Friday, May 31, 2013

Europe and Its Politicians

Europe's unemployment rate increased once more -- now at 12.2 percent.  This is the highest level since data collection on European unemployment began in 1995.  Expect new records ahead.

Too bad if you are young and live in Europe.  The unemployment rate is above 25 percent for those under age 25 almost everywhere in Europe and is well above 40 percent in places like Spain and Italy (lets not talk about Greece...their data, at this point, is probably suspect).

Meanwhile, the IMF has noticed that taxpayer bailouts mainly enrich hedge funds.  Why?  Because after sovereign debt collapses in price, hedge funds come in and buy it for 20 cents on the dollar and then sit back to wait for the bailout.  So, who wins.  The average taxpayer simply transfers large amounts of private wealth into the coffers of rich hedge fund tycoons.  Great policy!

It is now dawning on the IMF that restructuring sovereign debt (meaning a controlled bankruptcy) is a far better idea.  It puts the losses where the losses belong and doesn't end up using taxpayer wealth to subsidize hedge funds.  Wonder what took the IMF so long to understand what has been painfully obvious since this whole process began?

The assumption that Europe's problems were temporary and could be solved by taxpayer bailouts was an absurd assumption.   Just one look at European government spending and government revenues would convince anyone with a modicum of common sense that Europe's debts are unpayable.  There is no way out by the simple expedient of 'temporary' bailouts.  The numbers don't work and the sooner that is acknowledged the better.

Now that hundreds of billions of Euros of ordinary Europeans citizens' wealth has been siphoned off into the pockets of hedge funds by these absurd bailout policies, the IMF shows signs of waking up.  It's a bit too late, unfortunately.  Europe's problems are now far worse.  If Greece has been permitted to default on their sovereign debt four years ago, Europe would now be in a much better place.  But, politicians stepped in. 

The only way to reform Europe is to begin the process of controlled bankruptcies across the entire Eurozone.  It will be painful.  But, there is no choice.  Europe will end up with either a controlled bankruptcy or an uncontrolled bankruptcy.  That's the real choice.

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