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Guest Post: Is An Economic Deluge Nigh?

Tyler Durden's picture




 

Submitted by David Galland of Casey Research

Is An Economic Deluge Nigh?

If history has taught one certain lesson, it is that the less fettered an economy, the better humankind is able to do what it does best: run from trouble and run toward opportunity. In this way mistakes are quickly resolved and progress assured.

Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped.

It is said that history doesn't repeat itself, but it often rhymes. In the current circumstances, it appears that enough time has passed that current generations have completely forgotten the critical connection between the ability of humans to freely pursue their aspirations and economic progress.

You can see this ignorance in the popular demand for even more, not less, meddling in the affairs of humankind. Should this trend continue – and for reasons I will touch on momentarily, I firmly believe it will – then the aspirations of the productive minority will soon be dampened by ever higher taxes and other attempts to "level the playing field" and the global economy, already in tatters, will fall off the edge.

There is no more timely nor acute example of this growing trend than what is currently going on in France. I refer, of course, to the first round of the presidential election process, scheduled for this weekend.

In France, if no candidate attracts no better than 50% of the vote, then the two leading candidates go to a decisive runoff vote, this time around to be held on May 6.

The current president, Nicolas Sarkozy, a conservative in name only, was running at a fairly steady gait toward re-election (thanks to the head start awarded all incumbents), when leading socialist candidate Francois Hollande came out with a proposal to tax anyone with an annual income of over one million euros at a rate of 75%. He also promised to add a tax on all financial transactions and increase taxes on France's biggest companies to 35% – securing bragging rights as levying the world's third-highest corporate taxes, the US being #1. This all on top of a 25% VAT, one of the world's highest. By some calculations, the result of Hollande's new taxes is that effectively 100% of all incomes over one million euros will now be stripped away by the state.

For good measure, Hollande also promised to reverse the recent modest increase in retirement age from 60 to 62 pushed through by Sarkozy. While I am sure it is mere coincidence, I found it noteworthy that Mssr. Hollande's campaign slogan is "Change – Now!"

Remarkably, at least for those with some small understanding of economics, as a result of leaning into the microphone with these proposals Hollande has galloped ahead of all other potential contenders and is now projected to finish nose by nose with Sarkozy.

After which the also-rans will be removed from the race, freeing their supporters to share their affections elsewhere. Given that the leading contender for third place with an estimated 14% of the vote is one Jean-Luc Mélenchon – charitably categorized as "far left", a label that can be applied to most of the other candidates – it is projected that the "conservative" Mssr. Sarkozy will go down in double-digit flames come May 6.

Bringing to mind the prophetic utterance of Louis XV: "Après moi, le déluge."

The deluge in Louis' case manifested as the murderous affair commonly known as the French Revolution. In the case of Mssr. Hollande taking up residence in the Palais de l'Élysée, the deluge is likely to manifest in the form of rising interest rates as investors look to protect against an acceleration in the country's debt to GDP ratio, already projected to hit almost 90% this year, exacerbated by a flight of capital, investors, entrepreneurs and large businesses.

As is the nature of such things, because of the aforementioned predilection of humans to run from trouble, we likely won't have to wait for Mssr. Hollande to be formally enshrined in the gilded halls for the trouble to start – it will begin within days and maybe even minutes of the handicappers concluding that his ascendency is a sure thing.

Given that France is the third-largest economy in the already-troubled Eurozone, one can expect the deluge to spread, with potentially devastating consequences. That the guillotines may soon be rolled out across Europe can be better understood by taking into account that the Eurozone sovereign deadbeats are on the hook for roughly nine trillion euros in debt, some significant percentage of which has to be rolled over to ready buyers over the next couple of years. Adding weight to the problem is that, according to the latest figures out of the IMF, Europe's banks may have to sell off up to 3.8 trillion euros in assets, many of them questionable, between now and the end of next year. At least, if they want to remain solvent.

