But here’s the thing. Do you care to guess how much J&J lost thanks to that currency movement? Answer: a cool hundred million dollars. Johnson is a pretty large company, but even so. To lose a hundred million bucks? In Venezuela? That sounds a little disturbing, no? A bit like the start of one of those killer-virus horror flick, where the pretty teenager who comes down with a benign little illness ends up dying horribly as some unknown disease takes hold.

Central Planners Bernanke, Draghi & Merkel Hard at Work

Well, that is now the reality of the world economy. The loose money policies at the world’s leading central banks are beginning to broadcast that virus right across the globe. The vector of transmission isn’t just low interest rates. It’s money printing too. It’s the purchase of government bonds so that the long end of the yield curve is as manipulated as the low end.

Indeed, you simply can’t set a bound on how widespread and intensive the destruction of value has been, not merely in the U.S., but across the globe. Take, for example, the Fed’s willingness to purchase toxic real estate assets — using your money to acquire securities which are now shunned by the market. Or take the Bank of England’s efforts to shove easy money at banks making corporate loans. What happened to good old-fashioned faith in markets? The belief that transactions of commercial merit will be struck between a willing buyer and a willing seller … and that any other sort of transaction should be strongly discouraged?

The simple fact is that the world’s major central banks are indulging in a massive proprietary trading scheme placing your money at risk in support of poor quality assets. When I wrote Planet Ponzi, I argued that Wall Street and government between them had created the world’s biggest ever Ponzi scheme. Well, the central banks want to play at that table too — and right now they’re the ones with unlimited money and zero accountability.

In recent months, the Japanese yen has plummeted 30 percent against the euro and some 20 percentagainst the U.S. dollar. Those figures are astounding enough in themselves, but get this: The euro currency probably won’t even exist in a few years’ time. The outcome of the Italian election gave a more than quarter of the vote to a comedian, Beppe Grillo. (He is literally a comedian; I’m not just using the term as a synonym for “Italian politician.”) Grillo wants to exit the euro and default on Italian debt. Other parties shared nearly all the remainder of the vote. The only politician to stand four-square behind Angela Merkel’s austerity ad infinitum plan was Mario Monti, who secured just one tenth of the vote.

Grillo’s plan, as it happens, isn’t dumb. The euro has been killing Italy, and though Italian debts are high, they are, for the most part, funded domestically and the national budget is not far from being in balance. So Grillo’s plan keeps it simple: quit the euro, self-fund the debt, go back to doing what Italian governments have always done. If that sounds nuts, bear in mind that Italy’s economy has been a post-war miracle — growing way faster than the U.S. economy, albeit from a lower base. Italy only really started to fail when it joined the euro: Meaningful growth has been absent ever since. Italy’s competitiveness — never so secure — has been systematically wiped out by its adventure with the euro.

If Italy follows a path that’s anything like the one Grillo has mapped out for it — or if civic unrest grows — or if some European bank found itself obliged to admit to the true value of some whole new pile of nasties on its balance sheet — then the euro is dead; but this is the currency against which the yen is devaluing.

The precise path of these currency wars is impossible to predict, but it’s not hard to predict the final outcome. First, there will be huge losses. Japan has an economy that’s almost twenty times larger than Venezuela’s. If Johnson & Johnson can lose $100 million in Venezuela, just how much more will be lost in the Far East and Europe, not just by that one company but by every other multinational one too?

Spain's civil disorder - A coup d'état in the air? Euro departure?

Secondly, civil unrest. We’ve seen bouts of unrest already surging across the world — from riots in Greece, to the Occupy movement, to the indignados in Spain — but these things are only going to get worse. Suppose, for example, that Italy does successfully quit the euro; what will that say to the Spaniards and Greeks and Portuguese and Irish who are currently suffering its death throes?

And thirdly: inflation. The trouble with currency wars is that they’re too easy to wage. You just have to print money. The mainstream media barely reports the ongoing activity and the Fed is either in denial or lying. It all sounds a little technical and dull. We assume that the people in charge of looking after our money supply are on our side, that they have our interests at heart.

But do they? Again and again, we see that central banks make the error of equating happy financial markets with strong economies — precisely the mistake that was made by central banks ever since the dot-com crash (and, indeed, before.) Here’s the simple truth. Financial markets prefer excessive valuations and excessive liquidity. Sure, they love it if the Fed prints a ton of new money. Obese kids would probably like it if McDonald’s gave away their stuff for free on street corners.

But the interests of Wall Street are not your interests. Global stock markets are making new record highs — on what? What’s so great about the world economy? The truth is that stock markets are up because of Fed-based ‘hopium’: the torrents of cash artificially manipulating prices. Yet whatever goes up must come down and no one at the Fed even pretends to have an exit strategy. The simple fact is that the Fed has created the mother of all asset bubbles, and the popping will be on a scale previously unknown.

Indeed, you only have to look at the personnel in key positions across the globe to understand how deeply Wall Street has penetrated institutions that were meant to be there for us.

Jon Corzine - What happened to MF Global's missing Billions? Who said there is no revolving door between Wall Street and Washington?

Mario Draghi, head of the European Central Bank is an ex-Goldman guy. So is William Dudley President of the New York Fed — who controls the FOMC. So is Mark Carney, soon to be Governor of the Bank of England, currently the Governor of the Bank of Canada as well as the Head of the Financial Stability Board in Switzerland. When you start to add in key politicians with affiliations to the same institution (Mario Monti, Hank Paulson, Robert Rubin, Gary Gensler, Jon Corzine), you start to realize that our entire political system has become heavily conflicted and corrupted. The interests of Wall Street have come to dominate the interests of ordinary citizens.

All Ponzi schemes must come to an end. They always bring disaster when they do — but that’s no reason to close them down, because the collapse only gets bigger the longer you leave them. We are in the end stages of a huge, global Ponzi scheme right now. The losses are rising, the risks are getting greater. And the worst disasters lie ahead.

Over the coming weeks, we’re going to be hearing a lot about the ‘fiscal cliff’: the threat that some 5% of GDP is going to be ripped out of the economy in a combination of tax hikes and spending cuts. A fiscal slow-down on that scale will almost certainly trigger recession. The CBO thinks so, though their numbers look optimistic to me. (If you cut demand by 5%, more or less overnight, then you shouldn’t expect the economy to grow by more than 1% in the year following.)

The Feds solution to debt: more debt

Because the process of fiscal compromise acts itself out on the political stage – all big personalities and high drama – the media loves to report it. Loves to imply that vast questions are at stake, that political careers will stand or fall by the outcome.

But they’re not. Not really. This so-called ‘cliff’ is really just the first in a series of steps. The US budget is arguably the most distorted in the Western world. Greece and Japan may have higher debts, Italy and Portugal may have worse growth prospects – but for sheer budgetary insanity, the US is probably the world leader, combining huge current deficits with vast unfunded promises to retirees, and welfare entitlement program recipients. You don’t need to take my word for this. The IMF states, ‘under our baseline scenario, a full elimination of the fiscal and generational imbalances would require all taxes to go up and all transfers to be cut immediately and permanently by 35 percent. A delay in the adjustment makes it more costly.’

The political ructions of the next few weeks will simply constitute the first scenes in a drama that will run for the next ten or fifteen years. And what’s more, this is a play where we already know the ending. Taxes will have to go up. Spending will have to come down. No other outcome is available: just ask the Greeks.

And meantime, there is a monetary time-bomb charged and ticking. A bomb which is being constantly primed with further explosive, further destructive force. Remember that the economic catastrophe of 2008 was created by loose monetary policy, the indisciplined expansion of credit and a market where increasingly shoddy securities were sold as investment grade assets. You might think that a logical reaction would be the steady tightening of policy and encouraging a climate of credit discipline.

Alas, however, such logic has no place at the Fed. Interest rates are on the floor, and have been for four years now. Because four years of loose money isn’t enough for the ivory-tower academics in charge of monetary policy, the Fed has explicitly committed to keep rates low indefinitely.

Loose money in the past, loose money guaranteed into the future … but that’s still not enough. The Fed has enlarged its balance sheet by $2 trillion since the crisis began to unfold. But that doesn’t even say it. The unelected officials at the Fed handed out an extraordinary $16 trillion in secret loans to bail out banks and businesses in the 2008-10 period. Those loans were not known to, or authorized by, Congress and many of the recipients were firms owned and headquarter abroad. Sen. Bernie Sanders, who has much to call attention to these issues, comments, ‘No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president.’ Well, duh! It’s frankly extraordinary that there should be any question about this.

As Sanders also points out, the actual operation of the bailouts was largely outsourced in large part to investment banking firms on Wall Street who benefitted directly from the bailout. According to the Government Accountability Office, some two-thirds of such outsourcing contracts were awarded on a no-bid basis, an extraordinary failure. And meantime in a ‘money-laundering‘ style operation, the Fed is acquiring $40 billion of low-quality mortgage backed securities – in many cases from the firms that created and missold them – thereby cleaning corrupt balance sheets at the risk of the US taxpayer.

The problems created by this unconstitutional misconduct go far beyond the mere trillions of dollars involved. The US Treasury market is being currently manipulated on a heroic scale. At times we’ve seen the Fed buying as much as 70% of US government bond issuance. Worse still, it’s effectively told the market that it intends to continue supporting the market as much as necessary for as long as necessary. In effect, we have a tiny group of unelected officials pursuing a set of radical and experimental policies – QE infinity, money-printing, unlimited bond buying, call it what you will.

The impact of money printing and the value of the US dollar

And the theory behind this activity is simply crazy. When have price controls and state intervention ever worked? I don’t just mean for the US Treasuries market, but for any major market at any time? State intervention always fails. The Fed is simply setting up what looks set to be the largest Ponzi Scheme in history.

What’s more, because financial markets are interlinked, indiscipline in one market soon ripples through the system and unintended consequences impact many other markets. Wall Street traders, both currently and historically, price junk bonds off the US ten year treasury, which currently trades at an implausible 1.61%. But since the US Treasury market is flawed, every related market is too. As the Economist notes, a bubble is being inflated in government bonds, quality corporate bonds, junk bonds, and (I would add) global equities. As that newspaper comments, ‘When the market does turn everyone will want to head for the exit at once, as was the case with mortgage-related bonds in 2007. That might turn a retreat into a rout.’ I’d agree, except that the word might ought to be will.

The Feds exit strategy: Pray

And all this wouldn’t be so bad, except for one thing. What’s the exit strategy? Could it be hope-based by any chance? How do you climb down from these heights? Who will buy these bonds when the Fed stops? Who absorbs the losses? What exactly happens to the economy when interest rates normalize and bond prices collapse back to normal levels? Indeed, what happens to the banks when they can no longer sell their lousy assets to the Fed, can’t bump up their profits by selling no-bid services to the dumbest buyer in town? Too big to fail is still getting bigger.

