How Soon Does Europe Collapse and Will It Hit Our Shores

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ewilkerson's picture
ewilkerson
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How Soon Does Europe Collapse and Will It Hit Our Shores

It was a sad day for America when our elected “leaders” in Washington could not even reduce $1.2 Trillion dollars from the budget over ten years.  Americans used to come together when there was a crisis, but it seems no longer.  We will just be allowed to go down the debt drain with the rest of the world due to our inept Congress.

You see.  As I write this piece the debt situation, as you know, in Europe is deteriorating rapidly.  Yes.  Amazing!  Someone else has worse debt problems than us, but not for long.  At the rate we are going we will be in as bad shape as Europe in a matter of a couple years.  At that point we may be the ones the bond markets attack, and your new mortgage, if you can get one, will be 10%-15% interest.

But you see we have another problem with the European debt situation.  It is not being handled, but is accelerating to where the Euro could collapse in a matter of weeks or several months.  The European politicians make a lot of noise, just like here, but they are not solving the problems. This debt crisis in full swing would make 2008 look like a walk in the park and take decades to recover from.

 Alas, the problem does not stop there.  The World banking and financial system is so interconnected that the tsunami of defaults will not stop at European borders but spread worldwide. This includes banks, governments, and financial markets.

By squandering the chance to start balancing the budget with a big step we will have no way to fight bank failures, bail out states, or even pay our bills if the situation deteriorates severely.

If this comes to be, you may think about kicking out every single legislator next election.  They don’t seem to be worth the money we pay them.

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No but
ewilkerson wrote:

 

If this comes to be, you may think about kicking out every single legislator next election.  They don’t seem to be worth the money we pay them.

No, but they're worth every penny they get in bribes .. oh, that's "campaign contributions", from the lobbiest.  The USA has the best politicians money can buy.  Is this a great country, or what?

Travlin

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surprised?

How can ANYONE be surprised the super committee couldn't come up with a solution.... when there are NONE?  At least none that are palatable to TPTB.  This will NOT be fixed until it all crashes into a heap.  Get over it ewilkerson.........

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Damnthematrix,I agree.  I

Damnthematrix,

I agree absolutely.  I originally wrote this for the local paper, so I had to leave out my true opinions on some things and dumb it down a little.  Pretty backwards here.  I just think Europe is going to speed our own destruction.

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here and there

Solving the debt problem in Europe will be very difficult.  At some point the ECB will print up an aircraft carrier of EUR and the bailouts will get under way or they will collapse.  They may just collapse anyway.  If they go south in euro-land then they will drag us with them so the Fed Res will have to get busy with bailouts over here.   I am not sure of all the details on euro-land.  I know a lot about what is going on here in the US.  We have made a series of very big mistakes.

1) During the 50's, 60s, and 70s we were the manufacturing powerhouse of the world.  We made everything worth making and our stuff was good.  This caused a huge financial boom.  During this boom statism was allowed to overwhelm the fundamentals of what America was about and the welfare state was born.  It seemed like we could pay for it at the time.

2) In the 70's Nixon took us off the gold standard.  This has turned out to be one of the biggest mistakes ever made in America.  The gold standard was keeping a lid on how much money the politicians could spend.  This was no doubt irritating to the politicians.

3) Liberalism and political correctness taken to the absurd invaded the media and the people creating a laundry list of problems we are struggling with even today.

4) We exported millions of medium to high paying manufacturing jobs created during the 50's, 60's, and 70's to second and third world countries in teh 80's, 90's, and 00's.  The revenue stream from those jobs was replaced with debt by the government, banking system, and corporations.  Those millions of manufacturing jobs actually produced wealth for millions of people.  Debt produces artificial wealth for those in debt and only creates real wealth for those lending.  America needed to reduce its standard of living but refused to do so.

5) War and more war.  Useless never ending wars.  A total waste of money and lives.  We became a welfare/warfare state.

6) The politicians just kept lying and spending and lying and spending.  Then the Fed Res kept interest rates artificially low to allow ever more debt to be created and managed.  This resulted in an explosion of credit through cards, mortgages, auto loans, you name it.  Wall Street just gobbled it up - beautiful - create all kinds of debt instruments to sell, none of them really worth much of anything, and sell the hell out of them.  Hurry up and put lipstick on that pig.

7) Late 00's and KA-BOOM - the debt party is over with large and permanent reductions in revenue to the governments.  Along the way the gov(s) created a massive class of dependency.  A true disaster.  Millions of people dependent on transfer payments from the gov(s) for their very survival.  A huge debt burden that can not be managed for the people and for the government(s).

