EDITOR’S COMMENT: The above cartoon image accurately portrays how a number of us feel about the impending out-of-control disaster of entitlement spending, and how the Obama Administration is not preparing for it. This commentary provides great insight into the plight of the average hard-working American worker, while exposing those, who exploit the nation’s so-called “safety net.” “At this point, an astounding 49 percent of all Americans live in a home that receives some form of government benefits.”

Unfortunately, the number of those living off of government entitlements is rising sharply, no matter which entitlement program you examine. As New Jersey Governor Chris Christie recently put it this way….“It’s because government’s now telling them, stop dreaming, stop striving, we’ll take care of you. We’re turning into a paternalistic entitlement society … then we’ll have a bunch of people sitting on a couch waiting for their next government check”

By The Economic Collapse

Which lifestyle choice produces better results – being a hard working American or being a government parasite?  Actually, when you look at the cold, hard numbers they may just surprise you.  In America today, we deeply penalize hard work and we greatly reward government dependence.  If you live in a very liberal area of the country and you know how to game the system, it is entirely possible to live a comfortable existence without ever working too much at all.

In fact, there are some Americans that have been living off of “government benefits” for decades.  Many of these people actually plan their lives around doing exactly what they need to do to qualify for as many benefits as possible.  America is rapidly turning into a European-style socialist welfare state and it is destroying our nation socially and financially.  Ever since the “war on poverty” began our debt has absolutely exploded and yet now there are more poor people in this country than ever before.  Obviously something is not working.

Now don’t get me wrong.  I deeply believe in having compassion for those that are going through tough times and having a safety net for those that cannot take care of themselves.  We should not have a single person in this nation going without food or sleeping in the streets.

But in America today it is absolutely ridiculous how many people are climbing aboard the “safety net”.  At this point, an astounding 49 percent of all Americans live in a home that receives some form of government benefits.

So who pays for all of this?

The people that drag themselves out of bed and go to work each day pay for it all.

For a few moments, let’s examine how the lifestyle of a typical hard working American compares to the lifestyle of a government parasite.

In America today, the median yearly household income is somewhere around $50,000.  About half of all American households make more than that and about half of all American households make less than that.  When you break it down, it comes to about $4000 a month.

So how far does $4000 go in America today?

Unfortunately, it doesn’t go very far at all.

First of all, a hard working American family will need some place to live.  Unfortunately, the vast majority of the decent jobs are near the big cities, and it is more expensive to live near the big cities.  Let’s assume that an average family of four will spend about $1000 a month on rent or on a mortgage payment.

The government parasite, on the other hand, has a whole host of federal, state and local housing programs to take advantage of.  During the recent economic downturn, more Americans than ever have been turning to the government for help with housing costs.  For example, federal housing assistance outlays increased by a whopping 42 percent between 2006 and 2010.

Once you have a place to live, you have to provide power and heat for it.  For the average hard working American, this is going to probably average about $300 a month, although this can vary greatly depending on where you live.

For the government parasite, there are once again a whole host of government programs to help with this.  For example, LIHEAP (Low Income Home Energy Assistance Program) assists low income households in paying their home heating bills.

Most average hard working Americans are also going to need phone and Internet service.  Let’s assume that the hard working family of four in our example is extremely thrifty and only spends $100 a month for these services.

For the government parasite, cell phone service is not a problem.  As I have written about previously, those that “qualify” can receive a free cell phone and free cell phone minutes every single month from the federal government.  In addition, in some areas of the nation low income families can qualify for deeply subsidized home Internet service.

In order to earn money, our hard working family is going to need to get to work.  In most households, both parents have decided to work these days so both of them will need cars.  Let’s assume that the family is very thrifty and that both cars were purchased used and that the car payments only total about $400 a month.

The hard working family will also need auto insurance for the two vehicles.  Let’s assume that both parents have a great driving record and that they only pay a total of about $100 a month for car insurance.