The fiscal cliff is scary, because an abrupt one-off change in fiscal posture is a dumb way to do something that needs doing. But still, it needs doing. If a temporary economic slowdown is the price we pay for that, too bad. We’ll still be in better shape for taking the hit.

The monetary neutron bomb is worse. We’re still building it. No one’s talking about it. And the amounts are colossal.

Four More Years

Obama’s an accomplished individual. Smart, cool, in control. But his standout quality is probably his ability to create euphoria. Create it, sustain it, ride it. Watch the people celebrating with him at his victory rally in Chicago and you could easily believe that the USA had just won a war or beaten a recession.

Unfortunately for Obama, reality doesn’t have much time for speeches. The economy was dire going into the election. Coming out of it, you can almost hear the engine failing.

Let’s take the first indicator of failure – the stock market. The market mood darkened in September and October, then dropped abruptly as news of Obama’s victory sank in. I don’t actually think that’s because Wall Street hates Obama. I think it’s more that as the election hoopla dies away, investors realise how little they can expect from the government, how bad the economic situation really is. And, for that matter, how bad the political situation is. The House remains solidly Republican, the Senate comfortably Democrat – and the whole divisive status quo guaranteeing gridlock for another four years.

Over the next few weeks, you’re going to hear a lot about the fiscal cliff. In January 2013, a whole lot of things happen together. George W. Bush’s tax cuts expire. A payroll credit expires too. Some automatic spending cuts are imposed across the board. (These last cuts, of course, aren’t thanks to some outbreak of sanity in Washington, but a bad compromise cobbled together in the course of 2011’s debt ceiling crisis.)

The fiscal cliff is huge, and real. Its impact is potentially around 5% of American GDP. By contrast, George Osborne’s fiscal tightening amounts to little more than 1% a year. If you want to get your head round what a comparable tightening would imply in the British context, then just imagine that the basic rate of tax increases by 10 pence in the pound overnight. Or that spending in the NHS is halved, again overnight.

No economy is strong enough to take that kind of punishment. The British economy is struggling to come out of a double-dip recession even with its own weak-as-milk pace of tightening – and, indeed, I think a triple-dip recession is highly probable. The fundamentals of the US economy are in some ways better than ours (less reliance on the finance sector, less proximity to European travails) but a 5% cut in economic demand overnight? The result will be crippling.

Although the US jobless rate has improved slightly in recent months, that’s only because dispirited workers have left the jobs market altogether. The US employment rate is a horror story. Piling a massive fiscal shop on top of those weak fundamentals, and you’re going to see a massive rise in unemployment. (If you look at U6 unemployment data for the US it’s hovering close to 15%, a shocking stat.)

You might think that the solution is obvious. If the fiscal cliff is so bad, then simply decrease the slope. Go for a slow-but-sure Osborne-style tightening so the budget deficit floats gently lower. And sure enough, there are plenty of economists, living comfortably in their ivory towers, who suggest just such a solution.

But that solution is not available. The IMF – hardly a sensationalist organisation – says that the elimination of America’s long run fiscal gap requires both a 35% increase in all taxes and a 35% cut in all entitlements. The fiscal gap is heinous, but it’s only the first step. It doesn’t even take America where it needs to go.

It gets worse. If fiscal policy can’t save America, how about monetary policy? Alas, and just like in Britain, monetary policy is all out of gas. Interest rates can’t go any lower. quantitative easing (QE) has reached its limits. (And, in any case, QE is little more than a way to rescue Wall Street at the cost of inflation for the rest of us.) The worst thing that could happen to America is that Ben Bernanke, the unelected Chairman of the Federal Reserve, tries to rescue things. The best thing that could happen is that he goes on holiday for four years, having left his Blackberry in the office.

The Princeton Professors Economic Experiment

In short, America’s problems are profound and there is no way to deal with them except one that imposes huge short-term costs on the economy and the people. I don’t think it’ll get quite as bad as it has done in Greece – the US economy has a lot, lot more about it than that – but most of the pain still lies ahead.

And in matters of finance, everything is circular. So the government needs to raise taxes and slash spending to sort out its debt problems. The result: a huge reduction in demand and heavy job losses. The result: countless homeowners being unable to service their mortgages and a huge rise in ‘jingle mail’, as homeowners send their house keys to the foreclosing banks. The result: an already weakened banking system sinking further under a tide of ill-advised boom era lending. And of course, as all this happens, the economy will shrink, which means that the US government has to slash spending yet further in a desperate effort to keep its deficit reduction efforts on track.

These words might seem apocalyptic, but I’ve been saying these things for a while. (My book, Planet Ponzi, has the whole story, and it’s out in paperback now.) What’s more, we’ve already seen disaster scenarios such as these come true in well-managed countries of the developed West. Spain had a much lower debt to GDP ratio than the US. It had better supervised banks and less casino-banking. But we all know the state that Spain is in: a death-spiral that even Germany may not be able to help with.

And the signs are everywhere in America. Go-go stocks have lost their lustre. Facebook trades at little more than half its IPO price. Apple, for so long a do-no-wrong stock market darling, is down more than 20% from its recent highs. Businesses are hoarding cash, because they don’t dare invest it, don’t dare return it to shareholders.

