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Letters by a modern St. Ferdinand III about cults

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Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

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Monday, May 10, 2010

Welfare Socialism: The Euro is too big to fail !

The Bail-outs just keep coming with no end in sight.

by StFerdIII

The argument for bail-outs is always this: 'Well if we don't transfer trillions of tax-dollars to save 'insert problem agent here', the world will end; the children's future will never transpire; and Mother Earth will never have a chance to be healed by the Great Obama.' As a theory the claim that without yet more government 'stimulus', the world will end is specious, if not entirely nescient. It needs to be tested. You can't forward hypotheses without testing them, and to date, no state, no government, and no one in the media is forwarding the idea that rational claims to science, must be go through experiential testing.

So we have the parody and the incongruity of bankrupted Northern Europe, sending $1 Trillion of money they don't have, to bankrupted Southern Europe. The total debt problem in Europe is $25 Trillion in the short term, and over $100 Trillion in the medium to longer term. $ 1 Trillion is just another sniff and whiff of a drug that the Europeans have overdosed on for too long. It will accomplish little except to 'settle' markets down for a few weeks, or months, until the next sovereign bankruptcy is declared. And than what?

The Northern Europeans sending to their Southern friends in Greece and beyond more money is akin to one drunk handing over his credit card to another drunk to buy rounds for an entire bar of drunks. It does not make a lot of sense. But little in Welfare-Socialist politics comports itself with reality. There is no easy, painless, communal-utopian solution to some 60 years of massive Keynesian and monetary failure. You can't inflate, print, or in-debt your way out of what is clearly a fiscal and soon to be inflationary disaster. The 3 generational disaster-in-the-making will not be averted by a cool $ 1 Trillion; any more than the next round of US financial contractions will be assuaged by more negative interest rates; TARP's; or 'job stimulus' nonsense.

The $1 Trillion Euro package for Greece and beyond is just the first program to shore up the Euro. More Trillions will surely be planned and spent. The Euro is the nexus of the EU. If the Euro unravels and fails, the entire EU political project will collapse. That much is obvious. We should expect the Euro political elite therefore, to do everything, including the spending of Trillions of new Euro debt; to salvage their socialist dream. As Time reported:

“The three-year aid plan includes €59 billion ($76 billion) under an existing lending program, plus another €435 billion ($560 billion) in bilateral loan guarantees from the euro zone countries. The International Monetary Fund will provide additional loan guarantees of at least half of the E.U.'s total contribution, or €250 billion ($321 billion). In all, the gargantuan package represents 8.2% of the euro area's GDP. "It proves that we shall defend the euro whatever it takes," said E.U. Monetary Affairs Commissioner Olli Rehn.”

The Euro is at risk, and the Brussels elite which manages Europe for the benefit of the few, to the loss of freedom and opportunity for the many; is keenly aware of the risk which Greece and sovereign debt means for European unity. Even American liberals and Neo-Keynesians are criticizing the lack of fiscal discipline and the inability of Europe to competently manage the digressions in economic and business cycles between the North and South:

“More broadly, the euro zone still needs to resolve structural problems that go beyond debt in countries like Greece, Portugal and Spain. The crisis has exposed chasms amongst the different euro zone economies: not only in government debt, but private debt, trade balances, employment, wages and overall growth. It has already prompted dire warnings from Paul Krugman and Joseph Stiglitz, two American economic grandees and Nobel laureates, who both say that without reform the euro zone could collapse.”

The Trillion Euro bail-out will work in the short term. But what about after the short-term ? Greece's debt will be 140% of GDP within 4 years even after its so-called austerity program, which will cut spending by a whopping 4%, is implemented. Its economic size is $350 billion, so the $1 Trillion in EU debt instruments is in place to buttress Spain, Portual and Italy. With $1 Trillion be enough if Greece truly needs $300 Billion ?

The consequences of the Brussels $1 Trillion debt program are not hard to forecast. If the EU needs to sell debt to finance this 'bailout' then rates and credit spreads will rise, forcing up interest rates on capital and loans within the EU. As rates go up, the Euro economies will slow, contracting tax revenues as jobs and profits fall, and escalating welfare payments to the un-employed and the early-retired. Deficits will mount; debt levels will heighten and another round of sovereign debt crises will follow. Will the EU have yet another $1 Trillion to push into its banking and financial system ?

The European banks don't have the capital to survive sovereign debt crises. If a state defaults to its banks and refuses to pay its loan obligations, many European banks will face financial insolvency. In that regard the EU does not have much choice. Politically it is easier to print money or sell more debt and avoid a political catastrophe; than to own up to the problem and go through the messy, violent, and chaotic process of bankruptcy.

But no matter what they do, at some point the EU will have to face reality – their system is bankrupt and the Euro is defunct.

Once you admit to that fact, the right measures and processes can be put into place to manage the transition from a socialist welfare state, to something far more intelligent and interesting.



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