11/07/11 Paris, France – Last week produced nothing but more disappointment. At the center of it was the Europeans’ inability to make their debt disappear. They had hoped that they could just announce a plan to take care of it…and that would be enough.
But then, the Greeks said they wanted to vote on it…and then, they didn’t. ‘Papandenomium,’ the papers called it. If the voters were allowed to give their opinions everybody knew what would happen; the whole fix would be unfixed quix. So, they all got together and twisted Papandreou’s arms…and his arms gave way.
And then, investors started getting nosey. They wanted details. They wanted to know how the French and the Germans could cover so many potential losses — from Spain, Portugal, Ireland, Greece, and Italy.
Italy is in the worst position. It has scarcely any more debt than the US, but it has an immediate problem. It has to turn over its debt…it has to borrow heavily just to keep the wheels turning. And it lacks America’s key advantage…it doesn’t have a printing press. It gave up the power to print money when it joined the EU. Only the European Central Bank can print money…and it’s controlled by the Germans!
What’s the matter with the Germans, anyway? Why don’t they get on-board with the Fed? Why don’t they want to print money? If they would just give the signal — ‘don’t worry, we’ll print the money’ — the whole crisis would be over. In Europe, as in America, bond investors would be reassured. They would know that they’d get their money. The ECB would buy Italy’s bonds, and Greece’s bonds, and Spain’s bonds… Heck, it would buy everyone’s bonds. Bond investors would get their money. They would stop hiking interest rates. Italy could cover its losses.
Everyone would be better off, no? Just like they are in the USA. Right?
It all seems so simple. Why don’t the Germans get it?
While US policy makers, official economists and jackdaw kibitzers are terrified of another Great Depression, Germany’s officialdom is afraid of hyperinflation. Hardly any Germans are still alive who remember it, but the experience of hyperinflation of the early ’20s is painted on the German character like graffiti on a national monument. They can’t ignore it. They can’t forget it. It will take generations for it to wear off. After the bitter experience of WWI, hyperinflation wiped out the German’s residual faith in their institutions. Working hard, saving your money, being a good citizen — none of it seemed to pay off. The ex-soldiers were bitterly disappointed. The ruling classes had let them down. The banks had betrayed them. The politicians had stabbed them in the back.
Even their money was worthless!
“How could 2,000 years of accumulated civilization have led to this…” (Or words to that effect) says the hero of Remarque’s famous All Quiet on the Western Front. Having no good answer, the Germans turned away from accumulated civilization, towards armed, mechanized zombieism.
In just a few years, Germany’s factories were working again — producing tanks and planes. It was a solution to the post-WWI unemployment and depression. Unfortunately, the solution was worse than the problem. The trains ran on time. But they were headed for disaster!
But that’s a long story.
Meanwhile, in the US, we have our race memories too. Few people alive today recall the Great Depression. But it still haunts economists’ sleep and troubles their vacations.
“Not on my watch,” says Ben Bernanke, or words to that effect.
And so, the Americans fight depression. The Europeans fight hyperinflation.
And what will they get? Depression AND hyperinflation!
Yes, dear reader, that was our forecast as few years ago. We stick with it. The world is entering a depression. Growth has stalled. Even the emerging markets are slowing down…suffering the consumer depression exported from Europe and America and trying to fight the inflation exported, by QE2, from the US.
This depression isn’t going away anytime soon. It will take years to work through, write off, default and foreclose on the mountain of household, business, and financial debt built up over the last 60 years. At first, we thought it would take 7-10 years. We’re in year 5 already…and, at the present rate, it looks like it might take another 15 years!
But the authorities aren’t going to take a depression sitting down. Even the Germans will probably decide that a little bit of printing press money is better than the defaults and bankruptcies that accompany a depression. They’ll all guarantee each other’s credits. The banks guarantee the debts of their big customers. The government guarantees the debt of its big banks. The central banks guarantee the debts of the governments…and all print money to cover them. What a great system.
Yes, that’s our prediction. Depression will lead to money-printing…which will eventually lead to hyperinflation.
But heck…the whole thing will take years to play out. By the time it finally comes to pass we’ll all probably have forgotten this forecast. We’ll be lucky if we can remember our names.
