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Sloppy G-20 Drunks Can’t Avoid Their Fate

Politics / Government Intervention Jul 04, 2010 - 06:55 PM GMT

By: Justice_Litle


Best Financial Markets Analysis ArticleIn some ways, the recent G-20 gathering in Canada was like a giant Alcoholics Anonymous meeting, in which the heads of drunk governments promised a return to fiscal sobriety. Fat chance...

"Wall Street got drunk."– George W. Bush, July 2008

When you're drunk as a skunk and you've already wrecked the car, sometimes there is only one thing left to do... keep right on drinking.

That was the logic employed by Paul Sneddon, an unemployed New Zealand man, who had reportedly been drinking for "four days straight" when he crashed through a barrier and flipped his car. The crash did not stop him from popping another cold one.

Trapped in his overturned Ford Laser, Sneddon was stuck waiting for an emergency rescue crew. Having "nothing else to do at that point," the man's defense lawyer recounts, "he had another beer."

This seems excessive. But is it really?

Were Sneddon's lawyer sufficiently creative, he could use the "leadership by example" defense. After all, didn't global governments join hands and do the same thing?

Not for days, but for years – decades even – the Western world (plus Japan) went on a massive fiscal bender. Wall Street – and the world – "got drunk," as George W. so eloquently phrased it. Then we had the hair-raising car wreck, i.e. the global financial crisis, in which various barriers and guard rails were smashed right through.

And thus, with the car overturned and smoking wheels spinning, the world's leaders agreed. The best thing to do was... have another beer! Or two. Or three. Maybe a six-pack. Heck, make it a kegger...

Sloppy Drunks

In a very real sense, our political leaders can be viewed as a bunch of sloppy drunks. They are deeply enamored of alcoholic logic, putting forth loud arguments that rarely add up.

And like the drunk who looked for his car keys under a street lamp because the light there was better, our leaders propose nonsensical solutions for the sake of appearance rather than effectiveness.

The G-20 meeting that convened in Canada this weekend was all about sobering up. Basically the world's leaders got together for a group hug, promising to mend their drunken spending ways.

"The wealthiest of the Group of 20 countries said they would halve their government deficits by the year 2013," the WSJ reported, "and 'stabilize' their debt loads by 2016, a signal to international markets and domestic political audiences they are taking seriously the need to wean themselves from stimulus spending."

Cut government deficits in half by 2013? 'Stabilize' debt loads by 2016? Yeah, right.

Such promises are even more laughable, if you can believe it, than BP's early assurances that the Gulf oil spill was under control. (My fellow editor Adam Lass calls this misinformation "The Axis of Error". Sign up to read his investment commentary.)

Flimsy at it is, the stock market bulls are depressed by this newfound sobriety pledge. Wall Street's favorite drinking buddy has been sidelined for a while. For now at least, there is a cutoff in the supply of free-flowing alcohol that had previously kept the paper asset party going.

If you'll remember, it was only a matter of weeks ago that various pundits were hooting and hollering about V-shaped recovery. As we have said repeatedly and at length in these pages, that image of recovery was a mirage... a shot in the arm of "liquid courage" that could not be sustained.

A Shift in the Great Debate

In a related development, the great debate seems to have now shifted, from "inflation versus deflation" to "austerity versus spending."

There are those who argue that the madness must stop at some point, and that there is no time like the present for harsh medicine to be taken and wasteful spending to be cut. And on the other side, led by uber-Keynesians like Paul Krugman, are those who warn of disastrous consequences if we let the printing presses go quiet.

To spend or not to spend? The question is an interesting one. But in your humble editor's point of view, in the long run the question is moot. That is because a spender is a spender, just as a drunk is a drunk... and in the end the world's governments will be forced into spending no matter what.

We are heading into the advanced stages of the Von Mises prophecy now. As the father of Austrian economics predicted, government attempts to massage the credit cycle inevitably lead to unsustainable debt loads, which in turn lead to massive busts.

The ultimate forced conclusion is to "destroy the economy or destroy the currency," i.e. struggle pitifully under the crushing weight of accumulated debt, or press a button and print the debt away (thus destroying the currency in doing so).

When in Rome...

The political calculus here is as obvious as two plus two equals four. We will not escape the hard realities of the Von Mises prophesy. We will not be able to escape the heavy costs of a 25-year leverage and debt supercycle that has come crashing down on our heads. And all of this may as well have been foretold by the stars, because all paper currencies get debased and human nature does not change.

At least we can take comfort that our troubles are not new, as suggested by this quote from Marcus Tullius Cicero circa 55 BC:

The Budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance of foreign lands should be curtailed lest the Republic become bankrupt. People must again learn to work, instead of living on public assistance.

Apparently Rome had its fiscal alcoholics too.

Source :

By Justice Litle

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader and Managing Editor to the free investing and trading e-letter Taipan Daily. Justice began his career by pursuing a Ph.D. in literature and philosophy at Oxford University in England, and continued his education at Pulacki University in Olomouc, Czech Republic, and Macquarie University in Sydney, Australia.

Aside from his career in the financial industry, Justice enjoys playing chess and poker; he enjoys scuba diving, snowboarding, hiking and traveling. The Cliffs of Moher in Ireland and Fox Glacier in New Zealand are two of his favorite places in the world, especially for hiking. What he loves most about traveling is the scenery and the friendly locals.

Copyright © 2010, Taipan Publishing Group

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