Dryblower on the darkness ahead before reality dawns

THERE will be dark hours ahead, says Dryblower, over the next six-to-12 months – but better times will follow when Europe realises what a dreadful mistake it has just made.
Dryblower on the darkness ahead before reality dawns Dryblower on the darkness ahead before reality dawns Dryblower on the darkness ahead before reality dawns Dryblower on the darkness ahead before reality dawns Dryblower on the darkness ahead before reality dawns


Tim Treadgold

What happened late last week, without any of the world’s high-profile commentators appearing to notice, is that Germany declared war on the free market and started a process which will destroy the euro as a global currency and lead to the inevitable break-up of Europe.

For most people working in the mining industry the latest round of events in Europe seem obscure to the point of being irrelevant, but older and wiser observers know that we are watching a turning point in history.

So far, the “turn” has seen German-led Europe embark on its latest attempt to achieve so-called fiscal unity – code for forcing the southern (or Latin) countries to adopt the thrifty ways of northern Europe.

It won’t work, and everyone except the Germans knows that, even the bankrupt countries, Greece, Italy, Spain and Portugal. They have simply gone along for the ride in the hope that Germany will continue to bail them out.

Eventually, with an horrendous unemployment problem (including an estimated 40 million young people), the dam will break, Europe will resort to the printing press, just as the US did three years ago, currency values will dive, industry will re-start and demand for minerals will soar – just as it did after the 2008 phase of the global financial crisis.

Why Dryblower is so confident that this will happen is that no country, not even Germany, can stand in the way of the free market, which controls the flow of money.

And right now money is pouring out of Europe to places where it is most welcome, especially the newly independent financial capital of the world, London.

In a nutshell, that’s what the world will now sit back and watch: a German-driven euro rescue plan that involves (in part) cracking down on banks and their lending policies in a way that will accelerate the destruction of a European banking system that is already largely insolvent.

Britain, by opting out of the latest attempt to rescue Europe, is not setting itself up for the disaster portrayed by critics.

Rather, it is setting itself up for a period of growth as the free market does what it does best, allocates capital to places where it feels safest, and earns the best return.

The best example of money flowing to the safest haven was on display last month when BHP Billiton raised $US3 billion ($US1 billion more than its target) in an issue of bonds which were priced at less than the interest rate paid by the Australian government.

In other words, parts of the private sector are today seen as being less risky than parts of the government sector.

Europe v London will produce the same result. Money will tumble out of Europe, with its insolvent governments and high taxes, and flee to free market economies – and, in turn, make its way into the resources sector, which is delivering the best returns on investment.

The road ahead will be bumpy. Dark before dawn is precisely what it will be like, with weak mining companies forced to merge in the name of survival.

But, by going it alone the UK can take its medicine now rather than over a decade of no-growth austerity. Opting out of the latest Europe rescue plan is, in fact, a brilliant decision, which will see the rebirth of a country that has never been European and which can now re-engage with the fast-growing parts of the world, especially Asia.

Europe, however, is now condemned to a painful period of trying to rescue its bankrupt southern rump (also known as Club Med) while also supporting its newly acquired, but backward, eastern member states such as Bulgaria, Romania, and Slovenia – all of which hope to attach themselves to German handouts.

But, more important than the plan to keep Europe as a viable entity is the split from the City, that heart of London which is also the world’s financial capital.

Tighter controls on the free market, especially the flow of capital and the decision-making inside banks, means that Europe risks becoming a no-growth zone almost totally reliant on spending authorised by unelected government bureaucrats.

Headlines over the weekend screamed “Britain isolated” from the rest of Europe, with claims that it will suffer a slowdown in economic growth because it has decided to remain outside a process designed by people who have not the slightest concept of how a free market works – something that even China has grasped.

Europe is doomed to suffer its overdue train wreck. But, after the wreck will come a desperate embrace of growth in place of austerity, which means demand for minerals will accelerate into a tight market thanks to the funding shortfall of 2012 that has delayed the development of new mines.

In the meantime, follow the advice you get on every plane trip. Buckle up, remember the brace position, count the seats to the exit row, and get ready for a wild ride which will, eventually, have a happy ending.

This article first appeared on ILN's sister publication Miningnews.net.