Outside the Box

Cyprus Has Finally Killed Myth That EMU Is Benign

March 29, 2013

This piece from Ambrose Evans-Pritchard is about as hard-hitting an analysis of Cyprus as I have read and really makes an interesting introduction to this week’s Outside the Box. No messing around:

Capital controls have shattered the monetary unity of EMU. A Cypriot euro is no longer a core euro….

The complicity of EU authorities in the original plan to violate insured bank savings – halted only by the revolt of the Cypriot parliament – leaves the suspicion that they will steal anybody’s money if leaders of the creditor states think it is in their immediate interest to do so.

The IMF doesn’t get off easy here, either:

The IMF’s Christine Lagarde has given her blessing to the Troika deal, claiming that the package will restore Cyprus to full health, with public debt below 100pc of GDP by 2020.

Yet the Fund has already been through this charade in Greece, and her own staff discredited the doctrine behind EMU crisis measures. It has shown that the “fiscal multiplier” is three times higher than thought for the Club Med bloc. Austerity beyond the therapeutic dose is self-defeating.

I want to amplify Ambrose’s comments by excerpting from another piece, by my über-liberal friend Yves Smith over at Naked Capitalist (although she might characterize herself as mainstream reasonable). But we share a healthy skepticism of large banks.

As we say in Texas, it ain’t over till the fat lady sings. And that would be Italy, as Ambrose points out. (Which given the original intent of that quote and that Darrel Royal of the University of Texas (way back in the day) was referring to Opera Italiana, it is appropriate – in fact, we said it first!)

I have been spending a few moments here and there the last few days with my new granddaughter, Addison (and her parents). I’m now officially in a hotel room in Dallas for the duration until we can get the new place actually bought and construction done, which at best will be late summer; but I will be traveling a lot anyway the next three months, so it’s just another hotel room. I am using it as an opportunity to learn minimalist living.

But I am having to become acquainted with a new knowledge domain, that of architecture and design. If I was just looking at another fund or investment manager, I would feel pretty comfortable doing it on my own, but I clearly need help here and no shame in admitting it.

Many of you may be in a similar boat when it comes to investing. You can leave it to the professionals entirely, but then you get the results that they design and not maybe what you really want. It works a lot better if you spend some time getting familiar with the rules and communicating your objectives.

Most of you would not think (or your wives would not!) of building a home without a great deal of input. Someone has to learn that language if you want to have something that really works for your situation and budget.

The same is true of investing. It is a knowledge domain that is unfamiliar to many, but it is critical to your future happiness. You really do need to get the basics down. The more you learn the better off you will be. And using professionals is important – unless you are going to spend a whole lot of time learning the rules and the tricks. In fact, it takes more than a minor investment of time and effort just to develop adequate skill to be able to pick the right professionals. Not all investment “designers” are the same level of expertise or appropriate for what you want and need.

I did a lot of construction as a young man and can understand the basics even today. But I was never skilled enough to do finish work or design. We will see if I can learn enough to pick the right team in short order! Thankfully, most of you have more time to choose investment professionals.

Have a great Easter weekend. I see more family coming my way and maybe Mavericks and Stars games in our future.

Your can’t believe what everything costs analyst,

John Mauldin, Editor
Outside the Box

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Cyprus Has Finally Killed Myth That EMU Is Benign

By Ambrose Evans-Pritchard, London Telegraph

The punishment regime imposed on Cyprus is a trick against everybody involved in this squalid saga, against the Cypriot people and the German people, against savers and creditors. All are being deceived.

It is not a bail-out. There is no debt relief for the state of Cyprus. The…

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Barry Mannefeld

April 1, 2013, 12:34 a.m.

Quite revealing isn’t it?  Socialism has a double edged sword.  Once it goes broke, those dependent on it go broke.  Look at Greece.  The real paradox is debt needs to be liquidated and to pretend all the credits in the banking systems are good literally makes it impossible to liquidate the debt, but to draw in the credits makes it even more impossible to pay the debits.  What is happening is those in power are also in the know and they are raiding the loot before it all collapses.  It will our property and money that is gone, not theirs.

Richard Schneider 31849

March 30, 2013, 5:46 p.m.

Clearly it is ridiculous to have a large number of people, hundreds of millions, living in a system of monetary union without fiscal union. After this mess falls apart the Europeans will learn that their subsequent attempt at economic union will require fiscal union and that that cannot be done without political union.  Before the end of this century it is highly likely that The United States of Europe will exist.  It’s difficult to obtain but ultimately it must happen.  There will simply be no other choice regardless of the difficulties and resistance it will face.

William Flint

March 30, 2013, 3:04 p.m.

So, the question remains, which EU country has the cleanest dirty shirt in the closet?

Alan Harris

March 30, 2013, 5:31 a.m.

‘A Cypriot euro is no longer a core euro…’. Im sorry this is misguided. There is no such thing as a Cypriot Euro, just the Euro. Cyprus, the EU, et al, closed the banks, not the currency. The core problem when establishing the Euro, was that they were sooooo keen to get everyone on board that they started handing out vast loans like candy to kiddies. Of course everyone gorged themselves till they became sick. So who is to blame for the present debarcle? The kiddies, or the ‘adults’ who should have known there would be tears before bedtime. Horrific as it is, everyone involved has now done the only thing that can/could yet be done….they have shut the local candy store till the cod liver oil has taken effect. It is quite clear that their actions are intended to serve as a template for how they will deal with others. Cyprus was a Godsend for the EC. The population and debt is tiny, but the message to Italy, Spain and France is right up there in neon lights.

John: Im a tradesman. Trust me, the three most important things to look for when choosing any specialist to do a job you dont fully comprehend is recomendation, recomendation, recomendation. That’s how I found you, and Im still a happy Easter bunny.

David Fischer 37051

March 30, 2013, 2:35 a.m.

This is a transparent hoax by the German banks to recapitalize using periphery euros rather than printing money. This ploy simply encourages large depositors to move their money to German banks which are perceived to be the most stable.


March 29, 2013, 9:43 p.m.

The IMF suggests to Obie adding $1.50 a gallon tax on gasoline, something surely he would like. Of course, Obie would not be adverse to taking money from bank accounts if not insured…. forget having an account over $250K until Obie is gone!