I don’t suppose Mitt Romney thinks of it like this, but you could argue that the 2012 election was a heck of a good one to lose. America has outrun financial reality for decades now. Debt-fuelled, government-funded. The future bought on the never-never.

But the debts are falling due. Reality is knocking at the door. And the fiscal cliff is only the start.

Those same finance ministers are also set to approve a year’s delay in the deadline given to Spain for reaching a budget deficit of 3% of GDP. That won’t, of course, be the last bailout for Spain and, please note, a budget deficit of 3% is still pushing debt ever upwards in acountry whose economy is getting smaller not bigger.

Unsurprisingly, government bond markets have once again been wildly unimpressed. Spanish bond yields briefly touched 7% today, before falling back. Given that Spanish debt (according to the misleading official figures) is around 7% of GDP and rising fast, interest rates at this level mean that about 5 cents in every euro are going to pay the interest on that debt.

The costs of euro collapse will be huge, but those costs are coming anyway. And they only get bigger the longer you defer the moment of truth

Put another way, Spaniards have to work about three weeks a year, simply to pay off the interest they owe on the national debt. No wonder their economy is failing under the weight of that burden. No wonder unemployment is so extravagantly high.

It’s time to end this massive Ponzi Scheme. If the problem is too much debt, you don’t solve the problem by extending more debt. If the problem is banks with irresponsibly reckless lending practices, the solution is not to “gift” them more money. If the problem is a wildly uncontrolled money supply, you don’t solve that problem by printing money until the presses are smoking hot.

A Ponzi Scheme is any merry-go-round fraud where you have to keep pulling new idiots into your scheme to keep things going. It’s the economics of the chain-letter. People can sometimes make money, but only if the supply of idiots is big enough. These things always collapse – and collapse disastrously – in the end.

We’re near that point now. Spain can’t receive a Greek-style bailout: all the EU rescue funds combined don’t have the resources to do it. Even if Germany decided to do all it could, the scale of these debts would simply overwhelm Germany’s (already very indebted) economy. In any case, if the fairies came and Spain were rescued, the pressure on Italy would soon become almost overwhelming. And though France hasn’t been hitting the headlines recently, it has higher debt than Spain, a history of deficits and a huge banking sector with vast exposure to Spain, Italy and Greece.

So why not let’s just call it a day? For Spain. For Italy. For the Euro. For this whole misconceived and duplicitous Ponzi Scheme. The costs of euro collapse will be huge, but those costs are coming anyway. And they only get bigger the longer you defer the moment of truth.

David Cameron wants to hold a referendum on Europe sometime after the next election. But he’d better get on with it. Europe, in its current form, doesn’t have that long to live.

I published this in the Daily Mail.

But although the horizons are red with fire and every new day brings news and rumours of further catastrophe, you need to realise that we’re on the brink of something bad. We’re not actually in it.

So what comes next? It’s a question that you may reasonably ask (worried about job, savings, wages, inflation). But it’s also the question which is being asked across Europe: in the governments of Greece and Spain, those of France and Germany, by the central banks, by the banking industry – and indeed, by every private sector entity which touches those things, which is to say absolutely everyone and everything.

Expect a messy exit: A paint-spattered protester outside the European Central Bank

And no one knows. Or, to be precise, no one knows the exact way events will unfold, but there are some broad predictions which we can make with some confidence.

Prediction One: Greece will leave the euro. The ‘bailout’ offered by the EU was help of absolutely the worst sort. It was generous enough (just!) to prompt a beleaguered government to accept it. But the terms were so parsimonious that it left Greece still just inches from the financial disaster zone. It was as if the EU saw a starving man and chose to give that man just enough food to keep him from death, but not enough to permit recovery. If the Greek people are rebelling against the terms they were offered, they have my sympathy. I think they’re right.

Prediction Two: as Greece falls, the other weak countries of the Eurozone will come under intense pressure – worse than anything we saw even in the dark days of last autumn. Ireland (with its fundamentally strong, flexible and low-tax economy) will probably be OK. But the countries of southern Europe face some terrifying problems: weak growth, a woeful lack of flexibility, dodgy banks, and no fiscal room for anything except more austerity.

And the thing is, if you take a reasonably decent economy – Ireland, Britain, Germany – and impose austerity, it’ll be painful (it always is) but you know that the economy will, sooner or later, spring back into growth. The situation in the south of Europe isn’t like that at all. Italy, despite years of easy money, grew by just 2.5 per cent between 2000 and 2010. That’s not 2.5 per cent a year, it’s 2.5 per cent a decade.

The storm clouds are gathering: Greece’s departure from the Euro will place Spain and Italy under intense pressure

Or take Spain. Spanish growth looked good, but it was boosted by an utterly unrealistic reliance on construction – an industry which accounted for one sixth of the entire economy at its peak. Since Spain is now grossly overbuilt, that one-sixth is now pretty much dead and will never come back. Toss some brutal austerity measures onto these horrible starting conditions along with massive unemployment and it’s little wonder that the bond markets are nakedly terrified that they won’t get their money back. (Oh, and if you read that sentence and think, “serves the damn bankers right”, you might just want to remember that your pension fund is probably invested in those markets.)

Prediction Three, then: the failure of the euro won’t stop at Greece. It’s hard to say from here which country will be first to follow its lead, but I personally wouldn’t buy Spanish, Italian, or Portuguese bonds at anything more than 20-30 per cent of face value. (And that’s being nice: Greek bonds have lost much more than that.)

