Portugal Budget Discussions Break Down, Government Collapse Imminent
The most amusing email this morning sent around the trading desk community comes from the otherwise perpetually jovial Goldman Europe strategist Erik Nielsen. The email subject is simple enough: "Bad news out of Portugal." And the news is bad.
As BBC reports, "the minority government of Portugal has failed to gain opposition support for its proposed austerity budget. A failure to pass the budget could plunge the country back into the debt crisis it had seemingly escaped since the summer." And this: "Prime Minister Jose Socrates threatened to quit if the budget fails, while the finance minister ruled out more talks." In other words, the Portuguese government is about to fall, bond sales are to be put on Hiatus, and talk of the ESFS' usage is likely to reemerge, and add Portugal to the list of recipients including Greece and Ireland.
Nielsen's take is just as dire:
If PSD were to vote against the Budget, the Government would resign and early elections would be called. However, since the elections cannot be held during six months before a presidential election (schedule for January), there would be neither a government not a budget until well into 2011 in this case. In my opinion, this would imply a worrisome delay in the formulation and implementation of critical budget cuts and reforms.
Simply said, the realization that austerity has failed, following recent endless strikes out of France, is becoming ever more widespread. Basically, the only two alternatives proposed by Keynesian economics: excess spending and thrift, are now in complete failure mode, once again confirming that the sole economic theory used by the world over the past century has been nothing but a lie, providing no viable alternatives in times of real stress.
Next up: the realization that fiat money is a broken system.
Luckily, Bill Gross is ahead of the pack on that one:
"Perhaps, as a vocal contingent suggests, our paper-based foundation of wealth deserves to be buried, making a fresh start from admittedly lower levels."
When that last, most obstinate and intellectually challenged Nobel-prize winning shaman of Keynesianism, Paul Krugman finally espouses this view, that will mark the end of the Fed, and will return gold to its rightful place. Of course, for that to happen, Krugman will need to populate his little pet Op-Ed column: "The Worst Economist In The World" with daily quotations of his own endless drivel.