[Sixstrings]

Times are getting strange when a bank report sounds like Alex Jones:

Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war." ...

Do monetary unions break up without civil wars?
The break-up of a monetary union is a very rare event. Moreover the break-up of a monetary union with a fiat currency system (ie, paper currency) is extremely unusual. Fixed exchange rate schemes break up all the time. Monetary unions that relied on specie payments did fragment – the Latin Monetary Union of the 19th century fragmented several times – but should be thought of as more of a fixed exchange rate adjustment. Countries went on and off the gold or silver or bimetal standards, and in doing so made or broke ties with other countries’ currencies.

If we consider fiat currency monetary union fragmentation, it is fair to say that the economic circumstances that create a climate for a break-up and the economic consequences that follow from a break-up are very severe indeed. It takes enormous stress for a government to get to the point where it considers abandoning the lex monetae of a country. The disruption that would follow such a move is also going to be extreme. The costs are high – whether it is a strong or a weak country leaving – in purely monetary terms. When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences.

With this degree of social dislocation, the historical parallels are unappealing. Past instances of monetary union break-ups have tended to produce one of two results. Either there was a more authoritarian government response to contain or repress the social disorder (a scenario that tended to require a change from democratic to authoritarian or military government), or alternatively, the social disorder worked with existing fault lines in society to divide the country, spilling over into civil war. These are not inevitable conclusions, but indicate that monetary union break-up is not something that can be treated as a casual issue of exchange rate policy.
http://www.zerohedge.com/news/bring-out-your-dead-ubs-quantifies-costs-euro-break-warns-collapse-banking-system-and-civil-war

[prajeshbhat]

So basically what they are saying is, the only thing standing between peace and civil war is the solvency of UBS. Just keep bailing us out. And then voluntarily accept austerity like decent citizens to cover the cost.

[papa moose]

The summary(?) you've post keeps mentioning

Past instances of monetary union break-ups ...

but the only example they reference is

the Latin Monetary Union of the 19th century

. Does the main article give any other specific examples? It's true that "history repeats itself" but i just can't see how closely the events in South America 200 years ago would reflect the likely out comes of the EU disolving.

[Oakley]

What does this portend for the USA? After all, it is a Union of 50 states and certainly this unstable, unsustainable, predatory debt based monetary system instituted in 1913 with the Federal Reserve Act, is nearing a terminal stage where either the banking system will collapse, wholesale wiping out checking and savings account balances of the public creating a massive deflation, or somehow those in power will manage to do the opposite in a desperate attempt to keep the shell game going and hyper-inflate the money supply, wiping out its purchasing power over a short period of time. In either case, the end result of a monetary system where banks create money out of thin air and loan it into existence, collecting interest, is first inflation and transfer of wealth from the majority to the bankers, followed by the inevitable revolt of we peasants; what more would you expect when those in power have picked us dry.

We already are a Union divided in our values, and this division likely will become more intense as economic conditions worsen. The thin veneer of civility can easily be stripped away under the pressure of scarcity for the majority the present system of plunder and control creates.

If you read the analysis in "The Fourth Turning" we are already destined to a violent resolution of the current crisis period in a fashion similar to the American Revolution, the Civil War or WWII, right on schedule around 2020 (1775, 1861, 1941, and 2020??? for a repeating cycle).

Isn't nature creative; she provided us with methods of self purging population excesses -- war, revolution, and civil war. And for those of you enamored with wealth redistribution, that will follow also, with the direction of that redistribution to be determined by whether those currently in power remain so, or whether they meet Madame Guillotine. The next decade or two should be interesting for the survivors.

[Sixstrings]

Does the main article give any other specific examples? It's true that "history repeats itself" but i just can't see how closely the events in South America 200 years ago would reflect the likely out comes of the EU disolving.

Yes I agree, the UBS report is strangely dramatic and naive. Of course there won't be a "civil war," North vs. South -- the Franco-Prussian blue coats vs. the Italian gray.

