"Another year! Another deadly blow!
Another mighty Empire overthrown!
And we are left, or shall be left alone." -Wordsworth
"All empire is no more than power in trust." -John Dryden
Looking at a list of the largest empires in history based on how much of the globe was covered, it struck me that once it's over it can be a long, and humbling, fall from the top. We learn in school that Greece was one of the largest and most powerful empires ever, but the fact is that there have been dozens of larger empires. All of these great empires crashed and burned under the burden of financial problems brought on by complacency. Most of these empires were overstretched. Their reach was too great, their militaries lost their edges, and their citizens became too arrogant. These empires were conquerors and aggressors, but their ferocious appetites got the best of them. Largely, these former empires are just shells of what they were. Some continue to dream of reclaimed glory, and indeed are moving up the ranks (China and Brazil) once again.
The further back these empires died, the smaller and less significant they are with respect to their current economic size.
Comparisons of the Roman Empire to America are popular, unflattering, and often meant to convey a message of doom brought about through greed. Fact is that America has been the policeman of the world, fending off capitalism and promoting democracy. Keeping peace in the world is much different motivation than any of the other empires in history. Despite the trillions of dollars and thousands of lives, the real respect and trust that Dryden wrote about have been elusive. Hey, it's fine with me if you don't have respect but don't put your hand out. Of course, it doesn't really work like that in the real world. We are learning this lesson once again, and it's going to be expensive being the unsung hero (or sucker) in the bailout of Europe. But should we be surprised? This same scenario played out in the 1990s.
When Yugoslavia began to disintegrate Jacques Poos was Foreign Minister of Luxembourg and acting president of the Council of the European Community. In this role he boasted that "this is the hour of Europe, not the hour of the Americans", signaling the EU was prepared to step up and take care of business in their own backyard. As it turns out, Yugoslavia broke up after a shocking civil war that eventually needed America's political and military might to fight in Bosnia and Kosovo. The EU was a complete flop in the area of foreign affairs but was still confident it could make a go of it with a unified currency. We are finding out now that the same divergent goals that blocked a successful diffusion of Balkan hostilities are also haunting the dream of the Euro. And, once again, America is going to use its political clout and financial might to hold together a dream by former empires of new glory.
None of these nations can reach the summit alone, and while many member countries were prepared to go along for the ride and let France and Germany ultimately fight for control over a unified Europe several other nations balked...until now. Even French voters rejected the original EU constitutional convention signed by all heads of state in 2004. The citizens of France and the Netherlands worried about limits on their own countries voting rights and sovereignty. The constitution even called for an EU flag and anthem. Now, the financial crisis is bringing about some of these stiff measures that strip sovereignty. Now Spain, like Greece, is an EU protectorate. Spain, at the urging of President Obama, has accepted some serious austerity measures, including:
- 5% public sector pay cut
- 2011 salary freeze
- €2,500 baby bonus cancelled
- 18% VAT from 16%
- 15% cut in Mr. Zapatero's monthly pay to €6,515
The immediate goal is to cut the deficit from 11.2% of GDP to 6.0%. Real estate companies are in serious trouble, with €445.0 billion in debts or 45% of the country's GDP. I'm not sure what was promised by the Administration but it's going to be a hefty price tag. But, the dream is intact for the greatest empire of them all, the empire run by intellectuals that would cover all of Europe and North America. Ironically, the great empires of the past grew too large to manage and then they got into financial trouble borne out of complacency and arrogance. This Euro empire is starting out on shaky financial footing with the only hope of making it through the eye of the storm being America's deep pockets and magic money machine.
The crazy thing about this fantasy is that America's deficit continues to march higher and higher. In April, America's deficit spiked to a record $83.0 billion and around $800.0 billion for the fiscal year. It's absurd that America is pouring money into a bailout of socialist nations when our deficit is completely out of control. Fannie Mae and Freddie Mac are walking time bombs; nobody is sure of risk levels at the Fed because nobody can see the books (this era of transparency is so wonderful). A record 19 consecutive months of budget deficits would seem like more than a red flag, but it's full steam ahead.
Initial Jobless Claims
There was a muted reaction by the market to this morning's claims data. Initial jobless claims for the week-ended May 8 totaled 444,000, which was 4,000 ahead of consensus. There was a marginal rise in continuing claims to 4.62 million.
The Day after the Day after the Day after...
Each day begins with a whiff of angst and confusion even when stocks come out of the gate like Secretariat. Today, stocks look to meander out of the gate with a slight upward bias. Last night, Cisco (NASDAQ:CSCO) reported a fantastic quarter and it felt like we were setting up for a big day, led by tech. But, during the call John Chambers warned about people becoming too giddy (my word not his). Still, a potential bidding war for Sybase (SY) could be the stuff that pumps up the entire tech arena. What will not pump up the market is the piling on of investigations of Wall Street.
If the market was looking for a spark this morning it didn't happen from initial jobless claims which came in at 444,000 (higher than expected) and last week was revised higher to 448,000. These numbers are staggering. Something is eerily wrong. The new permanent underclass of formerly proud workers is sadly becoming a reality.