Cold Turkey on Debt Addiction
Debt is the addiction facing the developed world as it grapples with going cold turkey following decades of excessive loan creation by banks and Governments. The result has left many governments carrying debt burdens that cannot be repaid – not without either default or inflation with currencies losing value as voters horrified by a double dose of severe spending cuts and tax increases scare politicians focused on re-election and who cannot deliver long term adjustments, into printing more money.

Smaller government, more self sufficiency and lower taxes is the destination, the trauma will be getting there as nations are forced to reinvent how they are arranged. Europe, the UK and the USA are in the same soup. Austerity is dragging the UK economy back into recession, meanwhile unless the Republicans who favour spending cuts and Obama’s Democrats who favour tax increases, break their logjam on the USA debt ceiling, federal social welfare cheques will be cut in half in early August. AAA rated US Treasuries, the storehouse of value throughout the post WW2 period is facing a potential downgrade marking another inflexion point as imbalances are tested by markets. If this occurs and I believe it is inevitable, the global economy will seek a replacement reserve currency but in the meantime commodity-backed currencies and especially gold will harden as the dollar sinks from its status as the premier global trading currency.

In the latest convulsion and faced with a fumbling response from the Eurozone which has failed to grasp that shrinking economies with overcooked austerity accelerates debt D-Days, Italian bonds were ditched by investors rattling the world’s third largest debtor nation with soaring borrowing costs, which, Tuesday touched 6%, that's a notch below the hair trigger for a bailout. In short order Italy has followed Spain into A&E with Greece, Portugal and Ireland already in ICU and deemed critical. The Italian austerity programme was fast-tracked through its parliament in a move that calmed yields for the moment.

Markets, those who lend money to national governments are out of patience with the piecemeal approach of the Eurozone and, now finally at the precipice, unless a big bang resolution is found, the Euro will eventually be torn apart by them. If widespread default is to be avoided a common E-Bond needs to be introduced rapidly that lifts the excessive debt off the weakest members into the centre to be shared across all Eurozone members.

Will Europe save itself? Logic suggests it has to and that too many other powerful players want it including China concerned about the dollar decline but it is still far from grasping the nettle which will mean much deeper fiscal union, effectively shifting the Dept for Finance to Brussels. Meanwhile, as expected, at the precipice those resolutely opposing debt relief and restructuring and now spooked by Italy and Spain are being forced to u- turn affording Ireland the scope for reduced interest rates, longer repayment schedules and a lower overall debt burden – breathing space to grow again. Ireland’s downgrade to junk status by one rating agency, ironically, could help lower the cost of buying Irish bonds back

Sarkozy’s Revealed
Sarkozy’s political histrionics over Irish corporation tax are now revealed for what they were -petty, insular and reckless marking the French President for historians as a lead player in Europe’s mismanagement of the crisis. What real leaders will step forward to adjust for Sarkozy's weakness to find a way through, will reveal itself presently – otherwise get ready for a different currency. Events are now rapidly accelerating to either resolution or fracture and it is inconceivable how the underlying issue of too much debt can be kicked down the road any further than September by political procrastinators. A firm resolution will be found in my view as a chaotic fracture is in nobody’s interests but it may require, over time, some economies peeling away from the Euro especially where public opinion is firmly opposed to giving up further fiscal independence to an EU finance ministry and where it is abundantly clear that the economy is deeply diverging from the German cycle. In this scenario and provided Ireland continues to tackle its fiscal deficit but under a lighter credit burden, it is more likely that Ireland will stick with a Northern European-dominated Euro

Sky High Energy Prices
Lost in the media swamp over Greece, the International Energy Agency, dumped 60 million barrels of oil on markets in a vain attempt to cool down rising energy costs. It can’t and neither can the ECB raising interests rates when the driver is red hot demand from newly industrialised countries. A few weeks later Irish consumers have been forewarned about horrific rises in energy prices. The age of scarcity prices is upon us and with it high inflation. If you haven’t already done so, do an energy audit, check out insulation, cavity injection, attics, draught exclusion, new boilers and if necessary ditch the second car.