Anyone smell the smoke yet?

There's a definite problem over in Euroland that "suddenly" became apparent this morning.  Between the French elections (in which Sarkozy appears to be toast) and the Dutch government collapsing over an austerity fight, we now add the ECB and Bundesbank tiff:

Almost a year into his new job as the head of Germany’s Bundesbank, Weidmann, 44, has matured from Chancellor Angela Merkel’s discreet right-hand man at global economic meetings into one of the few European policy makers warning that governments are failing to do what’s needed to rescue the euro.

How do you "rescue" something when you refuse to have an honest conversation about what's broken?  Nobody over in Euroland -- or here in the United States -- is doing so.

There's nothing complicated behind the reason our economies have failed to actually recover: We're still spending more than we make.

What do we have to fix?  This:

Since 1980 your earnings power, in real terms, when accounting for monetary inflation has been strongly negative. 

We covered up would have otherwise been an outright revolt (really -- a decade of 15-20% of annualized loss of purchasing power would have led to exactly that!) with massive credit extension to individuals and corporations.  This is the history of the housing bubble -- this chart -- and it goes back to 1980!

There are those who will argue that this graph is a "distortion" as it includes the credit created specifically as "financial credits."  Fine, I'll remove that.

Now how are you going to continue to play asset-price inflation games when there is no price-adjusted income growth so you can pass the bag to the next group of people, eh?  There is only one way -- fraud -- and the refusal to address the truth is why we're here.

This was not an accident.  It was and remains a public and intentionally-covered up fraud.  The coverups came in the form of the housing bubble, massive offshoring of labor and exploitation of both environment arbitrage and effective slave labor overseas along with currency and interest rate manipulation and bank credit fraud of unprecedented size.

The compounded amount of damage done since 1980 truly boggles the mind.  Oh sure, a few people have made out like bandits; look at the escalation in certain asset prices!  But it has come through making it utterly impossible for anyone in the current generations to follow in the footsteps of those who "enjoyed" these distortions which guarantees the collapse of these asset prices as there is no way for the current holders to "monetize" them by selling them to someone else who is young and coming up, except through attempts to further extend this scheme.

This is the very definition of a ponzi scheme -- and yet we have had no honest discussion of what has happened here or in Europe.

There's no way out of this box without recognition of both what we did and deflation of those bubbles.  The acts of our government and those across Europe have all served to further these frauds rather than expose and excise them.

Those who point to temporary recovery of "asset prices" (e.g. the stock market) are missing the forest for the trees.  Attempts to further continue this ponzi scheme are doomed to failure, as the only way one can "maintain" these asset prices is for a new group of people to find ways to continue to take the pass of the "bag" at ever-higher prices.

That, in turn, requires continued credit creation and that requires there be someone who is both willing and able to borrow so that credit can be created!

We ran out of suckers in 2007 folks -- we've done the Wile-E-Coyote thing since, continuing to pretend that we won't actually fall having stepped off the cliff.

I'm sorry, but you're wrong.