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Brutal Austerity Leads To… ?

24 November 2010 8 Comments

We’ve been saying for months now to wait for Europe to continue it’s unraveling, and Ireland has finally decided to re-commence the decline in the European economy.  The European Union is completely unsustainable and it is only a matter of time before everything economically changes on that continent including the currency.

While Ireland has the headlines for now, there are strikes going on in Portugal over austerity measures and of course Spain is still in the batter’s box waiting to step up to the plate and finish off Europe once and for all.

So, we learned the measures that Ireland is taking in order to accept the large bailout.  It includes massive cuts in spending and government jobs in conjunction with massive tax hikes.  In other words, pain.  In other other words, lower standards of living across the board.

Welcome to the 21st century.

So, the question now becomes – and frankly this is a larger, global question – is how to the people of Ireland deal with these measures?  Do they riot?  Do they accept them as harsh, but necessary measures?  I’d bet on the former, not the latter.  After all, in today’s world, bailout is the preferred B-word, not buckle down.

So, the larger question here that refuses to go away despite people rolling their eyes at you and/or writing you off as “extreme” is where is all of this leading?

Anyone with a clue knew when Greece was bailed out that not all was fixed.  Just like anyone with a clue knows that the United States faces massive, structural issues that are being completely unaddressed.

So, again where is this leading?  Will the United States be forced to implement austerity measures at some point?  Probably, but don’t expect the public to embrace it nor the politician to lead the charge.  It’ll be forced by the market or the world.  You saw how the public and the politicians on both sides reacted to the recommendations of Obama’s debt commission – which was essentially a recommendation of austerity measures like Ireland is putting in place.

We have a global economy dependent and built upon continuous expansion.

A union chief in Ireland said the austerity measures would put them back in the stone age.  They need a pro-growth agenda, not cuts!  Question: what if there is no growth to be had?

Real growth does not equate to debt expansion, which is essentially is the growth we’ve had in recent years.  Expand or die.  You saw what happened when the expansion stopped in 2008.  Rumors of complete meltdown! Money markets dying! etc etc.  We’ve been able to create phony expansion since then with fraudulent growth via the Fed.

The seeds of unrest are spreading across much of the developed world.  They are there to be seen if you choose to open your eyes.  Greece, France, Portugal, now Ireland.

The United States can keep the game going longer than any other nation because of the reserve currency status and the military.  But the market forces cannot be beaten, they can only be delayed.  What happens when trillions of dollars being printed no longer continues the delay?

This my friends is the golden question, and potentially the most important question of our lives.  What happens when the ponzi scheme economy is unable to be extended any longer?  We all know that ponzi schemes ALWAYS end.  Ours will too.

What happens when it ends?  How will Americans react?

Do they riot?  Do they accept them as harsh, but necessary measures?  I’d bet on the former, not the latter.  After all, in today’s world, bailout is the preferred B-word, not buckle down.


  • TaJ said:

    The problem of course being that the whole world can't be austere at the same time without triggering a global depression. So, global depression is probably what we're going to get unless China is willing to run huge trade deficits and take our place as the global debtor nation.

  • David said:

    Well, the bubble will burst anyway, it's a matter of time. The earlier the better.

  • Joe said:

    not a new idea, but what if it' is all psychology? is paper worth anything? only so much as it can provide fuel for a fire to keep us warm. Well then, gold must be worth something, right? No, i can't have sex with gold, and i can't eat it, or breath it. gold is only worth something because we say so… and by we, i mean global society.

  • 20smoney said:

    Joe, yes, but all fiat currencies have failed ultimately, and gold has been seen as a store of value for thousands of years. Gold has limited supply versus money that can be printed, but yes I see your point.

    Now gold is just a small part of this article. TaJ i tihnk hit it on the head in the above comment. the two words global depression are the right words….. my opinion of course

  • David said:

    I would love to see the Europe Union going down. I have no sympathy toward them at all. Those guys have been living beyond their means for many many years. Now it's pay back time.
    It's funny that liberals like Nobama still wants to move US towards European way.

    Given the fact that American are protesting because US government is spending too much money while European are protesting because their government is cutting the spending, I feel lucky that I am still loving in US.

  • TaJ said:

    Americans are protesting the US government spending money on other people. The moment one of those "austerity" protesters in America has their own benefits threatened they squeal like the most petulant Greek public sector unionist.

    Don't think I'm fond of the EU, mind you. They're basically attempting to abolish sovereign governments by fiat without the consent of those they're governing. To say nothing of the foolishness of their economic policies. I could go on all day about the reasons I dislike the EU.

    But people in the US who really believe in austerity – who are willing to see their OWN taxes rise or their OWN benefits be cut along with everyone else's – are rare indeed. Laugh it up while you can. But the joke's on everyone in the end – everyone who's not a banker anyway!

  • @FinancialPlan said:

    The message I get from the European mess is that countries that are mis-managed by borrowing and spending too much must meet their reckoning because of the EU. They can't print their own currency because the EU Central bank controls that. Unfortunately for the US we can print and issue debt in our our currency, which means that our day of reckoning can be delayed for much longer.

    Or, if the Fed can somehow magically orchestrate a recovery and pull back all that money then there is a way out. We've been here before, in the 1970s inflation was high and a gold bubble was created. We'll see, as every time it's always 'different'.

  • 20smoney said:

    The Fed has created a situation where if they pull back at all, ever, they crash the economy. All-in baby.