Across the pond, the United States also has aggressive funding needs, given that the "change" we experienced ourselves in the last presidential election has left the government gasping for about $1.4 trillion in additional funding each year. Then there is Japan, officially the world's largest debtor in terms of debt to GDP, where the easy availability of local funding has dried up, requiring that nation to go to the international markets for funding as well.

The phrase "an awful lot of hogs at the trough" comes to mind.

My point is not just that these governments are broke and are about to get a lot more broke as interest rates rise on their many debts and financings, but rather that the global trend toward a resurgence in public demand for socialism in response to a worsening crisis is a certainty.

How could it be otherwise when for decades now the schooling of children has been delegated to functionaries of the state?

For evidence, look no further than the screen swipe here. It is a quote from an essay by a college student in the United States on role the government should play:

The writer of those words was a member of a Valencia University economics class. The professor, Jack Chandliss, asked the class to write an essay on what the American dream means to them, and what they want the federal government to do to help them achieve that dream. Out of 180 students participating, only about 10% wanted the government to leave them alone and not tax them too much, but a whopping 80% wanted the government to provide pretty much the whole dream thing wrapped in a tidy bow – including free college tuition and health care, jobs, even the down payment on their future homes, money for retirement and hard cash, taken in the form of taxes from rich people. Please take a moment to watch a worthwhile interview with the professor.

Pretty eye-opening, eh?

The point here is not complex, but it is important.

With the apparatus of state education over many years serving to bamboozle the populace into the hardened belief that government has a positive role to play in virtually all aspects of modern life, it should come to no surprise to anyone that, when push comes to shove, people are now trained to look to government to solve the problems – even when it was the government that created the problems in the first place.

Thus, confronted with the intractable mess they have made, these governments have to keep alive the mythology they have created about their omnipotence. Which is easier said than done, because with things now swirling fairly quickly around the drain, the mob is beginning to lose faith – and even patience.

Which puts these governments in a very tight spot, because the only way they can actually fix things is by doing exactly the opposite of what people have come to expect from their governments, which is always to do more. Put simply, the only hope now is that these governments begin to reduce their roles in their respective economies, and dramatically so. Concurrently, they have to encourage people in their aspirations to greater wealth, by lowering their taxes and unwinding the tangle of regulations they have created over the last half-century.

But if the governments actually tried to take these actions, the brainwashed masses would be positively befuddled then outraged, as it goes against everything they have been taught. Why, it would be like the Pope shuffling his way to the balcony of St. Peter's Basilica and informing the doting faithful that there isn't a god and never has been.

Riots would follow.

So it is that we find ourselves at a particularly interesting juncture in the historical record.

On the one hand you have a majority of the world's population who have been carefully schooled into believing that the institution of government holds the solution to all problems and is the source of succor to all who need it. (Even that subset of the populace who has lost confidence in their current government invariably believes as doctrine that the next and better government can change things for the better and lead the way to the shining castle on the hill.)

In this mix are the politicians and their functionaries, 99.99% of whom believe that, if for no other reason than their re-election prospects, they have to do something to meet the demands of the public.

Of course, under normal circumstances the "something" usually consists of making grand-sounding speeches and otherwise blowing smoke. Today that's just not going to cut it, for the simple reason that the crisis is real, it is spinning out of control, and it's not going to go away unless and until the markets are allowed to breathe again.

Which brings us full circle to the simple truth that the brainwashed public won't stand idly by while the politicians lower taxes and regulations on the profit makers or cut back state pensions and guarantees or otherwise reduce any of the many services the state has taken on itself to provide.

"Between a rock and a hard place" is an inadequate phrase to describe the situation.

Meanwhile, the mob has started to gather, their dark mutterings heard by the politicos who quickly don the red caps themselves, the better to be viewed as one with the people and join in expressing outrage against the capitalists who have been selected as fall guys in this unfolding drama.

When confronted by reporters about the fact that his 75% tax on high-income owners would raise nowhere enough revenue to offset France's towering debt and social obligations, Mssr. Hollande was heard to respond:

"It's not a question of return. It's a question of morality."

When coercion and theft are considered moral, anything is possible, and none of it good.

While I certainly can't say how this is all going to end, I'm pretty sure it's not going to end well.

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Sat, 05/05/2012 - 11:03 | 2399243 I am Jobe
I am Jobe's picture

Shows how fucking naive the younger generation is which is perpetuated by inbred fuckers in the USSA. WTF. People in the USSA whould not have fucking kids, they are stupid to begin with and breeding leaches.

Sat, 05/05/2012 - 11:08 | 2399253 ISEEIT
ISEEIT's picture

And you prove that?

I still prefer to cling to my "guns and religion"

Only because mine is in fact bigger than yours.

Yours does not produce a fucking single, not one, fucking example of success.

Fail almighty is not my God.

Fuck you, and goodnight.

Sat, 05/05/2012 - 11:48 | 2399326 markmotive
markmotive's picture

When the total collapse comes you better hold some physical gold...and some food and guns.

http://www.planbeconomics.com/2012/05/05/total-collapse-and-gold-2/

Sat, 05/05/2012 - 16:05 | 2399760 F. Bastiat
F. Bastiat's picture

God, guns, and gold - three proven antidotes to tyranny over the entire course of recorded history.

Sat, 05/05/2012 - 17:01 | 2399847 Father Lucifer
Father Lucifer's picture

Amen

Sat, 05/05/2012 - 17:20 | 2399891 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

we can all relate........

Atheist, Accu-Tech & Au

Baha'i, Binelli & Bars

Buddhism, Berreta & Bullion

Confucianism, Colt & Coins

Hinduism, Krishna, Kalashnikov & Karats

Islam, Ithaca & Ingots

Sikhism, Sig & Silver

Taoism, Taurus & Tin

Wicca, Whetherby & Water

Sat, 05/05/2012 - 17:55 | 2399947 o2sd
o2sd's picture

Yeah, because no one in history has ever fled religious tyranny .... :|

 

Sat, 05/05/2012 - 11:49 | 2399330 Manthong
Manthong's picture

"How could it be otherwise when for decades now the schooling of children has been delegated to functionaries of the state?"

Buckle up.. It will take one hell of a spanking before they figure out what has been done to them.

Sat, 05/05/2012 - 17:08 | 2399859 RockyRacoon
RockyRacoon's picture

If this thing goes down hard, there will be millions of folks, most of them under the age of 40, wandering glassy-eyed through the vacant malls, their i-Crap gadgets blank-screened.   Somehow I don't pity them.  Does that make me a bad person?   Nah.

Sat, 05/05/2012 - 17:58 | 2399954 o2sd
o2sd's picture

In the end, when the productive have been bled dry, the common people clamour for Communism. Of course, they won't call it Communism, but that's what it will be.

When you disenfranchise the majority economically, their only recourse is political power. The sad reality is that this only makes things worse for them in the long run, but they have to learn that the hard way.

 

Sun, 05/06/2012 - 19:50 | 2401998 CPL
CPL's picture

It's part of the reason Russia collapsed so spectacularly.  Technology creep.

 

People think it was some naturalized, organized collapse.  it wasn't, people starved, died from a lack of heating oil, old vendetta's came out of nowhere, now the closest thing that Russia has to organization is their crime syndicates which are mostly old party members.  It's about as close to the wild west as anywhere on the planet now. 

 

Highest death rate between the ages of 15-25 in any "western" culture, drink themselves to death.  then there is this type of shit.

 

rt.com/news/prime-time/codeine-drug-law-russia-845/

 

Krocodile.  Shit eats you inside out.  I'm not a big fan of RT, but they certainly don't hold back if describing the 40-50 problems happening in Russia right now.  Huge AIDS problem that goes ignored, raging alcoholism, serious housing issues, infrastructure problems...Christ the only people on the planet with older nuke plants than the USA and nobody seems to be paying much attention to them.

 

Wait for all this to go boom in a Ponzi explosion, it's going to be awful.

 

Sat, 05/05/2012 - 14:34 | 2399616 StavropolJames
StavropolJames's picture

The antithesis to American dependence on government can be found in present day Russia. Russians expect little from their government and have thus become incredibly independent.

