Final Journey: The Fate of the Jews in Nazi Europe by Martin Gilbert
My rating: 4 of 5 stars

The Holocaust appalls and demands attention. It can be approached from many perspectives – looking at the suffering, understanding the perpetrators, philosophy and in studying the functioning of the Nazi German state and how it directed and implemented its racial policies. One of the dangers of exposure to this story is becoming immune to its horrors, through reading too much and turning it into a matter of historical analysis or a succession of statistics. Yet it seems obvious that this is necessary. We cannot forget it, and as perhaps the ultimate expression of the limits of human cruelty (indeed inhumanity) we cannot and should not resist the need to attempt to understand it.
Martin Gilbert as a Jew and Zionist had a deeper reason for interest in the Holocaust than most of us. In his work to record the events of the twentieth century he applied his gifts as an historian to recording the Nazi persecution and attempted destruction of European Jewry.
In his later book The Holocaust he records how in 1959 he travelled through Poland and for the first time visited the site of the Treblinka extermination camp. Although in subsequent years he engaged in his most well known work, the biography of Sir Winston Churchill, he gathered material about the holocaust, enough to eventually fill a room in his home.
The late 1970s seem to be an important time in the popularisation of remembrance of the holocaust, and it receiving a wider public discourse. Contrary to some accounts however, it had not been forgotten before then. The 1974 landmark series The World at War featured an episode entitled “Genocide” dealing with these events and a popular 1972 World War II partwork featured a chapter dealing with the death camps. Certainly from a US point of view however the TV miniseries Holocaust from 1978 played an important role. Historian Peter Novick in The Holocaust in American Life describes the series as “the most important moment in the entry of the Holocaust into general American consciousness”. Genocide, an award winning documentary from 1982 further exposed many international viewers to its horrors.
Martin Gilbert was one of the writers of that documentary, and perhaps in response to the TV miniseries released Final Journey: Holocaust: The Fate Of The Jews In Nazi Europe, his first book on the holocaust in 1979. Although he subsequently published a number of other books on the subject, including the magisterial The Holocaust, Final Journey still stands as a useful, relatively short (224 pages) overview.
Rather than providing a full narrative of the course of Nazi Germany’s repression and extermination, chapter by chapter Gilbert selects aspects of the treatment of the Jews and zooms in on them. The focus is always on the victims. He keeps his own voice in the background, and as in all his books concentrates on telling the facts rather than engaging in extensive interpretation. He provides lengthy first person narratives and lets the participants tell their stories in their own words.
We begin with the first deportations, and the creation of “Lublinland”, Eichmann’s first destination for the Jews of Germany. He describes the ghettos, the beginnings of the death camps and in chapter 3 an insight into an area I had not read much about, the repression of the Jews carried out almost independently by Romania.
For a brief overview of the Holocaust, I would highly recommend this book. Rather than skimming over the vast detail of the story, the selection of particular episodes and generosity with their description makes this history more powerful than its brevity might suggest. In addition, although the book does not spend a great deal of time on the perpetrators (thus perhaps not engaging with some of our natural questions about how we would have acted and why this could happen) I think the victims are the right place to begin. Further books such as Gilbert’s other works, and recent books by authors such as Lawrence Rees and David Ceserani provide a greater level of detail and full narrative. This 38 year old book still stands as a good starting point for beginning to study the final journey of six million tragic victims.

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How did the age of revolutions from 1750 to 1850 alter the relations between the parts of the world, from Asia to the Americas?