The cars will also need to be filled up with gasoline.  The average U. S. household spent $4155 on gasoline during 2011, but let’s assume that our family is very, very careful and that they only spend about $300 on gas each month.

So what about the government parasite?  Well, the government parasite does not need to go to work, so this expense can potentially be eliminated entirely.  But since most other things are paid for by the government or are deeply subsidized, in many instances government parasites are actually able to afford very nice vehicles.

In addition, a new bill (The Low-Income Gasoline Assistance Program Act) has been introduced in Congress that would give “qualifying” households money to help pay for gasoline….

Low-Income Gasoline Assistance Program Act – Directs the Secretary of Health and Human Services to make grants to states to establish emergency assistance programs to pay eligible households for the purchase of gasoline.

A hard working American family is also going to need health insurance.  Well, we all know how expensive health insurance has become.  In fact, health insurance costs have risen by 23 percent since Barack Obama became president.  But let’s assume that our hard working family has somehow been able to find an amazing deal where they only pay $500 a month for health insurance for a family of four.

For the government parasite, health insurance is not needed.  If there is an emergency, the government parasite can just go get free medical care at any emergency room.

And of course there is always Medicaid.  Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, one out of every 6 Americans is on Medicaid, and things are about to get a whole lot worse.  It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

So what about food?

Everyone has to eat, right?

Well, the hard working family in our example is faced with an environment where food prices are constantly rising but paychecks are not keeping up.  Let’s assume that the hard working family in our example clips coupons and cuts corners any way that it can and only spends about $50 for each member of the family on food and supplies each week.  That comes to a total of $800 a month for the entire family.

So what about the government parasite?

Government parasites need to eat too.

Well, that is where food stamps come in.  Right now, there are more than 46 million Americans on food stamps.  Since Barack Obama became president, the number of Americans on food stamps has increased by 14 million.  Food stamps have become so popular that rappers are even making rap videos about using food stamp cards.

Okay, so after all of this where do we stand?

Well, the average hard working family so far has spent $3500 out of the $4000 that they have to spend for the month.

We still need to find money for clothing, for paying off credit card debt, for paying off student loan debt, for dining out, for entertainment, for medications, for pets, for hobbies, for life insurance, for vacations, for car repairs and maintenance, for child care, for gifts and for retirement savings.

But wait.

There is actually no money left at all because we have forgotten one of the biggest expenses of all.

Taxes.

When you total up all federal, state and property taxes, our average hard working family is going to pay at least $1000 a month in taxes.

So that puts our average hard working family in the hole every single month.

Meanwhile, the government parasite does not pay any taxes because he or she does not earn enough money to be taxed.

Are you starting to get the picture?

In many ways, life can be so much easier when you are constantly taking from the government instead of constantly giving to the government.

New Jersey Governor Chris Christie recently put it this way….

“We’ll have a bunch of people sitting on a couch waiting for their next government check”

Once again, I am not dumping on those that have been through all kinds of nightmares because of this economy.  As I have written about so frequently, the U.S. economy is simply not producing enough jobs for everyone anymore, and this is creating major problems.

Just about everyone needs a helping hand at some point, and we should always be compassionate to those that are in need.

However, there is also a growing number of Americans that are content to simply give up and live off of the government, and that is fundamentally wrong.

It is not the job of the U.S. government to take care of you from the cradle to the grave.  What the U.S. government is supposed to do is to make sure that we have a well functioning economy that operates in an environment where hard working individuals and small businesses can thrive, and sadly the U.S. government has failed miserably in that regard.

We desperately need the U.S. economy to be fixed, but I wouldn’t hold my breath waiting for that to happen.

As economic conditions get even worse in this country, millions more Americans are going to turn to the government for assistance and at some point the safety net is going to break.

