"We’ve got to make those bastards stand still!"
- Wesley Mouch, in Atlas Shrugged
Guest post by Chris Campbell from Laissez Faire Today
- Is This It? A “crack-up” was always just a matter of time. Is this the time? Are China and Greece the snowflakes that start the avalanche?”
- The Rose that Grows Between the Cracks of Concrete: What the mainstream media isn’t telling you about what’s happening in Greece…
“Turning and turning in the widening gyre.
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold …”
- W.B. Yeats, “The Second Coming”
Today, we’re going to talk about Greece and China.
We’re also going to talk about one solution spontaneously popping up in Greece that few are talking about.
If you remember, a while back, I gave up using dollars for an entire week in favour of this solution.
Before we go there, though…
Here are two of Big Government’s biggest illusions. Those illusions are that:
a.) government intervention in the marketplace is effectiv,e and
b.) that the government ought to always do something.
There is a third illusion. This third illusion can be summed up in one word...
“Have you ever noticed,” Robert Meyer of The Libertarian Way blog writes,
our political and financial leaders seem addicted to the notion of stability? Members of this elite group of economic nitwits come up with illusionary schemes for stabilising the economy.
Here’s something to consider…
If our “beloved” leaders actually achieve stability, progress would be out of the question.
Stability, the establishment of which the program of stabilisation aims at, is an empty and contradictory notion. The urge towards action, i.e., improvement in the conditions of life, is inborn in man. Man himself changes from moment to moment and his valuations, volitions, and acts change with him. In the realm of action there is nothing perpetual but change.
In other words, where there is an urge toward the improvement of life, there is action. And where there is action, there is a lack of stability.
In its place, there is change. Every single individual on Earth is reaching for an improvement within his or her life -- rich and poor. And he or she is taking action.
Stability, therefore, is not only impossible, it’s unwanted. It’s only an illusory construct peddled by our “leaders.” And too many fall for it. Too many are willing to give up their liberty in order to gain an empty handful of this so-called stability.
It’s the race to “stability” that got us in this mess. Or the excuse of “stability” and the race toward totalitarianism. (Take your pick. They’re probably both right.)
Either way, governments have gone too far. The best government is the one which exists unnoticed -- not one that create monolithic sand castles over our heads that could tumble at any time.
Even the “regular people” who just want to live their lives… raise their children… focus on their passions... and not get involved in debates about the government… even they are getting sucked in. Today, no one can afford to sit on the side-lines.
The young can’t find jobs and are up to their split-ends in student loan debt. Middle-aged parents are finding it harder and harder to “put food on their families.” The Boomers are watching their life-savings slip through their fingers like the sands of time -- many without fully understanding why.
“And every one of us,” Matt Kibbe, author of Don’t Hurt People and Don’t Take Their Stuff writes,
is somehow being targeted, monitored, snooped on, conscripted, induced, taxed, subsidised, or otherwise manipulated by someone else’s agenda, based on someone else’s decisions, made in some secret meeting or by some closed-door legislative deal in [some nation’s capital].
We have the Big Government we begged for -- we have it long and hard. But, we ask, do we have the promised stability?
Now... today... right this second… flip on the tube and you’ll surely see the answer to this question. As a clear sign of what’s to come to a city near you, citizens in both China and Greece are being dragged through hot coals... fomenting what could turn into global outrage and chaos.
Gotta’ love the stench of false security in the morning.
“Two stories dominate global financial headlines,” Jim Rickards wrote in Daily Reckoning this week.
The first is the meltdown of the Chinese stock market and efforts to organize a bailout fund to prop up the Shanghai Composite stock index. The other is the Greek referendum in which 60% of voters rejected the financial rescue terms offered by the “institutions” -- the IMF, ECB and European Union.
Global capital markets are a tale of two crises.
The two crises are different in their particulars, yet dangerously alike in their systemic implications. China is the second largest economy in the world; Greece does not rank in the top forty.
Chinese financial assets are spread among hundreds of millions of investors, while Greek sovereign debt is concentrated in a few hands. China is an emerging market, while Greece is a developed economy. China is a top-down dictatorship, and Greece has just given the world a demonstration in bottom-up democracy.
Yet what sets these crises apart is trivial compared to what unites them. Both have the potential to ignite a global systemic meltdown. The world is even more fragile than it was in 2007. The big banks are bigger. Aggregate bank assets are concentrated in fewer hands. The bank derivatives books are much larger. Market liquidity is worse.
None of this is secret.
“Global financial elites have been shouting it from the rooftops,” Rickards goes on.
Warnings have poured in from the IMF, G20, World Bank, BIS and private think tanks.
The warnings have mostly been ignored. The inmates (bankers) have continued to run the asylum (the financial system). Investors have continued to pile into stock and real estate bubbles from Wall Street to Wuhan in search of the elusive “yield.”
A crack-up was always just a matter of time. Is this the time? Are China and Greece the snowflakes that start the avalanche?
