The End of Europe
I sincerely believe that banking establishments are more dangerous than standing armies – Thomas Jefferson
Europe is failing. Europe’s leadership is preparing for war to cover their mistakes of the past fifty years and the people aren’t having it. Europeans don’t want war and to date, Russia has been unwilling to be provoked into a wider conflict.
It’s obvious to anyone who knows anything about military campaigns that Russia lacks the logistical capacity to invade Western Europe. Their domestic semiconductor fabs are 25 years behind the West which means they are unable to fight a modern war. Besides, Western Europe is a hollowed out economic shell that offers no advantages to Russia and innumerable headaches.
Northern Europe has outstanding defensive militaries, backed by NATO. Eastern Europe has Poland with their massive, modern army which is more than capable of blunting Russia if it somehow gets past Ukraine. Turkey’s massive army sits on Russia’s flank.
It would take an extraordinary level of credulity to paint Russia as a military threat that warrants mass mobilization of Europe’s limited industrial base. Regretfully, it’s not stopping them.
All Wars Are Bankers Wars
War is a racket – General Smedley Butler (US Marines)
Europe is run by bankers and politicians; every other economic power center has been marginalized. Green energy policies, pushed by bankers and politicians, have destroyed domestic energy production in Germany and Britain and have left the regional economy dependent on high-priced, imported natural gas, and ultra-high-cost renewable energy. The result is a regional economy that can no longer compete on world markets.
The German Mittelstand, the economic rock that Europe is built on, has been decimated by these disastrous decisions. The Mittelstand refers to the small, private or family-owned businesses that represent the excellence of German engineering and manufacturing and employs roughly 60% of Germans.
These businesses are being tasked with shifting from domestic products to military products, to fight a war that is unlikely to start. Many of their industrial inputs such as natural gas for chemicals and metallic inputs were formerly sourced from Ukraine and Russia but now come from new and more expensive sources.
The Mittelstand, already decimated financially, needs to re-tool and find new input sources, which will require massive capital investment. To make this happen, Ursula von der Leyen, President of the European Union, has proposed using €10 trillion from household bank deposits to fund this capital investment, claiming these deposits are “idle” and “lazy”.
The people who destroyed the European economy in the first place want the voters to turn over their savings to fund a fool’s errand. They want to fight a war that has no reason to be fought other than to bail out bankers and politicians.
The scary thing is that European leaders would rather risk destroying the world than loosen restrictions on the pan European economy. They can’t think of any better ideas than World War III. It’s little wonder that voters in Germany, Britain, and France want the current leadership voted out.
There is no appetite for war in Europe. The bankers and the politicians have failed the European people and will not be allowed to destroy the world.
Whither the Euro?
It’s the invincible arrogance of Europe’s elites that gets me. These are people who have seen the euro collapse. These are people who are presiding over a migration crisis on their borders, and yet do they ever acknowledge that they need to change? No. They say that they need more integration, more of our money, more control over this country – Michael Gove
The euro was created to compete with the US dollar in global trade and ultimately replace it as global reserve currency. The euro was initially introduced at $1.18 for each €1. Over 27 years, it has remained roughly the same – presently $1.14 per euro.
Yet at the start of the GFC or Great Financial Crisis of 2008, the euro hit just under $1.6 per euro when it appeared that the Federal Reserve was losing its collective mind, only to fall dramatically since that time. That was Europe’s opportunity to replace the buck and they failed. They won’t get another chance.
Von der Layen’s plan risks driving domestic savings out of the Eurozone into other currencies such as the dollar and yen. If this happens, the value of the euro in currency markets will fall, making it much harder for the remaining European manufacturers to shift to arms production. Inflation is already decimating European consumers, a drop in the euro would accelerate an already untenable economic situation forcing consumer inflation even higher.
The timing is yet to be determined but the conditions have been set; the euro is going to break, not the US dollar. Within ten years, Europe will be irrelevant as an economic bloc and the euro, if it’s still around, will resemble the Indian rupee.
Twilight of the Central Bank Model
The worst evils which mankind has ever had to endure were inflicted by bad governments – Ludwig von Mises
Central banking is a British invention and it started with the Bank of England in 1694 although it can be argued that the Knights Templar represented the first central bank in history. Their power was seemingly destroyed in 1307 by King Philip IV of France. I believe the power of the European central banks and their offshoot, the Federal Reserve Board, are presently facing an existential fight.
At the heart of central banking is the process of money creation. National governments borrow from central banks and pay interest on that money. Central banks, which are largely private institutions, make money by creating more money. They are incentivized to expand money supply.
My formative years in the investment business were built on the belief that central banks needed to be independent to prevent runaway inflation. The truth is the opposite.