What is our country going to look like when that happens?   (my emphasis)

By The Economic Collapse Blog

By permission The Economic Collapse

http://theeconomiccollapseblog.com

Europe Rocked by Spanish Banking Crisis – Independent   “The flames of the eurozone crisis leapt higher yesterday, as fears spread about the state of the Continent’s most vulnerable banks. … Shares in the Spanish lender, Bankia, plummeted 30 per cent at one stage in trading, following a report that customers had withdrawn €1bn in deposits since the Madrid government was forced to part-nationalise the bank last week.”

Cost of Greek Exit from Euro Put at $1 Trillion – Guardian   “UK government making urgent preparations to cope with the fallout of a possible Greek exit from the single currency. Either Europe has a committed, stable, successful eurozone with an effective firewall, well capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the eurozone, or we are in uncharted territory which carries huge risks for everybody.”

Too Much Agreement Means More Entitlements – Washington Post   “Now, with Europe’s turmoil dramatizing the decadence of entitlement cultures and with American governments — federal, state and local — buckling beneath unsustainable entitlements, Congress is absent-mindedly creating a new entitlement for the already privileged. Concerning the ‘problem’ of certain federal student loans, the two parties pretend to be at daggers drawn, skirmishing about how to ‘pay for’ the ‘solution.’ But a bipartisan consensus is congealing: Certain student borrowers — and eventually all student borrowers, because, well, why not? — should be entitled to loans at a subsidized 3.4 percent interest rate forever.”

By John Rubino for Dollar Collapse

Europe’s leaders — that is to say German Chancellor Angela Merkel and the bureaucrats running the various eurozone agencies from Brussels — have looked into the abyss and don’t like what they see. Specifically, a default and departure by even a relatively insignificant country like Greece might start a contagion that cripples or destroys the whole eurozone.

So despite the posturing now going on about a Greek exit being manageable and that there should be no give in core country demands for peripheral austerity, that’s just for show. The bureaucracy will do just about anything to avoid finding out what’s on the other side of a Greek departure. Today the hints of a softening began:

Greece Gets Hint of Leeway From Euro Officials
European governments hinted at giving Greece extra time to meet budget-cut targets, as long as the financially stricken country’s feuding politicians put together a ruling coalition committed to austerity.

Calling talk of a Greek pullout from the euro “nonsense” and “propaganda,” Luxembourg Prime Minister Jean-Claude Juncker said only a “fully functioning” Greek government would be entitled to tinker with the conditions attached to 240 billion euros ($308 billion) of rescue aid.

“The government would have to stand by the program,” Juncker told reporters after chairing a meeting of euro-area finance ministers in Brussels late yesterday. “If there are dramatic changes in circumstances, we wouldn’t close ourselves off to a debate over extending the deadlines.”

Some thoughts

When eurozone bureaucrats describe a Greek departure as “nonsense” and “propaganda” that’s of course what they have to say to avoid giving up the game immediately. They know a Greek exit is possible and maybe inevitable, but to keep it from becoming a self-fulfilling prophecy they have to pretend that things are under control. Always assume heated denials from government officials are lies because most of the time they are.

Before this is resolved, the eurozone will make some truly breathtaking offers of leniency to Greece, but by then it will be clear that if Greece accepts, the cost of extending the same deal to Spain and Portugal will be ruinous — or highly inflationary.

Looked at another way, if Greece does leave the eurozone, then the headlines will stay the same, but with Spain and Portugal in place of Greece. The crisis can’t end until all the PIIGS countries are made solvent, which is to say until the ECB buys up all their debt.

The probable result: by year-end the currency war will be in full swing, with the ECB, the Fed, and the Bank of Japan operating in helicopter mode. The precious metals markets haven’t begun to anticipate this yet, but they will, once the Greek negotiations get down to specifics.     (my emphasis)

By John Rubino for Dollar Collapse

By permission John Rubino

http://dollarcollapse.com

Systemic Risk Is Everywhere – USA Watchdog   “The monster downside to all the bailouts to prop up the system is the devaluing of the U.S. dollar and the destruction of the credit worthiness of America.  There is another downside to the policy of privatizing the profits and socializing the losses, and that is the loss of confidence of the U.S. dollar as the world’s reserve currency.  It will come down to the Fed choosing between the banks or the buck.  It looks like the dollar will be sacrificed on an altar of insolvency.  It is clear, systemic risk is everywhere.”

