Crisis are a deliberate strategy by governments to extent their powers

[stpioc]

The website ZeroHedge, a ragtag of libertarian and Austrian economic nonsense and conspiracy theories, goes to extraordinary length to show that all government is bad and corrupt, it's only raison d'etre is to take away your powers and freedoms and to extent their own powers.

We could have (more than) a day job discussing all their nonsense as they go over the top on a daily basis. Here is the latest stuff

One of the recurring concerns involving Europe's seemingly perpetual economic, financial and social crises, is that these have been largely predetermined, "scripted" and deliberate acts. This is something the former head of the Bank of England admitted one month ago when Mervyn King said that Europe's economic depression "is the result of "deliberate" policy choices made by EU elites.  It is also what AIG Banque strategist Bernard Connolly said back in 2008 when laying out "What Europe Wants"

To use global issues as excuses to extend its power:

• environmental issues: increase control over member countries; advance idea of global governance
  
• terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
  
• global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
  
• EMU: create a crisis to force introduction of “European economic government”
  

This is so funny, it's hard to know where to begin. First of all, it is more than ironic that these deliberate policy choices that got the eurozone into a semi-permanent state of depression are exactly the policies that ZeroHedge supports. It's basically the forced austerity and forcing all of the adjustment on the deficit countries (basically Spain, Portugal, Italy, Greece and Ireland). 

ZeroHedge is mordicus against any kind of government intervention in the economy, countercyclical Keynesian policies are routinely described as the problem, not the solution.

That is exactly what the eurozone imposes on those countries which experienced great capital inflows and therefore higher inflation in the first decade of the eurozone, turning into lost competitiveness, large current account deficits after the crisis when the capital flows dried up. 

These deficit countries are in a bind:

• They cannot devalue to restore competitiveness
  
• They cannot engage in fiscal or monetary expansion
  
• They're forced to restore competitiveness through an extremely costly process called 'internal devaluation,' that is, having lower inflation compared to the core countries like Germany
  

This process is even more complicated because there is no inflation in Germany, so they are forced to literally deflate their economies, which blows up their debt dynamics. 

All the adjustment is forced on the deficit countries, central countries like Germany and the Netherlands can run extraordinary large current account surpluses, sucking demand out of the whole system. Here is the German surplus, the Dutch one is even larger. 



The funny thing is, Germany only started to run surpluses when the eurozone started.


ZeroHedge would no doubt describe this to sensible German policies, frugal public finances and private savings, but the fact is that it is no coincidence that German surpluses started with the creation of the eurozone.



What happened was that as the eurozone was created, capital moved to the periphery because suddenly the devaluation risk had been abolished there. These capital flows created upward pressure on wages and prices that led to a gradual erosion of competitiveness versus the center countries, hence the latter accumulating ever larger surpluses, the former having big deficits. 

Deflationary bias
This is what Mervyn King is referring to. If the central countries like Germany and the Netherlands would spend more, they would alleviate these problems as it would:

• Increase demand in the eurozone, that is increase demand for exports from the periphery, boosting their growth and improve their debt dynamics.
  
• Raise inflation in the center which would make it easier for the periphery to recoup the lost competitiveness.
  

But there is nothing in the system that forces the center to adjust, all the adjustment is forced on the deficit countries. 

The funny thing is that the eurozone works almost identical to the gold standard, which had equally dramatic consequences in the 1930s. The gold standard also forced all the adjustment on the deficit countries and the countries that came off gold the soonest were the ones which economies recovered the fastest and most vigorous.

This is funny, as ZeroHedgers are highly enthusiastic about the gold standard (and gold in general).

Here is a sensible article explaining the mechanics of the eurozone with a little more colour.

So we have ZeroHedge blaming governments for creating deliberate (and unprecedented) crisis through institutions and policies in order to grap power. 

But these same institutions would met with enthusiastic support from ZeroHedge.

Another funny thing, the eurozone started growing a bit again when the austerity was lessened and the ECB stepped up, the kind of anti-cyclical policies that ZeroHedge riles against routinely.

And as usual, they take one or two lose comments out of context or infusing these with their own meaning as prove of some giant conspiracy.