Serf's Up! Europe First... Then Us

Around the time Abraham Lincoln had decided to deal the rebel South a potentially crippling economic blow by freeing the slaves, Tsar Alexander II of Russia abolished the institution of serfdom in Russia, the last remaining feudal state in Europe. In 1861 twenty-three million agricultural and household serfs were emancipated and granted full rights of Russian citizenship. The agricultural serfs were given the right to acquire some land from their former masters, though not enough even for a subsistence living. Russians have long memories and most of them aren't eager for the reinstitution of serfdom in their economically distressed country. That has a lot to do with why Russian voters dealt would be tsar, Vladimir Putin a stunning blow at the polls yesterday. Putin, currently Prime Minister, wants back the presidency in the March elections. Yesterday his party, United Russia, saw their parliamentary majority shrink from 64% to... well returns are incomplete but it looks like less than 50%, even with the party cheating up a storm as though they were Republicans.

Although Putin is still likely to win a presidential election in March, Sunday's result could dent the authority of the man who has ruled for almost 12 years with a mixture of hardline security policies, political acumen and showmanship but was booed and jeered after a martial arts bout last month.

United Russia had 49.6 percent of the votes after results were counted in 51 percent of voting districts for the election to the State Duma, the lower house of parliament. Two exit polls had earlier put it on 45.5 and 48.5 percent.

"These elections are unprecedented because they were carried out against the background of a collapse in trust in Putin, (President Dmitry) Medvedev and the ruling party," said Vladimir Ryzhkov, a liberal opposition leader barred from running.

"I think that the March (presidential) election will turn into an even bigger political crisis; disappointment, frustration, with even more dirt and disenchantment, and an even bigger protest vote."

...Many voters, fed up with widespread corruption, refer to United Russia as the party of swindlers and thieves and resent the huge gap between the rich and poor. Some fear Putin's return to the presidency may herald economic and political stagnation.

...Two decades after the collapse of the Soviet Union, the communists appeared to be the main beneficiaries, their vote almost doubling to around 20 percent, according to the partial results.

"Russia has a new political reality even if they rewrite everything," said Sergei Obukhov, a communist parliamentary deputy.

Opposition parties complained of election irregularities in parts of the country spanning 9,000 km (5,600 miles) and a Western-financed electoral watchdog and two liberal media outlets said their sites had been shut down by hackers intent on silencing allegations of violations.

The sites of Ekho Moskvy radio station, online news portal Slon.ru and the watchdog Golos went down at around 8 a.m. even though Medvedev had dismissed talk of electoral fraud.
Police said 70 people were detained in the second city of St Petersburg and dozens were held in Moscow in a series of protests against alleged fraud.

Opposition parties say the election was unfair from the start because of authorities' support for United Russia with cash and television air time.

Putin's imminent return to the presidency of Russia hearkens bad times for Russians who aren't part of their country's 1% but they are hardly the only Europeans threatened with 21st Century serfdom. The Greeks, Spaniards, Italians, Irish, Italians and Portguese all seem hovering on the brink-- at best. Charles Hugh Smith sounded the alarm on his blog, OfTwoMinds.com/, yesterday. He warns Europeans to either rebel against the tyranny being imposed by the banksters (Austerity) or be prepared to accept a decade-- or generations-- of debt-serfdom. (The Atlantic Ocean will hardly protect our country from this ramping up of the class war the 1% have been successfully waging against the rest of us-- in earnest-- for the past two decades.)

The euro enabled a short-lived but extremely attractive fantasy: the more productive northern EU economies could mint profits in two ways: A) sell their goods and services to their less productive southern neighbors in quantity because these neighbors were now able to borrow vast sums of money at low (i.e. near-"German") rates of interest, and B) loan these consumer nations these vast sums of money with stupendous leverage, i.e. 1 euro in capital supports 26 euros of lending/debt.

The less productive nations also had a very attractive fantasy: that their present level of productivity (that is, the output of goods and services created by their economies) could be leveraged up via low-interest debt to support a much higher level of consumption and malinvestment in things like villas and luxury autos.

