“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Tuesday, October 06, 2009

Does a financial collapse in Latvia matter?

This video is three month's old but very relevant.

I am afraid that it may. Look at the reasons.

Huge overcommitted welfare payments, almost politically impossible to contrct, along with external debt, will likely tank Latvia. According to the article the flash-over points could be in Estonia, Lithuania, Hungary, Ukraines and Romania. This in itself can cause huge problems for all of Eastern Europe and put extreme pressure on the Euro zone.

Russia has now become the largest energy supplier in the world. The temptations for Russia to meddle in Latvia, given the huge ethnic Russian population, will be immense. This all comes at a time where the US has the single most ideological and weakest President since Jimmy Carter.

Obama clearly believed that he had resolved the US economic problem, with his "mission accomplished" declaration that unemployment would not go over 8%. He has been obsessed with increasing US welfare spending, disregarding the example at what unfunded welfare has done to California, once the eighth largest economy in the world. How does that relate to Latvia?

If the World percieves the US as incapable of solvings its own financial order, any small country, such as Latvia could easily create a contagium financial tsunami with unpredictable and devastaing consequences.


Banks brace for Latvia's collapse
The Baltic states are once again in the eye of the storm after leaked reports that Sweden is bracing for a full-blown economic and political "breakdown" in Latvia.

By Ambrose Evans-Pritchard, International Business Editor
Published: 7:25PM BST 05 Oct 2009

Latvia's currency peg is back on the agenda

The Svenska Dagbladet newspaper said Sweden's finance minister Anders Borg had told banks secretly that Latvia's political order was unravelling, advising them to prepare for the collapse of Latvia's rescue talks.

Latvia has failed to deliver draconian spending cuts agreed to secure the next tranche of its €7.5bn (£6.85bn) bail-out from the EU, the International Monetary Fund, and Sweden, balking at 20pc cuts in pensions and a further 15pc cut in public wages.

The People's Party, the largest group in the coalition, voted against austerity measures last month, raising concerns that the country is ungovernable.

Mr Borg said the world's patience is running out. "It will be very hard to continue with these international programmes if they don't fulfill the spirit and the content in the agreements they have signed."

Latvia's economy contracted by 18.2pc in the twelve months to June, trumped only by Lithuania at 20.4pc.

"Latvia's currency peg is back on the agenda, " said Hans Redeker from BNP Paribas. "The government has to relax policy for social reasons. The hardship this winter is going to be unbelievable."

Youth unemployment in Latvia is already 31pc, and concentrated among ethnic Russians. Premier Valdis Dombrovskis said his chief task is to "preserve social peace".

Neil Shearing from Capital Economics said the appetite for austerity has been exhausted. Latvia is "more likely than not" to devalue, toppling pegs in Estonia and Lithuania. "Financial markets elsewhere in the region are likely to be hit by contagion, with Hungary, Romania, and Ukraine most vulnerable."

The area is better able to cope with shocks than during the panic this Spring. The G20 tripled the IMF's fire-fighting fund to $750bn in April, chiefly as an insurance for Eastern Europe. This has greatly reduced risk of a liquidity crisis. It does not alter the slow-burn damage of rising defaults.

The Baltic trio financed property booms in euros (and swiss francs) because rates were lower. It was taken for granted that eventual euro entry had eliminated the exchange risk. This has become a trap. They need to devalue to break the cycle of depression, but cannot do so because of euro mortgages. Instead they hope to claw back lost competitiveness through wage deflation. This takes years, and discipline.

Mr Shearing said Latvia's economy would shink by 30pc whether it devalues or not. The peg merely draws out the agony, and slows the pace of inevitable defaults.

Washington's Center for Economic and Policy Research said the IMF is enforcing a"pro-cyclical contractionary policy" in Latvia. Foreign banks (mostly Swedish) are being rescued at the cost of local taxpayers. The IMF deal equals 34pc of GDP. Latvia is piling up debt to defend its peg. The policy may backfire in any case. Fiscal contraction is causing tax revenues to implode, feeding a vicious circle.

