World View: Eurozone and Obamacare Continue Parallel Economic Collapse
- Euro crisis returns as yields spike in Portugal and Spain
- Wall Street stock valuations reach new recent high
- Obama Administration postpones major Obamacare provision
- President Richard Nixon's Wage-Price controls
- Mao Zedong's Great Leap Forward
- What can we expect from Obamacare?
Euro crisis returns as yields spike in Portugal and Spain
10-Year bond yields Spain 4.77% and Portugal 7.47% on 3-July-2013 (Bloomberg)
With the postponement of a crucial part of Obamacare and a new bond
crisis in Europe, Obamacare and the euro currency appear to be collapsing
in parallel as the global financial crisis continues to worsen and
heads for worldwide panic.
Portugal's government is collapsing because its austerity measures
are failing. Portugal's government had to agree to the austerity
measures in May 2011 in order to receive a 78 billion euro bailout.
Since then, Portugal has been feted as an example of a country
doing the right thing. But unemployment is at 17.6%, and
there are 932,000 people without jobs. Two cabinet ministers
resigned this week over bitter disagreements over the financial
But Europeans are panicking since the real bombshell occurred on
Wednesday, when Portugal's 10 year bond yields briefly spiked up above
8% before falling back to 7.47% by the end of the day. This is the
market interest rate that Portugal will have to pay and investors are
demanding if they're going to lend money to Portugal by purchasing
bonds. Everything about 6% is considered unsustainable, since debt
keeps growing exponentially. (For comparison, the yield on U.S. 10
year Treasuries is 2.5%. For Germany, it's 1.65%.).
If you look at the above graphs, you can see why people are suddenly
panicking. Beginning in May, Portugal's bond yields started spiking
up again, and the trend line is up again. Apparently, Portugal is
going to need another bailout. Furthermore, the "contagion" issue is
rising, as Spain's bond yields are also going up, though not as
quickly as Portugal's.
What happened in May? Well, there were the disastrous unemployment
figures that were announced in April. Also, there was the disastrous
Cyprus bailout that was completed in April. Since then, there has
been bad economic news almost every day, and investors are responding
to that by demanding higher and higher interest rates on Portuguese,
Spanish and Italian bonds.
As the eurozone heads into the next crisis round, it's well to
remember that nothing that the European politicians say can be
believed. I've documented many overt lies by these politicians during
the various Greek bailout crises. In fact, Jean-Claude Jüncker,
chairman of the Eurogroup finance ministers at the time of one of
these crises, was quoted as saying, "When it becomes serious, you have
As I've said many times, there's a good reason why the European
politicians can't agree on a solution to the euro crisis. It's not
because there are three or four really good solutions, and they can't
agree which one to take. It's because there are no solutions at all,
and all they can do is cover themselves and hope that somebody else
will be blamed when the inevitable total disaster comes. In the
meantime, they'll make up numbers that are obviously false, and the
credulous mainstream press will simply repeat them. BBC
Wall Street stock valuations reach new recent high
According to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock
valuations) on Friday (June 28) morning was 18.41, which is a new
recent high and astronomical by historic standards, indicating that
stocks are far overpriced, and the bubble is worse than ever. The
bubble started growing again when the Fed reversed itself and said
there are no plans in the foreseeable future to end the $85 billion
per month quantitative easing program. The historical average is 14; as recently as 1982, the index was down to 6. It appears to be
headed that way again, which means that the Dow Industrials will fall
to below 3000.
As I've written many times, the financial analysts on CNBC and other
mainstream financial media lie about stock valuations constantly,
claiming that stocks are "cheap," and P/E ratios are around 9 or 10.
(See, for example, "14-Apr-12 World View -- Wharton School's Jeremy Siegel is lying about stock valuations" from earlier this year.) Whether it's politicians
in Europe or Washington, or analysts on CNBC, lies and fraud and
extortion have become the norm today.
