A big shakedown?
It's already mid-October. A lot of predictions have been made that once summer is over, there is going to be an economic collapse.
A lot of signs seem to be pointing towards it, to wit:
- countries unable to service their sovereign debt, coming close to running out of money
- cost of borrowing increasing, e.g. Spain's rating dropping to BBB+
- the people in countries like Greece protesting against the austerity measures (which is not effective to my mind, the austerities that is, not the protesting)
Lets look at it in simple terms:
I believe this crisis is brought about by human failings, not because of fancy economic terms.
Firstly - lack of integrity:
- Did Greece fudge their numbers to get into the Eurozone? They did, didn't they? So from the get-go, they got in based on lying. So there is no basis for them to be in there.
- Going way back, reneging on the gold standard is what goes us all here in the first place.
Secondly - intellectual laziness and lack of common sense:
- On everybody's part, lets start with the analysts who took the easy way out and gave an en bloc high credit rating, thus making it cheap and easy to borrow money.
- Now, flush with cash (borrowed money!), the spending boom begins. I'm not anti-expansionary policy, believe me. But the money must be spent wisely.
- Did they spend the money to create a better tax-collection system? (No)
Thirdly - pride and attachment:
- Europeans.. Caucasians in general, like everyone else in this world, wants 'face'
- And they have a lot of it too, on most part, I would say they do deserve it what with the scientific and cultural advancements they have brought to the world. So the question is, how much 'face' is too much? (Same goes for Americans)
- They are attached to their lifestyles, living beyond their means, so somehow it has to stop sometime, isn't it?
So how?
Are we going to see a series of debt defaults, thus throwing the entire system of trust in contracts into chaos? Or is everyone going to have to bite the bullet and take a haircut? Of course, that's when the finger pointing starts because everyone wants someone else to foot the bill. And it is political suicide for any politician to even suggest even something like Greece leaving the Zone (apart from Sweden's Finance Minster, Anders Borg) because will lose face, it would like admitting that the Euro is a failure but it's not, really. There is still value in having a common currency but if your member countries don't play by the rules to get in AND to behave when inside, it will never work as it should.
Ideally - everyone involved need to take responsibility (which they won't) and take the hard step to devalue (which they won't), pare down their expectations (which they won't) and eat humble pie (think they will die first).
What WILL happen is: while they are trying to come to an amicable solution (not impossible), just one country would reach the end of its tether and default, OR a trader may take a provocative position that sends out the wrong signals and this induces panic selling or buying, causing major disruption to the markets. Then all hell will break loose, paper value of assets drops (remember, paper value, but then again, a lot hinges on paper value) and there will be much crying and gnashing of teeth.
Blame blame blame all around, then I think it should settle down by around December or January whereby, those who did not want to take the haircut when initially presented to them, will HAVE to take a bigger haircut in the end. Don't say I told you so.
Human nature, it is the complete opposite of what economists assume that people are rational decision makers, they are most emphatically not especially in crowds and in positions of power. What drives them is mostly fear and ego. Ego from not wanting to change, fear of change, fear of losing power.
Ultimately, I really hope that things will settle down into a reasonable, middle path. It's not just all profits or all welfare, a balance between the two must be struck. Too much fiat money has caused too much volatility, driven by these human weaknesses (yes, even giving welfare can be a weakness because it is easier to give money for benefits rather than spending money on education and training and creating a sound economic base because that's just too much hard work! whine whine).
Too much money makes revenues and profit figures looks so big and sexy that we keep chasing after bigger and bigger numbers, nothing wrong with that but there must be integrity involved, you can't chase bigger interest revenues by giving a USD900,000 home loan to a cleaner who earns less than 2,000 a month! "Liar Loans", remember them? No integrity.
Find the balance in the middle, there is too much 'heat' in the global economy, too much energy. Needs to cool down - the question is, will policy makers have the guts to cool it down?
I feel they won't be able to contain it, the karmic force is too strong. There is a strong lesson that almost everyone is going to have to learn. Hopefully they will learn it in due course.
