past the point of no return

The original wartime meaning of the point of no return is easy enough to work out. For an aircraft it is when slightly more than half the fuel has been used – in a single-hop journey the craft is then committed to carry on to its destination, for insufficient fuel reserves remain to return to the point of origin.

It isn’t so easy to determine the point of no return for a complex feedback system like the economy. In the Greek and Euro debacle I feel that time has come. Even in the UK economy, it feels like the rollercoaster has crested the rise, and we are staring at an uncontrolled descent. So much effort has been thrown at the Greek problem, and yet still more is required. It seem that the effort to fight the issues have failed – for the Greeks they could never work, and for the rest of the Eurozone the price seems too high.

Some ugly truths are becoming apparent, too. The people of a nation state do not appear to be in control of their own destiny. Yes, they were greedy, their politicians lied on entry to the Eurozone and they spent money that wasn’t theirs to spend.

Somewhere along the line, Greeks seem to have unwittingly surrendered their right to call which of the bad options facing them they wish to take up. The FT offers up a pretty grim scenario for what an uncontrolled exit would look like.

I’m not sure they’ve still got the option. Sitting here in the good ship Europe it looks like every economic indicator is heading towards the red, as the second dip comes our way. If it feels like this in the UK outside the Eurozone, then in Italy or France it must feel pretty dangerous, and as for Greece, looks like they no longer have any control of where they are going anyway. Outside forces even seem to be ready to ping the odious Silvio Bunga Bunga Berlusconi from Italy.

Throughout Europe there seems to be a desperate lack of leadership and direction. Each mini-crisis is fought as if it were an isolated incident. It isn’t. For ten years the West has been living way beyond its means, and in Europe the Eurozone was designed without a lender of last resort. Or perhaps it was always assumed that the lender of last resort was Germany,  which seems the only economy able to create real wealth, assisted by the ballast of the rest of Europe to drag the currency down.

Unlike the aircraft, the point of no return in economic affairs seems hard to foresee, and is only readily identifiable with hindsight. Nevertheless, I’ll stick my neck out and say I figure we will pass it by Christmas. The next year will be a hazardous time, though shot through with opportunities.

There isn’t enough time now to forestall the flameout of the financial system – my financial net worth could be destroyed in the maelstrom to come.  I’ve left it too late to try and convert my net worth into non-financial investments, and these are illiquid and often immobile to boot. I’m not even that sure how well the canonical hedge against financial collapse, gold would hold up. You need something that has value in the immediate aftermath of a financial collapse, not something that has value five years down the line, when there is some semblance of an economy that can value gold, and, more to the point, offer you something of value in exchange for it.

So the only logical thing is to play the second dip as if the financial system will recover. I’me already chuffed and having picked up Tesco in the August crapshoot for less than Warren Buffett paid for his share.

It is at points of great change that opportunities arise. If I am going to play on the principle that the financial system will recover, then I expect that the second dip will hold opportunities…


8 thoughts on “past the point of no return”

  1. With another QE on the way, I don’t think the markets will tank immediately,so time is probably on your side.If you stick with groceries, utilities, breweries and tobacco, when everything does go down, you should be in pretty good shape.


  2. I still dispute there’ll be Armageddon, even in Italy. The country is loaded. It has the world’s fourth largest gold reserves. It has tons of assets. It’s even able to tax fairly meaningfully, though obviously not on a teutonic scale!

    I am starting to think the problem is as much wealth distribution disguised as something else. I’m going to have to get that post written… 😉


  3. @g funny you should say that, it’s as if you’ve been looking at my purchase candidate list? 🙂

    @Monevator There seem to be inherent differences in the lifestyle/productivity of the Eurozone. Merkel may even want a transferunion, but I don’t think her voters do. They’ve already eaten the cost of taking over East Germany – unlike other Eurozone nations they have bitter experience of what a transferunion means long term and I don’t think they’re up for any more.

    Italy may have assets, but it also has awesome debts. Gold reserves of 115bn are impressive, but if they liquidate the lot they’d still have more than 90% of their debt!


  4. @ermine Don’t forget coffee and tea futures. There will be a lot of idling around coffee shops and soup kitchens in the worst case scenario.


  5. @ermine – Something you won’t hear much is that Italian household debt is something like (from memory) 50% of disposable income, compared to about 150% in the UK.

    In fact, I just found the details here:

    And check out the wealth-to-income ratio!

    Yes the country has a lot of debt, but it’s hard not to conclude that can be resolved with taxes, structural reforms, and a bit of growth.

    As you said in your other post, political will is the problem here.


  6. You and I know that much of that UK household debt is never going to be discharged. The general situation is so much worse, because the debt-free lower the headline figure somewhat.

    So in that respect the Italian people are a lot better off. Their government, however, is not and I’d be surprised if the people that own most of the wealth weren’t prepared against a tax grab.

    Italy’s not necessarily doomed, sure. However, any entity owing more than its annual income isn’t usually a recipe for success. Now that its government doesn’t appear to have any democratic legitimacy at all, perhaps they can get things done. I still feel Benjamin Franklin had a point,

    They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.

    The headlong rush for efficiency and damn the democracy in Europe makes me very queasy. Perhaps I am suffering from what the BBC claimed was a characteristic British anti-intellectual bias in politics. OTOH when people say the Soviet Union was an example of technocratic government it reminds me that technocrats sometimes have trouble taking people with them!


  7. @Ermine – Yep, it’s ugly. Again, I am hardly a person to salute massive amounts of debt – I hate the stuff, and have never been in debt for more than one week, once – or technocratic governments and the loss of liberty.

    But from the perspective of putting baked beans and shotguns on the shopping list which is dominating the media, I am pretty relaxed.


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