A pact with the devil—that’s now the official metaphor for the European Central Bank’s “unlimited” bond purchases that are supposed to save the Eurozone. Bundesbank President Jens Weidmann himself referred to it when he discussed the “dangerous correlation of paper money creation, state financing, and inflation.” But it’s too late. Germany has cracked in two. And part of it has embraced that pact with the devil.
There has been anecdotal evidence. But now GE’s quandary confirms it: the toughest creature out there that no one has been able to subdue yet, the inexplicable American consumer, has apparently accomplished a miracle: putting the screws to runaway health-care costs that are taking over the economy and that are bankrupting the country. Motive? Profit.
What got lost in the escalating Japan-China scuffle was an unassuming national holiday in Japan on Monday that symbolizes in the most respectful manner the slow-motion economic tsunami rolling over the country: “Respect for the Aged Day.” And this time, the young generations are paying the price.
When the German Constitutional Court nodded with a stern smile on the ESM bailout fund and the Fiscal Union treaty, the world, or at least the politicians at the top, breathed a sigh of relief. After months of verbal warfare, the German revolt was over. But steam is billowing once again from the rusty pipes of the Eurozone. This time in France, where the Fiscal Union treaty has been silenced to death—and it could blow apart the whole construct.
Dizzying QE gobbledygook is upon us once again. It would restart its big 480-volt money printer, in addition to the desktop machine it had been using recently, the Fed said, in order “to help ensure that inflation, over time, is at the rate most consistent with its dual mandate,” namely “maximum employment and price stability.” Thus, more inflation magically creates more jobs, and “price stability” requires more inflation in order to become more … stable maybe?
When French and Dutch voters were given an opportunity to vote for the European constitution in 2005, which would have transferred considerable sovereignty from their countries to the European government and its unelected bureaucrats, they “unexpectedly” killed it. An unforgettable lesson for politicians: don’t let the riffraff decide. Such matters are best handled by the elite—politicians, bankers, and unelected bureaucrats. And on Wednesday, they were busy handling such matters.
It’s been an unrelenting process. Survey after survey has shown that wages haven’t kept up with inflation since the wage peak in 2000. Families earned less at the end of the decade than at the beginning, a phenomenon not seen since World War II—the process of hollowing out the middle class. But now there is a new phenomenon: the unmentionable class, the class that doesn’t exist in America, is ballooning.
France is mired in a stagnating economy. The private sector is under pressure, auto manufacturing in a depression. Unemployment hit a 13-year high. Over 3 million people are out of work. Youth unemployment of 22.7% belies the catastrophic jobs situation in ghetto-like enclaves. Gasoline and diesel prices are near record highs. So there are a lot of very unhappy campers. And it could turn ugly.
Hope was once again in vogue Thursday night in President Obama’s acceptance speech, after having gone the way of the green shoots. Hope has been swirling around the financial markets as well. The Fed keeps dangling QE3 out in front of them. And ECB President Mario Draghi injected a mega-dose of it with his bond-buying promise. It goosed the markets even more and powered them to multi-year highs. Then came the jobs report.
The Republic of Cyprus, with its 840,000 people, has been in the Eurozone for less than five years. It and its banks burned through mountains of euros faster than anyone could count. Now they need a bailout whose magnitude balloons every time someone blinks. Yet, Cyprus has something other Eurozone debt-sinners don’t have: Russian money flowing back to Russia!