A lot of signs seem to be pointing towards it, to wit:
- countries unable to service their sovereign debt, coming close to running out of money
- cost of borrowing increasing, e.g. Spain's rating dropping to BBB+
- the people in countries like Greece protesting against the austerity measures (which is not effective to my mind, the austerities that is, not the protesting)
Lets look at it in simple terms:
I believe this crisis is brought about by human failings, not because of fancy economic terms.
Firstly - lack of integrity:
- Did Greece fudge their numbers to get into the Eurozone? They did, didn't they? So from the get-go, they got in based on lying. So there is no basis for them to be in there.
- Going way back, reneging on the gold standard is what goes us all here in the first place.
Secondly - intellectual laziness and lack of common sense:
- On everybody's part, lets start with the analysts who took the easy way out and gave an en bloc high credit rating, thus making it cheap and easy to borrow money.
- Now, flush with cash (borrowed money!), the spending boom begins. I'm not anti-expansionary policy, believe me. But the money must be spent wisely.
- Did they spend the money to create a better tax-collection system? (No)
Thirdly - pride and attachment:
- Europeans.. Caucasians in general, like everyone else in this world, wants 'face'
- And they have a lot of it too, on most part, I would say they do deserve it what with the scientific and cultural advancements they have brought to the world. So the question is, how much 'face' is too much? (Same goes for Americans)
- They are attached to their lifestyles, living beyond their means, so somehow it has to stop sometime, isn't it?
So how?
Are we going to see a series of debt defaults, thus throwing the entire system of trust in contracts into chaos? Or is everyone going to have to bite the bullet and take a haircut? Of course, that's when the finger pointing starts because everyone wants someone else to foot the bill. And it is political suicide for any politician to even suggest even something like Greece leaving the Zone (apart from Sweden's Finance Minster, Anders Borg) because will lose face, it would like admitting that the Euro is a failure but it's not, really. There is still value in having a common currency but if your member countries don't play by the rules to get in AND to behave when inside, it will never work as it should.
Ideally - everyone involved need to take responsibility (which they won't) and take the hard step to devalue (which they won't), pare down their expectations (which they won't) and eat humble pie (think they will die first).
What WILL happen is: while they are trying to come to an amicable solution (not impossible), just one country would reach the end of its tether and default, OR a trader may take a provocative position that sends out the wrong signals and this induces panic selling or buying, causing major disruption to the markets. Then all hell will break loose, paper value of assets drops (remember, paper value, but then again, a lot hinges on paper value) and there will be much crying and gnashing of teeth.
Blame blame blame all around, then I think it should settle down by around December or January whereby, those who did not want to take the haircut when initially presented to them, will HAVE to take a bigger haircut in the end. Don't say I told you so.
Human nature, it is the complete opposite of what economists assume that people are rational decision makers, they are most emphatically not especially in crowds and in positions of power. What drives them is mostly fear and ego. Ego from not wanting to change, fear of change, fear of losing power.
Ultimately, I really hope that things will settle down into a reasonable, middle path. It's not just all profits or all welfare, a balance between the two must be struck. Too much fiat money has caused too much volatility, driven by these human weaknesses (yes, even giving welfare can be a weakness because it is easier to give money for benefits rather than spending money on education and training and creating a sound economic base because that's just too much hard work! whine whine).
Too much money makes revenues and profit figures looks so big and sexy that we keep chasing after bigger and bigger numbers, nothing wrong with that but there must be integrity involved, you can't chase bigger interest revenues by giving a USD900,000 home loan to a cleaner who earns less than 2,000 a month! "Liar Loans", remember them? No integrity.
Find the balance in the middle, there is too much 'heat' in the global economy, too much energy. Needs to cool down - the question is, will policy makers have the guts to cool it down?
I feel they won't be able to contain it, the karmic force is too strong. There is a strong lesson that almost everyone is going to have to learn. Hopefully they will learn it in due course.
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