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The Divergence Becomes Distinct

Tyler Durden's picture


Via Mark J. Grant, Author of Out of the Box,

“Two roads diverged in a woods…”
                                -Robert Frost
I have said, for months now, that Europe and the United States were heading in two different directions. That became quite clear today as the manufacturing numbers for Europe were dismal while unemployment for the entire Eurozone reached 10.9% which is up 9.1% from last year. The entire Continent is in a recession, with the exception of Germany, and I think their next release, in mid May, will show that they have joined the rest of their brethern. Austerity has its costs and two of them are increased unemployment and a decline in demand for goods and services which is then exacerbated by the drop in the number of people that are working. All of this will get played out in a number of ways including a drop in the value of the Euro against the Dollar, ever widening spreads for European assets versus corresponding American assets and increasing costs for the refinancing of European bank and sovereign debt. As the effects of the LTRO wane and as it becomes apparent that there will be no new easing by the ECB; the problems mount. Liquidity wins in the short term but the issues of solvency and structural deficiencies remain and, being unsolved, they continue to weigh upon various credits and worsen their financials as investors take note and shed European assets. In the months ahead, for both political and economic reasons, I think we will see a flight back to American assets as the picture in Europe becomes both clearer and obviously worse.

The Denominator
Europe has made a colossal mistake in how they have done things. They have erred in that they have forgotten what is really important which is not the size of the debt and not the size of the GDP but that the critical issue is the size of the relationship of the debt to the economy. In focusing so much on austerity they have increased uncemployment and reduced demand which decreased the size of the national economies. Brussels/Berlin has created, in fact, a death spiral which can only be broken by growth or Inflation and, with neither present, the downward spin continues and worsens. It is always the Denominator, the relationship of debt to GDP, which is critical and in losing focus; they are losing the war. This is becoming evident in ever larger European protests that could easily become violent at some point and, short of that, in national governments that are being voted out of power in one country after another. A France under the guidance of Hollande is going to be a very different place and then when the general elections for Parliament come in June we will all see members from the far right and left that will also influence how France is governed. In Greece the splinter parties may rule the day on Sunday and how that country is going to be governed is anyone’s guess at present. What I do believe however is that Greece will exit the EU the moment that funding is cut off for them and hang the EU/ECB/IMF in the process. It will be an amusing moment, no doubt, as the curtain closes and as the ticket owners are forced to pay the costs of closing the show.
Understanding Unemployment
The Eurozone now has the highest unemployment since its inception at 10.9%. The affects of unemployment are a squared number. In the first place the costs of social services increases as people receive the largesse of the government’s programs and in the second place demand decreases as people can no longer afford to buy many goods and services. The year-over-year variance is 9.1% which equates, broadly, to an 18.2% differentiation between increased costs and lessened demand. This is a rather simplistic equation of course but it demonstrates what is now taking place in Europe and the variance is large enough to be quite significant for the European economies which is one reason why I see the recession in Europe to be much more severe than is spoken of in the Press. The sovereign debt increases, the economy declines and the result is a formula for disaster. All of this, of course, will affect American corporations and our banks so that expectations should be lowered in coming quarters for American earnings and profits. As “no man is an island,” no region of the world will be exempt from the European recession just as Europe was not exempt from our financial crisis.

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Wed, 05/02/2012 - 08:49 | 2390761 El Viejo
Wed, 05/02/2012 - 08:52 | 2390769 GetZeeGold
GetZeeGold's picture



Auto response.....I'm not offically here.


Wed, 05/02/2012 - 09:02 | 2390801 El Viejo
El Viejo's picture

Wish me luck. Gone Fission in Japan.

Wed, 05/02/2012 - 09:04 | 2390804 Snakeeyes
Snakeeyes's picture

I worked with Yardeni, Carson and Lavorgna at Deutsche Bank. I learned to not attend their eeconomist briefing at 7am. Watching Carson reading the WSJ to us was too much to bear.

Wed, 05/02/2012 - 08:50 | 2390763 Deep79
Deep79's picture

all this talk of austerity having a huge effect. 




Wed, 05/02/2012 - 08:52 | 2390771 GetZeeGold
GetZeeGold's picture



I've heard they've decided against it......it was a ballzy call.