What does a modern depression look like? Take a peek. The Wall Street Journal:
Generation Jobless: Young Men Suffer Worst as Economy Staggers
The unemployment rate for males between 25 and 34 years old with high-school diplomas is 14.4% — up from 6.1% before the downturn four years ago and far above today’s 9% national rate. The picture is even more bleak for slightly younger men: 22.4% for high-school graduates 20 to 24 years old. That’s up from 10.4% four years ago.
For such men, high unemployment is eroding their sense of economic independence. Their predicament reflects that of a generation of Americans facing one of the weakest job markets in modern history.
“We’re at risk of having a generation of young males who aren’t well-connected to the labor market and who don’t feel strong ownership of community or society because they haven’t benefited from it,” says Ralph Catalano, a professor of public health at the University of California, Berkeley.
The share of men age 25-34 living with their parents jumped to 18.6% this year, up from 14.2% four year ago and the highest level since at least 1960, according to the Census Bureau.
The WSJ article tells the story of young men who have been disappointed. In the boom years it was easy to make money — too easy. One made $14 an hour installing granite countertops. With plenty of overtime. Now, he’s making $11 an hour, when he can get work. And his marriage has broken up.
Capitalism, as he understands it, has been a failure for him. The Republicans have failed him. The Democrats have failed him. Education has failed him. Marriage has failed. It all must look like such a fraud…the American Dream…the hopes for a better life…the consumer society…the housing boom…the suburbs, the Hummer, the happy family. All of the promises of 2,000 years of accumulated civilization have disappointed him.
Since we, here at The Daily Reckoning, are making guesses…forecasts…and predictions…
…well, here’s one: These disappointed young men are on the cutting edge, so to speak…where politics and economics come together. Like the disappointed veterans of WWI, they are ready for a change…ready for revolution. For the present, they bide their time, playing video games such as Call of Duty. They are not sure whether the world has failed them…or whether they have failed. Surely someone will come along to straighten them out…explaining how it was not their fault…and telling them what to do about it.
What rough beast, his hour come round at last, slouches towards the Potomac…?
Regards,
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Those young men will only become more angry as this year goes on. They are tired of being pussified by the school system and everyone else. They just want to be men and not be pushed around by Katie Couric anymore. They know you only have the authority they allow you to have. Once they withdraw their consent. Their will be blood.
Getting pushed around by Katie Couric could be kind of hot.
The Germans has made the right decision.
Expressly ordered, their gold is untouchable.
Central planning printing press may not be ideal. Maybe respective EU members should get a printing franchise from the Germans so as to lift them out of water soon. If that is inadequate sub-franchises be given to each householder.
To make it a success, one must asserts that my money is my money and your money is also mine. Hahaha!!!
Capitalism hasn’t just failed these lads. It’s failed us all. That is, all of us in the ninety-nine per cent who don’t have incomes of millions every year. It’s all over, Bill. This version of capitalism is dead. And it’s not coming back, because ninety-nine per cent of us don’t want it. That’s what happened in Russia in 1917. Nobody wanted the Russian royal family, and it hasn’t come back. Which is what Yeats was writing about. Nobody wants this version of capitalism you are so critical of, but simultaneously so supportive of. It’s time you got the message, Bill. It’s all over. Stop the cynical exploitation of the people through the manipulation of ruthless, free-market capitalism. Let’s have a system that gives the ninety-nine per cent a chance.
@Wiz
Which kind of -ism are you lighting your candle for: Mussolini’s, or Mao’s?
Wiz: capitalism is the voluntary exchange of goods. We don’t have capitalism, we have soft fascism. if you don’t voluntary trade what do you propose?
again, Bill. please disable the comments. any faith i have in humanity from reading you thoughts is quickly dashed by the idiotic comments.
Bill, all your talk of depression and hyperinflation and revolting youth (who might also protest) is depressing and you are a fear monger, or words to that effect.
Joe Fish
Idiotic comments…?
I represent that remark.
