 | | The Daily Reckoning | Wednesday, August 8, 2012 |
- The gears are slipping: Eurozone economies begin to come apart...
- Wasting money to resurrect the fallen...
- Plus, Bill Bonner on an unconventional war...with an even more unconventional enemy...
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| | | Financial Dominoes | | How Each Failing Eurozone Economy Affects the Others | |  | | Joel Bowman |
Reckoning today from Ouzilly, France...
Slip... Crunch... Crash... And repeat.
Do you hear that, Fellow Reckoner? It’s the sound of the gears slipping. Metal on metal. In the US...in Europe...and in some parts of the Asian world...the planners’ worst fears are coming true...as their economies begin to come apart.
Here in Europe we learned that the French economy — the continent’s second largest — is likely to slip into recession. At least, that’s what the central bank told the world yesterday. Here’s the BBC:
(London) France’s economy will fall back into recession this quarter, the country’s central bank has predicted.
The Bank of France estimates that the economy will contract by 0.1% in July to September. It has already predicted a fall of the same level for April to June.
France posted zero growth in the first quarter of the year.
France’s economy has been hit by the eurozone debt crisis, which has weakened demand for its exports.
The debt woes of fellow eurozone nations, such as Greece, Spain and Portugal, have also knocked French business and consumer confidence.
If France does fall back into recession, it will be for the second time in three years. It last returned to economic growth in the spring of 2009. |
Well, we could have told you that France’s economy would produce nothing...or less than nothing...this quarter. Why? Well, for a start, nobody is working! During the month of August, we have come to discover, the entire country packs away their tools and heads for the seaside resorts of the south. They fly to Greece... to Spain... and to Italy...to lounge on the beaches and drink in the warm, Mediterranean sun. They travel to the broke countries, in other words...as if trying to catch a glimpse of their own future.
One by one, the dominoes are falling...and as they do, the shocks they create unsettle the few wobbly economies still standing. Fewer and fewer number among the strong...more and more among the weak. And remember, each time one economy fails, those few still standing are made to pitch in, spending billions — hundreds of billions — of euros they don’t have, trying to resurrect the fallen. This, in turn, creates an increasing strain on a decreasing pool of resources. Here’s David R. Kotok, writing on The Big Picture blog:
Remember that the eurozone consists of 17 separate entities. Germany is by far the largest. France is number two, Italy number three. Spain is (or perhaps was) number four, at about 12% of the total weight.
Each time a domino falls, the member state requires assistance from the remaining member states. When Greece fell into financial disarray and then failure, the other 16 states had to provide the subsidy. When Ireland fell, there were 15. Portugal made it 14. Cyprus made it 13. Now Spain leaves 12 remaining.
As the dominoes continue to fall, the costs are reapportioned among the remainder, which is a shrinking cohort.
We are beyond worry about Spain. It is now a question of survival or failure for Spanish governmental finance. |
The rot has set in. And now, there is nothing for it to do but spread. Spain, still mired in a deep and protracted recession is, for our money at least, as good as a dead duck. Markets continue to doubt the Spaniards’ ability to repay their debts, driving borrowing costs ever higher.
Indeed, the situation is so dire...even the economists have begun to take notice! A poll conducted by Reuters over the weekend estimated “a median 68 percent chance of a full sovereign bailout [for Spain], involving the EU’s official rescue funds, before the end of the year. June’s poll showed 35 out of 59 economists thought that was ‘likely’ or ‘very likely.’”
Italy, too, has fallen into deeper recession. According to figures from government agency ISTAT, a 0.7 per cent fall in gross domestic product for the last quarter puts Mario Monti’s technocrats on pace for a 2.5% annual decline in GDP.
The feds loaded the truck high with debt and now, as it proceeds along the steep incline of Mount Impossible, the cogs are wearing down, unable to bear the weight.
Slip... Crunch... Crash... And repeat.
Now, if 16 euro economies, with relatively low borrowing rates, couldn’t effectively bail out tiny little Greece, what chance do Germany, France and a handful of others, have of bailing out...well, everyone?
Slim to none would be our guess and, as our friend Doug Casey likes to say... “Slim’s outta town.”
Meanwhile Paris, as we mentioned above, is virtually empty. We’ve come down to the countryside to avoid the heat. We arrived by train this afternoon, but Bill’s been down here for a while.
He shares with us a story below...
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| | The Daily Reckoning Presents | | The Croquet Party | |  | | Bill Bonner |
The sun rises slowly this time of year. And then, it disappears.
That has happened almost every day since we’ve been here. It has been the summer that hasn’t been. No sun. No heat. No summer.
Normally, the weather south of the Loire river is supposed to be better than north of it. But this year it has seemed about the same — cloudy, windy, cool...more like November than August. Last week, we had a fire in the fireplace during the day...and a thick quilt on the bed at night.
