Repost Of Last Year's Remarks On Risks To The European Union And Germany Plus Some New Comments
As the Euro continues to trend lower, I want to repost a handful of remarks we made about a year ago on here. For those of you who can't remember a year ago, all was well on the European front. Or so we were told by the status quo. The EU central bankers were making public comments they had everything under control and were still rattling the saber of fighting the inflation ghost. EU bureaucrats were equally as arrogant often publicly showing disdain for those foolish Americans. Savants extraordinaire, eh? What we wrote at that time is exactly what is happening today. That is, the sovereignty of Germany is under attack by elitist bureaucrats trying to saddle the sovereign people of Germany with bailouts of other EU members. It appears the latest scheme involves those imperialist Americans at the IMF getting involved. Greece is just the tune up. When the world was in their mythical bubble, we wrote on here that the big problem for the EU was likely to be Spain. There is no way Germany and France can bail out Spain. Nor can the IMF. And if Spain seeks remediation, then Italy will more than likely follow at some point. Spain and Italy's GDP are almost as large as France and Germany. Almost. Don't get yourself in a tizzy over my generalization.
This drama is far from over. In fact, the Greece drama could continue on some level until the Euro zone addresses reality. In actuality, the Euro zone's problems are just beginning.
Repost of remarks from last spring in blue. Updated comments in black.
Germany's reliance on industrial exports will cause substantially more economic pain than is being discussed today. Amongst many other reasons, Germany's relative position on the global supply chain guarantees it will experience very substantial impacts of the global crisis well after the initial credit effects are felt. Possibly semi-permanent effects. It will also experience greater negative consequences because of the Bullwhip Effect - a term coined in the last decade or so but an effect well understood by those in the supply-chain business for most of the twentieth century. Just not understood and appreciated by the money changers on Wall Street - one of many reason Wall Street has been completely caught off guard by the impacts of this cycle and remains in the dark about future prospects. It's also one reason why this liquidity-driven rally is not based in any form of economic reality. We have written of supply-chain shocks before but remember these effects applies not only to countries but to industrial companies, their equities & bonds and their suppliers. Two such suppliers that remains a Wall Street favorite are the energy business and the commodities bubble. Needless to say, I remain highly negative on both and expect a complete bust is very likely. Remember, many of these investments, including industrial commodities and energy, are being purchased and even propped up by excess liquidity in anticipation of a re-ignition of globalization. Most will have to witness the bust that will occur in order to believe it. All in due time. (March 24, 2010. Hold your horses. This stress is still coming to a Germany near you. That will make the EU dynamics even more unsustainable when larger EU nations come panhandling to the German people.)
Germany has the wherewithal to weather a substantial economic decline were that the only issue before it. But at some point in time the demands placed on the people of Germany by the European Union and German bureaucrats will cross paths with the substantial collapse in global demand for Germany's economic output, its substantial ongoing costs of reunification and its highly leveraged social safety nets. This has not yet developed. It will. And, that means any calls for EU bailouts to be backed primarily by the balance sheets of France and Germany will clash against the sovereign needs of domestic economies. Therein lies a serious risk and future tipping point in the making. (Again, March 24, 2010 remarks. Ahem. Is this not exactly what is happening today? The EU and German bureaucrats are trying to pin the bailout on German citizens? Tyranny of no small order. Don't expect any bailouts to be too trustworthy if the EU continues down the road to ruin. The people of Germany will not sit back and allow the debt slaves to continually mound more burdens of bailing out other nations on their shoulders.)
The EU and German bureaucrats pushing EU unification are elitists who wish to return the people's sovereignty to the Europe of old where cronyism - lords - determine the fate of a feudal society through knuckle-dragging policies of rhetoric and tyranny. Maybe not consciously so in today's environment. But by implementing policies crafted to benefit a very few rather than by or for the sovereign of Germany or any other EU country. Unfortunately, this inbred elitism has never been vanquished from European culture. Oddly enough, this elitism remains a primary driver for the success of America as it has for the past three hundred years. Though now we also see this same level of cronyism building to a systemic level in Washington over the last handful of decades. Regardless, I'm quite confident the American people are going to take care business. And, I'm actually becoming more confident many in Europe are finally going to do the same.
Throw in the political concerns of sovereign countries yielding to demands by France or Germany or the EU in exchange for possible financial aid and you have a healthy brewing cauldron of future volatility. One that the European Central Bank and European Union arrogantly believes it has under control. Of course, they also thought they had the situation well under control in, say, 1789. At that time it was also generally believed that it was good to be the king. As we enter the depths of a brave new world, is it once again good to be the king? Let's ask the EU leaders as this crisis gathers momentum. I suspect the answer is it "was" good to be the king.
(March 24, 2010 Is it still good to be the king? If so, not much longer.)
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