Former Assistant Secretary of the US Treasury, Dr. Paul Craig Roberts to be my Guest on Tuesday the 2nd of August

July 30, 2011 By 2 Comments

With all the brouhaha surrounding the debt ceiling deadline of August 2nd, I thought it would be nice to bring on a guest who not only has a PhD in Economics, but who has also worked inside the policymaking apparatus (as assistant treasury secretary under Ronald Reagan): Paul Craig Roberts.

I will aim to make this my first video Skype interview for my Sound Money series, so hopefully you all will have a chance to see this show on YouTube instead of the usual downloadable podcast. Since I am now in Athens, the show will be recorded here, with Mr. Roberts participating from home. The interview will take place on Tuesday, August 2nd, 2011

And just to make a quick point about the goings-on surrounding the debt ceiling; I still believe that this is all just political posturing and circus fodder. I fully expect a deal to be worked out that raises the debt ceiling in one way or another, even if that means passing the August 2nd deadline by a week or two. The media is trying to make this all sound like it is the end of the world, but the reality is that the US has many options at its disposal to prevent a default on any and all outstanding payments. However, it is highly disingenuous to suggest, as the government and the MSM has been doing, that not raising the debt ceiling will result in a US default and that we won’t be able to pay back our creditors. This is absurd. The US already brings in more than enough money in revenue to pay the interest on the national debt, so to suggest otherwise is a lie or a sign of ignorance.

And lastly, I am not convinced that a failure to raise the debt ceiling on time, a downgrade by S&P, or a general increase in anxiety by investors resulting from the impasse that we have seen in Washington over the past few weeks or even months will result in a bond market collapse, and even less, in a collapsing dollar. US treasury yields have been dropping for many months now, and the same is true for the yields on German Bunds. The dollar is suffering against the Franc, but this could soon change as investors become increasingly pessimistic on the likelihood of a US recovery and a renewed collapse in asset prices. This could result in the type of scenario that I have been writing about since March, 2011, mainly that a contraction in money supply and credit brought about by panic selling and liquidations ahead of capitalization concerns, will create a deflationary feedback loop that will overwhelm the Fed’s money printing operations. 

In fact, as I have pointed out many times, the ZIRP (zero interest rate policy) being pursued by the Federal Reserve has done nothing to inflate the economy because the money that is being leant out cheaply to banks is not circulating in the economy. The money is being used for speculation, sure, but this only means larger air pockets in commodities, equities and precious metals that could easily give way to lower prices if and when this credit bubble begins to deflate. The only real inflationary tool that has thus far been working for the Fed has been the Quantitative Easing programs, because they allow the government to borrow money indirectly from the Fed and to spend it into circulation (it also gives the primary broker dealers a nice fee every time a bond auction happens). If government deficits were cut, the primary tool for creating inflation by the Fed would be significantly hampered.

In any case, today’s revised GDP numbers are further evidence (as if we actually needed more), that this economy is not in a recovery. The economy is a disaster, and the Federal Reserve’s policies are directly responsible for this. All this interest rate manipulation, all these loan programs and shady bailouts have done nothing but perpetuate a model of neofeudalism onto the people of the United States. Until something is done to address the massive manipulation that goes on at the Fed and at the US Treasury deparment (without whose mounting deficits the Federal Reserve would be unable to inflate our economy with such audacity), then we are just postponing the day of judgement, that’s all. 

Filed Under: Debt, Dollar, Economics

Sound Money Interview of John Perkins (07-27-11)

July 27, 2011 By Leave a Comment

Sound Money Interview of John Perkins (07-27-11)

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This is a Sound Money Interview from my show “Covering the Spread,” on 91.5FM WNYE (broadcasting across NY, NJ, CT, and PA). My guest for this interview is John Perkins.

