Cassandra, in ancient Greek myth, was the daughter of King Priam of Troy. After Helen, she was considered the most beautiful woman on earth. Curly red hair, blue eyes, fair skin. (I know: she sounds more Irish than Turkish, but work with me.) Because of her beauty, the god Apollo fell in love with her and gave her the gift of prophecy. When she did not return his love – always a dangerous game when dating a god – he cursed her, ensuring no one would ever believe her prophecies.

But Cassandra saw it all coming: the Trojan war, the Trojan horse, the fall of the city and the slaughter of its citizens. She explained clearly and repeatedly what was happening. And no one believed her. Even after her early forecasts had proved to be bang on the money, still no one believed her. Even as the Trojan horse, bursting at the joins with Greek soldiers, trundled up to the gates of Troy, no one believed her.

Greece: We can’t see the 10-year depression just yet – but that doesn’t mean it’s not coming

So Cassandra feels like a good term to apply to people like me. (I’ve never been wooed by a goddess and cruel observers might suggest I’m very slightly past my physical peak, but I’m trying to focus on the prophesy side of things here. Work with me, folks.)

I’ve said for ages that the euro will fail, that the countries of the Mediterranean are bankrupt, that Germany doesn’t have the resources to fill the void, and that the Western world is entering not a recession, but a depression: a huge, 10-year, economic slump.

And here we are. If you look outside the city gates right now, I think you’ll find a giant wooden horse with a trapdoor in its belly. Because I’m a Cassandra, you won’t believe me of course, but I’ll give it a try anyway. That’s what I’m fated to do.

So number one, the interest rates on Spanish government debt are now heading up towards 8%. If you want to borrow money from the bank, you can likely do it cheaper than that. You personally may have a better credit rating than the Spanish government right now. In any case, a government can’t pay those punitive rates when its debt is gaping, its deficit out of control, and its economy in recession.

There’s muttering about a €300 billion bailout, which would keep Spain away from the financial markets for three years, but so what? For reasons I’m about to come to, I don’t think such a bailout could possibly happen, but even if it did, so what? Spain’s problem is too much debt piled onto a creaky economy. That €300 billion ‘bailout’ wouldn’t be a gift, it would be a loan. The solution to too much debt is not more debt. (And, for that matter, Mr King, the solution to weak money is not to print an endless supply of the stuff.) Naturally a giant bailout would kick the problem down the road, but bankruptcy is bankruptcy no matter when you meet it.

That’s point one. Point two is that Germany (and creditworthy northern Europe in general) is coming to the end of its borrowing capacity. There’s no reason at all why the German government should fail to meet its obligations, but it can’t be the Atlas that shoulders all the burdens of its southern neighbours too.

The ratings agencies have noticed this. Germany is now on credit watch for possible downgrade. If Germany commits to a monster bailout of Spain (not directly, of course, but via some Euro acronym), that downgrade would happen faster than Helmut Kohl could guzzle a schnitzel. Because Germany knows this, and because its citizens know it, those German purse strings are going to be drawn ever tighter as eurozone discussions progress. And quite right too. Germans have worked hard to restrain wage costs, export goods, innovate new products, and boost productivity. There’s no reason on earth why the fruit of those efforts should be handed out to economies which have steered a very different course.

Germany is now on credit watch for a possible downgrade. No wonder Angela Merkel is showing the strain

Point three: the terrible data, released today, about the British recession. I said we were in recession back in autumn last year. (No one believed me but, hey, I’m used to it.) And now we find that we’ve actually had three successive quarters of recession, with the last quarter the worse of the lot. Even if things turn up – and, pardon me for asking, but do you see any grounds for optimism right now? – we’ve still experienced the worst recession in British economic history. Not a bit worse than the Great Depression but, by now, very significantly worse.

Like I say, I’ve been saying all this for a while. Me and Cassandra both. The Greeks are coming. There’s going to be war. It’ll last for ten years. That wooden horse looks mighty iffy to me.

And no one listens. Maybe it’s nothing to do with being cursed by a God. Maybe it’s just the way with people who tell the truths that people don’t want to hear. But we Cassandras just go on prophesying anyway. There’s a big storm coming and it’s about to strike.

