Last year, German exports rode to a new record, jobs were being created in massive numbers, real wages rose, housing and real estate boomed, the federal budget was nearly balanced, and consumers felt good and spent money. There were moments in 2012 that made people dream of a repeat performance—despite the havoc that the Eurozone debt crisis has been wreaking. But now, the German export machinery is shifting down with an ear-piercing screech.
It has been an onslaught. Eurozone heads of state, top politicians, unelected kingpins, and bureaucratic honchos threatened everyone in sight with the demise of the euro, or promised to do “everything” or “whatever it takes” to save it even if it violated treaties or the foundation of democracy. In between the lines, the mammoth costs of continuing the bailouts or of breaking everything up oozed to the surface. But it got even worse.
Normally we see the gory details only after a firm collapses, like Enron or Lehman, when vultures tear open its guts to fight over shriveled assets that had appeared fat and healthy on paper, and some of them had been written up repeatedly to create—which our accounting system encourages us to do—paper income. Other outfits get bailed out. JPMorgan among them. Yet, they still hollow out their balance sheets. And JPMorgan’s soon-to-be $7 billion trading loss shows how.
The strongest and toughest creatures out there that no one has been able to subdue yet, the inexplicable American consumers, are digging in their heels though the entire power structure has been pushing them relentlessly to buy more and more with money they don’t have, and borrow against future income they might never make, just so that GDP can edge up for another desperate quarter. But it’s been tough.
It must be infuriating for Mario Draghi, the hapless President of the European Central Bank, to see how masterfully the Fed and the Bank of Japan control their respective credit markets, how they manipulate them for the benefit of the banks, and how they’re allowing their governments to fund huge deficits at near zero cost. Draghi just doesn’t seem to be able to wrap his arms around it.
Hope persists that Germany would not only bail out Spain and the rest of the Eurozone but would also tolerate the Fed-ization of the European Central Bank. Even Treasury Secretary Tim Geithner was hounding German Finance Minister Wolfgang Schäuble, who was on vacation. Yet, Deutsche Bank, Germany’s de-facto vice-ministry of finance whose CEO serves as éminence grise behind elected officials, well, that venerable institution at the core of Germany Inc. appears to be closing the book on Spain.
Natural gas traded at $3.22 per million Btu at the Henry Hub on Monday, a seven-month high, and a jump of 69% from its April low. Breathtaking when you think that a few months ago, the doom-and-gloomers, who’d been right for a very long time, were predicting chillingly that the price would hit zero by the fall, when storage would be full and excess production would have to be flared. But the pains for the industry are far from over.
As a kid in Germany, I engaged in underage beer drinking. I was too young to drive, so it didn’t bother anyone, except me the next day. It was when German beer consumption peaked at 151 liters per capita, the highest in the world. But then I went to America … and German beer consumption took a multi-decade dive. In the US and other Western countries, the beer industry is now morose as well, but it’s booming elsewhere.
The coordinated confidence-inspiring words from the Eurozone’s fearless leaders yesterday and today about doing whatever it would take to save the euro wasn’t about Greece anymore. Politicians have apparently given up on it. Instead, the fearless leaders were afraid of Spain. Its vital signs were deteriorating. It had threatened with default. So the ECB caved. And in doing so, it threw down the gauntlet.
In June, Cyprus had held its nose and requested aid from the Troika, those despised austerity thugs made up of the European Union, the European Central Bank, and International Monetary Fund that have wreaked so much havoc in Greece. This week, these despised Troika inspectors are swarming again over Cyprus. And each time they do, the numbers balloon. How can such a small country blow through so much money? Well….