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The EU Political Game of Growth Vs Austerity is Akin to Polishing the Brass on the Titanic

Phoenix Capital Research's picture




 

 

France and other, weaker EU members have begun pushing for “growth.” This in of itself reveals how clueless the political elite in the EU are (economic growth in Europe is synonymous with living beyond one’s means and/or living off of others… the very policies that have lead to the EU Crisis).

 

Indeed, this shift from focusing on austerity to growth is really just a switch from one side of a coin to the other… without actually addressing the fact that the coin itself has no value as a concept.

 

Let me explain.

 

Both growth and austerity are political hot buttons that fail to address the core issues plaguing the Euro-zone. Those core issues are:

 

  1. Age demographics, which courtesy of a welfare state translates into…
  2. Massive unfunded liabilities and debt overhang that stifles growth…
  3. And an unwillingness to innovate or pursue democratic capitalism

 

When political leaders talk about austerity today, they’re not even actually addressing real austerity. France, for instance, is balking at the prospect of submitting to more  “austerity measures” when it actually increased its spending by $62 billion from 2009-2011.

 

That’s austerity?

 

Indeed, the whole exercise becomes a total joke when you realize that as far back as 2004 France had unfunded liabilities (social programs, pensions, etc) equal to over 500% of its GDP. As Jagadeesh Gokhale of the Cato Institute notes, in order to meet these needs without increasing taxes, France would need to set aside nearly 10% of its GDP every year indefinitely.

 

Put another way… in order for France to meet its unfunded liabilities, it would have to start saving NOT spending beyond its means.

 

Speaking of which, spending beyond one’s means is precisely what EU leaders are referring to when they talk about “growth.” For the EU, economic growth is synonymous with spending money (especially if it’s someone else’s money), NOT economic innovation or organic growth from small business.

 

As I mentioned before, the “austerity” and “growth” to which EU leaders refer are simply two sides of the same coin: that of assuming that massive problems can be dealt with superficially. It’s akin to polishing the brass on the Titanic as it sinks: in the short term, you’re making a small difference, but in the big picture, you’re ignoring the very real, enormous problem you need to tackle.

 

Those enormous problems are a massive debt overhang… which cannot be dealt with by the ECB, Fed, or even the IMF at this point. The Fed has already openly admitted that it cannot perform more aggressive easing (it is an election year in the US after all). The ECB has expanded its balance sheet to the point that its own solvency is in question. And the IMF, which is essentially a US-backed entity, cannot get funds from the Obama administration during an election year.

 

That’s the real deal here. And it’s all happening at a time when EU sovereigns, corporations and banks need to roll over TRILLIONS of Euros in debt at the same time as they need to issue hundreds of billions of Euros in new debt.

 

On that note I fully believe that the EU will collapse before the end of the summer. So if you have not taken steps to prepare for the end of the EU (and its impact on the US and global banking system), you NEED TO DO SO NOW!

 

I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com

 

Good Investing!

 

Graham Summers

 

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com

 

 

 

 

 

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Wed, 05/23/2012 - 00:11 | 2453930 Element
Element's picture

 

" ... and leberated herself ..."

umm ... non ... and that would be twice.

" ... Leave her alone: she doesn't need you. ..."

Like France did with colonial Indochina? (i.e. Vietnam)

Who do you think you're kidding? 

France has been pulled out of the shit by other countries for a century.

It's perfectly valid for a zh contributor to examine the outrageous financial mess France is now in and to critique the profoundly deluded, myopic and self-satisfied nature of the French establishment.

Don't take it personally, all failed-states get the same treatment here.

Tue, 05/22/2012 - 23:29 | 2453851 Parisianheart
Parisianheart's picture

I always find it amusing that Americans can Oh so well decide what is good for everyone else and yet... be incapable of fixing their own problems.

