The Market and the Distribution of Wealth

by Ludwig M. Lachmann

Everywhere today in the free world we find the opponents of the market economy at a loss for plausible arguments. Of late the "case for central planning" has shed much of its erstwhile luster. We have had too much experience of it. The facts of the last 40 years are too eloquent.
Who can now doubt that, as Professor Mises pointed out 30 years ago, every intervention by a political authority entails a further intervention to prevent the inevitable economic repercussions of the first step from taking place? Who will deny that a command economy requires an atmosphere of inflation to operate at all, and who today does not know the baneful effects of "controlled inflation?" Even though some economists have now invented the eulogistic term "secular inflation" in order to describe the permanent inflation we all know so well, it is unlikely that anyone is deceived. It did not really require the recent German example to demonstrate to us that a market economy will create order out of "administratively controlled" chaos even in the most unfavorable circumstances.

Euro-Land Banks In Trouble

by Tyler Durden

A Record Amount of Bad Loans

A recent study by Ernst & Young has revealed that euro-land banks in the aggregate now hold € 918 billion ($1.23 trn.) in non-performing loans (7.6% of all loans outstanding). E&Y sees about 15.5% of all loans in Spain and 10.2% of all loans in Italy as likely to be in NPL status (this exceeds the most recent official numbers somewhat).
In light of such staggering numbers, the idea to use the ESM for direct bank recapitalization seems somewhat ambitious. This is especially so as the idea to employ the ESM to take over the costs of already bailed out banks is being pushed by a number of euro area members. No doubt Ireland and Spain would be happy to see that (in fact, Spain is already the 'exception' as the ESM is potentially on the hook for € 100 billion for its banks – but this is structured as a loan to Spain's government, not a direct bank bailout).
The problem is that if the ESM wants to retain its AAA rating, it will have to back any financing it obtains from the markets with far higher guarantees if it rescues banks rather than governments. Given that what has been pumped into ailing euro-zone banks to date already amounts to €300 billion,  its official capacity could be quickly exceeded if these existing bailout commitments were taken over by it.

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Taxpayer-funded bank rescues in the euro area so far – the total already amounts to €300 billion, and that is not counting what might be used to bail out Cypriot banks and what may still be required in Italy and Spain (chart via Die Welt).

What gives money value, and is fractional-reserve banking fraud?

By Detlev Schlichter

I thought I should address a couple of points that I consider to be misconceptions and that frequently come up in discussions with the audience or other speakers when I present my views on the fundamental problems with fiat money. I am not always in a position to correct these misconceptions right then. They are often woven into questions on other points and I have to leave them uncommented so as not to disrupt the flow of the debate. My book is, I believe, quite clear on these points, so I could simply refer people to Paper Money Collapse. But, for whatever reason, it is still the case that many in my audience make inferences from similar arguments to my own, and I fear that some of the differences between these positions might get overlooked. These differences are not unimportant, and I think it is worthwhile to highlight and clarify them.
The first point is related to the question what gives money its value? The second point is the question of whether fractional-reserve banking is fraudulent, and should be banned on the basis of property rights.
Let’s first restate the central premise of Paper Money Collapse. The main message is that today’s mainstream views on money are flawed. The most important difference between commodity money, such as a proper gold standard, and ‘paper money’,

Labor Minister Says France Is "Totally Bankrupt"

by Tyler Durden

Things in France must not be very serious, because the French labor minister accidentally let the truth come out a little earlier today. As the Telegraph reports, France's labour minister sent the country into a state of shock on Monday after he described the nation as “totally bankrupt."

Remember: France is one of the supposedly stable countries in Europe.

"Michel Sapin made the gaffe in a radio interview, which left French President Francois Hollande battling to undo the potential reputational damage. "There is a state but it is a totally bankrupt state,” Mr Sapin said. “That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective." It appears that once one wipes out the propaganda and the smooth politico talk, things are bad and getting worse at Europe's core. "Data from Banque de France showed earlier this month that a flight of capital has already left the country amid concerns that France’s Socialist leader intends to soak the rich and businesses. The actor Gérard Depardieu has renounced his French citizenship and decamped to Russia in protest, while David Cameron said Britain will “roll out the red carpet” to attract wealthy individuals. Pierre Moscovici, the finance minister, said the comments by Mr Sapin were “inappropriate”."