Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Europe’s Fatal Flaw Laid Bare For All To See. Again

Politics / Euro-Zone Oct 18, 2014 - 05:55 PM GMT

By: Raul_I_Meijer

Politics

Da markets today sort of refound their – shaky – feet, oil up a dollar, EU exchanges up 3% or so, Greece even over 7%, while interestingly gold didn’t move much at all during the wild week (no safe haven), and most movement was perhaps, through all the see-saw, in bonds. To sum up the week: panic followed by plunge protection teams. And now the ‘leaders’ hope plunge protection will save another day too.

And they may. Germany sinks a bit, but Germany is strong. US housing is at least not falling further, but US consumer spending stalls and drops. The deep dark weakness has not yet hit the big economies. But the nerves are back. Volatility is back with a vengeance. As it should. And that will paint the picture going forward, plunge protection or not. Da markets will come again and again and dare central banks to plunge protect.


Well, either that or more QE, but despite whatever Bullard says the Fed will go ahead with the taper – just listen to Yellen waxing dreamily about the US ‘expansion’ -, and the ECB won’t go full QE because the member states will never agree on anything. And Merkel feels the euroskeptics breathing down her neck as much as the ‘leaders’ of Britain, Italy, France et al.

But as we’ve seen today, there’s sufficient fire power left on both sides of the pond to survive one week of mayhem. But that’s not the main lesson on this Friday. The main lesson is that Europe’s Achilles heel has been laid bare, once more, in full sight, and Europe – re: Draghi, Merkel – thinks that denial is its best defense. Big mistake.

The lofty leaders at the ECB, and Berlin, Paris, Brussels, pretend they can make everything right that’s wrong inside their toy monetary union through asset purchases, sovereign bond purchases, and anything that falls in the ‘whatever it takes’ category. But it’s all just bluff. Because, what it all boils down to, they can’t keep buying Greek bonds with German taxpayer money until the end of time.

And the markets know this. And when they feel like it, for example because other profits (free QE funds) have dried up, the markets will call that bluff at craftfully chosen intervals. It’s the easiest thing in the world: they only need to bet against something they know is hollow gaping hot air to begin with. There’s no there there. Draghi cannot save Greece. Period. And if he can’t save Greece, he can’t save the euro. Period.

In Brussels, like in Washington, Tokyo, Beijing, only one thing really counts: they have to achieve economic growth, because if they do, all problems will vanish into thin air. Which is not only an idiotic notion, it’s been 7 years now and they still haven’t achieved even just that one thing they focus on. It’s exactly like converting to some religion because it promise that the deity of their choice will relieve you of all your troubles, only in modern economics the deity is growth. And its apostles are debt, debt and credit.

If it were you or me, we’d say: let’s try something else, go for some other approach, but not Brussels or Washington, they live in one dimension only, they lack every form of depth perspective, and they will keep pushing for growth until they die trying. And in the case of the ECB, drag Europe down with them, first of all the young people of Greece, Italy, Spain and Portugal.

The idea is that all problems will be solved by the return of growth, but how is Greece ever going to grow again when over 50% of its young people haven’t, for 6-7 years running now, ever worked a decent job in their lives, and those who are now 25-28 years old, and never had a shot at real work, despite college degrees, university degrees, face the competition of all graduating classes of those 6-7 years for the same jobs, which still don’t exist?!

It’s an impossibly dumb concept that can exist only in the minds of well-paid bureaucrats in both Athens and Brussels – and Rome and Madrid-. And it can lead to only one outcome: Greece will leave the EU. Because no matter what you think about the Greeks’ abilities to govern themselves, they couldn’t possibly do worse for themselves, for their young people, and thereby their entire economy, than the present system has done. What could possibly have been worse than this?

Greece wanted to join the EU because of the promise of added riches. Instead, they see their entire society dissolve through the EU ideal of lifting all Mediterranean boats to the level of Germany. It’s not like Germany wanted itself to become poorer, that was never their reason to set up the EU.

Berlin wanted Greece to become Germany, and Germany to become an economic Nirvana. They still do. Politicians know that to get (re-)elected they need to promise growth, they need to paint a rosier picture than people see around them today. As if we’re not rich enough yet. It’s not just the politicians who lack depth perspective, it’s their voters too. If you can choose between a promise of more or a threat of less, you know how you will vote.

What this turbulent week exposed was this: Greek 10-year bond yields rose to close to 9%. They’re back down to 7.8% as we speak, plunge protection. 7% is the major ‘sustainable’ level. Greece, just very recently, said they wanted to free themselves of the Troika. The financial markets have now let them know what they think of that.

First Greece, then Cyprus, and Spain, and Italy, and Portugal, and Ireland, will continue to be the targets of the global financial markets. And the EU can’t save them all. There will be more moments like the past week, and the ECB is powerless to stop them all, other than at such gigantic costs that the voters in the richer nations will move their support to other parties.

4-5 years ago, when the PIIGS crisis was at its height, Europe could have enabled the poorer countries to leave the euro straightjacket. Soon, it won’t be a question of enabling anymore, it will turn into a dogfight. The eurozone as a whole will never achieve growth anymore, but Germany and Holland and Finland might; at the cost of the PIIGS.

This will stop at some point, da markets will make sure it does. Achilles was a mighty warrior, with one fatal weakness. That weakness for the eurozone was laid bare this week in the Greek 10-year bond 9% yield. The only ways that exist to bring that back down are artificial: it’s not like Greece itself, with 25% unemployment and more than twice that among young people, can lift itself up by its hairs.

And still, no, it’s not Greece that is Europe’s Achilles heel. It’s the hubris and megalomania that has made Europe, Brussels, blind to its inherent weaknesses. If Greece, and perhaps Spain, Italy, Portugal, would have been allowed to leave the eurozone in 2008/9, they would all have done much better than they are now, and so would the richer core of the EU.

After all, how could the PIIGS possibly have done worse than the present 50%+ youth unemployment? Greece is not Germany, and never will be. Italy is not Helsinki, and never will be.

The peace ideals behind the European unification will, unless something changes very soon, turn into them’s fightin’ words. Because the hunger for power floated like so much excrement to the top of yet another supra-national organization that this world of ours should never have built. EU, World Bank, UN, IMF, NATO, you name them. They take on powers we never designed them for, and before we know it we can’t stop them anymore from accumulating ever more power.

The eurozone’s Achilles heel was there for everyone to see this week, and it’s fatal, lethal: Greek 10-year yields at 9%. That will end up killing the whole edifice. Unless Brussels comes up with a plan to let the PIIGS leave. Brussels won’t. The power hungry don’t give up power voluntarily. So we’ll fight. Suit yourself. But don’t think this will somehow turn out alright all by its smooth and easy self. Europe is on the verge of disintegration. For no reason at all, other than the power dreams of a bunch of borderline psychopaths.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules