And the Dominos fall....

Governments are falling under the weight of their largesse

In recent days the governments of the two key members of the European Union have collapsed from their attempts to escape governmentally-induced economic failure. This actually started earlier with the collapse of the short-lived conservative (a modern oxymoron) British government which attempted to truly limit government spending and debt while also seeking to leave more money in the pockets of their citizens. Their first Prime Minister lasted weeks, then their second disappeared in a snap election as a liberal (read socialist) British coalition returned to power. Only to find that, yes, indeed, the national purse was truly empty. True to form, Britain is now trying to increase taxation on actual producers for daring to have employees, maintain those services which are most inefficient, and increase spending of future generations’ private wealth. Since they have limited their marketability by leaving the EU (which may yet be shown to be prescient) and left unskilled immigration unlimited, their economy may soon become a black hole, collapsing under its own gravity and sucking in its commonwealth (Trudeau’s Canada is rapidly approaching Britain’s blind curve).

The two keystones of the European Union may also be circling the drain. Germany’s government recently collapsed due to fiscal incompetence. Their mistake was the prior passage of a type of balanced budget law. When the latest of their Green New Deal fantasies were passed—intended to further disable industry and agriculture in a modern Luddite sacrifice to the gods of carbon—their courts denied it, stating that the massive deficit spending involved could not be done “off the books” as intended. Their “traffic light” coalition of three parties dissolved as did their ability to govern until a new coalition can be formed with their own snap election in the near future. Underneath their Keynesian incompetence is their own type of Derangement Syndrome focused on the rise of the AfD (Alternatives for Deutschland) populist party in the former East Germany states. This party and its rapidly expanding adherents want immigration (read job competitors and entitlement sponges) strenuously reduced and severe limitations on any return, at taxpayer’s expense, to a more Rousseau-like lifestyle. Mainstream German government and media portray their own people as dangerous recidivist national socialists (read Nazis) with all the Trump-like features of racism, misogyny, and xenophobia. One rational German commentator

eugyppius

(The Plague Chronicles) has even invented a new term for how these desperadoes seeking to end German democracy should be named: Putler, an ingenious contraction of the authoritarian intents and actions of Putin and Hitler. Conveniently for Germany’s mainstream autocrats, their populace has no true First Amendment rights. So many individuals and groups are being investigated, fined, and/or imprisoned for speaking out against the government or simply calling members of the government bad names on social media. The AfD itself is under scrutiny and possible banning from participation in discourse or government (despite its overwhelming election to seats in various government positions) by an investigative and enforcement body designated as Defenders of the Constitution. Germany’s economic state is involuting under Chinese industrial competition, sabotage of cheap Russian gas energy (replaced by expensive U.S. liquified natural gas but limited by President Biden’s Executive Order), rising social entitlement costs fed by immigration and that economic distress, and ever-increasing taxation of carbon. And Germany has, since the dazzling effectiveness of the Marshall Plan, been the dynamo of the entire European economy. Now winding down rapidly.

France follows suit. President Macron grossly misread the mood of his populace and his coalition when he called his own snap elections to save his austerity measures in perhaps the most socialist democracy in Europe. The initial news feeds suggest that he has no room to appoint yet another sacrificial Prime Minister. The French have the same riptides of discontent as the Germans over the social and economic effects of massive immigration with little attempts at assimilation either culturally or economically. Their leftist coalitions face the same threats from a populace intent on maintaining entitlements without regard to the ongoing bankruptcy of the state and have the same irrational fear of the new Right represented by M. LePen. This is an important follow-on to Germany’s woes, as France, which produces a huge amount of its electricity from nuclear power, is now a significant supplier of energy to Germany in the absence of cheap Russian gas. All three legs of the stool, U.K., Germany, and France, are teetering.

Meanwhile, back in China…. Their economy is now past the tipping point thanks to the vastly overextended residential and commercial real estate collapse and the recently discovered “hidden debt” of local governments. Both these require huge bail outs by the CCP central bank. The government which exercises total control over that bank and all aspects of China’s economy has decided to “produce” their way out of debt with floods of subsidized consumer goods. But the Chinese people themselves, more financially conservative than most, aren’t buying. So these goods are piling up on docks outbound to foreign markets and flooding those markets with cheap goods that undercut those importing countries’ domestic industries. While the U.S. waggles its protectionist fingers at the CCP, many second world countries are feeling even more threatened. Their economies have expanded rapidly with new consumer productions, especially as some first-world countries sought to source products from them to avoid Chinese dumping. The CCP has retaliated against expected Trumpian tariffs by establishing strict export controls to the U.S. on raw materials and products that might have “dual use” for our military, and of course our rapidly expanding desire for non-fossil fuel power. Thus, the CCP loses perhaps their largest market for these materials and products. So, despite massive domestic spending of fiat currency and new debt, no circular return on investment via domestic consumption is occurring, and foreign consumption is at growing risk of protectionism in second world countries and their choice to partially wall off one of their biggest and most lucrative customers. Given China’s risks, BRICS is not likely to succeed, as all of the other countries together don’t have the wherewithal to bail out China. Or Russia, for that matter, given that country’s limits as mainly a supplier of fossil fuel energy and heavy drainage of the Ukrainian war. The one caveat might be that China has been acquiring and hoarding gold on a huge scale for many years, and perhaps just discovered the largest gold mine in history on their own territory. They may yet, after some type of “Jubilee” relief of all outstanding indebtedness, be able to return to real money.

Why do these dominos, tipping wildly elsewhere in the world, worry us? Historically in the twentieth century and for the first part of this century, the U.S.A. has been the banker of last resort for virtually the entire world. Our continuing largesse, initiated with the Marshall Plan after WWII, has only expanded over the decades. Initially this was supportable since after that war the U.S.A. was the only industrial power left intact and had mobilized infrastructure and people power to supply goods as well as investment to everyone. Continuing that generosity beyond the point where other countries were self-supporting became a kind of international entitlement that the beneficiaries, like the populations of Britain, Germany, and France, are loath to lose. America is thusly captured in both a domestic and international entitlement trap requiring ever-larger commitments of funding produced, since the end of the Bretton Woods agreement, out of thin air. Could we not grow ourselves out of this? Our rate of economic growth is limited by the massive improvements in international productive capacity that we ourselves helped birth. The hill of indebtedness which we push up the rock of repayment is growing ever steeper. Sisyphus may weaken; Atlas may shrug. The dominos may not be communist, but unsupportable indebtedness.