Territorial Tax System For U.S. Would Improve Global Competitiveness – Investor’s Business Daily   “This much needed reform has been advocated by the Simpson-Bowles Commission, the President’s Export Council, the chairman of the Committee on Ways and Means, and other prominent congressional and business leaders. Moreover, America is alone among G-8 nations in maintaining its long-arm taxation of homegrown companies.”

States and Cities Going Private With Infrastructure Investment – Real Clear Markets   “Enter the private sector, where investors are demonstrating a willingness and capability to partner with governments to modernize and expand infrastructure, according to Reason Foundation’s recent Annual Privatization Report 2011. The report finds that the amount of capital available in private infrastructure equity investment funds reached a new all-time high last year.”

King World News again had some very interesting comments on its site from an interview with acclaimed money manager, Caesar Bryan from Gabelli & Co., regarding his current thinking on gold itself and the mining shares.

He comments that “The fundamental story for gold has not changed, and if it has, it has changed for the better. There is simply too much debt, both here and in Europe.  In this environment of too much debt, you are faced with defaults on one hand or money printing and inflation on the other.  Both scenarios are positive for gold, but we have to endure these sharp pullbacks.”

Most interesting, however, are his calculations on how many more ounces of gold you can control or “own” by buying the mining shares, as supposed to simply buying the ETF’s.

This is a very worthwhile commentary, and you can read the rest of his brief interview here.

EDITOR’S COMMENT

By Chris Mayer

“About eight years ago, I was going down the elevator of a hotel in Las Vegas with a friend of mine,” Arnaud Karsenti told me. “The elevator skipped the 13th floor. And my friend said to me, ‘How come there is no 13th floor? What a bunch of wasted space!’”

The lack of a 13th floor comes from the same fear that prevents people from walking under ladders or causes them to shiver when a black cat crosses their path. But Arnaud decided to make a business out of it. The idea is to find value where others fear to go.

Arnaud is the managing principal and co-founder of 13th Floor Investments. The firm manages the Florida Real Estate Value Fund, which, as the name implies, focuses on real estate value investing in Florida. Recently, while in South Beach, I tried to catch up with Arnaud, but our mutually jangled schedules couldn’t mesh. We talked later by phone a couple of times.

I want to share what Arnaud and 13th Floor are up to, because you’ll get a fascinating ground-floor view of what’s happening in real estate in the post-bust world. There is also much investing wisdom in what he shared. Finally, the Florida Real Estate Value Fund itself is a fine alternative investment idea. (Later in this letter, we’ll look at another opportunistic way to play distress in real estate.)

Arnaud and I started talking about how there can be a big gap between the big picture and the view on the ground.

“There’s been a lot of conflict in the data,” Arnaud told me. “Housing is a great area where you can take out the paper every day and read about pricing going down or unemployment pressures, yet the local data in Dade and Broward counties [in Florida] indicate a reverse trend. One challenge for us is to decide what we believe and try to cut through some of the noise of the big macro stuff to really understand what’s going on.”

To do this, Arnaud and his team rely on the good old spadework of due diligence. His business partner, Robert Suris, is a local developer and contractor with a keen sense of property value. Together, they meet with builders and bank presidents and dig into local markets.

This helps avoid the two big problems with the big-picture statistics: They are backward looking and tend to paint with too broad a brush. Still, Arnaud says there are unmistakable big-picture trends unfolding in real time that are worth paying attention to. He highlighted some important ones:

Housing has bottomed. Housing sales and starts are as low as they’ve been going back to the 1960s. Prices have fallen and interest rates are at all-time lows. In most markets, it is now cheaper to buy than rent. Strong rental yields help set something of a floor under prices. There is still a lot of distressed inventory, which is an opportunity that investors slowly munch away on.

