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Money Geopolitics, Europe sinking.

February 11, 2016

Money Geopolitics, Europe sinking.

by Lushfun

 

Negative rates in Europe are a result of leverage, and the necessity to steal, take, replenish, financial capital in the banking system. All the risk has been taken it did not work out, it was not liquidated and the assets are on the books, or what is left of them at least. This will not work and will end in depositary bail-ins but if Europe saves the banking system, it will effectively destroy any and all productive capital deployed to do that. Ergo, attempts to keep the distribution of the financial sector’s share in the economy as is, or rising is not possible, and de-leveraging the system by “poofing” savings in order to cover up capital destroyed already will have very long term consequences.

  1. Trust will take decades to build back-up nation by nation and between nations.
  2. Euro will essentially be a dead currency either long before this occurs or right after. No solvent business will pay into a system that robbed it of part of its’ capital. Attempts to force them will create a drive to get out of the system anywhere else.
  3. International claims, in regards to deposits for products that were to be delivered will most like be extremely large.
  4. Asset implosion spiral and deflationary pressure would be so high after such an event as to become an unpredictable black swan. With people in official positions claiming “we didn’t know this would happen” after segments of markets go outside the boundaries that were ingrained in the psyche of the population in regards to; ‘how things work’.

Globally this will be akin to someone throwing a meteorite into the sea, expecting only mild waves slowly rising and falling just a few inches higher than before, and instead getting a tsunami.

Trade flow disruption will be interesting. The worst effects of demand will not be in Europe but all the marginal demand Europe provided to countries near and far. The more elastic demand for goods the worse ramifications for that country’s trade in Europe afterwards.

If one steps back it is almost like shrinking a market in nominal and absolute terms internally so much, that the price competition from external actors simply would not be able to devalue hard enough to gain competitive adjustment. Imagine for a moment goods that were sold for 1 euro to be halved not just in price, but in cost-basis for the producer so that he could be profitable from the new levels long term. On the other hand, when too many factors are in play, and people think they have thought of everything, something generally goes so very wrong, as to remind and humble them quiet certainly. Looking on the bright side, after an event such as this the financial system will most likely be the least of everyone’s problems and its’ subsequent decline into utility function will be most precipitous.

 

First aspect of something like this, will create a severe psychological push on values in Europe. An individualistic, consumption oriented view will be severely dented and people will seek something to anchor their being to as they search for closure of some sort across. Second aspect is the availability heuristic as it relates to responsibility will detach what people demand in regards to outcomes, something like this will not have a rationalization that could be hi-jacked and re-directed elsewhere; there will be a clear ‘actor’ responsible. Third aspect and the least understood is behavior when everything has been lost and consequences cease to exist, at least in the mind of the body politic.

 

Then again whom knows it is all imaginary speculation.

Be well and keep on going, things are getting ‘interesting’.

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