China's demographic crunch

China's population will peak in 2026, then age rapidly

By MICHAEL RICHARDSON

Just four years from now, China will pass a milestone. Its huge workforce will peak and start shrinking. This will make it more difficult for the world's second largest economy to continue the turbo-charged growth that has played a key role in the rise not just of China, but also its Asia-Pacific trade and investment partners like Japan. They depend heavily on exports to the Chinese market.

Part of China's success since economic reforms and market-opening were started in the late 1970s has rested on its army of low-cost workers in industry and export manufacturing. As labor shortages have developed in parts of China in the past few years, wages and other costs have risen, making exports less competitive and investment less attractive.

But the decline in the workforce is part of a bigger problem for China, the world's top exporter. Its population is aging, so sharply that the state-run China Daily recently called the trend a "ticking time bomb" for the government as it struggled pay the rising pension and health care costs of an increasingly elderly cohort.

Dai Xianglong, the head of China's social security fund, warned last month that there was a "huge" shortfall in the capital needed for future pension payments. To forestall the crisis, officials have suggested raising the retirement age from 60 and allowing the fund to make higher-yield, but riskier, investments.

At the end of last year, 123 million Chinese, about 9 percent of the 1.35 billion population, were aged 65 or over. By 2030, the number of seniors is projected to be close to 240 million, or 17 percent of the population. Chinese demographers have warned that there will be less than 3 working-age people to support each senior citizen in 2050, down from 10 in 2000.

The EU remains one of the greatest failed experiments in history

12 Signs of the Europocalypse

From the Chinese buying spree to the rise of extremism, here's what to watch for as the continent teeters on the brink of disaster.

BY DOUGLAS REDIKER

Two short years ago, if anyone had suggested that we would be considering pan-European bank regulation, cross-border deposit guarantees, joint and several Eurobonds, and the very survival of the common currency, they would have been dismissed as nothing short of crazy. But what was unthinkable then appears to be verging on the inevitable now. With last weekend's announcement of a bailout for Spanish banks and with potentially euro-shaking elections in Greece this weekend, we can now say with certainty that the staid European Union we knew for its first two decades is a thing of the past.

What we're not yet sure of is just what will take its place. The complexity and breadth of the unfolding European financial crisis, with another imminent flash point seemingly around every corner, have made it particularly difficult to distinguish noise from signal and the valuable data from the spin in each day's headlines. In particular, the news focus on daily -- or hourly -- developments in the crisis often obscures the broader dynamics that will shape the European response over the next few months, which will in turn shape Europe itself over the next few decades.

Here are 12 key trends to watch over the next few weeks for help in projecting what the new Europe will look like if it finally emerges from the mire.

1. Continuing Greek dysfunction. Pundits and analysts are waiting with bated breath for the results of Greece's elections on June 17, with many declaring it as a virtual referendum on whether the country will remain in the eurozone. But here's the truth: The possible outcomes are narrower than people think, ranging only from pretty bad to worse.

How the Euro Will End

Greece will simply run out of cash. Then Spain's real-estate bubble will ruin an economy that really matters

By GERALD P. O'DRISCOLL JR

The euro is the world's first currency invented out of whole cloth. It is a currency without a country. The European Union is not a federal state, like the United States, but an agglomeration of sovereign states. European countries are plagued by rigidities, including those in labor markets—where language differences and the protection of trades and professions in many countries impede labor mobility. That makes it difficult for their economies to adjust to cyclical and structural economic shifts.

For such reasons, when the euro was created in 1999, Milton Friedman famously predicted its demise within a decade. He was wrong about the timing, but he may yet be proven right about the fact.

Greece is the epicenter of a currency and fiscal crisis in the euro zone. Markets fear a "Grexit," or Greek exit from the euro. That exit is almost a foregone conclusion. The endgame for the euro will be played out in Spain.

But first to Greece, which is devolving from a money-using economy. Firms, households and even the government are short on cash. The government isn't paying its suppliers and workers in a timely fashion, so households cannot pay their bills to businesses with whom they transact. Businesses, in turn, cannot pay their suppliers. There is a cascade of cash constraints.

Normally, credit supplements cash in economic transactions. But there is scant credit in Greece. Anyone who can is moving their money out of the country, either to banks in other euro-zone countries, such as Germany, or out of the euro to banks in Switzerland, the United Kingdom and U.S. (the franc, pound and dollar, respectively).

