too: foreign aid that is declined by its recipients (here); MPs’ expenses; Civil Servants’ expense credit cards that leave no audit trail; one third of the national budget being spent on social workers, who routinely fail to save infants from horrible fates, while a mere 3% of what is spent on social workers is spent on the Armed Forces – which nevertheless face savage cuts; inordinately high salaries for local authority CEOs; vast sums wasted on government computer schemes, which just get written off; those in the private sector on the state pension seeing their pensions vanish, while those in the public sector have guaranteed pensions…. the welfarist list goes on (The Taxpayers’ Alliance are the experts on government waste). And while there is no guarantee whatsoever that this money is well spent, the government is so profligate that the Bank of England is indulging in massive Quantitative Easing so that the government can pay its debts… which is another way of saying that the government is able to write off its responsibility and accountability.

There’s the rub

“Cash” is indeed the problem. QE, while allowing the government to pay its debts, while decreasing the value of borrower’s liabilities, has a huge negative impact on pensions, annuities and savings.

So perhaps Mr Permanent Secretary for Tax had better be careful who he accuses of “diddling”. With the Welfare State seemingly beyond reform – but also beyond the nation’s pocket, and with QE devaluing the efforts of the prudent, why shouldn’t people find ways of doing what they can to hang on to their wealth? In an encouraging addendum to The Daily Telegraph’s story, an online poll shows 68.36% of respondents agreeing with the statement that “It’s not up to me to force other people to pay their tax”, while 18.98% agreed that they were “not willing to pay more if [they] can get a good deal with cash”.

In other words, prudence is valued. Savings, trying to do well for oneself and one’s family, are only regarded as “selfish” in the moral vacuum that the Welfare state creates. What a long way from the ringing endorsement of individuality and wealth creation that Gladstone made: “Let the wealth of the people fructify in the pockets of the people.”

There is a particularly ugly aspect to this move by H.M.R.C., which is very worrying in constitutional terms: the Customs and Excise, being the body that raised the King’s money, has always had stronger, almost extra-legal powers, than the Inland Revenue, the distinction being that Customs was practically a police force, founded in the days before income tax and granted powers to, for example, deal with smugglers. It was always a concern that VAT had been deemed a Customs’ matter; now given the merger of the Revenue with the Customs by Gordon Brown, there was always the possibility that this was a way of granting an extension of the sort of powers Customs officers enjoyed to the Revenue. And the remarks quoted above, including references to income tax, suggest that this indeed is what it happening….

Monopoly?

But let’s suggest a deal, taking our cue from the Permanent Secretary for Tax: those who operate in the cash economy shouldn’t complain of austerity – well, if they don’t complain, will they be left alone? After all, their activities may in their own small way help revive the economy.

And if the government can simply print money to pay its debts, will the Revenue have cause to complain if the rest of us decide to pay our taxes in Monopoly money?

(The manufacturers of Monopoly print more money every day than the U.S. Federal Reserve – although not, perhaps, for much longer……)

By Mark Rogers

In “Tales from a Palm Court”, Ronnie Knox-Mawer’s hilarious account of his years as a Judge in the last British colonies of the South Sea islands, he recalls his meeting with one of the island Resident officers. The living room of his Residence looked like a Victorian parlour, crammed as it was with artefacts, bric-a-brac, ornaments and furniture, including a harmonium.

The Resident, noticing the surprise on the Judge’s face, told him that the habit of keeping things ran deep in his family and recalled that on the demise of an aunt, there was found in her attic a large sack neatly tied with a label that read: “Bits of string too short to be of any use”…

The Victorian middle-class house was a place to keep things. Houses with capacious attics, rooms large enough to hold substantial wardrobes and chests of drawers, often a room given over to a library, and an ingeniously hidden safe – households were synonymous with saving and preserving. It was truly said: “The home should be the treasure chest of living.”

No room, no room!

Enter the brutalist and minimalist modernists. Surprisingly, the remark just quoted, so redolent of the sort of homes the Georgians and Victorians built, was made by Le Corbusier, more famous for his assertion that: “A house is a machine for living in”.

So which did he really believe? Well, he also said: “I prefer drawing to talking. Drawing is faster, and leaves less room for lies.” So let us look at a typical drawing:

This is the “Plan Voisin” of 1925, a proposal to bulldoze most of central Paris north of the Seine, and replace it with sixty-storey cruciform towers.

Jane Jacobs, in her seminal work, “The Death and Life of Great American Cities”, the book that demolished the inhuman assumptions of the modern movement in architecture, the anti-planner’s bible, notes: “In Le Corbusier’s vertical city the common run of mankind was to be housed at 1,200 inhabitants to the acre, a fantastically high city density indeed, but because of building up so high, 95% of the ground could remain open.” So perhaps the home as conceived by Le Corbusier was more of a machine in which to store human beings: as Jacobs mordantly remarks this was conceiving of the city “as a collection of separate file drawers”.