Usually, it is much different. We are outside all day long, with breakfast out on the lawn...lunch and dinner on the porch...and in between spent at the river or the pond.
This year it has been too cool to swim in the river and too breezy to eat outdoors. Inside, it is dreary...dark...and a little depressing. And we worry; maybe autumn will come before summer!
And then, we reminisce. What a glorious summer we had 2 years ago!
We remembered it over dinner last night. Sunny, clear days...one after the other. We thought they would never end. It was like paradise. We sat in our deck chairs, under the trees...reading. Or, we rowed across the pond in the late afternoon...admiring the ducks...and occasionally taking aim at a giant water rat — a ‘ragondin’ — which invaded Europe from South America.
But the high point of the summer of 2010 was ‘the war against the moles.’ Last night, we recalled it, more or less as it actually happened.
On the 8th of August, 2010, the Bonner family decided to schedule a croquet tournament. Friends, family, and neighbors were invited — dozens of them. Stores of alcohol were laid up. Vast quantities of hors d’oeuvres were planned. It was to be the social event of the season.
But you don’t put together an event like that overnight. It takes weeks of planning.
“Mr. Bonner,” said our gardener, Damien, long before the night in question. “We’ve got a serious problem with moles.”
“Well, don’t worry about it....a few molehills don’t bother me.”
“But they bother me. I’m the gardener. It’s my reputation at stake. If people see molehills in the croquet court they’ll wonder what the hell I’ve been doing. But don’t worry. I’ll get rid of them.”
Damien, a man of 40-something, with the hardened hands of a manual laborer and the soft heart of an artist, opened the back of his truck to show off his arsenal. He had poison. He had traps. He had things that made such a high-pitched noise we couldn’t hear it; allegedly the moles could hear it, and they disliked it so intensely that they would move to the neighbor’s lawn to get away from it.
“You can’t play croquet on a lumpy yard,” Damien continued.
Then, he brought out his secret weapon. His V1 rocket...his atom bomb...a funny-looking contraption that looked as though it was attached to a hand-grenade.
“What’s that?” we wondered.
“It’s a mine. An AME. An anti-mole explosive. You bury it under the ground. The moles get near and it blows up.”
“Seems a little extreme.”
“No...no...it’s very effective. But only as a weapon of last resort.”
“Well...okay...”
Meanwhile, the cook was busy too. She was a robust woman...an American from Minneapolis, of middle age, red haired, whom we’d hired from a little ad on Craigslist.
Every August, we try to hire a cook. Just for the month when we have an ‘open house,’ with family and friends coming to visit. It is always an adventure, because we never know what we’ll get. Sometimes it works out. Sometimes it doesn’t. Sometimes they cook well, but are ill-tempered. Sometimes they are pleasant, but cannot cook at all. Sometimes we get a real gem, like Karina, our cook last year. She could cook...and was very pleasant to be around. But itinerant cooks like Karina are rare.
Cooks must be under a lot of pressure. So many deadlines. So much can go wrong. The best of them turn to alcohol. Some crack up. Some do both.
Jenny had been holding up well. But our mother, 90, who spends most of her time in the kitchen, had begun to notice the strain.
“I think she’s drinking...” she told Elizabeth.
“Well...just so long as she gets the food out on time.”
“She seems so nice...I’m sorry to see her feeling so bad...”
“She doesn’t seem to feel bad. Every time I go into the kitchen she’s smiling and laughing...”
“That’s because she’s drinking.”
“Then, I hope she continues.”
As the day of the event approached, people — guests, relatives, friends — gathered at the house. It is a huge, rambling excuse of a house...with wings tacked onto wings...and architectural eras piled on one another, like a top hat with a pair of bell bottom jeans. Many of the rooms haven’t been used in many years. The whole house is closed up most of the year. It is far too expensive to heat it in cold weather. Only once a year is it opened...in the summer. Then, arriving in July, we throw open the shutters...take off the sheets covering the furniture...brush away the cobwebs...and settle into a graceful warm weather occupation.
Occasionally, such a big house is useful...such as when you have a lot of visitors coming for a croquet tournament.
The cast of characters was long...and colorful. A cousin, Calvert, was the source of croquet knowledge. Calvert looks a little like Prince Charles and speaks with a soft, southern accent. He smiles pleasantly and sounds like a gentleman.
Behind the gracious demeanor, however, is a croquet shark. Calvert plays to win. And he usually does. He goes up and down the US East Coast playing what might be called ‘semi-pro’ croquet. We were lucky to have him with us in France. He showed us all how to play, and not just how to hold the mallet and how to strike the ball. Croquet, we learned is mainly a game of strategy. Calvert, a former military officer from the Vietnam era, approaches it as if he were conducting the besieging of the Russians at Leningrad or outflanking the Yankees at Chancellorsville. At dinner, he is charming and civil. At croquet, he is Carl von Clauswitz.
