Radio Free Market

Per your recent email:

“But the key point is that the UK is a massive importer (and net importer) of EU goods.  We will in fact be the EU’s largest export customer.  Bar none.  This is undesirable from a balance-of-payments point of view, but it gives us enormous negotiating clout.”

Dear Roger,
One of the greatest fallacies in all of economics is that buying more from one customer than he buys from you is a bad thing; i.e., a balance of payments/trade deficit. Unfortunately, you commit this error in your recent email blast, copied above. What are the EU countries to do with all those pounds that they accept in payment for vendible goods? They will buy something in Britain, maybe even British national debt. If they let the pounds stack up in their central banks as foreign reserves, all they have done is present a gift to the British people, similar to a merchant never cashing your check.

Warmest regards from an friend in the US,

Patrick Barron

From today’s Open Europe news summary:

German exports rise unexpectedly

German exports rose by 1.9% month-on-month in March 2016, according to new data released by the National Statistics Office (Destatis) yesterday. It was the largest monthly increase in half a year, and came as a surprise to analysts who did not expect any growth at all. Imports in March dropped by 2.3% to €80.9bn, leaving Germany with a trade surplus of €26bn.

Source: Reuters Deutschland Handelsblatt

A rise in German exports is seen as a positive development, but is it? What does Germany get in return for sending its products abroad, especially if it sends these products to other members of the Eurozone; i.e., that countries using the euro? It gets an increase in its euro-denominated credit at the European Central Bank, known as its TARGET2 balance. In other words, Germans work hard to produce real, vendible goods in exchange for a debased and depreciating currency.

Patrick Barron

From today’s Open Europe news summary:

ECB to halt production of €500 note, but it will retain its value

The European Central Bank announced yesterday that it would stop printing the €500 note from the end of 2018 due to, “concerns that this banknote could facilitate illicit activities.” However, the bank confirmed that the note will always remain legal tender and will therefore continue to retain its value.

Source: ECB Press Release

Once cash has been eliminated, the ECB can implement its negative interest rate program on a large scale. In fact it probably doesn’t have to eliminate small bills, since it may be impractical and/or impossible for anyone to hold and use cash denominated in small bills for anything other than petty purchases.

Patrick Barron

From today’s Open Europe news summary:

Draghi rebukes ECB German critics

In a speech on Monday, the President of the European Central Bank, Mario Draghi, delivered a blunt rebuke to German criticism of the ECB’s low interest rate policy saying “There is a temptation to conclude that…very low rates…are the problem… But they are not the problem. They are the symptom of an underlying problem.” The real problem, Draghi argued, was the excessive amount of global savings a significant part of which was caused by Germany’s large current account surplus.  In what was seen as a thinly veiled attack on Germany’s finance minister, who has argued for an end to ECB stimulus, Draghi also noted that “Those advocating a lesser role for monetary policy or a shorter period of monetary expansion necessarily imply a larger role for fiscal policy.”

Source: The FT The Wall Street Journal

It is time for ECB president Mario Draghi to go home. He has run out of ideas and excuses. To wit, the above criticism of German bankers who, he says, do not understand that the real cause of low interest rates is not the ECB’s massive interventions into the bond market, but that the world saves too much and the Germans produce too much of what the rest of the world wants to buy.

Let’s get one thing very clear–there is no such thing as saving too much, just as there is no such thing as too much capital accumulation.  Capital accumulation is the foundation of all economic progress. Without capital accumulation there can be no further division of labor and no further increases in the productivity of labor. Savings–real savings, not fiat money creation–are required for capital accumulation; i.e., postponing consumption today in order to enjoy a higher standard of living tomorrow. In a free market the level of saving is determined by the purposeful desires of billions of individuals.

It is time (it is PAST TIME!) for Germany to leave the Eurozone and reinstate the deutsche mark before Draghi succeeds in destroying its economy.

