Thursday, 6 May 2010

Acropolis Now!

“"We have the makings of a market crisis here."
- Neil Mackinnon, global macro strategist at VTB Capital.

This is more than just a market crisis.

CLICK FOR STORYGreece is now learning that bad economics kills--and the world is now learning with it that economic reality cannot be faked indefinitely.

The decades-long economically unsustainable experiment of the welfare state has now run headlong into the economically unaffordable consequences of government stimulunacy—government spending based almost wholly on the economically bankrupt notion that all the world’s governments will be able to borrow all the world’s money and somehow pull the world out of the valley of the shadow of depression and lead us back to another faked prosperity.

CLICK FOR STORYAnd the eleven-year experiment of a common European currency is close to collapse too, punctured by the very contradiction at its heart: that the prosperous European nations (which now just means Germany)will not indefinitely bail out and backstop the profligate policies of Europe’s unproductive welfare states (which now includes all of Europe).

This is more than just a collapse of one market.  It’s a collapse of economic theory.

The experiments are over, and now all serious students of markets need to learn that Keynes was wrong: that prosperity does not come out of the manipulation of government deficits and the printing presses of a central bank. Only penury lies that way.

But will the lessons be learned . . . ?

Will they be learned in time?

Will they be learned at all?

Further commentary below on the breakdown of Greece, and the world’s economics with it.

  • Who's on the Hook for the IMF's Greek Bailout? – WALL STREET JOURNAL
    So who’s gonna pay for it all?  Who could?
  • Street Fighting Man  - DOUG CASEY
    Investment guru Doug Casey predicts civil unrest world-wide as the Greater Depression takes hold.
  • Is This Our Moving Equilibrium? European Edition – PETER BOETTKE
    This cycle of deficit, debt and debasement is the "juggling trick" that Adam Smith identified as the circus act that all governments ancient and modern engage in, unless they are effectively constrained from doing so…
    What makes us think our current situation in the US is any different from the situation in Europe, let alone the cycle of deficit, debt, and debasement that Smith identified so long ago? … Is our moving equilibrium what we are currently seeing in Europe?  If so, isn't our current policy path simply moving us quicker along that path?  Stare at the graphic, shouldn't that make all policy makers and intellectuals wake up from their intellectual complacency?
  • Sitting at the table together – RUSS ROBERTS
    Rescuing Greece isn’t the end of the problem, it’s more akin to the Bear Stearns rescue of March 2008. It’s just the beginning of something that won’t end well.
  • Let Greece Default  - JEFFREY MIRON
    A bailout … does nothing to fix the misguided policies that have generated Greece's existing debt and ongoing deficits. Bailout therefore merely postpones the day of reckoning. Worse, bailout both rewards Greece's bad past behavior and encourages such behavior in future. Greece will never change its misguided policies if the E.U. and IMF infuse it with new cash, just as no teenager who has overspent an allowance will reform if the parents merely expand that allowance. Thus bailout merely transfers resources from other nations to Greece.
  • Is this the end of the euro? Or just credit crunch mark II? - IBN
    Maybe, the great sovereign debt crisis that we had been warned to expect months ago, is at last beginning to make itself felt.
  • Currency Crisis.  - JIM ROGERS
    The currency crisis has been going on for a while. It did not start this week. It has been happening for a while.
  • Where Greece went wrong – MARGINAL REVOLUTION
    ….monetary policy was dominated by the need to finance fiscal expansion.
  • Merkel’s Coalition Calls for EU ‘Orderly’ Defaults; Spain Prime Minister says Speculation of a Bailout for Spain is “Complete Madness” – MISH’S ECONOMIC ANALYSIS
    "Orderly defaults" has a nice ring to it. Somehow I suspect when Greece defaults it will be anything but orderly. Nonetheless it is interesting to hear the word default bantered about so soon after an announcement of a $145 billion bailout for Greece.
  • Is this the end of the Euro? – YARON BROOK on PJTV
    The amount of money necessary to bail Greece out is ever-growing … and it’s not clear where that money is going to come from.
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  1. This is happening even faster than I thought. Amazing stuff. The consequences of decades of rorting are only starting to hit home now. Soon it will be the turn of the rest of the PIGS. Then there might even be some more serious riots. Uprising anyone? War even?

