The world financial economy resembles a single track railroad tunnel into which two heavy freight trains have entered simultaneously, one from each end, both going inward. We know what must occur and we know that it is too late for anyone to do anything to prevent it. It is politically impossible to discuss but it is not complicated.
All the simple ingredients for this witches’ brew are in place. In Europe, the post-Reformation Germanics are balancing their budgets and characteristically, expect others to do so. The more relaxed countries (everybody else) wish to avoid annoying their voters with frugality and the worst off Greeks and Latins have had all the reality they can stomach already. The E.U. politically resembles trains pulling in opposite directions.
The U.S. Federal Reserve has folks thinking that it won’t raise interest rates anytime soon. In America, cheap money endures. In Europe, Tony Blair, safely out of office in the U.K. spoke up for flooding Europe with cheap money as well, to “stimulate” the lagging economies. The ‘give-the-engine-more-gas’ theory. Japan has joined in. The European Central Bank seems to agree. Those uptight, full of fiscal rectitude Germanics however, refuse top believe in spending themselves rich. Now what?
There are, after all the snake oil spiels from politicians and their tame ‘economists’ only two little realities that matter:
1, Debt: Throughout the world, far too many citizens, corporations and governments owe more than they can realistically be expected to repay under any believable circumstances. If it is not repaid, it breaks too many banks.
2. Monetary policy cannot cure economic structural problems; it may delay them but the result will be worse for it. Because the gas being used to goose the engine must be taken from the vehicle’s gas tank. Or if you prefer, the blood used to transfuse the patient, must first be drained from him. Our physics is not ready for perpetual motion; no more our economics, though that is what the Federal Reserve, the ECB and Tony Blair are selling.
So watch Europe for now; everybody is furious with the Germans for wanting to pay their bills with their money when all the others want the Germans to pay everyone else’s bills for them instead. Even the UK.’s Tony Blair.If the Germans have their way, everything will come unstuck and it will be bad. If the rest win out, everything will come unstuck later, and it will be worse. Pick one …
In a sort of footnote to all this, former Federal Reserve Chairman Arthur Greenspan, the patron of easy money for over a decade at the Fed, now sounds a bit different. He is worried about a US political crisis stemming from financial failure following a Big Market Event triggered by Fed policy. Policy we note, that is a continuation of his own. But he has the right to change his mind, we suppose.
Will the Germans hang in and be dead right? Or will they cave and join the spendthrifts to buy a little more time before a worse gotterdammerung?
We have no idea as well as no umlaut. Wait and see; it shouldn’t be too long now.