Monty Pelerin's World

I am somewhat amused when the talking heads speak about Europe’s problems in terms of inept politics. To be sure, politicians created the European mess, although the media never seems to reflect on that. Instead, their focus is on how the problems could be solved if only agreement could be reached among the various parties and states.

One wonders how dumb the media truly are. Do they not realize that there is no agreement that can solve the problem(s)? Simple arithmetic is all that is necessary to see that. Or, are they merely public relation arms of government, trying to assist them in their futile strategy of extend and pretend?

Hugh de Payns on American Thinker described the problem nicely:

Years ago, the Cuyahoga River caught on fire.

Of course, at the time, the pictures and film of the burning river begged an obvious  question:  “Put out the fire, certainly yes! But with what?”

How do you put out a burning river?  Douse it with more water?

The same is true as the EFSF (European Financial Stability Facility) which has just been downgraded by S&P.  EFSF was supposed to be the reservoir of water to quench the sovereign financial fires that are burning out of control all over the continent.  Now S&P is saying that the bailout instrument is inadequate to the task.  But this is hardly a surprise. After all, the EFSF is the financial end product  of bankrupt nations pooling their borrowed money together to bailout…bankrupt nations.  What could possibly go wrong?

Greece is going to fail and they will default on their loans, which everyone knows they will never be able to repay.  Not good, but not a disaster.  But once this begins, what prevents Italy and then Spain following the same pathway?  From there, who knows, but it could lead to our shores in the not too distant future.  The simple reality is that we have made political and financial promises that we will, as point of fact, never be able to repay.   Almost 10% of GDP is borrowed money, or on a smaller scale, nearly 40% of every dollar spent by the government is borrowed money.

We should all just be anxiously waiting now to hear the talk that going from AAA to AA is really no big deal, to be followed in a few months by A, and then comments of how BBB is really not a problem for the EFSF either.  But one thing is becoming apparent:  while this one notch at a time scenario is getting old, either way, some day soon we all wake up and see every developed country rated at junk, and our children are debt slaves to the international banking cartel that seems to have taken a hold of our western civilization through its financial institutions.

Either we decide to fix this on our own and deal with the pain this causes, or the laws of economics will force this upon us with even greater pain and social dislocation.

This will not end well.