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I return from a wonderful vacation — beardless, tan, and rested … but also very wary of the unfolding events:
Just when everyone thought the debt crisis was over … giant deficits didn’t matter … and the global economy was on the mend …
We have witnessed a sudden shift in global events … and the shift is about to hit the fan!
Here are the facts:
First, the European sovereign debt crisis has exploded back into the headlines with a surprise new collapse in the Spanish bond market.
The underlying reason: Spain is caught in the same vicious cycle as Greece …
• The more the government tries to cut spending to reign in its bulging federal deficit, the more its economy sinks.
• And the more the economy sinks, the bigger the deficit, mandating still deeper budget cuts.
The evidence: Last month, Spanish unemployment soared to a record high, forcing the government to admit that Spain’s national debt will be a lot bigger than expected, and mandating a second round of austerity measures.
Indeed, just four years ago, Spain’s debt was just 35.8% of GDP. This year, Madrid estimates it will soar to more than DOUBLE that level, at 79.8% of GDP. And with the vicious cycle now in full swing, it could hit 100% soon thereafter.
Meanwhile …
National labor strikes and mass street protests paralyze the already-weak economy even further …
The government responds with measures that are even MORE Draconian. And …
The cycle continues to accelerate.
Consider the actual scene of just a few days ago:
Spanish workers stage a 24-hour general strike to protest the government’s new labor reforms, austerity cuts and soaring unemployment. Riot police in Barcelona block the street near Catalunya Square. Picketers, in turn, block trucks from delivering produce.
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Shopkeeper Mireia Arnau, 39, is in shock. She stands in tears behind the broken glass of her computer supplies shop, stormed by demonstrators.
The coup de grâce will come when global investors dump Spanish bonds, making it impossible for the government to roll over its debt — the same dark cloud of looming default that’s been hovering over Greece.
The big difference: Spain’s economy is nearly FIVE times larger than Greece’s!
So if you thought the impact of the Greek crisis on global financial markets was big, imagine the impact of Spain’s!
And for anyone who thought the crisis was over, the latest eruption in Spain is proof positive that they’re dead wrong.
But as a reader of Money and Markets, none of this should come as a surprise to you.
You know that ALL of the PIIGS countries — Portugal, Ireland, Italy, Greece and Spain — are still hanging by a thread, still caught in the same vicious cycle of bulging deficits, forced cutbacks and shrinking economies.
You know that even some of the stronger EU countries, France and Germany included, are also embroiled in the crisis — their banks swimming in toxic sovereign debts … their own budgets strained by the ever-greater demands for bailout funds … their people rebelling against the entire concept of a European Union … and more.
And you know that the ONLY thing that has managed to temporarily tamp down investor fears in recent months has been the unprecedented outpouring of funny money by the European Central Bank — more than one trillion euros pumped straight into private banks, who in turn, have used most of that money to buy distressed sovereign bonds.
But what you may not be fully aware of is this: Now, for the first time in many years, the money-printing central banks around the world are running smack into the natural — and totally unsurprising — consequence of their actions:
The Looming Specter of Surging Inflation
Just last week, the UN’s Food and Agriculture Organization (FAO) announced that global food prices rose in March for a third successive month, putting food inflation firmly back on the economic agenda.
And never forget: About one year ago, it was surging food prices that gave rise to the wave of civil unrest now known as the Arab Spring. It was also surging prices that helped fan the fires of the protest movements that swept through Europe at around the same time. And the U.S. was not immune, as similar protests erupted here.
But it’s not just food. Overall consumer price inflation is rising steadily in Europe, the U.S. and in most emerging markets.
And what’s most remarkable is that it’s rising DESPITE faltering recoveries and even outright recessions!
Sure, for those of us who vividly remember the double-digit inflation of the 1970s, today’s inflation rates in the neighborhood of 3% or even 4% may not sound like much.
But just remember this critical fact: Back in those days, the global economy was booming. Today, it’s doing precisely the opposite!
And this is not just a debate for ivory tower theorists; it’s a hard-nosed double-whammy for billions of people around the world:
- No improvement in wages due to the weak global economy, and at the same time …
- Surging costs for essentials like corn, soybeans, gasoline and heating oil.
That’s the main reason protest movements spread across the planet last year … and why an even bigger wave of revolts could strike again this year.
All This Leaves the Central Bankers of the
World Between a Rock and a Hard Place.
Right now, most investors are still on a money-printing high, absolutely giddy with the drug of free money that’s flowing through the bloodstream of financial markets around the world.