Western perception of Russian is woefully behind the times, rooted in the cold war years. Just like all the other countries in the world that don't play the game according to American rules, like Iraq, Libya, Syria, Afghanistan and Iran, Russia is designated as an enemy that has to be dealt with.

If you ask Russians what role the government should play in their lives, you'd get a very different answer and that's the real reason why Russia is the bad guy.

Sat, 05/05/2012 - 15:56 | 2399743 Tsunami Wave
Tsunami Wave's picture

I was a student of Jack chambless' microeconomics class I took at Valencia years ago. He is a very smart and capable professor, and he challenged us all to think for ourselves. It's because of him that let go of the beliefs I had in Econ years ago, and adopted a more classical liberal/libertarian perspective.

Sat, 05/05/2012 - 11:09 | 2399257 Gully Foyle
Gully Foyle's picture

I am Jobe

Are you Julias dad?

Sat, 05/05/2012 - 11:10 | 2399259 AssFire
AssFire's picture

Paying the wosrt people who can't take care of themselves to have children that they won't take of is insanity.

Sat, 05/05/2012 - 11:12 | 2399270 CrockettAlmanac.com
CrockettAlmanac.com's picture

I've heard speakers of Ebonics make clearer statements than that.

Sat, 05/05/2012 - 11:15 | 2399275 Gully Foyle
Gully Foyle's picture

CrockettAlmanac.com

You white people making with the funny.

Sat, 05/05/2012 - 11:34 | 2399296 AssFire
AssFire's picture

Hey!, Dat's Raaayciss

I had no chance to edit before I was pounced upon.

Sat, 05/05/2012 - 11:35 | 2399304 evolutionx
evolutionx's picture
APRES NOUS LE DELUGE

A deluge of an unprecedented magnitude is both inevitable and imminent. The consequences of the economic and political mismanagement will have a devastating impact on the world for a very long time. And the consequences will touch most corners of the world in so many different areas; economic, financial, social, political and geopolitical.

 

http://www.mmnews.de/index.php/english-news/7423-apres-nous-le-deluge

Sat, 05/05/2012 - 16:07 | 2399761 F. Bastiat
F. Bastiat's picture

Well, the Gods of the Copybook Headings are never denied for too long.

Sat, 05/05/2012 - 11:41 | 2399321 francis_sawyer
francis_sawyer's picture

Don't worry...

Nowadays it's not important anymore whether something makes sense or not... It only makes any headlines if it even remotely sounds rayciss or anti-semitic... I think they've programmed & implanted rayciss & anti-semitic algos to scrub the internet 24/7 to keep people pinned down from having the courage to point out hypocrisy...

Sat, 05/05/2012 - 13:03 | 2399456 CH1
CH1's picture

Dude, if you can't point out hypocrisy without condemning the Jews at every step, the problem is you.

Sat, 05/05/2012 - 13:21 | 2399483 smb12321
smb12321's picture

His type is truly obsessed with Jews.  No matter the subject - 911. politics, finance, art, movies, history - they ALWAYS manage to work the evil Jew into the conversation.  They can give URLs to countless You Tube videos (like that's proof of something) or go on for hours with talesof global intrigue, secret deals, financial control until you wanna yell, "Go out and get laid for Christ sake and clear your mind."

Sat, 05/05/2012 - 15:18 | 2399684 frenzic
frenzic's picture

CH1 : Well put.

