Nov 102012
 November 10, 2012  Posted by at 12:14 am Finance

Here's what may be a useful angle to explain to people what is happening in Europe right now, and what's yet to come. It's not about Greece, which shoved another "Deal" through its besieged parliament this week, a deal that itself is also still under siege. It's not about Spain either, which managed to borrow a few billon more, enough to stay alive till Christmas, but sees its bond yields enter the land of ugly (yawn) again.

We all know the stories of the eurozone periphery by now, we've read a thousand chapters. And the core likes it that way, since this keeps us from looking its way. The situation allows for Germany, France and Holland to sit pretty and pretend they're doing fine. They're not.

Some ugly numbers have come out of Germany lately. We’ll get back to that later. More interesting is the report that German Finance Minister Schaeuble has asked a "wise men" committee to draw up a picture of what's really happening with France economically, a picture that should serve as a counterweight to the portrait French President Hollande paints, and which Germany no longer has confidence in.

However, the more poignant sign of what's to come in Europe emanates from Holland.

Earlier this year, a right-leaning minority coalition government threw in the towel. On September 12, new elections ended with two large parties: the right-wing liberals and the left-wing labor party. Which then decided to form a coalition together. And did so at record speed. The two party leaders couldn't stop talking about how great their counterparties were performing in the very secretive negotiations for their coalition agreement.

Then last week the agreement was published. Confusion ensued. Everyone tried to figure out what the numbers behind the agreement were, but nobody could. When the new coalition government was installed on Monday, all anyone had was questions.

First, there was a plan to make health care premiums income dependent. The richer pay more, the poorer less, fair enough to an extent. But when it came out that the richer would see their premiums quadruple, the right wing was up in arms against its own guy. A week later, the whole plan has been shelved.

Second, there were questions about what would be the overall financial consequences of the coalition agreement. Apparently, the initial reaction of the new government was that that could not be known until it had been operating for a while, like a few years or so. Nice, when you get to think about it. A TV network asked for the numbers underlying the plans, but was told to take a hike. It went to court to get them, but the judge ruled there's a minimum term of one month for this.

Anyway, a too rapidly built plan in which too much was left to chance. In other words: just another building block that fits in perfectly with all the others the house of Europe consist of. The kind that, if it doesn’t work out, is just as easily replaced with the next one (how many times has Germany said: no more money for Greece?!). It's reminiscent of a line mostly attributed to Groucho: "These are my principles. If you don't like them, I have others."

But that's still not the point I wanted to make, it's just the introduction. Something else came to light during the first few messed up days of that coalition government. Of course the coalition partners didn't volunteer the information, but – respectable – third parties that did do the math with what little they had to go on came up with some surprising findings. Which give a us a good idea of where Holland is headed. And if Holland is, so is the rest of the European core.

The third party numbers that were initially reported spoke of 10-20-30% declines (I saw one 60% quote) in purchasing power for large parts of the Dutch population over the next 4 years due to the new coalition agreement. Not only would this be austerity on steroids, it's also so far away from anybody's world view in Holland that it hardly even registers. Which is probably a large part of the reason it's so easy for the coalition partners to say it's not true at all. In their response, however, they gave up a lot of the ever so happy people picture. And that could prove fatal.

The government in an impromptu official reply to third party numbers said that "only" one in six Dutch(wo)men will lose "only" 5-10% in purchasing power. Bad enough, you would think. But they of course inevitably underplay the numbers; they're like the EU claiming GDP will rise in 2013, habitual liars who can't help themselves. Good news sells, whether it's true or not.

In view of the everlasting propensity for good news and neverending drive towards sunny predictions that fuel politics as we know it across the board, we can already state with absolute certainty that the situation will work out to be much worse than a government, any government, would predict. There's not a bookmaker on the planet who would accept odds against that principle.

