Economic and Social Tipping Points: Have We Arrived?

I read a very interesting article written by Mike “Mish” Shedlock about how we may have reached a tipping point that we have never seen before considering the many current events unfolding before us.  I say it again, I am glad that if I have to watch it happen, I am glad it is from Boquete.

Economic and Social Tipping Points: Have We Arrived?
Posted: 25 Aug 2015 10:46 PM PDT
Economic Tipping Points
* Was the Surprise Devaluation and Currency War by China two weeks ago an economic tipping point?
* How about the 1000+ Point Plunge in the Dow partially recovered on Monday?
* Oil prices at six year lows?

Social Tipping Points

I will return to economic tipping points in a moment.

Meanwhile, let’s refocus the spotlight on social problems. Here’s an image of a protest on Monday, in Germany.

Police confront rightwing demonstrators at the Heidenau refugee centre in eastern Germany

Spread Them Around

Please consider Merkel and Hollande Call For Equal Spread of Refugees Across EU
Angela Merkel and François Hollande on Monday called for a more equal distribution of asylum seekers across the EU, as violent clashes outside a German refugee centre highlighted the rising political tensions over record inflows of migrants into Europe.

“There was an aggressive xenophobic atmosphere which is no way acceptable,” said the German chancellor. “It is disgusting how rightwing extremists and Neo-Nazis have tried to spread dumb messages of hate. But it is also shameful that citizens, some of them with children, have supported the demonstration by going along to it.”

Ms Merkel and Mr Hollande backed the European Commission’s push to revive controversial proposals for all 28 EU countries to sign up to a binding quota agreement, under which newly arrived refugees would be distributed around the bloc. Such a move would to ease the burden on Germany and a handful of other states which currently take a majority of asylum seekers.

Germany expects to receive a record 800,000 refugees this year, more than the entire EU received in 2014 and around 1 per cent of the country’s population.

Ms Merkel and Mr Hollande also called for the full implementation of EU asylum rules — which cover areas such as legal rights and rights to medical and social care — across the bloc.

The German Interior Minister, Thomas de Maiziere, called for “freedom of movement and open borders.” More specifically, he added “A European answer to maintain open borders and no controlsin the Schengen region is needed.”
Schengen Area

The Schengen Area comprises 26 European countries that have abolished passport and any other type of border control at their common borders. Twenty-two of the twenty-eight European Union (EU) member states participate in the Schengen Area. Ireland and the United Kingdom maintain opt-outs.

Note that the UK is pissing and moaning over a few thousand refugees, not the 800,000 Germany gets.

A quick check shows David Cameron says Britain will Accept Just ‘a Few Hundred’ More Syrian Refugees despite 4 million displaced by the war.

Cameron a Liar or Delusional?

UK prime minister David Cameron insists he can get the EU treaty changes he wants even though Germany and France want something 180 degrees different.

Cameron is either a liar or delusional.

By the way, let’s place the blame for the Syrian refugee mess where it belongs: President Bush was a direct sponsor of Isis, and president Obama sure did not help any.

EU Rules

Under EU rules, refugees are required to obtain asylum in the country in which they first arrive. Italy and Greece have not enforced that rule, for obvious reasons. They are the countries in which most refugees arrive.

Imagine Italy and Greece absorbing 800,000 refugees.

Unlimited Demand for Free Services

Germany and France want to spread the refugees.

Is that the answer? If so, at what cost?

Bear in mind refugees have “rights to medical and social care”. Who pays?

That we can answer: taxpayers.

Also bear in mind, Greece has an unemployment rate of 25.6%, and Italy 12.6%. Youth unemployment in Greece is 49.7%, Spain is 49.3%, and Italy is 41.5%.

That is one hell of a lot of disgruntled people worried, with due cause, about others taking their job.

It’s no wonder we have seen the rise of Golden Dawn in Greece, neo-Nazis in Germany, Beppe Grillo’s M5S (five star movement in Italy), and Marine le Pen’s National Front in France.

People are fed up.

Spreading Refugees Cannot Possibly Work

The idea that unlimited refugees can be spread around like cream cheese on a bagel, with no repercussions, is fallacious.

The more free services a county gives, and the more convenient it is for people to get those free services, the more takers there will be.

Spread refugees around, give them more care and services, the more you will have. Make it easy enough and half of Africa would move to Germany.

The US has the same problem of course, and no one seems to have figured that out (or cares to admit the real problem). The real problem is free services, not the lack of a wall.

Tipping Point?

What about those three questions I posed at the beginning? Are any of them economic tipping points?

Is immigration a social tipping point in Europe? The yuan devaluation? Oil price plunge? Stock market plunge?

Think carefully.

Here is the answer: All four points are symptoms of bigger problems. They are not tipping points in and of themselves. Rather they are signs of underlying economic weakness, that the economy has already tipped but has been propped up to no lasting avail.

When times are good, neo-Nazis don’t thrive; Growth does not flounder; Few want to build walls across entire 2,000 mile borders.

Wealth Effect of Bubbles

The “wealth effect” of stock market bubbles can only go so far (assuming of course the effect is positive in the first place, and that I question).

Regardless, if the economy has tipped (and I think it has), the Fed prop-job has been so relentless, for so long, this may be the end of the line for a long time to come.

Mike “Mish” Shedlock
Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific