Oct 092014
 October 9, 2014  Posted by at 10:18 pm Finance Tagged with: , , , ,

Unknown Marble contest on Boston Common 1920

The world stock markets big see saw zig zags over the last few days seems to be a harbinger of more to come. Christine Lagarde has warned of a fresh pan-European recession and just this once she may actually have a point.

Not that the old continent ever left the ‘old’ crisis, but since so much time and money was inserted into the recovery hologram, and we’re in a generous mood, let’s pretend and play along: it’s a new recession! That or a triple dip. The terminology is not the main point here; it’s going to be too nasty to occupy ourselves with semantics.

As I was writing about the shame of putting millions of young Europeans into the dark hole of long-term unemployment yesterday in The Disgrace of Sacrificing a Generation, Europe’s leaders met to discuss that very theme. Only, they didn’t.

They went on and on again about wanting the freedom to spend more, either through support from Mario Draghi bond purchases or by simply violating EU budget limits. EU PM Renzi called those limits outdated: it’s new world out there!

What they did say about the jobs issue was that more money was not needed, since there’s an existing $82 billion fund for youth jobs, of which only 12% has been used … That crazy detail tells us two things: Brussels and the European capitals don’t care about their children, as the entire situation also makes clear enough.

It also tells us that they have no idea what to do. But that should never be an excuse. Go figure it out. Want to be a leader? That comes with responsibilities. Having 50% youth unemployment in Spain and Greece should have gotten you guys fired. Some things are simply not acceptable.

But of course all those young people can count on from now on is that they will be even more abandoned. Because the crisis is back. And Germany doesn’t think the party with the biggest debt wins the contest. So southern Europe will drop further into the hole. Until someone steps off the train and decides to have a go at it alone.

And if the next move down is not enough to make that happen then maybe they all deserve each other. Still, looking at Europe now, it should be crystal clear to everyone what a failure the EU has become.

Which is one of the reasons our dear Ambrose had me laugh again today. When Evans-Pritchard starts drawing conclusions from what he hears and reads, strange things happen. This time Germany has drawn his ire. Next week it’ll be someone else.

Ambrose thinks it’s a crime not to bury a country in debt, if you have the opportunity. And he thinks the Germans are a bunch of criminals for not allowing the entire continent to bury its head in the quicksand either.

The words he uses are great: ‘household fallacy’, ‘fiscal fetishism’, ‘the false god of fiscal balance’, ‘the corrosive psychology of ageing’, ‘lumpen-proletariat’, ‘contractionary vortex’.

German Model Is Ruinous For Germany, And Deadly For Europe

The Kaiser Wilhelm Canal in Kiel is crumbling. Last year, the authorities had to close the 60-mile shortcut from the Baltic to the North Sea for two weeks, something that had never happened through two world wars. The locks had failed. [..]It has been a running saga of problems, the result of slashing investment to the bone, and cutting maintenance funds in 2012 from €60m (£47m) a year to €11m.

This is an odd way to treat the busiest waterway in the world, letting through 35,000 ships a year, so vital to the Port of Hamburg. It is odder still given that the German state can borrow funds for five years at an interest rate of 0.15%.

There you go. That’s what ultra-low rates to to people. It doesn’t just make them get into debt, it makes them believe it’s crazy not to.

Yet such is the economic policy of Germany, worshipping the false of god of fiscal balance. The Bundestag is waking up to the economic folly of this. It has approved €260m of funding to refurbish the canal over the next five years. Yet experts say it needs €1bn, one of countless projects crying out for money across the derelict infrastructure of a nation that has forgotten how to invest, sleepwalking into decline.

That is, a nation that has forgotten how to invest … with borrowed money.

France may look like the sick of man of Europe, but Germany’s woes run deeper, rooted in mercantilist dogma, the glorification of saving for its own sake, and the corrosive psychology of ageing.

“Germany considers itself the model for the world, but pride comes before the fall,” says Olaf Gersemann, Die Welt’s economics chief, in a new book, The Germany Bubble: the Last Hurrah of a Great Economic Nation. Mr Gersemann says the Second Wirtschaftswunder – or economic miracle – from 2005 onwards has “gone to Germany’s head”.[..]

Marcel Fratzscher, head of the German Institute for Economic Research (DIW), makes a parallel critique (more Keynesian in flavour) in his new book, Die Deutschland Illusion, no translation needed. It is a broadside against the fiscal fetishism of finance minister Wolfgang Schauble, now written into the constitution as a balanced budget law from 2016 onwards…

Balanced budgets are just so 20th century. It’s a new world out there. Ask the Italian PM. Ask Krugman. Ask Ambrose.

It is the self-deception of a country “resting on its laurels”, prisoner of the “household fallacy” that economies are like family budgets, and falsely reassured by the misplaced flattery of foreigners who rarely look under the bonnet at the German engine below.

The German economy has already stalled. [..] Prof Fratzscher accuses Germany’s elites of losing the plot in every important respect. Investment has fallen from 23% to 17% of GDP since the early 1990s. Net public investment has been negative for 12 years. Growth has averaged 1.1% since the beginning of the decade, placing Germany 13th out of 18 in the eurozone (or 156th out of 166 countries worldwide over the past 20 years).

I like that last bit, but I don’t believe it for a second. Besides, I don’t get how a 1.1% growth level since the beginning of the decade – which is 4 years – places you anywhere over the past 20 years. Sounds like apples and passion fruit to me.

Data from the OECD show that German productivity growth slumped to 0.3% a year in the period from 2007 to 2012, compared with 0.5% in Denmark, 0.7% in Austria, 0.9% in Japan, 1.3% in Australia, 1.5% in the US and 3.2% in Korea. Britain has been negative, of course, but that is no benchmark.

Prof Fratzscher says the chief effect was to let companies compress wages through labour arbitrage. Real pay has fallen back to the levels of the late 1990s. The legacy of Hartz IV is a lumpen-proletariat of 7.4m people on “mini-jobs”, part-time work that is tax-free up to €450.

That’s not great, but just about all countries hide a lot of unemployment that way. Nothing specifically German about it.

A fifth of German children are raised in poverty.

That’s horrible, but again there’s nothing specifically German about it. France, UK, US, you name them, the numbers will be similar.

Capital flows within EMU have been a form of vendor financing for buyers of German exports, but it should be obvious that such a structure must reach breaking point – for Germany as well as EMU – if France and Italy buckle to demands and follow Greece, Spain, Portugal and Ireland into wage deflation.

There’s no such thing as ‘wage deflation’, but it’s clear that wages in France and Italy will come under increased pressure (in Germany too). And it’s clear that Germany has used the EU as its own backyard market. And the structure will indeed break.

Europe is already sliding slowly into a contractionary vortex, replicating the errors of the Gold Standard in the 1930s. Doubling down would be calamitous. Germany must move with great care. As Mr Gersemann argues in his book, it is enjoying the last days of a particularly powerful demographic dividend, soon to reverse with a vengeance.

The European Commission’s Ageing Report (2012) said Germany’s workforce will shrink by 200,000 a year this decade. The old age dependency ratio will jump from 31% in 2010, to 36% in 2020, 41% in 2025, 48% in 2030 and 57% in 2045, tantamount to national suicide.

Once more, nothing specifically German about it. Try Japan, China, most of northwest Europe, Italy. Whether every ageing society, every country with falling population numbers, is committing suicide, I don’t know. They will change, and hugely, that’s for sure.

This is a grave failure of public policy over decades. Tax policies and social structures have encouraged the collapse of the fertility rate. Lack of investment has compounded the error.

Wow, Ambrose. Really? Decades of tax policies have made people have less children? You just figured out what has puzzled scientists for all these years! You mean that if the Germans and Japanese and Chinese and Italians had only borrowed more money, and invested it in crumbling canals, we could have had 8 billion people on the planet instead of the measly 7 billion we have now? And our workforces wouldn’t have shrunk, and we could have filled all the jobs we don’t have?

Within five years it will surely become obvious to everybody that Germany is in deep trouble, and a balanced budget will not prove any defence.

The whole rich world in is deep trouble, not just Germany. You know why? Because they’re drowning in debt. And you know who seem to be about the only people left who understand that? The Germans. A balanced budget won’t check all problems at the door, but it’s a lot better than having debt of 200% or 400% of your – rapidly shrinking – GDP. Which is what many nations face.

Within 10 years, France will be the dominant power of continental Europe.

And pigs will fly to Mars. And Marine Le Pen will be crowned Empress. And proudly parade all those fair-skinned but not blond babies down the Champs d’Élysées.

What all these countries will need to figure out is what to do when their economies have stopped growing. When they are shrinking instead. What to do with the huge debtloads piled up on top of them when everyone was still trying to borrow their way into growth. And how to divide what remains in such a way that they can keep themselves from blowing up in unrest and fighting and revolutions.

