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Guest Post: EU Leaders Throw Europe a Plutonium Life Preserver

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

EU Leaders Throw Europe a Plutonium Life Preserver

The euro system was doomed from inception for fundamental reasons; trying to conjure up "something for nothing" solutions will fail catastrophically, and soon.

As Europe flails helplessly in the waves of insolvency, its leadership has tossed it a life preserver. Too bad it's plutonium, and will take Europe straight to the bottom. Plutonium is of course one of the most toxic materials on the planet, and the "rescue" cooked up by the EU leadership is the financial equivalent of plutonium.

Stripped of propaganda and disinformation, the "rescue" boils down to this: something for nothing. Sound familiar? Isn't "something for nothing" what inflated the bubbles which have popped so violently? The EU "rescue" conjures something for nothing in two ways:

1. The financial alchemist's favorite magic: leverage. Take a couple hundred billion euros in cash, leverage it up with various magic (unlimited power is now at your fingertips!) and voila, you can suddenly backstop 1 trillion euros of banking-sector losses, all with illusory money. Something for nothing.

2. "Guarantees" to cover the first 20% of loan losses. This is being presented as the equivalent of 100% guarantees, because it is inconceivable that losses could exceed 20%. In other words, the credulous buyer of at-risk Euroland bonds is supposed to be reassured enough to load the wagon because 20% of the bond is backstopped.

This is something for nothing because the EU leadership is explicitly claiming the at-risk portion--80% of every bond--is somehow "safer" because the first 20% will be paid by EU taxpayers.

In essence, the EU is claiming that its illusory "something for nothing" magic will turn lead into gold. Abracadabra....oh well, close; it's heavy, it's metallic--oops, it's plutonium.

The leadership is resorting to Cargo Cult incantations and legerdemain because the alternative is to raise the 1 trillion euros in cold hard cash needed to bail out the first wave of failed banks and underwater bondholders by raising taxes and cutting budgets, i.e. austerity. (Recall that the total bill will be at least 3 trillion euros, so 1 trillion is just a down payment.)

Raising cash the hard way is politically unacceptable in both France and Germany, not to mention every other nation in the EU, so the political lackeys of the banking sector and bondholders are cravenly substituting a "something for nothing" magic show which they hope will fool the global bond market.

Note to EU lackeys: there is no free lunch. Leverage is plutonium, not gold, and guaranteeing the first 20% of bonds that are doomed to lose 40%-75% is not terribly appealing to anyone not influenced by the ECB's mind tricks. ("These are not the euros you're looking for; move along.")

No wonder France was so anxious for the ECB to crank up the euro printing press: they wanted-- just like everyone else involved--something for nothing.

The best way to understand the EU's current situation is to imagine an astoundingly dysfunctional family of deep-in-denial-addicts, screaming co-dependent parents, and grown-up grifters acting like spoiled brats, all trapped in a rat-infested, flooded flat that's had the gas turned off for lack of payment--and there's a plutonium life preserver glowing in the knee-high water. Admittedly, this analogy is imperfect, but it does capture the essential psychology of the end-game being played out.

A slightly more formal model for understanding the increasingly unstable dynamics of the EU is the post-colonial "plantation" model I've described here before. The key characteristics of the Colonial Model of Capitalism are:

1. Low cost labor and low-value materials flow from the periphery (colonies) to the Empire (center), which then ships high-value, high-profit finished goods back to the colonies.

2. The colonies must buy the high-value finished goods on credit that is issued and controlled by the Imperial center.

Hmm--doesn't this sound like the relationship of Germany to the European periphery? The euro cemented this co-dependency: Germany had the most efficient production, and once the euro raised the cost of production in the periphery nations, then of course nobody could beat Germany's cost advantages. The euro actually lowered Germany's cost of production in terms of foreign exchange rates while raising the costs in periphery nations that were previously able to lower their cost of production via currency devaluations.

Having surrendered that mechanism to access the deep credit markets of the center, then they had no choice but to buy the high-margin finished goods from Germany, as nobody else could make the same goods for the low German price.

These booming high-profit German exports of finished goods to the European periphery generated vast surpluses of capital that were then loaned to the periphery to enable their further purchases of German goods. Why risk the heavy investment costs of production in the periphery when Germany had the lowest costs of production and was willing to loan the buyers the cash needed to keep buying?