Lars Christensen from Danske Bank said Latvia's political class is chiefly responsible for clinging to the peg. "It's their choice, but if they want the bail-out money, they must do what they promised. They don't seem to understand that the IMF and EU are willing to walk away now that the global economy has improved and spill-over risks have been reduced," he said.

Prospects are grim whatever happens "There is absolutely no sign of stabilisation. The economy is still contracting. It's paralysis," he said.


  1. Note: I was doing a post on the report of the oil countries moving away from the dollar, until I saw that it started from an article by Robert Fisk.


    ISTANBUL/SYDNEY (Reuters) - Big oil producing nations denied on Tuesday a British newspaper report that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in trading oil.

    The U.S. dollar eased in response to the report, which was written by The Independent's Middle East correspondent Robert Fisk and cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong.

    It said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen, the Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, which includes Saudi Arabia and Kuwait.

    But top officials of Saudia Arabia and Russia, speaking on the sidelines of International Monetary Fund meetings in Istanbul, denied there were such talks.

  2. Will California become America's first failed state?

    But the state that was once held up as the epitome of the boundless opportunities of America has collapsed. From its politics to its economy to its environment and way of life, California is like a patient on life support.

    At the start of summer the state government was so deeply in debt that it began to issue IOUs instead of wages. Its unemployment rate has soared to more than 12%, the highest figure in 70 years. Desperate to pay off a crippling budget deficit, California is slashing spending in education and healthcare, laying off vast numbers of workers and forcing others to take unpaid leave.

    In a state made up of sprawling suburbs the collapse of the housing bubble has impoverished millions and kicked tens of thousands of families out of their homes.

    Its political system is locked in paralysis and the two-term rule of former movie star Arnold Schwarzenegger is seen as a disaster – his approval ratings having sunk to levels that would make George W Bush blush.
    The crisis is so deep that Professor Kevin Starr, who has written an acclaimed history of the state, recently declared:
    "California is on the verge of becoming the first failed state in America."

    Los Angeles now has a poverty rate of 20%. Other cities across the state, such as Fresno and Modesto, have jobless rates that rival Detroit's. In order to pass its state budget, California's government has had to agree to a deal that cuts billions of dollars from education and sacks 60,000 state employees. Some teachers have launched a hunger strike in protest.

    California's education system has become so poor so quickly that it is now effectively failing its future workforce. The percentage of 19-year-olds at college in the state dropped from 43% to 30% between 1996 and 2004, one of the highest falls ever recorded for any developed world economy. California's schools are ranked 47th out of 50 in the nation. Its government-issued bonds have been ranked just above "junk".

  3. The "Bad" news: Latvia may fall.

    The Good" news: We're talking about "Latvia."

  4. Latvia, for those that want to know:

    Area - Total = 64,589 km2 (124th)
    24,938 sq mi

    Population - July 2009 estimate = 2,231,503 [2] (143rd)

    The place is smaller in population than Phoenix, on a piece of ground that is 20% the size of all of Arizona.

    No real reason for Latvia to even be a country.

  5. Good news?

    The rate of illegals coming to America from mexico has plummeted...

    In fact...

    If we keep obumbler for 3 more years he will destroy our economy so much that we might even see some Americans leave....

    No one is talking about how the yuan is still over valued, how America's contraction of consumer spending sprees on crap has hit china in the teeth...

    all this is actually good...

    the longer the global recession continues the worse it is for opec...


    the dollar is being pushed down...

    bad for the price of oil, good for exports...

    i'd venture to guess that the lower the dollar goes, the worse china is on a global scale when it comes to having any advantage in exporting...

    of course we should be drilling for oil, digging for coal and nat gas right now and we are not... (that is the current admin's fault)

    we should be filling the strategic oil reserve

    in the long run the GLOBAL expansion (on crack) for the last 18 years has run out of steam, it is NOT a USA only issue...

    now we are in a tighten the belt 5-9 yr cycle..

    this could be extended if the current admin plays it's cards wrong...

