Planning begins for a euro-free Europe

From today’s Open Europe news summary:

In an interview with RTL, Dutch Finance Minister Jeroen Dijsselbloem admitted that the Dutch government looked at what would happen if plans to save the euro “didn’t succeed”. His predecessor Jan Kees de Jager added separately that the Netherlands had worked on the issue with Germany and that teams of experts looked at how the Guilder could be reintroduced.
Notice that the Dutch are consulting with Germany in planning for the demise of the euro. In my opinion the Dutch would not reintroduce the guilder; they would decide to become a deutsche mark country, as would many other European countries…perhaps all of Europe eventually. This would herald the beginning of the end of worldwide monetary inflation by central banks. If the US, Britain, China, and Japan did not stop debasing their currencies, demand to hold these currencies as central bank reserves would fall precipitously because international companies would want to settle their trades in the best currency available; i.e., the deutsche mark.  Patrick Barron
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Tax Avoidance is NOT Tax Evasion

From today’s Open Europe news summary:

The Telegraph reports that David Cameron is expected to use the G20 gathering of world leaders this weekend to press for greater sharing of tax information to crackdown on avoidance. Open Europe’s Raoul Ruparel is quoted in City AM discussing Luxembourg’s tax agreements with multinationals – the details of which were leaked – and the implications for European Commission President Jean-Claude Juncker.
The G20 nations are determined to harmonize taxes the world over at a high rate and allow no legal escape anywhere. British prime minister David Cameron is the latest world leader to succumbed to the siren call of being able to milk his people for an even greater share of the fruits of their toil without fear that they will seek legal protection elsewhere. What these parasites on the people’s wealth have in common is a fear of tax competition. They give lip service to the benefits of competition in the private sector, and most countries have criminal laws against economic collusion, yet they fear competition for themselves in the realm of taxes and law.  Patrick Barron

 

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Europe 25 years after the fall of the iron curtain

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Added on 11/12/14
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Many thanks to my friend Dr. Philip Bagus for forwarding the link to me. In addition to the address by former Czech president Vaclav Klaus, there were excellent presentations by Dr. Bagus of King Juan Carlos University in Madrid, Mr. Mach of the Czech Republic, and Richard Sulik of Slovakia.

Dr. Bagus’ informed the audience that almost one hundred years ago Ludwig von Mises explained the impossibility of socialism in his Economic Calculation in the Socialist Commonwealth. If Europe had listened to Mises, think of the misery it would have avoided, including that of today. His talk starts at the 58 minute mark. Dr. Bagus is author of the very influential The Tragedy of the Euro, which explains that the euro is misconstructed and will suffer the same fate as any inadequately protected commonly held resource.  Patrick Barron
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Maastricht Treaty? We don’t need no stinkin’ Maastricht Treaty!

From today’s Open Europe news summary:

ECB Executive Board member Yves Mersch said yesterday that the ECB will begin purchasing Asset Backed Securities (ABS) next week. He added that, “should the situation deteriorate further”, purchases of sovereign debt remain an option.
Bloomberg Reuters
The European Central Bank is strictly prohibited by its founding Maastricht Treaty from buying sovereign debt, yet it plans to do so anyway.
Here is a direct quote from the Treaty:
21.1. In accordance with Article 104 of this Treaty, overdrafts or any other type of credit facility with the ECB or with the national central banks in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments. 
This should be a lesson to all who believe that people in positions of power somehow will behave differently once in office. Public Choice Theory tells us the opposite; i.e., that people in power are just as self-centered and likely to pursue their personal goals rather than the public ones which they are commissioned to uphold.
Remember Barron’s law (tongue in cheek!): An institution that CAN print money WILL print money.
Patrick Barron
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The EU’s anti-competitive tax policy

From today’s Open Europe new summary:

Following the release of thousands of secret documents detailing how Luxembourg helped companies avoid paying taxes, aFT leader argues, “For the sake of his own credibility – and that of the commission – [Jean-Claude Juncker] cannot afford to give anything but the most full-throated support to efforts to crack down on abuses of tax systems.” Open Europe’s Pieter Cleppe was interviewed by Danish daily Information discussing the issue.
Notice that Luxembourg is considered to be cheating somehow by helping its clients keep more of their hard-earned profits. The EU is a totalitarian and anti-competitive organization that wants to milk its people and its businesses with no means of escape. But I have news for the EU: people and businesses WILL find a way to escape.  They will leave.
Patrick Barron
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My interview on Mises.org re: The End of the US Dollar Imperium, Part 2

Patrick Barron: The End of the US Dollar Imperium, Part 2

Jeff Deist and Patrick Barron continue their discussion on monetary imperialism. They delve deeper into US dollar supremacy, and how it might end with a whimper instead of a bang; how the Bundesbank is a potential savior for the world monetary order, while the IMF is a paper tiger; how elites will have an increasingly hard time denying gold a role in the global monetary system, and how America’s fiat dollar corrupts cultures as well as economies.