France is over 2000 years old.  She  hasn't waited for America to tell her what to do and how to get out from under.  Having been invaded thousands of times and fought and leberated herself, having, once, been one of the most powerful countries in the world (and for much longer than  America, on the brinks of total economic collapse could ever dream of...), France knows that greed doesn't work (they killed Louis XVI over it), inequality and disparity are death, Monsanto is an abomination and Europe was an experiment worth going through.  Austerity was the way of life for France for centuries: it doesn't work.

But for Wall Street and 2008, Europe would be doing very well.  What is America doing about Wall Street? Absolutely nothing, on the contrary.  America condones greed, victimization of its people, systematic poisoning of its children, dumbing of the minds, massive unemployment and, in short, anything that can turn people into emotionless, chicken-like robots, clapping at bad behavior and outrageous lack of dignity.  France will last.  Its cheeses will not be made of hormone-loaded milk, its wine will not contain sulfites, people will keep using public transportation and look and feel good and Americans will keep choosing to live there.  America, on the other hand, will collapse under the weight of paper money worth peanuts and at the hands of its own armed population (290 millions of firearms in a country of 320 people...)

Unlike America, France has a history, a culture and wisdom.  Leave her alone: she doesn't need you.

 

Tue, 05/22/2012 - 22:21 | 2453530 Element
Element's picture

 

" ... When political leaders talk about austerity today, they’re not even actually addressing real austerity. ..."

I've been saying this for about 18-months to 2-years now, these EU and also US political leaders have no clue what austerity really is.  They, and their MSM lie-support apparatus, keep mouthing this hollow word, and pretending that it's magically become State fiscal policy -- when it quite obviously isn't, and never has been.

They in fact reside and continue to luxuriate in deficit-land, that is, where you're still spending way more than you have, and have merely reduced your exorbitant serial failures to NET balance budgets during the past 20 years or so. 

That is still dwelling within the fiscal framework of what austerity isn't.

Austerity comes from realising you can't get to point B, from point A, and may not even be around after time C, if you don't immediately RATION what you do have, in order to still be alive and viable at time C.  

To ration like that you have to accurately account for what you do have, what the ins and outs of revenue actually are, so where you will then be, come time C.  Then you use that to BUDGET a metered portion sufficient to get you to time C, from point A.  

Everyone in Europe knew what austerity was in the period 1930, to around the early 1950s.  What we see now are two generations who largely never experienced anything like austerity, and an elite ruling-class who have never been materially deprived .. so really don't give a flying-fuck about austerity, in actual fact. 

Because they won't be materially affected by it, in serious ways, almost at all.

Well ... unless their bank failed ... and their paper and digits went ka-blewie! ... and their political power and protection racket disappeared.  They must, and so they always so insist that the Banks be saved as a first priority, at the expense of the little-people in the street, who know their only hope is to destroy the debt held by the banks, and to one way or another remove the ruling political class, who's incentive is to ensure via the use of state suppression and oppression, and even terror or civil war, that this won't be permitted to take place, in order that a real recovery could unfold, in due course. 

Else, there would be an unthinkable "catastrophe" ... for them!

And we can't have that.

Hence to their political insistance that the Banks and the system be saved, at any and all costs.

austerity the word has just been another meaningless brain-fart, a political propaganda gimmick, some convenient conceptual nucleus which they can use to hang lies off of, as if doing their political washing with it, and pretending to be suffering too, and making "tough decisions" that are in, "everyone's best interests."  But it isn't, and they aren't.

There's another word they're also going to have to learn; that cuts to outrageously high and unaffordable spending is not austerity, it is mere budgeting prudence.

But the only 'fiscal' term they do all instantly recognise is ... "Hewlett Packard".

The reason the few remaining, "surplus countries" are generally doing ok, is they actually are wealthy, they balanced their budgets to run surpluses in order to pay-down public debt, and reserve capacities.

The real problem is thus psychological.  All of these major "deficit countries" wanted to fool themselves, and others, that they're far more prosperous and higher-up the wealth and economic foodchain than they ever were.  So they all we easily trapped by banksters, and used credit, and voted to pass 'budget' deficits even in good times, to construct the required psychological illusion, and the EU's hierarchical edifice.