French President Francois Hollande was elected on an anti-austerity platform – but may struggle to keep his promises

Thus far, my predictions would be fairly widely shared among financial experts. Thereafter, it’s hard to read the future. Take, for example, the ‘simple’ question about what happens if Greece quits the Euro. Any business (and any bank) will have its liabilities denominated in euros, not drachma. Foreign creditors won’t want to be repaid in devalued drachma instead of the promised euros, so a wave of bankruptcies seems likely. Not just the government, but probably all of the banks, and countless businesses too. Naturally the Greek government will want to pass laws that reconstitute those businesses in double-quick time, but the scale of the task is Herculean. And the Greek government isn’t exactly noted for economic and administrative prowess.

Since the imminent failure of Spain and Italy would create problems far larger in magnitude, the ripple effect could be enormous. In fact, can you scratch that term ‘ripple effect’. There are no ripples here, only tsunamis. Just think for example, how France would be affected by the collapse of Spain and Italy. The French economy is deeply entwined with those two and their failure would bring the financial storms right to the steps of the Quai D’Orsay. Francois Hollande may have been elected on a no-austerity platform, but he might as well promise an end to gravity. So, Prediction Four: the French are about to endure a savage austerity programme of their own. And bonne chance in explaining that one, Monsieur.

Thereafter, what to say? The central banks won’t take any blame for creating more than a decade and a half of loose money and massively inflated asset prices. Politicians will continue to prefer comforting lies to brutal truths. No bankers will go to jail, even though they’ve done more than anyone else to create this mess. Germany will be fine. Britain too, in the long run, though it’ll be a long, slow slog: longer and slower than any of the official forecasts had predicted. And when even Ed Balls is still mulling the possibility of a British referendum on Europe, who knows how far the whole European project might yet unravel?

But these are big questions and perhaps distant ones. What about you? Your job, your savings, your pension? Well, I honestly hope and pray you’ll be OK. These are rough waters we’re entering. We ain’t seen nothing yet.

My article was published in todays Daily Mail

That theory sounds good to me — plausible enough that I wonder if you can apply it more broadly: If, for example, you can look at the unscripted remarks of politicians and deduce the real truth. I’ll give the theory a run in the United States when the election campaign heats up, but for now let’s give it a practice outing in France — just days before that country goes to the polls.

First up, some background. France is slap-bang in the middle of the Eurozone crisis. Its government deficit isn’t appalling — or at least, not appalling by U.S. or Spanish standards, which admittedly doesn’t set the bar too high. On the other hand, France’s debt-to-GDP ratio is a scary 86 percent. If you add on all its other undeclared liabilities (pensions, EU obligations, and so on), the ratio is way over 150 percent. And France has run a budget deficit for more than 30 years.

France also has some big international banks. Those banks are active in Spain (where the financial prospects are awful), Italy (no better) and indeed the emerging economies of Eastern Europe. If and when one of those institutions hits a major stone in the road, the French government will have the choice between watching a massive lender fail or putting its own financial solvency on the line. Either way, the fiscal impact will be horrendous.

So: scary times. Scary enough that you’d want and expect some somber honesty from politicians. But no. Nothing of the sort. The man most likely to win, Francois Hollande, has come up with a brew of policies — lowered pension age, new public sector hires, a tax on the rich that may touch 90 percent or more – that collectively have the feel of some retro 1970s-themed party, all disco balls and facial hair.

That policy cocktail didn’t work in the ’70s. It brought rocketing inflation, stagnant growth, collapsing exchange rates and public protest. And these days, the climate is far less propitious than it was. There’s more trade, China is fiercely competitive, the bond markets more open and less deferential and rampaging technological change (notably the Internet) has utterly altered the interconnectedness of markets. Meantime, France has lost control of its own currency. It can’t even print its way out of trouble.

So what does our study of the unscripted remarks of politicians tell us? Well, we may as well note straight away that it’s going to tell us more than a study of their scripted ones. Back when Sarkozy first ran for the presidency, he spoke it like he was for real. “Merit and labor should be rewarded more and more,” he said. “Globalization requires us to reinvent everything.” He spoke of a “rupture” with the past. He sounded like a French Thatcher.

Since he hasn’t, even remotely, governed that way, we may as well study the unscripted. And we start with a little room for optimism. Asked by journalists if Italy could repay its debts, he laughed out loud. Not as in a “of course it can, don’t be silly” way, but in an “Are you joking? It’s Italy!” way. That’s truthful, if hardly diplomatic.

Ohhh la la I know you will help me get re-elected if I help you ... baisers..

But Sarkozy’s tendency to honesty doesn’t seem to extend as far as an appetite for debate. Given a hard ride by some journalists in relation to a major current corruption scandal — hardly a topic that journalists ought to avoid — Sarkozy raged at them. Turning to one journalist, he said, “And you! I’ve no evidence against you. But it would seem you’re a pedophile. Who told me? I have an absolute conviction.” His diatribe lasted for 10 minutes, during which time he kept returning to his ugly analogy — then stormed off saying, “See you tomorrow, pedophile friends.” Nor is it just journalists he treats with disdain. He once told David Cameron, the British prime minister, that he had “lost a good opportunity to shut up.”