The vertical city as epitomised by the drawing above does not suggest that there is any room for storing and saving, indeed the design militates against these virtues, not least because in the absence of streets, there is no room in these cities for the arts and amenities of life – no streets, no shops and so no commerce: how were people to actually maintain and provide for themselves and the generations after them? The ordinary requirements of getting and spending, mundane productive labour, all these arts are overlooked by those who plan the shining path to the radiant future.

Indeed, everything that people used to provide for themselves, was to be provided by the authorities: thus is imprudence encouraged by such designs on people’s livelihoods.

What need to save, then, least of all in the safe haven of gold, that bulwark against the authorities’ own imprudence in imagining that people should be deprived of responsiblity for their own welfare.

By Mark Rogers

The Federal Reserve’s holdings of gold are not only non-existent, contrary to what many people understand, they do not even amount to paper gold.

In 1933, the first year of his presidency, President Roosevelt ordered the seizure of private holdings of gold (with some exceptions for jewellery and dentistry); this was followed in 1934 by the confiscation of gold from the banks. This was allegedly in response to the shortage of gold caused by the great depression.

In 1934 the United States fixed the dollar price of gold at $35/troy ounce (devaluing the dollar thereby). This became known as the “statutory” or “legal” price. In spite of all that subsequently happened, the U.S. refused to consider an increase in this price of gold, not the establishment of the Bretton Woods agreement and the International Monetary Fund, nor the devaluation of the pound sterling in 1949 which in effect raised the price of gold in the sterling area without a rise in its price in the dollar area.

In the 1950s the volume and value of the world trade in gold kept on increasing, leading to the idea that a universal rise in the price of gold could be brought about by its dollar revaluation. The growth of the world’s monetary gold reserves as then valued fell far below the increase in the current volume/value; thus, it became clear that the annual yield of new gold (at the same valuation) could not express the increasing volume of goods produced. The U.S. gold reserves had by now fallen to well below the level at which they guaranteed paper money. Nonetheless the U.S. price of gold remained the same.

Decoupling the dollar from gold

In 1972 the “statutory” price was adjusted to $38/ounce and again in 1973 to $42.22/ounce. These movements were followed in 1975 by the revocation of the prohibition on ownership of gold by private parties.

Amongst the banks that had had its gold reserves confiscated was the Federal Reserve – the Treasury was the authority which performed the confiscation. The fact that the Federal Reserve is quasi-independent of the government (somewhat analogously to the Bank of England before it was nationalized in 1946), explains the apparent anomaly of the state confiscating its own reserves.

The Federal Reserve was obliged to sell its gold to the Treasury at $20.67/oz, in return for which it received gold certificates worth around $3.617 billion.

So why does the idea persist that the Federal Reserve has any gold reserves at all? Because the deal done with the Treasury issued in those certificates just mentioned, which is why the Federal Reserve lists them, as the “Gold certificate account”, in its accounts, consistently valued at the final price of 1973.

The Fed’s “paper gold” not even paper gold

Dr Ron Paul, member of the House of Representatives, is the champion of getting the Federal Reserve to be audited by the Government Accountability Office: that task has always been undertaken by the Federal Reserve itself (surprising as that may seem). Hitherto his efforts at getting this into law have met huge resistance and evasion by the Federal Reserve (which is not surprising at all).

On the first of June, 2011, testimony by Scott G. Alvarez, General Counsel, and Thomas C. Baxter Jr., General Counsel, Federal Reserve (formal testimony here) before the Subcommittee on Domestic Monetary Policy and Technology, Committee on Financial Services, U.S. House of Representatives, Washington, D.C., of which Dr Paul was the Chairman, on Federal Reserve Lending Disclosures, exposed the nature of the “gold certificate account” in exchanges between Dr Paul and Mr Alvarez.

Crucially, it transpires that these certificates are not even claims to the actual gold that the Treasury confiscated. Said Mr Alvarez: “No we have no interest in the gold that is owned by the Treasury. We have simply an accounting document that is called gold certificates that represents the value at a statutory rate that we gave to the Treasury in 1934.″

In a fascinating analysis of this extraordinary statement, GoldNews.Com discusses what this means in terms of the relationship between the Treasury and the Federal Reserve: “The Treasury, however, in a desire to realize the value of the gold without selling it, used their gold as collateral against gold certificate issuance to the Fed in exchange for fresh cash for the Treasury to spend. The Treasury is able to print as many gold certificates as they choose, under one restriction from the Gold Reserve Act: the amount of gold certificates outstanding shall at no time exceed the value of gold held by the Treasury, priced at the statutory rate. This meant any increase in the value of the Treasury’s gold could be matched by printing gold certificates and those certificates could be used to acquire new Federal Reserve Notes (dollars) from the Fed.”

