John Mauldin offers some of the most applicable thoughts for our times. And he does so repeatedly. I’d strongly recommend anyone who’s interested in understanding our financial climate to read John often.
Today he offers articles regarding Europe’s woes and what that means to you. An excerpt from Getting Simple about Europe is below. The rest of the articles are linked as well.
Solving the Mayan Code
To Solve the Crisis You Must Solve Three Problems
Getting Simple About Europe
How Much Risk Do You Want in a Government Bond?
Do You Have a Spare €1.5 Trillion?
Singapore, Cape Town, and Thoughts on Hong Kong
Getting Simple About Europe – excerpt
For most of the past two years, European leaders have tried to deal with the problems as though they were short-term liquidity problems: “If we just find the money to buy some more Greek bonds, then Greece can figure out how to solve its problems and then pay us back. Given enough time, the problem can get solved.”
They have now arrived at the understanding that it this not a short-term problem. Rather, it’s a solvency problem of the various governments, which of course creates a solvency problem for their banks. They are now addressing the problem of solvency and providing capital until such time as certain countries can get their budgets under control and the bond market sees fit to provide the capital they need.
But they are completely ignoring the third and largest problem, and that is massive trade imbalances. Germany exports products to the peripheral European countries, which run trade deficits. As I have shown in several letters, a country cannot reduce private-sector leverage, reduce public-sector leverage and deficits (balance its budget), and run a trade deficit all at the same time. That is simple, unavoidable math, based on 400 years of accounting understanding. Ultimately, there must be a trade surplus if leverage and debt are to be reduced.