Europe's austerity anger grows

More than 100,000 marchers converged on Brussels from across the EU to protest austerity measures on Wednesday, while Spanish unions took the extraordinary step of breaking ranks with Spain's socialist government by launching a general strike.

"Workers are on the streets today with a clear message to Europe's leaders," said John Monks, head of the European Trade Union Confederation. "There is a great danger that workers are going to pay the price for the reckless speculation that took place in financial markets. You have to reschedule these debts so that they are not a huge burden and cause Europe to plunge down into recession," he said, reflecting growing bitterness among ordinary people that they are bearing the brunt of austerity while bondholders have been shielded from losses.

Spain's car industry was entirely paralysed with the exception of the Mercedes plant in Vitoria, and transport stoppages caused severe disruption. Ignacio Fernandez Toxo, head of the country's CCOO trade union, said premier Jose Luis Zapatero was committing "political suicide" by carrying out harsh cuts while unemployment hovers at 20pc, or 41pc for youths.

Austerity fatigue is surfacing across a large arc of Eastern and Southern Europe, raising concerns that electorates may start to rebel. The Fidesz government in Hungary has already sent the EU and the International Monetary Fund packing, opting for "economic nationalism". Even the police joined demonstrations last week in Romania, hurling their kit at the presidential palace to protest public sector wage cuts of 25pc.

Read the rest here.

This is one of the main reasons why I see disaster ahead. Most of the heavily indebted nations are democratic and there is a limit to how much "austerity" the public will put up with in the name of paying off their debts. It will be even worse here in the United States where we have a two year election cycle.

There is no way any Congress can seriously undertake the kind of austerity that will be needed to deal with out debt. They would be thrown out of office on their ears before the ink was dry on the legislation. That leaves us with only one real scenario; default through inflation. Central banks will debase their currencies as far as necessary (the process is already underway) to get the Debt/GDP ratio to a desirable level. And of course debtors (bond holders) will be repaid in debased paper money.

China has pretty much figured out the game we are playing. Which is why they are no longer buying our long bonds. Now, to the extent they are lending us any money at all, it is strictly short term Treasuries. They know they are going to get cheated on the long term bonds they bought.