Financial Markets – – – How Politics Affects Markets

One needs to understand that politics and markets always interact. Second, great economists such as Ricardo and Adam Smith knew this over a hundred years ago. They never used the term “economics” by itself but always in conjunction with “politics”. For this reason, they called their treatises, “Political Economy”. I use the definition that Economics is the study of man in his everyday life which includes political life. Also, the Greeks noted that man is inherently a “political” animal. As a result, it follows that there has never been a market independent of politics since a business entity like the corporation was invented. Second, politics and economics are both human endeavors and both have a degree of predictability.
The European Union was created for political reasons. After WWII, Germany’s manufacturing productive capacity was far beyond their ability to consume everything in their own market. They needed expanded markets. They wanted to expand into Europe and barriers to “free trade” threatened their interests. As a result, the creation of a free trade zone in Europe was fundamental for their expansion. The more nations in that free trade zone, the more Germany could expand.
Germany helped create the EU policies and did so in a manner that was favorable to Germany. These policies include employment, environment, the European Central Bank, trade policies that favored Germany and “bail ins” to protect their loans to other sovereign nations of Europe when they became unable to pay their loans. Merkel’s policies are formulated to make certain that the free trade zone remains intact; policies that minimize the cost to Germany by shifting the cost of unpaid debt to other nations; policies that convince Germans that she would not permit Southern Europeans to take advantage of Germans; and policies to hide the fact that Germans had flooded the markets with trade goods and were hiding behind regulations to protect their markets. The net result will be that upon the enactment of austerity programs, German bankers will be dispatched to the EU “sovereign nations” to ensure that German loans are repaid; and then it is likely that the German G-SIFI banks will seize assets in these same EU “sovereign nations” to ensure that they remain solvent.
This author believes that the behind the scenes politics of the G20 strategy for “bail ins” is in fact a collusive theft strategy between sovereign nation politicians and bankers to ensure that the politicians remain in office and that the bankers get repaid. History will demonstrate whether this strong statement is true.

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