Addicted to Debt

The German High Court paved the way for more quantitative easing in Europe.  Essentially, the European Central Bank can now start up the printing press.  The southern Eurozone countries are addicted to debt much like drug addiction.  European Leaders think they can wean the patient off of their lifestyle.  Think again.

Weaning people away from their lifestyle can only be done by a change in the heart.  Forced lifestyle changes will cause an adversarial relationship with the populous and will ultimately result in something akin to the Arab Spring.  The powerful are only in power while the citizens can be manipulated into thinking that all is well.  It is better never to give away an expectation of lifestyle than to set an expectation then remove it.  Nobody wants to give up something they are accustomed to.

The U.S. is in a similar situation but actually worse.  Lenders promoted instant gratification by mortgaging future cash flow.  In my earlier years, we were encouraged to buy the largest possible house we could afford.  The house would appreciate in value and we were almost certain to make a boatload of money.  This plan assumed that we would not lose our job and miss our mortgage payments.  Instead, my family decided to only buy what we truly could afford and saved the excess cash for the future.  Our plan worked and I slept better.

Extreme leverage will force someone to endure pain- either the borrower, the lender, or both.  On a macro scale I believe the answer will be both.  The fiat currency experiment of the last several decades will prove to conclude like those of history.  We are no smarter than our ancestors.  We only used a lot more technology to achieve the same result.  Technology does not improve wisdom and understanding, it only speeds up the judgment from poor decision-making.

Until an addict has a heart change, it matters not what you do to try to solve the problem.  The addict will move toward desperation in his attempts to satisfy his craving.  That is when it could get ugly.

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