Germany's Military Keynesian Trap Europe's Collapse

In this episode of Dave talks politics, Germany's debt vulnerability and the dangerous allure of military kinesianism will go into exactly what all that means. It's pretty bloody interesting, but devastating for Germany. So Germany's debt to GDP ratio. Currently sits around 63%, which is good. That is good, keep it there, Germany, which appears relatively healthy compared to many other developed nations. However, this headline, I know, I think the US has just gone over 100%. So Germany's doing pretty well on the surface, compared to many other developed nations. However, this headline number masks deep structural weakness. The German economy has been stagnant for years now. It's industrial base, there's a roading, it's refusing to pivot to all of these new technologies. It's taking the government are taking incredibly ideological positions like on a Russian energy and creating massive increases in input costs for industry. So it's a roading rapidly and it's basically the costs that are driving it. But also, there are unwillingness to, essentially, right off a whole bunch of intellectual property and experience and knowledge and wisdom and all the things that they've been if it had benefited from over many years, they've just been being forced. They haven't done it yet, but they've been forced to write all that off and they don't want to do that. They're resisting that as long as they possibly can. They can't resist it forever. You have to get on with it sooner or later because it's really hurting your economy. Stemographics are also a bad, bad, really bad. Among the worst in Europe, a rapidly shrinking working age population are soon going to be responsible for servicing all of the new debt we're going to go into that. While simultaneously funding pensions and healthcare for a much larger elderly cohort, basically, as people get older in that country, the older people become a much larger cohort than the younger people. So the burden on the younger people is much greater. This combination in my humble opinion, tea makes Germany far more vulnerable to large scale borrowing, rather than the raw figures suggest, especially if growth remains weak. A bit of a look at our view today. So yeah, there's a few stand-up pedalboarders out there waiting for a wave. There's a few waves coming in. It's not a bad little spot. Yeah. Right, what's all this keen-easy as a carry on that I'm talking about? So let's go into that next. So there's growing, growing, growing, political and external pressure for Germany to dramatically increase defense spending. Some voices are calling for military budgets to rise to 4%, or even higher over the near future as a share of GDP over the coming years. This push is being framed not only as a security necessity but also as a form of military keen-easyonism. What the hell does that mean? Basically using massive amounts of government spending on weapons, on infrastructure, and related industries, a lot of industries go into the creation of a war machine. And that stimulates demand, creates jobs, and it offsets the damage of deindustrialisation which is occurring. So you can see that China used war as a pivot from producing things that people need to producing things for a war. I mean, it's like the last option. The last role of the dice is you go to war somebody and you basically pivot your entire industrial base to building war stuff. So you can do it once, yes, you can do it once. 100% in many argue that Russia are doing exactly this right now and to some degree China are also doing the same thing. They are repositioned their industrial base around hot conflicts. And that logic, right, it's incredibly seductive to politicians, they're all useless in my humble opinion team, politicians, bloody useless, mostly conflicted, at least in the West. In the bad bricks, yeah, there's a hodgepodge but in the West, we're totally screwed. We're totally screwed. I mean, look at bloody short hands. Look at Stammer, thank God he got the boot, he was useless. And you got like the German politicians and the foreign minister for the EU. Kaya Kallas is the ladies name. And look, I hate to be disparaging towards an individual but look, the EU has got to do better. It's just got to do better in terms of how it represents itself. And matters like that. I mean, it's just the politicians, you know, just bloody useless. So the logic, basically, coming back, the logic is seductive. It's seductive for the politicians. They don't like it because they get to, you know, they're facing disaster with factory closures, rising unemployment, all the bad stats are going up to, you know, they're going up. They're going up to the right. Unemployment's going up and poverty's going up and you know, hardships going up and weightless are going up. Everything's bloody going up. It's bloody terrible. It's absolutely terrible. So yeah, so you've got all this crazy stuff but you can turn seductive to politicians because they can turn that frown upside down. They can turn the crisis into an opportunity for state driven economic revival. That's the keen easiest part. So they can borrow lots of money and pump it into the new economy. Pervate the economy, pump it in and then get everybody happy as a clamp, basically. So, but there's always a big buddy of history shows. Military kinesianism really delivers really as in very, really does it deliver sustainable broad-based growth and often leads to distorted economies and long-term fiscal burdens. Basically, you borrow too much money. You spend all this crap, you know. It's something happen or nothing happen. And you've got to pay for it, you've got to pay for it. Sooner or later, you've got to pay the