Absent a truly dramatic event, Greece will exit the euro not by choice but by necessity. It will do so not because the drachma (its old currency) is superior to the euro, but because the drachma is superior to barter. Greek standards of living, which have already fallen substantially, will fall further in the short- to medium-term. It will then be up to the Greek people to forge a new future.

The Euro Zone is not a Gold Standard

Merkel Still Waiting for a Thatcher Moment

By SIMON NIXON

Who knows what ultimately drove Alexandros to commit suicide by hanging himself in a park in Athens? But clearly financial worries exacerbated by Greece's economic crisis weighed heavily on the pensioner's mind. In a farewell note, he set out what he saw as the answer to the country's problems, according to Greek press reports. It wasn't a euro-zone growth agenda, common euro-zone bonds, a banking union, an end to austerity or a more expansive role for the European Central Bank. What Greece needed, he wrote in his despair, was a leader like Margaret Thatcher, "a leader with b—."

Alexandros understood something important that seems to have eluded a great many politicians and pundits outside the euro zone who have lined up recently to give their views on how to solve the euro crisis. Most of this advice takes one of two forms. One group, largely made up of British euro-skeptic commentators, insists the euro has always been an unworkable disaster and that the only solution is to break up the common currency. The other group, which now sadly includes U.S. President Barack Obama and U.K. Prime Minister David Cameron, insists the euro zone should move to an immediate political and fiscal union.

What both groups share is the belief that Angela Merkel is the villain of the crisis whose inflexibility risks dooming entire nations to a never-ending cycle of misery. This is grotesquely unfair.

Greece Back Down To Just €2 Billion In Cash

Zeit Suggests A Third Greek Bailout May Be Coming

By Tyler Durden

Shifting away from the theatrical travesty for a moment, we move to the other such travesty: Europe, where while nothing has been fixed, despite what the BIS is trying to do with the EURUSD which is now up 100 pips in a straight line since the Dimon testimony started, we find that while the world is concerned about Greek elections, the real gamechanger may be the old and known one: Greek cash, or the lack thereof, and more specifically yet another bailout for the country. RTE reports that as of today Greece has about €2 billion in cash left, pro forma for the recent cliffhanger cash infusion from Europe which almost did not come, which is expected to last the country for just about one more month.

From RTE:

"Greece has about €2 billion to pay salaries and pensions until July 20, media reports said today. The finance ministry declined to comment on the reports. Greece is heading into a Sunday election which could lead to it leaving the euro zone."

Of course, there is the natural probability that this is merely electoral propaganda: "Greece's European peers have warned Athens in stark terms that further loan payments could halt if promised reforms, including an unpopular privatisation drive, falter. Should this happen, many analysts warn that Greece could be forced to ditch the euro and print its own currency to pay pensions and salaries." Oddly, this is despite Spain proving to the world that one has much more leverage when demanding bailouts in the context of preserving Europe. And the irony is that this may not be enough. As Greekreporter informs us :

Giants had replaced reality

More Gruel, More Gruel

By Mark Grant

Pathos

It is really rather pathetic. The Prime Minister of Spain today called for a deposit guarantee fund, pleaded for the EU to take over the budget of Spain and said Spain would cede its sovereignty over its banks. This is all just one thing; a cry for money and money at any cost. The poor fellow has obviously lost whatever self-respect that he had and is behaving no differently than some street urchin begging for alms. What can be seen from this kind of behavior is the desperate state that Spain is in and it is reflected in his desperate pleas for help. I would speculate that so much has been hidden and so many balance sheets falsified that Spain has suddenly found itself in a sea of their own making which could be termed, “Dire Straits.” When Rajoy termed the bailout for Spain as a “Victory for Europe” I knew that he had left “sense and sensibility” behind and headed into the land of Don Quixote where windmills were imagined to be giants and fantasy had replaced reality. The problem is, unlike the creation of Miguel Cervantes, this guy is the Prime Minister of Spain and not some aged senior chasing after the Knights Templar in his later years.

More Gruel Please Sir

I am reminded of that famous scene in Oliver where a second serving is asked for and the commotion that it causes. The European Union can now be viewed as three distinct groups. The bailed-out countries that are trying to renegotiate their agreements, pleading for more money, and asking for more integration in the hopes of getting more gruel. This is all characterized by some grand plan of course so that they can con the wealthier nations out of their money under the banner of the Three Musketeers, “All for one and one for all” which really just means; “give me your money so I can live just like you do and thank you so much.”