This is Quantitative Easing with a vengeance! In order to have more money to spend, the Fed is asked to print more notes, in return for which, and in order, presumably, not to disturb the “statutory” price recorded on the Fed’s accounts, the Treasury then prints more gold certificates.

An upshot of this is that the dollar is worth a good deal less than is assumed. And a corollary of this is that the manner in which the Treasury acquired the gold and its subsequent valuation as “gold certificates” would explain why, as noted above, the U.S. insisted on maintaining the dollar price at $35 for so long: it was an accountancy exercise and no more, and continues as such to this day.

Does this, at least in theory, mean that should there ever be a deal whereby the Fed buys its gold back from the Treasury, it would do so at that “price” on its books?

The analysis of this extremely complicated state of affairs by GoldNews.Com can be found here (Part One) and here (Part Two, from which the substantial quotation above has been taken).

Credit no measure of true value

Here, in the light of the above discussion, is a sobering observation made by C.H.V. Sutherland, then Keeper of Coins at the Ashmolean Museum, Oxford, in “Gold: Its Beauty, Power and Allure” (published by Thames and Hudson, 1969): “Collapse of the gold standard was followed by the era of credit currency. We accept a bank-note for the payment of £1, but in accepting it we receive in fact only the bank’s promise to pay £1. We accept a cheque, similarly; but a cheque again is no more than its drawer’s promise that his bank will pay us another bank’s promises. The growth of ‘money’ in this sense – and of course it is not money at all, in any true sense, but an extension of credit – is one of the most remarkable features of economic life since 1914 [emphasis added].”

There is considerable historical irony in the fact that President Roosevelt ended Prohibition in 1933, only to enact another prohibition on the private ownership of gold, with consequences which are still unravelling in the “current” financial crisis: I say “current” because the problems of paper money have been unravelling ever since the decisions about gold related above were taken – just as the same President’s New Deal, with its state-backed savings and loans funds, is a fundamental cause of the subprime crisis.

By Mark Rogers

This street 观前街 Guan Qian Jie, in Suzhou, near Shanghai, is full of Gold shops

During the seven days of the Chinese New Year’s holidays, people have bought 3.62 billion yuan’s worth (0.5761 billion dollars) of gold in Beijing, 15.5% more than last year. It was also reported that just two shops in Beijing during this same period managed to shift 1.5 tonnes (GoldCoin.org Chinese source). At GoldCoin.org we have previously reported on the expansive buying of gold in China in our article “Chinese queue at malls to beat Bernanke’s inflation with gold“.

John Stepek, editor of Money Week, recently pointed out that “Chinese citizens don’t have many options as far as saving their money goes – you can’t get an above-inflation return from your bank account, and the local stock market is a casino.”

What is happening? And why is it happening?

As with the eurozone, the flight – on this scale – into gold indicates extreme economic uncertainty and a desire to shore up one’s savings in the only real safe haven. Yet isn’t China supposed to be an economic powerhouse? Isn’t Beijing planning to float the renminbi (yuan), in an attempt to replace the dollar? Isn’t the Chancellor of the Exchequer actively working with the authorities in Hong Kong to make “sure that London is the western trading centre for the Chinese currency”, turning “the City into an offshore trading centre for the renminbi” (The Financial Times, 16 January, 2012)? The renminbi is about to become fully convertible this year – isn’t it?

Well, perhaps not: “capital account liberalization looks off the table … At the moment, the transfers out of China are manageable, but then again the economy has only begun to falter. No officials, even ones less obsessed about control than Beijing’s, would open up a capital account in a quickly deteriorating economic environment. Therefore, events are working against Zhou Xiaochuan [Governor of the People’s Bank of China], and so is Chen Deming, the boss of the Ministry of Commerce. Chen has tenaciously defended the interests of exporters by blocking currency liberalization, and with the country’s trade surplus set to decline—to about $150 billion last year from $183.1 billion in 2010 and $196.1 billion in 2009—it is unlikely that Chen will now let central bank reformers get their way. … If Beijing opens the currency wall and the markets are not ready, flows of investment cash could—and probably will—lead to a catastrophe. At this time, it will take years to get China’s banks and markets in shape for unregulated flows of currency. So don’t expect capital account convertibility this year or even next.” This is the analysis of Gordon Chang (author of The Coming Collapse of China, and Forbes contributor, here: “China says Yuan will be fully convertible soon”).