Voters get the same treatment. When a man refused a handshake at a French agricultural fair, Sarkozy snapped, “Casse-toi, alors pauvre con.” (You’ll need to translate that one for yourself. Just be warned that the BBC’s family-friendly version – “get lost then, you bloody idiot” — is not exactly word-for-word.)

Worse still, the man’s basic untruthfulness pertains even when it comes to the financial crisis — the issue which is (or should be) dominating French politics. Asked repeatedly by Spanish journalists about the effect of S&P’s downgrading of the French credit rating, Sarkozy twice refused to answer at all before stating abruptly that it “changes nothing.”

Yet the financial math says otherwise. The winds of crisis starting to blow once again round France’s nearest neighbors says otherwise. The slow ticking up of French bond yields says otherwise.

Truth is, if you want the most telling micro-expression of all, you could do worse than consider Christine Lagarde, former French Finance Minister and current head of the IMF. At a talk in Davos she held up her capacious Louis Vuitton bag and said, “I am here, with my little bag, to collect a bit of money.” It was a joke … only not. Her remark comes too close to the truth to be funny.

Show me the money!

And one other thing. When a political culture refuses to engage with journalists, which disdains voters, which act aggressively or dismissively towards close neighbors and allies — that culture has a rottenness at its heart. A rottenness that extends to corruption on an industrial scale. There have, in recent times, been major scandals touching presidents (Chirac, Sarkozy), prime ministers (de Villepin), high-profile ministers and political figures (Dominique Strauss-Kahn, Pasqua, Jean-Christophe Mitterrand, Lagarde). Not all those scandals are equally significant. Some of the investigations are still in process and all those involved have denied their involvement.

And yet. “Casse-toi, alors pauvre con,” is not something you say if you respect voters. And if you lose respect for the people who elect you, everything else follows. A political class that lines its pockets as the great ship of France founders on the rocks.

This was published in today’s Huffington Post.

It’s OK for firms to make money. That’s what they’re there to do. But real firms, durable ones, the ones who care about their reputation, their future, and the generations that come after, have figured out that you need to take care of yourself by taking care of your customers. Do the second thing right and the first will come of its own sweet accord.

Greg Smith’s recent wail of resignation made it clear that Goldman Sachs has long lost touch with these simple truths. In his words, ‘It makes me ill how callously [Goldman staffers] talk about ripping their clients off.’ The thing is, though, you don’t have to be a client of Goldman’s to lose out, you just have to be, well, a human — or at any rate a human whose assets amount to more than a mud hut and a couple of scrawny cows.

Because this is a financial story, we need to start with the money. As of December 2011, Goldman Sachs owed $814 billion. That’s more money than is owed by all but five of the European Union’s 27 members. Indeed, that’s hardly putting it strongly enough. Spain owes somewhat more money than Goldman Sachs, but is almost buckling under the pressure. Not Goldman. If Goldman wanted to raise more capital and expand its balance sheet, it could easily do so. Spain couldn’t. That’s how big the firm is. How big and how powerful.

How you use such power matters and unfortunately Goldman’s sticky fingers are all over the scene of recent economic crimes. Take the meltdown in Greece, which brought the world to within a whisker of financial catastrophe last fall. Part of the problem there was that Greece kept fiddling its data: it lied to European officials about the true extent of its borrowing. Those lies needed some help and Goldman — how unsurprising is this? — was there to provide it. In the words of Der Spiegel, ‘Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country’s already bloated deficit.’

Or, to put it simply, Greece wanted to lie about its finances, at huge cost to its taxpayers and to the world economic system, and Goldman was on hand to make it happen. Goldman reportedly made a gross profit of €600 million on the trade.

Athens burns while Goldman's profits with impunity

But we don’t have to travel overseas to find economic crimes sticky with Goldman’s prints.

During the financial crisis of 2008-09, the American government bailed out insurance giant AIG at a costof some $182 billion. Those billions flowed largely to various Wall Street firms, including Goldman. For a long time, Goldman protested that the money ($12.9 billion) it received was simply passed on to clients … until, oh gosh, the facts proved otherwise. It turned out that in fact Goldman collected $2.9 billion for its own account. And that’s $2.9 billion of pure profit.

You need to notice two things about this. First, where the money ends up — Goldman guys with huge bonuses — but secondly the amazing wastefulness of the system. Taxpayers shelled out $182 billion. Goldman pockets just under $3 billion. Some of those surplus billions went to other Wall Street firms, but much of it went to support foreign banks and foreign bankers. American taxpayers should not be called upon to support failed businesses in other countries, but the Goldman merry-go-round wouldn’t have worked any other way, so to hell with the American taxpayer.

And who engineered this bailout? Why, none other than Goldman old boy, Hank Paulson. Who avoided some $200 million in personal taxation when he become US Treasury Secretary — a gain which puts into the shade his mere $40 million annual compensation while at Goldman.

Not that, mind you, it makes much sense to obsess about a few billion dollars snatched from the American taxpayer, when the real rip-off ran to the hundreds of billions of dollars. A July 2011 report from the US General Accountability Office found that the support for Goldman Sachs in total amounted to some $814 billion. Or approximately the quantum of Goldman’s entire liabilities. You want a rip-off, that’s it right there.

Or take other economic crimes against humanity. When broker MF Global went bust — because of excessive leverage and a reckless approach to risk — it turned out that its clients’ money had gone walkabout. As of today, according to Reuters, ’MF Global U.S. trustee James Giddens is trying to track down an estimated $1.2 billion of customer assets that have seemingly disappeared from the broker’s books.’ What idiot could lead a firm to such a horrendous collapse? Why, a Goldman guy, of course: stand up Jon Corzine, former senator, former NJ governor and former chairman and CEO of Goldman.