Instead of the one in six losing 5-10% of purchasing power, what we'll see develop is that at least one in three will lose at least 10-20%. By then you have a sharply shrinking GDP and not even a thought of paying for anyone else's debt. And maybe we should thank the Dutch government for admitting what they have; none of their peers have to date. Sure, the Greek and Spanish governments have, but only after the troika – the outside world – ran a big sharp dagger across their throats. What Holland showed us is different in more than one way: There was no outside pressure, no daggers, and they weren't really paying attention, since they were too pre-occupied with the mental boost of new found power.

Still, in doing what they did, they gave away the future of the European core, and the European periphery with it, a future in which the core bailing out the rest will be a forgotten past that no-one can quite imagine anymore. Once again, we return to "the center cannot hold". Only this time it's out in the open. Consider yourself forewarned and act accordingly. Why don't you.


Home Forums EU Game Changer: Austerity Hits The Core

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    Here's what may be a useful angle to explain to people what is happening in Europe right now, and what's yet to come. It's not about Greec
    [See the full post at: EU Game Changer: Austerity Hits The Core]



    So, the loss of purchasing power will be only through cuts in government spending? Austerity? Real belt tightening? Or will additional devaluation, the historical solution to these things, also contribute? Stealth taxation through inflation, after casting the Euro fiat to the wind and doing their own thing, industrious Germans right on their tail?

    To me a loss of purchasing power can be brought about in either scenario, or both. Even direct taxation. Knowing the outcome, but not the specifics of the plan makes this difficult to “act” on, maybe?

    Certainly, austerity is in order, to bring standards of living back to sustainable levels, but is it really going to pass political muster? Like, the Dutch discovered statesmanship suddenly, in lieu of weasel opportunist politics?

    If so, and a return to living within it’s means comes to Holland, would a book maker be best served investing there, than say, in Spain, where future collapse seems more favorable to it’s near sighted public than frugality?

    But then, Nancy Pelosi did say O Care had to be passed to know what’s in it. So, it was. Still don’t know what the outcome will be, on the 5 year plan and all.

    Eagerly awaiting ratification of my State into the Union…


    We are really fortunate to have in Ilargi a person who is Dutch and who pays attention to what is happening in that little, but critical, corner of Europe. I mean, most German exports and imports pass through the Netherlands and pretty well all long-distance trade in the valley of the Rhine has to pass through either this country or Belgium (Rotterdam and Antwerp). It is the canary in the coal mine.

    John Day

    The Oil Drum has an update, mainly on the future of coal production, but it looks at natural gas and “all liquids”, too.
    You’d best get all your business done in this current decade.
    Sooner is better.


    Couple folks get together to discuss Liberty…



    Interesting numbers on the oil drum site.

    I think if I lived in a location that is energy intensive, ie heating, cooling and commuting, I’d be looking to relocate to milder climes, closer to services.

    Might just be some demographic shifts to the South and West over the next decade or two.



    Perhaps of interest, per your expertise. Series of random storms, or conspiracy? Not sure. What’s your take? If you have time, if not, I get it.

    Pritchard is, well, Pritchard.

    John Day

    While we are at the point of discussing power-intrigues in the era of declining resources and debt bubbles, why did David Petraeus resign from the CIA with public announcement of sex-outside-marriage? Here is a story which points to a plotted military coup against Obama, should he win the election. A lot of other things I’d found puzzling, make sense in this scenario. (Fighting over lifeboats on deck of Titanic?)
    Veterans Today editor, Gordon Duff:

    John Day

    I’m moving to Hawaii, Big Island, rural, nice bicycling, good little job, fresh fruit.
    I fly December 1, flying back with my wife after Christmas in Texas, and shipping container arriving January 2.
    Just saying that I agree, sir…


    John writes:
    “Might just be some demographic shifts to the South and West over the next decade or two.”

    John, you missed the memo. The U.S. Southwest is burning up with drought and heat, as climate change progresses. That whole culture (outside the coast) depends on air conditioning. Once the grid is stressed and goes down, the S.W. and the U.S. south generally will feel uninhabitable.

    Only those living within about 50 miles of the ocean (but not right on the ocean! Remember Sandy!) – will be able to take the heat, without using a lot of electricity.

