The Wizard of Oz and the Tin Man

Everyone is looking to Germany to save the euro zone and the European Union.

Ha!

Yes. Germans are harder-working and higher saving than the failing southern European nations.

Yes. Germany’s exports are holding up and remain competitive around the world.

Yes. The country’s debt is not as high as those of its southern neighbors and the U.K.

Germany may look like the Wizard of Oz but it’s really more like the Tin Man – an industrial machine with no heart or leadership and no demographic trends to back up its present strength in Europe.

Besides, even if it was the Wizard, it would have no real strength because the central banks of today have thrown in the towel and are busily creating something out of nothing.

Everyone looks to Germany to approve further bailouts… to keep the euro zone intact… to be the anchor of the whole damn thing!

There’s just one problem…

  

Germany, like Japan, as an industrial leader in higher value-added industries, is aging more rapidly than any major country in Europe.

Oops. No one mentioned that at the party!

If Japan receded from world leadership, why couldn’t Germany?

How many people know that Germany has already been razing commercial and real estate developments and turning them into recreational parks? That sounds charitable, until you realize that the larger motive is to hide its demographic decline.

The chart below shows that Germany’s Spending Wave declines very rapidly in the decades ahead. If we look at more detailed birth data beyond the United Nation’s five-year cohort estimates, that Demographic Cliff hits after this year!

And what a fall!

Germany Spending Wave, 1950 – 2100

Do you see any Echo Baby Boom here? Not many.

Germany is going to age forever, just like Japan.

And this is the country that’s going to hold the euro zone together?

Not a chance!

Especially because many other European countries fall off the cliff around the same time: Switzerland, Austria… and Greece.

Greece is already in so much trouble it’s almost not worth mentioning. But Germany, Austria and Switzerland are supposed to be the more conservative, stable and financially-sound backbone of Europe. They’re major banking nations.

And they’ll lead Europe over the edge of the demographic cliff.

Europe is a colossal mess!

It has no way out of the crisis it’s in. Not with such poor demographic trends and such high debt. And the demographic trends only get worse after 2013 – 2014. They fall off a steep cliff, like Japan after 1996!

The euro may or may not fail in the next year or two… but at a minimum, it’ll be put to the ultimate stress test. In fact, I think it will start to fail and face restructuring as soon as the next year.

Stay tuned!

Harry

P.S. In my 2013 Mid-Year Forecast Update, which broadcasts next Friday, I will be talking more about the potential hair-pin triggers that could ignite the next great – global – crash. A warning though… one particular trigger seems the most dangerous right now… and it’s the very one that most people are simply ignoring. More on this next Friday.

PUBLISHER’S NOTE: To watch Harry’s forecast update on July 5, at noon Eastern, please add your name to the broadcast list here.
 

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About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.