Although I dunno there are some similarities.. a federalist, industrial North exploiting the entire South.. that's why France and Germany wanted union in the first place, for hegemony over Europe. Now Greeks and other south Euros are trapped under the boot of Prussian-imposed austerity.

If it is true that collapse of monetary union can lead to civil wars and dictatorships, then all these nations were very foolish for starting this in the first place -- talk about a threat to national security. Last time I was in Italy they had the lire. Seemed to work fine for them, just why exactly did they chain themselves to France and Germany? How'd they get suckered into that?

Anyhow.. civil war is silly, but dictatorship is a possibility. If it all flies apart and there's chaos in the streets you could wind up with a coup and military government in countries like Greece. Funny thing about all this is we're all connected.. Europe will drag us down with them, as Ucnle Ben prints money to bail out the Europeans just like the AIG bailout and just as he's been doing all long with the discount window.

[Sixstrings]

What does this portend for the USA?

...

In either case, the end result of a monetary system where banks create money out of thin air and loan it into existence, collecting interest, is first inflation and transfer of wealth from the majority to the bankers, followed by the inevitable revolt of we peasants; what more would you expect when those in power have picked us dry.

The US is a genuine federal system with a single central bank and real monetary union. Europe on the other hand is a weak confederacy.. which is why they're going to fail, confederacies can't survive crisis.

As for what it means for us.. well truth is we're all tied in together. It's not the Euro that's in trouble so much as fiat in general.. and more specifically, the West as opposed to the still growing developing world (and maybe their days are numbered too, maybe end of growth / peak oil is the fundamental problem here).

Hm.. seems to me these are the West's problems:

1. Offshoring
2. End of growth / peak oil

[smiley]

Last time I was in Italy they had the lire. Seemed to work fine for them, just why exactly did they chain themselves to France and Germany?

Well if you would have been there twice you might have understood it. The lire was inflating quite rapidly and the lira's would have bought you a lot less on your second visit. The Deutschmark, Gulden, Krona etc on the other hand were as solid as a rock. I guess the southern countries wanted the same monitary stability as the northern countries, but now realise they wont get a free ride..

as Ucnle Ben prints money to bail out the Europeans just like the AIG bailout

You do realise that AIG stands for American International Group .

But it doesn't matter, the money does not go to Europeans or Americans. I did not receive a single cent of TARP money or from the EU fund. Likewise the Greec bailouts don't go the Greec. But we all do pay for it in our taxes.

These are all just a vehicle to take toxic assets out of the hands of financial institutions and place them on the balance sheets of the taxpayers. There is a select group who profits from all this and a very large group which pays for it.

In the event this blows up on either side of the Atlantic ( I do think the US debt situation is as or even more dangerous than the current EU situation) I suspect a backlash will be aimed at those: The financial institutions for causing this and the politics for allowing it to happen.

If you look for a historic precedent I think you might consider the French revolution or the foundation of the Nazi movement which were both the consequence of a currency crisis and resulting anger at the financial and political powers (in France the aristocracy and in Weimar the Jewish banks).

Not a very nice prospect.

[Sixstrings]

Well if you would have been there twice you might have understood it.

Since the Euro I've never been able to afford to go back, with my puny American dollars.

The lire was inflating quite rapidly and the lira's would have bought you a lot less on your second visit.

All I remember is that a 1000 lira note was like a dollar (a bit less, but I thought of it as a dollar). A gelato cost me a single 1000 lira note. My hostel bed cost me 20,000 lira (so a bit less than twenty bucks).

I don't know if they were inflating out of control, but I'll tell you what.. I never saw homeless people in Europe the way I do back home in the US.

You do realise that AIG stands for American International Group .