interest and those interest payments, they're not going to be small. I can tell you that for nothing. You know, they might start at 3% for a euro bond at the moment, but you wait. If they've got to issue a trillion euros of these bonds, that rate, that rate is going to go I can get, this is how it works, right? That is how it works. The confidence in the euro is the underlying security for the European Union as the underlying security for the bond. That's going to go down as they create more mess for themselves in my humble opinion team. So industrial decline and the Russian gas cutoff because that's all connected to this. So Germany's current industrial weakness is not primarily due, it's not just Russia's fog. I mean, most people in the Western media, they make a big song and dance about it's all. Russia, Russia, Russia, oh shit, that's Russia. What about this one? That's Russia too, but it's Russia's fog. That's what we are doing and at least our media is. That's the propaganda, that's the narrative that is being propaganda team in my opinion. It's just another word for shaping the narrative basically. You know, it's forming a narrative that is comfortable for the people of your country. They don't want to hear that they're on the losing team, they want to be on the winning team. So you've got to shape the narrative so that they feel like it's everything's okay. We don't have to go into the streets and protest. It's not Vietnam, you know, we don't have to go and do something crazy because we're winning. So as long as you can shape the narrative, you can keep the people, you know, cool, they're all cool. They're like, hey, I saw it on TV the other day, sounds like we're winning, it's all good. Genrely, there's a big wave coming up. Yeah, the lovely one. See if this guy catches it. Oh, it's a lovely one, look at that. He's looking at it, thinking, oh, I can get that. Is he gonna get it? He's not even paddling, so no. He's not getting that. He's let that go. No, that was too short for him. Nice wave though. Yeah. It's good when you can stop to admire a wave, right? It's a good way to interrupt a little podcast like this. Yeah. Yeah, so basically blame it on Russia. Blame it on Russia, right? And it stems directly from the liberate political decision to cut off cheap Russian pipeline gas after 2022, which in my view, in my view was the Nexus, that was the bedrock of the current disaster in Europe, specifically in Germany. We're talking about Germany today. It goes much wider than Germany team, but yeah, the current disaster in Germany is unfolding as a result of that disastrous ideological decision to cut off pipeline gas from Russia back in 2022, just after 2020. Energy intensive sectors, such as chemicals, I mean, that's a big one, BASF, I think, is the company. Steel plus ceramics are automotive manufacturing. Think of what goes into a car. I mean, just think of all of the components, the wheels, right? The wheels are made of some sort of alloy. It's got magnesium, it's got aluminum, aluminum, and it's got all bits and pieces inside that casting. It's got a really expensive machine that you've got to cast these things into to make them. And then you've got to machine the face and you've got to do all the other stuff you've got to do to it. And then you've got to put a tire on it. You've got to inflate the tire and you've got to have a valve and you've got, you know, the tire's got a lot of steel in the tread and a lot of components go into just a wheel. It's just a wheel, but it's like one thing and you've got a lot of stuff that goes into that. And all of that stuff needs energy. And these a lot of the furnaces that make the steel that goes into the tread of a tire, those furnaces need a lot of energy. The rubber, they didn't come from nowhere. They've got to make that from a bunch of petrochemicals and other stuff. And this guy's got to wave this off. He's up, he's up. He's up on the foil. Look at that. He's just rolling off the top. Well done. Well done there. Is it an E4? Must be an E. He's got his right hand out, so it's an E4. It's just cruising around. Yeah, yeah, okay. That's all right. We accept that. Is that okay too? That's all right. Okay. Yeah, so basically energy makes the steel that goes into the tire. It makes the rubber that forms the walls and the tread of the tire. It makes everything. You don't have cost effective energy. You don't have business. You're out of business basically. All you've got to increase your prices, difficult to increase the price of a luxury petrol car right now. Have you noticed that other type of vehicle that's being quite popular, EVs? And the problem is with Germany in particular, they didn't embrace it because I've got a lot of sunk value that's embedded in the existing market for diesel and petrol cars. They own a lot of the intellectual property. The, for example, the VAG group, Volkswagen Audi Group, which contains a whole bunch of other brands like Skater and I don't know, a whole lot of different brands that sit underneath it. But also a lot of other brands, they use the same supply chain. They use products from the VAG from VAG. And some of these are made in Poland, they're made in Lithuania, they're made in all sorts of Baltic states. And the reason why I'm going down this rabbit hole is just to show you the impact on Germany, first and foremost, but the impact on the wider ecosystem that supports that and that benefits from that right across Europe. And all of that that I'm talking about is basically screwed by that decision 2022 that cut off pipeline gas. And not just pipeline gas, I mean crude as well, all sorts of energy from Russia. That has absolutely right, really screwed Europe. They're a done burger right