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George Soros: How to Save the European Union from the Euro Crisis


Charlie
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The best trade at the time was buying up the notes of the indebted US states that were trading at 30 cents on the dollar.  They were paid off in full when Alexander Hamilton floated the US backed bonds.

 

I read Alexander Hamilton by Ron Chernow -- I believe it was 30 cents on the dollar (working from memory).  Great book if you haven't read it.  I remember Abigail Adams wanted to invest in those notes, but her husband, John Adams, wouldn't have it because the were "Adamses" and they only invested in land.  So you know who the brains of the family was.

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The best trade at the time was buying up the notes of the indebted US states that were trading at 30 cents on the dollar.  They were paid off in full when Alexander Hamilton floated the US backed bonds.

 

I read Alexander Hamilton by Ron Chernow -- I believe it was 30 cents on the dollar (working from memory).  Great book if you haven't read it.  I remember Abigail Adams wanted to invest in those notes, but her husband, John Adams, wouldn't have it because the were "Adamses" and they only invested in land.  So you know who the brains of the family was.

 

Yup.  Adams was no dummy, but a big reason he was successful was that he listened to Abigail, at least some of the time.  :)

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The best trade at the time was buying up the notes of the indebted US states that were trading at 30 cents on the dollar.  They were paid off in full when Alexander Hamilton floated the US backed bonds.

 

I read Alexander Hamilton by Ron Chernow -- I believe it was 30 cents on the dollar (working from memory).  Great book if you haven't read it.  I remember Abigail Adams wanted to invest in those notes, but her husband, John Adams, wouldn't have it because the were "Adamses" and they only invested in land.  So you know who the brains of the family was.

 

Yup.  Adams was no dummy, but a big reason he was successful was that he listened to Abigail, at least some of the time.  :)

 

I am skeptical… Europe IS NOT the US. It has never been, and I don’t understand why it should ever become to resemble the US… Like Mrs. Thatcher was used to saying: “In my lifetime all the problems have come from continental Europe, and all the solutions have come from outside continental Europe.”

Eurobonds without giving up state sovereignty? Wouldn’t it be for Germany like assuming all the duties without any right attached? Why should they accept? If I give you money, I also want some control on how you spend money, right? Mr. Hamilton founded a Treasury, right? Which would decide how to allocate capital for the whole nation, right? Then, of course, you can decide to give money to indebted states. Because you know you have at least some control. Even without a Treasury, imo, it could be done… provided that there really is the will to become a true nation! I can trust you, if I am sure we want the same thing, and we are striving together towards that goal: to give up in time each single state sovereignty, in the name of a truly new and united nation.

Unfortunately, I don’t see that happen. A single nation with 20+ different languages…?!? C’mon!! It really is as simple as that!

I don’t see a United States of Europe without Germany either. If Germany leaves, the rest of the north will follow suit… what would then be the point of keeping France, Italy, Spain, and Greece together? I don’t understand.

As always, paraphrasing Mr. Keynes, when the facts change, I will change my mind. :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

 

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Yes, quite interesting, thanks for posting it.  Before I got to the end I somehow got the feeling he was very tactfully calling on all the non German states to 'revolt' against Germany and save themselves. 

 

Of course what he says in a sense does not only apply to the non-German European countries but also to the USA who got hurt in in a similar way from all the surplus countries (Germany, Japan, China).

 

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Thanks for posting. As always Soros has a way of making a difficult problem approachable for us mere mortals. However, I do find he suffers from the same prejudices that reign in most Anglo-saxon countries when considering the Italian situation, and, perhaps by extension, those in other 'periphery' counries. The result of the recent elections in Italy, and the electoral success of the '5 Star Movement', was not a repudiation of the Euro. Far from it. I believe a vast majority of Italians are pro-Euro, despite a vocal anti-Euro minority. Most, I believe, view the Euro as a guarantee against the poor administration of their own politicians. The vote for the 5 Star Movement was simply a vote against a political class that has hijacked the democratic process while continuing to demonstrate total administrative ineptitude. Of course, if the impoverization of the Southern countries continues, anti-Euro sentiment can only grow. Political will to tackle the 'structural problems' (read bloated, stagnant bureaucracies rooted in a Borbonic system of privileges) is totally missing and the only other effective tool, devaluation, has been taken from the public policy quiver.

 

I do like his idea of the carrot (conversion of current national debt to Eurobonds) and the stick (the need to raise any additional funds using national bonds) as I believe incentives are far more powerful than any legislated or extranationally imposed guidelines.  Unfortunately history has shown that these types of policy solutions are rarely implemented without a far-seeing and persuasive popular politician, the likes of which we rarely see these days. I am pessimistic.

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The best trade at the time was buying up the notes of the indebted US states that were trading at 30 cents on the dollar.  They were paid off in full when Alexander Hamilton floated the US backed bonds.

 

I read Alexander Hamilton by Ron Chernow -- I believe it was 30 cents on the dollar (working from memory).  Great book if you haven't read it.  I remember Abigail Adams wanted to invest in those notes, but her husband, John Adams, wouldn't have it because the were "Adamses" and they only invested in land.  So you know who the brains of the family was.

