"A New Plan"

I am linking an article from MSNBC on why stocks are up dramatically today, but I simply have to quote here part of the first line:

"U.S. stocks jumped Monday as optimism grew that European leaders would come up with a new plan to resolve the region's debt crisis . . ."

http://bottomline.msnbc.msn.com/_news/2011/11/28/9073132-stocks-surge-amid-euro-zone-consumer-hopes

If you live in a cave, you may have missed the fact that EU has been under a good bit of financial stress for at least three years. Even I predicted in January 2009 (yes - nearly three years ago) that the EU might lose a few members, and at that time I specifically mentioned Greece, so the problems in the EU are no recent development and have been obvious for a very long time, even to me. And if you follow the press, European leaders have been flying all over the place to meet, falling over each other to throw out words of confidence and doing all that they can to right the ship. Indeed, those leaders unable or unwilling to tote the EU line are now or soon to be gone. None should ever dare put the vote of their own citizens in the line ahead of EU unity or financial interests. That would be blasphemy.

The point here being that European leaders do not have any new plan. They have no new thoughts, no new agenda, no ground breaking approach. They have nothing more for us than they did last week, last month or last year. Nor can they. There are no great or even good options for the EU. They have a list of options and the best they can do is try to pick the least painful, but due to the EU being made up with a bunch of independent countries with independent agendas and priorities, the odds of them ending up with the least painful alternatives are relatively low. A betting man might wager that the EU's fate will simply be whatever happens if they cannot agree on something else to happen, i.e. default. They cannot and will not get their collective act together, but who cares. At the end of the day a collective decision by the EU is not likely to lead to a much better outcome than a failure to act. Sovereign default in some form is in the cards for a number of members, elevated bond rates are in the cards for all members and holding the EU together (perhaps with a few less countries) is going to be probably the best they can muster out of this long term.

Let me put it this way. Any plan that calls for austerity to work and lead to a substantive reduction in debt at the PIIGS so that they can pay their debts and not default is a plan that will take over a decade to complete, if they are lucky. Seriously 2020 and beyond. Do you really think the citizens of Germany, France or the PIIGS are willing to suffer that long? Heck, I am tired of this as is everyone else following the action. Seriously EU, stick a fork in it, those PIIGS are done!

Now the other part of the article (which by the way everyone is pointing at, not just MSNBC) is that heavy Black Friday spending is spurring retail stocks. Yes baby, the consumers are back in the game! Let me hear ya' shout out!!

I know the logic here. Consumers buy stuff. Stores do well and become optimistic. Stores order more goods to fill shelves and build inventories. Manufacturers build more goods and hire people to build the goods. More people have jobs and an income and can afford to buy stuff. Repeat cycle and everything is honky dory. But let me repeat the cycle with a bit of (my sense of) reality:

Heavily indebted consumers with underwater homes buy stuff, thereby increasing their debt burden. Stores that slashed prices dramatically to draw in customers think they did well and become optimistic. Stores order more goods to fill shelves and build inventories in the hopes consumers keep up the buying. Manufacturers build goods overseas in cheap labor countries and hire people overseas to build the goods. More people overseas have jobs and an income and can afford to buy stuff overseas. Repeat cycle and everything is where we started except consumers have more debt and stores have more idle inventory.

You judge - am I a pessimist or realist?