The younger generation simply discovered the fact that these jackass EU 'leaders' and privileged supposed 'elder' statesmen were all full of shit.

How?  Via the 'leaders' setting in place policies that have relentlessly grown unemployment induced austerity within the younger generation, that forced them to snap-out of Europe's political and wealth illusion-making.

--

And that's what you saw in Paris's streets, Graham.

The problem now is that the young have realised that hopey-change won't ever come from the the politicians and are thus going to force real changes, not wait for the false promises to bare fruit in the fullness of time.  And they do not have the experience to foresee that they can make it very much worse than it has to be.  

Plus there will be active influences that will definitely seek to derail such changes in society, and its core priorities, ethics and prevailing political ideology.

And crafty old wilful elites have to get the message that the game is up, they had better get out of the way of the changes coming, or the situation is going to be forced.  They are used to playing it out every situation to the very end, to try and get a win, but if they are permitted to do this, this time, it really will be catastrophic.

Thus I think we need experienced and intelligent police and military leaders to really understand where the common people are coming from, and why they're insisting on radical changes, immediately, and to act responsibly to accommodate that.  This must and will happen, without making it more damaging or repressive than necessary, or to seriously damage future civil relations between the young, and the instruments of state power taking orders from elite interests.

There is going to be a contemptuous anti-authority, civil disobedience attitudes shown towards these for several years, especially if the police and Military do not convey to the political elite that the jig is up, and that they must get out of the way or it, and stop just making things worse.

Dressing up like Darth-Vader and pointing weapons, whilst appearing to be fully supporting a wilful elite, via violent pre-emptive and suppressive actions and enforcements of meaningless and provocative laws regarding gatherings and perfectly understandable public protests will flare public rage, thus the police would appear to be an enemy of the people -- who need real change fast.  That isn't going to aid anyone.  The reality is most people already dislike the police or have a grudge against them over previous 'interactions', and any needless unreasonable vexatious antagonisms from the police, are going to boil over fast.

Keeping the peace and maintaining 'order' does not require that, as the people will be orderly if a necessary orderly root-and-branch re-ordering of the society is accomodated and permitted to take place.

The countries and societies that do this best will be the ones that emerge the earliest in a reconstituted format, and begin a realistic (non-hopey-BS-utiopian) economic recovery and re-employment.

If international or civil war is used instead to maintain 'emergency powers' of state authority and control, this will be a complete disaster for any such a country.  It will be up to military officers to stridently resist this, and to limit the influence of duplicitous elite interests, in propelling states towards war, and potential war-like situations.

Tue, 05/22/2012 - 23:18 | 2453832 Sockeye
Sockeye's picture

This made me think of what is going on in Quebec.

Tue, 05/22/2012 - 19:42 | 2453305 misterc
misterc's picture

You can bet the farm on euro bonds coming in some form, dudes. Merkel will cough up a lot of dough.

http://www.youtube.com/watch?v=CS3qyx8drQk

Interview with Horst Seehofer, the most powerful grey eminence surrounding Merkel.
 He's got quite a bright mind, thinks that austerity alone won't solve Europe, that there's inflation on the horizon and so forth.

Skip to the minutes 5-9 - the official interview was done already, but they kept on talking and he finished that he'd be finde with airing all he said.

Tue, 05/22/2012 - 19:37 | 2453290 Bartanist
Bartanist's picture

Oddly enough it is like polishing brass on the "Olympic" since evidence has been recovered (including from the wreck itself) indicating that the ship that went down was the Olympic (which has been in several prior damaging incidents), not the Titanic.

And also not so oddly enough, it was a J Pierpont Morgan lead insurance fraud. The Olympic (renamed Titanic) was over insured for its supposed maiden voyage.

Real history gives a very different picture of the "so called" leaders of our people.

Tue, 05/22/2012 - 18:29 | 2453073 Impotent_Smurf
Impotent_Smurf's picture

The Titanic references are way overused, need something new. The Challenger for instance, yeah. It's akin to that female teacher doing her nails before liftoff.