You really think Germany will do all that bad under those conditions? Worse than all the others?

Home Forums The Contractionary Vortex Of The Lumpen Proletariat

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    Unknown Marble contest on Boston Common 1920 The world stock markets big see saw zig zags over the last few days seems to be a harbinger of more to co
    [See the full post at: The Contractionary Vortex Of The Lumpen Proletariat]


    Sure Pierce is confused but so is almost everyone. Thinking there has to be an escape hatch. Who like most does not appreciate what a dilemma really is. Thinking it’s a hard choice which if decided correctly will lead to all good things when in fact a dilemma is a choice with no good outcome. I think this is a singularly American thing and Pierce long ago caught the bug.

    It might be more accurate to say that this American way of thought has been exported around the globe and Europe,or at least its leaders, have heavily bought in. If for no other reason is it usually pays well. See Tony Blair as example number 1.


    Well, it looks as though a Dutch politician inadvertently let the cat out of the bag. Lots of damage control.

    “MH-17 Report False Flag Exposed After Revelation Passenger Was Wearing Oxygen Mask”


    All the governments of Western Europe know perfectly well that it was an American-inspired false-flag operation, but they continue the denials. As for the MSM, they have suddenly become awfully quiet about what is really happening in Ukraine. The whole thing is unravelling and no amount of BS is going to put it all back together. So who are the real terrorists now? The “ragheads”?

    Joe Clarkson

    But what good will Germany’s thrift be when the day comes for all those debtor countries to abrogate their debts? Especially since it will be a lot of German lenders who will see their assets vaporize.

    Countries are not at all like families. When a family goes bankrupt it loses almost everything. When a country goes bankrupt it gets to keep all the goodies it bought with the borrowed money, especially if those goodies included infrastructure like ports, roads and irrigation projects.

    True, when a country defaults, its economy may collapse into austerity, but I can’t see why it’s so much better to suffer years of austerity, like Greece, just to avoid default.


    Joe – those countries are going to abrogate their debts, anyway, so Germany might as well not go further into debt and cut her losses now. I guess it always pays to get good collateral beforehand. Germany profited mightily from these debtor countries; she just won’t get as much back. C’est la vie!

    The EU needs to split up, make it a friendly divorce, and get it over with. You are right, Greece would be better off defaulting.


    But the band’s still playing, and no one is going to have any problem finding a chair when it stops,,,right?

    This all reminds me back in 05 when all my neighbors thought I was nuts because instead of refinancing and going out and buying Hummers and Jet Skis and Cruizes to Europe, I was instead patching the old jitney together and paying off my mortgage with the savings.

    Now the shack is paid off and the neighbors are all gone, their houses foreclosed and their Hummers worn out.


    The hoi polloi of our planet have been enslaved and are quickly becoming the very miscreants Marx viewed as impediments to his ideal of a classless society.

    Sadly, the deck was stacked against us all and unbenounced to the ever swelling majority of those persistently fractured from cultural bias, with one exception… normalcy.

    The very same affect has spread throughout our productive enterprises over the past four decades reducing contributions to mere tertiary – sun tans and fried chicken.

    Germany has been extremely protective of her own and rightfully so… we were fed a stream of lies. To the victor goeth the pen, forgive me, the Ford Foundation.

    Google earth will provide a number of clues, Germany aligned itself with Russia and the East some time ago – observe rail lines between these nations.

    Germany will not fall on their swords in disgrace, although I would not put it past those plucking strings to perhaps send a message: much like the one Japan is about to receive @ 190mph.

    John Day

    Ebola Pandemic and Global Economic Reset will cohabitate.
    It’s not even speculation any more…
    “Discuss amongst yourselves”

    Now for something completely different, the proposition that modern humans were created through the discovery of hallucinogens 40,000 years ago, and that the current ban on shamanistic practice with these is leaving us at the mercy of rationality, which has no mercy, and no vision.
    A Banned TED TALK, really: “The War on Consciousness”

    My own life was changed in a “Purification Sweat” April 1994 on the Navajo Res. in Arizona.
    Thanks, Paul Tohlakai.


    Google earth will provide a number of clues, Germany aligned itself with Russia and the East some time ago – observe rail lines between these nations.

    I do not think East Germany had any say in the matter. Also, see the Eastern Bloc.