Wed, 05/02/2012 - 08:56 | 2390776 jus_lite_reading
jus_lite_reading's picture

One of my favorite satirical blogs wrote early last year that already at that time Benny Boy and his printer Komrades crossed the point of no return and they were painting the whole world in the corner.... austerity would only make the whole global situation worse yet ironically more spending would have the same effect.... in short, its already GAME OVER and the elite know it... you didn't the terror drills and 450 million rounds of hollow tips were for a foreign invasion? DID YOU?!?!

Wed, 05/02/2012 - 08:58 | 2390790 GetZeeGold
GetZeeGold's picture


you didn't the terror drills and 450 million rounds of hollow tips were for a foreign invasion? DID YOU?!?!


Well.....I was sorta hoping.


Wed, 05/02/2012 - 09:07 | 2390820 10mm
10mm's picture

.40 cals are LEA's primary choice of rounds,not militarys.And yes,hollow points.

Wed, 05/02/2012 - 09:11 | 2390839 El Viejo
El Viejo's picture

Take two 45 cal EndItAlls and call me in the morning.

Wed, 05/02/2012 - 19:26 | 2392494 chipshot
chipshot's picture


simple way out


debt forgivness/jubilee/whatever..the peeps in the end will just say shove you debt.

Wed, 05/02/2012 - 08:57 | 2390784 Stoploss
Stoploss's picture

MIB now with a 13 handle.

DOW at a 13 handle.

Employ 1st grade math here.

Wed, 05/02/2012 - 09:06 | 2390787 Monedas
Monedas's picture

"Two roads diverged in a woods....I turned around and went home to check my stash....because THAT was the road least taken  !"....Monedas  1929    Comedy Jihad Poetic Moment

Wed, 05/02/2012 - 08:59 | 2390793 gitta4437
gitta4437's picture

Jus_Lite is right.........and also to be emphasized, AUSTERITY is not the problem......over-spending (or consumption larger than production) was and is the problem ......... the solution is going be painful no matter what is chosen, because the overspending and entrenched social welfare programs were allowed to go on for TOO LONG

Wed, 05/02/2012 - 09:32 | 2390887 jus_lite_reading
jus_lite_reading's picture

The problem was BAILING OUT the CORRUPT at the expense of the middle classes... a good bank would never have needed a bailout for they should have been doing everything a bank SHOULD do and nothing more: lending money they have on deposit with all prudent safety margins in effect... NOT speculating in commodities, NOT engaging in fraudulent activities or predatory lending, NOT participating in derivatives (goes without saying) and the list is endless... THOSE are the banks that should have NEVER been allowed to get so big in the first place.. where is the regulation when you need it?? 

The "solution" you are implying at this point in time will bring about societal collapse which would lead to anarchy and/or total collape of society as we know it so that would never work... I think TPTB will take the best course for them which is either WWIII or some sort of new global system part of the UN's agenda 21... something major and swift IMO... there is no other way... 

Wed, 05/02/2012 - 09:00 | 2390796 PoliticalRefuge...
PoliticalRefugeefromCalif.'s picture

as tho there is any choice for the europeans at this time.

Soon the QE bell will sound so get ready for another fluffing episode between shoots. 

Wed, 05/02/2012 - 09:02 | 2390799 Mary Wilbur
Mary Wilbur's picture

A warning to us all.

Wed, 05/02/2012 - 09:05 | 2390808 MFL8240
MFL8240's picture

Our larges trading partners are collapsing and we are going it alone OR, we are being lied too and te US reports are a fraud?   I will  be on the later!

Wed, 05/02/2012 - 09:23 | 2390865 jus_lite_reading
jus_lite_reading's picture

The question is, are "they" really that incompetent OR are they setting up for a global collapse that will bring about the supposed "NWO"??

Wed, 05/02/2012 - 11:12 | 2391230 theTribster
theTribster's picture

The NWO, nobody can be that stupid. They knew this was coming but went ahead anyway. They (NWO) knew that greed would get the job done, they just sits back and watch, once failure happens they step in and implement austerity.
The next step, after global collapse is martial law, societal collapse and everyone wakes up to the NWO. The US is completely ready for this obviously, just look at the executive orders signed by Obummer and Bush not too mention the bills passed (NDAA, Patriot) by congress AND the amount of ammo recently purchased by HD - do u really think they bought the bullets for a foreign invasion?
By the end of the year this will be happening as the financial system finally collapses and wars are expanded around the globe. One of the big reasons for IranAfghanistan wars was the collapse of the financial system after the Internet bubble and of course the impact of 9/11 - which was a manufactured event that started all of this craziness....a false flag event that will end up killing 100s of millions.
Politicians and corporate elite will be punished, just read the history books as the people only take so much and then SNAP, I can hear the snapping sound now in Greece, Spain and the rest of Europe - including Germany. Get ready to live thru the greatest changes in human history, and they won't be good until everyone stands up and fights back.

