After Cyprus Bailout Deal, Europe's Problems Worse Than Ever

Cyprus may have been saved from disaster, but don't be fooled: Europe is still a hot mess.

In the middle of the night on the continent, officials managed to hastily stitch together a plan to rescue Cyprus and keep it from leaving the eurozone. The deal came just hours before a European Central Bank deadline that could have left Cyprus cut off from short-term capital, beginning the potential unraveling of the entire currency union. It also came just about one week after another hastily stitched-together bailout deal sparked outrage in Cyprus and around the region and created the need for desperate last-minute talks in the first place.

To paraphrase Winston Churchill, European policymakers always do the right thing, but only after exhausting every available alternative. As Quartz's Simone Foxman points out, this is no way to run a currency union, which together makes up the world's second-largest economy. And there are reasons to suspect this won't be the last bungled bailout.

The Cyprus debacle came about in part because the European Commission and the International Monetary Fund weren't on the same page about what to do with Cyprus from the start, the Financial Times reports -- an echo of their disagreements over helping Greece last year. This incident has left their relationship more fraught than ever, and it means we could very well get a repeat of the botched Cyprus bailout soon -- in Slovenia, or Italy, or who knows where else. Read more >>

Welcome to the Fake, Jobless Economic Recovery

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In the Summer of 2010
Ron Holland
Are you ready for interesting times and an exodus from the United States? A possibly apocryphal ancient Chinese curse goes "May you live in interesting times." Those words may derive from an authentic Chinese proverb: "It is better to be a dog in a peaceful time than be a man in chaos."

Either way, the message is easy to understand for anyone living in the summer of 2010. As I look over at Lucky, my golden retriever whose only concerns are when do we eat and when do we go back in the ocean to play ball, I can see the advantages of being a dog. But as a man I know it is time to defend my freedom and secure my wealth for myself and for my posterity.

The U.S. is wandering through a fake recovery, an expanding sovereign debt crisis, a stock market downturn and a double-dip real estate collapse. Meanwhile, the Swiss franc is moving to historic highs to the euro. And what does the conventional press want to tell us about? The "strong" dollar, who's to blame for the oil disaster, the newest episodes in a host of foreign and domestic political soap operas and – a fresh diversion – which politicians are telling the biggest lies about their military records.

Welcome to the Fake, Jobless Economic Recovery

Last Friday, The Feds announced that the U.S. economy has added 431,000 jobs. The boldest spokespersons tried to announce this as good news, but the details revealed that only 40,000 of the total are private-sector jobs – the kind that produce things people want and are willing to pay for. The rest are little more than assignments in make-work projects designed to buy votes and beef-up the statistics on a fake recovery.

The American financial press asks hourly, "Will the euro survive as a currency?" And every time, the question is a prelude to "Again the dollar's strength indicates it remains the world's safe-haven reserve currency." My response is, "Oh, really?" This is just more lies from Washington and Wall Street that you believe at your peril.

"Lies, damnable lies and statistics." It's an expression attributed to Benjamin Disraeli, one of my favorite British historical figures. He was prime minister twice, but in his early years he had been a stock promoter. When a boom in South American mining stocks collapsed in 1825, he lost everything, much as a later Prime Minister, Winston Churchill, did in 1929. Both Disraeli and Churchill turned to writing to repair their finances (Disraeli also married a rich widow many years his senior). Again like Churchill, Disraeli went into politics with success, and both secured loans from the Rothschild banks.

Interesting to some, though perhaps not to others. But British history over the last century is a worthwhile topic for all of us. It's a model of what happens when an empire reaches its pinnacle and then slides into decline. It's a model of what is happening to America today.

The Swiss Franc Benefits

As I've written before, the Swiss National Bank tries to keep the franc aligned with the euro, in order to protect cross-border financial relationships and trade. If the dollar goes down, usually the euro and Swiss franc both go up. If the dollar goes up, both the euro and Swiss franc go down, although not always at the same rate.

Just days ago the Swiss franc hit an all-time high verses the euro, so although both have lost some value relative to the dollar, the franc's retreat is more modest. The real challenge for the Swiss National Bank is to limit the franc's appreciation when billions of investor euros are flooding into Switzerland and bidding for the local currency. Contrary to what you'll read in the American financial press, the smart money is moving into Switzerland in big volume.

Exodus Then & Now

The establishment media have been covering the challenges to Israel's Gaza blockade with references to the excellent 1960 epic/propaganda film, Exodus. There are quite a few similarities between the British blockade of Palestine in 1947 and what Israel is doing now, including forced boarding in international waters, resistance by ship passengers, the death of Americans, a widely published film record of events and complaints of excessive use of force.

If it's presented artfully, overreaction by those in power can feed public support for the target and sometimes allows the weaker party to prevail. The image of Gandhi and his followers being imprisoned by the British for harvesting salt from the ocean supported the formation of the state of India. The story of the SS Exodus and the British Navy sending Holocaust survivors back to Germany helped bring about the establishment of Israel. Pictures of "Bull" Connor attacking civil rights protestors in Birmingham, Alabama led to the Civil Rights Act of 1964. Whether the Palestinians and their allies will succeed in playing the victim card, time will tell.

The British resistance to the 1947 Exodus demonstrated how incompetent and cruel a collapsing empire can be. While this might be news to the general public, it isn't news to freedom-loving entrepreneurs who are making plans to avoid the turmoil, taxes and terror coming from our desperate politicians in Washington.

Hence the exodus from America of productive, innovative Americans acting to get themselves and their wealth out before it is too late. This outflow of talent and wealth doesn't get much coverage in the establishment news media.