As Chief Economist at a major international consulting firm, John Perkins advised the World Bank, United Nations, IMF, U.S. Treasury Department, Fortune 500 corporations, and countries in Africa, Asia, Latin America, and the Middle East. He worked directly with heads of state and CEOs of major companies. His books on economics and geo-politics have sold more than 1 million copies, spent many months on the New York Times and other bestseller lists, and are published in over 30 languages.

John is a founder and board member of Dream Change and The Pachamama Alliance, nonprofit organizations devoted to establishing a world our children will want to inherit, has lectured at more than 50 universities around the world, and is the author of  books on indigenous cultures and transformation, including Shapeshifting, The World Is As You Dream It, Psychonavigation, Spirit of the Shuar, and The Stress-Free Habit. He has been featured on ABC, NBC, CNN, NPR, A&E, the History Channel, Time, The New York Times, The Washington Post, Cosmopolitan, Elle, Der Spiegel, and many other publications, as well as in numerous documentaries including The End of Poverty?, Zeitgeist Addendum, and Apology of an Economic Hit Man.

PS: In order to download the MP3, simply right-click on the link and then chose “download linked file” from the drop-down menu

Filed Under: Sound Money

Hotspots Greece

July 27, 2011 By 1 Comment

Filed Under: Uncategorized

Greece: Two Bail-outs and a Funeral

July 24, 2011 By Leave a Comment

Nice article from Alex Gloy of Lighthouse Investment Management on the latest Greek “bailout:”


Here we go again. Another bail-out. [Sigh.]

I’ll try to make this as entertaining and easily readable as possible – but first the details of the bail-out agreed on July 21st:

  • Fresh EUR 109bn EFSF/IMF loans until mid-2014
  • Private sector (read: banks) participation of EUR 37bn
  • EUR 12.6bn from bond repurchases at below par (100%)
  • All EFSF loans extended to 15-30 years with interest rate cut to 3.5% (same relief granted for Portugal and Ireland)
  • EFSF re-tooled: flexible credit lines, purchase of bonds in secondary market, recapitalizing banks
  • “Marshall Plan” for Greece (increased investments by EU)

Comments:

  • First and foremost, let’s call it what it is: a default. Fitch (ratings agency) now rates Greece “restricted default”. This is because some lenders will lose, according to plan, 21% of their “net present value” by exchanging existing debt into new debt (I will not go into detail, since boring and irrelevant).
  • The debt exchange is “voluntary”. The plan expects 90% participation. What if a bank decides not to participate?

(The Greek Finance Minister is being told the EU inspectors have arrived. He starts to whip himself to the liking of the German-speaking inspectors)

  • The IMF, in its latest study[1], now sees Greek debt-to-GDP rising to 172% in 2012 (and the IMF is not known to be on the cautious side). Let’s say all the banks participate. The FT estimates the bail-out could reduce Greece’s debt of EUR 350bn by EUR 26.5bn – less than 8%. That would leave debt-to-GDP still north of 150%. Are you kidding me? Not even a year ago the IMF predicted Greece would never exceed 144%. What a joke. While Greece does not benefit materially, banks can exchange their bad holdings for new bonds guaranteed by the European tax payer.
  • CDS (credit default swaps): ISDA (International Swaps and Derivatives Association) ruled that the Greek debt restructuring is not a “credit event”. Hence, no pay-out on default-insurance. Going forward, this might make it even more difficult to get financing for troubled countries (or companies located in them) if CDS are found not to be an effective insurance.
  • ECB lost its credibility (if there was any left). Remember when President Trichet (“tricher” in French means “to cheat”) claimed that buying government bonds of troubled countries “was not discussed” only to launch massive purchases the following Monday (May 2010)? After amassing EUR 79bn of Greek, Irish and Portuguese bonds (now all “junk”-rated) and substantial losses Trichet warned the ECB would not accept “defaulted” bonds as collateral for loans (which would bankrupt the Greek banking system within minutes). (This was after earlier promises not to accept “junk” rated bonds). Broken promises over and over again.