The age of revolutions in the century following 1750 had widespread effects. In terms of global history the century saw political disruptions and economic rebalancing against the backdrop of a new age of global imperialism.
Political revolutions challenged the colonies built up in the Americas by Spain, Portugal, Britain and France. The 13 British colonies instigated these revolutions with rebellion and eventual independence and the creation of the United States. The American Revolution unleashed a cascade of events with its radical notions of equality and rights (based on fashionable Enlightenment ideals). The cost of helping the colonists weakened the absolute monarchy in France contributing to revolution there, in turn inspiring a slave revolt, independence and emancipation in Haiti. Napoleon Bonaparte launched a successful coup after political turmoil in France, and invaded the Iberian peninsula in 1807. Creole elites in Central and South America had maintained their loyalty to the Iberian crowns to avoid social revolution following Indian rebellion. After the fall of the Iberian monarchies imperial control was compromised and revolutions ensued. The result was that virtually all of America (Canada being the principal exception) broke away from colonial control. The United States had created a new political construct based on popular sovereignty and individual rights which was hugely influential on the new nations. Although the new independent nations were non-monarchical power was concentrated in landed male elites. The promise of equality was particularly absent for women and slaves.
The contradictions of the new state’s ‘equality’ would lead to the slave emancipation movement. It could be argued that this was revolutionary as it brought to an end a trade that had been crucial to the lucrative sugar, coffee and cotton plantations and had resulted in twelve and a half million slaves crossing the Atlantic from Africa. The end of the slave trade stopped the drain of people from Africa, but also cut off income leading to the fall of many West African regimes such as the Yoruba kingdom. 
The economic changes of this century were the most profound since the agricultural revolution 10,000 years earlier and arguably resulted in the greatest changes in international relations. Asia had been largely unaffected by the political revolutions of the late eighteenth century, however the old agrarian empires were impacted by two major transformations. The Industrious Revolution was a change where households spent more time working, resulting in increasing surpluses of food allowing increasing non-agrarian populations in northwestern Europe and British North America. The results were the expansion of global trade as even ordinary people could purchase imported goods. New financial services were also developed to finance merchants. The wealth from trade and availability of finance contributed to the other economic transformation – the Industrial Revolution. Technical innovations and investment in manufacturing elevated Britain, then other European nations in the economic world order. Productivity increased exponentially as costs plummeted. Hand spinners in India took 50,000 hours to produce 100 pounds of cotton yarn. By 1825 power looms in Britain were producing the same amount in 135 hours, with increasing quality (1). Improved transport with railways and steamships shrunk the world, allowing the exploitation of energy resources (coal) and import and export of goods over longer distances more cheaply. This also made migration affordable to the less wealthy, making possible increasing migration from Europe in the nineteenth century. 
Relations with Asia were transformed. India underwent a reversal becoming an importer of British textiles and exporter of cotton. A French missionary commented that “Europe no longer depends on India for anything, having learnt to beat the Hindus on their own ground, even in their most characteristic manufactures and industries, for which from time immemorial we were dependent on them” (2). Trade balances reversed as India became a net exporter of gold and silver to pay for cheap textiles. By the early nineteenth century Europe had also reversed trade imbalances with China, and the sultan of the Ottoman Empire had become a significant debtor. China’s economic decline as well as internal weaknesses meant that Europeans were able to more aggressively seek trading advantages, typified most powerfully in the humiliating Opium Wars. Chinese attempts to stem the outflow of silver as well as the sale of Opium by Britain resulted in naval confrontation. China lost and had to cede Hong Kong to Britain as well as more extensive privileges and trading rights for Europeans.
The Americas were vital in the Industrial Revolution. Pomeranz outlines how important sugar and cotton from the colonies were in overcoming Europe’s ‘land deficit’, providing essential calories and manufacturing inputs. Western Europe was able to “transfer handicraft workers into modern industries . . . because the exploitation of the New World made it unnecessary to mobilize the huge numbers of additional workers … needed to use Europe’s own land in much more intensive and ecologically sustainable ways” (3). Precious metals were also an important fuel to trade and ultimately a source of capital accumulation alongside the plantation products of slave labour.
Increasingly extensive global interconnections meant that new ideas of rights and political forms spread quickly following the American revolution. Additionally imperial rivalries and ties meant a cascade of cause and effect – the Seven Years War, American Revolution, French Revolution, Haitian Revolution, Napoleonic Wars, South American independence – dramatic changes bounced back and forth on a global scale. Additionally economic changes brought about by increasing productivity and mechanisation were both fuelled by New World colonies, and led to burgeoning economic power for Western Europe. They also meant reversing trading relationships and relative wealth between Europe and Asia, both in directly imperially controlled regions such as India as well as surviving agrarian empires such as China.