From: Mises Weekends , Friday, October 31, 2014 by Jeff Deist & Patrick Barron

http://mises.org/media/8772/Mises-Weekends-gtgt-Patrick-Barron-The-End-of-the-US-Dollar-Imperium-Part-2

https://www.youtube.com/watch?v=QCDI30ljc1o&list=PLALopHfWkFlFTj__lkebZfUw5s-CWVuIt

http://www.stitcher.com/podcast/mises-weekends/e/35849543?autoplay=true

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My latest interview on Power Trading Radio re: European economic developments that may prove positive in the long run

Click below to hear my latest interview on Power Trading Radio. I discuss in more detail the various movements in Europe that I view as economically positive in the long run. The interview last approximately one half hour with two very short intermissions.

Patrick Barron

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Patrick Barron interview with Jeff Deist re: The End of the US Dollar Imperium-Part 1

Jeff Deist and Patrick Barron address the issue of monetary imperialism. How does the US use the dollar as a weapon of economic and cultural power? How long can it last? What might the unprecedented…
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Added on 10/24/14
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Patrick Barron: The End of the US Dollar Imperium

Jeff Deist and Patrick Barron address the issue of monetary imperialism. How does the US use the dollar as a weapon of economic and cultural power? How long can it last? What might the unprecedented collapse of a worldwide reserve currency look like? And, how do the BRIC nations and Asian central banks fight back?

From: Mises Weekends , Thursday, October 23, 2014 by Jeff Deist & Patrick Barron

http://mises.org/media/8767/Mises-Weekends-gtgt-Patrick-Barron-The-End-of-the-US-Dollar-Imperium

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Europe’s banks are going bust, and accounting tricks will not save them

Europe’s Gong Show at Work: Back Taxes and Busted Banks

The EU is doing everything it can to paper over the fact that its policies have turned the banks into what David Stockman likes to call “Roach Hotels”, where bad investments enter and never leave.  I particularly like the concluding paragraph about how the EU has added the likely economic value of drugs and prostitutes to its GDP:
“The best part is that everyone’s falling over one another to assure us that the new accounting methods, which include drugs and prostitution, have nothing to do with this madness. But isn’t it just great to ponder that Britain has to fork over an additional billion only because the French have cheaper hookers?”
Earlier in Mr. Meijer’s essay he offers us this quote:
There is also disagreement over how certain assets may be classed. In weaker economies like Portugal, Greece, Spain and Italy, the governments have passed laws allowing banks to convert deferred tax assets (DTAs), which are tax payment deferrals generally awarded during times of weaker profitability, into more capital-enhancing deferred tax credits (DTCs).
 
Now I interpret this statement as saying that previous loans to weak banks in Portugal, Greece, Spain and Italy have bee classified as assets. What? How can a loan be an asset? Yet now these governments are going to allow the banks to keep the money and classify it as capital.
To update Shakespeare, there’s something rotten in more European countries than Denmark. Patrick Barron
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The Tragedy of NATO: Economic Problems Embedded in Collective Security Agreements

The economic phenomenon known as the “Tragedy of the Commons” instructs us that commonly held resources that are insufficiently protected will be plundered to extinction. The phenomenon was recognized in the early nineteenth century to explain why the commons in England quickly came to be denuded by sheep. All sheepherders had an equal right to graze sheep on the commons. There often was no agreement as to how many sheep each could graze, so it was sheer rational self-interest for each to graze as many sheep on the common ground as possible. In short order the commons came to be overgrazed. What later came to be called “the tragedy of the commons” was a simple and imminently understandable explanation.

 

Is security an economic resource?

 

One can easily accept that grassland is an economic resource that must be protected, but what about security and, if security is held collectively, can collective security agreements also be vulnerable to the tragedy of the commons? Security is a service that usually requires economic resources. We secure our personal possessions when we take precautions such as padlocking our bicycles, locking our car doors and the house, buying monitored security systems, purchasing heavy safes, and the like. These are all economic goods to secure our personal property. But what about protecting our physical selves? It is on a somewhat different plane but the purpose is the same. We may carry concealed weapons, take personal self-defense courses, or hire personal body guards. All these things require the expenditure of time and money to acquire economic goods to make us more secure. On a more subtle level, we modify our behavior to avoid giving offense to complete strangers about whom we know nothing. We especially do not deliberately seek confrontations over minor things like the last parking spot in the lot. Similarly we avoid dangerous parts of town or parts of town that are dangerous at night or on special occasions. For example, my wife and I were in downtown Chicago in the late 1990′s when the Chicago Bulls professional basketball team was winning the NBA championship. We were not fans and gave little thought to the fact that there might be what we shall call “excessive celebrations” after the final victory. As we strolled downtown Chicago after dinner we were advised by a Chicago policeman to leave, because the “excessive celebrations” often became excuses for certain people to behave criminally. Rather than assert our right to window shop whenever and wherever we darned-well pleased and discretion being the better part of valor, we went home. This aspect of security–i.e., avoiding unnecessary confrontation– is often overlooked.