(Greek folks are, rightly, incensed at the idea that EUR 50bn of Greek assets will be sold to reduce the debt burden. Asset sales are ok, but the prices achievable under current conditions will be very low.)

  • Credibility is the utmost important feature of a central banker. Why? Things only are of value when they are rare. Same with money. Central banks have the monopoly to print money. People trust them to keep its value stable. How can you know? You can’t. You have to trust them. They could change their mind overnight and switch on the printing presses, leaving you holding a lot of worthless paper. Trust comes from credibility. Trichet has destroyed both. The decision to purchase doubtful government bonds in the secondary market was utterly stupid. 1 – it did not benefit the issuer (government) as proceeds went to seller. 2 – ECB ended up with losses on its balance sheet. Participating in a debt-restructuring would realize these losses, making the ECB an opponent of debt restructuring (conflict of interest). 3 – only motivation for intervening in secondary market was to manipulate prices. The ECB got what it asked for. Unfortunately, all this happens at the expense of the tax payer (who might not know it yet).

(The letters on the steamroller, driven by Merkel, mean “IMF”)

  • At least the ECB seems to have given up on manipulating market prices since April (no more bond purchases). Enter the EFSF. They will now do the job.
  • The EFSF (European Financial Stability Facility) is a Luxembourg-registered private bank. National governments guarantee its debt (but tax payer has no control over it). The current “size” of EUR 440bn has not been increased. But now the EFSF will also have to purchase bonds and recapitalize banks. Banks being riskier than governments (due to leverage) this leads to a decline in asset quality.
  • The best of it all: the EFSF so far has issued only EUR 13bn in bonds[2]. It does not have 440bn at its disposal. To disburse any funds, it must find buyers for further bond issues. The current AAA-rating is supported by guarantees from its members (governments). The third largest guarantor is Italy (18%), the fourth is Spain (12%). So 30% of guarantees from members that might need bail-outs themselves. Even Greece, Ireland and Portugal are still among the guarantors (7%) of the EFSF – what a joke. But here, governments proudly point to the AAA-rating, thinking that this will let them issue debt without any problems. Until Spain and Italy get into trouble. Which they are.

  • Which brings us to rating agencies: The EU council actually had the impertinence of putting the following in its statement (paragraph 13): “We agree that reliance on external credit ratings [...] should be reduced, and look forward to the Commission proposals in this respect.” Now this is absurd. Blaming rating agencies for the crisis? That’s like blaming the insurance assessor for the car accident you had. So let’s get this straight: AAA-rating for EFSF is welcome, but junk-ratings for bankrupt countries not? Because it’s “unfair”? Let’s look at what happened when Fitch downgraded Greece by 3 steps to B+ on May 20 (something that was long overdue). The Greek Finance Ministry let out a statement claiming “the rating cut seemed to be influenced by intense rumors in the press at a time when Greece’s program was being assessed by its lenders”. And now here’s what Fitch had to say: “[...] the issuer [Greece] appealed and provided additional information to Fitch that resulted in a rating action which is different to the original rating committee outcome with respect to the rating.” In plain words: the Greek Finance Ministry didn’t like the rating and used all kinds of threats to make Fitch give a better rating. Now who is influencing whom? The market of course knows this and hence assumes a lower rating than the official one, leading governments to blame “speculators” for their fate.
  • Paragraph 5 in the EU Council statement points out that the bail-out for Greece is exceptional and a unique situation (don’t ask me why that would be the case). I have no idea why this was included, because it basically signals to markets that other countries cannot hope for same treatment. As the EFSF has not been increased, the more money is being paid out to Greece the less is available for others. Hence any Greek bail-out, by definition, hurts the others. It actually increases risk of a melt-down of the Euro-zone, instead of calming the waters.