We hear a lot about the secular bear market – I suppose it is real, although I suspect the last secular bull market might have been whatever the opposite of a Perfect Storm is.  That is, a special confluence of credit creation and the impact of the baby boomer generation saving for retirement.

Cycles can be dangerous but hold an irresistible allure.  The importance of demographics and life cycles to economic cycles is pretty hard to argue with from a logical standpoint.  The piece by Harry Dent entitled “A Decade of Volatility: Demographics, Debt, and Deflation” in John Mauldin’s latest letter is essential reading.  He also has a link to a video presentation of the material.  This is well worth a look – access it here

A small profit for August – thankfully we avoided too much whipsawing in what can be a thinly traded month with some strange moves.  The politicians of Europe were away on holiday so no madness there, just the gentle meandering as everyone waited for the High Priests of the Central Banks to come down from the mountain and reveal whether they would be spraying more money into ‘the banks’ (or via some other innovative new means of economic control).

There were a couple of trades closed for us, a smallish profit on the Euro and a reasonable one on the Eurodollar.  These were tempered by losses on the Yen (last Long trade for a bit probably) and Live Cattle (a difficult market to trade with a trendfollowing method but in the portfolio for diversification.

July has seen a continuation of stress in Europe, with Spain’s yield’s climbing to record highs at around 7.57% late in the month.  As happened with the Spanish bank bailouts, the politicians in Spain continued denying a bailout was necessary until the 11th hour, when there were reports that Economy Minister Luis de Guindos had discussed a 300 billion Euro bailout with Germany’s Finance Minister Wolfgang Schaeuble.  Yields were temporarily relieved by Mario Draghi’s comments in London on the 26th of July.  A couple of comments drew considerable attention:

To the extent that the size of these sovereign premia hampers the functioning of the monetary policy transmission channel, they come within our mandate.

This comment for the first time seemed to indicate a way around the prohibition on buying Government debt, by indicating that this course could be taken where the ECB’s legitimate influence and control of interest rates was not being effectively transmitted to all areas (as indicated by Spain’s high yields.  And then, the now famous phrase:

Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.

And there the rally began.  It really was phenomenal to see yet another statement of loyalty and intention of action garner action from traders, after well over two years of such statements.  To be honest, it is quite unfathomable.  Some of the spin came off when Germany made clear that they hadn’t had a sudden change of heart over Euro QE, and in the end the ECB policy meeting today was a fizzler, sparking a quite remarkable 220 pip hourly move in EUR/USD.  This interesting analysis points out just how many fallacies are obviously still present in Mario Dragi’s analysis of the causes and nature of the Euro crisis.  So the news is that there isn’t any real sign of a sensible diagnosis of the problem by the leadership, let alone developing an effective long term strategy.

One interesting bit of local ‘colour’ on the crisis was provided by Erik Townsend on the Financial Sense Newshour, who has been travelling through Europe.  I loved visiting Spain a couple of times, but feared that the atmosphere there must now be very grim with the awful unemployment numbers and economic outlook.  It was fascinating to hear his impressions of a visit to the Basque region in the North.  The locals were in surprisingly good spirits, however it was definately a faux pais to discuss the debt crisis.  The Spanish just weren’t interested in talking about it – they were resigned to the fact that the Government would take care of their friends in the financial sector as they always had, and the general populace would be left to suffer.  It is an interesting attitude, but perhaps uncommon.  There seems to be a malaise in many countries of resignation to the reality that those who caused the crisis would not be punished, and in fact be taken care of while the rest would be left to suffer.

After a solid June, July saw a small loss in our trading programme.  Early in the month we entered long the USD/JPY, however this was a fakeout as the general withdrawal from risk supported the Yen.  Later in the month what had been a solid long 10 year Treasury’s trade turned into a small loss, as have a number this year.  We need to keep taking these trades to be consistent even though the upside appears limited.

