Europe won't allow history to repeat itself

In a region where Weimar inflation and German deflation led to social unrest and the rise of Hitler, peace and stability are more important than triple-A credit ratings.

By Jim Cramer Oct 24, 2011 9:28AM
the streetThe smart money has wanted to bet against this market every step of the way. It's as if the only badge of honor has been to be short -- positioned to gain if the markets fall -- and the reason is clear: These investors think Europe is too big and must fail.

 

In other words, there truly is no plan big enough and no entity large enough to rescue banks from themselves. The European banks, unlike the American ones, are so huge and so intertwined with the fortunes of sovereign debt that anyone who even thinks there could be a solution that isn't catastrophic is regarded as a lightweight.

 

After all, the banks collectively are three times as large as the gross domestic product of Europe, compared with only about 70% for ours, and that may be understating the size of the European entities. Even if China, the United States and the IMF got involved, there wouldn't be enough money to bail them out.

 

Of course, they could be nationalized, but that would mean the backstop countries would all have their credit ratings downgraded, and those are meant to be sacrosanct.

 

Post continues below:

I have no doubt that the bearish commentators and analysts are smarter than I'll ever be. I have no doubt that they are right about the scale and size of the issue.

 

But I wonder if they understand the history of the continent. I wonder if they don't overstate the need for these countries to protect their AAA ratings, and if they should be more focused on the idea that these European countries are all about having peace in the end and not descending into the brutal wars that seem like they happened just yesterday.

 

In the end, they will sacrifice their AAA ratings and their standards of living and start over if they have to. So the idea that there is no solution other than to bring the world down is not going to hold water.

 

Of course, the rap is also that they have to bring down the world with them, that there is no way we won't have a worse recession than in 2008-09. And the understanding among bearish traders, I think, is that even the pain of the Depression will be exceeded this time.

 

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Again, I think that represents a keen misunderstanding of history. No, the problem can't be cordoned. But yes, any recession that brought down GM (GM), Merrill, Fannie and Freddie, Wachovia, Washington Mutual, Bear Stearns, Lehman and AIG (AIG) -- include Citigroup (C) if you want -- is one that has left little in its wake except some much stronger institutions. And there is another tier of banks, notably of the BB&T (BBT) and U.S. Bancorp (USB) variety, that stand ready to replace the current ones if they fail.

 

I understand the desire to bet against copper and aluminum off this imminent European collapse. I do not understand how they can't also be short oil. I do not understand how they think there can never be a way out of anything.

 

I also do not understand how they can't see that these countries experienced the rise of Hitler and Stalin, and you have to concede that they must have learned something about how economics can lead to social unrest and dictatorships and genocide, so a solution will have to leave the fabric intact -- even if the fabric is more polyester than cotton when we are through with this era.

Just some thoughts on why these markets may be more resilient than people think. Not just because Honeywell (HON) has seen no slowdown and McDonald's (MCD) has seen an acceleration but because history says that Weimar inflation and German deflation breed Nazi Germany. So maybe, just maybe, it is worth sacrificing a triple-A rating to keep history from repeating itself.

 

At the time of publication, Cramer was long USB.


jim cramer
Jim Cramer
is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for his charitable trust.

12Comments
Oct 24, 2011 10:05AM
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Interesting take on europe and its failed economic experiment. We need to let them fail and support our own countries needs. Billions of our tax dollars have supported europe and its people and now is the time to end our financial support. Buy American and support our Troops.
Oct 24, 2011 12:35PM
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Jimmy Boy how do come up with this crap? Please try to contain yourself, you are sounding more and more like the towns

 idiot every day.

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And you have the Germans who after WWI had huge war payments to make which bankrupted it and nobody else in Europe helped them out. Why do you think Germany had a 25 million man army to fight other Europeans with?? 

They hated the rest of Europe for not helping them out and starving them to death. When Hitler came along and threw the Wall Street bankers out and put people back to work and men could feed their families again they were grateful to him. 