    Gravity is an aerosolized/airborne algorithm.

    Michael Lardelli

    Australia’s economic growth is largely an “illusion” created by population growth – currently running at an amazing 1.7% per annum – far higher than any other developed nation. If you look at GDP per capita Australia actually did go into recession in around 2010 despite the politicians talking about the “miracle” of the recession-proof Australian economy.


    Ambrose – “Tax policies and social structures have encouraged the collapse of the fertility rate.” Yeah, that’s a stretch. I was thinking maybe it had more to do with the constant inflation we’ve had (which is always under-reported) for the last 30 or 40 years, the fact that mothers had to join the work force just so the family could keep their heads above water, the fact that jobs have been offshored, automated, foreign temporary-workered, eliminated, and wages have not kept up with corporate profits or inflation. When families feel threatened, insecure, and are barely able to stay on the treadmill, they’re not going to have more children.

    Not that I agree the world needs more people; we already have way too many as it is. But if I had to tick a box, I’d say inflation (the very thing Ambrose is always calling for, more and more spending) has been the culprit.


    Michael – yes, population growth will do it, especially very wealthy Chinese. I don’t doubt Australia went into recession in 2010, but China’s massive stimulus probably brought you out of it quite quickly.


    John Day – Mr. Hancock makes mention at 6:01 of your video to Dr. Gabor Mate, who works with drug addicts. Dr. Mate is incredibly brilliant, and in the following video he says that power and reality is not outside of yourself, but inside. Perhaps the drug Mr. Hancock speaks about doesn’t so much get us in touch with another entity as it gets us in touch with ourselves, the part we have lost, the light within – creativity.

    Mate’s video is interesting because he talks about the drug addicts he works with (who are all escaping from fear, pain, emptiness), but also about people addicted to power and wealth (at approximately 14:00) and how they’re not going to stop what they’re doing; we have to stop them. They too are trying to fill a void.


    Mate’s a fascinating watch, agree with much of what he details, thank you for this.

    John Day

    The “inside” and “outside” of “self”, when considering consciousness can be really slippery.
    There is ESP.
    What is “inside” or “outside” of “self”.
    Shamanism and spiritual disciplines explore this.
    It’s an exploration, more than an explanation, unintelligible to the non-seeker, eh?
    🙂 John


    You have to go after Ambrose more often!
    Thoroughly enjoyed this. 😀

    My take is that everyone (esp. the USA) is looking around for scapegoats.
    Germany Not Borrowing, Germany Exports Too Much, China Property Bubble, Russian Hackers, … after all it can’t have anything to do with Wall Street….

    John Day

    Ambrose is the more worthy target.
    Krugman is too lame, and gets shot up regularly at ZH, anyway.


    When families feel threatened, insecure, and are barely able to stay on the treadmill, they’re not going to have more children.

    Families have never been richer than they were in the exact same time the fertility rate plunged. Whether they would perhaps still have felt insecure for 40-odd years now? I don’t know.

    TAE Summary

    * Both horns of a dilemma are sharp; The American Way cannot hope to change this; The denial that can be spoken is not the true denial

    * Unlike families bankrupt countries get to keep the worn out house and broken down hummer; If you are going to collapse you might as well do it all at once; Germany will be left holding the bag when assets turn to steam; See <i>Mein Dampf gegen Lüge, Dummheit und Feigheit</i>

    * EU should divorce; Greeces gets the house, France take the kids and Germany keep the 401K; It’s a great time to be a lawyer

    * The music continues; The band plays “Nearer My God, to Thee”; The fat lady is high on Ayahusaca; The scapegoat has left the building with a black swan; Only Google Earth can save us now

    * The definition of marriage will be expanded to include the union of Ebola and Economic Collapse; Pat Robertson will oppose this saying it hurts traditional marriage and Ebola shouldn’t be allowed in the country anyway; Passage will be in doubt until Gwyneth Paltrow weighs in and saves the day; It’s fine with me as long as they don’t kiss in public

    * Aussie growth is an illusion created by modeling rabbits; Their economy was saved by the Chinese building a recession-proof fence from Wallal Downs to Bremer Bay

    * Mom’s in work force have no time for kids or the making of them; Besides me people shouldn’t have so many kids

    * Pierce is confused; Mate’ is fascinating; Krugman is lame; Ambrose is a worthy target; The ‘Self’ is a mystic klein bottle; Gravity is a recursive mist; There is ESP

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