It's the classic mercantilist-consumer co-dependency on a gigantic scale, with low-cost credit fueling both increased consumption and production. As long as the credit flowed in vast torrents of low-cost, easy to borrow money, the co-dependency looked like a "virtuous cycle." Debt junkies eventually have to start servicing their debts, of course, and that's when the ugly realities of colonial dominance become visible.

Germany casts itself in this melodrama as the wronged party, the industrious craftsfolk churning out high-quality goods who have somehow been lured into pouring hard-earned cash down various ratholes to save nefarious EU banks--including their own.

But setting aside the melodrama for a moment, let's ask: how many German goods would have been imported by the EU periphery if those nations had been forced to pay cash for everything from the start? Precious little is the answer; the cash--in the form of actual surpluses available to spend on imports--would have run out immediately after the euro was launched.

In other words, the debt orgy enabled not just carefree consumption, it also enabled vast German exports to the Eurozone. Now we start seeing how the once-mutually beneficial co-dependency has become toxic: now that the periphery's debtors have become debt-serfs, German exports to the periphery are contracting.

This helps explain why even the supposedly prudent Germans are seeking something for nothing as the painless answer to an intrinsically unstable and self-destructive system. When it all implodes, German exports to the periphery will be a shadow of their past glory, and the surpluses which enabled the leveraged orgy of credit will dwindle. (Germany's other big export markets, China and the U.S., are also contracting.)

Sovereign currencies are the only mechanism for discounting differences in credit worthiness and production costs. The euro was established as the currency equivalent of gold, holding the same value in every member country. But the mercantilist/quasi-colonial model requires credit to flow from the center to the periphery, and that is precisely what has happened in the EU.

In the colonial model, the colonists are indebted and poor. The net value of their labor flows to the Imperial center as interest payments, and the banks at the center set the cost of money and the terms--naturally.

This co-dependency based on credit flowing from the mercantilist center to the periphery is both exploitative and systemically unstable. Now that the ontological instability of the euro is being revealed, the dysfunctional family members are blaming each other and desperately trying to conjure up something for nothing to bail themselves out of a system which was doomed to implode from its very inception.

All the complexity and confusion distills down to this: the EU leadership needs something for nothing to save the EU, but there is no free lunch. There is only one solution to the exploitation, the illusory leverage, the crushing debts: massive write-offs of all the bad debt everywhere in the EU. And since debt is someone else's asset, then that means writing down the assets, too. The only way to clear the insolvency is to write off 3 trillion euros of debt-based assets and re-enable sovereign currencies. Anything else is simply more tiresome melodrama.


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Thu, 10/27/2011 - 17:32 | 1818780 Mr. Fix
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BOOM ! ! !

Thu, 10/27/2011 - 17:41 | 1818799 Long-John-Silver
Long-John-Silver's picture

First you see the flash, then you get the shock wave. If you survive the shock wave you must survive the wave of heat that rolls over you. If you somehow survive all that the radiation gets you.

Thu, 10/27/2011 - 17:43 | 1818805 Let them eat iPads
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And if you survive the radiation you get  some cool new appendages in a few years.

Thu, 10/27/2011 - 18:13 | 1818877 SWRichmond
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there's a plutonium life preserver glowing in the knee-high water

We had one of these in school:

Thu, 10/27/2011 - 23:06 | 1819704 trav7777
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plutonium is an alpha emitter.  Short-lived reaction byproducts emitting beta cause Cerenkov.

Read the article again, boys...can you hear that Mr. Anderson?  It is the sound of contraction; it is the sound...of the 400-year global growth economy's death.

Aggregate contraction is upon us.  It DOES NOT MATTER what accounting bullshit they pull.  Debts can't be repaid.  None of them can.  Anywhere.

Fri, 10/28/2011 - 18:49 | 1823021 SWRichmond
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239 is, but 241 decays through beta emission.

Thu, 10/27/2011 - 19:00 | 1819017 machineh
machineh's picture

'And if you survive the radiation you get some cool new appendages in a few years.'

Can't wait! We'll be luckier than a two-dicked dog!

Thu, 10/27/2011 - 22:15 | 1819529 UP Forester
UP Forester's picture

.... right up until you get dick cancer....

Fri, 10/28/2011 - 01:39 | 1819952 Sgt.Sausage
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... twice.