Maria’s 20-something friends arrived the day before the tournament. Her friends are all actresses, as she is. This area of “deep France” doesn’t get many starlets. So when she and her friends gather, it makes a stir.
The girls were invited over to a neighbor’s house to go for a swim in his pool. They went over dressed in bikinis — three of them. They swam in the pool for a while, and then went in the house just as 73- year-old Henri was coming down the stairs. Maria embraced him on both cheeks, as neighbors here do. The other girls, English and Australian, unsure of the proper etiquette in the region, followed her lead.
“Well, that doesn’t happen to me every day,” Henri reported the next day.
“Three gorgeous girls — in bikinis, no less — came up to me and kissed me on both cheeks. Whew!”
We were having a drink on the veranda a few days before the tournament. Damien was still at work preparing the croquet court. He was not happy. He should have left for home by this time. But his campaign against the moles was not going well.
“Damned moles! I keep killing them. And they keep popping up. And now they are learning to avoid the poison and the traps. I may have to bring out the heavy artillery.”
Damien was at war. The normal rules wouldn’t apply.
“I’ve got a little surprise for them.”
The tournament was a dress-up affair. Guests were instructed to wear white. This was meant to be an elegant occasion. The girls interpreted this in their own way. They wore white. But they did not necessarily put on dresses that the people of rural France were accustomed to. One had on what appeared to be a white cocktail dress...so tight that you couldn’t have wedged a nickel between the fabric and the girl...and so short that one false move would cause a scandal.
“Oh my Lord,” asked Calvert’s wife, an attractive blond in her 50s. “How are you going to play croquet in that?”
“Well, you told us to wear white,” came the reply, “and this is the only white thing I have.”
Another decided that a gauzy, see-through shirt would be the eye- stopper outfit of the evening. It was.
“Keep your eye on the ball,” said Calvert’s wife to her husband.
Finally, Maria came down. She was more familiar with the local customs and more conservatively attired. Dressed in a flowing white dress, she looked a bit like Katherine Hepburn in a 1930s movie. The Palm Beach Story maybe. She was striking too...if less provocative.
The local people — our French neighbors — had never seen anything like it. When they arrived, there was Calvert, in dress whites, looking a little like Napoleon at Austerlitz, getting the lay of the land before the battle. Behind him were the three actresses...and a few other friends from America.
One of the girls took up a mallet. Calvert reached around her waist, showing her how to use it.
“Don’t let her bend over,” said Madame de Hugebert, an older woman, whose family is said to be one of the “old” and “great” families of France. “My husband has a heart condition.”
The Hugeberts are among the ancient aristocracy of the region. They have several immense chateaux and cling to a style of life that is both refined and successful. Madame and Monsieur are now in their late ’80s. But they are said to still ‘dress’ for dinner every night...and send their grandchildren to Harvard. They have always been warm and welcoming to us. But their presence at any gathering seems to raise standards and lower temperatures. Men hoist their neckties. Women fix their hair and tell their children to stand up straight. Inviting them to our soiree put all thought of countrified barbecue or hoe-down out of the question. You didn’t invite the Hugeberts to such an informal event. This was meant to be an elegant occasion. We would dress well, sip champagne from proper flutes...and dine al fresco after the game was completed.
The girl struck the ball. It went off in the wrong direction.
“I’ll have to give you another lesson,” said Calvert, his southern accent turning to honey.
Pierre, meanwhile, is a farmer who lives next door. He is used to working with tools and equipment. He had no trouble with the mallet, hitting the ball square and sending it off towards the wicket.
While the game was starting up, Elizabeth went to check on the food.
“I think she’s feeling nervous,” mother whispered to her before she got to the kitchen door.
But Jenny was beyond nervous.
“Heeere...” she said with a sliding vowel and a sloppy grin. She pushed a tray of hors d’oeuvres towards Elizabeth. “They’re all ready... We don’t want anyone to go hungry, do we?”
Elizabeth came back outside, carrying the tray.
“Oh la la,” she reported to her husband, “she’s drunk.”
Then turning to our youngest child, then 15...
“Edward... Go in there and try to help her. And keep an eye on her. And take Gabby with you if you want.”
Gabriel lives next door. He and Edward are the same age. They share the same teenage sense of humor and may not have been the best choice to look out for a drunken cook.
Outside, the game continued. Calvert planned the strategy, generously offering advice to all participants. He was particularly generous to the girls, showing them exactly how to grip the mallet and how to hit the ball.
The Australian’s see-through top might have gone unremarked, say, on the Cote d’Azur. There, topless sunbathers are common. Some sun lovers there are bottomless too. The locals become rather blasé about it.
But here in rural Poitou, she could not make a move without attracting notice.
