Socialism is failing in Europe

The Washington Post published this article recently, revealing that things aren't all that rosy across the pond nowadays.  Reporter Edward Cody observes that

From blanket health insurance to long vacations and early retirement, the cozy social benefits that have been a way of life in Western Europe since World War II increasingly appear to be luxuries the continent can no longer afford.

As the saying goes, socialism works fine until you run out of other people's money.  It seems that is exactly what Europeans witness now.  Faced with crumbling revenues, national governments in Europe have been forced to cut back on entitlements, much to the chagrin of millions who over decades had become accustomed to such luxuries as "Scandinavian cradle-to-grave welfare".

Social utopia has never existed and will never exist, and the more people seek to ignore that simple fact, the more problems they create for themselves.

The ideologies of the parties in power seem to make little difference.  Socialist prime ministers in Greece and Spain have been reducing pensions, limiting wage increases, and pushing retirements back.  Conservatives in the UK, faced with similar budgetary realities, have been busy themselves pruning entitlements and raising tuition rates.  Needless to say their constituents aren't happy.  For some time now angry mobs in Greece have been rioting, committing acts of vandalism, arson, and assaulting police officers.  As people in other nations feel squeezed they will express their outrage as well.

Citizens in France have begun shouldering costs of their own medical care.  To ease the burden on the national health care system, people must supplement their government insurance with "private complementary insurance" plans, paid for by the insured, not the government.  Even then some doctors' fees exceed the combined insurance coverage and patients must cover the shortfall.

To make matters worse, the French government is also cutting costs by not replacing some health care agents as they retire or resign.  This delays processing of claims.  To make things worse, the French feds have been closing local claim offices and pawning off their clients to impersonal regional centers.  An insured man named Florian Andre expressed his displeasure to a reporter:

“Now,” he smiled, “you have to be almost dead to get a 100 percent reimbursement.”

Welcome to socialism, Mr. Andre.

Some union organizers are seeing the handwriting on the wall:

The social welfare system no longer plays its role, said Claude Bernard, a union organizer at Renault’s struggling car factory in Sandouville, a suburb of Le Havre in western France. The very system of redistributing wealth through taxes and welfare programs has been called into question.

The U.S. would do well to pay attention.  We remain saddled with our own welfare programs and federal taxes (FICA) that redistribute wealth.

The experience of the French alone is enough for Americans to demand that our own feds keep their mitts off our health care system.  Yes, it has its problems, but NO, I don't want to find myself in Andre's position.  No responsible American parent would either.

View from the top, April 2011

The consensus now is that economic recovery in the U.S., as anemic as it is, is underway.  People with far more data at their fingertips than I possess have sifted through it and this is their conclusion.  I don't beg to differ.

But those who concern themselves with forecasts should not let themselves be led by the nose by others who merely extrapolate current trends into the future.  The stock market and the economy are living organisms, not inanimate objects; they do not conform to Newton's First Law of Motion.

The best forecasters I know of are not economists, but rather psychologists who have made their careers as both forecasters and teachers.  Here's a glimpse of what they are saying today:

Dr. Van Tharp, International Institute of Trading Mastery:

The Federal Reserve is printing money like crazy and the banks are not lending it. Instead, it’s probably going into the stock market. The bond bubble burst and that money has also been flowing into the stock market. Those inflows are holding up the stock market.

It is a crazy world.

I've studied under Van myself; he is hardly crazy.  For him to make such an extreme remark is in itself telling. Van's newsletters are available at no cost on the Web BTW.

Analysts at Elliott Wave International attune themselves to prevailing sentiment: is there a bullish or bearish bias prevailing among participants in a market?  If so, is it extreme?  In this month's edition of the Elliott Wave Financial Forecast Short Term Update, editor Steven Hochberg highlighted the results of a survey conducted by Investors' Intelligence. II polls investment managers for their opinions about the market: is it a good time to buy or sell or hold?  The reading as of now is at a bullish extreme, which has reliably portended a decline in the market.  One such extreme presaged Black Monday of October 1987.

The founder of Elliott Wave International, Bob Prechter, has noted that we have been for a while in an "all the same market" phase: as a rule, prices of stocks and commodities are varying inversely with that of the U.S. dollar.  Headlines lately have been lamenting the slide of the dollar since a major top in mid-2010.  There are very few investors to be found who are bullish on the dollar, paralleled by the extreme bullish sentiment in the stock market.  The current sentiment in both markets is ripe for a reversal, implying a fall in the Euro versus the dollar to accompany a drop in the stock market.  Back in 2008 when our economy was collapsing, the dollar began a strong rise versus other major currencies, which reversed its course circa March 2009 when our stock market began its impulsive advance from a major low.

In the markets for precious metals the bulls are running wild.  The price of silver in particular has been soaring.  Today, April 8, saw it rise a whopping 3.5%, as frenzied buyers bid up the May contract on the COMEX.  The metals enjoyed a similar meteoric streak in 1980 before the bottom fell out and sentiment flipped to bearish.

Meanwhile in Europe, Portugal has joined other failing economies, appealing to the European financial community for relief from the unfolding crisis in its sovereign debt.

All these are portents of a deflationary scenario, quite the opposite of the inflation that so many fear.