The monetary and economic funeral of Belgium
The Belgian budget deficit is again, much higher than expected.
The saying "you can exaggerate half of it" has become an illustrious concept within our borders. The inflation desired by the government is corrupted by deflation caused by population. If this continues, Belgium is heading for an unprecedented crisis.
Inflation and deflation
Our country needs inflation, an inflation that is not forthcoming due to modern ECB rules.
We are currently living in an artificially held high economic situation with low interest rates, with the intention that the population will open their wallet and start consuming like crazy. The intended result is to give the economy a boost and to create associated inflation. With inflation, the government can generate more income such as taxes, excise duties and vat.
When the population closes its wallet, the central banks will lower the interest rates, which means that borrowing money for large companies and countries is cheap and now even free.
In other words, if the population does not spend money (the economy is not stimulated), then the government will do so (the economy is stimulated).
A negative interest rate will deprive you of your savings and pension money, but the government will now generate the necessary income.
The Belgian exception
Why is it that our neighboring country the Netherlands has their budget in order and has even been able to generate a huge surplus while Belgium has a huge budget deficit to collect?
The Belgian population has its wallet wide open but because of the European open borders, Belgians are buying en masse abroad. The Netherlands, Germany and China are the big winners. European legislation on VAT does exist, but the tax on profits is not forthcoming.
The profits are made abroad and thereby escape Belgian taxes.
This mass immigration of Belgian money means that there is no inflation in our country.
Major players such as Zalando, Amazon and Bol.com win the profits and can keep them hidden from taxes through accounting financial structures.
China also drains the glass completely with companies such as Ali Express. With a purchase via Ali Express, the money disappears to China, no taxes are received in our country and it has put the entire retail sector in narrow shoes. Towns and village centers are running empty, which means that huge numbers of jobs are disappearing, jobs that will never return. Self-employment organizations (union for small businesses) meanwhile try to solve the problem and try to turn the tide through campaigns such as "shop local". It will only turn out to be a drop on a hot plate.
Because China manipulates raw material prices and supports their companies with state money, which is prohibited in the EU, they can offer their goods below the market price. When goods have to be paid less than their actual value, the entire economy is undermined. Everything is doomed to become a disposable product. Even certain car brands already indicate that a 4-year car is already considered an old car. French brands in particular excel in this, while with their German competitors cars of 4 years are not yet out of warranty.
The real disposable products cause deflation due to low prices, this improves the purchasing power of the consumer but no government can generate income on deflation. It goes without saying that the ECB will then lower interest rates, even negatively if this situation continues.
Since Belgians spend their money, but not in their own country, Belgium can now borrow for free and spend money to create inflation. The country's debt burden will now increase rapidly and the budget deficit will go through the roof like a rocket.
At the end of the 1980s or early 1990s, the Belgian government introduced a law requiring federal and local authorities to request at least 3 offerings with 3 different supliers whereby the cheapest may deliver the goods or the cheapest may perform the works.
This law was intended to ensure that bribery of entitled staff would no longer be possible.
Now in 2019, it appears that the intended result has had the opposite effect.
Befor this law, quality was important and quality has a price.
From now on, local governments were obliged to purchase from the cheapest provider, which eroded the entire economic system. Mass production of goods in their own country now became too expensive and companies began to look for new and cheaper horizons on a large scale. Low-wage countries, including China, became the mecca for large companies and in recent years have also become very interesting for small companies.
Wages, wage costs and unions
The choice between low wages, low wage costs and low union interference in many low-wage countries versus high wages, high wage costs and excessive union interference was quickly made.
An exaggerated range of cheap products undermines the margins, which meant that only a 0.8% wage increase was possible in the last wage agreement. After much confusion and a threat of strikes from the PS (political party Parti Socialiste), a wage agreement was obtained of 1.1%.
The surplus supply of goods at dump prices caused by a subsidized Chinese industry is saturating the entire European market where our companies are almost drowning and have the water at their lips already. It is a certan fact that Belgium is becoming a country with a service economy. A country with this type of economy will continue to sink into deflation due to oversupply of cheap products and when cheap is too expensive, wages will be jeopardized.
A service economy
The service checks, for example, are a good example of the decline of our prosperity.
I try to present this in a very simplistic way: Whoever purchases service checks pays the organization for the checks. The organization appropriates part of the amount as operating costs for this service. The employee who primarily performs household duties as a service also receives part of that amount. The remaining amount goes to the government. With the amount that the employee will ultimately have left, the bills can hardly be paid.
