6/11/2012 Portland, Oregon - Pop in your mints…
When we attended graduate school in Spain, we were the first North American student in our course. It was late 2003 and the Eurozone was full of optimism. This optimism lead some of the professors to use a portion of their class time taunt the US model as failed and the European model as the obvious way forward.
As proof of European supremacy, our Finance professor often made a point of mentioning to us that the yields on the Spanish 10yr bond were almost the equivalent to the yields on the US 10yr bond.
What a difference nine years and 500 basis points make.
Circa 2012, Spain dominates the financial headlines as the latest casualty of the European debt crisis. Apparently Spain now is in need of a bailout. The bailout strategy which will be employed by Spain, Inc. is a hybrid of the prior bailouts accepted by their counterparts,
Greece, Inc. and Ireland, Inc.
Greece, Inc. required a bailout because its government was broke. Ireland, Inc. was slightly more ingenious in that it made a good faith effort to backstop its banks, only to find that it was now the entity which required a backstop. Spain, Inc, theoretically learning from both experiences, forced its banks to accept the backstop directly so that the Spanish government could save face and be spared the humiliation of the Irish scenario.
Unfortunately, the markets have seen through the charade and are now putting pressure on all bonds, bank or sovereign, which hail from the Iberian Peninsula.
- What a difference nine years and 500 basis points make!
Spain's strategy has failed before it was even implemented for lack of collateral and credibility, both of which are in desperately short supply amongst the EU leadership.
How did once proud Europe end up in this situation? They decided to force a debt based currency integration by integrating only the currency part of the equation and leaving the debt and fiscal matters to chance.
As if choosing to use a debt based currency weren't bad enough, choosing only to implement the currency is like handing the nations foolish enough to engage in such a gamble the revolver in a game of Russian roulette where the revolver is fully loaded.
Now, the revolver is being passed and it is Spain's turn. Once Spain slumps to the floor, it is Italy's turn, the Belgium, France, etc. until the European Currency Union, doomed from its outset, breathes its last.
At some point in the process, possibly as Spain pulls the trigger, USA, Inc. will be forced to step in with the "ultimate" backstop, the final hope of the failed, insane "debt is money" currency regime. As the US throws its sovereign credit rating in front of the runaway freight train of Europe's soveriegns, it will quickly find itself in the very situation that it is trying to save the European Sovereigns from.
For in this debt crisis, the
unwritten rule of quality holds. When one adds wine to sewage, one gets sewage. When one adds sewage to wine, one gets sewage. The sovereign vats have long since been polluted. It might make sense to check one's portfolio and remove as much sewage as possible.
Beyond that, we will present two unsolicited yet practical bits of advice. First, US Bonds will ultimately slide as USA, Inc. wades across the pond to aid Europe. The Euro currency will rally as the run on European banks by the citizens and the wholesale dumping of any bond denominated in the currency begins. Quite simply, demand for the Euro will exceed supply in the short term.
Plan accordingly.
We submit to you that the Spain, Inc. debacle is further evidence of one of The Mint's central themes, that
Anarchy is man’s reality, it is an ultimate given, it simply is, and all understanding of the current political and social structures is greatly facilitated by one’s acceptance of this fact.
In fact, one’s ability to act and react to the unfolding changes in the current political and social structures depends upon accepting and embracing Anarchy as the basis for reality and learning to operate in the
Truly Capitalistic system which organically emerges as men learn anew that mutual trust and cooperation are in their rightly understood self interests, and that he who is to lead must truly become the servant of all.
To truly embrace this fact, we must understand the nature of mankind. Man, left to his own devices, is completely devoid of the ability to do the right thing. He doesn’t have it in him. He is lazy, self-serving, and completely evil. He needs God and his fellow man to be able to do anything productive, altruistic, or what may be considered remotely good. A full defense of this statement is a subject for another day (although the evidence is all around us), we mention it here only to underscore the necessity of a framework which presupposes this fact within which mankind can use this weakness to avoid both self and mutual destruction.
The only reliable framework which has emerged out of natural Anarchy which not only addresses the problem of human nature, but also turn man’s weaknesses into strengths is what we call True Capitalism. Ironically, by allowing market forces to work with as little hindrance as possible, mankind can insulate itself from descending into chaos and catastrophe.
In fact, to fight the workings of True Capitalism is, by default, to submit oneself to chaos and misery. Yet every nation on the planet is devoted to some degree in the fight against True capitalism. Why? Because the nation state sells itself as the most perfect expression of man’s good intentions, which we presuppose do not exist. In other words, the dream of the nation state is built on a false pretense that is usually attributed to socialism: That man is inherently good and wants to do good to others.
Given their presuppositions, is it clear that the nation state and a truly capitalistic society are, in fact, the antithesis of one another. Where a nation state regulates by edict, truly capitalistic society regulates by example. Where a nation state is rigid, where truly capitalistic society is pliable. Hence, where truly capitalistic society will bend but not break, the nation state is repeatedly smashed to pieces when faced with change.
For the more a nation state tries to force men to do good, the more mankind's character flaws will overtake these good intentions until the nation state becomes an expression of mankind's evil nature.
The truly capitalistic society allows each mans evil nature to be corrected by allowing him to experience the consequences of his inherently poor behavior, paradoxically and naturally improving the behavior and norms of all.
Moving to a less philosophical level, how can we be sure that Anarchy is the basis of man’s current existence? The evidence can be found in that the institutions which supposedly offer the best option to Anarchy, the nation states if the world, are beginning to succumb to the punishments they have built up in their losing fight against natural law.
Greece, Ireland, Portugal, Italy, and now Spain, Inc. are now succumbing to the inevitable. The member of club med which turns from the failure of the Euro currency to go it alone and embrace the much feared "Anarchy," as it were, paradoxically stands to be richly rewarded by the flocks of tourists who can suddenly afford a European vacation without the Euro.
We conclude with a brief manifesto for your perusal and enjoyment. What does the future hold?
Out of Anarchy, a Truly Capitalistic System will ORGANICALLY emerge, and with it a new dawn for humanity, built on mutual interest and almost endless capital formation which will engender a spontaneous and dynamic social order, a society without borders that would enjoy freedom and prosperity that we cannot even imagine under current conditions.
Believe.
Stay Fresh!
Key Indicators for June 11, 2012