According to [Austan Goolsbee's Wall Street Journal OpEd last week], Europe's Currency Road to Nowhere:

Northern Europe has fueled its growth through exports. It has run huge trade imbalances, the most extreme of which with these same Southern European countries now in peril. Productivity rose dramatically compared to the South, but the currency did not.

This explains at least part of the German export and manufacturing miracle of the last 12 years. In 1999, exports were 29% of German gross domestic product. By 2008, they were 47%-- an increase vastly larger than in Italy, Spain and Greece, where the ratios increased modestly or even fell. Germany's net export contribution to GDP (exports minus imports as a share of the economy) rose by nearly a factor of eight. Unlike almost every other high-income country, where manufacturing's share of the economy fell significantly, in Germany it actually rose as the price of German goods grew more and more attractive compared to those of other countries. In a key sense, Germany's currency has been to Southern Europe what China's has been to the U.S.

Flush with profits from exports and loans, Germany and its mercantilist (exporting nations) also ramped up their own borrowing--why not, when growth was so strong?

But the whole set-up was a doomed financial fantasy. The euro seemed to be magic: it enabled importing nations to buy more and borrow more, while also enabling exporting nations to reap immense profits from rising exports and lending.

Put another way: risk and debt were both massively mispriced by the illusion that the endless growth of debt-based consumption could continue forever. The euro was in a sense a scam that served the interests of everyone involved: with risk considered near-zero, interest rates were near-zero, too, and more debt could be leveraged from a small base of productivity and capital.

But now reality has repriced risk and debt, and the clueless leadership of the EU is attempting to put the genie back in the bottle. Alas, the debt loads are too crushing, and the productivity too weak, to support the fantasy of zero risk and low rates of return.

...In simple terms, this is the stark reality: now that debt and risk have been repriced, Europe's debts are completely, totally unpayable. There is no way to keep adding to the Matterhorn of debt at the old cheap rate of interest, and there is no way to roll over the trillions of euros in debt that are coming due at the old near-zero rates.

...Austerity won't put the repricing/bubble burst genie back in the bottle. A funny thing happens when more of the national income is diverted to debt service (making interest payments and rolling over existing debt into new higher-interest debt): there is less surplus available for investment and consumption, which means that both productivity based on investment and consumption based on debt will plummet.

This leaves the nation with lower productivity and lower GDP, which means there is also less tax revenues being collected and more bankruptcies as companies and individuals accept the reality that their debts cannot be paid.

The repricing genie responds to this decline in national income, surplus and taxes by repricing risk of default even higher, and so the interest rate is also repriced higher. This makes servicing the mountain of existing debt even more costly, and so even less national income is available for consumption, investment and taxes.

This is called a positive feedback loop: each action reinforces the other, i.e. a self-reinforcing feedback loop. Debt and risk are repriced higher, the burden of debt service reduces national income available for investment, consumption and taxes, which further reprices risk higher, and so on.

So you see, Europe, there is only one choice: either accept the endless debt serfdom of ever-rising interest payments and lower income and productivity, or rebel against your pathetic lackey leadership and renounce the entire mountain of unpayable debt. Grasp the nettle and renounce the euro as the fundamental cause of your fantasy and collapse, and revert to national currencies which enable the market to discover the price of your underlying productivity and ability to borrow money.

Renouncing the euro does not mean renouncing the freedoms of the European Union: the two are only bound at the hip in the minds of your enfeebled leadership, who are in thrall to the leveraged-26-to-1 banks that are poised on the edge of insolvency.

Let the banks implode in bankruptcy, clear the worthless "assets" of debt from the books, and let the market price currencies and everything else. The only other choice is debt-serfdom.

Smith urges the Eurozone to look to Iceland for their salvation-- Iceland, which didn't actually get rid of serfdom until 1894, long after Tsar Alexander II was assassinated. Unwilling to let the banksters get away with it-- the way corrupt and conflicted politicians in the U.S. and Europe are doing-- Iceland opted for "sanity and growth... They renounced their unpayable debts and debt-serfdom, and let the market reprice their currency, debt and risk. The nightmare is past for them; they chose wisely."