Obama Administration postpones major Obamacare provision
When Obamacare was announced in 2009, I called it "a proposal of
economic insanity," and I've said repeatedly since then that it can't
be implemented. (See "Obama's health plan, a proposal of economic insanity, appears to be losing support" from 2009.)
I made this statement because I've seen this movie before. Obamacare
is worse than Nixon's 1970s wage-price controls, and those were an
The 1970s movie is continuing as the administration postpones the
business mandate for a year. Just as Nixon's wage-price controls were
so disastrous that they collapsed of their own weight, Obamacare is
doing the same.
Unfortunately, they waited so long for this postponement that most of
the damage has already been done. Millions of businesses have already
changed their policies to reduce employment, or to keep part-time
employment below 30 hours per week, and they now have no incentive to
reverse direction since they're facing the same disastrous policy in
2015. This means that the poor and minorities will find it even
harder to find jobs, which means that they won't have any health
insurance at all.
The only core thing left is the "individual mandate." So now we're
supposedly going to hear how perfectly young, healthy poor people are
going to be forced to buy a government-endorsed health policy or pay
a large fine. This disaster is far from over.
And just like the European politicians and the analysts on CNBC,
President Obama and the politicians who work for him are
accomplished liars who will say anything they can get away
It was just a couple of weeks ago the President Obama said that the
Obamacare implementation was on track while others were pointing out
that it that it was facing massive problems. Obama probably knew
months ago that this announcement would have to be made, but he
decided to lie constantly since then, just like Jean-Claude Jüncker,
who said, "When it becomes serious, you have to lie." AP
President Richard Nixon's Wage-Price controls
The collapse of this factory building in Dhaka, Bangladesh, on April 24, containing 3,120 workers, of whom 315 were killed and over 1500 injured, is a good symbol of the catastrophic collapse of certain economic policies
Obamacare is supposed to impose government controls on the
entire medical services sector of the U.S. economy. A person
would have to be exceptionally stupid to believe that's
even possible, but here we are.
With the business mandate now postponed, and with the individual
mandate likely to be postponed, it's possible that the entire
thing will be canceled, sparing the country an economic disaster.
But if the mandates are implemented, we can get an idea of what will
happen by looking back at Nixon's wage-price controls. The following
summary is from a paper, Nixon wage-price controls - Forty Years After The Freeze, by
William N. Walker, who worked for President Nixon and played a major
role in the implementation.
Obamacare has been an enormously divisive issue among the American
people, but Nixon's wage-price controls were extremely popular among
both Democrats and Republicans. The inflation rate was 4%,
and the American people thought that government could do anything,
particularly lower the inflation rate. So Nixon announced
a wage-price freeze on August 15, 1971.
The rules were simple in the first phase: neither prices nor wages
could increase, period. Virtually the only exception was raw
agricultural products. As one politician said, "Remember, Virginia,
when it’s a cucumber you can raise the price, but when it becomes a
pickle, it’s frozen."
Powerful bureaucracies were set up to control inflation. First there
was a Cost of Living Council, and after 90 days there was a Price
Commission to control prices, and a separate Pay Board to limit wage
At first, everything seemed OK and the inflation rate actually fell
to below 3% in the next few months. But by June 1972, less than a
year later, the inflation rate started climbing sharply,
as "Phase III" was being introduced. According to Walker:
What no one understood at the time was that economic
conditions had undergone a profound and dramatic change. The cycle
of wage-driven price hikes had been broken during Phase II. But
government and private forecasters uniformly failed to recognize
that demand had begun putting such severe pressure on supplies
that within a matter of months, prices of virtually all
commodities -- foodstuffs, minerals and petroleum -- would
explode, reaching historic highs. The rate of inflation shot up to
11% by the summer of 1973, leaving Phase III in
Then the Administration got tougher and started threatening
major industries. The Cost of Living Council targeted
major U.S. oil companies for price increases, and the IRS launched an immediate investigation. (As we now know, the
Obama administration's IRS is also targeting political enemies
with investigations.) Similar threats were made to the food
By mid-1973, there were gasoline shortages and food price
increases, according to Walker:
The Administration had anticipated some pressure on
food prices during the first half of 1973 and had retained
mandatory, though looser, controls over the food industry during
Phase III. The results, however, were worse than even the most
pessimistic predictions. During the first quarter of 1973,
consumer food prices shot up at an annual rate of 29.8% while the
wholesale price index for farm products rose at an annual rate of
51.9%. Red meat prices alone surged at an annual rate of 90%
during the quarter.