As we entered the month although the open profits from the T-Note position were gone, two positions long the Eurodollar, and short the EUR/USD still offer significant open profits.  It will be interesting to see what August brings.  August is normally a quiet month, with little political action due to Northern Hemisphere holidays.  Trading wise thin markets can sometimes mean some unusual moves – hopefully we don’t get caught in any nasty whipsaws and can profit from any moves that eventuate.

There are a lot of interesting blogs and message boards where traders vent their angst, and express their frustrations and challenges.  These are really useful places for those interesting in entering the markets to learn the reality of trading rather than the over-hyped nonsense on a lot of the so-called trader education sites or broker promotional material.  Whilst bearing in mind that every trader is different and has a unique character (I now understand what Ed Seytoka meant in Market Wizards when he talked about “everybody gets what they want out of the markets”!) this psychological research is more important than any research into companies, technical analysis or economics.  This is because from my experience you have to know yourself and understand fully what you want from trading before you start.  This allows you to find a method that suits your temperament and objectives, and gives you a framework to keep evaluating your performance.

As an example I quickly fell into the trap of seeking fast profits, taking big risks by moving my stop away from price etc.  After losing quite a bit of money I took a pause then returned to the markets.  I continued seeking new strategies however, and would try out intraday trading strategies, even while working a fulltime job.  I realised eventually that my main objective in the market was a desire for excitement, action and variety, not profit making.  Once I did this I was able to modify my approach and find techniques that enforced discipline and routine on me, and removed situations where I would fulfill these desires.  Intraday trading to me was like hanging out in a bar for an alcoholic.  I also intellectually connected with longer term mechanical trendfollowing, understood and appreciated where it found its edge and felt it gave me the structure I needed.  It also suited my lifestyle as an ‘after hours’ trader.

My psychological work (see this post) was largely informed by the early chapters of Van Tharp’s book Trade Your Way to Financial Freedom which gives some great ways of looking at yourself and what you’re trying to achieve with your trading.  It let me put myself in a position where my negative psychological aspects couldn’t rear their ugly heads, and allowed trading to become a part of my life that was increasingly easy to compartmentalise and execute.  It has even meant that I can enjoy reading and debating economics and the markets without influencing the way I carry out my trading plan.  As I begin re-evaluating the next twelve months of my trading (portfolio decisions, risk size etc) I can see how the profits I have produced, and surviving the worst drawdown of my trading career over the past few months have been possible.

Although I humbly submit my early posts recording my progression to the reader, there are a couple of well written blogs I highly recommend for their discussion of the realities of trading, and the challenges with acquiring a successful mindset.  I don’t like to be negative, but many people might like to consider that they do not actually have a psychological makeup compatible with trading, or the drive and dogged determination to continue trying through all the tough months or years (and I’m talking about parts of your entire trading career, not just the first few months) ahead.

One is Rogue Traderette who is an Australian intraday forex trader.  I have to say that intraday forex was just such hard work for me in terms of discipline and I didn’t ever see the rewards I would have liked from apparently random price action.  Perhaps she is suited to it though!

The other is Robert Sweetman’s blog.  He’s also on the journey, and really expresses well the different stages and challenges he goes through.  He also earns my respect for having the guts to show his results on his blog.  I started doing this right at the start as it gives me a sense of accountability.  A lot talk the talk, I’m proud to show the good, bad and often ugly realities of trading.  Good on you Robert!

The great stalemate has continued this month in Europe, however the balance of power fascinatingly continues to adjust.  Increasingly Germany stands alone as the voice of fiscal responsibility, with France now joining the pro-growth agenda that seeks fiscal easing, direct bailouts of Mediterranean banks and central intervention (from the ECB or one of the rescue funds) to lower Sovereign bond interest rates for the likes of Spain and Italy.  Merkel plays a fascinating game of poker, with everyone wondering whether she will in the end blink to keep the Euro project alive a bit longer.  It seems that this would spell doom with the German electorate, but perhaps they would accept even these major sacrifices to keep the illusion of the Euro alive.  It seems that the cost Europe is prepared to tolerate to avoid having to accept that the Euro is a completely unrealistic and untenable project which completely ignores the political economy of Europe just keeps rising.  There will come a time of reality – probably a collapse, but a slim chance of individual Sovereign nations bending over to the will of Brussels.  It seems that this is still some distance away, and becoming more painful with each passing month.