now. I don't see if you listen to the, if you believe what the Russians say, I'm not sure I'm not saying you do, but if you do believe what they're saying, they're saying they're not going to do deals in future with Europe, they're done. It's not a reliable customer in their perspective. They've got better options, better trading options with Bricks, so if Europe wants to buy energy, they can go to India and buy it from there. And India can basically buy raw energy from Russia and from other partners and then it can resell the refined product and it can basically take the margin. It can take the spread, so I think that's the future for Europe is to basically do deals with India and for other proxies to get access to Russian energy. But then they're at the, you know, that margin, that margin goes to another party, a part party, it goes to India or to China or somebody else and they end up having to just import refined product. They don't, you can't really do that because when you're doing work for like chemicals, best of, for example, they take pipeline gas and then they turn that into fertilizer and they turn it into shampoo and into paint and into glue and all the different things, plastics. They make all those products from the raw crude and from the raw pipeline gas that they've got a process to convert it all into, you know, beads of plastic basically, beads of fertilizer. And they do this on the regular and they've been the best, I mean, they haven't been a lot of the proxies to actually do this but China have copied those processes and so is India. And they now do that at scale and they're becoming basically cornering the market on refining chemicals and derivatives from energies. So this is not a great position for Germany to be it, you know, if you're in bass, if you really care about this stuff and you're like screaming at the government to stop being so stupid, it's too late. In my opinion, that is, that is, that ship is set sail. So factories have reduced production, they've relocated a broad, they've closed entirely and instead of acknowledging that the sanctions policy contributed heavily to this decline, it's been politically convenient to blame. Russia, blame Russia, basically, blame Russia. Blame Russia entirely, it's Russia's fault. It's Putin in portrait as the sole villain, Russia's a villain, that's with a villainous, that's what they are. This narrative allows Germany. Jesus, Mary wept that guy went past in a wheelchair at probably 45k an hour, and he's not long for this world, I think, sadly, this narrative, I mean, he's enjoying his life good on this narrative allows German leaders to avoid very difficult conversations about their own energy and industrial policy failures. They're putting it off team, that's what they're doing. They're trying to defer their conversation until they're out of power. Let somebody else pick that up. So, part, another part, here we go, a faction, so there's basically NATO hardlines, we're gonna talk about that and the push for strategic defeat. So, a faction within NATO, particularly in parts of Eastern Europe, Kaya Kallas, and among some US and UK policymakers, they openly call for the strategic defeat of Russia. Now, that means, we'll go into what that means and why that's significant. Some voices go further, basically openly discussing these voices are senior officials from the European Union. They openly call for vulcanization of the Russian territory, which basically means they break up Russia into like 20, 30, 40 states and then they share those, they share the spoils of war, let's have a look. We'll give these 10 states, we'll give those to Germany, France, you can have seven states. Italy, you can have six states over here and we'll give all these states, this is all the land, it's worth about $50 trillion, and we'll get a divviet up across there. That's basically what they're arguing for. Now, Russia has the most number of strategic nuclear weapons in the world, just as a backdrop. They are one of the largest, most current, let's say, standing armies in the world. They have a pretty formidable, according to US analysts, a formidable war machine right now. It was crap, it was totally crap, 1990. It was, the world's been falling off, the USSR, but since then, it's turned around, been rebuilt and now it's been doing joint exercise with China and it's been doing a hell of a lot of work rebuilding since 2022. This whole Ukraine thing has caused Russia to ramp up their war machine and basically take it up to best in class. I'm not saying it's best in class, but it's right up there. I think it's probably as good as Ukraine. Ukraine, Nali, man, those boys are totally Nali. But they are worn out, they don't have money, they don't have the gear, they don't have the support you need. They've had money basically pulled away from them and they just don't have the resource to be as formidable as they can be, poor pluggers. But Russia does, Russia does. Russia has this enjoying massive, all-revenue's. They've had some sort of couple of news where these strikes on refineries where drones have gone in and made a whole bunch of smoke, but really, the pinpoint sort of attacks that don't actually have any major impact on the refined product output of the refineries in Russia. So it looks good on the tin, but it's actually not that productive and not that useful, doesn't actually hurt Russia materially. So, I mean, we will hear in the news that there's a major petrol crisis in Crimea and that people are over there in Crimea, they're going to Crimea river. And that's basically true. There are some shortages of refined product in Crimea because the refineries are taking a bit of a whack. But who cares, it's Crimea, it's like into