Life comes with an expiration date, only we don’t know it. Everything in life expires as well. In the world economy the time has come, for the end to a means (maximizing growth with easy money and easy credit). A means of achieving a laudable end (super-welfare states, unlimited credit, and two cars and houses per middle income family). A great end. Yeah! I know the reader loves that “end”. We now think happiness depends on the make of your car. We can’t do without our BMW, or can we?
Don’t be upset. The end to a means doesn’t mean it is the end of “the end” (perpetual prosperity) itself. There are other means we can use to achieve it (depending on how lavishly you define prosperity). And that must be what super Mario had in mind when he stated he would do “anything it takes” to save … the euro, his job, and prosperity (at least for himself and his family).
Three disagreements. First, the end doesn’t justify the means, no matter how laudable it might turn out to be. Second, he got the option spectrum wrong. More of the same will not do. I said that five years ago, and I was 90% confident. Now, I’m 100% confident my call is correct. Third, the euro will not survive in its actual form, regardless of the means used by the ECB. It’s just a matter of time. It is unfortunate that I share Varoufakis’ point of view, but that’s the way it is. I can’t help it.
From now on, it will take something else, something different. More credit growth and easy money (in any of the garden varieties available) will not hold this farce together much longer. Unless it is a load of brand new USD notes. So he, Dragui, and them at the politburos of our beloved Central Banks, will have to come up with an entirely new hat trick. Smart people, and cheaters, always have one last ace up their sleeve. Let’s pray they do. Do you think Mario is smart? A liar he certainly is. But he gets paid to do that -or that’s exactly what his friend Junckers told him he had to do when things got difficult enough. He should have been rewarded with a super bonus for the best lie since Puzo’s “The Godfather”.
Because if they don’t … Well, Houston, we’ve got a problem here. The top is in for risky assets, and debt write downs will begin in earnest.
We’ve been here before. Why won’t easy money suffice any longer? Because they have already fooled themselves and the population for too long. The common knowledge game is losing players by the hour. When you play liars poker, you just have to be patient and wait long enough -liars always set their own traps. They (our central bankers and politicians) have as well. Think global. They are cornered now. It has taken humanity a full seven years to realize that more credit and heli-money was a bluff. It will only take a couple more months (more than two in fedspeak) to put the last nail in the coffin for that paradigm. The medicine is not working any more. With every new round of credit and currency debasement people are becoming more and more skeptical. For a reason (see chart)