Central banks loot economies and destroy them. We can see this in Britain, France and Germany where prices have been driven too high to compete. That’s when industrial activity is exported to the lower cost venues, hollowing out the economies that supported borrowing in the first place.
The Fed is in the process of destroying the US economy. The country is littered with former industrial cities and towns, a testament to the destruction wrought by bankers.
The chart below shows US government debt over my lifetime. Everything has been inflated and monetized and now we’re left with the financial wreckage of excess debt and a hollowed out industrial base.
It was both political parties. JFK issued silver certificates to counter the Fed; he was shot. Ronald Reagan was exploring a return to a gold standard, not coincidentally, he was shot. From George Herbert Walker Bush through Joe Biden, US Presidents ceded power to the Fed incrementally until we got to our present condition.
M1 money supply has grown by 80% since 2020. This represents cash and checking and it is the reason consumer prices are much higher. The chart above shows how that money got there. It also shows why our capital markets have remained elevated. It’s not sustainable.
The only part of the yield curve that global central banks can impact is the long end – 7 years and up. We can see the spike in 10-year bond yields below. This doesn’t indicate rising inflation expectations; it represents the death throes of global central banks desperate to derail the efforts of the US to drain dollars out of global money markets.
The inflation damage has already been done during the years 2020 through 2024. US dollars are being drained out of the global economy and re-invested in the US. The US is effectively sucking the lifeblood out of the global central banking system. I view the rise in long term bond yields as a generational buying opportunity because interest rates will be forced down to 0% in the US before long.
Eurodollars
Never interrupt your enemy when he is making a mistake – Napoleon Bonaparte
I wrote a piece called the Main Event that discusses the draining of the Eurodollar market in detail. Here’s a link: https://geovestadvisors.com/the-main-event/ The Cliff Notes version is that the abundance of oil and natural gas developed in the US shale fields has resulted in the reversal of energy flows from into the US to out of the US. Inversely, this redirects US dollars from moving out of the US to moving into the US, leaving global central banks bereft of US dollar assets.
US dollars are being drained out of Europe and Europe’s international banks in London, Paris, Zurich, Amsterdam, and Frankfurt. The war on the international drug trade by the US military is destroying the profitability of European banks which regretfully, rely heavily on this ugly trade.
The City of London and UK Crown dependencies launder an estimated 40% of the world’s illicit trade. Banks in Paris, Rome, Zurich, and Amsterdam also feed at that trough. By cutting them off from this lifeblood, these bad actors are going to be sharply curtailed in power and global influence. Central banks in Europe are rapidly losing the ability to move markets around the world.
Globalism was created by the Bank of England and other European Central Banks but those banks are being marginalized in global matters, particularly since their regional economies are fractions of their former relevance. The pan European economy has been over-harvested by bankers and politicians as discussed previously.
Food and energy are traded in US dollars and the European banking establishment is watching those dollars head back to the US. Every oil tanker or LNG tanker that docks in the Port of Antwerp drains dollars from European banking coffers. Without dollars, European banks decline in relevance.
European central banks have relied on hidden swap arrangements with the US Federal Reserve Bank to supply them with US dollars when they are short. I expect increased scrutiny of these arrangements by the US Treasury going forward and if those swap arrangements are curtailed, the euro is going to drop like a stone versus the US dollar.
Here’s the same chart from above with some lines marking important levels. If the euro falls convincingly below parity with the US dollar, it’s game over. The Europeans have relied on their extraordinary influence with the US Congress for 200 years but that influence is rapidly waning.
As Europe goes, so too goes globalism and the central bank model. This is why they need to drag the world into a war. It’s their final lifeline.
In politics, stupidity is not a handicap – Napoleon Bonaparte
Europe isn’t going to disintegrate; it will cease to matter. Eastern Europe, especially Poland and the Czech Republic, as well as Scandinavia have bright futures. Britain, France, Germany, Italy, and Spain have serious problems. The money has run out for those trust fund babies
The US has been hampered by European influence since the beginning. Presidents such as Jefferson, Jackson, Lincoln, McKinley, Kennedy, and Reagan have tried to limit European influence in banking and policy but the connection was too strong.
As the US melting pot integrates the world into our hybrid genetic mix and as European bureaucrats destroy what’s left of their economy, the connection is finally breaking. Good riddance! Without the US, the global central banking model finally fails and with it, the artificial asset inflation that is preventing the US economy from renewing itself.
The financialization cycle is over after 125 years. The future is about re-building a destroyed industrial base, not about trading crypto and Mag 7 stocks. If you’re interested in learning more, visit us at https://geovestadvisors.com/ and give us a call.
Philip M. Byrne, CFA