We could go on. Robert Rubin, formerly co-chairman of Goldman Sachs, became US Treasury Secretary under Clinton and piloted through the repeal of the Glass-Steagall Act and helped to exclude OTC credit derivatives from oversight by the Commodity Futures Trading Commission. Those things might sound arcane and technical, but they stand at the very epicenter of the 2008-09 financial crisis. If credit derivatives had been strictly regulated, and a strong version of Glass-Steagall had remained in force, Main Street would not have been required to bail out Wall Street. Lehman could have folded, Bear Stearns and Merrill could have folded or been bought up for a handful of nickels — and no one would have cared. These things did not have to affect your life, your job, your wage, your savings or your pension fund. (If you were the guy with the mud hut and the scrawny cows, you probably did just fine, however.)

Or take Mario Draghi, formerly vice chairman and managing director of Goldman Sachs International. As incoming head of the European Central Bank, Draghi has been responsible for pouring €1 trillion of easy money into a tottering European banking system. You can call that a rescue operation if you like — but what exactly is being rescued? The collapsing banks and irresponsible governments most responsible for the current crisis. The firms and institutions who form Goldman’s crucial European client base, in fact.

We could go on. Sometimes it’s (alleged) crimes that you notice: people like Rajat Gupta, former Goldman Sachs director, currently under arrest on charges of insider trading. But more, it’s the extent of the firm’s influence. Not only does it seem to be the preferred supplier of US Treasury Secretaries, its alumni pop up seemingly everywhere. The current Prime Minister of Italy, Mario Monti, is a former Goldman adviser. Or check out the resumes of Petros Christodoulou, Peter Sutherland, Otmar Issing, Antonio Borges, Bob Zoellick. Important people, who have taken fistfuls of money from Goldman Sachs. Important people who have, to a remarkable degree, supported and defended the reckless leverage and opaque accounting of a system from which Goldman draws its colossal profits. The influence reaches far past matters of country, party or ideology. The only ideology which matters is that of self-enrichment. That of allegedly ripping off clients.

It’s time to put a stop to this. In Britain, a firewall is (slowly!) being erected which will, in effect, build a Glass-Steagall-style barrier suited to the twenty-first century. The United States needs just such a barrier, and neither the watered down version of Dodd-Frank nor the current shenanigans over the Volcker Rule promise to provide one.

But regulatory barriers are only half the story. The corruption of excess influence also needs to be terminated. No US Treasury Secretary with strong links to Wall Street should ever again be appointed. No central banker with a past in casino capitalism should be trusted to keep his instincts at bay when placed in charge of a national (or international) currency.

Wall Street will argue that such a policy would be reckless in the extreme: you might get a Treasury Secretary who didn’t fully understand credit derivatives or the subprime mortgage game. And that’s perfectly true. You might. Which would be an unmixed blessing. Opaque financial products that normal smart people don’t understand? We didn’t want the damn things in the first place. Soft loans to weak banks in support of crumbling governments? Who the heck would vote for that?

Not me. Not you. No one beyond those on Wall Street. It’s time that the excessive influence of a single wealthy firm was halted. Let’s just say no.

My blog Goldman & Friends was also published in todays Huffington Post

Most of the time, George Osborne, has the least enjoyable job in Britain. He’s got to squeeze taxpayers for more money, cut jobs and wages in the public sector, slash benefits… and his only reward will be that in five years time his government might not be bankrupt. The more rigorously he does his job, the less anyone is going to end up liking him for it.

Relief: George Osborne after the announcement of the latest Greek bailout deal

So when Osborne returns from the latest Greek bailout summit, you can excuse him for sounding a little tipsy. Talking about the fiendishly complex deal, he said, ‘I think the important thing about this deal is that they have tried to get Greece into a reasonable place vis-a-vis its debt sustainability …Of course the Greek people, the Greek political system, has to deliver really difficult decisions now but… hopefully we can all move on now and get the European economy growing.’

Well, yes. I agree. And hopefully Iran and Israel will make friends, China will promote free speech, and Vladimir Putin will find his feminine side.

Unfortunately, chancellors (and columnists) need to live in the real world. And in the real world, this ‘rescue deal’ for Greece is neither a rescue nor a deal.

It’s not a deal, because it needs to be ratified by every parliament in the eurozone. Since many of those parliaments (especially those in Finland, Germany and the Netherlands) are strangely opposed to making their taxpayers pay for someone else’s mistakes, that ratification process is far from certain.

The Greeks will also need to live with the terms of the deal. Given that they are now looking at yet more years of unfllinching austerity – and following a recession which has chopped some 17% from national income – they might decide to renege on the agreement, no matter what they say today.

What’s more, the rescue isn’t a rescue because the whole thing is built on fantasy economics – the sort of growth forecasts that would have been too barefaced even for Gordon Brown in one of his hypomanic phases. A sober report (leaked here) compiled jointly by the IMF, the European Union and the European Central Bank gets realistic about the impact of never-ending austerity on Greece’s economic prospects. The report states bluntly, ‘This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020.’

