February 5th 2011
That Teenager, the Euro
It's February, and where I
live the sun is out, and although it is cold first thing in the
morning, and chilly in the evenings, the days are lovely and warm. The
irises are out, the mimosa is in bloom, and a whole bunch of it scents
my kitchen and my sitting room, which doubles as my office. On the
balcony the almond blossom is a soft blush colour and smells like
honey, and the peach blossom is just starting.
Things look good from here. But do they look good from anywhere else?
Let's have a quick spin round.
I think house prices in the UK look fairly priced. But what happens
when interest rates go up? With the economy in first gear (or even
reverse) interest rates are unlikely to be lifted. But at some point in
the future there will be rises. Until those rises come along, things
should be okay.
In Europe the troubles surrounding the euro are far from over. With
Ireland illegally printing money, and the ECB looking the other way, we
have entered a silly period. The euro is now a teenager. It was
operating as a shadow currency before we used it in the shops, and it
has been out on the streets for ten years. It is certainly behaving
like a spoilt, confused teenager, with periods of rage, periods of
despair, and it listens to nobody, and does crazy things. Have we got
another ten years of this before it grows up?
Whatever happens house prices in Ireland have to come down a heck of a
lot more.
We also have a union that contains more than fifteen members (the EU).
Get out your Parkinson and see what he has to say about groups,
committees, and cliques. The relevant book is The Law of Delay. He gives examples
of groups going back to the middle ages, and shows how the mid teens is
about the largest a group can be while still functioning efficiently.
The EU is headed for a two-tier structure sometime in the near future,
or it will collapse. The former is the more likely.
The same thing will happen as the countries using the euro grow ever
more. At the moment that number sits at 17. That is, according to
Parkinson, about the highest it can get before splitting into sub
groups. Even now we have a clear class system growing up within
euroland. There's the first division, and the second division. House
prices in the second division are at risk because of a currency threat.
Which members of the second division will be forced out? How far in the
future we are looking before there is a serious crack-up is hard to
tell. It could be months, it could be years, it may even be more than a
decade. I think we shall see serious cracks appear in the system over
the next two years. The next crack will probably come after the Irish
election.
My money is on some kind of cop-out that papers over a wide chasm. You
can paper over a crack, but you cant paper over a chasm without risking
a great deal. The banking system is effectively playing blind poker.
That's fun when you're drunk, but it's no way to run a large economic
block of countries.
How about the USA? Well, the number of houses for sale has topped 11%.
Excuse me, but that is a heck of a lot of houses to sell before prices
can start rising again. Add to that the fact that the dollar is falling
fast again. Foreigners buying into the American market have to be
serious optimists, or just plain nuts in my opinion. I really dont
advise it.
But what's all this about Egypt? I'll talk about that next week. It's
an interesting subject.
Best wishes
john
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