There were more regulations, more investigations, and more
freezes, but prices continued to skyrocket, with the inflation
rate topping 12% (that's TWELVE percent) by the end of 1974.
The program ended on April 30, 1974. It was a disaster for the
U.S. economy from which it didn't recover until the Reagan
administration a decade later.
Mao Zedong's Great Leap Forward
Another drastic government economic program that led to disaster was
Mao Zedong's Great Leap Forward, implemented in China in 1958. The
following summary is from John King Fairbank's 1986 book, The Great
Chinese Revolution 1800-1985.
500 million peasants were taken out of their individual
homes and put into communes, creating a massive human work force. The
workers were organized along military lines of companies, battalions,
and brigades. Each person's activities were rigidly supervised.
Mao's stipulated purpose was to mobilize the entire population to
transform China into a socialist powerhouse -- producing both food and
industrial goods -- much faster than might otherwise be possible.
This would be both a national triumph and an ideological triumph,
proving to the world that socialism could triumph over capitalism.
The individual peasants and managers were required to report the
size of the crop harvests up the line to the central government,
but there was no way to guarantee that the reports were accurate.
On the one hand, there was no economic incentive for the farmers
and managers to provide accurate reports, since everyone in a
socialist society is paid the same ("according to his need").
On the other hand, there was no independent check of the crop
harvest estimates. If the population had been much smaller, then
the central government might have been able to send out enough
bureaucrats to check the reports or at least do spot checks. But
with about a billion peasants, no such meaningful checks were
For the farmers and managers themselves, there was plenty of
political incentive to over-report the crop harvest results.
Early in 1959, and again in July 1959, officials in Mao's government
had begun to see that the program was failing. Their objections were
rewarded with punishment. Mao was determined to follow his
ideological course, no matter what else happened.
As a result, even though actual crop yield in 1959 was a little
smaller than it had been in 1958, the crop reports added up to an
enormous increase in production, more than a doubling of output.
By the time that Chairman Mao was finally ready to accept the
situation, it was too late. There was too little food to feed
everyone, and tens of millions died of starvation.
Chairman Mao was disgraced by the disastrous failure of the Great Leap
Forward, and his critics proliferated.
What can we expect from Obamacare?
Hopefully, the postponement of the business mandate is the first sign
of a total collapse of all the Obamacare mandates. If that doesn't
happen, then history tells us that the results will far worse than
even the most pessimistic forecasts: massive doctor shortages, massive
insurance shortages, massive price increases for insurance and
services, poor medical services, shortages of medicines and medical
devices, and so forth. Furthermore, assume that every politician,
especially President Obama, will lie almost every time he opens his mouth.
No matter what happens, parts of Obamacare will still survive -- like
the parts about preexisting conditions, or parents insuring their kids
to age 26. Whatever parts remain, Obama will claim that Obamacare is
a success because those things have been implemented, and he will get
his political legacy anyway.
Whether in Europe or America or China, politicians are always the
same: No matter how much damage and destruction they cause, they
always make sure that they come out on top.
KEYS: Generational Dynamics, eurozone, Portugal, Spain,
Jean-Claude Jüncker, price/earnings ratio index, CNBC,
Richard Nixon, Obamacare, William N. Walker,
wage-price controls, Cost of Living Council,
Price Commission, Pay Board,
China, Mao Zedong, Great Leap Forward
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