Getting to the Core
This has been a dramatic week in many countries and cities around the world although, fortunately and so far, not in Israel. Extraordinary and far-reaching events are taking place across a broad spectrum of geographies, polities, economic sectors and financial assets, but most of them are either not reported or glossed over. Even the ones that are given coverage are often misinterpreted, or are played up at the expense of even more important developments.
Examples? Available by the dozen, but here are a random few:
- The stunning collapse in the prices of gold and silver – between 15-25% in a matter of a few days, the biggest price fall in 30 years, the largest trading volume in gold futures contracts ever — did make headlines and generated a lot of comment. This is essential if people are to be woken from the central-bank induced drugged state (known as “hopium”) that they have been lulled into. But the slump in the price of copper, although by fewer percent and with far less comment, tells us much more about the state of the global economy — especially about that busted flush, the People’s Republic of China.
- The media focus was on Boston, but the bigger story was elsewhere in New England. The mayor of Philadelphia held a private session with Wall Street bankers to discuss asset sales by the city. No press, no public, just the uber-menschen who run America, being consulted over the impending bankruptcy of the country’s fifth-largest city by population…
- China’s reported growth rate came in lower than expected. That’s the official data – but talk to people doing business in or with China and you hear about many domestic firms facing bankruptcy as the bitter fruits of years of excessive investment creating excess capacity fully ripen. That’s apart from the serial environmental disasters and the still-spreading bird flu that China cannot help but report to the outside world.
However, for cultural reasons, most of us are more shocked by developments in European countries than by much worse developments in Asian ones. I saw that in the responses to a recent blog item I wrote about the Dutch real-estate boom and bust. Did you not know that Holland is also a victim of the global real-estate mania? Well, nor did I and it seems that most people are shocked – shocked! – that the stolid, hard-working and sensible Dutch went head-over-heels into massive debt to buy houses – same as the Brits, Irish and Spaniards, perhaps even more so, but who would have thought? I suppose anyone who remembered who it was who created the first documented modern financial mania, something to do with tulips, if I’m not mistaken…
The problem underlying all the symptoms noted above is that the deflationary forces at work in the world are making it increasingly difficult to keep the smelly stuff under wraps. Europe is in the worst state, so it is the furthest down the road to falling apart. The rot is quickly spreading to the ‘core’ countries, as the Dutch disaster shows – and as was illustrated this week by a string of poor economic data from the core of the core, Deutschland. That is where the decisions are taken, so that’s where we should be looking – but even there, it ain’t pretty.
After the German government and its minions in Brussels and Frankfurt imposed draconian terms on the Cypriots, effectively gutting their economy, the German parliament approved the terms of the Cyprus bailout package. However, even the docile German public is feeling increasingly uncomfortable about the endless queue of countries needing bailouts, re-bailouts and now ‘bail-ins’ (that’s when the citizens/ depositors in the ‘rescued’ country are forced to contribute to the supposed salvation imposed upon them).
The Financial Times reported on a poll that found one in six Germans would consider voting for an anti-euro party in the upcoming parliamentary elections later this year. When you realize that in Germany all the main parties are part of the pro-euro, pro-EU consensus, voting for an anti-euro party implies exiting the political consensus altogether.
That sentiment is what a new party, called Alternatives for Germany or AfD, is looking to tap into. Founded by an economics professor, Bernd Lucke, AfD is attracting mainly middle-class conservative Germans who are increasingly unhappy with Mrs Merkel’s policies in Europe – but for the opposite reason that the Greeks, Spanish and others are unhappy with them.
For the next few months, along with everything else going on, keep an eye out for the AfD and its progress, if any. After the Italian people rose up in revolt against the European elite and its fanatical defence of the euro, it is not impossible that the trend will spread to Germany – especially if there is another serious crisis within the euro area during the spring or summer.