We’re All Greece – And On Fire

There’s really not much more to say than this….

Value 1,577.42 One-Year Chart for PIIGS (.GIPSI:IND)
Change 593.840 (60.375%)
Open 1,577.42
High 1,577.42
Low 1,577.42

Source: Bloomberg (click link above)

No, that’s not a stock.  It’s the CDS spreads on the PIIGS (composite), and is up an astounding 60% today.

It’s over folks, despite the protests of BNP, which reacted in predictable fashion to a WSJ “opinion piece” this morning:

‘We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore,” a bank executive for BNP Paribas, who declines to be named, told me last week. “Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore.”

The bank denied it, of course, and the source “declines” to be named.

So what’s the truth?

It’s simple: We’re all Greece.

There’s no material hiring going on in the US, nor will there be.  Not because business wouldn’t like to hire, but because there’s no organic demand with which to require the hiring to take place. As a former CEO I can tell you that hiring is a dispassionate decision: You hire staff to produce the goods or services you sell – and for no other reason.

The Government took upon itself to create false economic demand after 2008 through deficit spending.  Private business knows this cannot continue forever, or you get Greece.  It’s not really very complicated; try using your credit card to maintain a $173,000 lifestyle when you only make $100,000 and see for how long you’re able to do it.  That’s what our Government has sequentially done for three years running from 2008-2011.

Every businessperson with an IQ larger than their shoe size knows that this path forward will – because it mathematically must – fail.  They were willing to accept a short-term incidence of this back in 2008, because that’s exactly what they believed it would be – a very short-term phenomena.

But now, in 2011, it’s clear that it isn’t a short-term phenomena.  And as a consequence there is no hiring going on, because this Ponzi must end, and when it does these businessowners know the outcome will be horrific.  They do not intend to get caught not under the falling knife, but the falling grand piano.

The President and the Republican candidates can claim to have “plans” or want “stimulus” or whatever.  The fact is that none of this will work.  It will not work because the claims of “deleveraging” and “balance sheet repair by consumers and households” is a lie.

Source: Federal Reserve Z1

De-leveraging and balance sheet repair?  Where?  Total consumer and mortgage indebtedness is only back to 2007 levels (when we hit the wall and we had a much-lower unemployment rate.)

The often-repeated claim that balance sheets at the consumer level have been “repaired” is a bald lie, repeated nearly daily in the media, in an outrageous and puerile attempt to goad both consumers and businesses into taking economically unsound steps.

This strategy of lie, lie and then lie some more has failed.

The only actual fix is to truthfully de-lever.  This means not supporting the bankrupt, other than shepherding them through the courthouse door where their bankruptcy proceedings are heard.  It may mean some sort of expedited process for bankruptcy, which I’ve advocated for quite a long while.

We need to remove one half of the total credit market debt in the system in the United States alone.  There are only two ways to do it – default and/or pay it down, or grow fast enough without taking on any more credit that the percentage of GDP represented by debt declines.

The latter is not going to happen because the entire last 30 years of our so-called “growth” was a Ponzi built upon more and more debt everywhere.  Yes, during Clinton, yes, during Bush (pick a Bush), yes, during Reagan.

This is the truth whether you wish to hear it or not.  Whether you wish to face it or not. And until we as a nation and the world as a whole stop playing pyramid games with debt there will be no actual and functional recovery.

We used currencies, offshoring and other means of market manipulation to cover up that which could not work on a sustainable forward basis.  We built the pyramid ever-higher, driving asset prices to the moon, and yet none of these “asset price” gains were real and underpinned by actual returned cash earnings.

The check is on the table folks. Europe was just as profligate as we were, and their banks were just as immature in their “analysis” before buying up debt – that is, lending people money who had no prayer in hell of ever paying it back.

This is the same game that was run in the 1980s, the 1990s with the Internet bubble, and then in the housing bubble in the 2000s.

In the 1990s when I ran MCSNet the claim of “trees grow to the moon” was predicated on the Internet doubling in size every three months.  This was true for about a six month period immediately following the introduction of Windows 95, which was the singular event that brought Internet access to the mass-market.

From that point onward it was a knowing and intentional lie.

Yes, penetration continued to grow and yes, the network continued to expand, but the explosive doubling pattern happened on the original “uptake” and then ended.  It had to, because if it had not every bacterium on the planet would have had internet access within a bit more than a decade.  This, again, is mathematics.

There were literally thousands if not tens of thousands of people who had access to the core routing tables and data flow rates that knew the claims being made were lies, myself among them.  Sure, as the type of data being moved went from plain text (Gopher and embryonic HTTP) to images to sound-and-graphics and then full-motion video the data requirements continued to grow but the fanciful claims of doubling every three months simply couldn’t have gone on for more than a couple of years because the following is what would have happened:

16 < End of first year
256 < End of second year
4,096 < End of third year (!)
65,536 < End of fourth year (!)
4,294,967,296 < End of eighth year (!!!!!)

Incidentally, that last figure is approximately (within one additional three-month period) the number of people on the planet.

This is the problem with exponential (compound) growth.  It’s inherently a pyramid scheme and inherently must, at some point, end.  It must end because eventually you run out of ability to sustain it – you run out of suckers and the pyramid collapses.

This always happens because it mathematically must happen.

When debt grows faster than output on a compound basis the two curves inevitably run away from one another and must always result in a collapse.

This is not a political issue, it is not a left or right issue, it is a function of simple mathematics.  Those who were IPOing these businesses in the 1990s and who were building and selling houses into the ramp in the 2000s were simply believing that they would unload the bag on you before the leverage pyramid in that particular part of the economy fell over.

That’s all the last thirty years was folks, and now we’re desperately scrambling on a global basis to find just one more sucker.  To obtain just one more hit off the crack pipe.  To stave off death just one more day and draw one more breath.

Can we pull that off/  Maybe, for today.  Maybe, for tomorrow.

But on a forward, sustainable basis?

There the math is clear and so is the answer: NO.

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