The Financial Armageddon That Faces The Eurozone

June 5th, 2012
in Gary's blogging

The financial news that is usually disseminated in the US by the MSM is typically an opinionated tome of what “THEY” think you need to know and typically they don't have a clear view from the back seat where they are trying desperately trying to get your attention. While it is true the financial Armageddon that faces the Eurozone is different that the one in the United States, some analysts sometime forget or do not realize the importance of what is happening across the Pond AND how it will eventually effect the Untied States.

In the following article from The Market Oracle it clearly points some very alarming facts that WILL effect the US markets and YOU as an investor.

Follow up:

Can you smell it ? There's PANIC in the Air!

The first point in the article is that “Britain is preparing immigration controls for an anticipated flood of refugees from Third World Europe . . . in the event of the break-up of the [Euro]” because all 330 million Eurozone citizens have the automatic right to travel and work within the UK. How in the heck would any clear thinking individual sign on to something like this, but then I forget that these folks are liberal politicians. The UK's Home Secretary is now in a 'panic mode'.

as it see's the potential flood (already underway) of eager willing unemployed workers from across the Euro-zone with near zero prospects for employment in their home countries (PIIGS typical have young unemployment rates of 50%!) are abandoning third world Europe for the easy to get to promised land of Britain.”

The article goes on to explain the mushroom clouds of Armageddon are already spreading the radioactive clouds of financial fallout throughout the Eurozone and are spreading to the UK. Which eventually will spread to the US too.

Whilst the financial mushroom cloud towers over Greece's economy as it prepares for an inevitable GrExit. However the rest of euro-zone has far more to fear than from just a Greek radioactive financial fallout cloud because many of the euro-zone countries have already FLASHED Financial Armageddon detonations themselves that encompasses most of the Euro-zones 330 million population. . . . the British Government [is] already planning to SUSPEND its membership of the EU . . . the problem is that Britain's safe haven status may not survive a suspension of its membership of the E.U. So Britain (like most of europe) potentially faces a lose, lose situation.”

The French and Greeks are rejecting austerity and now Greece either leaves the EU on its own or will be kicked out. But that is not all of it as “Spain and Portugal [are] expected to follow a Grexit within 6 months”, writes author Nadeem Walayat.

This would also apply to the USA as he writes, “The only thing Britain has is its electronic money printing presses without which Britain would have collapsed 3 years ago!” He goes on to say:

You don't have to go far to see that the mainstream press and blogosfear remains populated with delusional deflationists, devoid of market sense that are in a perpetual state of denial to the INFLATION that has followed the great recession of 2008-2009. They MIS-INTERPRET the continuing Low bond yields for the likes of US, UK and German bonds amongst many non PIIGS nations as evidence for Deflation when common "market" sense dictates that ALL of these BELOW inflation rates are as a consequence of monetization of their respective country deficits and debts (accept Germany where it is the trade surplus).”

Powerful statements and coincide with my own thinking. The article relates in gory detail how if Greece “had the ability to print money than Inflation would have been near 100%!'. The main reason the Greeks want to remain in the EZ. One of my favorite reads in this article is where he attacks the Keynesian in the academic world.

. . . economics as you know it and as you read and watch it on the news programme's is nothing more than government propaganda . . . And all that academics do is to regurgitate what the propaganda schools of thought state. . . . Maybe most people HAVE been brainwashed to believe that they are experiencing deflation despite the reality of their grocery bills rising by near 10% per annum! . . . . What the academics FAIL to understand . . . is because Economic Recessions, Depressions and Meltdowns result in the destruction of SUPPLY that is GREATER than the destruction of DEMAND!”

But he doesn't stop there until he blasts the Keynesian's completely out of the water with the following and I could not agree more.

You WILL NOT FIND That Economic REALITY anywhere in Academia, it is beyond the comprehension of economic theory. Instead crackpot Keynesian's believe even more money should be borrowed and spent on unproductive activities that ultimately accelerates the trend towards bankruptcy.

