Recently by Bill Bonner: Debt
We awoke to
a blizzard. After a few months away, we had forgotten how miserable
London’s weather can be. As near as we can tell, the sun doesn’t
reach this part of the world – at least, not in the winter
months. And the winter hasn’t even begun.
rain – it is all coming down. But Londoners don’t seem
to mind. They trudge to work over their slippery sidewalks…march
over their frozen bridges…
coming over Blackfriar’s bridge, we remembered T.S. Eliot’s
line about how surprising it was that “death had left so many
death gets us all. And not just us… Banks. Corporations. Trends.
Bull markets. Paper currencies. Monetary systems. Empires…
death seems to be stalking the euro as well as the dollar.
rescue fails to appease markets,” says the front page of The
leaders came up with €85 billion that was supposed solve the
Irish problem. It was especially important that it create a buffer
between Ireland’s banking and funding issues and those of the
rest of Europe.
Well, it took
about 24 hours for the buffer to give way. Now, Spain’s bolsa
is in freefall. Portugal’s asset prices are giving way. And
there’s pressure on Italy and even France. Even the biggest
banks are slipping (see below).
Yes, dear reader…and
you thought you had problems.
We had not
paid much attention to the European financial issues. We thought
we had enough to worry about already, what with Ben Bernanke trying
to destroy the dollar and the US going broke.
just the beginning.
announced his program to undermine the dollar, the old greenback
has actually risen against its main rival – the euro. How do
you like that? Bloomberg reports:
gained the most since August against six major counterparts as
concern that Europe’s debt problem will worsen and military
action in Korea will escalate boosted demand for the US currency
as a refuge.
rose against the yen for a fourth straight week, the longest streak
in 20 months, after North Korea shelled a South Korean island
and said “escalated confrontation” will lead to war.
The euro fell for a third week versus the greenback as investors
speculated Portugal and Spain will be the next European countries
to need a financial rescue. The US added jobs in November for
a second month, data next week may show.
euro has further to fall against the dollar,” said Kathy
Lien, director of currency research at online currency trader
GFT Forex in New York. “If there is a war amongst the Koreas,
the yen would fall off aggressively against the dollar.”
with the euro is that it is too good for many Europeans. Everyone
wants a flexible currency these days. That is, they want one that
will act like a good dog…one that will “get down”
off the furniture when it is told to do so.
Alas, all the
currencies are unruly mutts. The dollar won’t go down, even
though Ben Bernanke pulls the rug out from under it and gives it
the old “bitch slap” with the back of his hand. And the
euro won’t go down because the Germans don’t want it to
this doesn’t make the Germans very popular with the Spanish…the
Irish…and the rest of the peripheral crowd. They want a cheap
currency so they can pay their debts. The Germans, on the other
hand, must have a kind of race memory for the horrors of the Weimar
days…when you could take a wheelbarrow full of paper money
to the store and not be able to buy a loaf of bread.
The more you
look at the European banking and sovereign debt crisis the more
dangerous and insoluble it seems. Try to fix one part of the problem
and you make another part worse.
don’t want to pay to bailout the Spaniards…and the Italians…et
banks have nearly half a trillion euros worth of their debt.
The Irish taxpayer
doesn’t want to pay to bail out the banks either. He’s
already facing austerity measures that would choke and appall Americans.
the Obama team proposed freezing federal salaries – that is,
leaving them 50% to 100% higher than private sector wages –
for the next two years.
going to have to budge on some deeply held positions,” said
would save…are you sitting down, dear reader…$2 billion
by the end of 2011. Let’s see, that would cut the deficit by
approximately 3 tenths of one percent…BFD.
government workers already agreed to a pay cut. And now the Irish
feds are supposed to fire 10% of their public workforce…with
another 10%, probably, a few years from now.
How much austerity
will the Irish be willing to take in order to protect banks from
their losses? They could leave the euro…revive the punt…and
shirk their commitments in the old-fashioned way – by devaluing
If the Irish opt out of the euro…the whole shebang could come
euro fails, Europe will fail,” says Ms. Merkel, chancellor
And if the
euro fails…banks fail…companies fail…trade fails…and
then US companies fail…US banks fail…
Who knows where
this would lead? And only we seem to want to find out.
But what to
do? A colleague warns us:
time to save every possible penny. Next year is going to be worse
than 2008 – a lot worse.
- The euro
is going to fail. Ireland, Spain, and Italy’s sovereign debt
cannot be financed.
in Europe and America will make it much more difficult for businesses
to invest across borders. That will result in massive trade
problems and could easily cause a global famine. Most people
don’t realize how dependent the world has become on free
trade for basics, like food. Here’s
what agriculture prices have done since July when QE II began.
Vastly higher ag prices are not bullish for financial markets
or world order.
in the US is going to collapse, again. The various games that
have been played to prop up the housing market in the US have
failed. Tax credits, etc. haven’t worked…and they
never had a chance. I have good contacts in this industry and
it is completely bleak. With foreclosed properties making up
25%–50% of the inventories, housing prices will continue
to fall 10%–15% a year – or more. There will be no
new net demand for homes for a long time. Several major homebuilders
will go bankrupt, including the largest, Pulte.
major US corporations – see GE – have unsustainable
debt loads. These companies will end up bankrupt and will fire
at least 50% of their employees over the next three years.
finance: You guys have seen all of the numbers. Probably half
of the states and munis in the US are being run in a way that’s
completely unsustainable. As these cuts are made it will have
a big impact on the economy. See
what happened to Cisco last quarter, all because of cutbacks
at the local government level.
of 2008 haven’t gone away. We’ve just borrowed a lot more
money to make people think everything would be okay. As the veneer
wears off, there’s going to be a real panic; and this time
it will be worse, because there’s zero trust and confidence
left in the government or the bankers…
were in your shoes, I’d make sure every business unit I controlled
was being run in a very prudent way, with a big-cash flow buffer.
I’d make sure they were ready to cut overhead by 50% in 30
him mail] is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st
The New Empire of Debt: The Rise Of An Epic Financial Crisis
and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets (Wiley, 2007).