The Fascinating Self-Immolation Of Europe

We should, of course, learn from others since those lessons are “free”, especially when the lesson hurts — but rarely do.

Europe hitched itself to “green energy” but — not really.  The laws of thermodynamics are not suggestions and there simply aren’t enough actual renewable and accessible energy sources to go around.  Geothermal, for example, works great — if you live where said source is reasonably accessible.  Ditto if you happen to live where impounding water (e.g. building a dam) works.  But if not, well, then not and all of these are subject to over-depletion as well.  Draw down too much of the water that would otherwise accumulate behind that dam and provide electrical power and…… the generator stops working.

So to fill the gap between what was real and what was promised Europe put together pipelines and bought Russian gas and oil — specifically gas.  Natural gas is hardly what you’d call “green” but it is more-efficient than coal, simply on energy content.  Coal is carbon, or “C” where natural gas is almost-all CH4, or methane.  CH4 has more energy that is released when it is burned compared with just the carbon part.

But natural gas is not just burned for fuel; it is an essential feedstock for fertilizer, since nitrogen must be “fixed” in order to be usable.  If this was not true you wouldn’t need nitrogen in fertilizer at all since about 79% of the atmosphere, which obviously is in contact with the ground, is nitrogen.

Modern agriculture relies on fertilization for the high yields it currently enjoys.  Without them significant portions of the world population will undergo famine — and some will die.  We have, in short, built a world population model around fossil fuel energy which is not just reliant on it to power cars for personal transportation — it is also reliant on to produce, process and transport the very food required for humans to survive in the density we currently have.

Since Europe doesn’t have much natural gas resource they’re willing to tap where does Europe get all of this?  Why, from Russia, which has it in abundance.

(Note that much of Europe does have natural gas.  They just refuse to tap it and thus their “green” claim in that regard is identical to ours; shove the pollution “over there”, in this case in Russia, then claim it never happened.)

Now of course trade with Russia is considered a very bad thing.  Quite amusingly the people of Europe seem to think they can sanction Russia, essentially impounding or even stealing the money they pay for gas with and thus taking said gas for free, and continue to get more gas.  I’m not sure what sort of mental gymnastics were required to reach that conclusion, but reach it they did.  What’s even more insane is the belief that being at war with someone will not ultimately result in them ceasing trade with you entirely, especially when they have something you need and there is another nation, with which they are not at war, willing to buy the product.

Contemplate that today many cars are Japanese, Honda and Mazda, to name two.  How many cars do you think Japan would have exported to the United States during WWII after Pearl Harbor while the US and Japan were busy with their soldiers all trying to kill one another?

Now think about this: What if Europe was buying those cars from Japan, they were not at war with Japan but the US was, and in order to get to Europe the cars had to be shipped through the United States?

Do you really think we’d have “cooperated” with Europe in such an endeavor while the Japanese were blowing up our stuff and shooting at our guys?  Do you think Japan would have continued to export said cars?

This is the situation we have today with Ukraine in that Ukraine is not the supplier of any of the gas flowing through those pipes — Russia is.  Ukraine and Russia are at war yet Ukraine is not only allowing the gas to flow which Russia has to sell to fund itself but at the same time they’re still getting paid for the transport!

Exactly what sort of mental gymnastics are involved when you have two nations at war where both are continuing to engage in commerce with each other’s state-owned enterprises and other nations backing one of the combatants is also still engaged in commercial transactions with the belligerent directly via said state-owned enterprises they claim is at fault and don’t want to win?

In what sort of insane world do you directly fund the nation who you want to lose a war?

If this is a conflict in which both sides wish to “win” (however they define that) and clearly it is a real conflict as actual shooting, missile strikes and bombing is going on with both sides participating in same then can someone please explain to me why said commerce which is almost-entirely involving state-owned — that is, official government enterprises is still continuing between not only these nations but also all of the ones aligned with one side that wishes said side to “win”, and why it is that none of the entities involved have either shut the valves or blown up the pipes.

Europe has collectively painted itself into a corner.  Yes, I get it that the Euro has profoundly benefited from trade sequestration of Euros in these transactions just as we have in the United States with trade sequestration as a result of parties using dollars.  But the actions of all the nations aligned against Russia have made clear that in all future trade transactions the only logical currency for a seller to insist on payment in is that of the selling party’s national currency, whatever that may be.

This in turn means that the sequestration we have all abused is over.  The magnitude and speed of repatriation of those sequestered funds is in some question; certainly sanctions can essentially “freeze” those amounts on an indefinite basis (provided you’re willing to maintain the sanctions) but the pattern of the last three decades has been ruptured and there is no reason to believe it will return.  In addition the machinations of the IMF including, if you remember, the “SDR” scheme much talked about during the crash of ’08/09 (funny how that hasn’t gotten much press over the last five or so years, isn’t it?) is dead as well since the only currency that cannot be impounded via sanctions for a given seller is that which the selling entity is domiciled in.

I’ve noted many times that this distortion, which we and the EU have wildly taken advantage of, has been present for the last 30 or so years and has led to a declining channel in interest rates across the entire western world and its set of dominant currencies.

That pattern was enabled by — and only by — the trade sequestration of funds which prevented that credit emission from immediately reflecting back into consumer prices, otherwise known as inflation.

Europe and the US incorrectly promoted the premise that the pandemic was a “temporary disruption” and the depression in operating results that came from said fear and shutdowns had to be “lubricated away” lest terrible things happen and that we’d both get away with it because the sequestration would continue.

But the sequestration didn’t continue; the United States and Europe both blew it up with their sanctions in the last few months and it will not come back because we have both now demonstrated that our use of these hammers is not limited to little nails like North Korea or Iran.

The financial pattern that allowed these fiscal abuses over the last three decades — which those committing said abuses presented to the voting public as a “free lunch” — has ended and will not return.

How the EU manages to navigate their farcical claims of “green energy” while attempting to get off Russian gas supplies and at the same time manages to both keep their crop production levels up and their social deficit spending patterns is going to be fun to watch.  I don’t think it can be done and at the same time our deficit spending patterns cannot be continued either.

Nobody, as of yet, is recognizing the magnitude of this shift.  Not in housing, commodities or any other goods and services provision and most-definitely not when it comes to finance and leverage even though we have already seen about $6 trillion in bond market value disappear on a global basis.

This is going to get messy but the bottom line is this: The era of being able to spend in deficit without immediate consequence has ended, and the ability to spend in deficit into the consumer economy without it doing immediate harm to the people allegedly helped has ended as well both here in the United States and in Europe.

The implications of this for policy are profound and it won’t be long before its recognized and reflects back through both the economy and fiscal policy generally.


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