Declining demand for Chinese exports

Certainly the Chinese economy gives plenty of reasons for this degree of pessimism. One of the most important indicators of China’s burgeoning woes is the troubled eurozone: Europe was China’s biggest export market, but Europe has practically ceased importing. The immediate consequence of this is that recession is perceptibly looming in China, indeed there are, for example, reports that China’s steel industry is seriously struggling with the potential closure of many mills (The Economist, Jan. 23-Feb. 3, 2012). Add to this the optimism expressed at the recent Davos summit by American business leaders that the coming on stream of shale gas in the United States is going to dramatically reduce manufacturing energy costs there, thus enabling American manufacturers to repatriate production.

So does this explain the Chinese flight into gold?

Inside a typical gold retailer in Suzhou, China

See a previous article on Goldcoin.org called “1 Billion to buy gold as Chinese gold rush grows” for some facts and figures.

The figures are certainly impressive – not to say astonishing. But is it certain that these figures represent only concerned citizens anxious to preserve their wealth? The active encouragement of the People’s Bank of China, referred to in the cited article, that “1 Billion Chinese citizens buy gold as a way of preserving and protecting their wealth against inflation, economic crisis and the falling values of major currencies” could bear another interpretation: namely that the Chinese authorities are contemplating at some future tipping point to announce a patriotic handing over of individual gold holdings to the state – i.e. confiscation.

Moreover, let us look again at the declared intention of that same People’s Bank of China to make the renminbi fully convertible this year. The massive purchases of gold may have yet another interpretation: as a means of supporting the value of the renminbi when it floats in spite of the problems that both Mr Chang and Mr Stepek discuss in their articles cited above. And that raises another enigma.

China remains, politically, a Communist state, and remains fundamentally unfriendly to the Western powers – witness its recent active unwillingness to censure the Syrian butchers. That it has liberalised its economy since the reforms of Deng Xiaoping, and that this has opened trade barriers and brought prosperity to millions of Chinese is not to be doubted; but this has all taken place in terms of a closed political system that holds the whip hand over the economy, “state capitalism” interpreted in the interests of the Chinese Communist Party, that is, a fascist-corporatist economic model.

This raises intriguing possibilities in terms of those thousands of purchasers of gold. For while there are corporations that clearly function under the rubric of the Chinese State there are many more enterprises that appear to be private corporations but are in fact shells for the State (the Chinese corporate structure emulates in many ways the systems of incorporation that for a long time successfully hid the fact that ultimately it was the shameless and cruel King Leopold II of Belgium who owned the Congo Free State). And just as this operates at the corporate level, so may it operate at the individual level: there is simply no way of knowing how many of those individual or smaller-scale enterprises who are buying up gold may in fact be agents of the state.

A Chinese Gold Standard?

Remember that according to the World Gold Council and GFMS reports, China is the World’s largest producer of gold and is second only to India for gold consumption (but catching up fast). No coincidence here either!

So to answer the questions raised at the beginning of this article: What is happening? We don’t actually know. And why is it happening? One shudders to think….
…. But then imagine if one day the Chinese government “requires” private investors to place their gold in the People’s Bank for the good of the Nation – the national gold stock would swell considerably – maybe enough to back the Yuan with a Gold Standard and thus achieve its ambition to be the World’s Reserve currency?

A young investor contemplates the potential of gold

Shaw was the most consistent socialist of the Twentieth Century in being the advocate of Lenin, Mussolini, Stalin and Hitler. He saw quite clearly that they pursued socialist policies, and equally admired their penchant for violence and destruction: this counted for a lot with Shaw, who was willing to see museums, cathedrals, galleries and libraries blown up as symbols of the past which obstructed the creation of a new mankind (he not infrequently proclaimed his own superiority over Aeschylus and Shakespeare).

He enjoyed rubbing his audiences’ faces in what he saw as the absurdities of the capitalist system; one technique was to claim that his own understanding of how it worked was greater than the average person’s. He was a very astute capitalist when it came to promoting his own plays: he insisted on charging very low royalties, particularly for amateur drama societies. This made him rich, because it ensured that his plays were performed more frequently than those of his contemporaries – and he lived a very long life!

Not for the first time did a socialist, while swallowing his own inconsistencies, claim to penetrate to the heart of the system’s inconsistencies. He was, in short, a rhetorical poseur, who was nevertheless occasionally astute about what he despised; here are his observations on gold:

“The most important thing about money is to maintain its stability, so that a pound will buy as much a year hence or ten years hence or fifty years hence as today, and no more. With paper money this stability has to be maintained by the Government. With a gold currency it tends to maintain itself even when the natural supply of gold is increased by discoveries of new deposits, because of the curious fact that the demand for gold in the world is practically infinite. You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And with due respect to these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

Another inconsistency, of course, is that under the dictatorships he admired there was never any contest as to the trustworthiness of the Government. Everything, and not just the money system, was ruled by fiat.