Much the same is happening in the US and Britain as well.  Continued massive experimental interventions by Central Banks have less and less effect.  Eventually someone will realise that at some point significant contractions in the Western economies will occur (in either real or hopefully just nominal terms) to compensate for decades of totally fictitious expansion spawned by financial ‘innovation’ and debt creation by banks.  This statement of common sense reality (to be counteracted only by incredible innovations in productivity or resource discoveries) has not yet sunk in, or at least no-one wants to accept it on their watch.  It is symptomatic of a world where the leadership refuse to analyse the causes of the crisis and aggressively address them, accepting the tough steps required to normalise.

One of the areas where lessons have still not really been learnt is in dismantling much of what we call the ‘financial sector’.  These institutions which played a massive role in the crisis have been soaked in money instead of kerosene over the past few years.  They have also successfully shrugged off most attempts to regulate them, bleating that the big contributions they make to Western economies will  be lost as they head offshore to some unknown location.  In reality they have no-where to go, and much of their so-called financial innovation has in fact brought about the massive debt bubble, along with huge risk taking in the derivative markets.  This month’s debacle with Barclay’s manipulation of the Libor interest rate, along with the ongoing haemmoraging at JP Morgan from the “Whale Trade” are just the latest iterations of what will be a continuing parade of dangerous incompetence.  Until banks are slashed back to their basic economic functions again then we will wobble on towards the next crisis, and at best confidence will not return to the real economy.  It is time for moral hazard to strike at these institutions, and for them to be cleaned out by downsizing or nationalisation/liquidation.

The month has been a successful one for our trading program.  I have tightened up slightly on our risk taking with some outlier trades being excluded that were slightly over the % equity limit which I would have taken before.  In Trendfollowing the best returns usually come from periods of reduced volatility where a larger position can be taken.  The reward to risk ratio in those times where volatility is high, resulting in trades right at the edge or slightly beyond the risk envelope is small.  Although it has resulted in missing the short move in Crude, it has also prevented losses in other markets approaching or exceeding 1R.

Excessive volatility has resulted in us missing this down move in Crude.

June saw two trades closed.  A 10 Year Notes position from April closed with a 1.5R profit.  It would have been nice to see more profit here but with overhead resistance and the constant risk of a significant adverse move with these schizophrenic markets it was a good result.  Even better was the short Euro trade from early May which closed with a 2.6R profit.  A lot of large traders and hedge funds sound like they have really struggled with the Euro as the ‘obvious’ short trade just hasn’t worked a lot of the time, especially with the massive recovery from January onwards.  Trying to second guess what will happen is impossible – there are so many contrary comments and theories.  I have heard targets of 1.15 regularly mentioned, although one bank has a target of 1.40 by the end of the year!   The usual stories of ‘one sided’ trades and ‘oversold’ conditions also always rear their heads in times of crisis, quietly forgotten as the rate continues to fall, until the market reverses and the pundits point to their timely analysis!   It seems the big picture of the Interest rate differential, various forms of Quantitative Easing and perhaps capital repatriation keep resulting in surprising changes in the trend.  Our programme has traded four times over the past six months (1.93R, -1R, -.98R, 2.6R) producing reasonable results given the substantial whipsaws at times.  Although the middle two trades were disappointing, our Trendfollowing methodology did allow us to pull out reasonable profits on the other trades, sticking with them when they looked improbable, and getting out when conditions looked most dire and most commentators believed we were just experiencing a brief relief rally.

It is difficult to foresee what the next month may bring.  I hope for some consolidation in Crude so that if the downtrend continues we can participate.  We have open positions in the Eurodollar (long) and Yen (long USD/JPY) which at the moment don’t look like going anywhere fast – you never know where the trends will come from though!

