Monday, November 28, 2011

FT: The Eurozone Has 10 9 Days At Most

The Financial Times is one of the preeminent business and economic publications in the world, so take it seriously when writer Wolfgang Munchau says the Eurozone has 10 9 Days At Most (the article says 10, but was datelined yesterday).
Last week, the crisis reached a new qualitative stage. With the spectacular flop of the German bond auction and the alarming rise in short-term rates in Spain and Italy, the government bond market across the eurozone has ceased to function. 
Munchau goes on to describe what he thinks will fix the debt problem and it's ... wait for it... more debt!  But not just any debt, special debt!
First, the European Central Bank must agree a backstop of some kind, either an unlimited guarantee of a maximum bond spread ...

The second measure is a firm timetable for a eurozone bond. ... What matters is that it will be a joint-and-several liability of credible size. The insanity of cross-border national guarantees must come to an end. They are not a solution to the crisis. Those guarantees are now the main crisis propagator.

The third decision is a fiscal union. This would involve a partial loss of national sovereignty, and the creation of a credible institutional framework to deal with fiscal policy, and hopefully wider economic policy issues as well. ...
I am hearing that there are exploratory talks about a compromise package comprising those three elements. If the European summit could reach a deal on December 9, its next scheduled meeting, the eurozone will survive. If not, it risks a violent collapse. Even then, there is still a risk of a long recession, possibly a depression. So even if the European Council was able to agree on such an improbably ambitious agenda, its leaders would have to continue to outdo themselves for months and years to come. (all italics added - GB)
The first problem is that many (I include myself) don't believe it is possible to fix the problems in EU-land even with the extraordinary measures Munchau talks about.  You simply don't fix a debt problem by incurring more debt.  Where does that "backstop of some kind" come from?  Who's going to pay it?  The second problem is more philosophical: just what kind of a state are they creating?  There has already been " partial loss of national sovereignty"  in Greece and Italy - we talked about this almost a month ago in "This Was the Week Democracy in Europe Died". They are creating a dictatorship run by the money changers; the central banks.  The EU leadership is clearly working on creating a sort of pan-European socialist state and damn the people they squash doing so.  After all, Mao killed around 70 million, right?  Omelets: eggs, so be it.

The central banks have separated themselves from reality - and us - in this financial crisis.  The Federal Reserve, our central bank, gave $7.7 Trillion dollars just by March of 2009 to the banks and not just US banks.  That link (Business Insider) takes you to this piece on Bloomberg News:
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year. (italics added - GB)
But where does the Federal Reserve, which is just a collection of private banks, get half of the GDP of the entire US??  This means the Fed is creating this money out of thin air.  Banks have already made a pretty good profit off this money, over $13 Billion dollars - note that the graphic at the top shows foreign banks took part in this US Fed money giveaway; the Royal Bank of Scotland (which seems to be a non-US bank) earned an estimated $1.2 Billion from the Fed's handouts.

The fed now owns more US debt than China and is the number one holder of US bonds.  Do you see why I often say that the US government is a wholy owned subsidiary of the Federal Reserve? 
As of Sept 28th the Federal Reserve’s balance sheet lists $1.665 trillion in US Treasury securities compared to runner up China’s at $1.1483 trillion. In layman’s terms, that means that the Federal Reserve now owns the largest portion of the total US public debt (which is about $10.3 trillion out of the whole $15 trillion pie)
(source)  Does this mean the US Federal Reserve will own the eurozone, when they're done bailing out the IMF, who bailed the eurozone out?  Don't forget: our tax money goes to the IMF - the US is their biggest contributor - so you and I are paying for that nonsense in Europe.  In return, the coming inflation that the central banks are creating is going to wipe our life's savings, which means we don't get to retire, which means the 40-somethings behind us don't get promotions and higher titles because we older guys are tying up the corner offices.  Meanwhile, the entire generation behind them is having their dreams wiped out by their insane student loan debt which means they will not be able to pay for the entitlements that the retirees "are owed".  The system is going to collapse because of what the central bankers are doing to save the system. 
A couple of days of normalcy bias really was kinda sweet, I tell you what. 

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