So why should Germany help the rest of Europe now???
Oct 24, 2011 1:46PM
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This is the first Cramer comment I've read in years.  Why, because the guy is a moron and has never expressed a reasonable, well balanced thought in his life.  The part that I find frustrating is that people actually watch and listen to this scumbag and get hurt as a result.  Sure, everyone is responsible for their own actions, but to spend a career trying to convince people you know better is a wasted life, IMHO.
Oct 24, 2011 1:52PM
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Go bgDog, buy American, God blessed the USA .We are the life blood of the world, but the ticks, and mosquitos need 2 be fumagated  before we need any more transfusions . Jimmy what history book are you reading???????
Oct 24, 2011 10:25AM
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So the only carrot for Europe solving its mess is avoiding the next Hitler?

This extreme worst case thinking will really only lead to kick the can solutions that will cause more harm long term than good in the short term. 

That being said, man are the US markets loving earnings and Euro possibilities of free money.

Oct 24, 2011 5:29PM
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In the end, they will sacrifice their AAA ratings and their standards of living and start over if they have to.

   Excuse me? Isn't that the same as the austerity measures in Greece right now.  How is lowering the standard of living throughout Europe going to guarantee social stability?  Clearly it won't.  You'll get what you have in Greece right now.  The EU is damned if they do and damned if they don't.  Moreover , there's a good possibility that if they massively leverage themselves to find the funding for the bailout plan it will still fail .

  

   One issue not addressed in this article however,  is how financially interconnected the European banks are to the American ones.   Some of that TARP money the FED got went directly to the European banks.  Both the American and European banks are heavily leveraged in the derivative market.   If the EU and the Euro collapse it will hit the U.S. banks and the U.S. dollar as well.   The fate of the U.S. and the global economy hinges on just how well the EU manages the financial meltdown that is about to happen.   I wish had a solution that didn't cause financial pain and suffering, but I can't think of one.   I hope Mr. Cramer is right and the people running the EU have this under control.   I'm not going to trust any of this wishful thinking however, until I see a concrete financial plan from Europe on how they plan to do this. 

Oct 24, 2011 6:59PM
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Open-mouthed Like drug addictsDisappointed the stock pusher they would be in pain if they don't spew positive comments in all situations.
Oct 24, 2011 3:17PM
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germany shouldn't help anyone but germany

geemany shouldn't be lumped with the rest of europe

germany is a world leader in education

germany does't have people going broke because they get sick

germany has ceo's making 40 times the average worker's salary where we have them making 460 times the averag worker,s salary

germany has the average worker making 20% more than our average worker

germany wishes the berlin wall would be rebuilt only twice as high this time

germany is the BEER capital of the world

america could learn from germany..............but they won't

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Europe is going down. France wants to print more fake money to merely service the debt for a couple of months, Germany wants the banks to take at least 60 percent losses on all debt EU countries can not pay. 

Either country wants what the other is offering. And if they offered either plan why would any EU country even try to pay it's bills. They can just default and let the others pay the bills and keep racking up the bills. 

Notice that Greece says it will decrease spending but in reality they don't.


Oct 24, 2011 3:22PM
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the shyster continues his babble,if you are new to investing don't be

fooled.......how can his colleagues on cnbc stand his mouth....he doesn't listen to them

and is chomping at the bit to let out his diarreah all over the set ......this guy

must really have the goods on somebody to get so much air time while contributing

absolutely nothing of value.....and speaking like he knows about europe is just plain wrong

 

PUT THIS CROOK IN JAIL

Oct 24, 2011 12:05PM
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we are so far behind europe AND asia that we can't see their tail pipes

 

it is america that has been downgraded and is in decline

 

look at our world rank in healthcare and education

 

as the 99% movement shows;people are tired of super rich getting richer off the backs of slave labor wages

 

and tying health care to whether or not some one has a job is just inane

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