They're all tied in together. AIG was insuring the securitized algorithmic financial product scams held by European banks and small towns in Norway. The AIG bailout funneled money to American rich, American hedge funds, American banks, but also Euro banks like Societe Generale. This whole global fiat ponzi is getting old.. nothing but a printing press shell game. People run to the Swiss franc for safety, what does Switzerland do? Devalue.. what a joke the whole thing is, the whole world is spiraling down into some kind of Soviet collapse.

In the event this blows up on either side of the Atlantic ( I do think the US debt situation is as or even more dangerous than the current EU situation) I suspect a backlash will be aimed at those: The financial institutions for causing this and the politics for allowing it to happen.

I have to disagree with you there. Greek bonds are at what, 80% yield? We're all dying a ponzi fiat death, but the US has an advantage in that we aren't a confederation. We don't have the state of New York fighting Mississippi. We have one central bank, one united monetary policy. Unfortunately we're hooked at the hip to Europeans so we'll bail them out when push comes to shove and I guess that amounts to a worldwide devaluation.. what interesting times we live in!

[smiley]

I have to disagree with you there. Greek bonds are at what, 80% yield?

Actually 10yr yields around 18%. But that is only relevant for new debt.
http://www.tradingeconomics.com/greece/ ... bond-yield

If the default swap is completed, all securities with a maturity less than 10yrs will be exchanged for 30year securities at a rate of 3.5%. In other words Greece doesn't need to roll over any debt for the next 10 years.
http://online.wsj.com/article/SB1000142 ... 41634.html

They will need to put out new debt, but if you assume a 10% deficit for the next few years, it would only mean a total of 30 billlion per year in rescue money, which should be quite easy to absorb.

The current proposal would solve most of Greeces problems. Main risk is that it will not get ratified in Europe's messy political arena and/or spill over to Italy and Spain.

Don't forget that Greece is an economy the size of Maryland, its only 1.9% of European GDP. Therefore its rescue is not that expensive. For reference Obama has put out more debt in the past 30 days than Greece has in its existence.

That is the scary part. The US has about the same fundamentals as Greece >10%budget/GDP deficit and 110%debt/GDP ratio, but rescueing the US would require worlwide unity rather than European (which proves already hard to achieve).

[rangerone314]

If you look for a historic precedent I think you might consider the French revolution or the foundation of the Nazi movement which were both the consequence of a currency crisis and resulting anger at the financial and political powers (in France the aristocracy and in Weimar the Jewish banks).

Not a very nice prospect.

Less nice for the aristocracy and banks. I wish I could say I'd feel sorry for them when the chickens come home to roost, but I can't.

[RedStateGreen]

Yes. I can see a "storming of the Bastille" in the near future ... this situation was one of the main reasons for the New Deal.

[gollum]

Yes. I can see a "storming of the Bastille" in the near future ... this situation was one of the main reasons for the New Deal.

I suspect the Union thing up in Washington is a sign of things to come.

[rangerone314]

At a certain point people will refuse to be told "No" again by the PTB, and they will use force to emphasize their point.

At which point the PTB will show their true colors and use much more force, and then you could quite possibly see a chain reaction, like in the Middle East.

[Loki]

Oakley you keep quoting the Fourth Turning as an authoritative source. It ain't. It's more Jungian Tarot than it is a serious academic work. Demographics often is destiny, but this doesn't mean the astrological signs Strauss and Howe assign to various so-called generations have any validity in the real world.

Serious civil disturbance is far more likely to occur in societies that have a fairly young population. Hence the Arab Spring--Egypt's median age is 24, Syria's is 22. In the US the median age is 37. In the UK and France it's 40, and Germany's is a whopping 45, as is Japan's. This is your demographic destiny.

The US had our cultural revolution back in the '60s and early '70s when the population was much younger (~28) due to an unusual demographic bubble. The demographics of the US today would suggest to me that violent political revolution is exceptionally improbable, despite the incessant squabbling of our political class.