So here we are.  The Fed Gov is spending 40+ more than its inbound revenue stream.  Millions of people are dependent on the transfer payments funded by the deficit spending.  To bring the Fed Gov spending in line with what repubs want would require cutting 40 % of the spending of the Fed Gov.  That spending represents about 8 or so percent of the GDP.  An enormous number.  Cutting 40 % of Fed Gov spending would cause chaos in America.  We are talking about the difference of people being able to eat or not.  Have a place to live or not.  Cutting 40+ percent of spending would result in violence in cities and madness across the land and the politicians know this.  They may be crooks but they are not stupid.  They see the numbers just like we do here at CM.  It paralyzes them.  Just to add to the party, over time energy prices are going to keep rising.  If they cut enough to make a difference there will be chaos.  If they don't cut there will be collapse.

Looks like a no win scenario to me.  I quit lamenting on it as I know they can not fix it.  There is no fix.  America is destined for a fairly large reduction in standard of living one way or another.  The people are not going to be happy with that reality.  There is going to be a lot of trouble for sure.

 

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dshields, I hate to agree

dshields,

I hate to agree with you.  My post was part of a letter I submitted to our local paper.  I could not agree more that the US and Europe are trains rushing to the cliff with no way to stop them.  There is a lot of talk but that is it.

Cheers,

Ernest

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Market Up 300?

Thanks for asking this question. Today's market move up is just crazy.  Just a little bit of news one way or the other moves markets way too much. 

To try and answer the question...I just don't know.  I feel like the press just is not giving us all of the information.  Our headlines focus in on increased holiday sales, while the news out of Europe is far from good.  Our press highlights possible solutions, when if you turn off the tv and read a bit deeper....these comments are being made in Europe:

From:

Euro in danger, Europe races for debt solution

FIRST QUOTE:

"If Europe is contracting, or if Europe is having difficulties, then it's much more difficult for us to create good here jobs at home," Obama said at the conclusion of the day-long summit.

The euro appeared to be in increasing danger. Experts said the currency could fall apart within days without drastic action, with consequences rivaling those of the 2008 financial crisis.

SECOND QUOTE:

Wolfgang Munchau, a columnist for the influential Financial Times newspaper, wrote Monday that the common currency "has 10 days at most" to avoid collapse. He called for decisions on a fiscal union and the creation of a powerful common treasury.

 

 

I just don't think we are getting all of the information or are taking this threat seriously enough.

 

Jason

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I agree we are not getting

I agree we are not getting all the information.  It is typical America.  We are the center of the Universe, so why care about Europe?  I get mine from about a half dozen sites highly weighted to European news.

Let's see why:

  1. There is no doubt in my mind that the Euro will collapse.  They kicked the can down the road too long.
  2. The European Union is larger than the US.
  3. All banking is so interconnected that the default of Europe will have devastating affects on the US.
  4. The European banking system is leveredged twice our's.
  5. I believe it could be the straw to breaks our back we are so vaurnable right now, except the Fed will print a couple Trillion to help.
  6. People may wake up to the stupidity of fiat currencies.  I believe gold and silver are going to skyrocket soon because of this.

I think the time has come for the system to implode and start over.

 

Ernest

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Jbarney wrote: Thanks for
Jbarney wrote:

Thanks for asking this question. Today's market move up is just crazy.  Just a little bit of news one way or the other moves markets way too much. 

To try and answer the question...I just don't know.  I feel like the press just is not giving us all of the information.  Our headlines focus in on increased holiday sales, while the news out of Europe is far from good.  Our press highlights possible solutions, when if you turn off the tv and read a bit deeper....these comments are being made in Europe:

From:

Euro in danger, Europe races for debt solution

 

FIRST QUOTE:

 

"If Europe is contracting, or if Europe is having difficulties, then it's much more difficult for us to create good here jobs at home," Obama said at the conclusion of the day-long summit.

The euro appeared to be in increasing danger. Experts said the currency could fall apart within days without drastic action, with consequences rivaling those of the 2008 financial crisis.

SECOND QUOTE:

 

Wolfgang Munchau, a columnist for the influential Financial Times newspaper, wrote Monday that the common currency "has 10 days at most" to avoid collapse. He called for decisions on a fiscal union and the creation of a powerful common treasury.

 

 

I just don't think we are getting all of the information or are taking this threat seriously enough.

 

Jason

 

Yep.

All last week the market goes down because of what is happening in Europe.

