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bernanke on the economy

15:00 mins

I advise you take some of Ben Bernanke’s comments with a sack of salt.
He speaks with a forked tongue and is trying to improve ‘confidence’.


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will ireland accept the stitch up?

Ambrose Evans-Pritchard’s analysis gets ever closer to my own.

“By 2014, interest payments on Ireland’s public debt (then 120pc of GDP) will be €10bn, while tax revenues will be €36bn. This ratio is well above the average default trigger of 22pc, as calculated in a Moody’s study.” [Quoted from]

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“Sinn Féin is considering a legal challenge to the Government's decision not to put the EU/IMF bailout deal to a Dáil vote.

“The party said that the Government is acting unconstitutionally in its failure to allow TDs to have their say on the deal.

“Sinn Féin President Gerry Adams said: "Any new government should refuse to honour the terms of the IMF/EU deal and Sinn Féin will seek a mandate in the General Election to renegotiate it.

“ "This Government has no mandate to impose the terrible deal it has negotiated with the IMF and EU." ” [Quoted from]

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“Cowan has resisted calls for his resignation, but he may soon have to face a “no confidence” vote....” [Quoted from]

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“Far from being immunised against the "contagion", other economies are now coming under renewed attack. Most worryingly, since the Irish deal investors have started to dump Italian government debt even as the sell-off of Greek, Irish, Spanish, Belgian and Portuguese securities continues – a broad vote of no confidence from the markets to European Union leaders.” [Quoted from]

related material
spanish national accounts


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any remaining power of the eussr central bank is based entirely on bluff

It just requires one of the PIIGS to stand firm, and the euro looks highly unstable.

“Ireland’s reluctance to accept a European Union bailout has forced the ECB to step up its bond purchases and lend more money to the country’s banks. The danger, first raised by Weber in May, is that the ECB erodes its independence by financing debt-strapped nations and keeping banks on life support as Europe’s debt crisis persists.

“ “If stress rises, the ECB will have to jump in,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “But the ECB does not want to again become an active buyer of peripheral debt or take a lot more risk onto its balance sheet. Weber wanted to avoid exactly that.” ” [Quoted from]

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“...Technically, deficits were to be regulated, but in practice, and in the interests of not upsetting any applecarts, they were not: otherwise, France and Italy would have been booted out long ago...” [Quoted from]

For those who whine about David Cameron, what would you do if you were a highly able politician and you saw the EUSSR moving further and further into cloud cuckoo land? What would you do?

Why waste political capital when it may well be unnecessary?

“...If Ireland is to be bailed out, whether by the ECB or the IMF, it will have to do what it is told. And the ECB, as it eyes Portugal and Spain, and continues to eye Greece, and worries about Italy, will start to think that only complete sovietisation – central control of economies from Frankfurt, with tax rates, deficits and spending run by people who will brook no dissent – can produce a sound, coherent, European economy.” [Quoted from]

Of course, Heffer misses the real point as usual.

Ireland has fought for independence for 800 years, and not with student marches. And I doubt others will go quietly as they grasp the realities.

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the dodgy, tottering euro - how international inter-bank loans work

Very crudely, A owes B owes C owes A. If anyone in the circle cannot pay, for example C cannot pay A, then A cannot pay B and B cannot pay C. This is called systemic risk. The European banks are linked in much more complex circuits of this type. If you really want to get into this more deeply, it will help if you acquaint yourself a little with fractional banking.

If the web of debt involved banks alone, systemic contagion can be controlled by a central bank feeding banks in trouble, using printing presses. The politicians in that country cannot afford millions of voters losing their money. So the politicians tend to guarantee ‘small’ deposits of the masses. (A crude form of insurance is usually paid by the banks out of profits, but if the banking collapse becomes big enough and dangerous enough, the insurance quickly runs out.)

Because the banks know that the government will have bail them out, they tend to take ever bigger risks (this is called moral hazard.)

The alternative is for the government to let a bank fail. But, of course, this still leaves other banks; that are owed money by the bank that fails; holding the baby, and generating a cascade of failures.

Now, the euro is a complete mess, one might almost call it a piigs ear. There is no serious supervision, the criteria that supposedly rule ECB decisions have been widely ignored by governments throughout the EUSSR.

So far, we have referred to the problem of systemic inter-bank breakdown.
But because of the chaos in the euro structure, and to gain competitive advantage, Ireland offered to back all deposits of the Irish banks. (Remember, to a great extent, banks are very heavily clients of national states/governments). So the systemic banking risks spread their infection from banking default to national government default.