nowhere. It's arcing to nowhere, so Russia doesn't care. Russia's got like, you know, Crimea is a tiny fraction of the state of Russia. Russia looks at it and goes, oh yeah, I'm in bad luck, boys, you know, just, we'll send you some trucks, just stop complaining, you know, or we'll give you a bit of stick if you keep complaining. Basically, that's our Russian set. We see it around the other way. We see like, oh, we've smashed Crimea, that was Crimea. It's like a tiny little island on the arcing to nowhere. Yeah, that's what we see. And we go, oh, that must be Russia. We've actually crushed Russia. That's what we see. That's the narrative that I was talking about earlier, but basically, you know, we, that's our propaganda. That is our propaganda team. Going to the news today and you'll see something under some of the newspapers and type in Crimea. And you'll see a big spin story about how bad the strikers on Crimea, who cares about, from Russian perspective, they're like, who cares about Crimea. My look, even for Russia, it's not our limited border skirmish, dispute. This is an all in moment. You know, they say it's existential. That's the term they use, where it must fight with everything that it has, including its nooks. If Germany and its allies commit to this level of confrontation, that debt required to sustain it will be enormous team, absolutely enormous. It'll also be long term. You know, you don't just raise that debt, spend the money, and then what? And then what? You still want to pay debt. You've got your coupon, you've got to pay out the interest rate on that instrument. And it doesn't stop until the term is completed and you give their money back. So, this is a major, major drama. Mark my words. I mean, if they go ahead and actually do the race, they haven't done it yet, but they're talking about it. They really want to do it. They want to go and do the race, raise a lot of money, and spend it like mad. But Russia is not Afghanistan. Russia is not Iraq. Russia is not Libya. And this is where the danger becomes quite acute. We're going into 21 minutes now. It's a long episode team, but hang in there. This is where the danger becomes acute, unlike Afghanistan, all those other places. Russia is not a weak or failing state that can just be pressured into submission through sanctions and limited military support. It is not. It is absolutely not. They possess, as I was saying before, one of the largest most capable conventional standing armies in the world, backed by the world's largest nuclear arsenal, massive domestic industrial base, which is basically all the old Soviet factories that just turned them back on. They're still there. They haven't been tuned off. They just switched the things on. Where's the power, you know, Boris, where's the power? There's a switch to power on, boom. Oh, it comes out during the shells again. You know, they're basically just tuned on the machines and they started running them, filling them up with explosives, and then putting them into wooden boxes. They've still got the wooden box factories to make the boxes, to put the ammo in. And then they put them in the truck. The truck is from the same bloody truck factory that they had back in the Soviet Union. Everything, the entire supply chain, is still active and still ready to go. They just turned the things on. I mean, it's just, it's really bad what we've done. We, the West, specifically Europe with their ideology, matching or deterring Russia, the Russian military, their power, matching that on land in Europe, which required Germany, specifically Germany, without the US I'm gonna add in there. And it's allies, not the US, to spend on a completely different scale than the small interventions of the past 25 years. This is not a manageable commitment, you know? This is a sustained, a very high level of debt of defense spending for many years, and possibly decades, which will destroy Europe. You mark my words, if they go down this track, it will destroy NATO, it'll destroy the European Union. They'll load themselves up on debt and destroy their economies, it'll be terrible for the people of Europe. Who don't even know what I'm talking about? They'll never know this. They're like, are you sure? I'm bloody sure. High degree of certainty around what I believe. The scale of the debt required, let's just wrap with this. And the historical risks, so. Because Russia is a peer-level military power, and the amount of money Germany would need to borrow, to meaningfully close the gap, is unbelievable, adding hundreds of billions of euros a new defense-related debt on top of Germany's existing structural problems significantly raise long-term debt servicing costs for future generations and history offers clear warnings. Countries that took on large military debts while facing weak growth or poor demographics, such as post-World War I Germany, the Versailles Treaty. Or 1930s Japan, often ended up with the stormed economics and painful adjustments, even Britain after 1945, despite winning the war. They literally won the war, but they carried debt over 250% of GDP and suffered decades of relative decline. Well, they lost their reserve currency and their position in the world. They were the ruler of the world, and they lost it because of the World War II, World War II. So yeah, Germany today lacks the demographic strength and the industrial momentum that those countries possessed at the time. So it's not even at the starting gate for where those countries were. Large-scale military borrowing right now, the risks crowding out productive investment and placing a massive heavy burden on a smaller, future, workforce. Yeah, it's just heartbreaking really because I can kind of see if they do go there but this, which