Is an Economic Deluge Nigh?David Galland Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped. It is said that history doesnt repeat itself, but it often rhymes. In the current circumstances, it appears that enough time has passed that current generations have completely forgotten the critical connection between the ability of humans to freely pursue their aspirations and economic progress. You can see this ignorance in the popular demand for even more, not less, meddling in the affairs of humankind. Should this trend continue and for reasons I will touch on momentarily, I firmly believe it will then the aspirations of the productive minority will soon be dampened by ever higher taxes and other attempts to level the playing field and the global economy, already in tatters, will fall off the edge. There is no more timely nor acute example of this growing trend than what is currently going on in France. I refer, of course, to the first round of the presidential election process, scheduled for this weekend. In France, if no candidate attracts no better than 50% of the vote, then the two leading candidates go to a decisive runoff vote, this time around to be held on May 6. For good measure, Hollande also promised to reverse the recent modest increase in retirement age from 60 to 62 pushed through by Sarkozy. While I am sure it is mere coincidence, I found it noteworthy that Mssr. Hollandes campaign slogan is Change Now! Remarkably, at least for those with some small understanding of economics, as a result of leaning into the microphone with these proposals Hollande has galloped ahead of all other potential contenders and is now projected to finish nose by nose with Sarkozy. After which the also-rans will be removed from the race, freeing their supporters to share their affections elsewhere. Given that the leading contender for third place with an estimated 14% of the vote is one Jean-Luc Mlenchon charitably categorized as far left, a label that can be applied to most of the other candidates it is projected that the conservative Mssr. Sarkozy will go down in double-digit flames come May 6. Bringing to mind the prophetic utterance of Louis XV: Aprs moi, le dluge. The deluge in Louis case manifested as the murderous affair commonly known as the French Revolution. In the case of Mssr. Hollande taking up residence in the Palais de llyse, the deluge is likely to manifest in the form of rising interest rates as investors look to protect against an acceleration in the countrys debt to GDP ratio, already projected to hit almost 90% this year, exacerbated by a flight of capital, investors, entrepreneurs and large businesses. As is the nature of such things, because of the aforementioned predilection of humans to run from trouble, we likely wont have to wait for Mssr. Hollande to be formally enshrined in the gilded halls for the trouble to start it will begin within days and maybe even minutes of the handicappers concluding that his ascendency is a sure thing. Given that France is the third-largest economy in the already-troubled Eurozone, one can expect the deluge to spread, with potentially devastating consequences. That the guillotines may soon be rolled out across Europe can be better understood by taking into account that the Eurozone sovereign deadbeats are on the hook for roughly nine trillion euros in debt, some significant percentage of which has to be rolled over to ready buyers over the next couple of years. Adding weight to the problem is that, according to the latest figures out of the IMF,Europes banks may have to sell off up to 3.8 trillion euros in assets, many of them questionable, between now and the end of next year. At least, if they want to remain solvent. Across the pond, the United States also has aggressive funding needs, given that the change we experienced ourselves in the last presidential election has left the government gasping for about $1.4 trillion in additional funding each year. Then there is Japan, officially the worlds largest debtor in terms of debt to GDP, where the easy availability of local funding has dried up, requiring that nation to go to the international markets for funding as well. The phrase an awful lot of hogs at the trough comes to mind. My point is not just that these governments are broke and are about to get a lot more broke as interest rates rise on their many debts and financings, but rather that the global trend toward a resurgence in public demand for socialism in response to a worsening crisis is a certainty. How could it be otherwise when for decades now the schooling of children has been delegated to functionaries of the state? For evidence, look no further than the screen swipe here. It is a quote from an essay by a college student in the United States on role the government should play: Pretty eye-opening, eh? The point here is not complex, but it is important. With the apparatus of state education over many years serving to bamboozle the populace into the hardened belief that government has a positive role to play in virtually all aspects of modern life, it should come to no surprise to anyone that, when push comes to shove, people are now trained to look to government to solve the problems even when it was the government that created the problems in the first place. Thus, confronted with the intractable mess they have made, these governments have to keep alive the mythology they have created about their omnipotence. Which is easier said than done, because with things now swirling fairly quickly around the drain, the mob is beginning to lose faith and even patience. Which puts these governments in a very tight spot, because the only way they can actually fix things is by doing exactly the opposite of what people have come to expect from their governments, which is always to do more. Put simply, the only hope now is that these governments begin to reduce their roles in their respective economies, and dramatically so. Concurrently, they have to encourage people in their aspirations to greater wealth, by lowering their taxes and unwinding the tangle of regulations they have created over the last half-century. But if the governments actually tried to take these actions, the brainwashed masses would be positively befuddled then outraged, as it goes against everything they have been taught. Why, it would be like the Pope shuffling his way to the balcony of St. Peters Basilica and informing the doting faithful that there isnt a god and never has been. Riots would follow. So it is that we find ourselves at a particularly interesting juncture in the historical record. On the one hand you have a majority of the worlds population who have been carefully schooled into believing that the institution of government holds the solution to all problems and is the source of succor to all who need it. (Even that subset of the populace who has lost confidence in their current government invariably believes as doctrine that the next and better government can change things for the better and lead the way to the shining castle on the hill.) In this mix are the politicians and their functionaries, 99.99% of whom believe that, if for no other reason than their re-election prospects, they have to do something to meet the demands of the public. Of course, under normal circumstances the something usually consists of making grand-sounding speeches and otherwise blowing smoke. Today thats just not going to cut it, for the simple reason that the crisis is real, it is spinning out of control, and its not going to go away unless and until the markets are allowed to breathe again. Which brings us full circle to the simple truth that the brainwashed public wont stand idly by while the politicians lower taxes and regulations on the profit makers or cut back state pensions and guarantees or otherwise reduce any of the many services the state has taken on itself to provide. Between a rock and a hard place is an inadequate phrase to describe the situation. Meanwhile, the mob has started to gather, their dark mutterings heard by the politicos who quickly don the red caps themselves, the better to be viewed as one with the people and join in expressing outrage against the capitalists who have been selected as fall guys in this unfolding drama. When confronted by reporters about the fact that his 75% tax on high-income owners would raise nowhere enough revenue to offset Frances towering debt and social obligations, Mssr. Hollande was heard to respond: Its not a question of return. Its a question of morality. When coercion and theft are considered moral, anything is possible, and none of it good. While I certainly cant say how this is all going to end, Im pretty sure its not going to end well. [Was Davids pessimistic view of the future shared by most of the experts who spoke at the just-concluded Casey Research Recovery Reality Check Summit? If you werent there, you can still learn the answer to that question an audio collection of every presentation is in progress. Youll hear every speaker see every graph and chart learn what the experts are recommending for your investment portfolio to help you survive and thrive during the coming deluge. The Summit Audio Collection will be available on CDs or in instantly available MP3 format order your copy now.] 