Desperation. It’s an important subject that I don’t think is discussed nearly enough on political and economic blogs/websites and that’s what I try and do here. I could talk about how screwed Japan is over and over again or how corrupt virtually every government is but I don’t. I leave that to the professionals. I like to talk about less obvious and more obscure topics because hey I’m a contrarian. The herd moves right and I go left.
Back to Desperation. People do dumb things when they are desperate. Really dumb things. 1920’s Germany’s hyperinflation debacle eventually led to the election of the Nazi party and Hitler.
Japan is in a similar situation with their current leader, Shinzo Abe. I know I said I wouldn’t talk about Japan but they make a great contemporary example of how people do dumb things when they are desperate. Shinzo Abe was elected because he promised his people the moon but now reality is setting in and he didn’t get the moon. He couldn’t even get them a small little comet and even the European Space Agency could do that! Perhaps they should run for office.
Shinzo Abe’s three arrows have become a bit of a laughing stock. One of his arrows won’t even fire anymore so he’s forced to spam fire his QE arrow. He’s failed to deliver on his promises and so will every other leader who makes big promises in these very dark times. He’s recently called for a snap election, because clearly it’s parliament’s fault and not his failed policies for the mess they are in. I’m picking on Abe because he’s an easy target. I could just have easily made a case for the current president of the United States of America, Barack Obama.
The point is that it has become exceedingly obvious that politicians no longer have to be good at their job to get elected. They can skate by on big promises, grand statements, and “not doing stupid shit”. Of course these are terrible qualities to have in any human being let alone an elected official, and yet we continue to elect these people and as things get worse we will continue to elect the next moron to come up with some “grand scheme” to save us all from certain destruction but the inconvenient truth is NO ONE can save the current system. As the policies of the next politician fail people will become more desperate which in turn will force them to elect the next idiot who promises them the moon thus creating a downward spiral until the system collapses.
A few days ago it was announced that Japan had indeed fallen back into a recession. This of course came just two weeks after Abe decided to crank QE up to 11 million. The writing has been on the wall for a WHILE now. But apparently economists don’t ever look at the wall.
How is this unexpected? They increased the sales tax by 60%! Japan’s government debt to GDP is over 200%. Government debt to revenues is over 800%. Their adult diaper industry is larger than their baby diaper industry. With an aging and xenophobic population, enormous debt levels, and a poorly run central government this should not be a surprise. It should actually be the most obvious thing in history. The only thing more obvious would be if you traveled back in time to the day before the 1929 crash and called the market top, but even then you may have entered an alternate universe where the 1929 crash actually happens in 1930. The point is, Japan’s situation is dire and above all, obvious. So obvious that I mostly gloss over Japan because there’s not much to say at this point, except keep your eyes peeled on the USDJPY which hit 118 today.
QE in America is a lot simpler than it is in Europe. In the US, the centralized authority, the Federal Government has a much cleaner connection with its Central Bank as well as stronger authority over its domain than the EU has over its member states. Each EU member has its own debt which is not equivalent to another member’s debt.
Unlike the Federal Reserve which could step in and buy US treasuries, the ECB can’t go and buy EU bonds. It has to go and buy bonds from individual members. So a question arises in which members’ bonds should the ECB buy and how much per member should it buy?
To make matters worse, the Germans who stand in the way of QE in the EU have put their foot down. They don’t want it. They don’t want it so much that they are going to balance the budget for the first time in 45 YEARS! Yup, it’s been over four decades since these guys have balanced a budget and somehow they are considered the most fiscally conservative EU member… I know right.
The point is. Germany is serious. They want the other members to somehow magically get their shit together, which let’s face it, won’t happen without serious structural changes and of course that won’t happen without a serious collapse.
In short, QE ain’t coming to the EU any time soon. Look for things to get even worse in Europe. And if you don’t believe me, perhaps a quote The Ben Bernanke will change your mind. When asked if the ECB was going to do Quantitative Easing Ben responded:
“The barriers to doing it are not really economic. The legal and political barriers being thrown up are going to make it very difficult to do that.”