Rescuing the eurozone

What would Isabel Peron do?

By James Jordan

There appears to be a widespread assumption (see this week’s Economist) that all would be well in the eurozone if only Angela Merkel would just step up and do the right thing. The right thing is defined as agreeing to co-guarantee joint eurozone bonds and to allow the ECB to make unlimited credit available to eurozone governments and their banks. Her refusal to do so is attributed to German stubbornness and selfishness.

Frankly, it is pointless to attempt to discuss the eurozone crisis in moral terms. Morality is irrelevant under such circumstances. All is fair in financial crises.

Let us accept the promise that it is in Germany’s interest to rescue Europe. Let’s not debate that, we’ll just take it as a premise. Germany agrees to sign up to lend its credit to the entire eurozone, and the Bundesbank allows the ECB to buy the bonds of troubled governments.

First, let’s look at the eurobond piece. While it is possible that an announcement such as this would reopen the debt markets to allow the PIIGS to to issue their own debt, that is quite doubtful. The bond market is not charitable. Therefore, the future source of credit for troubled eurozone governments will be eurobonds, co-signed by Germany, forever.

"Cradle-to-Grave" Politics

What Soviet Medicine Teaches Us

by Yuri N. Maltsev

In 1918, the Soviet Union became the first country to promise universal "cradle-to-grave" healthcare coverage, to be accomplished through the complete socialization of medicine. The "right to health" became a "constitutional right" of Soviet citizens.

The proclaimed advantages of this system were that it would "reduce costs" and eliminate the "waste" that stemmed from "unnecessary duplication and parallelism" — i.e., competition.

These goals were similar to the ones declared by Mr. Obama and Ms. Pelosi — attractive and humane goals of universal coverage and low costs. What's not to like?

The system had many decades to work, but widespread apathy and low quality of work paralyzed the healthcare system. In the depths of the socialist experiment, healthcare institutions in Russia were at least a hundred years behind the average US level. Moreover, the filth, odors, cats roaming the halls, drunken medical personnel, and absence of soap and cleaning supplies added to an overall impression of hopelessness and frustration that paralyzed the system. According to official Russian estimates, 78 percent of all AIDS victims in Russia contracted the virus through dirty needles or HIV-tainted blood in the state-run hospitals.

Irresponsibility, expressed by the popular Russian saying "They pretend they are paying us and we pretend we are working," resulted in appalling quality of service, widespread corruption, and extensive loss of life. My friend, a famous neurosurgeon in today's Russia, received a monthly salary of 150 rubles — one third of the average bus driver's salary.

In order to receive minimal attention by doctors and nursing personnel, patients had to pay bribes. I even witnessed a case of a "nonpaying" patient who died trying to reach a lavatory at the end of the long corridor after brain surgery. Anesthesia was usually "not available" for abortions or minor ear, nose, throat, and skin surgeries. This was used as a means of extortion by unscrupulous medical bureaucrats.

"Slavery certainly 'reduced costs' of labor, 'eliminated the waste' of bargaining for wages, and avoided 'unnecessary duplication and parallelism'."

Repeating the Soviet Union’s Mistakes

Putin is a captive of his own past and of the system of state-controlled capitalism he has built

By the Editors

In his second incarnation as Russian president, Vladimir Putin looks set to repeat some of the mistakes that brought down the former Soviet Union, including a nuclear arms race he can’t afford. He should change course for his own sake, if not Russia’s.

Putin recognizes the challenges of demography, technological backwardness and overdependence on natural resource extraction that his country faces. He certainly knows the deep impact that a euro-area depression could have on Russia’s economy. But so far he appears unwilling to do what’s needed to address these threats. Today, as Russia marks its day of independence from the USSR, it’s worth revisiting some lessons from the fall of the Soviet Union.

During his first two terms as president, Putin repeated a critical error from the 1970s, failing to use the wealth produced by high oil prices to institute structural reforms. The price of Russia’s benchmark Urals crude rose almost fivefold from 2000 to 2008. According to the government, the oil and gas industry accounted for four percentage points of the 7 percent average annual growth rate that Russia enjoyed for the last decade, money that created a middle class that is now demanding more political freedoms.

