Europe and America stumble blindly onwards
At some point both the Euro and US debt situations will have to come to a head. As discussed in the last posting on this site, that correction can be rapid and catastrophic, or slow and brutally painful. Either way, the citizenry will have to pay a price for what is now decades of living beyond our means as societies. Make no mistake, corporations and financiers and the well off will not be the people who will bear the brunt of this. Sure, some large companies may go bankrupt and some banks may go bust. Indeed, some families or individuals who invested it all in Greek bonds, or pork bellies or bet that the euro will survive will find their fortunes destroyed – perhaps overnight. But the vast majority of companies and rich folks will have a host of advisers and experts and tax breaks and off-shore holdings and bailouts that will see them alright. If the US Tea Party and the Occupy Wall Street movement were to merge their narratives, we may see the real truth – not as a grand orchestrated conspiracy, but as an organic expression of the way things have just turned out to be.
“Extend and pretend” has had its day, and it has not worked. The idea is that by doing whatever is necessary to keep an economy going, and avoiding a correction/crash/depression, you buy time to let normal economic growth sweep away (or at least diminish) the sins of the past. That can work when a recession or crisis is a simple and normal economic correction. But it cannot work when we have already burned all the matches available to us. Sure we can pretend to make more by manufacturing money, but in the end, unless a growth spurt intervenes, that still renders a price on the general public.
In Europe, the long-awaited and much predicted Spanish crisis is now centre-stage. This is a banking and debt crisis that is eerily similar to Ireland, but has just taken longer to mature. In these days of millisecond financial trades and breathless minute-by-minute accounts of news on our TVs it is easy to miss the longer-run forces that are at play. Like tectonic plates shifting slowly and nearly imperceptively until a huge transition occurs and everyone finally takes note.
Spain, like Ireland and Greece and Portugal and France cannot afford to borrow more to work through the crisis. The UK is now technically back in recession with two consecutive quarters of GDP shrinkage – the much talked about “double-dip” – and this is pointed to as evidence that austerity won’t really work either. In Europe there is now only devil and deep blue sea. All the while the strong player, Germany, continues to make advances and benefits from an artificially weak currency that it will do all it can to preserve except, it seems, pay the real bill for all its recent economic success.
Meanwhile, here in Disneyland (the United States), we will all now spend 6 months in the circus that is the Presidential Election. Sure we will talk about debt, as well as Iran and North Korea and contraception and gay marriage. But nothing will get done, and the US Debt/GDP ratio will continue its inexorable rise. Then Americans will make a choice between two politicians who are actually so similar at heart in terms of policy that it is laughable. Both believe that the visible hand of government does better than individuals. But worse than this, neither has the gumption or the leadership qualities to persuade all Americans of the sacrifices that they will need to make so that the country can live within its means. The richer people will need to pay more in taxes (their tax rates being at the lowest levels in generations) and the poorer folk may be asked to work for their welfare. Healthcare will have to be rationed to deliver maximal outcomes for least money. International military adventure and defense spending will need to be slashed. Retirement ages will have to rise fast and far and benefits to government employees will need to be slashed. People will just have to get used to a lower standard of living and will have to, like their forefathers, return to pulling themselves up by their own bootstraps. It will be ugly. It will hurt people in ways unimaginable. But it is better than any alternative – especially if done quickly before the debt levels are too insurmountable to deal with. Somehow, corporations will have to pay their fair share, having made spectacular amounts of cash (that they are now hoarding) on the backs of decades of taxpayer funded research, infrastructure and education.
This recipe holds true for most Western democracies now. Why does Ireland have a military at all? How can public servants earn so much more than their private sector counterparts, on average, with much greater retirement benefits, given that holding down a private sector job is a much riskier proposition? How can we allow our medical and healthcare systems (socialised or otherwise) to spend massively more on each and every drug and operation and cure whilst people continue to get fatter and more unhealthy through their own personal choices?
Our safety nets will increasingly have to be only for those who have fallen – not those who willfully jump. In the Netherlands or France or Ireland, or even with the appointed Technocrats in Greece or Italy, no-one is able to lead people to these alternatives. Why would the turkeys want to vote for Christmas, after all?
These changes won’t be because we WANT to live in that sort of society – but it will be because eventually that is all we will be able to afford. And even that is true ONLY if we start to deal with the debt problem we face NOW. We are living beyond our means as countries and societies – printing more Euros, Pounds and Dollars does not fix that truth, but makes it worse and only serves to further enrichen the financial sector and the wealthy on the backs of the common man.
The next phase of this evolution in our society will start with the next big triggering event. I would not bet so much on an Iranian conflict or further issues with North Korea. It is more likely one of those slowly shifting tectonic plates. A slow-down in Chinese growth and consumption – removing one of the few positives in the global economy. Certainly, the collapse of the Euro – but I honestly feel that is more likely to help over the long run rather than hurt because it will lance that ever-growing boil, remove uncertainty, and allow a host of countries to “find their own level” quickly.
People need to beat this drum of “living within our means” and “fairer society” without coming off as left or right-wing nut jobs. We need leaders who can persuade people of the need for self-sacrifice in all strata of society who can actually get elected. Otherwise, country-by-country, we will hit the buffers at 100 miles per hour – the consequences of that will be much, much worse than anything I have described above.