Oh, I disagree with all of you, everything is going exactly according to plan. This was written almost forty years ago, could have been written yesterday:
http://www.whale.to/b/allen_b1.html#chapter5
Well put Joe Fish. Talk about angry young men. China due to its choosing to keep young male instead of female babies has a coming generation of 40-60 million more men than women. No wife, no chance at kids and little prospect for regular sex along with challenging economic hardships might make things a bit difficult over there. Our Chinese guide talked about this when we were in China a few years ago. It is on their minds too. Isn’t central planning great? Yes we need more of that-Go 99% lead us!
Bill, another snappy, insightful article. Thank you.
Dear Wiz: I’m not sure I understand your point. In the USA today we are not experiencing true free market capitalism. There is too much government intervention. Banks take advantage of this and profit. We lose. This is called “crony-capitalism.”
The solution is not socialism or its bedfellows, but the solution is less government intervention. Banks simply need to be allowed to fail. Bankruptcies need to be declared.
I think Bill understands this. In the above article he’s trying on your typical young male’s shoes and seeing at how he looks at the world. To this young male, capitalism (as he sees it expressed today: crony-capitalism) has failed.
@fish
What the heck is Fascism Lite?
[But heck…the whole thing will take years to play out. By the time it finally comes to pass...] BB
Years as in???? 1, 10, 100, 1000, 10000
Kind of open ended, yes?
I would be the first to follow Katie Couric onto the gates of hell, if need be.
Seriously, at least with the Holy Roman Empire falling apart,..sorry, I meant the E.U., the dollar maintains it’s reserve currency status.
Tybz – I don’t think anyone else in the world reckons that things would have been better if the regulation of the banks had been non-existent instead of inadequate. Even free marketeers who think banks should be allowed to fail, and who don’t think Lehman’s was the prompt for the credit crunch and recession, think regulation should be better. joe fish – voluntary trade is fine. A carpenter who makes a table and then sells it is engaged in voluntary trade. A banker who concocts a toxic financial instrument and rolls it up with a load of uncollectable loans and calls it a mortgage-backed security is not. Pig-Dog – the Greens might have something to say to you.
Who claims to speak for the ninety nine percent?
By definition that is virtually everybody.
You don’t speak for anyone but yourself far as I’m concerned. One look at the OWS crowd and I want nothing to do with em.
They don not speak for me.
Wiz gave a good comment.
@Wiz
The Watermelons might have something to say to me? Nothing I haven’t heard.
I await with baited breath to hear what vegan luddites are proposing. Animal powered public transportation. Hemp as a solution to mankind’s ills. Roads built downhill to save energy. A ban on high-fructose corn syrup, alcohol and tobacco. Yea!
@Nemo
Katie is bossy, saggy and old. Like my grandmum.
Meanwhile, EU is evolutionary. Greece.. next victim Italy and third victim..who is that? Sane enough, refrain from any unproductive squibble, debate, comment or saliva skirmish. Against situational needs is most stupid. Buy .. gold and silver.
After i’ve been pushed round by Katie! I’ll have alittle Mussolini with Mao on my sandwhich. If u want “Fear Mongerin?” Tune in2 the channel that proclaims 2b fair & balanced!!! *S* PS hey BB didn’t it take alittle ov 7 million yrs 2 evolve from walkin round on our knuckles 2 were we r 2day? We should never have been allowed 2 “crawl out from the Sea 450 mil yrs,or so,ago!”
I don’t think there will be a revolution. However, I do agree there will be a lopping off of zeroes from dollar denominated currency eventually.
The only question in my mind is if the first lopping will hit in 2012, 2013 or 2014.
Into this lovely thread I would like to introduce an idea not mentioned. Not only did Hitler print money and get the factories going again, he also imposed price controls.
They won’t revolt. All they need is Call of Duty and mom’s basement to be happy. Online gaming is a sedative.
Greeks must be prepared for a unravel from Euro. They must draw our euros out form the bank system before bank freeze the counts and change Euros for drachmas, this before end november!!
@Pig-Dog Capitalist Roader
You sir, are my new hero. I would only like to add; Katie is complicit in the fall of the USA Republic with her nightly obfuscation of the truth while with CBS. Also too boyish for my taste.