 

Yup.  Adams was no dummy, but a big reason he was successful was that he listened to Abigail, at least some of the time.  :)

 

I am skeptical… Europe IS NOT the US. It has never been, and I don’t understand why it should ever become to resemble the US… Like Mrs. Thatcher was used to saying: “In my lifetime all the problems have come from continental Europe, and all the solutions have come from outside continental Europe.”

Eurobonds without giving up state sovereignty? Wouldn’t it be for Germany like assuming all the duties without any right attached? Why should they accept? If I give you money, I also want some control on how you spend money, right? Mr. Hamilton founded a Treasury, right? Which would decide how to allocate capital for the whole nation, right? Then, of course, you can decide to give money to indebted states. Because you know you have at least some control. Even without a Treasury, imo, it could be done… provided that there really is the will to become a true nation! I can trust you, if I am sure we want the same thing, and we are striving together towards that goal: to give up in time each single state sovereignty, in the name of a truly new and united nation.

Unfortunately, I don’t see that happen. A single nation with 20+ different languages…?!? C’mon!! It really is as simple as that!

I don’t see a United States of Europe without Germany either. If Germany leaves, the rest of the north will follow suit… what would then be the point of keeping France, Italy, Spain, and Greece together? I don’t understand.

As always, paraphrasing Mr. Keynes, when the facts change, I will change my mind. :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

 

 

The USA States after the Revolutionary War under the Articles of Confederation were more fractious than the Eurozone is now.  Commerce between the states was taxed.  There were as many slaves in New York as in Georgia, but slavery was on the way to being repealed rapidly in the northern states while still institutionalized in the  southern states.  Citizens who had been loyal to the Crown migrated to Canada under threat of lynching.  Many revolutionaries were violently opposed to having a powerful central government.  And yes, the wealthier US States that were capable of paying their debts didn't like the idea of bailing out their poorer relations that were basket cases.

 

However, the power of the Federal government to tax made it relatively easy for the bail out to succeed.  All states were of one mind that the bailout was a one time deal, never to be repeated.  And that's the way it has worked since then. 

 

In the latest crisis there was no serious talk of bailing out the most indebted US States.  All the USA states have acted responsibly.  Even California is on the verge of being in surplus.  A friend works for an agency in one of the USA states.  The number of employees in his department is now half what it was when he went to work there in 2004.

 

 

 

 

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I always find the ideas of Soros interesting and well argued. The argument he brings forth in this article was very far from my own interpretation of best practice, but I would now consider the merits of an orderly disintegration (Germany leaving) to be an option to have on the table.

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  Thanks. I think this is one of the best analysis I've read about the crisis. However, although the solutions are smart, they are not realistic. Eurobonds, even in the guise proposed by Soros, will be almost impossible to implement in practice. And Germany's big companies will put lots of pressure to keep it in the euro. Apart from the fact that Germany, going alone, will just become an oversized Switzerland, geopolitically speaking.

 

  So the most likely course will be Germany trying to keep the euro together, but using the current local optimization approach, which not only will end up being much more costly for them, but it is also disastrous for the countries suffering austerity, and risks catastrophic failure at every turn.

 

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The result of the recent elections in Italy, and the electoral success of the '5 Star Movement', was not a repudiation of the Euro. Far from it. I believe a vast majority of Italians are pro-Euro, despite a vocal anti-Euro minority. Most, I believe, view the Euro as a guarantee against the poor administration of their own politicians.

 

If that is so, and probably it actually is, the reason is that almost nobody understands the importance of a sound currency, of a currency that ultimately makes real economic sense. Mr. Keynes showed us its importance and insisted on how political reasons should never interfere.

The Euro simply doesn’t make any economic sense for Italy, Spain, Greece, or even France, and the result is that from 2000 onward all those countries are continuously losing in competitiveness against Germany and northern countries in general. And the longer it lasts, the larger that gap will become.

Those who view the Euro “as a guarantee against the poor administration of their own politicians” imo are day-dreaming. As soon as you choose a currency for political reasons, instead of economic ones, you know you are in serious trouble.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

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Yes, quite interesting, thanks for posting it.  Before I got to the end I somehow got the feeling he was very tactfully calling on all the non German states to 'revolt' against Germany and save themselves. 

 

Of course what he says in a sense does not only apply to the non-German European countries but also to the USA who got hurt in in a similar way from all the surplus countries (Germany, Japan, China).

 

Another important point, I guess, is that as can be seen from various analysis the wealth gap in Germany is huge, the largest in the European union, so this suggested adjustment by Soros throughout the union is also an adjustment in Germany itself and the big long term beneficiaries of that will be the majority of household. People over there should wake up and smell the coffee.

 

And the second point, that this is a by product which connects to why Germany is the problem here, this huge wealth gap adds to the low consumption rate, higher trade surplus which then leads to the deficits in other countries. Germany basically forces Spain to be in a deficit.(disclaimer: I only rumble on Macro for fun, it's not an investment discussion of any sort and none of these ideas are mine obviously)

 

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