Eric Peters: "Everyone Is Wondering What Exactly Is Wrong With Europe"

Submitted by Eric Peters, CIO of One River Asset Management

“Significant monetary policy stimulus will continue to be provided by forward guidance on the key ECB interest rates, reinforced by the re-investments of the sizable stock of acquired assets and the new series of TLTROs,” said Mario Draghi, tightening his neck brace and abruptly throwing Europe’s central bank into reverse.

Just 2 months after ending 4yrs of quantitative easing, Europe’s central bank flipped back into easing mode. With overnight interest rates still at -0.40% no one quite knows why the policies of the past didn’t work, or what will happen next. And everyone is wondering what exactly is wrong with Europe?

* * *

“They just were more polished than he is,” said Ilhan Omar, describing the American Presidents that came before Trump, critical of them all.

“And that’s not what we should be looking for anymore,” she continued. “We don’t want anybody to get away with murder because they are polished,” she said, attacking Obama and his 542 drone strikes that killed an estimated 3,797 (including 324 civilians).

“We want to recognize the actual policies that are behind the pretty face and the smile.” Ilhan was born in Mogadishu, Somalia, 1981. Fled the civil war for Kenya, spent 4yrs in a refugee camp. Emigrated to the US, naturalized in 2000. She’s a Millennial, a Muslim, an American, and now a Congresswoman, committed to speaking her truth to power.

And with that unique life experience, you can be sure her truth will collide with much that is commonly held in today’s America. The debates she’ll spark will be ferocious. But such conflict is of course the greatest strength of our union, the wellspring of introspection, inspiration, transformation, evolution. Our salvation.

“There is limited support for strict enforcement of the stability and growth pact among member states in the European Council,” reported the frustrated Dutch finance minister to his government, objecting to Brussel’s deceptive leniency toward Italy’s deficit overshoot. But you see, no one in Europe is being honest.

The truth is that a currency union is destined to fail without fiscal union. And fiscal union is doomed without political union.

Europe’s architects believed their citizens couldn’t handle that truth. So they locked themselves into a structurally flawed currency union almost impossible to exit, hoping to backdoor their way into fiscal and political union without their subjects quite realizing it. It’s the lie at the heart of Europe. Debilitating, cancerous. And all the polish in the world will not conceal the deception.

* * *

Bringing Them Home

US military spending exceeds the next 12 largest spenders combined. 165k military personnel are deployed at US bases in 150 countries – it’s a practice started after WWII. Germany pays the US $1bln/year (28% of the cost of hosting our 33k troops). Some others share a bit of the load.

America has been eager to share the burden for decades. Seems fair. Successive presidents asked nicely. They were all ignored.

Then came Trump. He’s considering demanding they pay the US 150% of our cost to deploy troops on their soil.  

* * *

Anecdote

“See that hotel?” I asked the kids, driving. They unentangled themselves from iPads. In the distance was a sprawling relic, nestled in New Hampshire’s vast wild.

“It’s one of the world’s most historic places - The Mount Washington Hotel, in Bretton Woods.” Charlie asked for the story.

In the closing year of World War II, we knew we’d win. With the rest of the globe demolished, destitute, desperate, we’d have free reign to do whatever we wanted. Through the ages, victors took treasure, territory, taxes, tribute. This naturally fueled the never-ending cycle that defines humanity’s bloody history.

With the war still raging, we secretly invited 730 delegates from all 44 Allied nations to Bretton Woods to agree to our plan to redesign the world. They were nervous, proud nations. Many had built and lost empires. But each knew that without America’s support, they were now finished. “Guess what we did?” I asked. We guaranteed global security, the free movement of goods across the world’s oceans, and free access to our market to sell their goods, rebuild their wealth.

“What did we ask from them?” asked Teddy. Nothing but allegiance. We paid for it all. We even let them protect their industries at our expense. Over 11 days in the Mount Washington Hotel, we agreed on the details. Every nation signed and bolted before we changed our minds. It was the boldest geopolitical bet in human history. It yielded an era of global peace and prosperity previously unimaginable, an anomalous period, with America as the indispensable center.

“Sounds like the cleverest thing we could’ve done. We made everyone completely dependent on us,” said Olivia. I smiled. And now, 75yrs after Bretton Woods, we’re reconsidering that agreement. Renegotiating, withdrawing. Things will change in ways no one can know. And this is the world you will all inherit.