The financial news yesterday was dominated by alarming reports from Europe.
“Backlash,” said The Financial Times…referring to an “anti-austerity wave” that washed over Europe in weekend voting.
If the FT doesn’t mind mixing metaphors, we don’t either. But our metaphors are a bit different. What has happened is not a backlash but a wake-up call. It comes as voters realize that the placebo medicine — phony, half-hearted austerity measures peddled by the Euro elite — don’t work. They want an elixir with more of a kick to it. That’s why the leftists are gaining so much ground.
In Greece, support for leftwing parties has trebled since the last elections. But what do you expect? The typical family has lost almost a third of its real income since the recession (which continues) began. Youth unemployment is at 50%. Young Greeks fear being a ‘lost generation’ that must emigrate in order to find jobs.
In France, Francois Hollande promises to be reasonable. But he won the election by attacking Sarkozy’s austerity moves. He won’t make Sarkozy’s mistake. Instead, he’ll go after the rich with a top marginal tax rate of 75%…and promise ‘growth,’ not ‘austerity.’
The trouble with the austerity proponents is that they didn’t go far enough. Budgets were cut. But not enough. The average deficit is still about 5% — well above the Maastricht 3% limit. This left the deficit nations in tough spots. They cut spending, which angered the leftists and the layabouts. But they still were beholden to lenders to cover their deficits. And whenever their unemployment rates rose…or the GDP growth rate fell…they had to pay more for their borrowed money.
Real austerity — with deep cuts and balanced budgets — could work. But it contradicts the whole idea of government, which is to transfer as much wealth from the outsiders to the insiders as possible. Besides, such deep cutbacks would probably trigger a zombie revolution.
And by the way, ‘austerity’ is coming to the US too — if Congress doesn’t stop it. Economists are calling it the “fiscal cliff.” The nation is scheduled to run off the edge on Dec. 31st… Mohammed El-Erian explains:
Economists are rightly starting to warn that the United States faces a worrisome “fiscal cliff” at year’s end. The blunt spending cuts mandated by the 2011 compromise on the debt ceiling — and the failure of the “supercommittee” that followed — along with across-the-board tax increases would derail the US recovery and undermine the well-being of the global economy. We should be avoiding the edge of this cliff — and politicians should not believe that they have until the end of this year to act.
The sequestration mandated by the Budget Control Act of 2011 and the reversal of the Bush-era and payroll tax cuts would essentially mean withdrawing from the economy some 4 percent of the national income in one blunt go — and this doesn’t factor in possible knock-on effects. The importance of this issue cannot be overstated. A fiscal contraction of this magnitude and composition would stop dead in its tracks the economy’s nascent healing and job creation. Consumption and investment would be harmed. Foreigners would become more cautious about buying our ever-increasing debt issuance. And with our internal growth momentum weakened, the headwinds from the European debt crisis could prove overwhelming.
The austerity show has been playing in Europe for the last two years. That’s why half of Europe is in recession…with the other half not far behind. Europeans are tired of it.
So, now the Europeans seem to be giving up on phony austerity and turning to phony growth. They are going to spend more borrowed and printed money. This will look vaguely like “growth.” There will be more jobs and more incomes. But there will be precious little real prosperity going on.
Of course, going for growth is precisely what got the developed world into such a jam in the first place. Too many people spent too much money they didn’t have on too many things they didn’t need.
In America, the Fed encouraged it with low rates…then after the private sector debt bubble blew up, the feds made up for the missing spending by spending more themselves.
In Europe, the euro-feds made a debt bubble possible by establishing a single currency bloc…with harmonized interest rates. All of a sudden Greece and Ireland could borrow as easily and cheaply as France and Germany. And so they did; they borrowed their way to the brink of bankruptcy.
Now, Francois Hollande has a plan. He wants to make Europe more like America…with a central bank that lends to government directly and “mutualization” of credit risk. In other words, he wants to do what Alexander Hamilton did to the US in 1791: make the states collectively responsible for each other’s debt. And then he’ll let the ECB print the money to buy sovereign bonds directly.
Yes, dear reader, the trend towards centralization continues…with central financial planning…central bank counterfeiting…and everybody going broke together.
In Europe, as in America, it’s one for all…and all for one…
…and every man for himself.
Bill Bonnerfor The Daily Reckoning
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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The jaded conspirator in me says the whole thing from the blowing of bubbles in the U.S., Lehman failure, and the European Crisis was planned years in advance for exactly what Bill says. The ECB wants the European nations to give up more control so that they can exert it, just like the Fed does here. I suppose they feel they will do a better and more humane, less leach like job than the governments?
Me thinks the markets are about to make Msr Bernanke cry uncle. If not this week, then next week for sure. Only you can be sure Bernanke will do everything he can to save face. He will once again state that there will not be a QE3 or any other kind of “quantitative easing”. Instead, the Fed will embark on a new stratedgy by “Easing quantitatively”. On the surface, it may sound much like the former. But, in fact, EQ will be worlds different from QE in that the freshly printed money will be spent with the reverse sides of the bills facing up instead of the usual portrait side facing-up. This revolutionairy approach will allow the Fed to momentairly suppress interest rates for at least another quarter while simultaneously flooding the market with trillions more in freshly monetized debt.
“I suppose they feel they will do a better and more humane, less leach like job than the governments?”
they might. a politician having clawed his way to the top of the political heap tends to view everyone around him as an expendable tool or as an irrevocable enemy. but a banker having indebted entire societies tends to view everyone around him as property to be tended. controlled, yes, tended by overseers, yes, owned but not seen or heard by the owners, yes, but tended nonetheless.
of course we all know what happens to chickens that get too old to lay eggs anymore. but hey, until then we’ll get all the bugs we want.
Any economy that uses usury or interest will fail. Usury is more destructive to mankind than war.
Stop the usury, and most economic problems go away.
It’s funny that El-Erian believes that the Budget Control Act is more than window dressing. It doesn’t even cut anything. It just reduces the growth a little bit. He also seems to think that cutting government spending is ‘taking money out of the economy!?!’ A bit confused I would think. Since when has the government been creating any real wealth with their activities. The problem is that the “cuts” don’t translate into citizens having more money in their pocket to spend. Austerity would be all well and good if it did that (similar to post WWII cuts in government spending), but it doesn’t. People have no extra money to spend and government keeps getting fatter. Hardly a recipe for growth!
The question I was asking a couple of very young Americans staying at my finca in Argentina today was what would happen if tomorrow the Federal government would disappear from the face of the country? The reply after a few seconds thought was: nothing really life threatening. Perhaps it is time to think of the unthinkable: splitting up of the Union as it exists. The taboo is on the table. Comments?
Robbie a few minutes ago i posted a reply to you well everyone using track back which is listed on the lower part of the page i received a e-mail saying they were going over it.
Now i’m going to try not using track back to see or understand the difference as they don’t send ones post to them in the e-mail conformation.
This way it went right through in seconds.
I thought in either case they moderated the posts.
It seems as my posts are filtered. Will this go through?
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