There is a continued influx of foreign buyers. Buyers from South America in particular fuel a lot of activity in South Florida. Arnaud noted they typically pay all cash. They also focus on Miami’s urban core. To a Brazilian, Miami is cheap. While I was in South Beach, I was not surprised to hear so much Spanish. I was surprised to hear so much Portuguese.

Money is cheap. The amount of money sloshing around and the cost of that money drive real estate activity. With interest rates at all- time lows, some rental properties already trade above pre-recession levels. Cheap money won’t last forever, but with the Fed committed to low interest rates to 2014, it seems unlikely to change soon.

A shift from homeownership to renting. The homeownership rate dropped big-time when the bubble popped. After peaking at 69.4% in 2004, the national homeownership rate is now the lowest it’s been in 13 years. There are a lot more renters now, and not only because of the stresses of the bust.

“It used to be that people got married and then they’d move into a house,” Arnaud said. “Now people do that in their 30s. If you look at what people are doing for that extra 10 years of single life, you see that they are spending more time renting.”

Let this speak to the danger of looking too much at past statistics and thinking that they will automatically revert to some magical mean (or average) of the past. “You can’t just pick one statistic and then assume that things are going to revert to the mean because the mean itself changes,” Arnaud said. “Secular changes within a trend can affect the mean permanently.”

I asked Arnaud about how long of a window he thinks we have to pick up bargains in real estate. His answer was it depends on the property type and location.

“In Miami, forget about it,” he said. “Apart from a couple of special situations that we are involved in, I think it is very hard to find distressed opportunities in Miami right now, as most of it has been picked through. The world has decided that ‘Miami is back.’ It’s almost a boom-like feeling. I thought it would’ve haven taken longer to come back. But it’s right here before us now. People are developing everything from condominiums and multifamily to retail and hotels.”

Arnaud’s fund, though, is not purely focused on distressed opportunities, nor is it focused on Miami. “It’s just that distress has been where the most opportunity and action have been in the last couple of years,” he said. “And we’re not focused just in Miami. We have a minority of our holdings in Miami. We’re very active in other parts of Florida, such as Naples and Fort Myers. And we’re starting to get active in Orlando.”

The challenge is to balance value investing principles with growth. “If you read about Seth Klarman’s investing approach, for instance, it’s all about buying below book value, below liquidation value, below replacement cost [or the cost to rebuild].” Klarman, as you may know, is a great investor. His Baupost Group has delivered a nearly 500% return to its investors over the past 11 years, while the market rose 7%.

“If you do your job right as a value investor, you’re going to benefit from the growth whether you like it or not. But if you rely strictly on your value investing lens, you may miss out on some growth opportunities,” Arnaud warns. “Still, as an opportunistic value guy, you have to be able to live with the trains you didn’t catch.”

There are other pitfalls in being too cheap. “One of the dangers of value investing in real estate is buying the wrong product,” he said. “Buying something at a big discount to replacement cost could be a mistake. We just passed on a deal that we could still buy for below replacement cost. But we realized that the reason was the product itself was not a quality product. If you just value everything off a spreadsheet, you can lose sight of some of the intangibles of real estate that drive demand.”

Those intangibles include aesthetic considerations. “The Brazilian guys who come and want to buy property in Miami are only going to buy quality. They are going to buy value, but they also want something that they think is attractive.”

So far, 13th Floor has done a great job navigating the waters. It was early picking up condos in Miami and is now in a position to sell a condo tower for a 36% annualized return. It land-banked a lot of inventory for national homebuilders when no one wanted empty lots. Now 13th Floor is in a position to sell lots to national builders seeking new land, earning annualized returns of 21%, 34% and 29% on three projects. These returns kill what the stock market has done over the same short time frame.     (my emphasis)

By Chris Mayer for The Daily Reckoning

http://dailyreckoning.com

ECB Stops Operations with Some Greek Banks – Reuters   “The European Central Bank has stopped providing liquidity to some Greek banks as they have not been successfully recapitalized, the ECB said on Wednesday. The news sent the euro lower against the dollar, fanning concerns among investors and in Greece that the country may have to leave the euro zone.”

