Sunday, July 13, 2014

The Portugal Flap

Stock markets took a breather this past week because of troublesome news from a Portuguese bank.  This is how it all begins.

American banks are healthy.  In fact, too healthy.  The slowdown in the US reflects the lack of risk taking in the financial sector.  Those who have an antipathy to capitalism welcome this lack of risk taking.  Most Americans, listening to the press and the current US government, believe that if you lose money, there must be something criminal lurking around -- especially if you are in the financial services industry.  Slow or non-existent economic growth is the price America is paying for nonsensical economic policies and a virulent anti-capitalist orientation of its government.

Europe is a different story, leading to a similar, if possibly worse, result.  Europe is trying to patch up a Eurozone that is an economic and fiscal disaster.  Instead of trying a free market solution, Europe is trying to jawbone it's way to prosperity by greatly expanding its indebtedness.  There is no good ending for Europe.  Sooner or later, Europe will default on its debts. 

Germany, once in reasonably good shape, has now underwritten almost the entire Eurozone.  Even Germany will be forced, eventually, into a default of some type.  No economy in the world has ever grown as fast as European debt has grown, so what hope is there for Europe.  None.  So Mario Draghi can drone on and on about how he is saving Europe, much as Neville Chamberlain returned from Munich in 1938 saying that he had saved world peace.

Bad economic policies usually result from ignorance, but it is hard to make that argument in the modern world.  We know enough to avoid the economic stagnation that plagues the western world.  But, politicians have agendas.  Trying to solve every problem, real or imagined, leads to government without limit.  When news media discuss the economy of the US or Europe, invariably they discuss the views of politicians or economists who have established themselves as opponents of free markets.

It's not about economics anymore, it's about politics -- who gets what.  Inevitably, the average citizen loses out.  Free markets are the only real hope for the average citizen, but the politicians and the rich and powerful don't need free markets, when they can direct taxpayer money to themselves without producing much of anything.

Europe and the US won't have economic growth until free markets are restored.  That seems to be a long way off.

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