The economy is supported 0% by this form of work and payment.
Before the service check era, the majority of household tasks were done and payed in "black money". The wage was lower than an official wage, but the number of working hours determined a person's "extra" wealth.
People preferred working, working harder, working longer as this form of payment paid off. The so-called "black money" ended up almost entirely in the official economy, as a result of which retailers and the hospitality industry flourished.
The government understands that something has gone structurally wrong and is trying to respond to this by allowing certain people, depending on their primary job, to earn an extra income up to € 500 per month. The small but toxic viper beneat grass is that you must declare it and that you must meet certain conditions.
The proverbial adder bites in two directions. In the first instance, this concerns tax-free official money. Official money is saved or invested and does not end up in the economy again.
In the second instance, this money will either remain on savings accounts, be invested in real estate, or be used to buy shares or bonds and funds. In each of the latter, the government can generate income in a form of taxes, excise or duty. The economy is not supported in this at all. Regardless of which direction the snake bites, in both directions countless jobs have already been lost, jobs that will never return.
Whatever Central Banks have tried, nothing has helped to make progress since 2008. Free money for large companies has already shown the necessary cracks and dents. The loans taken out by many of these companies were used for acquisitions and so-called growth. The latter, however, is an illusion. An acquisition only provides business expansion but not growth. It is true that turnover may or may not increase, but there is no economic added value attached to it. No new product has been put on the market and no employment has been created. The so-called new products that make the company's balance sheet look better already existed, they have only changed owners. An acquisition rarely brings employment, but is more likely to be accompanied by the necessary redundancies.
The restructuring of an acquired company has little to do with business growth. It is interesting to redirect the cost item in the balance sheet to a higher profit margin. Existing investors are pampered and any new investors can be attracted.
What the government has tried to achieve has nothing contributed to progress since 2008. The much needed tax reduction has been a tax shift. The promised and much needed reduction in the tax on labor has never been implemented and has remained a dead letter. However, the government has offered small and young companies a reduction in taxes on the first employees. In the short term, this is a simple solution to shift the employment problem. In the longer term, both employer and employee are often disappointed and contracts are ended prematuraly. Some added value for the economy and employment is negligible.
An artificial economy
Keeping the global economy artificially alive is coming to an end. Pain killers can be given to suppress the pain, but the disease does not disappear. The disease is expanding but due to the painkillers this will not be detected immediately. As soon as the disease has spread to such an extent that painkillers no longer work, all the joy of life has disappeared and the victim will still have the last breath.
Let this be precisely what is going on with our economic and monetary system.
Lowering interest rates and driving up the money printing machines are pain killers for an economic and monetary illness. The quantitative simplification focuses on quantitative narrowing.
The patient will die due lack of oxygen.
The current job culture where vacancies cannot be filled due to a lack of labor is another illusion. The economy consists of a high and low economic situation. In a boom period, there is always a lack of qualified workers. This is a normal cycle where the lifespan between low and high economic cycle is usually between 8 and 12 years.
The 2008 crisis brought a downturn and now in 2019 we live in a boom. So we are already 11 years later. The boom is kept alive by the given painkillers. The water of life of this fata morgana, however, visibly evaporates.
In recent weeks we have heard more and more the louder bells of an impending crisis.
The news is again full of companies that have to let staff go through restructuring.
The painkillers no longer stop the pain and the economy is dead. Due to the large amount of painkillers, the actual damage cannot yet be properly estimated, yet it is certain that the monetary and economic system is in a situation that has never been seen before.
The recent negative interest rate cut by the ECB is a final convulsion in which it will again become apparent that trying the same thing over and over again with the prospect of a different result, the definition is crazyness. Words that were already spoken by Albert Einstein in the past and unfortunately fell on deaf ears.
The final blow
With a new crisis situation, Belgium's huge budget deficit will degenerate into a real battlefield strewn with economic and financial victims.
The surplus of the Netherlands gives our neighboring country the necessary strength to sustain itself.
For example, if the Netherlands reduces VAT by 2 to 3 or even 5% during a subsequent crisis situation, much more Belgian money will flow to the Netherlands. Belgium will not be able to respond to this due to excessive debt. The final blow is distributed in the Belgian economy and our country is immediately put in a position where the Greek story can be called a fairy tale. Fasten your seat belt, the impact can be disastrous.
EEJ Convens, Blackbullassets
August 26, 2019