The truth is we are headed for economic Armageddon. It is not guaranteed, nothing economic ever is. But on the current path we are on, a collapse is inevitable. The evidence is mounting.
I've tried denial. I tried to surround myself with good news... the news sources that seemed to preserve the status quo, always assuring me the future is bright; however littered with tragic exposés. But as I grow up, and started to correlate economic news with my own economic future, I began to recognize that there are significant cracks in this system, and significant holes in the stories that I was told growing up.
One lesson I learned about modern economics is that they are never stable...
We have different currencies, with some financially entrenched to collections of countries (ex. The Euro).
We have different growth rates, based on a massive array of economic indicators (ex. Unemployment rate, interest rates, population growth rates etc.. )
We have different economic structures. Some countries are rich in oil commodities, some countries are dominated by financial innovation. Inequality of economic standing among nations is very dependent on the amount of resources a country has to offer the world.
We have different cultures, with completely different cultural goals. Some cultures are addicted to consumption and mindless monetary accumulation, and some cultures are still largely egalitarian and dependent on the community for survival.
I could go on for days.
Now take these widely varied national characteristics and try to combine them into one working system. I think it is unbelievable that we have maintained this destructive system for so long. But as mentioned, no economic run is without its fall. This system is unsustainable on almost every level.
If you are a person that has been watching this economic landslide from a distance, I less-than-proudly introduce you to Europe and the troubles of the European Union:
The truth is that Europe is an absolute economic basket case at present moment. The European Union (EU) is incredibly indebted, with the majority of the continent's participating countries already in recession* (Spain, Greece and Italy), with some of the largest EU economies heading there quickly (Germany, France). Additionally, countries such as the UK which chose to opt out of the EU are headed to recession as well as downward pressures are now widely boiling over all over the world.
Countries faring the worst among the web of disarray include Greece and Spain, Greece likely being the worst:
In Greece, talks regarding debt solutions have stalled. This is devastating, as a failure to reach a deal will likely lead to a full-blown default. Here are some additional indicators Greece is coming apart at the seams:
- Unemployment sitting at 18.2%.
- Stock market value has dropped over 80% in just the past two years.
- During the same period, consumer confidence has understandably plunged.
- Greece's debt to GDP ratio is over 160%. That means Greece has more total public debt debt than it's government can make in revenues on a yearly basis...
- On February 13th, 2012 Greece received another bailout. It is not stimulus, it is simply a debt restructuring that is completely conditional. Greece must pass all the reforms its creditors demand to receive the money and avoid default. The night before, riots in Athens erupted.
- There is much talk of a second bailout, and Germany has already approved it despite deep opposition from German citizens. Remember, these bailouts are not solutions to any of Greece's issues, they are simply measures to which Greece can avoid outright disorderly bankruptcy for perhaps another year.
Yes, Greece is in the verge of going bankrupt, and massive civil unrest surely to follow...
Spain is not fairing much better:
- Already braced with austerity measures, Spaniards are set for more degrading social conditions as the government reported huge shortfalls on deficit targets.
- Unemployment is at an unbelievable 22.9%.
- Industrial output took a nosedive, falling by 7%. Economically speaking, 7% is a huge drop in volume.
- Youth unemployment at 46% (as of November 2011). In fact, the problem of youth unemployment spans across Europe.
Other countries with notably nasty economic situations include Italy, Portugal, Hungary, Scotland... well, to be honest, every EU country is at risk...
And when we remember that the EU economy is actually quite a bit larger than that of the US, it is absolutely true that severe troubles for Europe equal severe dilemmas and pressures for the rest of the planet.
On September 15th, 2008, the collapse of one of the worlds largest financial services companies (Lehman Brothers) effectively created a negative economic domino effect, nearly bringing down the entire global financial system to it's knees. Just one bankruptcy of one company did this... what happens when entire collections of countries begin to go bankrupt?
Europe has actually already claimed it's first major victim, as holdings company MF Global recently filed for bankruptcy after concerns over its exposure to European debt caused a breakdown in business, in this case it was a "severe cash crunch".
MF Global is facing massive lawsuits from investors and shareholders looking to recover cash... cash that doesn't actually exist. It is the way value works, the market determines it. And unfortunately, the market doesn't care what you have to say unless you plan to throw billions at it.
There has already been bailouts of European countries as well, which did not have any luck. Many economic analysts predicted this. They knew that you cannot solve a problem by throwing money at it. Bailouts are not a recipe for recovery, they are most often signals of already defeated and broken economies on the brink of collapse.
And interestingly, the European Financial Stability Facility (EFSF) just had it's credit rating downgraded. The EFSF is also known as the EU bailout fund. Yes, even the agencies whose job is to improve economic conditions for other countries by making cheap loans to it are falling victim to credit downgrades.
It has gotten so desperate in Europe that the G20 is considering injecting 2 TRILLION DOLLARS into the European financial system. If all the other bailouts weren't enough...
It should be obvious that these constant bailouts are not the solution, they never have been unless they are huge enough to spur economic growth. And not even $2,000,000,000,000 is enough to restore the broken system in Europe.
Keep an eye on Europe. It is facing massive citizen protests within nearly every member country, with the protests becoming more and more pronounced the more governments keep throwing away the people's money without addressing the root causes of such an interconnected and catastrophic crisis.
Remember Canada, our economic system is dependent on others. The head of Bank Of Canada has already warned us that the situation in Europe is critical for Canadian economic growth... and subsequently economic prosperity as a whole. Our unemployment rate has been rising for several months now... and European collapse would only make that worse.
Europe DOES matter.
"We are on the verge of an economic collapse which starts, let's say, in Greece. The financial system remains extremely vulnerable" - Billionaire Investor George Soros
Written by Shelby Bouchard
Follow me on Twitter: @SBtheradical
