So this morning we wake up and the French stock market is in freefall, the DAX looks like someone beat it with a baseball bat, and our DOW futures are down nearly 200 points — all before 6:00 AM.
I’d simply hoist up the old sign (the “Told Ya So” one) and walk off, but there’s a point in here that is extremely important to understand for our government — from Congresspeople to the President.
Many have said that we must “spend now but be more austere later” to both stimulate the economy and yet in the future get the debt under control. This rolls off the tongue of politicians with a smile and a wink, whether it be Republicans or Democrats. At the same time they promise that no person over 50 will see any change to Social Security or Medicare.
It’s a lie folks. It’s not a mistake, it’s a knowing and intentional lie told by politicians worldwide.
Greece tells us exactly what is going to happen. What mathematically must happen. And what nobody is willing to (yet) admit to and accept.
When, not if, fiscal consolidation (the end of deficit spending to the tune of $1.5 trillion a year) occurs GDP will decrease by more than the amount of the deficit cut. This is, again, as I’ve explained for four years nothing more than simple mathematics — GDP is defined as “C + I + G + (x – i).”
If you stop deficit spending “G” decreases. If you raises taxes then either “C” or “I” decreases. As the direct decrease occurs there are fewer people employed to provide the former C, I or G and as a consequence the GDP decrease is more than “dollar for dollar.
THIS OUTCOME CANNOT BE AVOIDED. IT IS AS FUNDAMENTAL AS 2 + 2 = 4!
Greece “sold” to its people that they could “resolve” their problems fiscally without GDP (the economy) collapsing. They lied; the program was implemented and GDP collapsed.
Wall Street and both our and other governments pushed the meme that this problem was “manageable” without GDP collapsing — resetting to a lower level that actually represented private final demand. They all lied.
The banks all claim they’re “ok” due to credit protection and other schemes yet none of them are marking gross exposure to the market and no regulator is demanding that all alleged “hedges” be proved as dollar-for-dollar money good through one dollar of capital.
They have all lied.
And now the market is calling “BS!” on all of it, and the truth is being exposed in Greece.
Greece is not a “big” problem. Our utter refusal to honor the basic first and second grade arithmetic – the rules of simple addition and subtraction — is why we’re in this mess and why the European banking index is down 12% in two days time.
Wake up America. The very same dynamic that occurred in Greece must occur in every nation that is currently deficit spending like crazy (that’s most of them) and we must accept the GDP adjustment that has to occur in order to re-balance our economies and realign output with actual final consumer demand.
You cannot devalue your way to prosperity irrespective of the path of the devaluation. More tax cuts and more deficit spending will not solve the problem — here or anywhere else.
For 30 years we have lied to ourselves and to the world. Now the market is calling these bluffs exactly as occurred in 2007 and 2008 and if we do not cut this crap out — right now — the “Greece fire” is going to spread worldwide and take down every capital market and government in a coordinated fashion until the “bare bank tits” – all of them – are exposed and reality is recognized.
There is no option remaining other than facing and admitting the truth; those who refuse to come to grips with reality are not worth your time folks, whether in the political sphere or anywhere else. We’ve had four years of lies and four years of misdirection.
If the politicians and media refuse to accept the truth then the only intelligent choice remaining is to erect the middle finger in their direction and act as necessary to protect yourself and your family.