Thu, 10/27/2011 - 21:40 | 1819460 JohnG
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This is not the artillery you are looking for.




(all this will end in a shooting war, unfortunately.  very.)


It's ALWAYS about the money,

Thu, 10/27/2011 - 17:37 | 1818792 Let them eat iPads
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Physical plutonium, bitchez!

Thu, 10/27/2011 - 18:27 | 1818915 The4thStooge
The4thStooge's picture

What's plutonium trading at these days?

Thu, 10/27/2011 - 18:47 | 1818962 agent default
agent default's picture

Is there a physical ETF on that?  Does it have a settlement by airmail option?

Thu, 10/27/2011 - 21:44 | 1819473 JohnG
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Fri, 10/28/2011 - 18:19 | 1822928 BigJim
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Inquiring mullahs want to know.

Thu, 10/27/2011 - 17:38 | 1818793 ArkansasAngie
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The thing is ... we can't actually allow these bozos to further entrench themselves as too big to fail. 

They are in fact not too big.

It's sorta, kinda the right thing to do.  Every generation is challenged by shatheads that have to be put in their place

Thu, 10/27/2011 - 17:40 | 1818798 FunkyMonkeyBoy
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Wasn't this exactly the 'bailout' that the market has been expecting for weeks? Should be no surprise... where's the 'sell the news'?

Thu, 10/27/2011 - 17:52 | 1818824 ArkansasAngie
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Did you rush into the market today saying yeeee haaaa!!!!

Frankly none of my acquaintences did.  I certainly didn't.

It's only the central banksters and their cohorts that are making merry.  They live another day.  They held off insolvency with another plop of liquidity and, of course, lies. 

Thu, 10/27/2011 - 18:01 | 1818854 slewie the pi-rat
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but...but...the euro lost the 1.42 handle!

Thu, 10/27/2011 - 17:42 | 1818800 DoctoRx
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Don't know about the exactitude of the 3 trillion euros, but this is one of your best pieces, CHS.

Thu, 10/27/2011 - 20:30 | 1819287 i-dog
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Agreed. Back in top form after a dry spell.

Thu, 10/27/2011 - 17:47 | 1818801 DormRoom
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The EFSF will be the mechanism in which Europeans start viewing Germany as a new tyrant, since she will be responsible for the 'surveillance' of the member states to comply with any bailout fund.  When the EZ eventually fails, it will once again pit Germany against the rest.


It's 1912 all over again.


Thu, 10/27/2011 - 17:43 | 1818802 Segestan
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except there is a loooong line of dreamers outside the front door who have been told they to can have the fix and even for free... now these poor mis treated they are struck with a nightmare.... ooops!!

Thu, 10/27/2011 - 18:18 | 1818810 Racer
Racer's picture

This is all really obscene...

there is a never ending pot of money given to the banksters who made very bad mistakes

yet at the same time these very people giving this vast amount of money are telling the people they are really supposed to serve that they have to put up with austerity measures so they can give these criminals more money out of their hard earned savings and money!

I wonder how long they can keep this up before the people stand up and say Viva la Revolution as is always the case in history when the rich just get that bit too greedy for their own good and lives

Thu, 10/27/2011 - 19:09 | 1819048 rosiescenario
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"Revolution as is always the case in history when the rich just get that bit too greedy"


They always seem to catch the greed disease....enough is never enough....if I own 10 houses I will only be happy when I get to 12....etc. It is an addiction among a certain class of people...even when they have 100X more than enough, they will still risk going to jail by law breaking to get even more...we see it everyday.

Thu, 10/27/2011 - 23:42 | 1819300 i-dog
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"how long they can keep this up before the people stand up and say Viva la Revolution"

Won't happen. Never before in history have "the people" been so heavily drugged (in the water, in the air, in the vaccines, in the food, in the food containers,....), so heavily propagandised (in the MSM and TV programming), and so irrecoverably indebted and dependent on government handouts -- that they'll sheepishly follow any orders from above. Baaaaah!

Fri, 10/28/2011 - 01:00 | 1819922 ElvisDog
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The thing that will ultimately cause the revolution will be commodity price inflation, particularly food and energy cost. Food cost inflation was the trigger for the French Revolution.