Now that the tribulations of the Twentieth Century have demonstrated the superiority of capitalism and markets to the horrors of the tyrants that Shaw endorsed, a vote for gold is therefore a vote for capitalism, especially as a haven from its present woes. In fact, of course, the developed nations are passing through the consequences of the protectionist-corporatist approach to the risks and benefits of markets, which has been most widely expressed over the late Twentieth Century in the consensus that confidence can and should be voted in “the honesty and intelligence of the members of the Government”, with the result that though everyone likes, inconsistently, to blame the government, everyone also seems to have no trouble in believing its paper promises.

The hope must be that the current crisis may concentrate people’s minds on what makes for true value and how it can be recovered and maintained. A tall order, but a start must be made, and where better than voting for a little gold of one’s own…

We continue to examine the folly of the modern mortgage, following our previous discussions on Golcoin.org in When Debt’s called Credit and When Debts called Credit 2.

There are many reasons why members of what we ought to call the pseudo-propertied classes might need to sell the houses on which they are paying a mortgage, even if the primary reason for owning the mortgage was to have a home rather than an investment asset. Those reasons may include the break-up of a marriage, a growing family needing more room, or the need to move to take up employment.

However, if the market has dried up, there are no buyers. This means that the pseudo-owner has negative equity in the property – the house is now worth less than the mortgage that still must be paid off. There are various ways in which this can be calculated but the honestly stated value is now – zero. No buyer, no value, only a liability.

Late last year a particularly galling instance of this problem was reported: that while middle management jobs are to be found in the South-East of England, those who live in mortgaged properties elsewhere in the country cannot avail themselves of these employment opportunities because they cannot sell their houses. If they are at risk of losing, or have lost, their jobs where they live, or simply wish to earn a larger salary as their families grow they are effectively trapped by their mortgage.

It is also reported that in many cities in the U.K. it is now cheaper to buy than to rent; this should really come as no surprise as this simply enlarges on the fact that it has been made cheaper to buy because of the credit available to do so. The more houses are bought up, the less properties are available to rent, and so rents climb. Renting of course answers the need for flexibility in terms of being able to move as jobs become available, or the family grows.

Yet owning your own home has long been trumpeted as a form of security, both for oneself and for one’s locality. Home ownership was widely encouraged through mortgage tax relief in the 1980s. Homes were seen as a bulwark against daft left-wing local authorities, the reasoning being that the greater the number of people who owned their homes, the more they had a direct interest in how their local authorities were run, in part because the rates they paid became visible to them as householders (rather than being an invisible component of the rent which the landlord charged them). This may have been a laudable aim – but mortgage tax relief was not the answer, as it became one of the chief engines of rapidly over-expanded credit, and therefore the heightened insecurity we are all now experiencing.

In the United States it is estimated that 50% of mortgage holders are “underwater”: “When factoring in second mortgage debt, seller closing costs, and sales commission, more than 50% of owners with a mortgage are unable to sell their homes and pay off their debts.” For more on this enormous tally of insecurity go to Irvine Housing Blog:

by Mark Rogers

Earlier this month on Goldcoin.org, we looked at hazardous gold mining operations in South America (Unclean Gold). The context was the Peruvian economist, Hernando de Soto’s findings that the vast majority of the world’s poor operate in economies that give them no access to title and other capital-realizing legal arrangements. There will be a great deal more to say about these insights, but here I want to address an important distinction that needs to be made about eco-crisis and the environment. This is to clear up some of the misapprehensions voiced by critics of capitalism and free trade, such as “Occupy” and many of the rancidly left-wing organizations financed by Soros.

The anti-globalization movement has global ambitions far in excess of those entertained by the merchants and manufacturers who drive globalization. The latter want to acquire or produce their goods at the best possible costs and sell them for the best possible prices. Not only are these relatively modest ambitions, but they are also perfectly normal: merchants and manufacturers down the centuries have always traded on these assumptions.

A main platform of anti-globalizers against the despoliation allegedly caused by capitalist enterprise is environmentalism, and this vision is entirely holistic – i.e. global! They also embrace goals far in excess of what any economy can bear, especially a developing one: the grandest is the demand that carbon emissions are reduced by an improbable amount in an unachievable time…

The reason: “global warming”. However, this is an ideology and can have no bearing on what real people struggling in real economies must do to survive and prosper. Hence the refusal of India and China to sign up to carbon quotas; hence the puzzlement of Africans and South Americans that they should be sacrificed, denied the possibility to improve their lot because of the perceived “fate of the earth”.

Global warming is now a legislative fact, and it is so because the wrong science is used: the study of the “greenhouse effect” is based on the composition of gases, i.e. chemistry. However, what drives the climate is convection, i.e. physics. The Earth is 70% water, and the land mass that makes up the rest contains high mountain ranges: the effect is the creation of a planetary climate which helps regulate temperatures over time.

“Environmentalism” is merely another attempt by those who despise wealth creation, and all the benefits that flow from it, to reduce western economies and suppress emerging ones.

Yet are there not serious ecological problems such as the unclean and illegal gold mines discussed earlier? Of course there are, but refusing to be blinded by environmentalism means approaching such eco-crises more circumspectly. That is, each crisis must be seen on a case-by-case basis, and not dove-tailed into a wider and misleading perspective. Why should what needs to be done – and more to the point that can be done – to alleviate a local problem, be deferred until globalization and the environment are “fixed”? The attempt to co-opt the unclean gold mines into a productive framework, would demonstrate that such problems can be solved on their own terms – and give true value not only to the gold extracted but to the lives and work of the extractors.

By Mark Rogers

France’s loss of the triple A rating sharpens the focus on what needs to be done to avoid the Eurozone’s crisis deepening further. What happens in France in the immediate as well as the long term future is therefore of concern to those outside France as well as those within. This week it was made clear that through increased IMF funding, the UK is likely to be contributing to the bail out funds, although the UK remains committed to countries not currencies. Of particular concern to English readers is the likely reaction in France to the required social reforms. And of course the flight into gold helps strengthen the hand of the wise investor.

The loss of the triple A is only one of the superficial symptoms of the trends of 2012. The economic crisis continues to deepen, which may well cause the price of gold to climb more quickly than envisaged, but not initially.

The consequences for the economy…

This is not due to having been warned of the possibility of such a loss. Since October last year, the agency Moody had been holding the sword of Damocles over Gallic heads.
The downgrading of the French credit rating from AAA to AA by the credit rating agency Standard & Poor’s has far graver consequences than would be implied by the speeches of leaders who wish to give reassurances, a mere few months ahead of the elections.

The interest rates at which France borrows and which are already twice as high as those of Germany will increase, to cover the risk of default. The first direct impact on the economy is the flight of investors and thus a fall in the CAC 40 index.
And for individuals
Higher interest rates on mortgages, tax hikes, diminished access to credit… the French will have to curb their spending. All the large companies in which the State has a stake (EDF, GDF, France Telecom, Renault, SNCF…) will see their financing costs increase, which inevitably will impact the expenditure of individuals, not to mention the degradation of public services.

Is the A lost forever?

Of course, France can regain its triple A, but how soon and, especially, at what cost?
The corporate VAT plan is only a tiny initiative when viewed in the light of the catastrophic impact of such a downgrading. According to Norbert Gaillard, consultant at the World Bank, France can only recover its AAA at the expense of important social reforms and “a drastic reduction in public expenditure”. Flexibility of the job market for greater competitiveness, extending the period of contributions to pension funds, elimination of the 35 hour working week… Are the French ready to give up their social gains whilst increasing their daily expenditure? Working more and earning less money?

The consequences for gold

As soon as the credit rating of a country is downgraded, the cautious markets fall, demand for gold increases and hence its price. Initially, the need of banks for liquidity can result in a massive withdrawal following the resale of credit and a fall in the price of gold on the markets, as has been already more or less the case since December. One should therefore take the opportunity to strengthen one’s position on gold and buy now because the secondary effect once the selling off stops will see: gold reach new highs this year breaking the $2000 an ounce barrier and beyond.

Fools or Gold?

Once the dominoes of Debt start to tumble the skies the limit but more importantly, when states fail, currencies collapse or sovereign debt strangles everyday life, where would you rather have your “money”?
In a tangible precious asset with perennial true value?
Or tied up in the worldwide web of debt derivatives, Special Purpose Entities (SPEs) and untraceable off-ledger accounts?

The choice is simple, give your money to the crooks you’ve been conditioned to trust with blind faith and risk losing everything or buy something solid that you own and trust yourself to manage it properly?

It’s what they call a no-brainer!

The twentieth century saw in both extreme (Nazism/Communism) and mild (the European-style welfare state) forms the strange phenomenon of governments repeatedly taking against their own peoples – in the name of the people. No longer was an independent citizenry to be trusted to look after itself, educate its children, defend its homes and families, and generally stand on its own feet: the munificent state was to do all that, and the end result is bankruptcy. And evasion: the bankrupt states of Europe are not prepared to be honest about where state intervention leads, even though the lessons have been spelled out twice in the twentieth century in draconian form: Nazi Germany and the Soviet Union.

As the eurocrisis deepens, measures antipathetic to savings are being mooted across the continent, involving amongst other things bans on the purchase of gold over certain amounts and bans on cash transactions. Any attempt by savers to convert increasingly worthless cash into solid investments like gold are to be thwarted, raising fears that a Franklin D. Roosevelt style confiscation of privately owned gold may be on the horizon.