House Lawmakers Say No Budget, No Pay – Washington Times   “A group of Democratic and Republican House members say it’s time to punish themselves if Congress keeps failing at its basic duty of passing an annual budget — and they want to hit where it hurts: their own paychecks. This tactic might just work.”

Is Greece the Lehman of 2012? – CNN   “That seems to be Wall Street’s tune these days. Sure, investors are worried about Europe. And they should be. But so far, the market is acting as if the recent turmoil in Greece is merely a repeat of last summer — and not the second coming of 2008.”

There was a strong reaction on Tuesday to the elevated debt crisis in Europe, with commodities and equities being indiscriminately sold. Gold fell 3 percent this week, losing its safe haven status as the dollar grew stronger and the 10-year government note headed lower.

The markets generally overreact to negative news, however, investors should keep in mind gold’s normal monthly historical volatility. Throughout the past 20 years of monthly returns, the precious metal generally increased only 0.5 percent in May, and has historically declined in June and July.

Facts don’t thwart the short-term pain, yet as contrarian investor Baron Rothschild said, “the time to buy is when there’s blood in the streets.” Here are five reasons we believe today’s sell-off sets up a buying opportunity for gold:

1) It is precisely the debt strangling the eurozone which will drive gold demand over the longer term. The side effect to the abundance of printing by central banks in the U.S., Europe, Japan and England is bloated balance sheets amounting to nearly $8 trillion. This is double the amount that it was only three and a half years ago.

2) Several developed markets have negative real interest rates and these rates are anticipated to remain negative for years to come. Historically, when the inflationary rate is greater than the current short-term interest rate, gold prices rose.

3) Emerging market central banks continued their gold buying spree in March. UBS Investment Research says that Mexico bought 16.8 tons, Russia bought 15.6 tons and Turkey added 11.5 tons. Additional small purchases were made by Tajikistan, Kazakhstan and Belarus. We wrote a few months ago that central banks have begun accumulating gold reserves since the Federal Reserve cut interest rates in 2007, and HSBC Global Research expects this buying trend to continue for another five years.

4) In March, China’s gold shipments grew to 62.9 tons, which is the third largest volume of gold in a decade from Hong Kong to the mainland, according to UBS. With ongoing rising demand, China may overtake India this year as the world’s largest gold buyer.

5) India’s government abolished the excise duty on gold jewelry. This was one of the reasons for the jewelers’ strike, which drove gold imports to decrease 55 percent in India a few months back. Getting rid of the tax should encourage the restocking of gold and bring Indian gold buyers back to the market. UBS reported on May 9 that Indian buying on yesterday’s dip was nearly twice the average daily volume and the “strongest since April 17.”

Over the past decade, these Fear Trade and Love Trade drivers have spurred gold higher, even as the yellow metal experienced short-term corrections along the way. Only hindsight could show how these corrections set up buying opportunities.   (my emphasis)

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

By permission Frank Holmes

www.usfunds.com

If Greece Quits Euro, Its Ruin Will Be Pointless – Bloomberg   “Amicable? That’s one thing Greece’s exit from the euro couldn’t be. As the economist Barry Eichengreen, the leading authority on these matters, has argued, it would provoke ‘the mother of all financial crises.’ The contemplation of this possibility by EU leaders is making matters even worse. Greece has no chance of recovery while this danger hangs over its economy.”

Payback for a Facebook Tax Refugee – LA Times    “Renouncing U.S. citizenship, as Facebook co-founder Eduardo Saverin did, should come with tough restrictions on returning to the land that nurtured the wealth. We will simply be telling our wealthiest fellow citizens that they confront a life-defining choice: They either remain Americans or they repudiate their homeland forever. They can’t have it both ways.”

