Behind the scenes there has been scrambling as Southern Europe moves closer and closer to outright collapse. I warned previously that our contacts high up in the German government made it clear more than one year ago that if the choice comes down to abandoning the Euro or Austerity, the Euro will win. Letting the Euro go will be far too great of a public political failure and politicians will lock up everyone, execute them and their families, before they will EVER admit they have caused this entire mess. That day has come during the week of 05/20 in line with our model.
I reported that Spain was becoming desperate showing signs of moving into a Mad Max crisis. That posting seems to have been circulated around more than anything of recent vintage. People from the cities were starting the plundering of farms in Spain stealing at one place 100 head of cattle!
Also in Spain there is the beginning of the distressed liquidation of residential real estate on a large scale basis. This will address the over-expansion of building forcing prices back down to much more realistic levels. Nevertheless, some banks will collapse for they need sharp increases provisions to support the losses and are likely to end up filing for bankruptcy.
Italy is so big within the EU it simply cannot be bailed out. This would be like the USA going bust and everyone trying to chip-in for the bailout.
There is absolutely no choice on the table but for a debt “restructuring” of Southern Europe and that is in plain terms a partial default. This week May 20th, the decision was really reached behind closed doors that a massive debt “restructuring:” is now being prepared by the EU. They have been trying to hold everything together by hiding under the blankets at night until the bogeyman goes away, as well as employing chewing-gum and string and then wrapping all the cares and woes together in bubble-wrap with a nice blue ribbon adorned of course with small gold stars to match the flag. Even gold has been declining as the people behind closed doors are forced to confront the prospects of a debt default – the classic deflation.
While the worst dreams are now coming true behind those closed doors as what emerges are nothing but the ashes of vain hopes that once were on the lips at cocktail parties that the ECB could make it all go away with time. Not only has the ECB been exposed as naked without clothes out of its league, but the rantings of the IMF that espoused austerity within their Frame work or no nation will survive, have also been shown as deranged mumbling of a senile senile corrupt institution that just never knows where it is as it has become lost in the corridors of its own mind decorated in pomp and ceremony from 1945 and still has not worked out it lost its role in 1971 with the collapse of Bretton Woods. Meanwhile, the European Parliament knows all too well that the glue holding everything together is the personal will of Merkel in Germany. The German elections have been played down in the USA, but behind closed doors, they are the real nightmare no one wants to imagine what if.
Unless Europe reforms, the German savers will have to participate indirectly without their understanding that they are part of the bailout of Europe. The German elections in September are critical to all of Europe and the EU knows that Merkel must retain a chance to win or Europe is dead. Do not expect the full details of anything to emerge. They are being guarded closely. Nevertheless, the agenda is to keep first and foremost Europe together and to really move toward the federalization of Europe that will be portrayed as the “unification” of Europe implying independent sovereignty will be retained. But like the USA, states have no rights – the Constitution is the “Supreme Law of the Land”. It was the Supremacy Clause that was used against the South in the US to force the national will of Civil Rights. Europe will be federalized without calling it that. However, there will be no right to vote on Federalized National European issues.
The heat is on and the EU is starting to recognize that what purpose is there for government if there is no federal depositors insurance system? Eventually, the EU will be forced to go beyond debt restructuring of the countries within the Eurozone, and there will be no choice BUT to reach the realization that there MUST be new Eurobonds that no doubt will be supported by austerity policies across Europe to make Germany happy.
We have asked our computer numerous scenarios but it always comes back to one and one only – the must be MONETARY REFORM on a grand scale that abandons the old theories and takes that next step in the evolutionary process of our global economy.