The Dutch, Austerity and The USA

The European debt crisis took another unexpected twist today when Mark Rutte, the Dutch Prime Minister, tendered his resignation to Queen Beatrix.

Its another in a long series of top level government shakeups brought on by Europe’s growing debt crisis.

What’s Happening in Europe?

Because of the debt crisis, top government leaders in Europe are dropping like flies:

  • Greece’s George Papandreau is replaced by Lucas Papademos
  • Italy’s Silvio Berlusconi lost his job to Mario Monti
  • Spain elected a conservative government under Mariano Rajoy
  • Belgium has a caretaker government because of the debt crisis
  • Now the Netherlands’ Mark Rutte is ousted

Rutte’s action today was triggered when Geert Wilders, a right-wing politician, withdrew his support for Rutte’s planned budget cuts and effectively ended Rutte’s parliamentary majority.

The Netherlands Dilemma

At issue is cutting the Dutch deficit by €15 billion euros to meet the 3% of GDP mandated by the European fiscal pact just passed.

In its defense, the European Commission immediately shot back that the Netherlands had pushed for the strict 3% rule last autumn.

A lot can change between autumn and spring. Its a mess! Uncertainty abounds.

Today’s Financial Times of London(FT) points out:

At this point nobody knows when elections will be held, what the status of Mr Rutte’s government is, how parliament can negotiate a budget without a government in place, and how political parties can work together to pass European-mandated budget cuts at the same time as they are campaigning against each other.

Sound vaguely familiar? Think… U.S. credit downgrade and campaign 2012 looming!

Dutch 10-year bonds that finance its government debt ballooned as much as 16 basis points against German 10-year bonds to its highest level since the start of the eurozone crisis.

Today, Germany’s DAX stock exchange fell 3.36%. That is equivalent to a 437 point drop in the DOW.

A Dutch Prophecy for America

Speaking of their debt crisis, Dutch politician Dietrik Samson, the leader of the Labor Party, the 2nd largest in the Dutch parliament told the FT:

Every party has to be willing to jump over its own shadow

To the Dutch that means, show courage.

Courage is something the U.S. Congress hasn’t shown in years!

The U.S. has its own fiscal cliff looming at the end of this year.

Conclusions

Ironically, U.S. treasury bond yields have dropped back down to 1.99%. The worse things get in Europe, the cheaper it is for the United States to go deeper in debt.

In our lifetimes, it will never be cheaper for the United States to borrow money to feed its $4 billion/day debt addiction than right now.

Nobody in their right mind would invest in Europe. The GDPs of half the countries are expected to drop this year.

That falsely makes the United States government a safe haven for international investors.

That gives U.S. politicians a false sense of security about our ginormous $15.6 trillion debt with $118.5 trillion in unfunded liabilities.

Unless we get serious and fix the problem soon, the federal government of the United States will follow Europe into fiscal chaos.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Apr 23, 2012, in austerity, culture, Debt crisis, economics, Europe, eurozone, Life, news, Opinion, Politics. Bookmark the permalink. 10 Comments.

  1. Plus there was some kind of change in France too.

    We are living in a great modern experiment, where money printing is being used by everyone to paper over debt issues. This has never been used on this grand of a scale ever. I am optimistic that it actually works over 10 years, as economic theory really has no other solution. Austerity is a recipe for depression. Massive money printing a recipe for hyper inflation unless there is so much excess surplus capital and labor around, which seems to be the case still.

    Some folks believe that we are at the end times in terms of fiat currencies. I do not. Mathematically, not all currencies can go to zero in terms of relative value. Something will survive as the numeraire or reserve currency, the currency that folks will still want. The world still has comparative advantage mechanisms at play, and for the US we have been the lucky ones with the reserve currency and the numeraire.

    Let’s hope Congress does not screw this one up.

    • What evidence suggests Congress will change?

      • I am naive. I keep hoping by some accident of luck, statesmen ship will show up. Or that someone gets elected as a dark horse candidate and does the national interest thing period. I have studied James Polk believe he was that type. He was more ends oriented than ethics would say is appropriate, but he got our borders settled one way or another.

        But Congress is pathetic with its 10% approval rating. That must be a direct measure of the insane in our country. But we have to have hope.

        Jedi Knight you be, and must have hope, say Yoda.

      • I think you are both naive and not naive… just like me.

        Great statesmanship still exists and always will. It is usually brought out at times of crisis… like Lincoln during the Civil War and Churchill in WWII.

        Statesmanship will rise again. I believe most politicians are statesman at heart. That is, perhaps, my naive side.

        I strongly believe that no matter what their motivation, circumstance will craft statesman of anyone, even politicians or you or me… independent of our or their ethics.

        I don’t care about approval ratings… if they, or you, or me do what we know is right in our hearts then we will be vindicated over time.

        Another reason, perhaps, I’m naive. Another reason I’ll never be a politician. lol!!!

  2. I keep wonder if the FRICS will ever get together and create a bond that will compete with US bonds for the best safe heavan.

    • The BRICS are more like the G7(20?) which is not a fiscal union, but uses the U.S. dollar as their currency of trade. No bonds.

      However, the BRICS will likely rally around the Chinese Yuan as their currency of trade. China has already dumped the US dollar as their currency of trade.

      The BRICS are not like the EU.

      Like the G7, the BRICS only meet to discuss mutually beneficial trading issues.

      • If the dollar loses its reserve status, and the yuan takes over, turn out the lights in America as everything imported will go up by a factor of 10 or more. My brother in law watched a peso currency revaluation hit Mexico in the late 1990s and the middle class was ruined overnight.

      • You are correct… one of the main reasons the U.S. is not in total economic chaos right now is because the U.S. dollar is the currency of world trade.

        The world has a vested interest in keeping the U.S. strong… or at least the appearance of being strong.

        Should that vested interest vanish with the yuan or the euro replacing the U.S. dollar as the currency of world trade, then it spells the end of United States’ world dominance and a very different world for our descendents.

        We will repeat the effect of the peso in Mexico in the 1990s.

      • Looks like we better get some Euro notes and Yuan and put them in a safe box somewhere. My brother in law said the Mexicans who only put 5-10% of their savings in dollars rather than pesos in the late 90s, made out like kings when the peso reevaluation happened. And he tells me the ratio was something like 10:1. The other thing is that coins were not changed apparently and kept their purchasing power, so in a weird way coins did not lose value an old peso was a new peso, coin did not change, but the fiat paper currency did. So if he is correct hold onto to some dollar coins too. My naive side says this will all come to pass. We are seeing things to bleakly, a better future still awaits. We just need that statesman or stateswoman sooner than later.

      • Strange what happened with the peso but certainly something to keep in mind for the U.S. in the future.

        Just keep watching U.S. Treasury yields… when they eventually skyrocket (9%+) then you might wanna consider investing in other currencies. 😉

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