Europe digs its economic grave while the ECB answers to no one.


I have been harboring this idea for a while, that you cannot have an economic growth without natural population growth. We can’t seriously believe that by importing millions upon millions of culturally and economically incongruous third world laborers and their families European economy can somehow continue to grow. Those folks are not big spenders, and more often than not, they subtract from an economy more than they add due to their overwhelming propensity to depend on public assistance. In many countries of Europe, such as UK or Sweden, entire towns of Muslim immigrants and their profuse families do nothing but depend on welfare state, thus thoroughly undermining any economic benefit they may add through cheap labor to help employers keeps costs down. And don’t forget the added burden on the state to maintain bigger security force and on the tax payers through higher taxes to keep the societal situation from exploding like it did in France in the fall of 2005. The third world immigration, therefore, is not a solution to economic growth. Only organic baby booms can thwart Europe’s precipitous deflationary collapse that it is sliding into. All because, only natives are emotionally, historically and economically attached to their native lands and therefore have a vested interest in having them prosper. With an average fertility rate for a European woman at 1.5, far below to maintain population growth, Europe, as well as USA, Canada and Australia are bound to deflate and, hopefully, go through a political and social change that will bring into power fresh forces genuinely interested in seeing those countries prosper. As an example of what economic consequences a third world open door immigration policy brings, one only needs to look at USA, and their state of California in particular. The state sagging under the weight of all kinds of public assistance to South American legal and illegal immigrants pouring across its southern border with Mexico, has now finally succumbed to bankruptcy and economic collapse. As its American tax payers are fleeing the hostile economic and social environment to neighboring states, the California’s budget is suddenly finding itself short of tax revenues and is now forced to issue IOUs, or promises to pay, to all those who depend on its cash payments, and those are plenty. Despite having a huge pool of cheap illegal laborers from across its southern border, California is bankrupt and crushed and the cost of doing business there is highest in the nation of USA. Thus, its economy is now in free fall and is an example of things to come for the rest of USA if  its ruling elite and population do not come to senses and realize the huge time bomb that they are sitting on with their deranged immigration policy. The only way out of this is mess is an economic and societal deflation, that has been masked for so long by the artificial credit bubble engineered by their privately owned Federal Reserve. Sadly, there are no political forces brave enough in USA to stand up to the destruction of their own country, as everyone with power to do so has been long ago bought or removed from politics by their Political Correctness terrorists.

A similar fate is awaiting Europe, as I have already mentioned it. The below article discusses some of these new economic problems and recognizes the underlying cause in brief. Deflation will not be denied, and ECB will be unable to stop it until Europe faces the truth of ruin from its own hands. You have been warned.

Telegraph. July 12, 2009.

Europe digs its economic grave while the ECB answers to no one.

The European Central Bank preens as the last guardian of virtue in a sinful world, yet its actions are devastating the public finances of almost every country under its care.

Without a radical change of strategy, the ECB risks pushing the weakest states into a debt-compound spiral that can only end in bond crises and/or the disintegration of Europe’s monetary union – whichever comes first.

The International Monetary Fund says the eurozone will contract by 4.8pc this year, worse than the UK (-4.2pc) or the US (-2.6pc). The deepest damage will occur next year as Europe remains mired in slump, even as the rest of the world recovers. It is the length of recession that matters most for jobs, social stability, and public finances. I am not easily shocked any longer but I did sit up when Spain’s budget chief Luis Espadas said the economic collapse could “easily” push Spanish public debt to 90pc of GDP by 2011. This is up from 36pc in 2007.

Nobody knows where the tipping point lies on public debt, though anything above 100pc of GDP in a currency union is courting fate. Some are already there. The European Commission says Italian debt will jump to 116pc in 2010. Greece is vaulting back to 109pc, Belgium to 101pc, France to 86pc.

Even German finances are falling apart. After screwing down spending to balance the books, discipline has broken down. Berlin says the deficit is heading for 6pc next year, taking debt to 82pc. This is happening all over the world, of course. But the ECB is compounding the effect, whether for reasons of politics, Bundesbank fetishism, or misjudgment. By refusing to join the US, Japan, Canada, Britain, and Switzerland in quantitative easing (QE) the ECB has allowed a contraction of private credit this summer. The M3 “broad” money supply has shrunk since February.

Ignore M3 at your peril. It flashed awarning signal in the US months before the collapse of Lehman Brothers last September; it is flashing the similar warning signals in Europe now.

Professor Tim Congdon from International Monetary Research said the eurozone money figures are “horrifying” and portend a serious crunch ahead. “My verdict is that the senior people in the ECB [and the Fed] have little organised understanding of the debt-deflationary processes initiated in late 2008,” he said.

Ireland’s M3 contracted at a 30pc annual rate last month, a death sentence for a hyper-indebted economy. The wreckage will be evident just in time for the Irish to vote again – under extreme duress – on the EU’s Enabling Act in October. This should make for interesting political chemistry.

In Germany, the Mittlestand lobby (BVMW) says half its members are facing a liquidity squeeze, while the strutting finance minister, Peer Steinbrück, has assumed a ghostly pallor. “We must take seriously the threat of a credit crunch in the second half of this year,” he said.

Mr Steinbrück has called for a suspension of the Basel II accounting rules in order to rescue banks, and even suggested that the German government undertake direct lending to boost credit. The regulator BaFin has already told us that bad debts are set to “blow like a grenade” this year. A leaked BaFin memo said “problematic” assets have reached €816bn (£700bn), led by Hypo Real with €268bn.

ECB experts think eurozone banks will have to write down a further €203bn by the end of next year. Yet ECB policy-makers seem unwilling to face the implications. Yes, they have injected €442bn in a one-year tender, but the money is not reaching the economy. Simon Ward from Henderson New Star said the ECB is repeating errors made in Japan when it first trifled with QE, relying on banks to pass on credit rather going for massive bond purchases.

Inevitably, Europe’s politicians are taking matters into their own hands. They will not sit idly by as millions lose their jobs. If the ECB deflates, budgets must bear the strain, and that is exactly what Europe cannot afford with a birthrate of 1.53 per woman and the onset of demographic decline. The commission says the number of workers per pensioner over 65 will halve from four to two by 2040. Age-related costs will explode by 15pc of GDP in Greece, 9pc in Ireland, Spain and Holland. The populations of Germany and Italy will soon be shrinking.

Viewed strategically, Europe’s mix of monetary deflation and rampant deficit spending by the states is nothing short of lunatic.

Needless to say, Britain faces it own colossal mess, but of a different kind. It is the Prime Minister who is taking the country over a cliff, not the Bank of the England. Voters will soon have the joy of sacking him. How do Europe’s voters sack the ECB?

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2 Comments

  1. santo kuma
    Posted July 13, 2009 at 2:37 am | Permalink

    Nice article.

    Wouldnt Deflation be good for an Export oriented economy? Could you write more about this?

    If prices fall (as a result of deleveraging or credit disappearing), shouldnt an export oriented economy (like China) benefit, as a result of being more attractive in exports?

    In other words, the impacts on export/import oriented economies would be of a diff scale and magnitude and would be opposing(act in reverse), would they?

    • Posted July 14, 2009 at 12:02 am | Permalink

      Deflating prices would be very bad for export oriented economy such as China, since the exporter would be getting less money for its goods. Also keep in mind, that in deflationary times consumers spend less and are delaying purchases. The spending is just not in the fashion. Look at US import figures and you will see that exporters to US have lost a lot of revenue recently. Collapse in world trade that has happened in the past year has been good for net importers such as US, but not for net exporters to US.


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