The system is fragile and these crises are urgent. But they are also amenable to government responses ranging from plain vanilla bailouts to more extreme bail-ins, and the use of force majeure. Banks have already been closed in Greece. Exchanges may yet be closed in China. Individual bank and broker failures may proliferate. But the centre should hold -- for now.
Simply put, China may have a multibillion-dollar meltdown but it has a multitrillion-dollar fire hose in the form of its official reserves. China can adopt the “whatever it takes” mantra of Mario Draghi and they don’t even have to print money; they can just use their reserves.
The Greek situation is more difficult. There is less than meets the eye in the referendum. The “no” vote won overwhelmingly, but turnout was low. The deal that Greeks were voting on was never officially offered, and a new deal is certainly in the works. The referendum has no legally binding impact; it’s legally no more meaningful than a telephone poll.
But, it is politically significant and will force the two sides to get back to the bargaining table, probably on terms more favourable to Greece. The referendum did nothing to provide cash to Greece or to reopen the banks.
Greece is still in crisis on the morning after. Both sides still have the same interest in a negotiated solution because both sides have far more to fear from failure than from a few more concessions. The surprise resignation of the Greek Finance Minister, Yanis Varoufakis, will relieve some of the personal animosity and make resumed negotiations easier.
So these crises will pass with the usual lists of winners and losers. Some investors in Chinese stocks were wiped out, but the market is already rebounding thanks to government intervention. Some investors in Greek bonds may be pleasantly surprised as well. The headlines will continue for the remainder of the summer, but markets will eventually digest the news and move on.
This is not to say that it’s “all good.” It’s not. The makings of a massive global meltdown are still in place. The official warnings are correct. The crack-up will not come from the things we can see -- like Chinese stock bubbles, and Greek debt defaults -- but from something none of us has factored in.
That’s the essence of complex systems. They are characterized by “emergent properties.” That means system behavior that cannot be inferred from perfect knowledge of all the parts of the system. The event that causes the crack-up will come like a thief in the night. Yet it will come.
“The hardest part is guessing what’s next,” Charles Hugh Smith wrote this week.
It seems the dynamic of “what’s next” is multiple currencies being used in Greece rather than one single currency: many, not one.
According to Smith, private "parallel currencies" are popping up in Greece in response to this crisis. Just as they did in the U.S. during the Great Depression.
Not long ago I dove into the idea of parallel currencies. I devoted a full week to spending only Bnotes -- Baltimore’s local currency.
The conclusion of that painstaking investigation -- if one were brave enough to try to pick it apart -- was that many competing currencies seemed like a really good idea. Or at least a much better idea than one centralised one.
And guess what? Greece seems to agree.
Despite assurances, the crisis is likely to escalate fast if there is no resolution early next week. Businesses in Thessaloniki and other parts of the country are already creating parallel private currencies to keep trade alive and alleviate an acute shortage of liquidity. Vasilis Papadopoulos, owner of the Maxi paper mill in Katerini, said the situation was becoming desperate for his industry.
“I have enough raw materials to last until July 14. If I don’t get any more pulp, I will have to close the factory. It is a simple as that. I have 183 employees and I will have to start laying them off,” he said.
His firm has reached an accord with regional supermarkets to accept coupons or private scrip money in lieu of payment as soon as next week. His workers will then be able to use this paper as a parallel currency at the supermarket to buy goods.
The idea that scrips, IOUs, letters of credit or indeed, notched sticks, can act as perfectly legitimate money is not surprising to anyone who has read David Graber’s marvellous history of credit and money, Debt: The First 5,000 Years, or Ferdinand Braudel’s three-volume history of modern Capitalism.
“When exchange money is in short supply,” continues Charles Hugh Smith, in other words, when we’re experiencing a liquidity crisis,
various forms of currency arise to fill the need to grease commerce. Money has two basic purposes: to grease trade/commerce, and as a store of value.
The two functions appear to be seamless when one form of money fills both needs, but quite often there is no one form of money available in sufficient quantity to fill both needs.
Accounts of people in Greece buying crypto-currencies such as bitcoin strongly suggest that multiple currencies will serve as exchange-money. In its cash form, the euro will of course still be money, but there may not be enough of it in physical form to enable trade.
“What we may be witnessing,” Smith goes on, “is the first phase of a new era of widespread non-state currencies, that is, currencies issued by private parties rather than nation-states or central banks.
These could be crypto-digital currencies, gold-backed currencies or any number of other variations.
Nation-states and central banks are anxious to maintain their monopoly on money issuance, of course, because the power to issue money is (along with forced conscription and making war) the ultimate foundation of state power.
Breaking the grip of central-state/bank issued money will be a major evolutionary step forward for the global economy. Breaking free of the state’s power to depreciate our money at will is a major advance in human liberty and economic security.
Truth. Couldn’t have said it better myself. Hopefully, this trend of competing private currencies continues. If so, it’ll be the rose that grows between the cracks of concrete.
Chris Campbell is the editor of Laissez Faire Today