Then today its up 300 at one point but nothing has changed since last week. So collectively all of the people trading, buying, selling, whatever, all of a sudden felt optimistic today?

BS. The market is rigged.

 

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Pain

Hi,

While we agree on what the current state of affairs, and the information flow around the current crisis in Europe is lagging at the very best, I want to be clear, I don't think I am looking forward to the decline that is coming.  Collapse....spiraling decline....whatever the next couple of years/decades bring....it may not be pretty.

At the very least there are going to be a lot of people hurt.  When times get bad, the worst in people tends to come out.  While those of us who are making preps now may achieve some measure of comfort in that we know, to some degree, what is coming....I fear a scenario where events spiral out of control and the suffering is horrible.  In such a scenario, I am not sure my preps would insulate me against those who are trying to get by.

I don't look forward to the pain in that possible outcome. 

Jason

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Greece may go down in the

Greece may go down in the next couple months.  They can paper over that.

I think they can string a Euro collapse out past the November 2012 elections, and if the Republicans take control of both congress and senate, they will be blamed for ineptitude and rhetoric causing the collapse. 

vote Democratic or write in Ron Paul.  But whoever you elect will not pull us out of this one.

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I have to agree on Ron

I have to agree on Ron Paul.  I used to think his ideas cut too much.  However, with debt accumulating the way it is, he would be good as our President. There doesn't seem to be anything at this point to solve the  liquidity  drying up in Europe fast.  The U. S. is the major contributor of the IMF, and the President, I believe, has said we will not contribute more funds to the IMF.  Europe is on its' own.  They just have too much debt and the financial community is pulling its' money out of Europe as quickly as possible.  The bond market knows the situation and is tightening credit every day.

We get all these grand new plans from the EU, but they never amount to anything.  In my opinion, the rock is rolling downhill too fast to stop a complete collapse of the Euro.  It will make 2008 look fun. 

In addition, I do believe the contagion will spread to our shoes.  It's just a matter of how long.  The Fed is already talking about  more QE because of the Euro situation.

A good way to know how serious the situation is the fact that it was just discussed on the regular news.

Cheers,

Ernest

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Ron Paul Isn't Congress

Don't forget that, even as President, Ron Paul would be fighting Congress.

It would be interesting to see how he deals with Republicans who want to expand military spending and military actions around the world, and Democrats who want to preserve social spending like education, energy, etc. - and both sides who want to keep Social Security and Medicare for AARP seniors, and continue to vote for pay increases and benefits for service members and veterans.

Poet

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Trying to connect the dots.... ....

The situation in Europe is not disconnected from the US - it is closely linked by bank and financial institution interconnections that go both ways. Part of the TARP funds went to European banks that had investments in bad US securities. Now the shoe is on the other foot as US banks are on the hook in Europe. It has been noted that Goldman Sacs helped Greece hide its debt burden so it could qualify for EU status. The newly appointed prime minister was involved in this process and knows the details of how it was engineered.... and the appointed head of Italy probably has a similar background. A relatively small, incestuous group of financial 'technocrats' is trying to right the European ship in a way that can be sold to the public in a palatable fashion and preserves the financial status quo as much as possible. This may well be (likely is) an impossible task given the diversity of European interests and magnitude of the problem.

It has been speculated that the big US banks have placed bets against the Euro - the larger plan being to ensure the status of the dollar as the world reserve currency and to help maintain US power - at the expense of both the euro and the European Union.

This is going down while the US and Britain appear to be readying a military play for first Syria and then Iran. The US has been supplying arms to Syrian 'rebels' via Turkey with the assistance of Isreal and the British and there has been an ongoing covert war against Iran involving assassinations, bombings, the STUXNET virus, support for armed opposition groups, etc. There is an aircraft carrier stationed off the Syrian coast now while the Russians have some navel vessels in the area (they have a naval port on the Syrian coast). The US may be hoping for a stumble that can be cited as a provocation for intervention - goading both countries in every way possible.

My speculation is that TPTB have determined that if action is to be taken it should be sooner rather than later - before Russia and China can consolidate and prepare an effective defense against such a move. At this point the moves may be bluffs in an attempt to intimidate the 'other side'  in this face-off. It is not clear to me that Russia in particular would be willing to risk an overt military confrontation if the US moved in, but they may hope that direct and indirect threats to do so will have some impact here. Mededev's warning to NATO that Russia was now treating the 'missile shield ' in Europe as a threat indicates an escalation of global power-play now underway. (The US moves in the Pacific region show the scope of all this).