Despair? President of the Euro group Jean-Claude Juncker and International Monetary Fund Managing Director Christine Lagarde announce the terms of the deal

And to be clear: debt levels of 160% of GDP are precisely what triggered this crisis in the first place. So the end-result of this ‘rescue deal’ is, quite likely, to leave Greece just where it was to start with… except that its economy will have got a whole lot smaller and its people a whole lot angrier.

Once he sobers up, George Osborne will figure all this out for himself. (The strikingly muted reaction to the bailout suggests that everybody already knows.) But Osborne will still need to guide British policy as the crisis unfolds further in the weeks and months ahead.

And that policy should be very clear. No further British money should head Greece’s way. Not via the EU. Not via the IMF. British purses should remain closed, no matter how many more restructurings there are, no matter how many more ‘voluntary’ haircuts, no matter how many more summits, votes and crisis get-togethers.Because although the economics of crisis seem complex, their essence is simple. If you take on more debt than you can service, you have two choices. You can restructure your business (or re-energise your country) so that your debt-capacity is greater than it was. Or you can go bust.

A country can’t technically declare bankruptcy, but it can default on its debt. Explain to its creditors that they’re not going to get their money back. Sort out a payment plan – just  as any overstretched household would have to do in the same position.

Neither option is easy. Restructuring economies is slow and wrenching. And default brings mountainous difficulties of its own. But they’re not our difficulties. They’re Greece’s. Osborne’s job is already hard enough. We should leave him to sort out British finances. The Greeks can take care of their own.

Take the bold European rescue of Greece. A broad-shouldered continent saving a country in peril. Yes, that country brought its difficulties on itself, but the wise heads of the Brussels Eurocracy have ensured that the country is obliged to work its own way out of trouble, as far as that can be managed.

So: the Greek government will find a new sense of adult responsibility. The EU will continue to supervise things. The ECB will lard the entire system with money. And all shall be well and all manner of things shall be well.

The trouble is there’s so much wrong with this picture, it’s hard to find anything right with it. I could probably, if I put my mind to it, find fifty horrible things lurking like undetonated mines in small print. But, from that fifty, here are my top five.

First, any semblance of fairness has been discarded. Anyone who lent money to Greece was a dumbass who ought to lose money. And in most bankruptcies, that’s precisely what happens. If you don’t happen to be a secured creditor – that is, if you don’t have collateral, like property or financial securities – you just have to take your share of the loss. That’s what bankruptcy is. It is the basis for capitalism.

But not in Greece. In Greece, official creditors haven’t taken any hit at all. They’re fine. The entire burden of adjustment is falling on private lenders. In effect, Greece has changed the rules retrospectively. Bond investors thought they were lending under one set of conditions, but – hey presto! – they weren’t. It turns out that official bodies made loans while the private sector picked up the losses. You can call that what you like. Me, I call it fraud.

Second, this whole rescue is bogus anyway. A report compiled for the troika of the EU, the IMF and the ECB argued that economic conditions in Greece are so dire, so little likely to improve, that the real level of debt is likely to be 160 per cent in 2020, not the 120 per cent officially projected.

Since 120 per cent would only take Greece to the desperate position Italy was in before Christmas, that would hardly have been a rescue anyway. Since 160 per cent is the beyond-desperate position that Greece was in when the whole sovereign debt problem unfolded, that wouldn’t be a rescue at all.

The only long-term effect of the rescue will be to burden the Greek economy with so much debt that recovery will be all but impossible. The Greek economy is contracting, not growing. And that’s no way to get out of debt.

Third, loads of private investors were worried about their Greek exposures, so they bought insurance on it. In the financial markets, that insurance goes by the forget-you-even-asked name of Credit Default Swaps, or CDSs. Those things are simple in essence. If you lend £1,000 on an insured loan, and the creditor only repays £300, then your insurer should pay out £700. Simple, huh?

Yes, but that’s too simple for the financial markets of today. As I write, a financial outfit called the International Swap Dealers Association, or ISDA, is considering whether a ‘credit event’ has happened in Greece. If no credit event has taken place, that CDS insurance won’t pay out. And ISDA may well decide that because the restructuring was ‘voluntary’, no credit event has happened.

Which would be crazy. Beyond crazy, actually. A child can see that if private creditors take a haircut of more than 50 per cent on their loans, a credit event has taken place. Sure, it was voluntary. Creditors enjoyed roughly the same kind of choice their predecessors had when Dick Turpin stuck his pistols into their faces and said, ‘Your money or your life?’

Fourth, there’s a stunning lack of transparency here. The whole bailout is so complex, so full of sweeteners and buried provisions, that the most important act of European financial rescue since the Marshall Plan is pretty much impossible for any outsider to analyse. In effect, a huge financial restructuring has taken place without democratic oversight. Voters can’t comment on the deal, because they don’t understand it. And they don’t understand it, because no-one ever wanted them to.

And fifth, the entire rescue has simply made everything worse. Do you want to know why Italian government bonds were yielding more than 8 per cent before Christmas and are yielding less than 5 per cent now? Is it because the clown Berlusconi is no longer in government? Because a new technocratic (but unelected) government is finally getting to grips with some economic basics?

Or is it because the ECB has just splurged another €1,000,000,000,000? It’s lent that money at low interest rates, against dodgy collateral, to weak banks, on the understanding that they’ll prop up insolvent governments. Great stuff.

If you’ve got too much debt, the European solution turns out to be to make more of it. To permit no vote on the issue. And to proclaim it all a rescue.

It’s not you. It’s them.