This was published in todays Daily Mail.

The post garnered a remarkable number of comments, the majority of which agreed strongly with the view I expressed. Just one thing disturbed me, however, which was the number of people who assumed I was taking a partisan position. To remind you: the article argued strongly for a full and open enquiry into the Fast and Furious affair. I guess a lot of people reasoned as follows, ‘The Republicans are bashing the Democrats over this enquiry, this guy Feierstein wants an enquiry, so he must be a Republican.’

I don’t blame people for making these assumptions. Our whole country has become infected with this kind of logic. Our entire political debate has caught the virus. Yet it makes no sense. No sense at all. Here are two facts and one conclusion. Fact One: A federal agent has been shot dead. Fact Two: there are allegations — which may be true or false — that the gun used to shoot him was in circulation only because of an ineptly managed operation conducted by the Bureau of Alcohol, Firearms and Tobacco. Conclusion: These allegations are serious enough to deserve an open investigation, period. Partisan bickering and political spin is simply a diversion from the action that a dead federal agent deserves — and the truth that the American people require.

I say all this because I’m about to call attention to another government department. That department is the Bureau of Labor Statistics. Now I know that Republicans are currently bashing President Obama over his jobs record. I know that Obama is bashing back. But, people, the issue at stake is the creation of jobs in America and the way those things are being recorded and reported. The issues I’m about to address were present under George W. Bush. They haven’t changed under Barack Obama. The depression which struck this country in the wake of financial crisis might have peaked under a Democrat, but it was born in a Republican era. If you yourself are so partisan that you want to make fine distinctions about these things, you should go ahead and make them. Me: I see two peas in a pod.

Good. Preamble over. Here’s the issue. The number of jobs created in America stood at 80,000 in June. That wasn’t nearly enough to budge the jobless rate, which remains stuck at a high 8.2%. (Mitt Romney’s comment: ‘another kick in the gut to middle-class families.’ Barack Obama’s rejoinder: ‘a step in the right direction’ whilst he acknowledged, ‘it’s still tough out there.’)

But let’s put the partisan spin-factory to one side, and instead have a think about the number of jobs being reported. Businesses are born and businesses die. When a business is occupied with either of those processes, it has better things to do than call up the BLS and discuss hires and fires. The BLS therefore estimates the net impact on the joblessness figures of the birth and death of businesses. You can read its full discussion here, but the key line says:

‘There is an unavoidable lag between an establishment opening for business and its appearing on the sample frame and being available for sampling. Because new firm births generate a portion of employment growth each month, non-sampling methods must be used to estimate this growth.’

A non-sampling method: that’s geek-speak for ‘guess.’ We don’t know how many new jobs are being created or lost by business churn, so we’ve got to guess. And you want to know the BLS’s estimate for the number of such jobs ‘created’ (net of losses) in June? Answer: 124,000. In May, the answer was over 200,000.

So, in crude terms, the net jobs growth reported by the BLS — the same one being lambasted by Romney and praised by Obama — is only in positive territory at all because of some number that’s simply a guess. A smart guess probably. One made by intelligent statisticians… but still. In this economy? With Europe in turmoil, China slowing, the country heading for a fiscal cliff which could thrust us back into recession, plus massive uncertainty over the path of healthcare costs per employee? The BLS has never been in this position before, because the economy hasn’t been. And after all, who in their right minds would be hiring new staff given these conditions? Most savvy businesspeople will be watching, waiting… deferring spending and hiring.

The truth is employment in the U.S. might be growing or shrinking. We just plain don’t know. What we do know is that if you add together the unemployed, workers discouraged from seeking work, plus those working part-time when they’d prefer to be working full time… you have an ‘underemployment’ rate of at least 15% — while our labor force participation rates are kicking around decade long-lows. These things are terrible economic news, but they’re terrible on a human scale too. Let’s consider the graduates looking to repay the more than $1 trillion in government-guaranteed student loans. These graduates are America’s future. Those BLS data points represent human lives, human potential. And the outlook is grim.