So whenever central bankers so much as hint about the future possibility of backing off from their money-printing binge, those investors suddenly suffer convulsive withdrawal pains.
Look at what happened last just last Wednesday, for example!
Did the Fed announce a hike in interest rates? No!
Did it change its official statement regarding how long it promises to keep interest rates near zero? No!!
All the Fed did was to make one tiny, inconsequential, word change in its regular minutes: Instead of “a few members” favoring more stimulus, it was noted that “a couple of members” favored more stimulus.
Yet, that’s all it took to send shock waves through the financial markets.
Investors exclaimed: “Oh no! Some guy at the Fed is thinking about holding back the next big dose of our favorite drug (free money)!”
The Dow plunged.
Meanwhile, in Europe, investors responded with similar panic when they heard rumors of inflation fears creeping into the ranks of the European Central Bank (ECB).
“If the folks at the ECB start to get more worried about rising prices,” they reasoned, “then they’ll be less willing to continue doling out unlimited quantities of free money. Our sovereign bonds will be toast!”
These fears hit the markets so swiftly and with such great fury last week that ECB President Mario Draghi was forced to do what all government officials due in times of panic: Deny, deny, deny!
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With his hands washed spotless and his visage peering from the shadows …
He denied that the ECB was going to back off from their support of Spain (with endless money-printing).
He denied that they were going to be any less vigilant in preventing inflation.
And he denied that there was any contradiction between those two denials.
Right. So if you pour gasoline on a fire with one hand, while holding a fire hose in the other, that makes you a hero, saving the world from the next big conflagration?!
Not quite.
In fact, it’s becoming increasingly obvious that world’s central bankers are not even achieving the lowly goal of kicking the can down the road.
Quite to the contrary, they are painting themselves into a dangerous corner from which there is no possible escape.
They are setting the stage for a triple-crisis the likes of which we haven’t seen since the heyday of 20th century banana republics.
We could soon witness …
- A massive sovereign debt crisis.
- A sinking global economy. PLUS …
- Spiraling global inflation.
All at the same time!
Good luck and God bless!
Martin
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 19 comments }
On the one hand, in the article Weiss says, “The more the government tries to cut spending to reign in its bulging federal deficit, the more its economy sinks.” On the other hand, the “experts” in the video recommend exactly that for America. “Cut back on entitlement programs like Social Security” they cry.
Well, which is it? Martin Weiss says austerity causes a vicious cycle that causes increasing government debt, on the other hand the video encourages austerity at the expense of the benefits that we, the American Middle Class, paid for. (I resent the term “entitlemenst” when aplied to my earned benefits. How are dare anyone try and steal what rightfully belongs to me, my savinbs if you will, not “entitlements!”)
Do you people talk to one anoter? Or is it just a bald guy on a video trying to set up the economy so that he can milk it even further?
Bah!
I for one don’t trust our Gov’t to honor anything they say. Social Security has been abused by the Gov’t, tax payers hard earned money used & abused. The next thing they’ll be plundering retirement accounts, savings & telling citizens how much $$$ they can move out of the country. I believe the economy in Europe will collapse causing economic world wide disaster plunging many into poverty, helplessness & homelessness.
The govt is very wasteful and inefficient.If you want to fund govt today and expect to get something back in the future,you should expect to pay much more in than you will get back later.That is not happening in the U.S. or any other welfare state.Politicians find it’s a lot easier to make promises and keep taxes well below the level needed to fund these programs.They end up just taxing currency holders to pay for it.
You paid for nothing. You paid taxes and you allowed the government to do it as it desired. You thought you were paying for specific things such as Social Security or Medicare, but in reality you were paying into a general fund and you allowed the government to spend it on whatever it wished. You have no specific claim for any of it. Stop dreaming.
Tony, Social Security was intended to be insurance. Calling it “savings” contributes to both sides talking past each other. (Those opposed to Soc. Sec. say they can earn more by managing their own private retirement account. OTOH: if we have a market crash, there won’t be any insurance to protect such people, and a future generation will have to pay — which is what happened in the ’30s.).
However, when disability was added to Soc. Sec. in the ’60s, it undermined the original intent of the program, causing it to look more like entitlements.
Likewise, when President Obama talks about raising the income cap on eligible wages, it looks like an entitlement (progressive taxation).
IMO it’s a shame the way the program is undermined by both sides. It really is a noble goal to *insure* against destitution in old age. The program needs to be fixed, but it never will be because both sides use it to further their agendas. Either private savings accounts (which will lead to a future generation paying the costs of those who were a little too greedy in their own generation). Or, progressive wealth redistribution (which isn’t “bad,” that’s what insurance is by definition. But, Ds take it to a new level to fund disabilities, orphans, etc.).
