- With pressure building on Europe and America, something's
got to give. Progressive Radio News Hour regular Bob Chapman says Germany's
Angela Merkel and France's Nicolas Sarkozy search for solutions that don't
- Nothing's agreed on to be implemented. Austerity weakens
failing Eurozone economies. French and other banks are selling bonds. Yields
are rising. So isn't economic, financial and political uncertainty.
- Europe's in disarray. Germany printed Deutsch Marks just
in case. It "has to come to terms with cutting loose six loser countries.
That means leaving the euro and perhaps the EU. We see no other choice
in this unnatural" union.
- "The future of the euro zone is sealed." By
fall 2012, "there will be six less participants." Europe's economy
will have negative growth, worsening in 2013. Other Eurozone countries
will be forced out. In two years or less, "the euro is history."
No one knows how bad things will get. They do know today's crisis won't
- New Greek and Italian governments can't resolve intractable
issues. Of concern is how much more austerity can people take before exploding.
- At the same time, Eurozone and US leaders are whistling
past the graveyard. Perhaps they didn't notice bond market contagion affecting
highly-rated countries like Austria, the Netherlands and Finland, indicating
worsening crisis conditions.
- A recent Bank of England quarterly Inflation Report also
was downbeat, saying:
- "The prospects for the UK economy have worsened.
Global demand slowed. And concerns about the solvency of several euro-area
government intensified, increasing strains in banking and some sovereign
funding markets. These factors, along with the fiscal consolidation and
squeeze on households' real incomes, are likely to weigh heavily on UK
growth in the near term."
- In 1998, even Alan Greenspan once was right, saying:
- "It is just not credible that the United States
can remain an oasis of prosperity unaffected by a world that is experiencing
greatly increased stress."
- Compared to now, it was mild, yet enough to be worrisome.
Today, global alarm bells should be sounding.
- Europe's debt crisis needs $6 - 8 trillion to resolve,
an impossible amount to raise. Bailing out Italy and Spain alone would
bankrupt solvent states.
- European banks are threefold over-leveraged. Europe's
an accident waiting to happen. In fact, it's unfolding in plain sight.
Failed bond auctions show it. European Financial Stability Facility (EFSF)
bond sales were postponed for lack of interest.
- "Europe is the catalyst, and eventually it probably
will take the financial system down." Germany and France are discussing
a Eurozone breakup to let six weak countries exit the euro, but stay in
the EU. All rescue measures tried so far failed.
- Bond yields and spreads off bunds say France no longer
is AAA. However, if lost, EFSF firepower will seriously erode. Sentiment
across Europe signals downturn.
- The San Francisco Fed said "(p)rudence suggests
that the fragile state of the US economy would not easily withstand turbulence
coming across the Atlantic. A European sovereign debt default may well
sink the United States back into recession."
- European economies are drowning in debt. Adding more
worsens conditions. America's AAA downgrade shows even sacred cows are
weak and unsafe. America's lost decade continues.
- Total US employment at 131.5 million is lower than in
April 2000. Since then, labor force numbers rose 12 million. Population
figures increased 28 million. Employment gains have been dead for 12 years.
- Real personal income at about $32,000 is at December
2004 levels. Home prices match earlier ones in 2003. Since January 1999,
stagnation stalled the country economically. For the first time ever, 5
and 10-year inflation-linked bond yields (TIPS) are negative, signaling
protracted trouble, perhaps for another decade.
- Combined consumer spending, housing, capital spending,
commercial construction, inventories, net exports, and the government sector
comprising demand are weak.
- Housing has too much supply. European weakness will curb
exports. State and local governments keep downsizing. Washington's turn
is coming. Household net worth is $6 trillion lower now than at pre-recession
highs, an unprecedented occurrence over a four-year period.
- Home prices are down 35% from peak highs. Expect the
savings rate at 3.6% to more than double. Focusing on debt reduction is
key. Deleveraging decreases debt, increases savings, and shifts household
budget priorities to necessities. Frills can wait for better times.
- The 2002 - 2007 parabolic credit expansion capped three
expanding decades. Conditions now reversed and continue down.
- On November 23, push meets shove fiscally. Twelve Super
Committee congressional members have to decide ways to trim $1.2 trillion
through a combination of tax hikes and spending cuts. Both sides are deadlocked.
- Politico says "failure (to agree) could shake confidence
in world markets and spark automatic cuts across the federal government
starting in 2013."
- Few observers see resolution. Even if achieved, no one
believes Congress will concur. Its choice is vote up or down on the package
with no amendments. As a result, expect another US debt downgrade.
- Greece experienced something similar. Portugal's turn
is coming. So is Italy's and Spain's. France may be next. French bonds
plunged. Insurance costs (credit default swaps) on them skyrocketed.
- In fact, the cost of insuring French debt against default
tripled its 2008 peak level. Insuring $10 million in 5-year government
bonds costs $203,001. In contrast, insuring the equivalent amount of Greek
debt in November 2008 was $174,761. Markets today say French debt is riskier
than Greece at the onset of its crisis. At issue is its insolvent banks.
- Yet France is still rated AAA, far higher than Greece's
single-A rating then. Who's right? Bet on markets, not Moody's. Eventually,
rating agencies catch up.
- Days ago, S&P told private subscribers that France's
AAA rating would be cut. French government outrage got S&P to back
- Debt issuers pay rating agencies to grade them. Ratings
are bought and paid for by the institutions being rated. Downgrading France
means others on French banks. Conflict of interest challenges corrupt both
- Moreover, lower rated French debt would halt government
ESFS contributions. Doing so could collapse Europe's rescue plan, already
- Sick Europe depends on France and Germany. French banks
hold the bulk of bad government debt. The country is burdened with bailout
pressure and its own debt to refinance.
- Greece's crisis shook global financial markets. France's
economy is eightfold larger. Imagine calamity conditions if it collapses.
It also holds for Italy and Spain. If any of them go down, so does Europe,
then America, then global economies.
- Europe is the epicenter of economic crisis spreading
everywhere. Resolution is nowhere in sight.
- Hunker down for protracted hard times. They're exacerbated
by further austerity cuts when stimulus is urgently needed.
- A Final Comment
- A mid-November Organization for Economic Cooperation
and Development (OECD) report forecasts further economic slowdown.
- Its September composite leading indicators (CLIs) predict
trends six months ahead. They show weakening North American, European,
Asian, and South American economies.
- Seven consecutive CLI declines signal deepening global
trouble. A separate Eurostat report said Eurozone industrial production
plunged 2% in September, the largest monthly decline since September 2009.
- Major central banks recently downgraded their growth
forecasts, including the Fed, ECB, Bank of England and Bank of Japan. More
austerity cuts assure deepening today's Depression.
- Perhaps when it's too severe to ignore, pundits, technocrats,
politicians and central bankers will acknowledge what they try hard to
- Stephen Lendman lives in Chicago and can be reached at
- Also visit his blog site at sjlendman.blogspot.com and
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