So says City AM editor, Allister Heath. In an extended editorial this morning he wrote an elegant piece that summarises where we all are at:
The post-Bretton Woods era is coming to an end. Asia and the emerging nations are on the rise – and the world’s increasingly vocal creditors. As economic power shifts, so will geopolitical and cultural influence. The US, which for decades enjoyed massive inflows of cheap financing, and huge benefits from owning the world’s reserve currency, needs to start to live within its means. The same is true of Europe, which faces two additional challenges: the Eurozone, which cannot survive in its present form and which has become the most urgent threat to global prosperity; and (even more than America) bloated welfare states and a generalised failure to grasp that weak education systems, high taxes and crippling regulations are a no-no in a globalised world.
He has no time for the endless budget deficits and the abuse of fiat currencies as ways to evade reason...
“stimulus” packages of the fiscal or monetary variety have become counter-productive, with every extra pound in economic output created coming at a much greater cost. Ultimately, one needs real, sustainable growth – and that must mean deferring consumption to allow the savings required to finance productive investment; a sound, non-manipulated currency; interest rates that reflect reality; and lots of hard work, creativity, skill and innovation, suitably incentivised. The pseudo-Keynesian micro-management that dominates policy-making is not only intellectually bankrupt but has been proved to fail in practice. Politics and wishful thinking has been defeated by economic reality. In a world of scarce resources, we need to produce before we can consume – all the borrowing and money-printing in the world cannot refute this simple truth.
His big predictions are that the US can prevaricate for some time, and be in long term relative decline as it does, but the European Union has an immediate crisis, that now threatens to spread beyond the CPIIGS (Cyprus, Portugal, Ireland, Italy, Greece and Spain) into Belgium and France.
But while the US’s decline could run for decades, and will involve further downgrades, the Eurozone’s crisis is urgent. The only question is how much debt the authorities will want or be able to federalise – how many toxic government bonds will the European Central Bank and the European Financial Stability Facility buy, in exchange for creating money or issuing Eurobonds backed by all Eurozone countries. Prudent taxpayers in Germany and elsewhere will pick up the bill left by profligate nations; but given its huge, multi-trillion euro size, this could destroy yet more credit ratings. France could be next for a downgrade. Even more importantly, a sovereign bailout will destroy any remaining popular support for the euro project, especially in Germany, understandably so given that the population was lied to when it was told that countries would retain their fiscal independence despite giving up monetary sovereignty.
The implications of this for Europe, could be positive if it unshackled itself from the socialist part of the EU project, and helped set its economies free, but it is unlikely that will happen.
The more serious concern ought to be about the decline of the United States, what is means not so much for the global economy, but for the international order. For decades many in the West have rallied against Pax Americana, more than a few will cheer a New World Order that does not resemble what George Bush (Sr.) declared at the end of the Cold War.
However, bear in mind what it represents. It means Asia being dominated militarily as well as economically by China, and India, both nuclear powers. It means the Middle East being dominated by Saudi Arabia and Israel, it means Europe being dominated by NATO and Russia, and it means the United States doing what Obama has royally done, opting out of the world by withdrawing.
The so-called "peace movement" will proclaim the world is a safer place as a result, although if it is a place where the United States no longer carries a banner, and sword, for freedom, one wonders how true that will be (not that the "peace movement" ever believed in freedom). Some US libertarians welcome this, not wanting the US to be "World Police" (not that it ever really was), but what it leaves is a philosophical vacuum - one that is increasingly filled with "make money wherever you can regardless of individual or property rights" as the Russia and Middle Eastern kleptocracies move forward and China seeks a 21st century imperialism over African natural resources to replicate the 19th century Western equivalent. Islam may fill part of it, corporatist state capitalism will fill some more, as will knuckle-dragging nationalism based on ethnicity.
However, consider this. If you were in Poland, with a relatively chilly authoritarian neighbour to the east, and you saw the US withdraw its presence in Europe - given the past 70 years of history - would you be feeler safer as a result?