To complicate matters still further, banks work across borders. For example, large British banks have funded huge cross-border loans, lending in the region of £100 billion into Ireland. So if the Irish government goes into default, Britain could find itself another £100 billion short. The British state has a very large interest in stopping Ireland and its banks defaulting. That is what is behind the British government’s offer to help Ireland out of its mess.

The ECB and the IMF, if they bail out Ireland, will demand their pound of flesh in terms of control over the Irish economy, and so over the Irish state. After fighting for freedom for over 800 years, this is not welcome.

But the ECB cannot afford to let Ireland crash and burn. So here is the kicker: Ireland can sit there, refusing to accept terms and the ECB has virtually no choice but rescue them anyway, unconditionally.

And the moment that any of the PIIGS decide to exercise this nuclear option, the euro will be seen as the house of cards that it is.

Watch this space.

related material
EMU (European Monetary Union) and inflation – a civil liberty issue

end note

  1. PIIGS
    Portugal, Ireland, Italy, Greece, Spain


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the death throws of the eussr euro?

Scan recommended.

“...there is now the chance to launch “a new global currency issued by a global central bank”.”

That is, indeed, truly madness.

“The euro elite is utterly ruthless. In its mission to save the euro, it is ready to throw tens of millions out of work and in the process destroy businesses, lives and whole economies. Consider the terrifying facts. The Irish economy has gone through recession and entered what economists call a depression. Its output contracted by an extraordinary 10 per cent last year, and may well do so again over the next 12 months.

“In Spain, unemployment stands at 20 per cent, and youth unemployment a horrifying and tragic 40 per cent. The depths of misery lying behind these statistics cannot be exaggerated. A friend of mine who lives in the Spanish province of Andalusia tells me that some children in his village cannot go to school. This is because their parents cannot afford to buy them shoes. Effectively large parts of Europe are de-industrialising. In Greece, the economy may contract by 15 per cent over the next two years as a result of massive cuts in state spending.”

“Last May, as the storm clouds gathered, Dominique Strauss-Kahn, the former French finance minister who is now managing director of the International Monetary Fund, told a gathering of bankers that “crisis is an opportunity”, adding that there is now the chance to launch “a new global currency issued by a global central bank”.

“This mad vision lies behind the decision to build a vast new set of offices for the European Central Bank in Frankfurt, which is due for completion in 2014. It is virtually impossible for the eurozone to last in its present form till then. If it does, its survival will only come at the price of untold economic devastation.”

the illegitimate euro - more repression or retreat from the euro?

“As this continues into next year, with unemployment stuck at depression levels or even creeping higher, it starts to matter who has political “ownership” over these policies. Is there full democratic consent, or is this suffering being imposed by foreign over-lords with an ideological aim? It does not take much imagination to see what this is going to do to concord in Europe.

“My own view is that the EU became illegitimate when it refused to accept the rejection of the European Constitution by French and Dutch voters in 2005. There can be no justification for reviving the text as the Lisbon Treaty and ramming it through by parliamentary procedure without referenda, in what amounted to an authoritarian Putsch....”


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fossil media bleating again - missing the fundamentals of economics in the real world

“The September trade data show modest improvement, although it is notable that the deficit still widened overall in the third quarter. Specifically, the total trade deficit narrowed to a four-month low of £4.6bn in September from a five-year high of £4.9bn in August.”

Who cares about ‘balance of payments’ deficits?

So Missus Sawkins buys a Chinese car? She very likely borrows from a UK bank to pay it off..

The banks make a profit, the Chinese get more noodles. Who loses?

Either Missus Sawkins can pay the debt off, or otherwise.

Missus Sawkins got a car that suited her better than the car from the overtaxed European manufacturer. The banks make more profits, and the government grabs more tax from everyone -
the banks,
the petrol Missus Sawkins puts in her new car,
the concessionaire who sold the car,
the wages Missus Sawkins uses to pay for the car,
the import tariffs,
and on and on and on...
Even the Lebanese shipping registration may be able to buy more arms from Iran.

Clearly, the last government will not care or they would not have been taxing the UK manufacturers out of business.

If Missus Sawkins stops buying Chinese cars, that will not produce more jobs in the UK. If all the Missus Sawkins stop buying Chinese cars, then the Chinese will stop eating noodles.

Of course, we could build an iron curtain and stop Missus Sawkins buying what she wished.

Aat least then the cult socialists would be happy.

Perhaps the Micronesians will buy some Scotch whisky and sell some sushi to the Chinese, so at least they won’t starve.


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