“The wind is rushing after us, and the clouds are flying after us, and the moon is plunging after us, and the whole wild night is in pursuit of us; but, so far we are pursued by nothing else.”
-Charles Dickens, The Tale of Two Cities
By Mark Grant
I
have left St. John’s Newfoundland and I will be three days at sea now heading
for Reykjavik, Iceland. The seas are up, the wind is cold and icy, the sky is
that grey color of mid-winter in the arctic north and it is all reminiscent of
what is taking place in Europe as the seams come undone and as bleak depression
is the mood on the Continent.
Aside from the politics I remark that “can kicking” has its consequences. It may move the crisis down the road some but with the accumulation of ever more debt to pay off past obligations the day of the inevitable reckoning worsens and we are quickly approaching that day, those days, as the grand experiment unravels due to national ambitions, a game badly played by the political elite in Europe and simple arithmetic working in Greece, Spain and Italy.
Contingent
liabilities are counted on the balance sheets of corporations for a reason, a
very good reason, which is that the “contingent” often become the “actual”
which is exactly what is happening in Europe. The misguided fabrication of the
European Union to not count guarantees, promises to pay and contingencies as
part of their debt to GDP ratios or as part of anyone’s obligations is a page
torn Grimm’s Fairy Tales and make-believe is always an ingredient promising to
breed disaster when penned into anyone’s balance sheets; corporate or
sovereign.
"You know, my dear, it isn't safe for a little girl to walk through these woods alone."
-The Wolf, Little Red Riding Hood
It should be noted that one government
after another has fallen in Europe. Mrs. Merkel’s party fared the worst at
German elections over the weekend since shortly after World War II. Spain is
now talking of bailing out their regional governments, bailing out their banks
and they just do not have the capital for all of this making a turn for funding
to the EU/ECB/IMF virtually inevitable. The Italian 10 year is at 5.75% this
morning and the Spanish 10 year is at 6.25% leaving the Italian and Spanish banks
in worse shape after utilizing much of their LTRO money to buy their sovereign
debt which is now at appreciable losses.
Europe
is losing the bet as the entire Continent besides Germany is in recession and
without growth or significant Inflation; the long walk down the Road to
Perdition continues. It must be candidly said that all of the German imposed
austerity measures not only did not solve any of the problems but that they
made matters much worse. The punishment did not fit the crime.
"I ain't gonna work on Angie's farm no more."-Bob Dylanopoulos
I am asked, from time-to-time, why I write
about Europe with such frequency. The answer is quite simple; there is nothing
more important, nothing that will have a greater impact upon the world’s
financial system, nothing that will impact any and all markets more than what
is transpiring on the Continent.
It
is a grand experiment gone bad, a Federalist’s dream floundering in the dust, a
vision of Heaven that is being dragged through the narrow gates of Hades and
there is no longer any painless way home if home is to be found at all. The
notion that there is some sort of decoupling in the marketplace between America
and Europe is an adage quoted by the village idiots for the fools listening in
the town’s square; nothing more than that.
In the Coming Days
He stood there, stoic, gleaming in his
silvery armor; the Germanic Prince. Without emotion he unsheathed his sword and
cleaved the Hellenic head from its neck. He was positive that he knew what
would happen. He knew in his heart and in his mind that the awkward, whimpering
creature before him should now transform into a dazzling, beautiful Princess
made wise by her hardship.
This is not what is going to happen.
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