With his most recent newsletter release, "Staring Into The Abyss", Mauldin has long abandoned any talk of "muddle through" but still he writes things that just completely miss the point. He wrote the following commentary and I have added my responses in red:
Europe has three main problems.
1. A growing number of its countries are insolvent or close to it. It is increasingly likely that the only way forward is for defaults of some type, to lessen the burden of debt to a level where it can be dealt with and that will allow the countries the possibility of growth, which is the only real answer to the problems they face.
John, I hate to tell you,but all countries are actually insolvent. Globally. Even the ones who don't show a lot of debt on their books. This is the natural consequence of a fraudulent global money supply consisting of fiat currency and credit (a proxy for fractional reserve banking). What we are seeing is a rolling admission of insolvency. Those who can cover up the fact are doing so. Those who cannot are defaulting. The more that default, the more will default. The admitted losses have to be eaten by someone. The big exporters claim to have lots of cash but it is all denominated in funny money. As the currencies of the world serially default and people return to gold as the only real money that ever existed, how much wealth will really exist? Is Germany rich because Greece, Spain, Portugal, etc. owe it money? I think not! Germany's prosperity is nothing more than a vendor finance scam whereby an exporter "sells" things to someone else not for money (gold) but for debt (fake money). When the debt collapses, those who thought themselves rich will be as Madoff victims: rich on paper one day, paupers the next. The whole world is infected with a fraudulent money supply and so the whole world will suffer the eventual collapse.
Furthermore, you suggest that defaults occur to lesson the level of debt with the goal of this being to allow more "growth". What you really mean is growth through debt. Forgive the debts in order to increase the credit worthiness of the debtor thus enabling him to borrow more again so that he can default on it again in the future. A ridiculous number of people think this makes any sense at all and it's disconcerting to see someone as smart as you spewing this same gibberish. If they can't afford to pay their debts they need to default and then not borrow again in the future. Anything else is just supporting the boom-bust mentality that concentrates wealth from the workers into the hands of the moneymen while trampling on peoples freedoms and privacy (the latter being part and parcel of the police state needed to control the angry masses who got screwed by the boom-bust con).
2. Because of growing fears of multiple defaults (just Greece would be bad enough!) most of the banks in Europe are seen to be insolvent and in need of hundreds of billions of euros of new capital. The interbank market in Europe is in a shambles, and banks park their cash with the ECB, at a lower rate of return, as that is the only institution they trust. They clearly do not trust each other. As an aside, I heard from many sources while I was Hong Kong and Singapore, meeting with readers and friends, that European banks (especially French) are cutting back on their trade lending, which is making normal commerce more difficult. Didn't we just go through that in 2008?
Growing fears??? How about mathematical certainties!!! None of the "fixes" suggested actually fix anything. All they do is restructure the existing debt and extend it forever. Nobody is going to accept that. No new generation is going to buckle under and work their whole lives paying off the debts of the dying generation. Because of the growing realization of these truths, there are no more good bets for lenders to make and so they are looking at how to reduce their loan portfolios. The Keynesian bull$hit about using new debt to "outgrow" existing debt and debt interest payments is proving to be exactly what the Austrian school has always claimed it to be: a scam. Anyone who believes that something for nothing is a real strategy should invest in perpetual motion technologies whereby you get something for nothing. It's just not real anywhere outside of the Keynesian mind.
3. The real problem in Europe is the massive trade imbalances between the peripheral countries and the so-called core countries. Without the ability to adjust currencies, those trade imbalances will render any debt solution moot, as a country cannot balance its budget while it runs a trade deficit and its citizens and businesses also deleverage. I have written about this arithmetic problem on numerous occasions. There must be balance or there must be a mechanism to achieve balance.
John, the ability to adjust currencies was never anything more than a soft default mechanism. Why can't you see that? The Euro was driven by the big exporting nations (Germany and France) so that they could sell stuff to others which others could not afford and then NOT be subject to having those debts inflated away. By Euro-denominating the debts, the big exporters chose hard default over soft default.
The real problem in all this is the fraudulent model of exports as a way of making a profit. That is not the function of exports!! Thus it cannot work. Exports are just half of the trade. You also have to take in imports that balance the equation. If you export more than you import for very long then you will soon find that those receiving your exports rack up such a debt that they can never pay it.
What cannot happen will not happen. The only real, economically truthful use of trade is not to make a profit but rather to diversify consumption. Period. Anything else is an unsustainable scam. It will appear to work for awhile but then it must at some point collapse. And when exporters borrow money in order to build production capacity that can only be paid for by the consumers of that capacity using debt, it is a double scam. It is a mathematically unsustainable get rich quick scheme by the elite. They have access to unlimited credit which they use for expansion. The production output of this expansion can never be consumed by the producer and so they export it and accept IOUs in exchange for their production. If this is a matter of policy (as it certainly is globally) then the debt will never be repaid and at some point the whole scam will collapse.
You rarely see real logic from economists and analysts. Some of the honest ones just don't get it but many others are scam artists who know that telling the full truth is not good for the scam. Once people figure out the truth they will demand a return to honest money. The scammers know this will eventually happen but any con man wants to extend the scam as long as possible. By diving into a bunch of details it is easy to distract even the most intelligent members of the audience. That is why these analysts love the details so much. By focusing on details which are themselves built upon shaky ground the authors can arrive to whatever conclusion they want to. Once they are misleading the herd like this, even smart people can be made to repeat things like "the gold standard is restrictive to growth" or "we can never return to a gold standard". I plan to expose the basic ignorance of both of those statements in future posts.
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