Fulfilling Empty Promises by Turning on the Printing Press

We were too busy yesterday to pay much attention to the markets. Besides, markets in the US were closed. Overseas, investors held their breath and their money. Merkel, Sarkozy and Monti were meeting to try to decide what dumb thing to do next.

They’ve already hemmed and hawed. They’ve delayed and procrastinated. They’ve kicked the can down the road several times.

And now it looks like they’ve come upon the can again…with no more road left.

Now, it’s time to kick the bucket. Yes, dear reader. All debt must die. Sooner or later, all debt expires. Either it is paid off as planned. Or not.

Since ‘not’ is the order of the day, everyone waits to find out who will not get what is coming to him…

…the millions of lumpen voters who believed that they could get something for nothing?

…or the few bankers, speculators, and risk-takers — the upper 1% — who saw an opportunity to make some money?

The whole idea of modern government has been to promise the voters things you can’t afford to give them…and then borrow money to fill the gap. Eventually, as any fool could see, you’d run out of willing lenders and the jig would be up. But lenders are either surprisingly generous or amazingly stupid.

Colleague Joel Bowman tells us that lenders to Argentina are more on the ball. He quotes a resident of Buenos Aires, explaining the difference between government in the developed world…and government on the pampas:

“In your country, it probably takes months, or maybe even years for politicians to break their promises. Here, they do so within weeks.”

Everything seemed to be going along fine in America and Europe…until the private sector got into trouble. Then, the banks were in trouble too…because they had lent money to private lenders who couldn’t pay them back. In America, the feds stepped in. After Lehman Bros. collapsed, they made it clear that the money would be there to bail out any major lender. As for the government itself, there was never any question that its credits were good; after all, it has a printing press!

In Europe, things are not so simple. Because neither Spain, nor Ireland, nor Italy, nor Greece has a printing press. Collectively, Europe has a printing press, of course. But it’s under the control of German bankers. And so far, the Germans have as much as said that if there are any printing press bailouts it will be over their dead bodies…

…which is the way the Greeks, Italians, Spanish, Irish, and all the rest of Europe would prefer it…

…But as of today, the Germans are still among the quick and the printing presses are still not running red hot.

As for tomorrow…anything could happen!

But a couple things are clear.

First, the debt won’t go away…it can’t be paid off…and — barring some growth breakthrough — neither Europe, America, nor Japan can “grow its way out.”

Second, people in all three major developed economies are going to have to accept lower standards of living. In America, real, disposable household incomes — after energy and food costs, taxes, and debt-service — are going down. And people must now stop spending so much and save for their retirements — leading to less consumer spending, high unemployment and a more sluggish economy. In Europe, government-provided benefits must be curtailed.

In Europe and America people have been living beyond their means for many years, financed by going deeper and deeper into debt. The end of that cycle seems to have arrived in Europe…and, for the private sector, in America. The US public sector, on the other hand, still finds it easier to borrow than to cut spending. This will allow it to buy some more rope with which to hang itself later.

Bill Bonner
for The Daily Reckoning

The Daily Reckoning