Wed, 05/02/2012 - 11:19 | 2391248 jus_lite_reading
jus_lite_reading's picture

BINGO!! Order from chaos? I have been watching closely the little pieces of the puzzle and the picture coming together is saying global planned collapse is imminent... and yes another 9.11 false flag event is probably what will set it off!!



Wed, 05/02/2012 - 11:51 | 2391348 Mysteerious Roo...
Mysteerious Rooshian Vooman's picture


"...after the Internet bubble and of course the impact of 9/11 - which was a manufactured event ...."

And speaking of 9/11:









If you haven't read or watched or heard this, you should do so soon.

Mysteerious Rooshian Vooman





Wed, 05/02/2012 - 09:08 | 2390826 mayhem_korner
mayhem_korner's picture



Divergence, yes.  Europe is taking the double-black-diamond mogul field to the bottom, whereas the U.S. is taking the intermediate slope.  Both end up in the same place, tho...

Wed, 05/02/2012 - 11:00 | 2391194 viahj
viahj's picture

and an avalanche could happen at any time

Wed, 05/02/2012 - 09:10 | 2390831 schatzi
schatzi's picture

"Europe and the United States were heading in two different directions"


hahahaha *catching my breath here* hahahaha


Both are on the road to being FUBAR. The one earlier the other later. 


"All of this, of course, will affect American corporations and our banks" 


i.e. its Europe's fault that the US will be falling off that fiscal cliff and be fucked.


hahahaaha *wiping tears from my my eyes* hahahaha


So the way out of this motherfucking debt crisis, is to create more debt so as to be able grow out of the depression. Riiiiiight. Who wrote this p.o.s.?

Wed, 05/02/2012 - 09:11 | 2390836 SheepDog-One
SheepDog-One's picture

Wait, Europe HASNT implemented 'austerity', so this is just proof all their money printing temporary patches have already failed.

Wed, 05/02/2012 - 09:12 | 2390837 ivana
ivana's picture

there are no mistakes. Everthing goes according to plan in EU.

Expropriation of countries most valuable assets in progress. Medium banks fully controled by youknowwho.

PIGS governments just sucked in billions of capital from ECB via med banks or total cash offer in 2012. We all know how efficient are governments in distributing cash around.

Puppet governments promote austerity by order from above just to prevent total collapse of EURO and to extend and pretend.

Trade wars and protectionism ahead ... inflation inevetable (just watch Holland and Spain - Merkel will be history)... germans pissed off ... full scale collapse and than central puppeteer will come asking for ANY VALUABLE COLLATERAL.

Same what's happening in Greece now with electrocompanies etc

THAN, one nice day when everthing valuable is in new weallknowwhose hands - central puppeteer will declare GAME OVER - new currencies, we are all brothers again, let's trade and invest and bla bla

Wed, 05/02/2012 - 09:21 | 2390860 buzzsaw99
buzzsaw99's picture

The ECB is on double secret probabtion.

Wed, 05/02/2012 - 09:22 | 2390864 Loukanika the r...
Loukanika the riot dog's picture

Well the Police here do actually perform other functions than beating the crap out of peaceful demonstrators. They have now taken to stigmatising the poorest members of our society and the oldest profession in the world by publishing their personal details and mugshots and informing the world they have HIV. See http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_25919_01/05/2012_440120


In times of enforced austerity, widespread tax evasion and corruption let's pick on those least able to defend themselves. Oh and by the way my heart pumps piss when I read (http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_01/05/2012_440062) that the wife of one of the most corrupt politcians here in recent years has gone on hunger strike because she also got banged up and has been separated from her children

Wed, 05/02/2012 - 09:35 | 2390897 jus_lite_reading
jus_lite_reading's picture

WOW... It goes to show a hungry man will do anything for a dollar (or euro)

Wed, 05/02/2012 - 09:27 | 2390875 Sandmann
Sandmann's picture

Europe simply needs NEW political movements to seize control of the Banks and imprison their senior executives and traders. That alone will change the atmosphere. The mould and canker must simply be blasted away and new institutions, new faces, and new strategies are essential to get growth and change. This crew has run the ship simply for the benefit of those dining with the captain and the ship is aground. Time to change the crew and those sponsoring the crew.

