This quote is all you need to know about the future of the Eurozone.
“Are we looking at a scenario where the euro zone can successfully overcome the crisis and move towards a highly dynamic growth cycle supported by healthier bank balance sheets as in the US? No,” she said.
It is unlikely that the Eurozone will ever achieve the sustained economic growth necessary to end the Eurocrisis. Therefore, the current plan of trading aid for suffering will continue indefinitely until either the benefactors or recipients of aid grow weary of the current arrangement.
By the way, in my experience a reliable harbinger of the onset of a crisis is people’s belief that one is not possible.
The German plan for Greece is simple. The Germans give the Greek government just enough euros to keep it in power in exchange for imposing suffering upon its own people, which is political cover for this spending.
Spreading fear among voters throughout the entire Eurozone is also part of the plan. The politicians tell them that Grexit will create a catastrophe, and it certainly will for Germany and the FANG.
The Greeks will adapt quickly to a new currency with growth commencing almost immediately as foreigners take advantage of the new Drachma to go on an exotic vacation, use Greek shippers and purchase more Greek products. Unfortunately for Greece, a majority of voters still believe in the Euro, which means that the country has been sentenced to a further decline with the potential of an extremist government taking over one day. As long as Greece remains within the Eurozone, it is doomed to depression. While this aid keeps it afloat, it is insufficient to ameliorate the penalty imposed by Greek membership in an ill-fitting currency union.
In the meantime, the German plan will endure. In exchange for additional aid, the Greek government will continue its cuts, which curiously do not affect the upper, political classes. After raising the VAT, introducing a new real estate tax and cutting services to the bone, you would think that the Greeks do not have any more money. You would be wrong. The next tax will be on deposits in Greek banks, which will be levied in exchange for debt forgiveness sometime after German elections.
The reason why most people believe that the recession never ended is because it hasn’t. The traditional definition of a recession is two consecutive quarters of declining GDP. Actual people are not concerned with national income; rather, they are concerned with their own income. As today’s Chart of Truth illustrates, by this measure the vast majority of Americans are not doing so well Median income is still down 8% from its peak in early 2008 over four years after the official start of the “recovery.”
Jobless claims, confidence surveys, housing sales and any other figure used to support the recovery narrative do not matter. All that does is the chart. As long as Americans are not making the money they used to, the economy will remain depressed as evidenced by poor results first from Wal-Mart, now from TGT.
Holders of 10 year treasuries have been murdered since the beginning of May. These bonds have lost 40% due to the move in rates. The market is oversold, so maybe Mr. McDonald is correct and we’re due for a reversal. However, before blaming the whole swoon on the taper, note that the Chinese were busy reducing their T-bill holdings throughout the last few months. Continued liquidity issues in China are partly responsible for the drop. When people need cash, they sell the good stuff first and no one will give you money for an empty apartment in an empty city in the middle of nowhere.
The mainstream media loves it recovery narrative so much that it even uses it in China. Today, the HSBC Flash PMI showed that China was barely growing with a 50.1. In the new normal, stagnation is something to be proud of. As usual, journalists around the world have declared this to be the start of an expansion, maybe even the 2nd Chinese Miracle. Reality is much different, as it always is. The blue circles in the chart above show the last two times that the PMI rose above 50 You can look to the right of the circles and figure out what happened next yourself.
The Eurozone is not recovering. Sure, some economic indicators no longer look awful, but today’s Chart of Truth—Euro Edition shows the true state of the European economy. Employment rates stagnate in Germany while they shrink in the rest of the Eurozone. Workers spending their hard-earned money are what make the economy go round. As long as incomes fall, Europe’s economy will not recuperate, and the Eurocrisis will remain in danger of metastasizing into the next market meltdown.