Patrick Barron

From yesterday’s Open Europe news summary:
French Economy Minister: UK “won’t be in a position to negotiate something better” after Brexit

French Economy Minister Emmanuel Macron told an audience in London yesterday, “After a Brexit vote, you are not in a position to negotiate something better…Leave the club and you will be alone. What will be your position with the Chinese? I’m sorry to say, but exactly the same as Jersey and Guernsey with the EU.”

The proper response to M. Macron is “Why would the UK have to negotiate anything?” The UK–or any nation, for that matter–can freely open its borders to the imports of the entire world. It does not have to negotiate something that it can do unilaterally. Of course, the French Prime Minister is speaking about his own country’s trade barriers to deny the importation of UK goods. No nation can control the self-defeating actions of others. If France wants to embargo goods from the UK, it certainly can do so and there is nothing that the UK can do about it. But so what? Who is harmed? The French! The French do not enjoy UK products that they would prefer over products from anywhere else, including France. Otherwise, what is the purpose of embargoing UK goods? When the French sell goods into the UK market, they take pounds in payment. What are the French to do with these pounds? Stack them in the vault of the Bank of France and never spend them? Fine. Now the French have given UK citizens free gifts of their goods.

One of the greatest and most persistent fallacies in economics is that a nation suffers when it lowers its barriers to imports and the exporting country does not reciprocate.

Patrick Barron

Re: White House is seeking to share blame over Libya

Dear Sirs:
As described in the above report by Josh Lederman and Kathleen Hennessey, found on page A10 of yesterday’s Inquirer, the White House is concerned primarily with seeking a better outcome from future military interventions based upon its past failures. The bigger and more important question for Americans is whether the Libyan intervention was legal. Muammar Gadhafi, whom NATO helped depose and who later was killed, asked the right question. Why was NATO attacking his country when his country had not attacked a NATO country? Is America is a nation of laws or of men? President Obama–and, I fear, most politicians– believe the latter.

Patrick Barron

From today’s Open Europe news summary:

ECB Minutes show deep divisions over stimulus measures
Minutes of the March meeting of the ECB governing council, released on yesterday reveal deep divisions amongst its members over the latest round of ECB stimulus. The Dutch and German members were fiercely against, The Financial Times reports, with the minutes noting that some feared the measures could result in “market distortions,” and that “the costs and risks of engaging further in public sector asset purchases, particularly in the medium to long term, would outweigh their potential benefits.”

Source: The Financial Times Politico

As usual, Germany’s (now joined by the Dutch) objections to the ECB’s quantitative easing program is ignored. It is a mystery why Germany continues to use the euro, since it is no one’s interest, not even the rest of the Eurozone countries, that it do so. The euro is a mechanism for the rest of Europe to steal German capital in order to prop up unsustainable welfare programs. This process will not cease until Germany’s economy is shattered. How can this be in the best interest of anyone, even the irresponsible countries of Europe? I believe the answer is that the rest of the Eurozone countries are led by opportunistic politicians who will line their pockets so that they themselves will not be affected by the coming collapse.

Patrick Barron

Dear Sirs:
I have been following your reporting of Mayor Kenney’s proposed tax on sugary drinks. Please keep one thing in mind–consumers pay every tax; corporations merely collect it. Coca Cola and Pepsi must pass on the cost of any tax to the consumer or go out of business. Do not be confused with supposed “research” that shows that not all previous taxes were passed on to consumers. ALL business expenses are borne by the consumer of the final product.

Patrick Barron

From today’s Open Europe news summary:

Spain warns of consequences for Gibraltar if Britain votes for Brexit

The Times reports that Spain may end its agreements with Gibraltar, and could even close the border if Britain votes to leave the EU. A Spanish official told the paper that “We do not see Britain leaving the European Union as an opportunity but you have to understand that if Brexit happened it would change our obligations to Gibraltar… No longer would we have to respect the free movement of capital and goods which Brussels demands. We could even close the border if wanted to.”

This “Spanish official” should ask all the Spaniards who work in Gibraltar if they would support closing the border. No wonder Catalonia wants its independence.

Pat Barron

Thirty minutes.

Show notes page: http://www.wakeupcallpodcast.com/dollar-hegemony-2/

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