Vangelia Pandeva Dimitrova

To repeat, I’m not making a partisan point here. I’m making a bigger one. The American economy is in deep trouble. The reported data we have is unreliable. What we do know is that we have too much debt, too much money printing, a culture of total irresponsibility on Wall Street and consequently an absence of credibility in the financial and political promises that underpin our economy. All this, plus a political culture which is not addressing these things in a mature and responsible way.

This country’s in a mess. And partisan bickering will never pull us out of it. We all need to change our mindsets. I voted for change in the last election and I believe that today’s DC landscape is the most polarized in my lifetime. Are things better? Are we going to be offered a real choice in this election year? And where can I get a refund?

I published this article in today’s Huffington Post.

Those same finance ministers are also set to approve a year’s delay in the deadline given to Spain for reaching a budget deficit of 3% of GDP. That won’t, of course, be the last bailout for Spain and, please note, a budget deficit of 3% is still pushing debt ever upwards in acountry whose economy is getting smaller not bigger.

Unsurprisingly, government bond markets have once again been wildly unimpressed. Spanish bond yields briefly touched 7% today, before falling back. Given that Spanish debt (according to the misleading official figures) is around 7% of GDP and rising fast, interest rates at this level mean that about 5 cents in every euro are going to pay the interest on that debt.

The costs of euro collapse will be huge, but those costs are coming anyway. And they only get bigger the longer you defer the moment of truth

Put another way, Spaniards have to work about three weeks a year, simply to pay off the interest they owe on the national debt. No wonder their economy is failing under the weight of that burden. No wonder unemployment is so extravagantly high.

It’s time to end this massive Ponzi Scheme. If the problem is too much debt, you don’t solve the problem by extending more debt. If the problem is banks with irresponsibly reckless lending practices, the solution is not to “gift” them more money. If the problem is a wildly uncontrolled money supply, you don’t solve that problem by printing money until the presses are smoking hot.

A Ponzi Scheme is any merry-go-round fraud where you have to keep pulling new idiots into your scheme to keep things going. It’s the economics of the chain-letter. People can sometimes make money, but only if the supply of idiots is big enough. These things always collapse – and collapse disastrously – in the end.

We’re near that point now. Spain can’t receive a Greek-style bailout: all the EU rescue funds combined don’t have the resources to do it. Even if Germany decided to do all it could, the scale of these debts would simply overwhelm Germany’s (already very indebted) economy. In any case, if the fairies came and Spain were rescued, the pressure on Italy would soon become almost overwhelming. And though France hasn’t been hitting the headlines recently, it has higher debt than Spain, a history of deficits and a huge banking sector with vast exposure to Spain, Italy and Greece.

So why not let’s just call it a day? For Spain. For Italy. For the Euro. For this whole misconceived and duplicitous Ponzi Scheme. The costs of euro collapse will be huge, but those costs are coming anyway. And they only get bigger the longer you defer the moment of truth.

David Cameron wants to hold a referendum on Europe sometime after the next election. But he’d better get on with it. Europe, in its current form, doesn’t have that long to live.

I published this in the Daily Mail.

You know, there would have been a time when a financial contributor for the Daily Mail was restricted to the little stuff. Share tips, muttering about monetary policy, that sort of thing.

Not any more. Over the last few years, there’s been no breaking news like finance news. No war, no election, no natural disaster has long been able to displace finance from the front pages. This new emphasis makes perfect sense. When your job is threatened, your pension demolished, your child’s prospects seriously impaired, you need to know why these things are happening. The answers all revolve around matters financial.

So: another week, another row. Hot on the heels of last week’s news – another banking scandal, another repentance-free resignation – we have this week’s headline. Ed Miliband wants to force the big banks to sell up to 1000 branches each. He wants a specialist financial unit inside the Serious Fraud Office. Vince Cable has lambasted the banking sector’s ‘anti-business’ culture and accuses it of ‘throttling’ an incipient British recovery.

And they’re right. Bang-on-the-money, hole-in-one, jackpot-hittingly right.

Take each of those points in turn. Should the big banks be forced to sell branches? Of course they should! How is there even any argument? The mergers, acquisitions and bank failures which took place during the 2007-09 period have left British high streets with a dangerously oligopolistic industry. That means less competition. It means aworse deal for borrowers, a worse deal for savers – and a much-reduced capacity for corporate lending. It’s a market gone badly rotten. Competition from sizeable, properly funded institutions is essential for us all.

