Joel Bowman

Slip… Crunch… Crash… And repeat.

Do you hear that, Fellow Reckoner? It’s the sound of the gears slipping. Metal on metal. In the US…in Europe…and in some parts of the Asian world…the planners’ worst fears are coming true…as their economies begin to come apart.

Here in Europe we learned that the French economy — the continent’s second largest — is likely to slip into recession. At least, that’s what the central bank told the world yesterday. Here’s the BBC:

(London) France’s economy will fall back into recession this quarter, the country’s central bank has predicted.

The Bank of France estimates that the economy will contract by 0.1% in July to September. It has already predicted a fall of the same level for April to June.

France posted zero growth in the first quarter of the year.

France’s economy has been hit by the eurozone debt crisis, which has weakened demand for its exports.

The debt woes of fellow eurozone nations, such as Greece, Spain and Portugal, have also knocked French business and consumer confidence.

If France does fall back into recession, it will be for the second time in three years. It last returned to economic growth in the spring of 2009.

Well, we could have told you that France’s economy would produce nothing…or less than nothing…this quarter. Why? Well, for a start, nobody is working! During the month of August, we have come to discover, the entire country packs away their tools and heads for the seaside resorts of the south. They fly to Greece… to Spain… and to Italy…to lounge on the beaches and drink in the warm, Mediterranean sun. They travel to the broke countries, in other words…as if trying to catch a glimpse of their own future.

One by one, the dominoes are falling…and as they do, the shocks they create unsettle the few wobbly economies still standing. Fewer and fewer number among the strong…more and more among the weak. And remember, each time one economy fails, those few still standing are made to pitch in, spending billions — hundreds of billions — of euros they don’t have, trying to resurrect the fallen. This, in turn, creates an increasing strain on a decreasing pool of resources. Here’s David R. Kotok, writing on The Big Picture blog:

Remember that the eurozone consists of 17 separate entities. Germany is by far the largest. France is number two, Italy number three. Spain is (or perhaps was) number four, at about 12% of the total weight.

Each time a domino falls, the member state requires assistance from the remaining member states. When Greece fell into financial disarray and then failure, the other 16 states had to provide the subsidy. When Ireland fell, there were 15. Portugal made it 14. Cyprus made it 13. Now Spain leaves 12 remaining.

As the dominoes continue to fall, the costs are reapportioned among the remainder, which is a shrinking cohort.

We are beyond worry about Spain. It is now a question of survival or failure for Spanish governmental finance.

The rot has set in. And now, there is nothing for it to do but spread. Spain, still mired in a deep and protracted recession is, for our money at least, as good as a dead duck. Markets continue to doubt the Spaniards’ ability to repay their debts, driving borrowing costs ever higher.

Indeed, the situation is so dire…even the economists have begun to take notice! A poll conducted by Reuters over the weekend estimated “a median 68 percent chance of a full sovereign bailout [for Spain], involving the EU’s official rescue funds, before the end of the year. June’s poll showed 35 out of 59 economists thought that was ‘likely’ or ‘very likely.’”

Italy, too, has fallen into deeper recession. According to figures from government agency ISTAT, a 0.7 per cent fall in gross domestic product for the last quarter puts Mario Monti’s technocrats on pace for a 2.5% annual decline in GDP.

The feds loaded the truck high with debt and now, as it proceeds along the steep incline of Mount Impossible, the cogs are wearing down, unable to bear the weight.

Slip… Crunch… Crash… And repeat.

Now, if 16 euro economies, with relatively low borrowing rates, couldn’t effectively bail out tiny little Greece, what chance do Germany, France and a handful of others, have of bailing out…well, everyone?

Slim to none would be our guess and, as our friend Doug Casey likes to say… “Slim’s outta town.”

Joel Bowman
for The Daily Reckoning

Joel Bowman

Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

  • Longnine009

    When did the Germans become altruists? They should have left
    that freak show five years ago.

  • gman

    “The feds loaded the truck high with debt and now, as it proceeds along the steep incline of Mount Impossible, the cogs are wearing down, unable to bear the weight.”

    of course. that’s the point. that’s the goal. to crush it all.

  • Filip

    I can just see it now.. the heads of the world’s richest families, the one’s who’s wealth apparently dwindled away in spite of the largest credit bubble in the civilized ‘global world’ of the most recent couple of centuries, are gathered around.. talking.

    Un-named man: What if it appeared that the entire Eurozone is beginning to fail economically? Surely then, the pressure to do that right thing will be so high that all opposition will agree, we need to do what is RIGHT!

    Another un-named man: What a brilliantly simple idea! And as I see it, it is possibly the most crucial issue that needs to be addressed at this time.

    Yet another un-named man: It is necessary to ensure proper media coverage of course, a proper analysis must be procured to the people about the ailment of the European nations so that they understand there needs to be action taken. I would maintain this priority then gentlemen as we move forward with our new plan.

    Nah, impossible, we say. If there were such bad people the news would’ve informed us already on what to do to take care of them. Yaaay! Thank god for the news!! Hip hip, horaaay!!

  • Jean

    Gresham’s Law: Bad money drives out good,

    and

    “… Yea also, because he transgresseth by wine, he is a proud man, neither keepeth at home, who enlargeth his desire as hell, and is as death, and cannot be satisfied, but gathereth unto him all nations, and heapeth unto him all people:

    Shall not all these take up a parable against him, and a taunting proverb against him, and say, Woe to him that increaseth that which is not his! how long? and to him that ladeth himself with thick clay!

    Shall they not rise up suddenly that shall bite thee, and awake that shall vex thee, and thou shalt be for booties unto them?

    Because thou hast spoiled many nations, all the remnant of the people shall spoil thee; because of men’s blood, and for the violence of the land, of the city, and of all that dwell therein. …”

Recent Articles

What the Reboot of the US Budget Means for Your Money

Byron King

Big government doesn't come cheap. And right now the U.S. government is one of the biggest in history. So far the budget writers have been able to move money around to keep the machine moving. But as Byron King points out, that will soon become much more difficult. Read on for the full story...


Invest Like a Shark in the “New” Stock Market

Wayne Mulligan

In the late '90s, financial TV personalities like Jim Cramer became mega stars - often drawing more ratings the ESPN. But that was over 15 years ago... That couldn't happen again, could it? Today, Wayne Mulligan details the new flock of personalities that are set to cash-in on a different kind of investment boom. Read on...


One Thing to Consider Before You Become a Whistleblower

Chris Campbell

Being a "whistleblower" is no easy task. Regardless of whom you're blowing the whistle on, there's bound to be a fair amount of risk involved... and that's especially true if you're going after the "powers that be." But there's more to it than that... And as Chris Campbell explains, none of it matters if you can't protect yourself. Read on...


How to Spot a Market Top

Greg Guenthner

Last week was a rough one for most of the world's markets. Investors saw red almost everywhere they looked. And that's got a few media outlets ready to declare a top in stocks. Greg Guenthner explains why this line of thinking could be dangerous... and why, if you follow it, you could be doing your portfolio a disservice. Read on...


The Number One Threat to the US Above Terrorism

Peter Coyne

As conflict with ISIS looms, the Pentagon appears to be in a pickle... They've got all kinds of things on their "wish list", and they're not likely to get all of them. But they may have found a loophole, and that could mean big bucks for a handful of investors who know where to look. Peter Coyne explains...