Mish's Global Economic Trend Analysis

Hypocrites and Bullies Speak on "The Importance of Trust"; Bullies, Bribes, and Foreign Aid

Posted: 07 Jul 2013 01:41 PM PDT

The bullies and hypocrites took to the air waves today regarding the "Importance of Trust".

For example, the chairman of the Joint Chiefs of Staff complained today Snowden's disclosures have undermined 'importance of trust' with other countries.

The Joint Chiefs of Staff chairman says NSA leaker Edward Snowden's disclosures about U.S. surveillance programs have undermined U.S. relationships with other countries and affected what he calls "the importance of trust."

Gen. Martin Dempsey told CNN's "State of the Union" in an interview broadcast Sunday that the U.S. will "work our way back. But it has set us back temporarily."

The head of the House Intelligence Committee, Rep. Mike Rogers, told he "absolutely" thinks that one of the countries will give Snowden travel documents.

Rogers, R-Mich., said the U.S. should look at trade agreements with the nations that are offering asylum "to send a very clear message that we won't put up with this kind of behavior."

Sen. Robert Menendez, chairman of the Senate Foreign Relations Committee, said he wasn't surprised that those nations were offering asylum. "They like sticking it to the United States," Mendendez, D-N.J., told NBC's "Meet the Press."

He also mentioned re-examining U.S. trade policies and foreign aid to any country that might take in Snowden.

"Clearly such acceptance of Snowden to any country ... is going to put them directly against the United States, and they need to know that," he said.

Hypocrites and Bullies

Gen. Martin Dempsey, chairman Joint Chiefs of Staff
Rep. Mike Rogers, Head of the House Intelligence Committee,
Sen. Robert Menendez, chairman of the Senate Foreign Relations Committee

I would like to point out to all three gentlemen one important fact: Edward Snowden did not undermine trust.

There was no trust to undermine. All Snowden did was prove the obvious.

If there was any trust the US would not have been bugging the offices of the EU and Germany. If there was any trust, France would not be spying on us.

Bullies, Bribes, and Foreign Aid

Please note the bullying by US imperialists. Rep. Mike Rogers (R) proposes "to send a very clear message that we won't put up with this kind of behavior."

Excuse Me! What about unconscionable spying by the US on its alleged allies?

Countries should send a very clear message to the US that they will not put up with our severely misguided imperialism. And they probably would except they fear the US might cut off aid.

If you are looking for a reason very few countries have offered Snowden asylum (see Venezuela, Nicaragua offer asylum to Snowden; Double Standards and Hypocrite Allies), you now have an answer.

Thus, we can all thank Rogers for explaining that US foreign aid is really nothing but bribery so the imperialists, war-mongers, and hypocrites can continue their ways with impunity, totally clueless they are the ones directly responsible for the undermined trust.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Bundesbank Chief States the Obvious "ECB Cannot Solve Euro Zone Crisis"; Unstated Message "No One Else Can Either"

Posted: 07 Jul 2013 11:39 AM PDT

The markets gave a high-five to an ECB statement last week by Mario Draghi "The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time."

I fail to see why this was news even though the ECB has never issued such a pledge before. Did anyone really think the ECB was going to hike rates soon?

For further discussion, please see Communication Only "Tool" Left

A more realistic message came from German Central Bank president Jens Weidmann who stated the "ECB Cannot Solve Euro Zone Crisis"

AIX-EN-PROVENCE, France (Reuters) - The European Central Bank cannot solve the euro zone crisis, Bundesbank chief Jens Weidmann told economists on Sunday, pressing the bloc's governments to get their economies in shape and tighten their fiscal rules.

Weidmann addressed an economists' conference in Aix-en-Provence, southern France, only three days after the ECB broke with precedent by declaring that it intended to keep interest rates at record lows for an extended period and may yet cut further.

"Monetary policy has already done a lot to absorb the economic consequences of the crisis, but it cannot solve the crisis," Weidmann said in his speech.

"This is the consensus of the Governing Council. The crisis has laid bare structural shortcomings. As such, they require structural solutions."

FISCAL RULES

While he does not see sufficient support in the euro zone for governments to give up sovereignty on fiscal matters to forge a fiscal union to prevent such crises in the future, Weidmann pressed them to stiffen Europe's fiscal rules.

"To fully unleash the common currency's potential, efforts are needed on two fronts: structural reforms as well as the abolition of implicit guarantees for banks and sovereigns (government bonds)," Weidmann said.

"In addition to stronger rules, we need to make sure that in a system of national control and national responsibility, sovereign default is possible without bringing down the financial system. Only then will we really do away with the implicit guarantee for sovereigns."

The Bundesbank chief also called for euro zone governments to sever what he describes as the "excessively close links" between banks and sovereign governments, saying that European banks hold too many of their own governments' bonds.

"This is because banks do not have to hold any capital against their government debt, as the risk-weight assigned to sovereign bonds is zero.

Six Key Points

The ECB cannot solve the crisis
The problems are structural
There is little support for governments to give up sovereignty on fiscal matters to forge a fiscal union
There should be no guarantee on banks and sovereign bonds
European banks hold too many sovereign bonds
Sovereign bonds should not have a risk-weight of zero

Unstated Message "No One Else Can Either"

The above six points are obvious. But what Weidmann did not say (but should have) is the euro itself is a big structural problem.

And please note point number three. Weidmann was not just speaking for Germany. Rather he was speaking of the divide between Northern Europe and Southern Europe.

Yet another divide exists between France and Germany regarding productivity issues, labor reforms, taxes, government spending, and the role of the ECB.

And just imagine the impact if all of a sudden banks had to assign a reasonable risk-weight on sovereign bonds. Banks holding them would suddenly (and correctly) be viewed as capital impaired. The obvious implication is banks are capital impaired right now, but impairment is hidden via of absurd zero-risk weightings on bonds.

So don't expect anything to come of points 4-6. And don't expect countries to give up sovereignty. And don't expect France to do anything about work rule reform, its pension problems, its massive 56% of GDP public sector, or its horrendous agricultural subsidies (imposed on the rest of the EU as well).

In short, the problem remains unsolvable until the first country has enough common sense to say "to hell with the euro".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

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