As for a specialist finance unit inside the SFO – I’m frankly astonished there isn’t one already. What’s more, such a unit needs to be lavishly funded. It needs to be able to employ professionals who understand the nuances of the financial markets. If that means paying top dollar, so be it. The money would easily be recaptured from the fines that would result.

And after all, how much more evidence do we really need that these banks have utterly lost touch with their ethics? They are happy to mis-sell a wide array of products to consumers. They are happy to fiddle interest rates. They are happy to sell totally inappropriate derivatives to corporate users. They will help an entire country, Greece, fiddle its books so it can enter the Euro.

I was about to write that there is nothing these people won’t do, and then I wondered. Mass murder? Genocide? Are there perhaps some limits still prevailing? Some matters a board of bankers would still not countenance? I don’t know. Maybe. But until those bankers find their ethics again, we need a fraud unit with as much finding and as much investigative authority as it plausibly needs. The hard truth is that until we see a fair few bankers serving long jail terms, these people will continue to feel immune. And no wonder. They have been immune. Bob Diamond may have resigned last week, but he hasn’t apologised, he hasn’t handed back any of his £100 million pay, he hasn’t indicated that he intends to waive his £20 million odd serverance package – and he isn’t facing jail. (Incidentally, Barclays stock price has declined 52% since February 2011 and 75% in the past five years. So how exactly does he think he earned that money?)

Blame: Vince Cable has slammed the banking sector’s ‘anti-business’ culture and accused it of stifling the chances of a speedy British economic recovery

As for Vince Cable’s comments about the anti-business culture of these firms – well, duh! Of course they have an anti-business culture. Banks have made money over recent years by (i) acquiring lousy assets (Greek bonds, American subprime debt, over-leveraged domestic mortgages), (ii) mispricing them on their books (so they don’t recognise the true impairment in value), (iii) waiting for the Bank of England to print more money as a way to support creaking asset markets and, when in dire straits, (iv) waiting for a handout from the taxpayer. None of these items have anything at all to do with real, ordinary banking business. None of them supports the broader economy. You’ll also note that the last two items involve massive support from the state, yet that support is somehow not inconsistent with the payment of massive bonuses. Explain that one if you can.

The trouble is that many banks are a zillion miles from becoming responsible citizens again. Their balance sheets are rotten. They may not admit that rottenness in public – there would be a bank run if they did – but they know perfectly well that their balance sheets are in a desperately weakened state. Because of that, they flinch from offering corporate loans – which involve real business risks in a difficult climate – and prefer to trade government paper. That way, their capital ratios look alittle better, no matter than no real banking work is being done.

You don’t have to take my word for these things. A strong bank will have a stock market ‘price to book’ ratio of more than one. That is: the stock market regards a given bank as being worth more than the collection of financial assets (less debt) on the bank’s balance sheet. A ratio of one exactly would mean that the bank was worth its financial assets but that its actual franchise – its ability to generate additional profits from those assets – was worth zero.

Action: Labour leader Ed Miliband wants to force the big banks to sell up to 1000 branches each

Most of our banks are today rated at far less than one. Barclays Bank, for example, has a price to book ratio ofjust 0.36. That is: the market regards the bank’s valuation of its own assets as laughably optimistic. While that continues to be the case, the bank willhave neither the strength nor the outlook needed to finance recovery.

So Miliband is right. Cable is right. The Tories are, on the whole, lamentably silent on this issue. (The worst offender is the bankers’ own apologist, Boris Johnson.) That’s not to say the Labour record has been glorious – very far from it. Ed Balls’s recent Oscar winning performance in front of the LIEBORgate enquiry was a frightening reminder of how useless and responsibility-evading his party was when in power. Until we have politicians ready to accept accountability and transparency while in power, we will continue to have a government that is wholly ineffective in the face of the banking lobby.