The Debt Fractal

By Incentivizing Debt, We've Guaranteed Debt-Serfdom and Stagnation

Incentivize debt and you create multiple overlapping death spirals.

By Charles Smith

The incentives to take on debt are so ubiquitous that we underestimate their pernicious power to trigger self-destructive behavior.Want to go to college? Just borrow the money now, with no payments until you graduate. Need some consumerist-retail therapy to lift your sagging spirits? Just use plastic, and pay for the splurge later. Want to buy a house? Hey, the interest on that 30-year mortgage is all tax deductible. It's crazy to pay taxes when there's a big fat deduction for mortgage interest.

This same set of incentives works on a national and global scale, too. Put yourself in the shoes of the typical spineless, campaign-donation-dependent politico whose primary obsession in life is clinging to power via winning the next election. Every heavy-weight constituency is protesting any tiny reduction in their share of the Federal swag, so drastic cuts are out of the question. What's the only painless option? Borrow $1.5 trillion every year to make sure the swag is fully funded and the restive constituencies are quieted for another election cycle.

But debt has a consequence called interest that feeds a destructive self-reinforcing cycle. At a certain threshold, there is no painless way to pay the interest except to borrow more money. That increases the interest payments due next year, and so the "solution" is to borrow yet more next year.

As I explain in Resistance, Revolution, Liberation: A Model for Positive Change, the Status Quo has relied on "growing our way out of debt" to overcome this cycle: if the new debt fuels a rise in productivity, the economy will grow so much faster than the debt that the relative burden of the debt actually declines.

In a simple example, if a $1 trillion economy borrows $1 trillion and invests it such that the economy rapidly expands to $5 trillion of goods and services, then the rise in national income means the interest on the $1 trillion can be paid out of the huge increase in income generated by the rising productivity.

The same is true for a company that borrows what appears to be a large sum in order to boost production. If revenues leap from $100 million to $1 billion as the result of a $100 million investment, the interest can be paid out of the higher cash flow.

The wheels fall off the "growing our way out of debt" strategy if the borrowed money was spent on consumption or invested in low-productivity purposes. After it's all said and done, the money's gone but the debt remains and the interest is still due.

This is where the housing bubble enters the picture. Given that mortgage interest (even the interest on home equity lines of credit, HELOCs) is deductible, then it was incredibly attractive for those with equity to borrow that equity for consumption, an addition/remodel or to fund another home purchase as an investment or vacation get-away.

We isolate and overload Germany at our peril

Asking Germans to work until 80 so that French can retire at 60

By Gideon Rachman

Visiting the Financial Times a couple of weeks ago, Luis de Guindos, Spain’s economy minister, predicted: “The battle for the euro will be fought in Spain.”

With Spain’s decision this weekend to accept international aid to save its banks, the battle is now joined. The stakes are very high. Writing in this paper, Niall Ferguson and Nouriel Roubini warn that Europe is “perilously close” to “repeating the disasters of the 1930s”.

As in the 1930s, a conflict in Spain is now seen as critical to a wider struggle for the fate of Europe. It cannot be long before an international brigade of Keynesian economists sets off for Catalonia. Once again, Germany is cast as the villain in a pan-European drama.

Of course, nobody questions modern Germany’s democratic credentials. Only in the wilder fringes of the Greek press has Chancellor Angela Merkel been compared to Adolf Hitler. But the picture that emerges from the world’s press is of a stubborn Germany, whose actions threaten the world. This weekend’s Economist magazine cover showed the global economy as a sinking ship and beseeches Ms Merkel to “start the engines”.

The magazine summarises an international “consensus on what Ms Merkel must do”, including “shifting from austerity”, “a banking union with euro-wide deposit insurance” and a “limited form of debt mutualisation”. Privately, world leaders from London to Washington and Rome are urging similar actions on Berlin.

The demands being made of the German government spring from a sincere desire to avoid a rerun of the 1930s, when economic disaster provoked political catastrophe.

However, while these demands may make economic sense, they are politically unrealistic and dangerous. They are textbook solutions that fail the real-world test. Worse, if enacted, they would risk provoking the very political radicalisation they are ultimately meant to prevent.