Fri, 10/28/2011 - 11:52 | 1821069 SystemsGuy
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Yup - re: commodities.

So long as you can keep supplying the bread and circuses, indignation alone will won't be enough for people to take to the streets, save for those few who will protest at the drop of a hat. Eventually, though, the bread and circuses DO run out, and that's when things get ugly.

As resources dry up, national governments in particular respond in one of two ways. One is just to give up, to hand the reign of powers to the wealthy bastards that have been trying to buy influence for years and one by one take a vacation in some other part of the world. The other is to reduce welfare spending while methodically ratcheting up military spending, not so much for adventures abroad but for protection of the wealthy at home. Of course, by the time that the pitchforks and torches come out, the monsters have long since fled the castle with the region's gold in a handy chest.

My guess is that rolling estates in non-extradition-treaty countries are probably selling like hot cakes right now.

Thu, 10/27/2011 - 17:48 | 1818813 homersimpson
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Now if this story can just translate into FAZ profits, I'd be ecstatic..

Thu, 10/27/2011 - 17:50 | 1818819 tmosley
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I don't think there is anything that could do that, save perhaps for a return to free markets without a financial force majure, which I don't think is going to happen.

Thu, 10/27/2011 - 17:51 | 1818822 FunkyMonkeyBoy
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Didn't FAZ hit all time lows today...? What a piece of s**t... seriously, what are you doing?

Thu, 10/27/2011 - 17:55 | 1818834 homersimpson
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Well.. hindsight is 20/20..

Thu, 10/27/2011 - 17:57 | 1818839 FunkyMonkeyBoy
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Looks like a fraudulant piece of crap to me... looks mathematically certain to go to zero at some point no matter what financials do.

Thu, 10/27/2011 - 18:31 | 1818917 Bill Lumbergh
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Homer my advice would be just to day-trade them if you want to use these types of instruments...besides you may wake-up one morning and find out shorting the financials has been banned...the poster above me is correct they will go to zero in a theoretical sense as many have already done reverse splits during the QE2 market melt-up.

Thu, 10/27/2011 - 17:49 | 1818817 mynhair
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Sour grapes for Chuck in the short term.  Who knows when it goes BOOM?

Trade what you see, fuk the future.

Thu, 10/27/2011 - 18:01 | 1818855 topcallingtroll
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Thu, 10/27/2011 - 17:50 | 1818821 Rainman
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Debt repudiation sure smells funny when it is buried in a pile of horse shit. This will be a titanic disaster within 3 months when all the other weak hands pile in. Assholes.

Thu, 10/27/2011 - 17:53 | 1818828 Donlast
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I think the best place to feel comfortable and secure these days is in an aslyum

Fri, 10/28/2011 - 00:54 | 1819913 MayIMommaDogFac...
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Aren't we living in one?

Thu, 10/27/2011 - 17:53 | 1818829 Ghordius
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Hmmmm... How is it that we have here a tyrant Germany that can't force the UK to join the EuroZone while Greece can't be trown out?

Can Texas leave the US? Can Kansas leave the DollarZone? Is Nebraska exploiting Delaware?

What would Cameron's reaction to a Scottish Pound be?

You gotta be kidding me or perhaps you just watched too many WW2 movies.

Thu, 10/27/2011 - 17:58 | 1818841 DoctoRx
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Which country's exports were most stimulated by today's currency action?

Thu, 10/27/2011 - 18:22 | 1818879 Ghordius
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Is Today's market action the whole horizon?
Are you that shallow?

Your soldiers don't think this way and would understand me when I say that we have a common border, common market, common currency (optional), a common flag, a common anthem, a common future and a common dream, including solidarity...


By the way, you forgot to bash the French, the Luxis, the Dutch, the Austrians, the Danes, the Finns, the...

And what if the entire world would go gold-backed? Would then the evil Germans dominate the planet?

Is honest money a colonialistic instrument of exploitation?

Thu, 10/27/2011 - 18:32 | 1818924 The4thStooge
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Actually according to the annexation treaty they signed, Texas can secede whenever they want.

Thu, 10/27/2011 - 18:38 | 1818935 Ghordius
Ghordius's picture

And are Texans exploited or exploiters?
By the credit market debt as explained above by CHS?

Thu, 10/27/2011 - 18:49 | 1818974 s2man
s2man's picture

Yes, Texas can leave the Union.  The only state which reserved that right when joining. 