    but if the world starts to come out of it's recession and the dollar remains low (it will) oil will be at 150 a barrel (with or without war in iran) and this is what the obumbler admin wants...

    they want 4-5 dollar a gallon gas (actually i want high gas prices too but for different reasons)

    the best way America can beat this game is thru small business innovations, something the obama admin is hostile to..

    i know that i personally will spend money on equipment and SELECT employees...

    i predict that employment for the ACORN type person?

    knock somewhere else...

    the reset button has been pushed...

    if your pants are down around your nuts?

    keep walking...

    if you look radical in any way?

    keep walking..

    small businesses in America are going back to the old fashioned "yes sir" "No Maam" mentality...

    if you can't speak without saying "life the dream man" "change" "hope" "workers rights" "vacation" "progressive" "the man" "yo man" you're not getting a job...

    reset button...


  6. Applying the complexity theory discussed at the link below, Latvia is a likely as any to be the grain of sand that produces a landslide -

  7. You are definitely not a fellow that believes in general prosperity and whirled peace, that's fer sure.

    This "US "contraction" will drive China to develop its' internal markets.

    They really are "The World"

    The Russell Company boys were right on that count.

  8. The ...
    "It's good for US, if it is bad for them"
    type of thinking is rather warped.

    To say the least.

  9. There was once this "Arch-Duke" (bonus points if you can tell us what an "Arch-Duke" is) named Ferdinanand. He got shot, somewhere, in Eastern Europe (Albania? Croatia? More bonus points available.)

    Never underestimate the ability of some shithole in E. Europe to, somehow, fuck things up.

    Just kidding. It IS Latvia.

  10. rat says:

    "The place is smaller in population than Phoenix, on a piece of ground that is 20% the size of all of Arizona.

    No real reason for Latvia to even be a country."

    Got to love the standard that rat has for a "country"

    SIze is all that matters?

    by rat's own standards the following incomplete list of nations that should not exist....

    Israel 8,019 (sq mi)
    Palestinian lands 2,263 (sq mi)
    Lebanon 4,015 (sq mi)
    Latvia 24,938 sq miles
    Qatar 4,416 (sq mi)
    Kuwait 6,880 (sq mi)
    Bahrain 257 (sq mi)
    Belize 8,867 (sq mi)
    El Salvador 8,124 (sq mi)
    Ireland 27,135 (sq mi)
    Belgium 11,787 (sq mi)
    Netherlands 16,033 (sq mi)
    Luxembourg 998 (sq mi)
    Estonia 17,462 (sq mi)
    Bosnia and Herzegovina 19,741 (sq mi)
    Slovenia 7,827 (sq mi)
    Moldova 13,067 (sq mi)
    Macedonia 9,781 (sq mi)
    Croatia 21,831 (sq mi)
    Sierra Leone 27,699 (sq mi)
    Togo 21,925 (sq mi)
    Rwanda 10,169 (sq mi)
    Burundi 10,745 (sq mi)
    Reunion 972 (sq mi)
    Taiwan 13,892 (sq mi)

    Got to love rat's world view...

    /off sarcasim

  11. desert rat said...
    You are definitely not a fellow that believes in general prosperity and whirled peace, that's fer sure.
    This "US "contraction" will drive China to develop its' internal markets.
    They really are "The World"

    Excuse my, I have to change my wet underwear...

    "China and internal markets" is a bigger oxymoron than let's say.. "obama & balanced budget"

  12. Unworthy comment there, DR. Still, what is more logical, small independent countries or large cities in waterless deserts?

    The Latvian government still has to find 225 million from a 3.5 billion budget, they still haven't touched welfare which is like 40% of the whole enchilada. Politically hard decisions to follow but hardly mission impossible.

    Unlike the US (or California for that matter), Latvia sadly does NOT have the power to melt down the world economy :) Maybe otherwise we'd already have pulled the plug just to spite Rufus.

    The Swedes (banks anyway) would love to see devaluation, since their assets are in euros. That there Mr Borg is hardly an uninterested party.