  • Paragraph 9: Maastricht is back! (“Deficits will be brought below 3% by 2013 the latest”). One has to wonder why Germany and France pushed to weaken the 3%-criteria in the good times. Austerity only helps aggravating the situation in struggling economies (like Italy).
  • I have difficulties understanding the obsession with not allowing Greece to default (well, this was like a mini-default) and exit the Euro zone. Both will happen anyway, and Greece is a side-show. The main actors are Spain and Italy. Nothing, absolutely nothing has been achieved for them by saving Greece (and some banks). It is akin to someone emptying his fire extinguisher on his backyard grill while smoke starts coming out of the attic of his house.
  • Comic relief and headline of the year come from Athanasios Orphanides, Governor of the Central Bank of Cyprus: “Orphanides warns the country could need a bail-out after munitions blast” (a military ammunition depot recently blew up).
  • Finally – what about the success of Greek austerity? Wasn’t the payout of EU/IMF tranches supposedly linked to achieving “milestones” of budgetary improvements? In the first six months of 2011, the budget deficit (EU 12.8bn) overshot the target (10.3bn) by more than 14%. Public spending increased by 9% (due to, surprise, surprise, higher interest rates and payment of arrears to hospitals) while government revenues dropped by 8% (due to the recession).
  • Conclusion: The umpteenth Greek bail-out was really another bail-out for the banks (and the ECB). Wasting valuable tax payer money on a relatively small problem means there will be no money left when the real “elephant in the room” needs it: Italy.
Filed Under: Bailout, Sovereign Debt

Greeks don’t have to become Germans

July 21, 2011 By 5 Comments

Paul Krugman published a short article recently in the NYTs titled “Can Greeks Become Germans,” that caught my eye. Dr. Krugman makes some interesting points, including quoting a gentleman by the name of Dimitris Bourantas, who says the following:

That is why, he added, that Greeks, when they move to the U.S., “unleash their skills and entrepreneurship” in ways that enable them to thrive in commerce. But here in Greece, the system encourages just the opposite. Investors here tell you that the red tape involved in starting a new business is overwhelming. It’s crazy; Greece is the only country in the world where Greeks don’t behave like Greeks. Their welfare state, financed by Euro-oil, has bred it out of them.

Paul Krugman follows up on this point with his own concluding paragraph:

It will take a cultural revolution. And that can happen only if Greece’s two major parties come together, hold hands, and collectively force through a radical change in the governing culture from the top down. Without that, Greece will never be able to pay back its loans.

I think both of these statements are largely accurate, but I take issue with the idea that Greek entrepreneurialism has been “bread out of them” as a result of decades of corruption and the welfare state. It is true that Greeks unleash their highest potential outside of Greece where the laws and regulations, in countries like the US, have for a long time rewarded individual ambition and entrepreneurialism, but this cultural characteristic has hardly been extinguished from the Greek psyche. Greeks are still very much entrepreneurial, individualistic, anarchic, creative and unruly. The solution, therefore, is not a “cultural revolution,” or that Greeks should become more like Germans, as Paul Krugman suggests, but rather that the economy and the political system should be structured in such as way so as to reward the natural cultural and social tendencies of the Greek people.

The welfare models employed in countries like Denmark and Sweden during the 1960′s worked exceptionally well, but was this because the Nordic Europeans were able to change their culture to fit an ideal economic/political system? Certainly not. The society embraced this model rather overwhelmingly from the start, and this is why it proved so successful for so many years.

Greeks are not Swedes, they are not Danes and they are certainly not Germans. This is part of the problem with EMU, and the general desire by Eurocrats and other top-down economic planners to create universal rules and regulations that fit neatly into each national box from a central command post in Brussels.

Of course, the very nature of the Greek – his desire to skirt the rules and outfox the commander – is largely to blame for why Greeks have not been able to devise a system that rewards that very tendency. For a significant number of Greeks to bind together politically, in an attempt to positively influence the direction of the country (and to build a regulatory structure that rewards competition) they have to overcome the natural Greek fear of being “the sucker.”

Greeks have long become accustomed to the harsh reality of Greek society: that if you try and play by the rules and do “the right thing,” you will end up getting screwed. You will end up a sucker.