Nevertheless, and that said, Miliband and Cable are currently seeing these things more accurately than George Osborne and his colleagues. So here’s what has to be done. Break up the banks. Stop printing money. Deflate the housing bubble created by QE. Punish fraud. Force banks to publish honest balance sheets. The solutions are obvious. But will they happen? Of course they will: a Brit just needs to win at Wimbledon first…

Mitch Feierstein is CEO of Glacier Fund and author of Planet Ponzi: How politicians and bankers stole your future

I published this in the Daily Mail.

Two bits of news in the last couple days. One, Ben Bernanke, Chairman of the Federal Reserve, has decided to extend Operation Twist, a policy whereby the Fed sells short-dated government paper in order to buy the longer-dated sort. It sounds boring but it involves $267 billion, so it’s kind of consequential all the same. Oh, and traders warn that the disappearance of the Fed’s holdings of short-dated government paper could gum up those markets, thereby causing costs greater thany any likely benefit. But still, mere reality doesn’t deter Bernanke, who asserts, ”We are prepared to do what’s necessary. We are prepared to provide support for the economy. Additional asset purchases would be among the things that we would certainly consider if we need to take additional measures to strengthen the economy.”

So: $267 billion of your money is being put at risk on a complex long-dated debt operation of dubious benefit, while the leader of that operation comments that much more money might be needed down the road. That’s news item one.

Money printing is all I know.....

News item two: Moody’s announced a mass downgrade of American and European banks. Goldman Sachs and Morgan Stanley took a hit. So did Bank of America, JP Morgan and Citigroup. So too did a raft of European banks, including some of the biggest. The markets didn’t react much to these downgrades, but only because the credit failings of these banks has long been baked into the price. Credit default swaps on two nationalized British banks, RBS and Lloyds, are already priced at junk levels. Anything Moody’s says now is like a punch line delivered long after the party guests have departed. In reality, the truth is probably worse even than Moody’s is suggesting. Many of these banks will see further downgrades, some of them sharp, before this crisis is done.

Now these things are connected. They’re connected in the simplest of ways. The central banks are committed to a policy of debasing the currency, manipulating interest rates and artificially inflating asset bubbles. Meantime, the Western financial system is in parlous shape. Well, duh! Of course. You don’t fix lousy banks by printing wild sums of money to prop up the markets. You fix lousy banks by writing off bad loans, forcing shareholders and creditors to take the hit. You clean up and move on. It’s so obvious a child could see it.

But not Ben Bernanke. Part of the problem is a kind of academic groupthink. Two of the world’s leading central bankers are Ben Bernanke of the Fed and Mervyn King of the Bank of England. King was a visiting professor at Harvard and then MIT, where he shared an office with the then Assistant Professor Ben Bernanke. They come from the same intellectual hutch, the same narrow world-view.

And please note, that world view is born of academic theory, not practical reality. It’s born of an obsession with the Great Depression in the 1930s … forgetting that everything, but everything, has changed since then. Back then, trade was limited, international finance modest, government finances strong, consumer credit exceptionally low, derivative markets all but non-existent. Not one of those things is true today. Government finances are shot to hell. Derivatives markets have bcome too big to regulate and too vast to fail. Consumer credit is terrifying. And the whole world is connected in one lethal stew of poor credit, mistrust and non-disclosure of losses.

So let’s keep this simple. I argue the Great Depression has almost nothing to teach us. The academic central bankers who have guided us into this crisis, and have been printing money throughout it, are only making the problem worse. The mess our banks are in is in large part due to the failures of these same central bankers, the like-minded Nobel laureates and the same old recycled economic advisors.

The recipe for recovery is simple too. You need to rip the bandages off. It’ll hurt, but the patient will get better. Banks (and central bankers) need to face up to their losses. If shareholders and bondholders have lost money, then tough. Why on earth should taxpayers pick up this tab? Because the banks have hired expensive lobbyists to purchase politicians’ favor? I don’t think so.

We are currently in the midst of a major depression. Unemployment (measured by U-6) is at almost 15%. The economic projections in the White House’s budget are clearly powered by the kind of substances that President Clinton once smoked (but did not inhale). The government deficit is in meltdown, yet hasn’t remotely engineered the kind of growth-led recovery we had been led to expect.