Once again the worm has turned in May, with a significant downturn in market sentiment, as has happened for the past couple of years.  The market certainly has an ability to only focus on a singular factor at a time.  The US economic situation had been the focus but things have now shifted back to Europe.  Is this justified?  The main change in that situation has been the possibility of democracy putting to an end the bailout train for Greece.  Parties opposed to the austerity which is a condition of the bailouts came close to forming a government, and the Greek people sent an apparently definite message that enough was enough.  As is so often the case though they wanted to have their cake and eat it too.  Although they violently opposed the cutbacks to the unaffordable benefits they had been enjoying for years, they still wanted the benefits of staying in the Euro as well.  Since another election has been announced, the poll results have swung widely, probably reflecting the people’s indecisiveness.  The fact is that Greece needs to live within its means.  It can either learn to do that by major reforms to their way of life and slashing the unaffordable benefits and tax breaks they have enjoyed, or they can have a sudden economic collapse whereby they completely default and leave the monetary union.  It is actually not that hard a choice to make, although of course each option involves sacrifice.  Major changes are needed to the way Greeks work, live and pay taxes, which if done correctly will see them begin to recover in another few years.  Of course they probably won’t ever enjoy the unaffordable fantasyland of the last ten years again, but then again few countries of the world are productive, hard-working or resource-rich enough to enjoy that.

The month saw three losses in our trading, all caused by fairly quick but severe whipsaws in Crude, Eurodollars and Corn.  Crude saw an upward spurt before collapsing with the negative economic outlook.  Some analysts say that the effect of the Iranian embargoes is now reversing as well, as Iran is supplying cheaper crude to the non-participating countries thus forcing down Brent and WTI due to reduced demand.  That downtrend is attractive, but unfortunately we cannot participate at the moment as the volatility risk is too high at present.  There is a chance though that we will enter a short position next month.

Eurodollars also saw a brief move higher before declining back into their range.  Although one would expect them to be increasing with the risk in the market, I think they are being held back by the fear in the European money markets forcing up the Libor rates. In fact they could head down lower as they often do (see November last year) in times of low liquidity in the European banking system.  I would assume though that in a repeat of that the ECB would engage in another round of LTRO.

Corn has been a difficult market to trade this year.  It has quite simply been a wild ride with massive up and down moves and no trends emerging.  We had one very successful trade late last year, but both trades this year have been losers, the most recent by 0.6R (a ratio of the loss to the initial risk taken).  At the moment this is another market that we are out of due to the excessive volatility – hopefully there isn’t the launch of a major trend!  If there were one though it would be unlikely to have a good risk to reward ratio, so I’m happy that we are out of the market at the moment.

Although the month saw another loss (-6.49%) we are continuing to apply an approach which is proven to work over the long run.  We continue to manage our risk, cut off our losers and await the outsized winners which give us our profits.  It is possible that those trades might be some that are open now.  We have a short position in the Euro which is profiting very handsomely at the moment.  Despite the pundits usual talk of ‘oversold’ conditions, we’ll see what eventuates on that position.  Our long position in 10 Year Treasuries could also be another one of those trades that makes our year.  After hearing that Treasuries didn’t have any more upside, they seem to be making record highs, even exceeding those of the financial crisis!  Fortunately we don’t listen to the pundits, and although we don’t know what the eventual result will be of these trades we will manage our risk and let them run to their natural conclusion.