Thu, 10/27/2011 - 21:26 | 1819434 pods
pods's picture

I am sure that is exactly what they were saying in Richmond too.

The USA is like the Hotel California.


Thu, 10/27/2011 - 21:34 | 1819451 Lednbrass
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And will be followed by the rest of the south, in a few more years there wont be any other choice and both sides will be much happier.

Thu, 10/27/2011 - 22:04 | 1819492 JohnG
JohnG's picture



Yep.  The South shall rise again! As has been said for us gun totin' rednecks for better than 150 years. (re. gun ownership article yesterday)


Yet somehow, I do not think it will be a happy parting.  Things like shooting, and death come to mind. 

Never mind the War of Northern Agression.......


But I'm just a simple redneck after all.  Rebel Yell....

Thu, 10/27/2011 - 22:24 | 1819552 pods
pods's picture

No worries, I am with y'all in mind, and body!

Just wanted to make it clear that momma USA does not accept secession well, whether it is in the contract that you signed or not.



Thu, 10/27/2011 - 22:53 | 1819665 Lednbrass
Lednbrass's picture

Agreed, but there are substantial differences today I think.

1) The military is disproportionately southern, particularly in combat troops. If push really came to shove and it got ugly, most would stick with their families and states.

2) Cultural advantage is with the south, where I live I see 7 year olds at the range with Dad and their first .22.  In large northern cities, they play Halo and think a pistol is firepower. It is a rare boy in my sons high school that doesnt own their own rifles and shotguns.

3) The midwestern farmboys that made up the best of the Union troops last time arent going to sign up in large numbers to maintain it, most are more sympathetic to the other side at this point in history.  Last time the Union had many brigades formed from Unionists from southern states, this would be inverted if it happened again.

4) International recognition would be swift. How long before the Russians and Chinese recognize a breakaway region? Near immediate I think, considering how the US backed new nations in Eastern Europe there would be immediate recognition from many nations. The Russians would do it in a heartbeat if for no other reason then payback.

Fri, 10/28/2011 - 14:24 | 1821830 SystemsGuy
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While your points would play a factor, there are many others that likely have more significance.

1) The south also has a much higher proportion of African Americans under arms than was the case in the Civil War, and it is very likely that their allegience is much less likely to lie with a new country that had historically enslaved them. Similar arguments apply to Florida south of Orlando, which would be much more likely to be sympathetic to the the US federal state than to a southern country with a history of intolerance.

2) During the Civil war (the first civil war? hmmm ... ) the great plains and Rocky Mountain states didn't factor in one way or another. Today, I suspect that would change, as secessionist fever is fairly high in that region of the country.

3) If the south fractures away, it'd have repercussions throughout North America. Orange County south in CA, Arizona and NM might very well seize the opportunity to become Mexico Norte, an independent, largely Spanish speaking country along the lines of the old Spanish Empire. Coastal CA, OR, and WA would breakaway as a northern-sympathetic Cascadia (possibly up to and including Vancouver, Victoria, Juneau and Anchorage), ESPECIALLY if, as expected, one of the first acts of a new South would be the taking of Washington DC (which I suspect would have to be the case). 

4) Ohio, southern Pennsylvania, Indiana and southern Illinois might very well go with the South (but keep in mind that Midwestern farmers kids are just as adept with shotguns as their Southern cousins). If DC fell, Maryland likely would to pretty much as an afterthought. From DC to Annapolis is about twenty minutes.

5) Should that happen, then the most likely centers of power will not be with the states, but with the military commands, which would then be most likely to defend their immediate regions first if no clear chain of command existed).  Denver would become the capital of the Mountain region, New York the obvious capital of the Northeast, Atlanta the south, Dallas, Texas, San Francisco or Seattle, Cascadia, and so forth, because in addition to metropolitan centers, these each have dominant bases nearby. Canada may also dissolve at that point - the divisions there are nearly as strong as the divisions in the US, just not as well known south of the border.

6) The second civil war would not be north vs. south but alliances. Texas is not going to shackle itself to Atlanta. Cascadia will be sympathetic to New York (and may supply money and or troops), but won't form a country divided by largely hostile intermediaries. Tidewater (that area south and west of Chesapeake Bay) will likely be sympathetic to Dixie, but may prefer its own indepedence.