    For the long-term (say 20 to 30 years) try further North, like Washington State or New England, or Canada. That will feel like the South does now.



    Petraeus thing, power corrupting absolutely, who knows what that was about. Sure happy I don’t have to associate with all those psycho’s.

    On the move to Hawaii, change is always an adventure. As life should be.

    I’ve invested a bit in Southern Arizona, as I figure rising energy prices, along with a big fat carbon tax (to fund Obama Care, Afghanistan?) will most likely uproot millions of Northern snow people over the next decade. Whether they like it or not.

    Sure won’t leave many remaining to support the massive governments up there. Kinda like the HOA dues on a high rise condo, when there are only a couple occupants?

    I see Detroit as the future of the northeast.

    John Day

    You might look at Nature Bats Last, Professor Guy McPherson’s blog about that sort of low impact, off grid, sustainable kinda’ life. He’s in that area you are looking at, but it’s pretty hot. There are little lslands of better climate with streams and so on.



    Re Southwest,

    Don’t see any evidence of the great global warming, carbon tax, credit derivatives hype down there yet. Neither do the old boy locals I talk to. Of course, mention crop damage subsidies, and it’s Armageddon 😉 Out come the discs!

    But an awful lot was just spent on the New All American canal project down there to think it’s all for naught. The water still flows to the fields. Oh, and the golf courses, parks and road medians.

    I need a little more solid proof before I put money in popular political movements.

    Not selling blog ads, books, advice and such. Besides, Paul Ehrlich had us all dead back in 68, only in an ice age then.

    On energy prices, I see rises through taxation, inflation and demand, depending on how severe this economic rout gets. Might just be, with Europe shut down, and China slowing, we could see a bit of conservation soon.

    Lot of new grid work going on down south, to support the solar and wind farms, and in Nevada, the geothermal.

    No need for heat down there, and a solar powered swamp cooler isn’t that expensive. More comfortable than AC anyway, in that arid climate.

    John Day

    @Professor Locknload,
    You should spend some time there, year round, before buying.
    There are a lot of specific little regions and cliques in Arizona. Most of it is desert, but the little oases all have personalities, and outsiders may always be outsiders in some places.
    Money won’t buy acceptance in most places.
    I lived on the Navajo Reservation in Chinle Arizona for a couple of years. Working as a doctor did get me accepted, but accepted as a white man, which is like a different species.
    The oil is running low. The Navajo can live without electricity, at least the ones who live the old way.



    Thanks for that. I considered the areas out around Aztec and Farmington, NM, but too cold up there. Southwest AZ fit the bill. Sunny and warm winters. Nice contrast from WET and grey Northwest winters.

    Actually, warmer winters down there, than our summers up here. The utility savings cover the expenses. Small, older places at both ends, we don’t need much.


    This from Mish…

    Sure, the Fed is going to let the worlds 8th largest economy fail. TWICE the size of Holland! With huge agricultural output. The high tech mecca of the globe. Gigantic defense contractor. Major shipping ports. Big lumber and wood exporter. 12% of national GDP.

    Maybe it should be the other way around. By the logic of peripheries and cores, maybe California should leave the union and let the US fail. Or at least, divide this mess at the Mississippi and let the East eat it’s paper products.

    This is all getting absurd.

    John Day

    @ Professorlocknload,
    It looks like you are doing diligent investigation of Arizona.
    It’s still good to rent, keep your powder dry, and wait ’til you see the whites of their eyes.
    There may very well be another big leg down in housing. I sure expect that to be the case. Renting gives you an option on any good deal you may find in such a scenario…
    Mish really has good insights sometimes.
    Other times he has rabies.
    This rant looks like “Cujo”.


    Guess what? Greek Parliament passes 2013 austerity budget with comfortable majority.

    Deja-vu for this green slime slave.Waiting for the worms: Waiting for the worms now.


    “By then you have a sharply shrinking GDP and not even a thought of paying for anyone else’s debt.”

    If that is the case, then deflation is probably in store for Europe. And if they get deflation, the USA gets hyper inflation.

