Wednesday, November 9, 2011


It's déjà vu all over again ... yet, all the U.S. media want to talk about are Herman Cain's girlfriends, while ignoring the GOPs "Just Say No" obstructionism in Congress. Today, with the debt crisis in Europe flaring up again (this time with Italy), we're reminded that there's another world out there that warrants some serious discussion. Yet, America's political burlesque show is mesmerized (again) by sex scandals, and appears more than content pondering why Mitt Romney hasn't caught fire with the GOP (like that's some kind of mystery). Sigh ...

All of this kind of reminds me of all the Gary Condit sightings, and the shark fear mongering off the Florida coast right before 9/11. Seriously, what's happening with Europe's debt-to-default dance is pretty big stuff, and deserves more attention than Herman Cain's predations. Consider the following ...

Here's a statistical table with more countries that could be affected once the financial dominoes begin to collapse in Europe ...

I know, I know. Simply putting figures like these up without context is unfair.

So consider this. When Germany finally defaulted on it's World War I debt obligations after 1929 it had a debt-to-GDP ratio that stood at around 90 percent (they owed about $33 billion, or about $402 billion today, which was a reduction from the original $63 billion, or about $768 billion today). Today Greece's debt-to-GDP ratio stands at 157.7 percent, while Italy is around 120 percent. Is history whispering in our ear, again? I think so.

Relatedly, when Germany finally defaulted the French Chasseurs Alins (elite mountain infantry) had already occupied Germany's Buer (in North Rhine-Westphalia) region in 1923.

Today, instead of sending in the troops to deal with troubled debtors the world's economic mandarins are banking on central bank (or IMF sanctioned) cash. Specifically, they're banking on the Federal Reserve shoving half a trillion dollars or more on to Europe's books (and hoping no one notices). When all is said they're doing little more than pushing the economic debt can down the road.

This is especially not good when you consider that MF Global's recent Chapter 11 bankruptcy was not supposed to happen. Think about it. In our post 2008 market collapse environment, a firm like MF Global wasn't supposed to be able to borrow so heavily (or use investor funds) to make multi-billion bets on European debt. How much did MF Global borrow? It appears that MS Global may have had a 40:1 debt to equity ratio. What does this mean? It means that if you made $40,000 per year at your job, the bank would give you a $1.6 million loan ... three years after doing the same thing and watching previous clients piss it away gambling.

Yet MF Global's private industry regulator raised no red flags about MF Global debt to equity ratios, nor said anything about it dipping into $600 million of investor money to make their bets.

Yeah, it's déjà vu all over again, on so many levels.

- Mark

1 comment:

R. M. said...

Using Germany's blunder after WWI and "kicking the can down the road" analogy really helped put this in prospective. Also, I remember my American history teacher once say while teaching about the world economy collapsing after WWI, "And how did America get out of a depression? Entering another war, WWII." I wonder if there will be a WWIII when the world economy collapses. If so, where will Americans find jobs when our military is more high tech when compared to the 1940s military. These days we would need job seekers with brains over muscle, and American's are no longer at the top of the smart totem pole. I doubt many could manufacture Predator Drones and other high tech equipment.