A good read and a subtle point

First I would urge all readers of this blog to go and read the latest blog entry put by Michael Pettis, in which he deals with the myth of the catastrophic scenario of China stopping their aquisition of Treasury paper. This is nothing new, but very well presented in a simple manner. Here is the link:

Foreign capital, go home!

I would like also to make a point about this whole idea of introducing an EU wide Tobin-style tax. There are two very important issues we are dealing with here:

First a Tobin-style tax has important effects on the flows of capital not only within a monetary entity but also on the inflows and outflows and as a result on the Fx markets. The adoption of such an EU wide tax would amount to trade protectionism by monetary means. We have to see the exact stipulations concerning this tax to be able to understand the strength of the new protectionist barriers of Europe.

In a way, this idea would make sense, because when fiscal union will be achieved, EU needs protection from predatory protectionism and aggressive internal leverage if there are any expectation to see such an imperfect union survive. The devil is in the details.

The second observation I want to make is that in a lose federal model, the Euro space does not need to have a full fiscal union in order to have the eurobond train started.

As I've said before, right now we don't have one EURO but a fiat currency Bretton Woods style agreement in which a bunch of individual fiat currencies of Europe are given all the same name, and by an artificial convention and monetary intervention those Euro currency (all having the same name in a very misleading way) are kept at a rigid conversion rate of 1:1

However any currency needs to be issued under the authority of a government (or government type structure) and has to have granted status for all debt clearing and especially taxation debt clearing. This issue is very important because any medium of exchange in order to become a true currency has to represent an instrument for payment of taxes. Without a tax denominated specifically in a currency we cannot talk about a real currency.

As a result this EU Tobin-style tax is a stepping stone towards a fiscal union realized in stealth. The whole trick is to have one single EU wide tax (financial transactions, carbon credits, or whatever can be sold to the masses and accepted as a general EU tax) than reference this tax and collect the fiscal inflows into a supranational entity or institution that can issue debt or insure the risk of individual national debt denominated in EUR.

If they do this and at the same time Germany and France get medieval on the PIIGS to enforce the fiscal and budget deficit discipline, there will be a fiscal union and European Union will become a true supranational empire.

Repeat this tax does not have to go directly to an institution which issued debt (like the ECB). It may be as subtle as an entity which insures debt on sovereign bond risk, like some sort of European super FDIC. It will still do the trick.

By the time the europroles are going to figure out that the idea to have a small tax to make the problem of the PIIGS go away has resulted into a new form of slavery it will be too late.

If the Euro banksters succeed in pulling this scam out in plain view,... well, what can I say ? Europeans deserve their faith, because stupidity and ignorance are always costly.