Europe’s Minsky Moment

For anyone looking to feel small and insignificant, check out the Kardashev scale. 

This theoretical slide rule developed in the 60s by a Soviet astronomer gives us a way to rank civilization. And to remind us of our cosmic irrelevance, on a scale from 0 to 3, we’re not even a 1. 

To grasp that first rung, we need to harness every watt of power the sun sends our way. We’re about half-way there in terms of energy use. And Michio Kaku (a famous physicist – you’d recognize him if you saw him) thinks it should take another 100 years or so to reach. 

A level 3 civilization harnesses energy on a galactic scale. And in such a reality, our mighty sun would amount to nothing more than a personal battery. 

The scale uses energy to rank civilization because energy makes civilization possible. More energy captured means more work to support more civilization. To prove that fact to yourself go outside and dig a hole 10’ in diameter and 6’ deep then see how much time, energy, or motivation you have left to do your actual job or plan the future. 

Energy leverages economic activity. 

And, in Europe, we’re seeing what happens when you start removing energy from the economy. 

Removing 100X Leverage 

Every gallon of gasoline translates to 450 hours of work. Supply that energy to 100’s of millions of people – whether pulled from oil, natural gas, nuclear, solar, etc. – and astounding levels of activity become possible. 

One report I ran across this week claimed that, in Germany alone, $20 billion in natural gas supports $2 trillion worth of work. 

That’s 100x leverage. And when Putin turned off the natural gas taps to Europe, he pulled the rug out from under massive swaths of Europe’s economy. 

At What Cost 

I pointed out last week that Europe finds itself caught in a self-reinforcing inflationary loop where higher prices beget less production which begets higher prices. 

The Association of German Chambers of Industry and Commerce (DIHK) warns that companies “no longer have a supply contract for electricity or gas.” In the U.K., 6 in 10 manufacturers are at risk of closing due to soaring energy costs. Steel mills, chemical plants, and even pubs are being forced to shut down across the continent. 

And that means bailouts. 

Sweden, Austria, Finland, Switzerland, Germany all recently announced bailouts and stimulus plans. The European Commission has drafted plans for radical intervention. Meanwhile, countries like Italy are breaking ranks calling for an end to Russian energy sanctions because “we are on our knees.” 

And all this stimulus and emergency measures only fuel the very inflation that the European Central Bank claims to be fighting. 

The collapse of Bear Stearns and Lehman where what economists call a Minsky Moment. A mortgage crisis triggered a massive unwind of financial leverage and, among other things, a 60% collapse in stock prices and spread financial contagion around the globe. 

Now it’s Europe’s turn. 

The pursuit of pinning Putin has deleveraged Europe’s economy. And the resulting financial contagion cannot be contained. 

So, instead of searching uselessly for signs that stocks have hit bottom, come to grips with the fact that they have further to fall. And look for ways to make that sell-off work for you.

Think Free. Be Free.

PS> I’ve been finding and sharing ways to take advantage of the sell off with my readers in The Daily Pick. Take a look and consider making globabl systemic chaos work for you.