“Here,” Calvert advised. “Bend over a little. Hold your left arm straight. Here, let me show you...”
Calvert stood as close to her as matter allows. He stretched her left arm out towards the shank of the mallet. His right arm drew her right are up closer to her chest.
Pierre watched with great interest. So did Henri. And Henry. And your editor too. At that point, it was perhaps not croquet technique that had our interest.
“Ahem...” said Pierre’s wife. “Is it my turn yet?”
“Calvert, maybe you could give Henry some tips,” suggested Elizabeth.
“I would be delighted to do so...” said Calvert letting go of the Australian.
The first rumblings from the kitchen began about this time.
“You little bas***ds!” yelled a voice entirely out of keeping with the genteel event Elizabeth had planned.
“Oh my...” said Elizabeth, smiling at Madame de Hugebert as she beat a quick retreat into the kitchen.
“What’s going on in here?” she asked. The boys were laughing. The cook was angry. Neither offered an explanation.
“Sorry,” said the cook sheepishly...languorously stirring a pot of soup.
With nothing forthcoming, Elizabeth returned to the party.
Addressing herself to Madame de Hugebert:
“You never know what you’ll get when you advertise for a cook. We’ve had French cooks, Swiss cooks, American cooks. Every year we try something new.”
“Well, why don’t you just find one you like and stick with her?”
“I’d love to...but they never seem to come back.”
Both women looked at each other awkwardly for a moment. In some social circles not being able to keep a cook is worse than forgery and only slightly less embarrassing than pedophilia.
Calvert was offering a lesson to the English girl. Henri was trying to be helpful too.
“Allow me to show you,” he said, putting his arm around her to show her the proper way to grip a mallet.
We thought he had just learned himself, about 15 minutes earlier. But he seemed to have enough of the technique to be able to pass it on.
“No...I think she should hold it a little higher up,” Monsieur de Hugebert interrupted. “Let me show her...”
“Hughes” said Madame de Hugebert... “You don’t know how to play croquet.”
“Yes I do. I learned it when I was a prisoner of the English in WWII.”
“Why were you a prisoner of the English?” Calvert asked.
‘What did you do during the war’ is a question you don’t ask in France. Everyone was in La Resistance. That’s all you need to know.
“It’s a long story,” Madame de Hugebert replied... “You Americans have a hard time understanding it.”
“She means he was on the wrong side,” Pierre’s wife whispered. “He was fighting for the Germans. They almost shot him as a traitor.”
Clang...smash...crash...suddenly an awful din arose in the kitchen.
“I’ll get you bas***ds!”
The doors of the kitchen were open. We could see what was going on this time. The two boys were running around the big kitchen table...followed by the cook with a meat cleaver in her hand.
Madame de Hugebert had a satisfied look on her face, as if she found a compromising photo hidden in the pages of the family Bible.
The boys took a couple laps, easily outpacing the cook. After all, they had an advantage of about 30 years and 100 pounds on her. Then, they exited through the open doors and kept going around the side of the house.
The cook slammed her meat cleaver into the carving board and then went back to stirring the soup.
The crowd on the lawn was speechless for a moment. Henri still had his arm around the English girl in the very tight, very short dress. The Australian girl had sat down in a beach chair and was attended by Henry and Pierre.
After a moment, Elizabeth smoothly picked up the conversation:
“Well, you never know what you will get when you hire a cook from Craigslist.”
“Let’s get back to the game,” Calvert added. Turning to the Australian, “I think it’s your turn.”
“I’ll help her this time,” said Pierre.
The Australian girl in the see-through blouse bent over to drive the ball towards the center wicket. Pierre bent with her, giving her pointers about how to aim and swing the mallet.
Henry seemed to bend a little too. And Calvert. And Monsieur Hugebert. All hearts beat in sympathy with the Australian girl...all eyes were upon her. She alone had her eye on the ball.
She whacked it solidly. It missed the wicket, continuing on to the far corner of the croquet court. It looked as though it would go out of bounds. But just as it crossed the 80 yard line, it took off like a rocket...straight up...along with bits of grass and dirt.
A loud ka-boom sounded. Everyone jumped. Startled. Mr. Hugebert ducked, perhaps guided by some ancient memory, and searched the sky for enemy aircraft.
And then, Damien appeared from around the corner of the house.
“Oh...I guess I forgot to take out one of the mines.”
Regards,
Bill Bonner,
for The Daily Reckoning
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Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com
| | | | What to Expect in 2013... |
Between 2004-2007, Bill Bonner and Addison Wiggin did their best to alert their loyal readers to the dangers of the housing bubble well before the mainstream said anything about it.
Well, today, they see something even worse looming just over the horizon.
It’s not often our Reckoner-in-Chief agrees to appear on-screen, but this was just too important.
Click here (or the image below) to see what they’re talking about now...
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