How does all this play out when everyone is broke/indebt to each other and the big players are all seeking to secure access to energy and raw materials - from limited sources... ? I see clouds on the horizon.

On a brighter note NPR ran a piece on barter trade in Greece and the rise of a local currency - people coming together, re-organizing their lives in the face of profound changes.

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Euro

It seems like the issue is not will it hit our shores but how. Maybe CM can do an essay on that for the site. Like everyone, I have some thoughts but the big picture requires more info and analysis than I can muster. I don't think he's addressed this unless I've missed it.

SG 

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 All it would take is just

 All it would take is just a flick of the pen. Or should I say a click of the "enter" button.

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Wall Street weasels

This should make us all sleep better at night:

 

CS

 JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally.

http://www.bloomberg.com/news/2011-11-16/jpmorgan-joins-goldman-keeping-investors-in-dark-on-italy-derivatives-risk.html

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Love your very thoughtful

Love your very thoughtful posts, dshield,  Others too.  Keep them coming.

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Taking in the News

I think we are all trying to take in the news of what happened today.  Central Banks work together to maintain status quo, make access to credt easier.  Everything I am reading/hearing (which includes the 1 min report NBC did during the evening news) is that this is only a temporary fix  and it does not get around the underlying problems.  Too much debt.  Need to do some research on what happened today. Some of this stuff is really complex.  From a different perspective....did the Central Banks make matters worse?

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Taking in the News

I think we are all trying to take in the news of what happened today.  Central Banks work together to maintain status quo, make access to credt easier.  Everything I am reading/hearing (which includes the 1 min report NBC did during the evening news) is that this is only a temporary fix  and it does not get around the underlying problems.  Too much debt.  Need to do some research on what happened today. Some of this stuff is really complex.  From a different perspective....did the Central Banks make matters worse?

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The Fed basicly bought the

The Fed basicly bought the market today with what may be QE3.  We will just have to see how long they can keep it up.  Actually, I hope they can keep it up for years, because i like my air conditioning and truck.  But just in case they can't, i'm putting in a well and planting some pecan and fruit trees this winter in addition to my garden.

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All the Central Banks have

All the Central Banks have done is put a banaid on the situation.  The problem as we know is too much debt.  Confidence was about at a breaking point in Europe , and the banks here and other places that lend to  European banks and countries quit lending.  Basically money was leaving the system in Europs, and what was left was being  hoarded.  Unless the EU can come up with at least  E1.5 Trillion or possibly more by their early September meeting I believe there will be some kind of run for the exits, and the whole Euro may collapse.

The thing is where can they come up with that kind of money?  They are doing their best to leverage the funds they do have, and they want the IMF's help.  The IMF, though, has less than $400 Billion.  Hardly enough to fill in the deficit of  the European Fund.  The US is the largest contributor to the IMF, but I believe President Obama has indicated he will not put any more money in its' coffers.  We're broke, too.

My feeling is that there are just too many balls in the air and something is going to give in such as one major bank collapsing.  This could go on for a while, but there is a great deal of refinancing (around $1.5-$2 Trillion) that has to occur this year in Europe.  Where does that money come from unless there are quite major changes in the Euro Treaty to restore confidence.  You can't finance government and banking debt with short term liquidity money.

I just can't see it happening with such different cultures and ideasof  how things should be run.

Cheers,

Ernest

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central banks move

The coordinated central bank moves to enable huge swap lines of credit across the major currencies is an interesting event.  It is a big event.  It means that a bank in Europe that needs dollars can get them from their central bank cheap.  The Fed Res will create the money and loan it at a low rate to the European central bank which loans it at a low rate to their regional banks.  So let's say the ECB needs dollars.  They invent a bunch of EURs and swap the Fed Res for a bunch of invented USD.  Now there is a bunch of new money.  It is a money machine to bail out banks around the world.  You will not see a thin dime of the money.  The only debt problem it solves is big banks can get more more cheap money to pay their debts to other banks with.

It worries me though.  The central banks did this a while back when it looked like there was going to be a banking collapse that might domino across regional lines.  So they cooked up a lot of money and handed it out.  Now they are doing it again.  Everyone knows there are serious debt problems.  However, I did not believe that it was yet serious enough to start another round of bailouts.  Looks like I was wrong.  They did not do it for the fun of it.  They did it because they thought they had to.  Just look at the last round of bailouts.  They all lied like dogs the entire time it was going on.  Bloomberg LLP filed a freedom of information suit and won and obtained data from the Fed Res on the last round of bailouts and it was really amazing.  It was huge and a lot of inside people made a lot of money.  I did not make any extra money but I did get to keep my job.  I suppose that is a good thing - my wife thinks it is a good thing.  What all this tells me is there are very serious things going on behind the scenes that we will not find out about for 6 months or a year.  It is a little scary.  This does not create demand so it will not create jobs but it might result in people getting to keep their jobs for a while longer.  There are about 10 big black swans going on right now.