The media are too busy with the pushing and shoving in the Middle East, the sovereign debt problems in Europe, the volatility of the U.S. markets and the BP oil spill in the Gulf of Mexico. Those things are important (the oil trail from the Gulf may eventually run past my home in the U.S., which is on a coastal island). But an exodus from the Land of Immigrants is a far bigger story. Saving what is left of the American Dream calls for you to get at least your wealth outside the disaster zone of Washington incompetence, as one remarkable American is now doing. More...

Morgan Stanley Strategist: Head for the Hills!

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James Pressley

Bloomberg reported earlier this week that the former chief global strategist for Morgan Stanley is telling people to prepare for the worst. One more time folks, this is no conspiracy theorist. Barton Biggs, MORGAN STANLEY'S FORMER CHIEF GLOBAL STRATEGIST is telling you there is going to be an economic collapse. Read the article below.

Barton Biggs has some offbeat advice for the rich: Insure yourself against war and disaster by buying a remote farm or ranch and stocking it with ``seed, fertilizer, canned food, wine, medicine, clothes, etc.''

The ``etc.'' must mean guns.

``A few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage,'' he writes in his new book, ``Wealth, War and Wisdom.''

Biggs is no paranoid survivalist. He was chief global strategist at Morgan Stanley before leaving in 2003 to form hedge fund Traxis Partners. He doesn't lock and load until the last page of this smart look at how World War II warped share prices, gutted wealth and remains a warning to investors. His message: Listen to markets, learn from history and prepare for the worst.

``Wealth, War and Wisdom'' fills a void. Library shelves are packed with volumes on World War II. The history of stock markets also has been ably recorded, notably in Robert Sobel's ``The Big Board.'' Yet how many books track the intersection of the two?

The ``wisdom'' in the alliterative title refers to the spooky way markets can foreshadow the future. Biggs became fascinated with this phenomenon after discovering by chance that equity markets sensed major turning points in the war.

The British stock market bottomed out in late June 1940 and started rising again before the truly grim days of the Battle of Britain in July to October, when the Germans were splintering London with bombs and preparing to invade the U.K.

`Epic Bottom'

The Dow Jones Industrial Average plumbed ``an epic bottom'' in late April and early May of 1942, then began climbing well before the U.S. victory in the Battle of Midway in June turned the tide against the Japanese.

Berlin shares ``peaked at the high-water mark of the German attack on Russia just before the advance German patrols actually saw the spires of Moscow in early December of 1941.''

``Those were the three great momentum changes of World War II -- although at the time, no one except the stock markets recognized them as such.''

Biggs isn't suggesting that Mr. Market is infallible: He can get ``panicky and crazy in the heat of the moment,'' he says. Over the long haul, though, markets display what James Surowiecki calls ``the wisdom of crowds.''

Like giant voting machines, they aggregate the judgments of individuals acting independently into a collective assessment. Biggs stress-tests this theory against events that shook nations from the Depression through the Korean War, which he calls ``the last battle of World War II.''

Refresher Course

Biggs has read widely and thought deeply. He has a pleasing conversational style, an eye for memorable anecdotes and a weakness for Winston Churchill's quips. His book works as a brisk refresher course.

What really packs a wallop, though, is his combination of military history, market action, maps and charts. It's one thing to say that the London market scraped bottom before the Battle of Britain. It's another to show it.

In May and June 1940, some 338,000 British and French troops had been evacuated from Dunkirk by a flotilla of fishing boats, tugs, barges, yachts and river steamers. The French and Belgian armies had collapsed; the Dutch had surrendered. Britain stood alone, as bombs shattered London and the Nazis prepared to invade. Yet stocks rallied.

Mankind endures ``an episode of great wealth destruction'' at least once every century, Biggs reminds us. So the wealthy should prepare to ride out a disaster, be it a tsunami, a market meltdown or Islamic terrorists with a dirty bomb.

The rich get complacent, assuming they will have time ``to extricate themselves and their wealth'' when trouble comes, Biggs says. The rich are mistaken, as the Holocaust proves.

``Events move much faster than anyone expects,'' he says, ``and the barbarians are on top of you before you can escape.''

U.S. Empire in Decline; on Collision Course with China

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Aaron Task
The U.S. is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money.

"People have predicted the end of America in the past and been wrong," Ferguson concedes. "But let's face it: If you're trying to borrow $9 trillion to save your financial system...and already half your public debt held by foreigners, it's not really the conduct of rising empires, is it?"

Given its massive deficits and overseas military adventures, America today is similar to the Spanish Empire in the 17th century and Britain's in the 20th, he says. "Excessive debt is usually a predictor of subsequent trouble."

Putting a finer point on it, Ferguson says America today is comparable to Britain circa 1900: a dominant empire underestimating the rise of a new power. In Britain's case back then it was Germany; in America's case today, it's China.

"When China's economy is equal in size to that of the U.S., which could come as early as 2027...it means China becomes not only a major economic competitor - it's that already, it then becomes a diplomatic competitor and a military competitor," the history professor declares.

The most obvious sign of this is China's major naval construction program, featuring next generation submarines and up to three aircraft carriers, Ferguson says. "There's no other way of interpreting this than as a challenge to the hegemony of the U.S. in the Asia-Pacific region."

As to analysts like Stratfor's George Friedman, who downplay China's naval ambitions, Ferguson notes British experts - including Winston Churchill - were similarly complacent about Germany at the dawn of the 20th century.

"I'm not predicting World War III but we have to recognize...China is becoming more assertive, a rival not a partner," he says, adding that China's navy doesn't have to be as large as America's to pose a problem. "They don't have to have an equally large navy, just big enough to pose a strategic threat [and] cause trouble" for the U.S. Navy.