I’m reading this excellent letter from Absolute Returns.  This quotation from economist Woody Brock is absolutely in the ball in explaining bubbles and financial crisis:

The more correlated the forecasting mistakes of the individuals in a market are, then the greater the market correction (and hence volatility) will be in the market once the Truth is learned. When
forecasts are uncorrelated and distributed symmetrically around the Truth, then once the Truth is learned, for every seller there will be a buyer and market price does not change. There is no volatility. In the case of a correlated structure, the reverse is the case: everyone becomes either a buyer or a seller in unison, resulting in sharp changes in price … In applying this insight to help explain the case study of the Global Financial Crisis three years ago, I arrived at what I have termed the Fundamental Theorem of Risk: A Perfect Financial Storm will occur when (1) investors have bets based upon very similar forecasts, (2) their bet is a “big” one, for example, a bet on the price of their principal asset (their house), and (3) both investors and their banks are maximally leveraged. It can be demonstrated formally that these three conditions will generate a Perfect Storm of maximal volatility — and note how perfectly these three conditions were met in the US housing market collapse. The role of excess leverage is to non‐linearly amplify market distress.

Something interesting to digest.

Two losses and a small win – the poor performance of my trend following strategy has continued this month.  A Corn trade saw a .49R loss (i.e. a loss of around half of the original risk taken in the trade).  A promising looking downside breakout was quickly followed by a strong surge upwards as grains across the board turned positive.  The upside move showed little follow through either (I did not go long) making it look more like an ‘order clearing’ move rather than anything fundamental.  Since Corn has returned to hug the downside support from the move in late March without being able to break through.

The other more serious and disappointing loss (almost 1R) was in the Euro.  This tested to the downside drawing me in before promptly returning  back into the recent range which has established itself in the 1.30 – 1.33 range.  This market really interests me.  With such bad news going on it has certainly defied logical expectations and virtually all of the pricing expectations from commentators and analysts over the past six months.  Many were calling for pricing in the 1.25 to 1.30 range late last year, and really the fundamentals are as bad as they were then.  Additionally the recent hike in Spanish yields and return of recession in that country have shown that LTRO (the European Central Bank’s inventive version of Quantitative Easing designed not to anger German sensibilities too much) isn’t really showing convincing results.

This morning Bloomberg showed an interesting discussion involving Ron Paul and Paul Krugman.  Although neither really answered the other very well it showed the usual discourse that the negative GDP and poor unemployment statistics in Spain show that the austerity programme is the wrong remedy.  I fail to understand this.  Spain has, like many countries in the EU, allowed an incredibly unbalanced economy to develop, one grossly dependant on speculative property development and investment.  That sham market completely collapsed.  In those circumstances it is surprising (and probably indicative of debt addition in terms of government borrowing to temporarily paper over the cracks) that there has been any economic growth at all.  Surely anyone with a sense of reason would realise that the Spanish economy will contract for some time as property values return to reality, the banking sector writes off huge amounts of its loan book which are based on fictitious property values and the allocation of resources and employment is rebalanced to other economic activity?

New Zealand and Australia face similar grave risks.  The Australian economy had an easy ride through the economic crisis but any analysis of property values vs. income shows it has a ticking timebomb of a property bubble.  As China shuts up shop in an attempt to unwind its deeply corrupt and manipulated growth fantasy of the past ten years, the contraction in the commodities market will bring these realities home for Australia.  New Zealand’s economy is dependent and correlated with Australia’s and will experience similar headwinds.  Property prices were hit in New Zealand when the Global Financial Crisis began as the dairy and meat boom wasn’t as strong as Australia’s resource bonanza, however they are still very high.  New Zealand is also extremely unbalanced, as Government’s and industry here have been happy to see our economy become dependent on milking the food commodity boom while doing nothing to help our manufacturing industry (smashed by erratic Reserve Bank interest rate hikes in the past) recover.  To make matters worse the Government seems determined to sell our land, and the dairy industry’s intellectual and genetic property to China.

There are signs that the US economy is recovering, and the Presidential election usually leads to a more positive sentiment and upward leg of the economic cycle as the economy is primed in any way possible.  This will have a positive impact – the US is still the biggest economy in the world and at least has crony capitalism rather than China’s make-believe centrally planned fiction.  I think we’re into a positive leg of the cycle and will grow despite the odds as people gradually shrug off bad news and begin taking risk.  However the difficult times for an overleveraged dairy industry (in terms of farmer’s debt and high land prices) and long process of flat real property prices will keep things in check for a few years yet.  In my humble opinion!