Tue, 05/22/2012 - 17:11 | 2452811 NEOSERF
NEOSERF's picture

#4 Systemic labor productivity imbalances (probably through decades of misalligned capital spending and corruption) between the Northern and Southern countries...Nobody is talking about what to do about this short of breaking up the euro and allowing everyone's native currencies to float as they did...that is how you handle that...

Tue, 05/22/2012 - 16:15 | 2452576 Stuck on Zero
Stuck on Zero's picture

UCSD Professor Valerie Ramey has an interesting new paper looking at the effects of higher government spending on GDP. 

 

Abstract
This paper asks whether increases in government spending stimulate private
activity. The first part of the paper studies private spending. Using a variety of
identification methods and samples, I find that in most cases private spending falls
significantly in response to an increase in government spending. These results
imply that the average GDP multiplier lies below unity. In order to determine
whether concurrent increases in tax rates dampen the spending multiplier, I use
two different methods to adjust for tax effects. Neither method suggests significant
effects of current tax rate changes on the spending multiplier. In the second part
of the paper, I explore the effects of government spending on labor markets. I find
that increases in government spending lower unemployment. Most specifications
and samples imply, however, that virtually all of the effect is through an increase
in government employment, not private employment. I thus conclude that on
balance government spending does not appear to stimulate private activity.

 

Wed, 05/23/2012 - 00:55 | 2453884 Element
Element's picture

But economist's see that increase in spending, when associated with recessions, as "sectoral-rebalancing", due to systemic 'automatic-stabilisers', where a recession in the private sector automatically results in expanded spending and hiring in the public sector, via pre-set systemic mechanisms.

Then the visa-versa during a switch back to private sector growth.

When Govt still tends to become and to remain somewhat larger than prior the recession. So taxes, and/or deficits and public debt rise over time.

Budgeting surpluses is the natural solution to this.  But the public sector lobby sqeals like likely piigs.

And this takes vitality out of the private sector each subsequent recovery.

A viable small-business rarely misallocates resources for long.

Big business can do it for years.

But Govts misallocate resources for multiple decades.

And the effect of this misallocation always affects small businesses first, because they operate on the smallest margin.

The Govt thus sucks the cream from what the people then need to have an agreeable and rewarding life adn work, with the 'margin' of 20 to 25% of taxable incomes, etc.

So you then get "jobless recoveries", because the burden of Govt spending killed off small business margins. And people won't do NET productive work, for peanuts, in the private sector.

Nope, they wise up ... and go find a NET parasitic job in the public sector.

This continues until, as Reinhardt and Roggoff showed, the approximate level of 90% debt to GDP (on average) is reached, then the death-spiral of rising public debt and deficits accelerates into printing/debasing and almost always results in a Sovereign default for any country that drifts above about 90% debt to GDP.

That's a LOT of big countries today.  People just keep hoping that their country can pull off a "Japan", but the last 800 years of financial hystery informs us Japan is going to collapse.

The fact the plan to bailout Greece followed a path that still had Greece at 120% of public debt to GDP in 2020, demonstrates the gross stupidity and ignorance of everyone connected with formulating and negociating this most recent bailout.

Van Rompuy in particular.

"Every country should emerge victorious from negotiations. A negotiation that ends with a defeated party is never a good negotiation.  I will consider everyone's interests and sensitivities. Even if our unity remains our strength, our diversity remains our wealth."

 

- Herman Van Rompuy, Nov 2009

 

http://articles.latimes.com/2009/nov/20/world/la-fg-eu-president20-2009n...

Good luck with that!

Tue, 05/22/2012 - 14:46 | 2451938 Jack Sheet
Jack Sheet's picture

Shit on toast. This is copy, paste and dilute from the previous 6 articles

Thu, 05/24/2012 - 09:03 | 2458441 Zero Govt
Zero Govt's picture

16 articles ...fixed it

Tue, 05/22/2012 - 14:25 | 2451837 Vegetius
Vegetius's picture

The facts point one way, over the cliff. The date of when these guys go over is debatable what is not up for discussion is the fact they will go over.