The Keynesian answer to the debt crisis is to borrow even more money and spend your way out of the crisis by GROWING the size of the state. There is no logic to Keynesianism, because you cannot borrow and spend your way out of debt crisis!”

He again repeats what I have said before about the politicians using inflation as a political tool to gather votes. This is true not only in the UK but in the USA as well.

All it results in is INFLATION. Which is the primary tool for governments to buy votes, i.e. print money or debt and buy votes at the next election the consequences of which is INFLATION.”

Are we going to have another round of QE as many are proposing as a slam-dunk event in the near future? I don't think so as the Conservative side of the aisle is placing considerable pressure on the Fed not to do so and the FED doesn't want to appear to be the Obama's lap dog.

The author also considers the bogus United States deflation aspect. He points out that when negative employment numbers are released the 'Deflationist's' come out in groves but depicts in a CPI graph the real truth about the so called US deflation.

(Click on chart to see a larger version.)

The facts are that even on the official figures the US has experienced Inflation of nearly 10% over the past 3 years, with the trend trajectory little different to that which preceded the Great Recession of 2008-2009, whilst shadow stats implies its near 10% per annum. The Deflationist's only tend to refer to CPI whenever it dips to start warning that Deflation is imminent, which tends to occur just prior to its next acceleration higher, just as we have been witnessing since the start of the year that CPI right on cue is accelerating higher despite a slowdown in the US Economy, which is basically for very similar reasons to Britain being in an money printing induced Inflationary Depression.

The bottom line is this that Governments need inflation to survive, so they will never allow Deflation to persist and they have the money printing presses to ensure there will NEVER be a persistent trend for Deflation, which is why even Bankrupt economic meltdown Greece of today has Inflation ”

As pointed out earlier the differences between the UK and the US with regards to the EZ is the lack of currency, not debt. We are constantly told that the euro-zone will collapse because of the euro-zone debt crisis and that is not true. They will collapse because they can't print Euros. Only Germany can do that and they won't do it for much longer.

The economies of Greece and the rest of the euro-zone are OVER VALUED against one another and most importantly Germany, and because they have no currency they cannot devalue and inflate away their current state of over-valuations, instead the ECB (Bundesbank) prints euros to delay their bankruptcies because the Euro ensures there IS NO MECHANISM for correcting the imbalances and thus the only outcome is economic collapse.

This is why there are only TWO solutions to the Euro-zone crisis

1. Germany to exit the Euro-zone. . . . has made this solution now far less effective and probably would no longer work, the trends in motion are now too severe for a Euro-zone less Germany to survive.

2. For the Euro-zone to breakup. This is the most probable outcome and will likely happen in stages, with Greece first then Portugal and Spain and others . . . the risk of financial Armageddon, a fast pace total collapse is pretty high.

The current situation that the politicians are hell bent on sticking to is UNSUSTAINABLE.

The bottom line is that the mass of Greeks who buy into Sypris are delusional if they think that Germany will bankrupt itself for Greece. Greeks need to understand one fundamental fact and that is that THEY WILL LEAVE the Euro-zone no matter if they chose to or not! The decision is NOT their's to make!

Nadeem goes on to say that returning to the Drachma would not help Greece as the debt burden would be even higher after exiting the Euro-zone. What will happen is that Germany will pay a price of at least Euro 300 billion for just Greece exiting the Euro-zone and that is not a good thing for anyone in Europe or across the Pond.

The USD will appreciate because it is viewed as a safe haven and the stock markets will depreciate because of it. Cash (USD) appears to be the safe haven for us traders for now until the dust settles.

You need to read the entire article for an in-depth view of the tragic financial, and at one time preventable, melt down in Europe. Forget the complicated flowcharts, scenarios, and government-banking-system reacharounds, the global economic collapse has never been so easy to comprehend...


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Written by Gary

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