    Had to chuckle at the morning idiot on the 1ZB radio recently. He had been saying the recession was over and that there would be no "double dip." He's been a little less strident recently. In fact he's steered well clear of the topic. Perhaps he'll be one of the early redundant.... One can only hope.


  2. Ruth

    I hope you got out of the market prior to this latest result.


  3. Not at all LGM. In terms of US the VIX (volatility index)shows no panic - just another bump in the road. When others are fearful is the time to be brave, investment wise, as Buffet says. Plenty of money to be made for contrarians.

    Good to see the demise of the euro -- I predicted it would last 5 years so I was a bit out. Back in 2000 I was arguing about it on Binswanger's list...strangely enough a few objectivists thought it was a great idea back then!

  4. Ruth

    Crikey! You're brave alright.

    There's much more yet to wash through. Let me know how you progress.


  5. Ruth, can you advise me on investments in the NZX? I am new to market investment and I am looking at the prospect of giving my money to one of those local managers as Fisher Funds, Gareth Morgan or perhaps do some self-study myself.

    Also, I am keen to be advised by someone who's hot like you.

  6. I will let you know LGM. I'm a great believer in the US and capitalism - even though it is imperfect. The company results coming through confirm my optimism. Obviously there is measurable weakness in euro markets,but in the absence of equivalent fundamental corporate US weakness this does not have a lot of significance in terms of the much hoped for Usd crisis and "double dip recession".

    Again as Buffett said " No one ever made money in the long run by betting against America."

    "Cassanova" I have not invested on NZX for years, and when I did I never managed to make much money on it. The market is too small, the volume is tiny, and it must be the only market in the world where one can create a run on a share single-handedly.

    I do not recommend investing in the sharemarket unless you know exactly what you are doing. Term deposits at Rabobank (the highest rating bank here) would be a good option.

    Everyone's risk profile varies -- it's your dime -- so you have to work it out.

  7. Ruth

    I'm a supporter of Capitalism. It would be nice to see the US embrace it on a consistent basis!

    There is the saying I was reminded of recently. It goes,

    "God protects the blind, the drunk and the United States of America."

    While I wouldn't recommend investing in the blind or the drunk, the US is somewhat different. During my travels there last year (several visits of over three months) I saw that there remain many productive people upon whose efforts the entire country rests. They, in general, believe in their nation-state and the rightness of the ideas it is said to have been founded upon. They generally support the notion of individual freedom, as opposed to idealised tyranny. They are increasingly disillusioned and bitterly disappointed what the Washington/New York political class and cronies are creating. A terrible resentment is developing, encouraged by rapid growth of burdens and imposts which are becoming unbearable to ordinary people. There are costs which will have to be paid. Part of the resentment and distrust directed at the political elite is based on the concern of being forced to pay those costs. Part of it is based on concerns regarding the erosion of individual freedoms. Part of it is based on the distinct divisions cynically developed and expolited by the politicals (who appear utterly uninterested in any of the difficulties they are imposing upon ordinary people). That does not bode well for the future.

    By and large ordinary working people in the USA are go-getters and practical doers of tasks (which is why they are a good long run bet to invest in). On the other hand they tend not to be philosophic or introspective or analytical when it comes to dealing with ideas. They are not well equipped to deal with the issues, the opponents or the battle of ideas that presently confront them. That does not bode well for the future either.

    Still, the people in the US have encountered crises of one terrible form or another in the past. I sure hope Buffett is right & that a bet on the USA remains a safe one and that they'll come through AOK in the end. I also hope that Buffett is politically more like his father than he appears to be (perhaps he aint letting on).


    "I do not recommend investing in the sharemarket unless you know exactly what you are doing."

    That's sound advice and right now I'm going to take it and stick to it. I'm out!


    Re the NZX

    "it must be the only market in the world where one can create a run on a share single-handedly."

    Had a good chuckle at that. It made my day.



  8. The piece by Doug Casey (one of the first links) is excellent. Thanks, PC.

  9. Then there might even be some more serious riots.

    We can only fucking hope so.

    And - if we want real change in NZ - hope that the markets realise that NZ's economy is in worse shape than Greece and Iceland

    Ruth, can you advise me on investments in the NZX?

    D O N ' T

    there, that wasn't hard was it. Put it in an exchange with a market economy. The US is looking pretty good right now.


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