Pardon my facetiousness in today’s header. It just seems so ridiculous to read these daily scary headlines. In all of the current headlines, it seems as if we lurch from crisis headline to crisis headline.
It’s Not the Greeks Now, It’s the Italians
Think about the headlines over the last several months. Hardly a week passes without the financial newspapers screaming about the latest threat to our civilization. These scary reports are getting so real and so so seemingly devastating, that these headlines have moved from the financial pages of newspapers to the front pages of newspapers.
They make such good copy and THEY SELL NEWSPAPERS.
What is Really Happening
Do you really believe that the sophisticated people that run Germany, and France, and all the other countries in the EU just are failing to see what should be done, as our newspapers suggest? Perhaps you think that the editor of the Calaboose Weekly Journal published weekly in Calaboose, USA knows more than these European leaders what is to be done to solve this problem.
What is really happening is the forcing of economic reality upon those weak political leaders who would rather spend and get re-elected, than apply common sense which might be unpalatable to their voters. So the crisis, and the last crisis, and the next crisis, gets protracted and drawn out as the respective leaders are forced to face reality.
It just takes time.
Another view is that the European leaders are not so stupid as the American leaders. They are reluctant to shower Billions and Trillions of Euros on their banks, unless they have some assurances as to what will happen. I think they remember the obscene bonuses in the Hundreds of Millions of dollars taken by the American Bankers to reward themselves for outwitting the American politicians and stealing the peoples’ money.
A Strange Effect of the US Paralysis
In the Good Old US of A, a similar thing is happening, although of different sources. Because of the Tea Party who refuse any Income Tax increases, and of the Republicans who wish to block anything a black man does as president, the paralysis wrecked on Washington, has had a real effect.
The general mood is now that the debt must be reduced, spending must be reduced, and economic sanity must be brought back. It is true that Obama has had the roughest ride of any American President in history, but perhaps the long term effect is to bring sanity to the process through gridlock.
In Case You Haven’t Noticed, The World is Continuing
– Gold continues to shine, metals have fluctuated in price but remain at much higher levels than a few years ago.
– American companies have record profits.
– Unions are becoming more reasonable.
– Football players are being paid enormous bonuses, which usually cause them to screw up and become less productive,
– the World Series played to sell out houses
– Even US employment figures turned slightly positive
The world is continuing, in spite of the headlines.
Bubbles, Imbalances
When you look at the problems facing the world, America’s are easier to fix than most.
It would surprise few to imagine Europe having a harder decade than the U.S. A Greek default is a given and may drag down Portugal, Spain and, in the worst case, even Italy. Europe may be lucky to get away with just one lost decade, but Europe will continue.
China, also will experience its share of setbacks compared with the U.S. Some are well-known, including inflation that fans social unrest and a financial crisis erupting as the massive stimulus of 2009 comes back to haunt Beijing. All that investment created the illusion of economic vitality. Too much of it was funneled into unproductive sectors of the economy, setting up China for a banking meltdown.
Inflation China
By tying itself to the dollar and amassing more than $3 trillion of currency reserves, China essentially merged with the U.S. financial system. When the Fed pumps money into the economy, it inflates China more than America.
China is only now realizing the extent to which it surrendered sovereignty to the U.S. As the Fed adds more cash to markets, China’s inflation becomes more entrenched and Beijing loses even more control. Over time, this dynamic will harm China’s competitiveness more than if Beijing had allowed the yuan to strengthen, as per the U.S.’s demands.
As I have repeated so often, for all of its troubles, the U.S. has inherent strengths: It’s home to many of the world’s top 20 universities; it has institutions that may still get their act together in ways Europe can’t; a fertility rate that exceeds deaths, meaning America can ultimately outgrow its debt — unlike, say, Japan and Europe.
Most important of all, the USA has the rule of property law and common law that protects American society and allows for unhindered growth.
The Conclusion
Don’t be misled. Markets are depressed now and stocks are cheap. They will create a lot of wealth in the future.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.