    Incidentally, it is fucking cold here, and they are shaving a few cents by turning the centralized heating on late this autumn. Bastards. Hope its warmer in Phoenix. Of course, all our localized Russkies would fit into a tiny little corner of Phoenix... you want them DR, square them off against the mexicans or something?

  13. Nice hearing from you PK. I hope you get it together. Have not been down your way in some time. I have to go to Szczecin next spring and may rent a car and see if Riga has changed much. Is the Palace Hotel still what it was?

  14. It has nothing to do with the people of Latvia, just that 2 million people, nor 6 million, reaches the critical needed for a successful country.

    Go down that list of mini-States that man of "misdirection" posted. Most do not qualify as "real" countries, but are artificial constructs of "nations".
    Croatia is no nation State, it is a ward of both the UN and US.

    El Salvador and Belize, both are failed States. Belize dependent, still, on the UK for defense and US, as well. Salvador, well I was there and it is no Nation.
    It is a city.

    As for cities in waterless deserts, we have a few of those, we move the water to the people, rather than the people to the water.

    Real nations can do that kind of thing. They are not dependent upon others for their finance or defense.

  15. And it is in and amongst these failed Nation States of the old whirled that the wars begin.

    Historically, as rufus mentioned.

  16. Rat says:

    Go down that list of mini-States that man of "misdirection" posted.

    Notice how when specific comparisons to Rat's own criteria is mentions, HE, not I "misdirect" and change the very criteria he stated...

    """""Area - Total = 64,589 km2 (124th)
    24,938 sq mi Population - July 2009 estimate = 2,231,503 [2] (143rd)
    The place is smaller in population than Phoenix, on a piece of ground that is 20% the size of all of Arizona.
    No real reason for Latvia to even be a country.""""""

    Rat continues:
    Most do not qualify as "real" countries, but are artificial constructs of "nations". Croatia is no nation State, it is a ward of both the UN and US.

    So now, it's a new requirement that Rat invents...

    What is an "artificial constructs"....
    What is a "Ward" of the UN & US actually mean?

    Rat started off with the statement it's about land size, now it's land size, how it got it's founding charter and now in addition......

    rat adds MORE...

    rats says.. "El Salvador and Belize, both are failed States. Belize dependent, still, on the UK for defense and US, as well. Salvador, well I was there and it is no Nation.
    It is a city."""""

    Rat wisdom at it's finest..

    Rat continues...

    "As for cities in waterless deserts, we have a few of those, we move the water to the people, rather than the people to the water.

    Real nations can do that kind of thing. They are not dependent upon others for their finance or defense."


    Maybe Rat you should tell us your list of REAL NATIONS so we have some clue as to when you say x, you mean x, not x +1 + 4

    And you call me a "man of misdirection"? Your a walking blackhole of truth....

  17. Don't understand your math, amigo. The whirled is basicly three or four "spheres of influence" using that "Risk" analogy you liked so much.

    Continental structures that encompass both land and people.

    Minimum needed is 35 to 50 million people. The geography can vary, but the population really cannot.

    The little "States" cannot be successful countries any more than Ohio could be, now-a-days.

    Or California, as doug repeatedly points out.

    Semi-independent sub-entities of a "greater" Nation is all they can hope to be.

  18. Which is what both Latvia, Isreal, and Croatia all are.

    Sub-entities of greater powers.
    Isreal and Croatia wards of the UN and US, Latvia is in play.

  19. They'd like to be one of the US's Europeon states, as would Poland and the Czechs.

    As would I, if I were a resident of one of those places.

    I'd like to see them become independent of US and we of them.

  20. The idea that AZ could or should be a "Sovereign State", with a population of 6 million is just absurd. Same as applies to Latvia, Croatia or Isreal.

  21. d rat: using that "Risk" analogy you liked so much.

    Please explain, as I never made any such reference..

  22. This comment has been removed by the author.

  23. Love to have you really explain with specifics what a "ward" of the UN and the USA is...

    go ahead, make up it as you go.

