John Mauldin of Thoughts from the Frontline writes a powerful weekly email on economic and investment themes to which one million people have subscribed.
As have I.
Because it is free.
His latest one is superb, disentangling different expert pessimistic and not-so-pessimistic analyses about the problems of the Eurozone, Greece and Spain in particular.
What I liked about this essay was the way he looked hard and fairly at rival views of unquestionable professional integrity, trying to find common ground and exploring the deeper reasons why they diverge.
He writes with tight precision:
… the valuation of the euro is not in and of itself a reason for the euro to disappear. At one time it was $.82. Then over $1.60. All currencies fluctuate, some more than others. What destroys them is political malfeasance.
What would put the euro at risk of a bad political decision? A Greek bailout without serious conditions would be the one thing that could be a very bad start to a downward spiral. If Greece is bailed out, then why not Portugal or Spain or Ireland? What about the emergency room crisis that is Austrian banks?
The line has to be drawn, and it has to be a hard line.
On Spain he quotes another top analyst, Ray Dalio:
… Spain’s external debts, have exploded without a significant offset of external assets. On net, Spain owes the world about 80% of GDP more than it has external assets.
As a frame of reference, the degree of net external debt Spain has piled up in a currency it cannot print has few historical precedents among significant countries and is akin to the level of reparations imposed on Germany after World War I.
We don’t know of precedents for these types of external imbalances being paid back in real terms.
Heavy stuff. Don’t subscribe unless you aren’t feeling weak.
Meanwhile Soeren Kern at Pajamas Media explores how the leftist Spanish ruling class are blaming Anglo-Saxon economics for their rotten situation. And, that old stand-by when you have run out of intelligent things to say, conspiracies:
“Spain is the victim of an international conspiracy to destroy the country’s economic status, and then, the euro,” he said. “Nothing that is happening, including the apocalyptical editorials in foreign media, is just chance.”
Well, that is true. Hard to imagine articles in newspapers and magazines about Spanish recklessness being created by ad hoc atoms of ink randomly settling on the page.
But it misses the main point. Namely this staggering graph in the WSJ showing why for some 40 years the USA’s federal government too has been on (and remains on) a reckless binge:
The small cheer in all this horror is that the US Democrats, main drivers of government profligacy, are running scared. The Tea Party tendency is focusing hard on this issue, to fine effect.
It is only a small cheer. Since the scale of the problem is now so daunting that it is hard to see good options for dealing with it. Stephen Spreuill looks at what the Republicans might include by way of policy ideas to start the decades-long trudge back to sanity.
What goes up, goes up and up and up before there is a crash or a total breakdown, when it comes down. The Eurozone is inherently less rational a phenomenon than the dollar, and so it will face its existential crisis sooner.
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