Consider just one of the proposals on the shopping list: a Europe-wide bank deposit insurance scheme. As a senior Dutch politician who shares the German view, puts it: “We cannot push through a banking union when the French have just cut their retirement age to 60 and we have raised ours to 67.” From the Dutch and German point of view, it is unfair for their citizens to underwrite the banks of countries using their own money to pay social benefits that are more generous than those on offer in Germany or the Netherlands.

Capitalism, Happiness, and Beauty

The incredible prosperity machine

by Ludwig von Mises

Critics level two charges against capitalism: First, they say, that the possession of a motor car, a television set, and a refrigerator does not make a man happy. Secondly, they add that there are still people who own none of these gadgets. Both propositions are correct, but they do not cast blame upon the capitalistic system of social cooperation.

People do not toil and trouble in order to attain perfect happiness, but in order to remove as much as possible some felt uneasiness and thus to become happier than they were before. A man who buys a television set thereby gives evidence to the effect that he thinks that the possession of this contrivance will increase his well-being and make him more content than he was without it. If it were otherwise, he would not have bought it. The task of the doctor is not to make the patient happy, but to remove his pain and to put him in better shape for the pursuit of the main concern of every living being, the fight against all factors pernicious to his life and ease.

Socialism in Practice

The Lethal Laboratory

by Gary North

What is the longest-running socialist experiment? What has its success been?

If someone asked you to defend the idea that socialism has failed, what would you offer as your example?

Where did modern socialism begin?

In America.

That's right: in the land of the free and the home of the braves. On Indian reservations.

They were invented to control adult warriors. They had as a goal to keep the native population in poverty and impotent.

Did the system work? You bet it did.

Has the experiment been a failure? On the contrary, it has been a success.

When was the last time you heard of a successful Indian uprising?

Are the people poor? The poorest in America.

Are they on the dole? Of course.

Last year, the US Department of Agriculture allocated $21 million to provide subsidized electricity to residents on the reservations whose homes are the most distant from jobs and opportunities. You can read about this here. This will keep them poor. Tribal power means tribal impotence.

Middlemen and Markets

Value as a social phenomenon is created not by production but by exchange

By Stephen Davies

One of the persistent features of politics and social life is the way that many insights of economics conflict with strongly held and widespread beliefs among both the general public and the business class. This contrast between the economic way of thinking and what we may call the “gut instincts” of many people makes economics seem counterintuitive much of the time. In many cases the principles of economics also conflict with moral intuitions or commonly held sentiments, and so the analysis is felt to be not only absurd but also immoral.

One example of this phenomenon is the widespread hostility to middlemen: people who speculate in commodities by buying them at a low price in order to sell them at a higher price. The popular intuition is that such people are simply parasites. That is, they do not create wealth or value because in the final analysis they do not actually create anything real such as a physical product or a direct service. A popular example of this is the intense hostility many people feel toward “scalpers” (or “touts,” as they are called in my own country), who buy tickets for events and concerts at face value and then resell them for more. The point of course is that the people who buy tickets from scalpers do so willingly; thus by definition it must have been worth their while to do so. Yet often these very customers complain the most bitterly. Hostility to scalpers means that in many jurisdictions it is a criminal offense to buy tickets and resell them to willing purchasers.

Subprime college educations

“Pop!” goes the bubble

By George F. Will

Many parents and the children they send to college are paying rapidly rising prices for something of declining quality. This is because “quality” is not synonymous with “value.”

Glenn Harlan Reynolds, a University of Tennessee law professor, believes that college has become, for many, merely a “status marker,” signaling membership in the educated caste, and a place to meet spouses of similar status — “associative mating.” Since 1961, the time students spend reading, writing and otherwise studying has fallen from 24 hours a week to about 15 — enough for a degree often desired only as an expensive signifier of rudimentary qualities (e.g., the ability to follow instructions). Employers value this signifier as an alternative to aptitude tests when evaluating potential employees because such tests can provoke lawsuits by having a “disparate impact” on this or that racial or ethnic group.

Germany, Not Greece, Should Exit the Euro

A German exit today might set the stage for a stronger reunion tomorrow

By Red Jahncke

All the debate about the pros and cons of a Greek exit from the euro area is missing the point: A German exit might be better for all concerned.

Unless Europe’s leaders take some kind of radical action, such as adopting and executing some of the many reform ideas they have floated, the currency union is headed for disintegration.