  24. Sure you made the "Risk" reference, when you agreed with den mother trish that it was the "best" game to describe the whirled.

    It was in a chess or checkers discussion, you ended up with "Risk". It's not worth my time to find thread, much less your post, but it is there.

    As to "ward", that is a "Country" that either claims its' "Sovereignty" by virtue of a UN proclamation, like Isreal. Or one that required "Great Power" intervention,to create and maintain its' "Sovereignty", like Croatia or the "break a-way" districts of Georgia.

    It also pertains to to countries that cannot go it alone, defensively or financially. Latvia would fall into that group.
    As would Iceland, which was a "State Sponsor of Terror", according to Mr Brown of the UK.

  25. Pakistan's Foreign Minister Qureshi said he believed the Obama administration would not interfere in his country's internal affairs.

    "We have in President Obama and Secretary Clinton two individuals who want to befriend Pakistan, the people of Pakistan," he said. "And I'm very clear they have no intentions of micromanaging Pakistan.

    Nor will Pakistan permit micromanagement. I am very clear in my mind that they have no intentions of trampling on Pakistan's sovereignty."

    Commitment to Region

  26. Meanwhile, tens of thousands of Jewish worshippers in white prayer shawls have gathered at the Western Wall to mark the week-long holiday of Sukkot.

    The holiday started on October 2 and ends on October 9.

    Currently, Israeli authorities are only permitting Muslim men over the age of 50 and all Muslim women to worship at the compound where both the mosque and Western Wall are located.

    Incitement in Jerusalem

  27. However experts claimed such a blast would be catastrophic in the pressurised atmosphere of a passenger jet.

    Now President Nicolas Sarkozy's new domestic intelligence directorate (DCRI) is considering draconian measures, police commanders told Le Figaro newspaper.

    But some in the government are already slamming measures that would leave passengers being treated as drug smugglers.
    'It is unthinkable when you think about the frequency with which some people fly,' a senior Interior Ministry official told Le Figaro.

    Booty Bombs

  28. Those with a sweet tooth should not panic. In the EU and US, the sugar market is protected.

    Prices are controlled in Europe to protect the interests of sugar beet farmers. US authorities allow only limited imports to support the domestic agricultural sector.

    Sergey Gudoshnikov from the International Sugar Organisation predicted most shoppers will pay little attention anyway: "It's a miniscule part of a consumer's income. Turn and ask the people sitting around you, do they know how much sugar costs.

    Prices Soar

  29. "I mean we, [going back] to 2004, we now see through e-mails from Karl Rove from the previous administration that ACORN itself was targeted, targeted to go after us so that we would stop doing voter registration because it was said that we were moving too many minorities to vote, changing the power dynamics on the local election and that we needed to be stopped."

    She also labeled as racist the infamous videos that show ACORN workers advising a man and young woman posing as pimp and prostitute how to circumvent the law. "These new filmmakers, [James] O'Keefe himself, told The Washington Post, 'They're registering too many minorities; they usually vote Democratic; somebody's got to stop them,'" Mrs. Lewis said.

    But Mrs. Lewis did not mention that The Post was forced to issue a later correction on the story, saying the quote attributed to Mr. O'Keefe was inaccurate.

    Opponents are Racist

  30. Question, is then Mexico (population 100 M, area 762 k sq miles, GDP 1.1 trillion) a real country?

    Note "country" - not "nation", if being semantic then in the ethnic/cultural/religious/language sense the US is NOT a nation, merely a country. There is the sort of european descended English speaking Christian "American" nation that used to be identified with the country USA, but sadly its not intrinsically their country anymore now, is it?

    "Real" countries without nations are illusions, that last a while and then collapse never to reappear.

    What is a real country? Sudan, vs Denmark? Venezuala vs Norway? Pakistan vs Ireland? China vs New Zealand? Israel vs Algeria?

    The Palace, Deuce - still there. Driving from Szczecin - the roads in Poland are still crap but better than they were a few years ago.