I’m not surprised. Here on Planet Ponzi we hold these truths to be self-evident. That the Fed is becoming impotent; it’s running out of bullets. The Fed is out of touch with reality, printing trillions of dollars without the consent of the people of America. That the Fed is taking on a giagantic risk position in long-dated securities, which will have catastrophic consequences if — or rather when — interest rates rise. That existing policies have clearly, plainly and unequivocally failed — yet are still being implemented seemingly without end.

It’s time for a change, and the change can’t come too soon.

I published this in todays Huffington Post

The United Kingdom has too much debt. Reports normally focus on government debt: currently around 80% of national income, unless you take into account (as you should) the debts of the bailed-out banks and their toxic portfolios, which would pretty much double that figure.

But what about consumer debt? Mortgage debt? Business debt? The huge slabs of debt incurred by our banking system? The truth is, if you want to know how much the United Kingdom owes, you need to add up everything.

And the answer is terrifying. We owe about 500% of GDP. So for every pound you earn in a year, someone, somewhere owes £5.  Add it all up and you get to a total just shy of £8 trillion.

Burden: Including bank bailouts, the UK’s national debt is already around 160% of GDP

You don’t have to be a rocket-scientist to figure out that this is a problem. Indeed, you’d have to be living under a stone not to have noticed that our economy has plunged into a depression because of this weight of debt. The banks started it, but we’re all in it together. And it’s not just Britain, it’s Europe too. And the US economy is way more fragile than is sometimes reported.

The dictionary definition of a depression is ‘a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle.’ That’s us. That’s where we are. The Great Depression of the 1930s did not destroy output to the same degree and recovery was faster. This is the worst depression in British economic history.

And what is the solution to this crisis, as cooked up between George Osborne and Mervyn King, the Bank of England chief? 

I love Wimbledon, it's Smashing!

George Osborne and Mervyn King have announced their intention to make around £100bn of cheap loans available to banks, allowing them to lend to businesses

Answer: more debt! Clearly, these wise souls believe that the whole problem with the British economy is that we don’t have enough debt. So let’s have more. In fact – and how’s this for a plan? – let’s make soft loans at cheap rates to the same klutzy British banks that created this mess in the first place and hope that somehow that sparks off a spiral of investment and innovation. You might as well plan for world peace by selling arms to the Middle East. (Or, come to think of it, making Tony Blair a peace envoy.) It’s the same crazed logic.

Fortunately, though, businesses aren’t stupid. The main barrier to investment isn’t the availability of credit; it’s the dire economy. Businesses are, quite rightly, looking at the devastation and lack of governance around them and thinking this might not be the best possible time to launch new ventures or expand old ones.

And the solution?  Well, there isn’t one short of de-leveraging. The only way to a problem of excessive debt is to have less debt. You can’t achieve that by waving a magic wand, you achieve it by working hard, paying down your loans, and remembering that, next time, you better keep your credit card in your pocket when you pass those nice, inviting stores.

But meantime, the plan does reveal something important about the decision-makers in charge of the economy. George Osborne I have some time for: at least he realises he needs to get the government to borrow less; at least he knows that the banks have to be tamed. But Mervyn King: what is he for? We are currently paying him to print money and shovel cheap loans at dodgy banks fueling a property bubble of epic proportion. 

Athens burns: Does this look like the creation of aggregate demand, Mr King?

Creating asset bubbles and money printing are terrible policies that King has become addicted to. He’s past his sell by date and has to go.
 

I published this in the Daily Mail

But although the horizons are red with fire and every new day brings news and rumours of further catastrophe, you need to realise that we’re on the brink of something bad. We’re not actually in it.

So what comes next? It’s a question that you may reasonably ask (worried about job, savings, wages, inflation). But it’s also the question which is being asked across Europe: in the governments of Greece and Spain, those of France and Germany, by the central banks, by the banking industry – and indeed, by every private sector entity which touches those things, which is to say absolutely everyone and everything.

Expect a messy exit: A paint-spattered protester outside the European Central Bank

And no one knows. Or, to be precise, no one knows the exact way events will unfold, but there are some broad predictions which we can make with some confidence.