7) This would also trigger a fairly massive exodus of people seeking to be in areas more consistent with their well-being. There would likely be a massive black flight out of the south, especially of those of more prosperous means. Anglos in Arizona might very well find that their largely friendly Latino neighborhoods have become much less friendly. Ethnic cleansing could very well be a product of this process.

8) International recognition would be piecemeal, and would come at great cost. Most of Europe doesn't understand the South, and see southerners as bellicose, uncouth and bigoted. They would also be very worried that first, NATO alliances would come into radical stress, and second, that a civil war of any sort will devastate the financial infrastructure upon which they depend, so they would be far less willing to commit.

Russia would take a wait and see attitude - Putin or his successor would be happy to see the US be forced to take its own medicine, but they would be terrified that this would lead to their own alliances getting ideas - the Russian Confederation is not all that sturdy at the best of times - and would eye retaking the Baltics and quite possibly Poland. Germany would be more likely to side with France and Great Britain at that point, and might very well also take the battle to Poland if Russia invaded there. 

China would use it as an opportunity to take over Taiwan (and perhaps South Korea), would then sell guns to the combatants that needed them, and would then very quickly cosy up to Cascadia as a largely sympathetic foothold into North America.

The Middle East would explode, as either Iran or Israel would seize the opportunity to send a nuclear missile or three into Tel Aviv or Tehran respectively.

In effect, by the time the shooting gets serious in the US, much of the Northern Hemisphere will be engulfed in war.

9) Final difference - this will not be a war fought on the battlefields until fairly late in the game. It will be combat jets, bombers and tactical missiles, some possibly nuclear, robot drones piloted by those guys playing Halo and will include a biological component that makes mustard gas look positively quaint. It will be be surgical but devastating. It will eventually get down to the street level, but as has been proved world-wide, it doesn't take long for a city kid to learn how to fire a semi-automatic.

It'll also be quick then slow - first strike capabilities will be taken advantage of by the aggressors, but most weapons, munitions, aircraft and transport facilities are extraordinarily vulnerable to airstrikes. The first phase will occur within six weeks. The second phase will take years, and will likely resolve into urban warfare where things get murky fast, until in the end several truces are called until it becomes evident that the will to fight has been extinguished. At that point, it becomes necessary for people to pick up the pieces. Atrocities will have taken place, former friends will have become bitter enemies, and the political landscape globally will look a lot different than it does today.

Personally, I think it will happen - the stress fractures are already there and their building. But I'm not looking forward to it.

Thu, 10/27/2011 - 17:54 | 1818830 unum mountaineer
unum mountaineer's picture

so when does the swarthy eye of saron afix its gaze back onto the u.s. deficit kabuki theater. which middle east dictator will they deep six next? stay tuned....

Thu, 10/27/2011 - 18:04 | 1818864 tasmandevil
tasmandevil's picture

watch me shorting Olli Rehn

Thu, 10/27/2011 - 18:47 | 1818966 DutchR
DutchR's picture

Americans are jealous, we default in style....


ps. most mrecans are imported not important.....

Thu, 10/27/2011 - 18:56 | 1819002 s2man
s2man's picture

Are the politicians so obliged to the bankers they can't let them fail?  Shouldn't they protect their sovereign interests and let the banks fail? And if the banks fail, sovereign debt obligations solved.  Save the countries, screw the bankers.


Thu, 10/27/2011 - 20:49 | 1819339 i-dog
i-dog's picture

"Are the politicians so obliged to the bankers they can't let them fail?"

Yes. You haven't been paying attention!

Thu, 10/27/2011 - 18:58 | 1819012 machineh
machineh's picture

'It's the classic mercantilist-consumer co-dependency on a gigantic scale, with low-cost credit fueling both increased consumption and production. These booming high-profit German exports of finished goods to the European periphery generated vast surpluses of capital that were then loaned to the periphery to enable their further purchases of German goods.'

So Germany is to Greece as China is to the USA?

Welcome to the mercantilist plantation ... errr, Shoppers Paradise!

Thu, 10/27/2011 - 19:00 | 1819019 rosiescenario
rosiescenario's picture

"But setting aside the melodrama for a moment, let's ask: how many German goods would have been imported by the EU periphery if those nations had been forced to pay cash for everything from the start? Precious little is the answer; the cash--in the form of actual surpluses available to spend on imports--would have run out immediately after the euro was launched."


