Gold News

The Right Way Is Down?

With Europe on the edge, it's hard to see markets heading any other way...

THE SECURITY was unusually heavy at the Eurostar terminal in Paris, writes Bill Bonner, founder of the Daily Reckoning

Police roamed the halls and corridors. Long lines formed as baggage and passports were inspected. In the executive lounge, plain-clothed cops eyed packages...and studied travelers.

Then, in London...on our way to the office we passed a melee of striking cab drivers and electricians. A scuffle had broken out. A man was on the ground, surrounded by Bobbies in phosphorescent green jackets.

Europe is on edge.

"While Rome burns the Eurozone fiddles" says a headline in the Daily Telegraph this week.

At least, things are starting to go in the right direction. The right direction is to let the accumulated wisdom of willing buyers and sellers figure out what things are worth...let them destroy those that are worthless...and raise up those that have real value.

The right direction is to let Mr. Market do it. God knows he causes enough trouble. Let him sort out the mess he makes.

But the right way is not the only way. Obviously, it's not the way the zombies want to do it. They want to fiddle...to meddle...to manipulate the system so that the rewards go to them and the costs are put on someone else. They want to sweep problems under the carpet...and continue spending!

But investors have begun to realize that there was no carpet in the world big enough to hide Europe's government debt.

Not that the debts are particularly huge. Some are bigger than the US. Some are smaller. Generally, European governments tried to provide more and more services by going deeper and deeper into debt. Generally, the US government enticed its own households into debt — with EZ credit, low rates and government-subsided loans for students and housing. And they're both still at it...see below...

In other words, in both Europe and America, government used centrally-planned, bureaucrat-direct zombie capital investment to make up for real growth. And you know how that goes, dear reader.

Today, again, the world's attention is focused on Italy. "Doomed by corruption, bloated by bureaucracy and poor productivity," says the Telegraph. But hey...it could be describing any number of places.

The unemployment rate for people between 15 and 24 in Italy is 30%. Hospitals are overcrowded. Roads have potholes. And the "country has been spending more than it earns for years...." Italy's national debt is 120% of GDP. US debt is 100%.

But at least the Italians are civilized. They have some of the highest tax rates in Europe. They just don't pay them.

Poor Berlusconi. He's being forced to resign. After so many years of public service. So many years of doing his level best on behalf of the Italian people...to create a better government...a better nation...and a better world. And now they cast him out like an empty cereal box. And the popolo minuto look on...gawk...and gloat.

But at least he has a tender shoulder to cry on...and a warm smile to greet him after a hard day's work. The Telegraph reports that the aging politician spent the night with Francesca Pascale, 26. The woman is an angel, for sure...descending from the heavens to succor the embattled Italian prime minister in his hour of need.

But let's not get distracted by Berlusconi's trials and tribulations. We've got a financial crisis on our hands. The Italian 10-year note yield jumped over 7% yesterday. It was at 7.25% when we looked this morning. At that rate, say the experts, it's too expensive for the Italians to borrow. And if they can't borrow, they can't pay their bills — including about 300 billion Euros-worth of debt that they're supposed to roll over in the next 12 months.

Naturally, the holders of the debt are a bit nervous. And who holds it? Banks. That's right. The same banks that bought housing derivatives and brought the whole world's financial system to the brink of collapse. Now, they've got government debt up the kazoo. And once again, the world's financial system edges towards a fall.

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Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

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