Tony, you have utterly no claim on any government benefits — all those payments that you made towards Social (In)Security were both stolen and spent the minute you made them. To expect that you are “owed” anything at this point, or even worse, that you will actually collect any meaningful amount back if you are under the age of 55 or so, is the height of naivete and ignorance.
sorry, but regardless of the “entitlements” you paid for, the government has raided it and there is nothing left. if there is nothing left, how much do you think is available to pay you back for what you paid in? ZIP! join the club. its time we get these raiders out of office. end social security and become dependant on ourselves. i for one am not counting on there being anything for me. so i pay my outrageous taxes knowing that it will all be wastefully spent. wake up America!
You say that, “All This Leaves the Central Bankers of the World between a Rock and a Hard Place.” What balderdash! It is the central bankers, led by the Bank for International Settlements in Basel Switzerland, which are creating the mess!
May I once again suggest that you go to http://www.CrisisByDesign.net – Order and “Read” John Thomas Wolf’s book (CrisisByDesign) so that you will at least have a clue! The international financial crisis is being played out from a “planned script.â€
Best Regards,
Arnold Tarling
Dunedin, FL
Everyone wants something for nothing.When citizens of a country try to enrich themselves by voting wealth from other citizens,it is stealing.When stealing goes on,in a massive way,like in most countries today,citizens get what they deserve.The people of Fascist Democracies like Greece,Spain,the U.S. and other countries will and are paying for all this evil.
“Sure, for those of us who vividly remember the double-digit inflation of the 1970s, today’s inflation rates in the neighborhood of 3% or even 4% may not sound like much.”
The primary reason govt inflation reports show much lower inflation than in 1980,is due to govt using different ways of calculating inflation.See Shadowstats website for an education on govt accounting.
Martin calls it as he sees it and is doing a huge service to investors, regardless of what country
they live in. For those with eyes to see and ears to hear, QE is inevitable and folks
best hold their savings in gold and silver bullion.. Forget the stock market, real estate or bonds
for at this time the best offence is a good defense..
As I see it; This has all been in the works for years. Inflation at 3 to 4 % ? I have seen Gas, Cable,electric, and Food go up 10% or more. Plus the Value of the dollar has droped by 1/2 in the past 5 years.( try going out of the country) a cup of coffee is 10 Bucks in Paris. What About all that interest you make on your money at the Bank? .5 % They TPTB want a reset on the dollar and a switch to a One World currency.
this is what central banks do > create havoc…. stripping countries of their sovereignty, and enslave them w/debt.
The SKY is FALLING ….THE SKY is FALLING….wait a minute, it’s been falling for as long as these articles have been published….
hmmmmmm
I think every person should take the time to watch this video on you tube THE OBAMA DECEPTION and I ask everyone of you this DO WE LIVE IN A DEMOCRACY OR A REPUBLIC think about what I just asked and I expect most of you will say democracy but think back whens the last time you said the pledge of allegiance was it to a democracy or to the republic.
Hi Folks, I’m an American living on the Costa del Sol of Spain and we have official un-employment of 30% in Andalucia and some say that by the end of 2013 Spanish joblessness could affect 1 and 3 workers. I can tell you 1st hand that the banking sector and gov’t are hiding the true state of the economy to try and control their train crash. Its sad to see so many educated people just surviving.
You know it’s tough when Immigrants from South and Central America are packing up and leaving.
Spain just sweeps their problems under the carpet and hope they’ll go away, but eventually the Ponzi scheme will implode. It will be interesting to see if the EC will do whatever BS’s required to bail out Spain to keep the common currency alive.
I just can’t beleive how manipulated markets are when they drop like this…….this is not relaity..it can’t be!!..
I thought markets were only manipulated when they go up!!!….
Stop the manipulation!!!!……let free markets reign!!….
Proper English would dictate that in the following sentence you would write “tanned” since the rest of the sentence is in the past tense.
“I return from a wonderful vacation — beardless, tan, and rested … but also very wary of the unfolding events:”
Dear Mr. Weiss,
You advised readers approx. 5 weeks to invest in Natural Gas. I maintained my short position on CHK then and added upon your advice.
The market was up today and the price of NG hit a decade low of $2 for 1Kft3.
Thank you once again for keeping me on the right side of the trade.
Awesome site you have here but I was wanting to know if you knew of any community forums that cover the same topics talked about here? I’d really like to be a part of community where I can get suggestions from other knowledgeable people that share the same interest. If you have any recommendations, please let me know. Thank you!