Certainly measures proposed or drafted into law in the last quarter of 2011, in Italy, France and Austria, give cause for concern: in Austria there is a restriction on the purchase of more than 15,000 euros’ worth of gold; in France, all metal sales over 450 euros must be paid for by credit card or bank transfer; in Italy it is proposed to ban all cash transactions over (the figures vary) 300, 1,000 or 5,000 euros. The effect of these measures would be to render all significant purchases of precious metals recorded and therefore traceable to their owners.

It has been claimed that the various reasons for these measures are an attempt to rein in credit, to comply with U.S. requests for assistance in combating money laundering, or to help prevent the theft of ordinary metals: in the case of the latter there have been widespread spates in recent months of the theft of metals from anything ranging from telephone poles to industrial plant. While these may all be true goals (whether the proposed remedies will work is another matter – it always is), there is the significant problem that nowhere are the precious metals excluded from the measures. Hence the fears of confiscation.
Gold is a safe haven competitor against fiat money; this may not cause problems when economies are genuinely booming (i.e. the boom is not fuelled by easy expansions of credit). Yet when the fiat money system is collapsing and inflation is rampant the idea that people may protect their assets and their pensions by converting their cash into gold becomes a serious “problem” for the state: savings are seen as a threat.

We have seen how Keynes thought “wealth accumulation” a vice (Austerity for you – privileges for Politicians, December 16th, 2011). He further mockingly remarked: “The duty of ‘saving’ became nine-tenths of virtue and the growth of the cake the object of true religion.” Reckless governments are hardly likely to admire or condone prudence in their peoples; whatever the ultimate reason for this, such an attitude on the part of the authorities will only widen the gap between the political elite, unable to admit the error of its ways, and nervous private citizens wondering whether they have a future.

Finally, savings based in fiat currencies or related to debt-ridden financial institutions have the possibility to fall to zero in a crisis. Savings based in physical assets that you own help protect to preserve your accumulated wealth as they retain worth through a crisis.

The best physical asset to own during a crisis is gold which has proved its perennial purchasing power for over 6000 years – no fiat currency has ever existed that long to compare it and no other asset can compete with the value retention of gold. After all Gold can never be worth zero – it has intrinsic value, it is relatively rare on the planet and it has always been revered as precious because it is and has chemical and physical properties unmatched by any other metal.

By Mark Rogers

It is taken for granted that to qualify as a banker one must be greedy. The proposition is so silly that it is distressing to note how widespread is its acceptance. Of course there are greedy bankers, just as there are greedy butchers, bakers and train drivers; yet if banking was based on greed, it couldn’t exist. (This is another example of the misunderstanding of self-interest: see  Austerity for you – privileges for Politicians, December 16th, 2011).
The web of trust that is banking could never have come into existence if it was driven by the unqualified greed of all those who tried to participate. Banking arose out of the need of merchants to protect their monetary assets from theft en route as they travelled about Europe trading. They established networks of trust, whereby assets, often gold, could be placed in a secure depository, and redeemed through paper pledges at other trusted depositories, thus ensuring that the merchant carried as little as possible of his wealth about with him. This web of trust is the basic principle which still governs modern banking, and without it the system would collapse.
Isn’t the system already collapsing; doesn’t this prove that governments and people no longer trust the bankers because they are greedy? And the answer to the problem? Legislation: there must be more regulations to fetter the bankers, and to make them pay.
The trouble is they already do. Take bonuses: they are taxed as bonuses, and not as part of income, at a 40-50% rate. The greater a banker’s earnings, the more he already “contributes”. The level of income even without bonuses ensures that the wealthiest people in the country pay a huge percentage of the nation’s taxes, which are largely wasted: the tax-funded welfare state is notoriously inefficient, and a main driver of inflation.

The curious aspect of the demand for regulation is that it is MPs who are to be the overseers of this legislative campaign against greed. There is a strange dichotomy in the democratic mind: nobody much trusts politicians (though like bankers there are eminently worthy men and women to be found amongst them); nevertheless we entrust our health, our education, and all manner of things the state really has no business being involved in, to just these unloved politicians.
The question arises as to whether playing to the masses, which is what democratic politics now largely consists of, is likely to produce viable policies to prevent another crisis. In an editorial in the London Evening Standard, 19 December 2011, concerning the likelihood that parliamentary and public pressure will force the Chancellor to accept the Vickers recommendation on banking reform that banks must separate their investment and retail banking operations, it was pointed out that “[s]ome of the banks most exposed to the sub-prime crash – notably Northern Rock – did not conduct investment bank-style ‘proprietary trading’. Conversely, Lehman Brothers conducted only such activity, having no retail arm. Then again, Barclays Capital, Barclays’ investment banking arm, survived the crisis.”
In other words a key recommendation is based on prejudice and not the facts. So much for financial probity!

By Mark Rogers

Watch the Ads they didn’t want you to see here – read on

There are many theories surrounding the manipulation of the Gold Market and the Gold Spot price but few doubt that it takes place, orchestrated by some greater beings that seek to control the money supply.

