by David Stockman, International Man:
The trio of the Sanctions War, Green Energy Crusade and the Virus Patrol is a mortal threat to capitalist prosperity. That’s already evident in the Eurozone where these policy diseases are most advanced and where the real GDP growth rate has plunged by 74% from its pre-2008 crisis rate.
That’s right. The real growth rate in the E19 countries posted at just 0.67% per annum during the 14-year span between Q1 2008 and Q1 2022, which compares to 2.29% per annum during the equivalent period between 1995 and 2008.
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Eurozone Real GDP, 1995-2022
Moreover, the EU hari kari artists are just getting started. Notwithstanding the planned phase-out of Russian seaborne crude oil entirely by the end of 2022 and facing a potential total cut-off of Russian pipeline gas, these birdbrains are now planning a sixth round of sanctions on top of all the madness that has gone before.
Accordingly, Europe is heading for a rip-roaring stagflation, even as the monetary policy dial is still set on ultra-easy. That is, the ECB’s policy rate is still -0.25%, thereby creating a huge gap with the Fed’s policy rate which currently stands at +1.58% and is heading higher at a 75 basis points per meeting clip.
To be sure, both of these rates are utterly irrational in the face of 8%+ Y/Y inflation, but in the near term the current and prospective gap is so egregious as to literally sink the Euro’s exchange rate. It is now flirting with parity, meaning that its FX value against the dollar is down 15% in the past year alone, and more than 58% since the peak in mid-2008.
Needless to say, a collapsing FX rate is a classic recipe for surging imported inflation. So talk about behind the curve—the ECB is so far to the rear as to be scarcely visible.
What this means, of course, is that the ECB will be forced to hit the brakes hard as self-inflicted energy inflation surges and Europe’s headline CPI heads toward 10%. At the same time, real GDP growth will tumble back into the red, but the central bank will be in no position to bring on the stimmies. In fact, the brutal stagflation ahead will leave the ECB incoherent and paralyzed.
Nor is that the end of Europe’s headwinds. On top of sanctions, green energy roadblocks and monetary paralysis, you can also add fiscal incontinence. Eurozone debt is now pushing 100% of GDP, meaning that the headroom for fiscal stimmies has also been largely exhausted. That’s especially true because when you take Germany out of the equation, much of the rest of Europe led by Club Med has a public debt ratio of well more than 100% of GDP.
So the question recurs. What in the world is wrong with these people? Are they deliberately trying to sabotage society and even a minimum level of prosperity?
Eurozone Public Debt-To-GDP Ratio
For instance, last week German year-ahead power prices rose 19%; have almost tripled this year alone; and are up by more than 7X since early 2021. Benchmark European gas costs have also surged in a parallel manner.
So why in the world are European leaders being led around by the nose on the Ukraine matter by the neocon war-mongers of Washington?
Surely they are astute enough to see that what is happening in Ukraine is essentially a civil war in historic Russian lands; that the eastward push of NATO was a colossal mistake; and that Putin has neither the intention nor capacity to threaten the rest of Europe.
Likewise, it is hard to believe that the ostensible adults in charge of national and EU security policy actually believe Washington risible nonsense about “defending the liberal international order” and upholding the “territorial sovereignty” of nation-states.
After all, these are the same folks who facilitated the dismemberment of Yugoslavia and bombed Serbia for 71 straight days in 1999 in order to partion that country so that the Albanians of Kosovo could have their own sovereignty.
And when it came to the Taliban, Saddam Hussein and Moammar Khadafy what did the sanctity of borders have to do with it? Washington/NATO didn’t like these regimes and that’s all it took to unleash the bombers, cruise missiles and tank battalions across borders that had far more historic validity than those of present day Ukraine..