Debt - Resource depletion - Population numbers – Demographics- Food supply (or to put that another way the destruction of useable farm land) - Energy bottlenecks and Oil depletion – Fundamentalism

Take your pick or your poison, but why get too worried about it.

Tue, 05/22/2012 - 13:34 | 2451615 ebworthen
ebworthen's picture

Fine brass on that ship there, fine brass.

Tue, 05/22/2012 - 13:57 | 2451605 Eric L. Prentis
Eric L. Prentis's picture

Referencing the Cato Institute is a non-starter (zero credibility).


Tue, 05/22/2012 - 13:18 | 2451566 Joe The Plumber
Joe The Plumber's picture

People should listen to Merkel. She is correct that growth comes from the hardwork of improving efficiency and productivity. Often inefficiency is embedded in law. Ineffieciencies often benefit a select few and harm the whole but the harm to the whole is hard to see while the harm to the few by getting rid of legally protected inefficiencies is highly visible and the few protest loudly and vigorously

Tue, 05/22/2012 - 22:43 | 2453778 Element
Element's picture

Yes, and societies and countries also don't have equality of potential and of opportunity.  The geography, resources, and also nebulous things like history and cultural acheivement in some countries, simply creates a better economic and political situation, than within even regional neighbouring states.

That is the case with Germany today, just as it was once true of England, Rome, Turkey and Persia.

And good luck to them, Merkel is just playing the cards she was dealt, and doing it pretty well I'd say.

What the hell do people expect her to do?

Tue, 05/22/2012 - 12:37 | 2451355 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!

Regarding growth versus austerity and paying for things, consider the misunderstood role of credit and debt.  As a whole, the world never really runs on credit, does it?  It always runs on the physical resources and stockpiles that are in hand.  The concept of borrowing from the future and from our grandchildren is really an "urban legend" and is pure bunk.  Although it is a fact that if we deplete a resource, there will be less of it for future generations to use, in no way should this be considered borrowing from those generations.

 

Tue, 05/22/2012 - 22:36 | 2453767 buckethead
buckethead's picture

I was thinking more along the lines of; "rust never sleeps"

Tue, 05/22/2012 - 12:21 | 2451326 Zero Govt
Zero Govt's picture

"On that note I fully believe that the EU will collapse before the end of the summer."

it was a May-June collapse only last week Graham!

put the goalposts on wheels old chum, it'll be easier to move them around

Tue, 05/22/2012 - 14:44 | 2451935 Jack Sheet
Jack Sheet's picture

didn't say which year

Tue, 05/22/2012 - 12:10 | 2451289 Nachdenken
Nachdenken's picture

Analysis here on ZH, like this from Phoenix are projections based on assumptions based on given or gathered information and indicators.  Information and indicators are, and have been, manipulated so one is left with market moves as a secular guide.  And in the end it is this market, which though in itself pushed and coaxed with intervention (verbal and with instruments) alone has the strength to turn and cause events.

When you know the speedometer is fixed, the sound of tyres on the road is piped in on the radio, the wind in your hair is MSM draught, the ride is over only when the car falls apart.  This summer July 2012 ?

Tue, 05/22/2012 - 12:12 | 2451301 derek_vineyard
derek_vineyard's picture

he has gauranteed crash by may or june 2012

Tue, 05/22/2012 - 09:39 | 2450654 GeneMarchbanks
GeneMarchbanks's picture

This was Brusca-esque.

Your Apocalyptic tone has its reasons it just ain't the ones you think they are.

Tue, 05/22/2012 - 15:19 | 2452192 Jack Sheet
Jack Sheet's picture

Good point. Excuse my asking, but what do that irregular orifice in your logo and the surrounding anntenae represent?

Tue, 05/22/2012 - 20:34 | 2453464 ThirdWorldDude
ThirdWorldDude's picture

scroogle "Mandelbrot set"...

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