Not to mention that our cultural and economic geography has changed tremendously since the mid-19th century, The US is far more culturally, economically, and politically integrated than it was in the 1850s. We are bound together by a powerful federal government, national media (radio, TV, movies, internet), a high degree of state-to-state mobility, the interstate highway system, national rail systems, national chain stores, regional power grids, national banks, etc., etc., etc.

Of course, much of this integration is thanks to cheap energy and other abundant natural resources. As those diminish we'll likely see a disintegration of the United States that will eventually result in the dissolution of the union. But this will take many decades, centuries perhaps. And I wouldn't count on the dissolution being the result of a violent revolution. Not that we'll be able to find out, we'll all be long dead when it happens.

As for Europe, I don't know the details about their situation, so I can't say. I've been to Europe a few times, they are divided much more strikingly along ethno-linguistic lines than the US is. And the EU is a much looser political structure than the US fedgov. It wouldn't surprise me to see the EU dissolve, but I doubt very much it will result in bloodshed.

Here's a map to ponder:

Youth (15-24) Population Shares of Total Population in 2010

[Keith_McClary]

In other UBS news:
Rogue trader suspected in $2 billion loss at UBS

One man armed with only a computer terminal humbled a venerable banking institution yet again. This time it was Swiss powerhouse UBS, which said Thursday that it had lost roughly $2 billion because of a renegade trader.
...
UBS is struggling to restore its reputation after heavy losses from subprime mortgages and an embarrassing U.S. tax evasion case that blew a hole in Switzerland's storied tradition of banking secrecy. UBS took a $60 billion bailout from the Swiss government in 2008.

[Outcast_Searcher]

In other UBS news:
Rogue trader suspected in $2 billion loss at UBS

One man armed with only a computer terminal humbled a venerable banking institution yet again. This time it was Swiss powerhouse UBS, which said Thursday that it had lost roughly $2 billion because of a renegade trader.
...
UBS is struggling to restore its reputation after heavy losses from subprime mortgages and an embarrassing U.S. tax evasion case that blew a hole in Switzerland's storied tradition of banking secrecy. UBS took a $60 billion bailout from the Swiss government in 2008.

This stuff just KILLS me. Google search on "rogue trader losses history" yields: http://en.wikipedia.org/wiki/List_of_trading_losses

Reminds me of a favorite "Futurama" episode, where Amy, the cute but dumb chick keeps trying to let the Zoidberg (giant lobster) character out of his claw-controlling rubber bands when he is going beserk. In the background, you see much of the crew with bodies and/or clothing mangled from claw marks, and Amy says "Fool me 7 times, shame on YOU. Fool me 8 times, same on ME." And THEN tries to let Zoidberg loose AGAIN!

This list shows FORTY SEVEN incidents. What is the management of such firms THINKING (if they're not blatant crooks)?

At IBM, you had to have management signatures to spend a NICKEL.

I worked on a software system where we billed about $80 million a month in service contracts. Before the bills could be sent, there was an entire DEPARTMENT that carefully reviewed complex reports analyzing the billing trends several different ways. This prevented big billing errors, software problems, and FRAUD.

OTOH by ACCIDENT while pursuing a software bug, I caught some employee billing IBM repeatedly for $400 hammers. He was a customer engineer -- who fixed things like typewriters. (I am NOT making this up). LOTS of such hammers. Several years. I suggested someone "with authority look into this". The guy was fired for fraud, and (as I recall) IBM sued him. This was in the latter 80's.

So, it's not like the technology doesn't exist to at least TRY and catch this stuff with multiple methods with $BILLIONS on the line.

So, I conclude it HAS to be massive fraud. Government won't fix that, since fraud is rampant in government.

[NickyBoy]

I write financial software. There are barriers, limits and risk management systems in place that are supposed to prevent people making trades such as the one at UBS. In the UBS case specifically there would have been a "front office" that initiates the trades and a "back office" that uses automated systems to check those trades, all linked by software of the type that I code. This software has bugs - always has, always will.

