The European Union came up with a trillion-dollar bailout for itself at the dawn’s early light yesterday. Initially, the bailout plan goosed the euro back above $1.30. But by day’s end, the euro’s value had gained almost no ground whatsoever. Hardly a resounding success on Day One of the campaign.
I mention this event reluctantly, knowing how averse we Americans are to news out of Old Europe, that boring backwater of sclerotic cafe lay-abouts, socialistic train service, and less-than man-sized portions of things that real men don’t eat anyway.
The question begging itself here, of course, is how Europe intends to come up with roughly a trillion in bailout money. Sell Portugal to China? Cut Greece up into bait and catch whatever fish are left in the Mediterranean Sea? Frankly, I’m stumped. Talk about robbing Peter to pay Paul… All the European nations are already so hopelessly enmeshed in chains of unfulfillable counter-party obligations that the bailout might as well be a game of musical chairs played in the Large Hadron Particle Collider, set to the tunes of Karlheinz Stockhausen. The European bailout is, in fact, an absurdity. I predict that the effect of the announcement will last all of one trading day on the stock markets.
The truth is that the imbalances of global finance are so grotesque now that the whole money system is hanging together with nothing but spit and prayer. I get rafts of e-letters every week warning of a supposedly-coming global currency – a companion idea to the notion of a one-world government. Both are fantasies. Events are taking the nations of the world in the other direction: towards break-up, downsizing, down-scaling. Likewise, if major currencies such as the euro and the dollar blow up, they’re much more likely to be replaced by more local bank-notes backed by gold than by some hypothetical Amero or Globo-buck.
Early yesterday morning, the European stock markets were zooming, and Bloomberg even carried a wonderfully mysterious headline saying Greek Bonds Rally. That was especially rich – like, who the hell is going to load up on Greek bonds now? Is there a pension fund somewhere run by such dimwits that they would sell their positions in the Goldman Sachs issued Wolverine CDO in order to get in on the new bargain in ten-year Greek sovereigns? I hope those pensioners are prepared to spend what remains of their lives selling chestnuts from pushcarts on the streets of Oslo.
As if life in the USA wasn’t surreal enough last week…
Once upon a time, the stock market was a place where people with capital went to look for productive activity to invest in – say, a company devoted to making soap flakes, or an underpants factory. Now the market is a robot combat arena where algorithms battle for supremacy of the feedback loops. Thursday’s still-baffling fifteen-minute “crash” was an excellent demonstration of the diminishing returns of technology. People too-clever-by-half, aided greatly by computers, have now gamed the investment indexes so successfully that these markets no longer have anything to do with investment – they’re just about shaving micro-points of profit at high volumes by micro-milliseconds off mere differentials in… math! This is truly quant heaven, a place where only numbers matter and there is no correspondence to anything in the real world. In other words, last Thursday’s bizarre action was a warning that the American stock markets have become certifiable.
These algo-robots may be elegantly complex, but they are really no more than triggering mechanisms, and Thursday’s – whatever it was – glitch, let’s say, ought to be regarded as a mere preview of the coming attraction: a spontaneous capital combustion in which the putative contents of these stock markets get sucked into a black hole so vast that the trading desks will have to find a way to arbitrage infinity to ever again catch a glimpse of America’s receding wealth. And it could all happen in a finger-snap… But probably not tomorrow.
Until then, rest assured that whatever else is going on out there, credit default swaps never sleep.
James Howard Kunstlerfor The Daily Reckoning
James Howard Kunstler is perhaps best known for his 2005 book The Long Emergency , which predicted the financial meltdown and the implications of the peak oil problem. His 1993 book, The Geography of Nowhere, about the fiasco of suburbia, is a campus cult classic among the architecture and urban planning students. It was followed by a sequel, Home From Nowhere, and a companion book called The City in Mind: Notes on the Urban Condition. Mr. Kunstler is also the author of 10 novels including his latest book, World Made By Hand, a story set in America's post-oil future. His articles have appeared in The New York Times, The Washington Post, Rolling Stone and The Atlantic Monthly.
And I think the US should be selling Oklahoma and Kansas to the Chinese, LOL
Is there enough gold to go around if countries revert to the gold standard?
@ Martin Phillips,
There’s always enough gold to go around – at any given price. If many countries revert ot the gold standard, the price of gold will go through the roof. Good time to be holding some.
I don’t think there will be enough gold to go around. It like oil, there is only so much of it.
Gold as with any commodity can be bought on margin and leverage and can always be bought with promissory notes. Debt capitalism is not going away any time soon so there will always be gold and what it is worth is what people will pay for it and with what. If you have good credit you can always buy gold and pay what you think it is worth. The question turns out to be what someone selling it thinks its worth. It is not like there will be huge lines with people waiting to get their hands on some gold. It always takes two to tango. Some one selling gold will always need something or why sell?
Like .99 cents is so much lower than $1.00. Pathetic
Sell ‘em California instead. It’s closer, and has a large population of ethnic Chinese residents to ease the transition.
and your chicks for free….
yes there is more than enough gold to go around for a gold standard….what utter nonsense to think otherwise.
But how do you (all) really feel?
I suppose when they start using matches to sustain the world economies we will require a reality check then…
Thanks to the tireless efforts of the Federal Reserve, currency in circulation is up $72.5 billion in the last year - which equates to $234 for every man, woman and child in America. And after rifling through his wife's purse yielded fruitless results, The Mogambo Guru has launched an all-out investigation to find his share. Read on...
With so much turmoil and political strife throughout the world, it can be difficult to realize how bright the future of technology is. Luckily, Stephen Petranek hasn't lost sight of that. Today, he describes seven important stories that will shape the future... and how a few savvy investors can make a killing in the process. Read on...
The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk. John Goodman explains why this is such a dangerous proposition...
The biotech industry has dominated the market so far this year; and early investors in this sector have practically won the lottery. But with such an incredible run up, could this bull market be nearing exhaustion? Greg Guenthner investigates, and offers some sage advice for investors willing to take a chance. Read on...
Generally speaking, gold miners are bad businesses. They bury perfectly good cash in the ground and tend to issue lots of shares just to stay afloat. So when one comes along that actually turns out to be a good business, it's important to take note. Chris Mayer has found just such a company. Read on...