Sat, 05/05/2012 - 15:37 | 2399712 francis_sawyer
francis_sawyer's picture

Who the fuck said anything about Jews?... Here was my comment...

~~~

"Nowadays it's not important anymore whether something makes sense or not... It only makes any headlines if it even remotely sounds rayciss or anti-semitic... I think they've programmed & implanted rayciss & anti-semitic algos to scrub the internet 24/7 to keep people pinned down from having the courage to point out hypocrisy..."

Where was "Jew" in there?... The hypocrisy I'm talking about has to do with liberal MSM (& the seemingly insatiable effort to make headlines & issues out of things that in ordinary life never even come to the surface)... Most of the fucking people I know are pretty normal... But as I browse the internet or read headlines, every other story is about the Kardashians... Racism & Anti-Semitism are similar hot button topics... They're there to PROVOKE (& therefore make money for the publishers)...

I'm just sick of seeing (everytime I try to access the information superhighway):

- Anti Semitism stories

- Racist stories

- Kardashian stories

Mostly, that's why I come to Zero Hedge (because for the large part, I can balance out the syrupy/cavity inducing shit that I'd otherwise be exposed to with some information that is impermeable to that form of hypnosis)...

That is, until TODAY, when I have to read a bunch of bullshit like what you have to offer...

Sat, 05/05/2012 - 16:40 | 2399816 robertocarlos
robertocarlos's picture

I blame everything on OJ Simpson.

Sat, 05/05/2012 - 17:02 | 2399849 AssFire
AssFire's picture

Francis, don't let a couple fools kill your joy.

In their minds they know it is all about political correctness but feel justified to use it in order to "get even" and "get mine"; the same mentality as those using Trayvon to justify their revenge attacks. It simply helps them feel they have the high moral ground and eases their anxiety about the coming end of handouts.

I miss cheeky bastard and other past ZH posters and lament they have been displaced by those progressive types.

Sat, 05/05/2012 - 17:12 | 2399871 RockyRacoon
RockyRacoon's picture

Yup.  Ole Cheeky could rip folks a new one, given the opportunity.   Would that I had his skills....

Sat, 05/05/2012 - 18:09 | 2399965 francis_sawyer
francis_sawyer's picture

Trust me... These are a55holes who probably followed me over here from another blog... & here's how the story goes...

~~~

- You make an attempt, on a public blog, to even out the playing field based on the 24/7 rhetoric you hear on MSM (& how it annoys you)...

- The patrons of that blog are so fucking stupid, they have no capacity to think of the world in other terms than that of coke or pepsi...

- They go so far as to make life miserable for you at the aforementioned blog...

- So you finally say, "Hey ~ I don't need this, I might as well be talking to a wall of gangsters"... You finally stumble across a blog like ZH that most people generally mix it up on equal terms...

- You leave the other blog forever, & just post at ZH... (which should, in theory, make those people happy that wanted you to leave their faux intellectual debating society ~ they, in fact, REQUESTED you to do so)...

- after a period of time they get bored talking to each other and watching the paint fucking dry...