 

Collective security brings in economic problems

 

Ah, but would we have reacted the same way had we been in a group? Perhaps we would have felt more secure to window shop by assuming that others in the group would protect us. Our behavior would have changed to become a bit more willing to take risk due to an implicit assumption of collective security. This willingness to take more risk because others may bear some or even all of the cost is known as moral hazard.

 

So we see that providing our own personal security of our physical bodies and our possessions requires that we expend resources that perhaps we would rather employ elsewhere. We pay for these ourselves and we modify our behavior to avoid the necessity of employing them with uncertain result and to minimize the cost.

 

But all this changes under collective security agreements.

 

Moral hazard and socialism cause a tragedy of the commons in collective security

 

Under a collective security agreement, all who join are obligated to provide security to all others in the alliance. Each member must expend resources to provide such security, which naturally means sacrificing the satisfaction of other preferences.

 

However, since all contribute to the security pot, all know that their individual sacrifice may be claimed by others. Therefore, there will be a reluctance to spend resources on security that may be used by others, while encouraging, at least to some extent, claims upon security that one would not have made in the absence of the security agreement.

 

The latter phenomenon, the increased willingness to call upon alliance members, is moral hazard at work and the former phenomenon, the reluctance to expend resources that may be claimed by others, is a well-known consequence of socialism.

 

Mises explained that socialism discourages production while it increases demand. Why produce only to be forced to share with others when one can demand to share in the production of others without regard to having previously produced something of value to those same others? Eventually all altruism vanishes in a sea of cynicism and nothing is produced for anyone to share. The result is a tragedy of the commons fed by moral hazard and socialism.

 

The tragedy of NATO

 

Today we see the above destructive economic forces at work in NATO expansion. When the Soviet Union disintegrated in 1990, the reason for NATO’s existence vanished. But rather than declare NATO to have been a success in deterring war in Europe, possibly disbanding the alliance and building a new Concert of Europe that would include Russia, NATO bureaucrats set about to expand the alliance to the east. Whereas the Concert of Europe after the Napoleonic Wars had quickly embraced France as an important member, NATO expanded to isolate Russia by absorbing its former satellite nations.

 

The last NATO expansion prior to the disintegration of the Soviet Union had occurred in 1982 when Spain joined the alliance. At that point in time NATO was composed of sixteen nations. Starting in 1999 twelve countries have joined NATO, ten of them former members of the Warsaw Pact. The other two, Slovenia and Croatia, were previously part of Yugoslavia, officially a non-aligned nation, but a communist dictatorship all the same. With the possible exception of Poland, none of these new members contribute much to the alliance’s military capability, meaning that the older members are shouldering their security burden. Naturally expanding NATO to the east has resulted in isolating and antagonizing Russia, who feels its security threatened. So, NATO has succumbed to the socialist phenomenon by adding new members who demand security without much of an obligation and to the moral hazard phenomenon by adding new members whose territories could be used to house American nuclear weapons, a situation that may yet provoke a major world crisis with Russia, which is precisely what NATO was formed to avoid.

 

Ukraine and Finland as examples of moral hazard and socialist demands

 

Both Ukraine and Finland are lobbying NATO for membership. President Poroshenko of Ukraine is lobbying for membership in both the European Union and NATO. The fact that Russia already has taken the Crimea following anti-Russian riots apparently means nothing as long as Ukraine believes that mighty NATO will intervene on its behalf. If NATO did admit Ukraine, one wonders if Ukraine would invoke the collective security clause and demand that NATO go to war with Russia. Finland is already a member of the EU and now is openly lobbying for NATO membership. In a recent interview with der Spiegel, Finnish president Alexander Stubb was dismissive of Russia’s stated concerns about Finland joining NATO. His interview has to be read to be believed. Both presidents’ behavior illustrate the moral hazard nature of collective security agreements. And neither country would contribute anything to the security of current NATO members. On the contrary, Ukrainian and/or Finnish membership would cause an escalation in tensions in Europe and take us right back to the Cold War…or worse! Neither country considers the possibility that NATO might not honor its military commitment. It is one thing for NATO bureaucrats to admit new members. It is another thing for current members to expend blood and treasure, especially when the possibility of nuclear war is wafting through the air. Does anyone remember the Cuban Missile Crisis?

 

In conclusion, due to the inherent problems with collective security alliances–tragedy of the commons fed by socialism and moral hazard–nations should enter into them with great caution. George Washington’s farewell address has never sounded more prescient: Beware foreign entanglements.

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