Thu, 05/03/2012 - 08:23 | 2393327 Bag Of Meat
Bag Of Meat's picture

It's funny how this sounds EXACTLY like another bankster party announcement

Wed, 05/02/2012 - 09:29 | 2390877 orangegeek
orangegeek's picture

Government over spending - failure.


Austerity - soon to fail.


What's next?



Wed, 05/02/2012 - 09:40 | 2390908 hazek
hazek's picture

What kind of piece of shit BS is this post ZH?

Different direction?! Austerity in Europe?!

Please, don't say you've been co-opted.

Wed, 05/02/2012 - 10:14 | 2391015 ElvisDog
ElvisDog's picture

The affects of unemployment are ... demand decreases as people can no longer afford to buy many goods and services

Yeah, but you get the same effect with central Bank-generated inflation. Prices go up faster than wages always. People spend all their money (if they're lucky) on food and energy leaving little else for discretionary spending. Demand for everything other than food and energy decreases. All these "financial gurus" calling for inflation as a solution should look to a recent real-world example, Argentina. to see what happens. Did employment go up? Did the majority of the population become wealthier in real terms? No, they did not.

Wed, 05/02/2012 - 10:15 | 2391019 proLiberty
proLiberty's picture

"Austerity has its costs and two of them are increased unemployment and a decline in demand for goods and services which is then exacerbated by the drop in the number of people that are working. "

When dealing with liberals, whoever gets to define the meaning of words gets to control the outcome of the discussion.  In this case, what exactly is the meaning of "austerity"?  

In the Keynesian world, since the economy is equal to C + I + G (consumer + investment + government), then government spending is just as useful as any other spending, no matter what government is doing, even digging holes and filling them back in. 

In such an upside down world of course cuts in government spending lead to lower "growth".  But it is growth in terms of fiat money, not readl wealth.  This is the fruits of a Keynesian-socialist economy, where fiat money pays the dependent class, and that includes the dependent capitalists who supply government or are government sub-contractors.  This is a massive mirage built upon mirage-money.  And it never ends well.



Wed, 05/02/2012 - 10:52 | 2391164 Sandmann
Sandmann's picture

since the economy is equal to C + I + G (consumer + investment + government), then government spending is just as useful as any other spending,

Where did you learn that BS ?  You forgot  X-M in your little equation.  The reason for G being more efficacious than C was LEAKAGES. It was held in the economy of the 1930s that G left more of the Income Multiplier in the DOMESTIC economy than C. 


It does not work in a globalised system as the USA has proven over decades because G simply increases the Trade Deficit by increasing the Budget Deficit. So even if Bush increases orders for HARM missiles in Texas or Cruise Missiles from Boeing those workers are still buying Chinese goods and imported cars. Even TARP simply left Bankers buying Porsches and Mercedes and French vineyards 

You cannot use Keynesian economics in a globalised economic system. The only cure there is old-fashioned Gold Standard DEFLATION. In that Merkel and Schauble are correct. Adjustment through grinding poverty over generations is exactly what Keynes thought could be avoided in the 1930s by changes in Relative Price Level between Goods and Labour, but it relied upon large domestic economies either Imperial Preference in the British Empire of a nation like the USA of the 1930s with small external sector. 


It does not work when Deficits simply boost demand in China

Wed, 05/02/2012 - 11:08 | 2391225 Central Bankster
Central Bankster's picture

And further to your point, a gold standard forces trade balances over time and would stop unsustainable borrowing to consume.

Wed, 05/02/2012 - 10:48 | 2391145 Central Bankster
Central Bankster's picture

Yah sure denominator matters, but government spending already failed. Now we face liquidation of debt through default or hyperinflation through more government mis allocation of capital by borrowing and printing.

Wed, 05/02/2012 - 11:02 | 2391208 Piranhanoia
Piranhanoia's picture

Europe's downward motion equates to upward US motion?   This is difficult to follow.  Europe's many plagues (insolvent banks) have a duty to scream when they are included with another that is doing less well, or dragging them down by association.  Here,  all the banks toe the line ordered by the government so they can suck together.  Isn't it possible we are in far worse shape for having given up on factual reporting?

Wed, 05/02/2012 - 11:08 | 2391214 Central Bankster
Central Bankster's picture


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