In a recent cynical twist, gold has been effectively censored off the air of a host of major US TV Networks working in collusion with the Obama administration and the Fed.
An established gold investment company recently made two TV ads to be aired across the networks. The ads feature caricatures of Obama, Bernanke and Pat Boone who narrates the story. The latter works for the company Swiss America and has long been an advocate of the virtues of gold versus dollars.
The first of the ads takes a humorous jibe at Bernanke’s Wall Street reputation for being “helicopter Ben” , ready to dump money on a crisis.

“made-up” reasons for ban?

The reasons given for rejecting the ads vary from ;
• Comcast who explained that it “doesn’t meet our standards on public symbol. The Comcast Public Symbol Policy apparently specifies that the “use of the name or likeness of the President of the United States and/or the Presidential Seal for endorsing commercial purposes must be authorized by the White House.”
• Fox News said the “representation of public figures is something we try to avoid.”
• CNN/HLN told Swiss America the commercials were “not appropriate for the current political landscape.”

Swiss America CEO Craig Smith said “The networks’ reaction shocked me,” Smith said. “It’s a threat to First Amendment rights when a commercial message is rejected not because it is inaccurate or misleading, but because it makes what is perceived to be a political statement the networks want to avoid.”

Smith told WND he was concerned that the networks were protecting Obama and Bernanke.
“All we are saying in these two commercials is what dozens of responsible professional economists are saying every day,” Smith said;

“Gold investment as a responsible diversification strategy when governments printing of fiat currencies with abandon risk unleashing inflationary principles.”

Inflationary pressures are building globally and no-one has an answer to them rising and the consequent economic impact.
It is a common known fact that storing gold through a crisis and inflation is the BEST way to protect your wealth value and its purchasing power. This has been the case for 6000 years.

Gold can never be worth zero – it has intrinsic value.
Fiat currency can become worthless – its only value is that of a piece of paper

The Ban backfires

However, the censorship has backfired as Google TV accepted the ads which will eventually be shown throughout the networks via Google TV!
These humorous videos tell a very straight and simple story and the only possible reason for banning them is because of how close to the TRUTH they really are – and that hurts the Politocrats who believe they are all supreme and mighty to judge over us, control us and bankrupt us.

They are so desperate to cling on to power they will do anything – except we are not the fools they take us for – are we?

Is the Europen Union real?

The crisis of the Euro is demonstrating a fundamental lack of credibility in the institutions of the European Union. Throughout, the European Commission has consistently taken a back seat, as if it really had no idea what was going on, let alone what to do about it.

All parties to the state of the single currency share this lack of credibility and not least because the euro was never credible anyway. Its launch was deferred for a year because the poorer member nations were nowhere near the narrow margin either side of parity with the Deutsche Mark which was the fundamental condition for entry into the new currency.

That fact alone shows what a queer creature the Euro is. The Maastricht Treaty created the European Union to give Europe a single market, a single currency – to become a single State. That there are rules as to who was in the single currency already beggars the question as to what forms a cohesive state.

The rules were for a time adhered to; a year on from the original date of the launch, though nothing had changed, political ambition got the upper hand and the Euro was born: the claim was made that delaying any longer would only call the project’s credibility into doubt.

What was done, however, was incredible: this attempt to unite anyway widely disparate economies by breaking the first rule of admission generated an educated scepticism on the part of several British economists, who outlined the demise of the Euro, down to the detail that Greece would collapse first.

A week after the summit which agreed new fiscal rules (the problem with the old ones, apart from the whole air of unreality investing the project, was that they were never adhered to, a fault it is hard to see the new ones mending), a leader in The Times of London (16 December 2011) pointed out that “Mr Sarkozy secured his goal of framing the new fiscal rules as an inter-governmental agreement rather than a treaty backed by the European Union’s institutions.”

Eurozone Union?

This is even more incredible: in order to commit to more binding state-like ties, in order to chase that ever-elusive credibility, the Euro currency nations are going their own way outside the boundaries of the European Union’s institutions – yet still blithely calling it “The European Union”. What, in this light, is one to make of the European Central Bank’s position? What is the status of the Commission? What does the old cry “further and deeper union” mean now?

The other side of this coin is that there can now be no question that what is driving all this is the national interests of the two most powerful states, which are determined to pull the poorer nations, whether or not it is in their interests, after them, and in doing so divide the Union.

As with all advanced democracies, and this is something the euro crisis has exposed mercilessly, there is a further division within the nations between the political class and the ordinary public: the politicians persist in their unreal aspirations, risking jobs and investments.

The People decide while Politics prevaricates?

A little item of Christmas realism? Vendors at a Christmas market in at least one German town are advertising their willingness to accept – Deutsche Marks! (Exchange rate €1 = 2 DM)

by Mark Rogers