This is a very tangible fear, and it is one that I feel is most to blame for why Greeks are so afraid of letting go of their ingrained cynicism and “shooting for the stars.” They have no idea how debilitating this cynicism is, because they have never known anything else. As someone who has shifted in and out of Greek society my entire life, the significance of this negativity and distrust is not lost on me. It is no coincidence that Jim Chanos has named his billion dollar hedge fund “Cynical Associates.”

I too can relate to this fear, for it is one that works to overwhelm me the more time I spend in Greece. It takes a lot of effort to remain optimistic in Athens, especially with all that is going on in the country today. People’s cynicism is so omnipresent that I often feel naive and stupid for even attempting to suggest that all is not lost.

Of course, this heavy dose of skepticism has also served Greeks well, and it is one of the reasons why the country has been so quick to identify the current “solutions” to the Greek crisis proposed by the ruling party as a ruse. Believe me, if a nuclear disaster of the magnitude we saw in Japan had taken place in Greece, the last thing that Greek people would have been waiting for before making a decision to flee the area or not would be the advice of their government.

Still, there is a point at which healthy skepticism turns into debilitating negativity, and this is a threshold that has long since been surpassed in Greece. The indignant members of Greek society who have been amassing at constitution square over the past few months cannot continue to reject the emergence of new, political alternatives to the current crisis on the pretense that any new party or platform will become instantly corrupted, and therefore prove counterproductive to the cause of justice and positive change that so many Greeks are now fighting for. Greeks are right to reject the current political and economic system, but they are wrong in believing that they can continue to wait this out for much longer in the hopes that change will come simply out of defiance.

Harder times are ahead for Greece. The country will not be able to avoid a default of some sort, and any “structured default” is bound to come with more trojan trappings and false promises (that’s the healthy cynic in me speaking). The reality is that only Greeks can effect positive change for themselves. Hoping that some grand, Franco-German bargain will save the country and bring prosperity back to Greece is a pipe dream. Even the “best-case-scenario” of supplementing all Greek debt for European debt under some sort of new fiscal integration will do nothing to address the country’s regulatory problems, and it will come at the heavy cost of sacrificing Greek sovereignty to a European Superstate.

I know that a unilateral default and exit from the Eurozone is a scary proposition for Greeks, but I really don’t see any other alternative that will not result in the country losing its sovereignty. I was once a believer in “ever closer union” (as Eurocrats have often dubbed the centrifugal integration of Europe), but I have come to see its threat to individual freedom and national sovereignty as too high a cost for any of the potential economic benefits.

Needless to say, I don’t think my opinion really maters all that much. The political and economic forces at play on the continent of Europe, indeed the forces at play around the world, will make further integration through a massive restructuring of peripheral debt and the formation of a United States of Europe impossible. Even Eurocrats in favor of further integration have suggested dropping Greece out of the union and focusing their efforts, instead, on Italy and Spain.

It won’t be long before Greeks find themselves alone, and that time is fast approaching. If the people want to survive this period of turmoil, they will need to bind together, jettison their cynicism and their fears, and embrace their own political solution. They have a chance to give birth to something better than what exists today, but they will not be able to avoid the pain that comes with labor, and part of that pain comes with the risk of failure. If the people are prepared to endure the pains of labor, which will include a very serious depression in economic output following any default, then I believe that the country can quickly regain its footing and start to grow again…and this time from a sound economic base.

Filed Under: Sovereign Debt

Cenk Uygur Explains why he left MSNBC

July 21, 2011 By 4 Comments
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Last night, I had a chance to see this video, where Cenk Uygur, founder and face of TYT, explained to his internet audience why he was leaving MSNBC.

When I first encountered TYT, I will admit that their style and substance did not particularly appeal to me. I could see that they had a large – and growing – audience, but there was just something about their delivery and humor that didn’t particularly appeal to me (except for when they make fun of popular culture, which I find hysterical).