The software that I personally work on has had over 17 years to mature (in all its various versions) and even today we find holes in the protection that will allow a rogue trader to abuse the system all by his lonesome.

You will notice that those trades are spread across different companies, different countries and are spread across almost 40 years. Each company will have its own flavour of software to prevent trades like this. Each country will have its own set of regulations that specify the level of protection the software must attempt to maintain. These specifics (and the software that enforces them) will vary not just from company to company and country to country but also from decade to decade.

The management of these firms will not have a clue how these systems actually work (this is unsurprising - I am an 'expert' and have to spend a significant amount of time staying on top of this) and all the legislature of every Government in the world combined is not going to be enough to prevent bugs in the simplest piece of financial software.

Thinking that this is due to some consipiracy is rather amusing tinfoil-hattery. Never underestimate the resourcefulness of a desperate user who has made a mistake and needs to cover it up. Never overestimate the security and integrity of software - there are always holes. The system I work on is considered to be very secure and in the last 6 months I closed three holes that would allow rogue financial transactions to take place.

[evilgenius]

What does this portend for the USA? After all, it is a Union of 50 states and certainly this unstable, unsustainable, predatory debt based monetary system instituted in 1913 with the Federal Reserve Act, is nearing a terminal stage where either the banking system will collapse, wholesale wiping out checking and savings account balances of the public creating a massive deflation, or somehow those in power will manage to do the opposite in a desperate attempt to keep the shell game going and hyper-inflate the money supply, wiping out its purchasing power over a short period of time. In either case, the end result of a monetary system where banks create money out of thin air and loan it into existence, collecting interest, is first inflation and transfer of wealth from the majority to the bankers, followed by the inevitable revolt of we peasants; what more would you expect when those in power have picked us dry.

We already are a Union divided in our values, and this division likely will become more intense as economic conditions worsen. The thin veneer of civility can easily be stripped away under the pressure of scarcity for the majority the present system of plunder and control creates.

If you read the analysis in "The Fourth Turning" we are already destined to a violent resolution of the current crisis period in a fashion similar to the American Revolution, the Civil War or WWII, right on schedule around 2020 (1775, 1861, 1941, and 2020??? for a repeating cycle).

Isn't nature creative; she provided us with methods of self purging population excesses -- war, revolution, and civil war. And for those of you enamored with wealth redistribution, that will follow also, with the direction of that redistribution to be determined by whether those currently in power remain so, or whether they meet Madame Guillotine. The next decade or two should be interesting for the survivors.

To carry on your 'Fourth Turning' theme, I say there will be war, but not imperial skirmishes into places like Afghanistan or Iraq. I think grand scheme or 'grand game' warfare like what drove WWII is in our future. Look how the German's strategy was to come at the known oil producing region in Baku from both the south, via Africa, and the north, ending at Stalingrad. Or how the Japanese, realizing their initial weakness sought to gain an advantage they hoped would last in a first strike.

It is fashionable today to conveniently forget how many nuclear weapons are out there and who has them. In a technological situation which rather quickly renders land warfare into a stalemate, not unlike the technological situation pre-WWI, the logical thing to consider is the next level up. This has dire implications for the world should we enter a new grand game.

[Keith_McClary]

I write financial software.
...
The management of these firms will not have a clue how these systems actually work (this is unsurprising - I am an 'expert' and have to spend a significant amount of time staying on top of this) and all the legislature of every Government in the world combined is not going to be enough to prevent bugs in the simplest piece of financial software.

The Governments have even less of a clue how the financial system works, much less how the software works. Does UBS have a clue about the likelihood of dictatorship or civil war?

[Cloud9]

The feel I get from Rome to Paris having spent a considerable amount of time talking to cab drivers and bar tenders is that there is a vitriolic hatred of Gypsies and North Africans. If push really comes to shove, ethnic cleansing will rear its ugly head again. I think you youngsters are living in a very dangerous century.