This sounds vaguely familiar....didn't Japan at one time fund our own deficit so we could import crap from them?

And then didn't China step in to fill the same shoes a few decades later????

Thu, 10/27/2011 - 20:52 | 1819346 i-dog
i-dog's picture

Yep. Who's next? ... Anybody?? ... {crickets}

Thu, 10/27/2011 - 19:02 | 1819025 TuesdayBen
TuesdayBen's picture

Hey, leave my family out of it...

Thu, 10/27/2011 - 19:03 | 1819028 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

Absolutely brilliant exposition...ZH at the top of their 'let us enlighten you' game.

Thu, 10/27/2011 - 19:31 | 1819120 Bazza McKenzie
Bazza McKenzie's picture

Nice try, but no cigar.

Germany was a manufacturing powerhouse before the euro and it will still be one after the euro.  That is because its people are disciplined, hard workers, its education strong and practical, and its command of technology outstanding.

Modern Greece, on the other hand, had been in default more than half the time before it joined the euro. It has always spent more than it earned. That was the culture before the euro, it has clearly been the culture within the euro and it will be the culture after the euro.

Putting such disparate cultures together in the euro was gross stupidity, always bound to fail.  But it fails because of the cultures, not because of some supposedly malign mercantilism of Germany.

Fri, 10/28/2011 - 07:52 | 1820220 Dutch_Gemma
Dutch_Gemma's picture


I agree with most of what you say, however - and it is now too late of course - the politicians coult have *tried* to work together, instead of simply borrowing  and reducing their retirement age.



Thu, 10/27/2011 - 19:33 | 1819128 Nels
Nels's picture

Sovereign currencies are the only mechanism for discounting differences in credit worthiness and production costs.

Gold served this purpose for 500 years, why now are sovereign currencies the only answer? 

The idiocy isn't the EURO so much as thinking that Greece deserved the same  low cost of borrowing and should have had the same wage rates as Germany.  The desk jockeys in Brussels screwed this up.  Had they left it at only a joint currency, and left all the other rules to be handled locally, there was a chance that they could have avoided the current mess.

Fri, 10/28/2011 - 07:54 | 1820227 Dutch_Gemma
Dutch_Gemma's picture


the problem with a fiat currency is that it needs to be tightly regulated. If it is not, the markets and other institutions will run rings around it.

Take a look at Germany's banking regulations: they are so tight you cannot even get a mobile phone contract without a credit check, let alone a mortgage for a house. In the UK last year, nearly half of new mortgages issued had a credit check performed. Think: which is the safer option?

Thu, 10/27/2011 - 19:43 | 1819149 Vuvuzela
Vuvuzela's picture

This insane scenario has only one purpose:

Get Germany in bankrupcy, they did it before they will do it one more time

Mark my words, Greece is the fuse that will ignite the German Debt Bomb

Thu, 10/27/2011 - 19:49 | 1819164 ricocyb13
ricocyb13's picture

how can a country like Greece go bancrupt? They still have islands and land available.

If I were the bondholder, I would just take over some islands or the entire country.

Where is the issue? Greece even has lots of oil....

Thu, 10/27/2011 - 20:28 | 1819282 Yen Cross
Thu, 10/27/2011 - 21:12 | 1819406 DTCC 1999
DTCC 1999's picture

Evil Germany - reinvested in it's metals and plastic manufacturing technologies so to remain world class and then loaned broke ass countries money so their people could work. Bastards.

The Euro's biggest folly (if unintentional) was having member countries print their own bonds from which a default of an individual would result in the defacto default on the currency of the collective.

If you want to read a thread on the issue that makes relevant points, which lead to informative discussion, look back a few posts for the implications on the CDS market.

Thu, 10/27/2011 - 21:38 | 1819458 nah
nah's picture

how does the empire adjust


im being theoretical

Thu, 10/27/2011 - 22:10 | 1819521 Buck Johnson
Buck Johnson's picture

It's over, pure and simple.  Just let the system die so we can build a better one.

Fri, 10/28/2011 - 04:52 | 1820071 Grand Supercycle
Grand Supercycle's picture

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Bullish USD weekly/monthly and bearish SP500/DOW monthly
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