I became even more skeptical of the show when Cenk Uygur started to appear on MSNBC, because I could sense a partisan flavor to his rhetoric that made me feel uncomfortable. He was never on the same level as some of the more blatantly partisan anchors at other news networks, but it was clear to me at least, that he was “siding with the democrats,” as opposed to siding with the facts. Indeed, I have always felt that Dylan Ratigan is a far less partisan a voice on MSNBC than Cenk has been.

For these reasons, I stopped paying much attention to Cenk and The Young Turks. I didn’t find anything special in their message, and I believed that any potential the show had to break through as a real alternative media outlet, was being compromised by a desire to side with one of the two main political parties.

Cenk claims that he became more partisan as a result of his time at MSNBC, but that in the last 3 months before departing from the network (April, May and June) his tone changed, implying that he became more himself and more real, and that the higher ratings reflected this.

I don’t know if this claim is accurate, but I can tell you that the best move Cenk could have possibly made for TYT franchise was to leave MSNBC. We will have to see if he can remain equally critical of both parties now that he has returned to The Young Turks full time, but I am certainly rooting for him.

Anytime someone leaves the mainstream for “alternative” media, it is a win in my book.

Filed Under: Uncategorized

Monkey from Indonesia sued over Copy-write infringement

July 20, 2011 By Leave a Comment
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I love when Max and Stacy cover these types of stories. Copy-write is an issue that I don’t write about on this blog, but it’s something that Max tries to cover a bit more, and I think it’s well worth it – especially when it produces news about monkeys taking pictures of themselves.

Filed Under: Uncategorized

Moving back to Athens next week

July 20, 2011 By 2 Comments

I have been busy moving out of my NYC apartment these days, as well as preparing for my move back to my home in Athens during the middle of next week. This explains a bit of why I have fallen off on the posting of material to this blog. It is hard to concentrate on reading and writing when preparing for such a big move.

I will be continuing my radio program for 91.5FM WNYE, from Athens, but have not found an easy solution for recording the program yet. Ideally, I want to do it all myself, using Skype over my laptop. I bought a Duet2 audio interface, along with a nice microphone, but have run into an issue when it comes to recording the audio output coming from the guest. I may have found a make-shift solution, but it’s not a definite yet, which means that I may have to rent out studio space in Athens. If any of you know of a good studio please email me on the contact page, and I will be sure to respond.

A lot of great things have been happening work wise, and I will be sure to keep you all updated as things progress. For the time being though, I cannot discuss the details, but I expect things to become more concrete as we move into early September. I will continue to post articles to this blog when I can, upload radio interviews (John Perkins of “Confessions of an Economics Hitman,” will be on this Wednesday), as well as post future TV interviews of mine.

Lastly, Russia Today has asked me to continue work for them while I am in Athens, so expect more interviews to be posted in the month of August.

Filed Under: Uncategorized

Demetri Kofinas interviewed by Lauren Lyster on RT America regarding the mounting DEBT

July 18, 2011 By Leave a Comment
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This is an interview that I did at 8pm on Friday night. I was hoping to get into why the US should be focusing on the debt and not on jobs a bit more, but unfortunately the interview ran over. Regular readers will already know why the government can’t possibly create jobs effectively when its goal is jobs IN AND OF THEMSELVES, but I’m sure some RT viewers would have enjoyed the conversation.

Filed Under: Uncategorized

Demetri Kofinas Interviewed on Press TV’s On The Edge w/Max Keiser

July 16, 2011 By 3 Comments
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Here is a recent interview I did with Max for his show on Press TV. It is the longest interview that I have done on television yet, and it was well worth it as Max broached a very thought provoking and entertaining discussion as always.

I have also been getting a number of emails from folks requesting that I do more media myself, and so have decided to invest in some equipment (including a kick-ass microphone and other audio equipment) so that I can begin to comment independently in the future on current events, especially as things begin to heat up in the Eurozone.

As always, enjoy!

Filed Under: Uncategorized
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