    This is consistent with the charts. The USA dollar looks to be in the home stretch of printing a head and shoulders pattern on the daily price chart. Once the 78 neckline gets taken out to the downside, the implied target would be 72, a new multi year low.


    If that is the case, then deflation is probably in store for Europe. And if they get deflation, the USA gets hyper inflation.

    When we get these things after explaining it 100 times, the possibility looms large that you will never understand. But that doesn’t mean hyperinflation is any closer in the US. Not that EU deflation leads to US hyperinflation in any rational sense, mind you, but that by now is beyond the point.

    One more time: the US borrows heavily in international markets. That borrowing cannot exist simultaneously with hyperinflation. It won’t turn its back on those markets anytime soon; why should it when it can borrow dead cheap?

    Anyway, it’s all as much a lack of comprehension of the present situation itself as it is a failure to properly define hyperinflation. Off by at least ten years.


    “It won’t turn its back on those markets anytime soon; why should it when it can borrow dead cheap?”

    If that is the case, why is the fed engaged in unsterilized money printing? As you must know, it is because they have run out of savings to borrow.

    And you didn’t address the point I made about the chart. The dollar can’t make any traction against the comatose Euro, but it is going to INCREASE in buying power versus stuff that requires actual work to produce, such as gold, food, etc.? Puhleeeeze.

    I get the theory. If money is destroyed by default, faster than the masters can create more of it, you have deflation. But we are on a pure fiat standard. They are never going to allow that to happen. That is why TMS, CPI, and most other indicators are showing inflation.

    When will inflation morph into hyper inflation? Don’t know, but it will within a couple of years. They have run out of savings to pilfer, so they print. In Europe, they are trying their hand at imposed austerity. That is the deflation solution. There is no talk of that here. Just the opposite.


    pipefit post=6108 wrote: I get the theory.

    Not so, it seems.

    A few suggestions: revisit what TAE has written about inflation vs. higher prices–“‘Inflation’ Deflated” (in the Primers section) was recommended by Stoneleigh recently; consider the validity of the indicators you cite; consider that what’s discussed publicly in the US is not necessarily a reflection of what’s to come; check your interpretation of the dollar price chart with what Prechter et al at EWI are saying about where it’s headed. My understanding from their recent email is that it’s quite different from (the opposite of?) your interpretation.

    Your insistence raises the question (again?) of why you stick around here. If you’re open and interested in understanding I would think you’d be asking questions (not the type you answer yourself, that is) rather than making assertions.


    “If that is the case, why is the fed engaged in unsterilized money printing? As you must know, it is because they have run out of savings to borrow. “

    You argue here that the US must “print”.

    Because, you argue, it cannot borrow in international bond markets.

    That is so far off the truth, it’s not funny. Nor is it a challenge.

    I rest my case.

    Ken Barrows

    Question: If QE is just an asset swap and the USA can borrow at super low rates on international bond markets, why does the Fed do what it does?

    John Day

    Economic Transition Zone:
    We have exponentially growing debt-based fiat money.
    It is not sustainable in a world where oil is in peak plateau, with rising prices, and soon to decline.
    The 200 years of exponential growth is over.
    ZIRP from the Fed is a transition move for the banks, but the people, nations and corporations that still have interest bearing debt will be squeezed, and bankers will own a much bigger piece of the global pie after this transition.
    Also, the global austerity squeeze appears to be the default answer/strategy to deal with severe climate change and terminal resource depletion.
    There will be lots of talk, but austerity and wealth redistribution do not look like they will ever be mitigated, except by revolutionary change.
    Violent destruction of the embedded energy and order in infrastructure, manufacturing and other orderly processes might never be replaced in this scenario.
    WW-3 could really destroy the abilities to get deep sea oil, manufacture integrated circuits and things like that.
    It’s best avoided, right?
    I am working on reducing my dependence, and I’ve been a bike commuter since 2005, but what do you do when it’s really cold, or really hot, or you live in NYC in a high rise, without electricity?

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