Sunday, December 11, 2011

The Eurozone Failure, Here Comes Communism!

Ok, I'm no economist, but I have a fundamental understanding of economics as well as a pretty good understanding of how democratic type government works. It doesn't take a rocket scientist to figure out that the eurozone is screwed, at least for the next ten years.


Heres the problem, the debt is a symptom of a larger problem (socialism/govt dependence). They (the powers that be) know this. So does anyone who has thought about it. When your government debt is 100, 200, 300 percent or more of your nations GDP, its going to take some time to pay off.

Lets think about it in smaller terms, a household. The household income represents GDP, spending represents spending, and debt represents debt. Portugal, Italy, Ireland, Greece, and Spain (PIIGS from here out) all have debt of over 100% of GDP, and government spending of 70+% of their countries GDP.

Alright, So you're household brings in 50k per year, and after taxes 40k (for maths sake), It has a debt over 50k and growing rapidly. Well that's not so bad right? I mean it will only take you 8-10 years to pay off with interest. BUT the problem isn't that it's impossible to pay off, the problem is that the debt will continue to increase because as your kids (citizens) get older, they get more costly in terms of wants and needs (i.e. healthcare, social security, wanting more, etc...).

Unlike a household where those making the money get to decide how to spend it, the government doesn't actually make any money, they take other peoples, and they rely on telling voters that they will take more of other peoples money and give everyone benefits because of it. So its up to the voters to see the problem and stop voting for the guy promising to take other peoples money and give everyone entitlements. This hasn't happened anywhere in the eurozone and the idea is about split even in the states.

One thing we can always count on is that we never believe we have enough. So, couple this with the problem of a democracy above and what happens? Inevitable bankruptcy, UNLESS the people see the error of their ways and change.

I highly doubt that will happen... I mean, look at the riots in greece over the austerity measures. They're not going to change, their only hope is that the next generation will figure it out, but since they have a fertility rate of 1.4 (1.4 kids per couple), that generation is dwindling. So even if they do figure it out, it will take a VERY VERY long time to pay it off. The same can be applied to the rest of the PIIGS.

So this created a new problem, other countries and banks saw the eurozones insolvency and ran as fast as they could (except mf global). That's what any smart investor would do. So liquidity went down the drain (the household income went stagnant). So then they came up with this solution: the ponzi scheme of ponzi schemes! But this is legal because the government is doing it (just like the insider trading). Will it work? Maybe, but it will only solve the liquidity problem. So its another bandaid.

This is where socialism transforms into communism. We've established that this can't be solved while the kids (democracy) are still in charge. So to 'fix' things, they will institute some form of dictatorship, now whether this is through a transformation of government formally, or government signing away the rights of the kids without their knowledge or consent through economic means, is yet to be seen.

One thing is for sure, the current path of the eurozone is unsustainable and will take years to repair, if they even opt to repair it.

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