seems probable at the moment, given all the bluster, it's heartbreaking to see what's going to happen to Europe. Let alone the destruction of World War. I mean, that war in Europe will be devastating. Like, nothing you've seen before. When I'm talking about World War II, where you had relatively limited technology, we have taken the game up another level. So yeah, across a major conflict between Europe and Russia, you just have no idea what would happen in that situation. And you've got to understand the escalation later. Europe does not have the escalation options that Russia has. So it can't literally cannot win that world. It can't even win it. Even if it had French nukes, it can't win that war. You cannot win against that adversary. It's not going to happen. You'd have to have the US on side and they're not coming on to, well, not this administration. Maybe the next one who knows, but right now, not a chance. So the bottom line, team, the bottom line, we're at 25 minutes, a long episode. The bottom line, Germany's relatively low debt to GDP right, now it's misleading given its weak growth of domestic industries, all completely stuffed over there right now. And the enormous long-term cost of confronting a peer military power like Russia, the push for very high defense spending is being partly sold as military kinesianism. Well, a convenient way to stimulate the economy and pivot from your crap economy to something which is going to get a lot of people employed. Now, that's their cunning plan, dumb plan, stupid plan, don't do it. Which was all caused by cutting off Russian gas, cutting off Russian energy and Russian fertilizing all the products that came out of Russia. That's what primarily caused this. NATO hard miners are calling for strategic delete defeat, delete basically, delete, and even vulcanization. That's a chopped Russia up and all take pieces for ourselves. That'd be great. You know, how much money will make? The awesome. Which causes an all-own for Russia, the biggest nuclear superpower on the planet. Even raising large amounts of debt before it's spent signals dangerous escalation, very, very dangerous. They're already doing this right. We've talked about this on this channel. They've already raised a bunch of debt and they've started paying it out to Ukraine. So history shows, look at history team. Countries that do this. Even if you're in a strong position and you go and do this, that's bad. But if you do it on a weak position like Germany, we're literally talking about Germany again. We're doing Versailles again. Basically after World War I, Germany was done and these idiots at a place called Versailles decided to put their boot on the neck of Germany and then all of a sudden that caused the guy with the rhythm of stars. I can't say I was named on YouTube. I don't know why, but you know what I'm allowed to. That dude was born out of that disaster because the people of Germany just got so f'd off. They got so pissed off and then crapped on by the rest of the world that they basically said we're gonna take matters with our own hands and we're gonna come and poke in the eye and they did. That was the result of a Versailles Treaty bloody idiots useless. So basically they are repeating Germany, repeating elements of historical mistakes, total absolute mistakes. If it commits to massive new boring without first at least restore your economic strength, don't go into that. Well, don't do it for this first thing because you're gonna lose. You can't win, you literally cannot win that. But maybe I'm gonna do it. Don't go in when you're weak. You're literally in a very vulnerable situation. You don't do that pivot in the time of weakness and when ideology and fear they drive boring decisions. No matter what you are, if you're a personal bar, if you've got a mortgage and you're fearful of something, when that drives you to make a key boring decision, that's a bad, bad day. It's a very bad day. Now wherever you are in this amazing world of ours, I hope you like that bloke out there on a Z4. Look at the dude, he's just cruising. He's just cruising. He's got his e-fall, just riding around. He finds a little wave, comes over, hops on the wave, cruises it down. Yeah, and these boys out here, they've just got paddles. They're on standups with paddles. And they've got to wait like half an hour to get a wave and then they can barely get enough speed to catch the wave. But this dude, say what? Good moment of those. Super lighted cold now. He's gonna leave a hoodie on. It had boots, probably got gloves on. He's freezing his balls off, but yeah, yeah. But they will look wherever you are, team. And it's a long episode if you're still with me. Well done, 29 minutes, 30 minutes. It's a long one, but I mean, interesting subject, right? Really interesting to see the jeopardy that Germany is in. And Europe, I mean, by proxy Europe, because Germany really is the leader of the Euro currency. So they, and the currency is the biggest driver for a prosperity for Europe. And they are about two. I think they're about to make a very, very bad decision and cause a lot, a long-term grief for Europe for the wider Europe project. Could actually be, we may look back on that decision if they just land the thing. We may look back on this as the end of NATO and probably the end of the European project in my humble opinion. That's provocative, isn't it? Controversial, but that's what I feel, that's how I feel. So, yeah, but look, wherever you are, Tim, just amazing, what an amazing place we live in. We live on this incredible planet, it's great. Let's not do war, don't do war, it's dumb. Let's do other things, but wherever you are, and this amazing world of us, have a great day. Cheers, bye.