- They chase you all the fucking way over here to engage you, strawman like, on any of the most remotely similar issues, that ruffled their feathers on their home turf...

~~~

There are some pathetic fucks out there...

 

Sat, 05/05/2012 - 18:48 | 2400031 RockyRacoon
RockyRacoon's picture

Don't worry about it.   Those who can't cut it won't last long here at ZH.  Only the strong will survive.  I've seen quite a few get cut to shreds and just slink away.  Of course, there are the really stupid, as you say.   We make piñatas out of those -- it's fun.

Sat, 05/05/2012 - 19:00 | 2400050 francis_sawyer
francis_sawyer's picture

They can seek shelter & comfort with fat ass Barry Ritholtz...

Sat, 05/05/2012 - 22:47 | 2400266 Kayman
Kayman's picture

francis_sawyer

Chin up. Never argue with an Idiot.

Sun, 05/06/2012 - 10:02 | 2400581 smb12321
smb12321's picture

I've been called many things - godless, libertarian, rightwing, capitalist - but never progressive.  My missive about Jews concerned the uncomfortable realization that many ZH posters are here (in part) because they share a strange antisemitism.  I know, I know - it's Zionism, not Judaism.  And they all have best friends that are Jews.  LOL

Sat, 05/05/2012 - 12:44 | 2399422 DosZap
DosZap's picture

Paying the wosrt people who can't take care of themselves to have children that they won't take of is insanity.

Thats why Socialism does NOT work.No one should get paid for being a baby mill...................that is on public assistance, and capable of WORKING.

.

Sat, 05/05/2012 - 18:31 | 2400015 robobbob
robobbob's picture

seeing as how big statists, marxists and leftists in general just adore ideas like eugenics and evolution, it kind of makes you wonder just what they are up to subsidizing reverse evolution......

we are devo?

Sun, 05/06/2012 - 15:08 | 2401250 Umh
Umh's picture

It will make their product seem like a good idea.

Sat, 05/05/2012 - 12:19 | 2399388 chunga
chunga's picture

"Shows how fucking naive the younger generation is"

Not all of them are as you say. I know plenty of dopes who are older but not any wiser.

I sat around at a picnic last weekend and listened to a crowd of them declare with a bunch of fist-pumping that we should bomb away the entire middle-east.

Out of curiosity I asked them to collectively name these countries that need to be bombed away and the names of the leaders of those countries.

They all agreed "it doesn't matter" (they had no idea) and gulped down some more beer. At least half of them were either on "disability" and/or collecting a state pension.

Sat, 05/05/2012 - 12:45 | 2399424 Jena
Jena's picture

Based on a few similar conversations of my own, I bet the line "That'll show 'em!" was uttered by someone at least once.

Sat, 05/05/2012 - 13:03 | 2399458 chunga
chunga's picture

LOL

Oh yeah. My personal belief (plucked right from an illuminati ghost story) is that America's Shock Doctrine schedule might need to be accelerated.

A lot of these new recruits have had internet and access to "alternative" media for a long time.

These kids aren't so stupid and indoctrination might not be so easy.

Sat, 05/05/2012 - 17:13 | 2399874 RockyRacoon
RockyRacoon's picture

Bring back the draft and they'll be whistling outta the other side of their asses.

Sat, 05/05/2012 - 17:15 | 2399882 chunga
chunga's picture

I don't understand what you mean Rocky.

Sat, 05/05/2012 - 18:50 | 2400033 RockyRacoon
RockyRacoon's picture

Ooops.  I was replying to your previous post 2399388

Sat, 05/05/2012 - 12:58 | 2399448 smb12321
smb12321's picture

I would nominate you as the prime example of "people should not have kids."  With your degree of intellectual failure it's a wonder you can still function much less post garbage on a blog.   Have a nice day

Sat, 05/05/2012 - 14:48 | 2399638 goforgin
goforgin's picture

Ok, you got my vote to head abortion clinics in Idaho.

Sat, 05/05/2012 - 15:50 | 2399732 vast-dom
vast-dom's picture

the sheeple are getting precisely what they deserve. i have little empathy for said sheeple. but for my FC members, you know the rules......

Sat, 05/05/2012 - 11:04 | 2399245 ISEEIT
ISEEIT's picture

http://www.finemrespice.com/

The circle of life.

It is what it is.

Deal with it?

Sat, 05/05/2012 - 11:15 | 2399250 walcott
walcott's picture

 

if history has taught one certain lesson, it is that the less fettered an economy, the better humankind is able to do what it does best: run from trouble and run toward opportunity. In this way mistakes are quickly resolved and progress assured.

 

Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped.

 

excellent.

Sat, 05/05/2012 - 11:17 | 2399277 Gully Foyle
Gully Foyle's picture

walcott

"Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped."

I'm sorry but regulation is a good thing. The problem is lack of enforcement of regulations.



Sat, 05/05/2012 - 11:45 | 2399325 CrockettAlmanac.com
CrockettAlmanac.com's picture

The regulations are enforced by those who own the government. They set the standards and call the shots. That's why regulation always favors those who are already entrenched in power. It's not a coincidence. But you just keep looking for a nice dictator who will treat you kindly while smacking down those bad rich people who fill his coffers.

Sat, 05/05/2012 - 11:50 | 2399335 Apply Force
Apply Force's picture

Maybe SOME regulation can be a good thing... As in "Regulators, mount up!" when something really bad has happened - regulating the water volume of my toilet or little kids selling lemonade on the sidewalk... not so much.

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