 

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I guess the US Fed gave me

I guess the US Fed gave me the answer to my question.  Apparently something was about to happen to bring down the whole banking system in Europe for the Fed  to make such a coordinated effort to pour Trillions into the banks.  I've only seen a few of the talking heads who understand the difference between solvency and liquidity. Our Fed is doing the same thing again.  The question is, though, where is the equity going to come from to fill the holes in the banks?  As for sovereign debt, I assume we are going to have world wide inflation on steroids.  I wonder what is going to be standing when this is all over?

Ernest

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Timeline

So if some kind of event was close....really close....the FED and the other central banks needed to do this to keep the system afloat....how much time did they buy the system?  Any thoughts?

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JBarney I'm still thinking a

JBarney

I'm still thinking a couple months on Greece,  Year on Spain.  2 or 3 years on US.

 

Of course they could start a war in Syria and drag Iran and China into it to blame conflict for the collapse while making money selling to both sides -- standard banker playbook.

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 Jbarney,  If they do not

 Jbarney,  If they do not come up with a very clear coordinated attack at the December meeting, the bond market could collapse then.  Otherwise, they may go on a little longer, but they have to do something about too much debt.  The only way besides paying it off is to inflate or default.  Germany may not allow the inflating option.  I, ultimately, think the problem is too big and they have waited too long, so I believe the bond markets will force them into default.

Ernest

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Great topic

Great topic EWilkerson:

 

So much good information and opinions have be stated. I'd just like to add some questions.

1. Why was the EU formed? Was it formed to rival/attack the dollars preeminance as the world's reserve currancy?

2. Why did not England join in. Whose side if any are we on.

To the point of the post, I'm not sure when it will collapse or what  a collapse will look like. But I'm watching it because I blieve it will be a preview for us in America. But who knows. We can only see the tip of the iceberg. There is a lot going on and I don't understand it all.

1. I beleive Greece and Italy just experienced coups. And we are in the first stages of a Global econamic war.

2. I think there are some (inv banks, hedge funds, traders, etc) who are glad to see the EU in trouble. Maybe the US treasury dept too. Those powers will try to benefit from europes misery, and as such will try to incease it if it profits them.

3. We have, I beleive, two frying pans, the Eu's is hotter than ours but ours is still hot. I'm not sure how Japan has avoid this mess their debt to gdp number are horrible. Maybe they acknowledge the problem and are adjusting. Maybe they've hit a bottom. We on the other hand....

4. the puppet masters are genius at deception, including their own minds. They have been able to keep this thing going and going and going. But a collapse means a sudden and stark the end of the deception, probably because of a variable they can't control.   

 

 

 

 

 

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 Kyle Bass sais the EU will

 Kyle Bass sais the EU will collapse very soon and scared money will flow into the US, giving our markets a false sense of security. HE said we have about 3-5 years before the US falls...

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derivatives

The question that keeps nagging me is what role the OTC derivatives market will play in all this.  It isn't discussed too much, probably because its a market that isn't regulated and largely takes place in the shadow banking world.  But, nonetheless, the numbers bandied about are mind numbing.  A couple weeks ago someone wrote that there are $700 trillion dollars, $100 trillion of which was bet in the first six months of this year, riding on those derivatives.  More recently, someone mentioned the Q word, quadrillion, for the first time I have seen.

As I understand it, this money is mostly bets by the mega-financial institutions.  So, what happens when one of those institutions, like MF Global, goes down for some mysterious reason?  If that institution holds lots of the paper on these derivatives, what happens to the counterparties, which are also, presumably, mega-institutions?  To me this has the feel of a daisy chain that could engulf the world's banking system in a hurry.  But, I just don't know how to think about those vast sums of money.

Any thoughts?

Doug

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 Excellent commentary from

 Excellent commentary from Jim Rogers on which industries in China will have a hard landing (Real Estate) and which are poised for growth (water treatment,Excellent commentary from Jim Rogers on which industries in China will have a hard landing (Real Estate) and which are poised for growth (water treatment, agriculture, etc). Worth watching.

 

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