Humans are by nature somewhat myopic. We tend to focus primarily on what is right in front of us and filter out things further removed. As a result, we can sometimes overlook important factors.
As Americans, we generally devote most of our attention on American policy. We follow political maneuverings in Washington D.C., study the Fed’s most recent pronouncements and track the US stock markets. But we also need to remember there is a whole wide world out there that can have a major impact on the larger economy and our investment portfolio.
One factor that could potentially rock the world economy that a lot of American may not be aware of is the mess in the European banking system.
In a recent podcast, Peter Schiff talked about the impact the European Central Bank could have on the economy. Mario Draghi’s comments indicating he plans to hold interest rates at zero for another year roiled the markets. But that’s not the only issue facing the eurozone. As economist Dr. Thorsten Polleit noted in a recent article published by the Mises Wire, many euro banks are in “lousy” shape.
So what? you might ask. Well, the European banking system is huge. It accounts for 268% of gross domestic product (GDP) in the euro area. If the sector collapses, that’s bad news for the broader world economy.
One of the biggest problem children in European banking is Deutsche Bank. As of March 2018, the German giant had a balance sheet of close to 1.5 trillion euro, accounting for about 45% of German GDP. Polliet described this as an “enormous, frightening dimension.”
Beware of big banks — this is what we could learn from the latest financial and economic crises 2008/2009. Big banks have the potential to take an entire economy hostage: When they get into trouble, they can drag everything down with them, especially the innocent bystanders – taxpayers and, if and when the central banks decide to bail them out, those holding fiat money and fixed income securities denominated in fiat money.”
Polleit identifies two primary banking risks – liquidity risk and solvency risk.
Central banks work behind the scenes to mitigate these risks. How? Basically by printing money.
This is what sets a truly vicious circle into motion. For today’s fiat money causes booms which sooner or later must turn into a bust. The liquidity risk and especially the insolvency risk can be expected to hit the banking industry at some point. To prevent it from materializing, the central bank must keep expanding the quantity of (base) money and keep interest rates at artificially low levels, keeping the inflationary scheme going.
Central banks sow the seeds of crisis, and once the crisis unfolds, especially when it affects banks negatively, central banks run bailouts by injecting new money provided at artificially low interest rates, and the vicious cycle starts all over again. Needless to say that such a cycle causes economic and social problems on a grand scale. It makes the purchasing power of money drop. Only a few benefit, while the majority of the people is taken advantage of.
Given the problems of the euro area banking industry, we should indeed wonder what might happen next. The scenario that the euro area economies might grow out of their banking problems would undoubtedly be a rather convenient one, but it is fairly unlikely. Bailing out ailing banks with taxpayers’ money and an inflation-financed recapitalization of banks’ equity capital might be a much less pleasant scenario, but it appears to be more likely.
For one thing is indisputable: If an oversized banking apparatus starts to shrink, the outstanding stock of credit and money will decline. And as the quantity of money goes down, prices across the board trend downwards causing deflation. Needless to say that deflation is a nightmare for highly indebted economies: Falling prices increase the real debt burden, sending the financial and economic system into a cataclysmic downward spiral.
The European Union wants to tax citizens who criticize mainstream media outlets and politicians online, according to a new law being proposed as part of an internet "free speech crackdown."
Today, unelected EU lawmakers will vote on a proposed Copyright Reform law - including Article 11 (the “link tax”) - that will force “force anyone using snippets of journalistic online content to get a license for the publisher first — essentially outlawing current business models of most aggregators and news apps.”
Article 11 will outlaw the fair use reporting of news articles, such as this one your reading now.
Even critics warn that vagueness of Article 11 could ban websites like Drudge Report from linking to new articles.
Article 11’s link tax allows news sites to decide who gets to link to them, meaning that they can exclude their critics.
With election cycles dominated by hoaxes and fake news, the right of a news publisher to decide who gets to criticize it is carte blanche to lie and spin.
“That will end (it) for me – fine – I’ve had a hell of a run,” said Drudge, warning web users were being forced into the Internet “ghettos” of Twitter, Facebook and Instagram.
“This is ghetto, this is corporate, they’re taking your energy and you’re getting nothing in return – nothing!”
So far, the focus in the debate has been on the intended consequences of the proposals: the idea that a certain amount of free expression and competition must be sacrificed to enable rightsholders to force Google and Facebook to share their profits.
But the unintended -- and utterly foreseeable -- consequences are even more important. Article 11's link tax allows news sites to decide who gets to link to them, meaning that they can exclude their critics.
Article 13's copyright filters are even more vulnerable to attack: the proposals contain no penalties for false claims of copyright ownership, but they do mandate that the filters must accept copyright claims in bulk, allowing rightsholders to upload millions of works at once in order to claim their copyright and prevent anyone from posting them.
The obvious one is that trolls might sow mischief by uploading millions of works they don't hold the copyright to, in order to prevent others from quoting them: the works of Shakespeare, say, or everything ever posted to Wikipedia, or my novels, or your family photos
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