National Mood a Drag on Obama’s Re-Election Prospects – Gallup    “U.S. satisfaction and economic ratings low compared with years incumbents won.”

By John Browne, Senior Economic Consultant to Euro Pacific Capital

One month ago it appeared that Germany held the whip hand in its titanic struggle against those seeking to cure all economic ills with the snake oil of currency debasement. Now, it appears that the ground beneath its feet is being swept away in a flood of popular unrest and political exploitation. The recent elections in Europe, which highlight both the strong grass roots revolt against Germanic demands in Greece and France show that the cause of sound money and fiscal prudence to be a lonely and difficult endeavor.

The political isolation will likely weigh on the Merkel administration to abandon their monetary obstructionism. Unfortunately, Merkel has suffered recent election losses at home that seriously undermines her grip on power (see last week’s column). Having suffered the chaotic, and socially destructive consequences of a collapsed currency in the early 1920′s, the German people are firm believers in hard, effective work and sound money. Despite having one of the strongest currencies, Germany had been the world’s leading exporter, until only recently having been overtaken by China. But this preference does not appear to be shared by the nations in which she is bound by monetary union.

Germany accepted the formation of the eurozone on the condition that the euro would remain a sound currency. To her credit, France has largely honored her pledge to support this aim. However, the recent election of Francois Hollande as France’s President has placed continued French support in question creating severe political problems for the German government. To make matters worse, the recent elections in Greece threaten to dissolve the budgetary demands that Germany imposed on Greece in exchange for bailout funds. These agreements took months to negotiate and now may not be worth the paper upon which they are written.

Germany’s belief in sound money mandates that wasteful government spending must be reduced. Furthermore, the Germans believe that, despite recession, it is better to endure economic and social pain now to achieve real growth, sound money and social stability over the long-term. The Anglo-Americans believe the contrary, that austerity will create unacceptable social unrest and that governments should increase spending even if they have to borrow massively, recklessly expand the money supply, risking high inflation to do so. But as the teeth of these policies inflict short term pain, as they are designed to do, rank and file voters revolt.

In Greece, the right wing parties of LAOS, Golden Dawn and the Conservatives lost heavily, with their share of the vote shrinking by more than half in some cases. Even the Socialists lost heavily as votes flowed leftwards to the Democratic Left, SYRIZA, led by Mr. Tsipras, and to the Communists. As no party seems able to gather a majority coalition, most likely there will be further elections in June, when it is expected that the left will consolidate and increase its gains. All three of these left leaning parties have declared austerity to be dead on arrival.

Most Eurozone banks and governments hold Greek government paper. If the Greeks default, the Eurozone, the EU and possibly some major U.S. banks will be put at risk. In addition, if other Club-Med countries see this happen they may be tempted to join the ranks of Greece and Iceland as preferring default to foreign-imposed austerity.

If Italy or France were persuaded to default, the Germans would have to consider leaving the Eurozone. The euro would be in danger of collapse and with it possibly the EU superstate, reverting to its originally declared form of a free trade area.  The collapse of the EU, now the world’s largest economy with a GDP of some $17.4 trillion and the euro as the second currency, would be potentially devastating to the world economy and to the international fiat currency system.

Doubtless, massive diplomatic pressure is now being put on the German government to ignore its peoples’ wishes for a sound currency and to join the Anglo-American led Keynesian club of monetary debasers. It’s hard to imagine if the German’s longstanding aversion to money printing can be overcome in order to maintain the status quo.

Should Germany succumb, the world probably will experience a short-term boom before sliding into a long and severe period of depression, hyperinflation and ultimately stagflation. From my perspective, this could lead to a renewed global polarization with some countries drifting toward Communism while others drift towards the stability of a new international gold standard.     (my emphasis)

By John Browne, Senior Economic Consultant to Euro Pacific Capital

www.europac.net 

John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.