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European ‘Austerity’ Flames Out with Elections

RickAckerman's picture



Europe’s doomed experiment with the politics of austerity went down in flames over the weekend as voters across the region veered sharply to the left in savaging incumbents. Elections in six European nations on Sunday promised to end any pretense of fiscal sanity. However, it remains to be seen how quickly and drastically the new leaders will act to further unbalance their nations’ books, ostensibly in the name of economic growth. Whatever they decide, there’s a Catch-22 that could make any promises of budget-busting relief for pensioners and public workers impossible to keep. Recall that even the socialists in Greece’s parliament were forced to support austerity measures a few months ago, because without such measures the country would have been unable to borrow enough cash to meet payroll.



In fact, despite several bailouts in the last two years, Greece remains so close to the edge financially that even hard-core socialists might find themselves forced to play ball with the bankers. The “middle way” for them, as has been the case all along, will be to talk austerity while practicing fiscal profligacy. Eurobank president Draghi offered a preview of how this would be done, cribbing a page from Goebbels’s handbook. At a “whisper campaign” meeting in Barcelona over the weekend, he was quoted as saying (whispering?) that Europe could hammer out a “growth compact” to go along with deficit reduction. Like Bernanke, he evidently thinks people are stupid enough to believe such claptrap. But even if it is unworkable as policy, it will used to “manage expectations” in the same cynical way that the Fed chairman manages them. Draghi’ s task will be more difficult, however, because he will be at odds not only with Germany’s conservative bankers, but with a German press that harbors no useful idiots like Nobelist Paul Krugman to zealously advocate ruinously inflationary fiscal policies and Big Guvvamint management of…everything.


Bullish for Gold, Silver


Although the foregoing has bullish implications for gold and silver, the effect is likely to be muted because it will also be quite bullish for the dollar, at least initially. European investors will be seeking a “safe haven” more desperately than ever, implying that in the weeks and months ahead, they will be diving into Treasury paper and other dollar-denominated instruments that are perceived as relatively safe.  Rick’s Picks has been predicting a powerful rally in the U.S. dollar, and this weekend’s elections in Europe seem likely to be the catalyst. Under the circumstances, we should also expect the recent weakness in U.S. stocks to continue over the summer. Bullion will be feeling the weight of this, but we expect precious metals to correct only moderately from current levels nonetheless. Of course, it’s also conceivable that gold and silver will achieve at least middling gains over that time. In the meantime, although Apple shares remain our bellwether for U.S. stocks, it’ll be interesting to see, as Europe sinks deeper into an economic quagmire, whether there’s enough greed and stupidity left on Wall Street to award Facebook’s May 18 IPO a $100 billion valuation.



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Mon, 05/07/2012 - 12:49 | Link to Comment besnook
besnook's picture

in other words, everyone on a count of three. 1,2,3, PRINT, BABY, PRINT. 


the question is, with the election results, do the people see the opportunity to take down the banks(a la iceland) or will they allow the banks to take down the people.

Mon, 05/07/2012 - 16:45 | Link to Comment michael_engineer
michael_engineer's picture

If it isn't poitics that is serving up austerity, then the cold hard reality of resource depletions may someday replace the reason that austerity gets served up for dinner, whether we like it or not.   One way or another, it may be the only thing that is on the menu.   

Welcome to the Hotel California.   You can check out any time you want, but you can never leave!

Mon, 05/07/2012 - 12:21 | Link to Comment kikkoman
kikkoman's picture

what gives you the idea that there are no useful idiots in the German press?

sure, we have no Krugman. but after all, many people tend to agree with Krugman just because he's the man.

he polarizes and all you're either with him or against him, but i doubt he has the impact of a leftist, statist steaming pile of shit as the Spiegel which is still widely regarded as NEWS.

anyway, weird times ahead.



Mon, 05/07/2012 - 12:06 | Link to Comment theprofromdover
theprofromdover's picture

you killed my dollar -prepare to die

Mon, 05/07/2012 - 11:09 | Link to Comment j0nx
j0nx's picture

I'm all for austerity for the people as soon as the big banks are liquidated and sold off as the insolvent scrap that they are and the proceeds used to pay back the treasuries which they looted. Until then fuck off. EOL.

Mon, 05/07/2012 - 11:55 | Link to Comment Bob
Bob's picture

Bingo.  It's strange that so many people ignore that central reality of the situation.  The issue seems to shake out alot of prejudice in favor of the proposition that he who holds the cash is the guy who should rule and fuck lame assed notions of "fairness." 

Mon, 05/07/2012 - 12:16 | Link to Comment DaveyJones
DaveyJones's picture

ignoring realities is what people do best

Mon, 05/07/2012 - 12:04 | Link to Comment ihedgemyhedges
ihedgemyhedges's picture

Much better than Brusca........................of course, that's no real hurdle at all............

Mon, 05/07/2012 - 10:28 | Link to Comment docj
docj's picture

You keep using that word (AUSTERITY). I do not think it means what you think it means.

[ / Inigo Montoya ]

Mon, 05/07/2012 - 10:06 | Link to Comment SoundMoney45
SoundMoney45's picture

The choice is servicing odious debt via austerity, or default on the odious debt.  No to austerity equals default on the odious debt.  

Mon, 05/07/2012 - 09:59 | Link to Comment Snakeeyes
Snakeeyes's picture

Are we seeing a remake of The Poseidon Adventure? The Morning After.

Mon, 05/07/2012 - 09:55 | Link to Comment XtraBullish
XtraBullish's picture

All currencies are doomed until the last Boomer is gone or until the Gen-Xers throw them all in jail. 

Mon, 05/07/2012 - 12:36 | Link to Comment besnook
besnook's picture

just to follow your meme......genxers have proven themselves useless so don't expect them to do anything but continue pounding their pud and texting their friends how their girlfriend kay(y) is so tight.

Mon, 05/07/2012 - 10:18 | Link to Comment DOT
DOT's picture

Your mind has been corrupted by the Avenue.

Boomer, X-er, Millenial, ect. are all Bull Shit. 

Madison Avenue Bull Shit.

Mon, 05/07/2012 - 09:34 | Link to Comment Zero Govt
Zero Govt's picture

you'd think it was time Draghi rolled out Stress Test 3 by now ...the first 2 under Trichet appear so 'old' now post €2 Trillion of banker bailouts that they said would not be needed

Mon, 05/07/2012 - 09:25 | Link to Comment Buzzworthy
Buzzworthy's picture

Why buy the dollar when you can front run the next trillion Euro LTRO, which is surely coming?  After all, growth can come in only two ways - exports or inflation - and we all know why exports can't be the answer.  Easing to infinity, baby.  Meanwhile paper manipulation of the PM prices will continue to make it look like buying metals is a bad investment.  Management of Perception Economics remains strong.

Mon, 05/07/2012 - 11:54 | Link to Comment ElvisDog
ElvisDog's picture

Easing to infinity huh? Seems like they tried that in France in 1788. They didn't seem to get anywhere near infinity. Something along the lines of starving masses who could no longer afford bread rose up in revolution. But I'm sure the Central Bankers will have things all under control this time when they ease to infinity.

Mon, 05/07/2012 - 13:12 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Carbohydrates are cheap cheap cheap now, but still, you can have a revolution for lack government being able to pay even for those, such as is happening in Egypt pretty much NOW.    Don't hear much in the press about the biggest arab country imploding with mass starvation and fanatacism that will rule the day thanks to that.

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