Prediction One: Greece will leave the euro. The ‘bailout’ offered by the EU was help of absolutely the worst sort. It was generous enough (just!) to prompt a beleaguered government to accept it. But the terms were so parsimonious that it left Greece still just inches from the financial disaster zone. It was as if the EU saw a starving man and chose to give that man just enough food to keep him from death, but not enough to permit recovery. If the Greek people are rebelling against the terms they were offered, they have my sympathy. I think they’re right.

Prediction Two: as Greece falls, the other weak countries of the Eurozone will come under intense pressure – worse than anything we saw even in the dark days of last autumn. Ireland (with its fundamentally strong, flexible and low-tax economy) will probably be OK. But the countries of southern Europe face some terrifying problems: weak growth, a woeful lack of flexibility, dodgy banks, and no fiscal room for anything except more austerity.

And the thing is, if you take a reasonably decent economy – Ireland, Britain, Germany – and impose austerity, it’ll be painful (it always is) but you know that the economy will, sooner or later, spring back into growth. The situation in the south of Europe isn’t like that at all. Italy, despite years of easy money, grew by just 2.5 per cent between 2000 and 2010. That’s not 2.5 per cent a year, it’s 2.5 per cent a decade.

The storm clouds are gathering: Greece’s departure from the Euro will place Spain and Italy under intense pressure

Or take Spain. Spanish growth looked good, but it was boosted by an utterly unrealistic reliance on construction – an industry which accounted for one sixth of the entire economy at its peak. Since Spain is now grossly overbuilt, that one-sixth is now pretty much dead and will never come back. Toss some brutal austerity measures onto these horrible starting conditions along with massive unemployment and it’s little wonder that the bond markets are nakedly terrified that they won’t get their money back. (Oh, and if you read that sentence and think, “serves the damn bankers right”, you might just want to remember that your pension fund is probably invested in those markets.)

Prediction Three, then: the failure of the euro won’t stop at Greece. It’s hard to say from here which country will be first to follow its lead, but I personally wouldn’t buy Spanish, Italian, or Portuguese bonds at anything more than 20-30 per cent of face value. (And that’s being nice: Greek bonds have lost much more than that.)

French President Francois Hollande was elected on an anti-austerity platform – but may struggle to keep his promises

Thus far, my predictions would be fairly widely shared among financial experts. Thereafter, it’s hard to read the future. Take, for example, the ‘simple’ question about what happens if Greece quits the Euro. Any business (and any bank) will have its liabilities denominated in euros, not drachma. Foreign creditors won’t want to be repaid in devalued drachma instead of the promised euros, so a wave of bankruptcies seems likely. Not just the government, but probably all of the banks, and countless businesses too. Naturally the Greek government will want to pass laws that reconstitute those businesses in double-quick time, but the scale of the task is Herculean. And the Greek government isn’t exactly noted for economic and administrative prowess.

Since the imminent failure of Spain and Italy would create problems far larger in magnitude, the ripple effect could be enormous. In fact, can you scratch that term ‘ripple effect’. There are no ripples here, only tsunamis. Just think for example, how France would be affected by the collapse of Spain and Italy. The French economy is deeply entwined with those two and their failure would bring the financial storms right to the steps of the Quai D’Orsay. Francois Hollande may have been elected on a no-austerity platform, but he might as well promise an end to gravity. So, Prediction Four: the French are about to endure a savage austerity programme of their own. And bonne chance in explaining that one, Monsieur.

Thereafter, what to say? The central banks won’t take any blame for creating more than a decade and a half of loose money and massively inflated asset prices. Politicians will continue to prefer comforting lies to brutal truths. No bankers will go to jail, even though they’ve done more than anyone else to create this mess. Germany will be fine. Britain too, in the long run, though it’ll be a long, slow slog: longer and slower than any of the official forecasts had predicted. And when even Ed Balls is still mulling the possibility of a British referendum on Europe, who knows how far the whole European project might yet unravel?

But these are big questions and perhaps distant ones. What about you? Your job, your savings, your pension? Well, I honestly hope and pray you’ll be OK. These are rough waters we’re entering. We ain’t seen nothing yet.