The problems of Greece, Ireland and Portugal have spread to Spain, the fourth-largest economy in the euro area. Italy is probably next. The other members of the currency union can’t afford to bail them all out. Further loans will serve only to exacerbate the fundamental problem of too much debt and add to the growing enmity between the strong northern tier and its wards to the south. Without healthy economic growth -- and Europe is now back in a recession -- multiple countries will have to restructure their sovereign debts. Greece’s agonizing two-year restructuring experience suggests that doing several more would be extraordinarily difficult, if not impossible.

Germany's Nuclear Phase-Out Brings Unexpected Costs

The Move to Renewables

By Alexander Neubacher and Catalina Schröder

After two weeks, the first letter arrives. The second notice comes a week later. On the fourth week, the bell rings and a technician from the power company, Vattenfall, is at the door. He has a black toolbox under his arm and he means business.

Aminta Seck, 39, has been through this twice before. If she doesn't pay the technician at least part of what she owes the company, he'll disconnect her electricity, leaving Seck and her three-year-old son Liam sitting in the dark in their two-room apartment, without lights, a working stove, refrigerator or TV.

Electricity prices in Germany have risen by more than 10 percent since the current coalition of the center-right Christian Democratic Union (CDU) and business-friendly Free Democratic Party (FDP) took office. The price hike has been too much for some like Seck, an unemployed decorator from Berlin's Prenzlauer Berg district.

"Approximately every tenth household currently has problems paying for rising energy costs," says Holger Krawinkel at the Federation of German Consumer Organizations.

The Fascist Threat

The fascist economic model has killed what was once called the American dream

"In the long run even the most despotic governments with all their brutality and cruelty are no match for ideas. Eventually the ideology that has won the support of the majority will prevail and cut the ground from under the tyrant's feet. Then the oppressed many will rise in rebellion and overthrow their masters."

by Lew H. Rockwell, Jr.

Everyone knows that the term fascist is a pejorative, often used to describe any political position a speaker doesn’t like. There isn’t anyone around who is willing to stand up and say: "I’m a fascist; I think fascism is a great social and economic system."

But I submit that if they were honest, the vast majority of politicians, intellectuals, and political activists would have to say just that.

Fascism is the system of government that cartelizes the private sector, centrally plans the economy to subsidize producers, exalts the police State as the source of order, denies fundamental rights and liberties to individuals, and makes the executive State the unlimited master of society.

Meanwhile, in the new Socialist Utopia…

Hollande Strikes Again

by Pater Tenebrarum

Mr. 'Growth instead of Austerity' Hollande strikes again – Mish has already written about the latest policy blunder to emerge from France last week, but we would like to add a few words.

Apparently the new French government believes that the proper method of combating the recent 13 year high in unemployment is to make it 'as expensive as possible for businesses to fire people'. Seriously. Evidently the economic illiteracy runs really deep at the highest echelons of France's political leadership – the idea was proposed by the minister of labor. How did Fred Sheehan put it? 'They think they can order nature around'.

Such measures will guarantee that institutionalized unemployment in France will increase even further – and as Mish correctly remarks, the mere threat of such legislation should lead to a wave of layoffs just before it comes into effect. Producers that can afford to move their production facilities to more business-friendly climes will do so at the earliest opportunity. The ranks of small business owners are likely to thin out further and fewer new businesses will be started. Many should probably begin to study the bankruptcy code, just in case.

Spain, Debt and Sovereignty

The glue that holds nations together is missing in the European Union

By George Friedman

Eurozone countries on June 9 agreed to lend Spain up to 100 billion euros ($125 billion) to stabilize the Spanish banking system. Because the bailout dealt with Spain's financial sector directly rather than involving the country's sovereign debt, Madrid did not face the kind of demands for more onerous austerity measures in exchange for the loan that have led to political instability in countries such as Greece.

There are two important aspects to this. First, yet another European financial problem has emerged requiring concerted action. Second, unlike previous incidents, this bailout was not accompanied by much melodrama, infighting or politically destabilizing threats. The Europeans have not solved the underlying problems that have led to these periodic crises, but they have now calibrated their management of the situation to minimize drama and thereby limit political fallout. The Spanish request for help without conditions, and the willingness of the Europeans to provide it, moves the European process to a new level. In a sense, it is a capitulation to the crisis.