The house has burnt down. Nothing is
left of it but a pile of wet ashes. Pop and Mom and their numerous progeny
gaze at the ruins, speechless.
Pop turns to the family and says:
“Mom and I will have a summit meeting tomorrow, to find a solution to
this problem. Tomorrow we’ll have the definitive solution to this
crisis; in the meantime we’ll sleep in a tent that our German neighbors
will rent us.”
* * *
The European house has burnt down
financially. In 1999 the Euro was installed as the single currency for a
central group of European nations. The interest rates of the various nations
were to be set by “diktat” of the European Central Bank. No
nation was to be allowed to have a Fiscal Deficit of more that
3% of GNP.
Thus was set up the orgy of government
and private sector borrowing and spending on the part of the hot-blooded
nations of Europe, that is to say those that form the “Club Med”
of Europe: Greece, Italy, Spain, Portugal, with the participation of Ireland
and even France. Never were seen nor dreamt of in dreams such low interest
rates and such easy credit in those nations.
The spending was gigantic. Never was
Europe so happy. The governments showered benefits upon the governed. Life
was pleasant, free of worries. The good life was assured: modern housing,
autos (his and hers), free education for the kids, medical and hospital
insurance, generous pensions for early retirement, a monthly check in case of
unemployment; in Italy, three months’ vacations. The standard of living
in Europe was the wonder of the world.
What nobody saw, was that the Europeans
were burning their financial house down while they went on vacations, munched
their tasty “hors d’oeuvre” and washed them down with
delicious wine. In Spain, costly airports were built
that never got any air traffic. Spaniards boasted that they had the finest
highways in the world.
Europe burnt down its house when its
governments and private sectors took cheap credits in gigantic quantities and
spent the funds on current expenditures to please the people with benefits
and services, on maintaining a bloated bureaucracy in comfort, and on
unprofitable investment projects.
For example, the small Portuguese island
of Madeira boasts a fabulous complex of super-highways that cross the
mountains of the small island through long and ample tunnels, all spotless
and well lit. Many hundreds of millions of Euros were spent in building those
highways and a beautiful modern airport was carved out of the mountains. How
will the population of 260,000 inhabitants ever pay off the debt that was
Europe was able to burn down its
financial house in 13 years.
These days Papa Hollande
(and before him, Papa Sarkozy) and Mama Merkel and their colleagues at the
ECB and the presidents and prime ministers of Europe gather in one Summit
Meeting after another to contemplate the ruins and talk about the
Somebody needs to tell them:
“Gentlemen, there is no “solution”. The house has burnt
down. When a house burns down, you have a burnt house. There is no solution
to a burnt-down house!”
* * *
What caused the fire?
The cause of the fire would be the first
thing to investigate. But since it is logical to start there, that is precisely
what no one wants to find out. Because while the house was on fire there were
important men who were spiriting valuable stuff out of the house and they
want to keep their winnings. Those men are important and are indispensable if
the Papas and Mamas of Europe want to continue governing.
The “proximate cause”
– that is to say, the direct cause – of the fire was fiat money,
false money that came into circulation in the form of euro banknotes in the
year 2000. This money was created and continues to be created out of nothing,
and it led to the unrestricted expansion of credit during the time of the
epic combustion of the European house.
The “final cause” of the
fire – the purpose of the fire – was that the democratic
governments of Europe wished to keep their governed peoples happy and so they
set up the burning party, a great party while it lasted.
* * *
The democratic system is based on buying
the consent of the governed to be governed by the government elected by the
majority of voters.
As soon as a democratic government has
to stop buying the consent of the governed, serious popular grievances arise.
Austerity and democracy are incompatible.
A democratic government must spend in
order to stay in power. There is no way around this fact. All we have to do
is watch TV to see what is going to happen to Rajoy
with his plan for austerity for Spain. The people are not going to stand for
it. Witness the rioting in Madrid.
In order for “democracy” to
prevail in Spain – in order to be able to go on purchasing the consent
of Spaniards to be governed democratically – Spain will have to leave
the Euro system and return to the Peseta, which the Spanish Central Bank can
create to suit. Thus an inflationary financial fire would continue to ravage
what remains of the capital resources of Spain, but at least this would take
place in a democratic peace, however precarious it might be. Perhaps in time
the fire might be put in a slow-burning mode once again.
Otherwise, the military will have to
impose – not purchase – social order, and this would be, of
course, the end of democracy in Spain.
* * *
So now what?
It’s not only the European house that
has burnt down. Right here in our own back yard, the US house is on fire and
burning brightly; the Americans who live in the US house have still not quite
caught on; the people in MSM are doing their best to keep expectations up.
But sooner or later the fact will be self-evident. Watch for teepees being
And here in Mexico we have been doing
our best to burn down our own house and keep up with the Gringos in our back
yard. We seem to love bonfires – we burnt down in ’54, in
’76, in ’82 and lately, in ’95. Looks like we’re fixin’ to have another event. (See graph at the end
of this article).
The fascination with fire and the urge
to destroy what has been built is ancestral. We
think we are modern but the primeval man abides. One upon a time the American
Indians had their “Potlatch” parties; today we have our Keynesian
“Growth” which turns out to be another name for “House