My article was published in todays Daily Mail

Trouble is, though, constant repetition of a theme gets boring after a while. Yes, fuel prices are up. Yes, asset prices are crazy.Yes, food and utility bills are weirdly expensive these days. But, same-old-same-old. So what’s Rihanna wearing these days?

But listen up. I’ve got a new illustration for you. What does €1 trillion buy you these days? Answer: it buys peace and quiet … for about six weeks. That’s how much money the ECB had lent out to weak Eurozone banks by the end of February – and six weeks is about how long the subsequent period of calm has lasted. And because inflation spirals upwards, nobody now thinks that another trillion euros will do much to ease the panic. Would a trillion euros now buy another four weeks, even? I doubt it.

Dark Times: Spain’s Minister of Treasury and Civil Services Cristobal Montoro Romero unveils Spain’s budget for 2012

And that’s the point really. There’s a difference between a circle and a death-spiral. If you’re in an infinite loop, you can in principle go on for ever. The death-spiral might look the same to begin with – the same old scenery coming round time after time – but oh boy, the ending is different.

What we saw this week might look like more of the same. A government bond auction in suddencrisis (Spain’s in this instance, though Italy’s auction was pretty ugly too.) Billions wiped from world stock markets. The euro shaking again. Global leaders saying confidently that no bailout would be needed. (Just as the bailout wasn’t needed in Greece. Until it was. Or Portugal. Or Ireland. Just as Greece could never default on its debts, until it did just that.) And a hopium rally may just follow this chatter.

And now we’re starting to talk dominoes again. If Spain falls, then what about Italy? If Italy falls, what about France? And those aren’t speculative questions. If Spain falls, neither France nor Italy could possibly survive as things stand.

Yet please don’t think of this as just another loop of the merry-go-round. It’s more than that; much more. The event which spooked the markets this week was the Spanish government’s dismally unsuccessful auction of €2.6 billion worth of bonds. That sounds like a lot of money, but Spain needs to raise €200 billion this year alone. Then again for year after year after year.

Death spiral: The Eurozone is resolute in its reality avoidance. But the nature of reality is that you can’t avoid its arrival

If the country’s finances were under control and the economy was reasonably strong, those things could be manageable. Germany also has a lot of debt – more as a proportion of its income than Spain – but the economy is strong and the government not desperately addicted to spending more than it raises. Spain, unfortunately, has a government deficit which is out of control and an economy forecast to shrink. (Forecasts which will probably turn out to be way too optimistic, by the way. The Greek economy hasn’t shrunk. It’s collapsed.)

That would be bad enough on its own but Spain had a real estate bubble even worse than our own. Even worse than the American one. And the losses stacked up in that boom are still lurking in Spain’s many small savings banks, each of which is like an undetonated bomb. A bomb, whose fuse is ticking every closer to the detonator.

There are different ways you can respond to all this. If you have any savings or investments, you’ll be thinking about how to protect your cash. Just what do you do, when you can’t trust governments to repay their debts? What’s left? What’s safe?

There’s also a human response. Just stop to think a moment about the human tragedy implied by Spain’s worse than 50% youth unemployment. What a heart-breaking statistic that is! It reminds you that behind the cold financial stats, young people’s lives are being ruined by awful decisions made by their political masters. Worse still, those scars may never heal. Economists have found that the ‘earnings scar’ left by a bout of prolonged unemployment is visible for literally decades afterwards. And that’s just to talk about money. What about the injury to self-esteem? To pride and self-fulfilment?

Which brings one, I suppose, to a political response: the place where these considerations need to end. Politicians created this mess because they forgot the basic rule of capitalism: if you win, you win; if you lose, you lose.

Capitalism, of the sort that’s operated across Planet Ponzi these last decade or two, has played by different rules. The winners win. The losers … well, their losses get shuffled away. They get magicked away by Wall Street. They get bailed out by governments. They get printed away by the money presses of the world’s central banks.

Britain is tiptoeing uncertainly away from that awful politics right now. America hasn’t yet woken up. The Eurozone is resolute in its reality avoidance. But the nature of reality is that you can’t avoid its arrival. Clickety-clickety-click – is that dominoes I hear?

This was published in todays  Daily Mail.