Beware the Coming Bailouts of Europe
The economic establishment in this country has come to the conclusion that it is not a matter of "if" the United States must intervene in the bailout of the euro, but simply a question of "when" and "how." Newspaper articles and editorials are full of assertions that the breakup of the euro would result in a worldwide depression, and that economic assistance to Europe is the only way to stave off this calamity. These assertions are yet again more scare-mongering, just as we witnessed during the depths of the 2008 financial crisis. After just a decade of the euro, people have forgotten that Europe functioned for centuries without a common currency.
The real cause of economic depression is loose monetary policy: the creation of money and credit out of thin air and the monetization of government debt by a central bank. This inflationary monetary policy is the cause of every boom and bust, yet it is precisely what political and economic elites both in Europe and the United States are prescribing as a resolution for the present crisis. The drastic next step being discussed is a multi-trillion dollar bailout of Europe by the European Central Bank, aided by the IMF and the Federal Reserve.
The euro was built on an unstable foundation. Its creators attempted to establish a dollar-like currency for Europe, while forgetting that it took nearly two centuries for the dollar to devolve from a defined unit of silver to a completely unbacked fiat currency note. The euro had no such history and from the outset was a purely fiat system, thus it is not surprising to followers of Austrian economics that it barely survived a decade and is now completely collapsing. Europe's economic depression is the result of the euro's very structure, a fiat money system that allowed member governments to spend themselves into oblivion and expect that someone else would pick up the tab.
A bailout of European banks by the European Central Bank and the Federal Reserve will exacerbate the crisis rather than alleviate it. What is needed is for bad debts to be liquidated. Banks that invested in sovereign debt need to take their losses rather than socializing those losses and prolonging the process of adjusting their balance sheets to reflect reality. If this was done, the correction would be painful, but quick, like tearing off a large band-aid, but this is necessary to get back on solid economic footing. Until the correction takes place there can be no recovery. Bailing out profligate European governments will only ensure that no correction will take place.
A multi-trillion dollar European aid package cannot be undertaken by Europe alone, and will require IMF and Federal Reserve involvement. The Federal Reserve already has pumped trillions of dollars into the US economy with nothing to show for it. Just considering Fed involvement in Europe is ludicrous. The US economy is in horrible shape precisely because of too much government debt and too much money creation and the European economy is destined to flounder for the same reasons. We have an unsustainable amount of debt here at home; it is hardly fair to US taxpayers to take on Europe's debt as well. That will only ensure an accelerated erosion of the dollar and a lower standard of living for all Americans.
Posted by Bischoff on 12/23/11 01:55 AM
"The real cause of economic depression is loose monetary policy: the creation of money and credit out of thin air and the monetization of government debt by a central bank."
Such statement can only come from someone who is clueless of the fact that the "ear marks" he enters into the annual budgets are the basis of: "the creation of money and credit out of thin air and the monetization of government debt by a central bank."
Posted by Dilence Sogwood on 12/22/11 11:21 AM
The Basel rules themselves only shift the bubble around from one favored (overvalued) asset class to another.
Posted by bewer on 12/21/11 11:33 AM
Bailouts work about as well as buying your spoiled child another car to replace the one just wrecked. How does an already broke parent afford this? by keeping up a standard of BS.
Posted by Anthony Migchels on 12/21/11 10:09 AM
I'm responding to this response:
"Again, everything has a price, including money. There is no magic wand. Let the free market work. Why are you so distrusting of freedom? "
Yes, everything has a price. So in a free market for currencies, low priced units will have a very strong selling point.
Gold will be expensive.
Creating units in a mutual credit scheme will be very cheap.
The cheapest currency will prevail.
Posted by Anthony Migchels on 12/21/11 10:06 AM
Or step the paradigm ladder one notch and find out what is actually the cancer. Your diet perhaps. Or allowing much too much stress in your life.
Same with our financial problems. As long as we continue to believe we need banks for a money supply, we can be led to believe it's reasonable to pump in trillion after trillion.
But of course: if a bank can create a money supply, everybody can. So if the bank is no longer capable, perhaps we should find someone who is.
This should not be too hard.
Posted by Anthony Migchels on 12/21/11 10:01 AM
It's not so much the debt. It's the interest. If the Greeks stopped paying debtservice, they could pay of their 600 billion debt in just 20 years, purely from the money they are now losing to debt service.
Considering the fact that a large part of the money for the debt they incurred was created the moment they borrowed it, this no moot point.
Another pro of this approach is, that banks would not suffer from insolvency problems if the Greeks did this. Their profitability would suffer, their solvency would not.
I don't care about banker's profits. I don't care about their solvency either, but the negative implications of cold turkey insolvency are unacceptable.
The idea that the US must play a role in saving Europe's a-s?
Quite silly indeed.
Reply from The Daily Bell
Again, everything has a price, including money. There is no magic wand. Let the free market work. Why are you so distrusting of freedom?
Posted by oldman67 on 12/20/11 05:21 PM
The IMF announced earlier this year that they would be three times as much funds as they presently had to be able to meet their demands.
Posted by DwightJohnson on 12/20/11 02:10 PM
Dr Paul identifies another chapter is the long, long story of consolidation of power. That story says we must centralize our economy. Central national banks. A central global bank to backstop the global debt crisis. Power goes up and up, into fewer and fewer hands, until the whole thing collapses under its own weight.
The alternative? Reject centralization in every form. Reject all global forms of government: UN, IMF, World Bank. Reject all central national banks. Reject the monopoly control of money; demand free currencies based on silver and gold (possibly other commodities. Demand control of the taxes governments take by creating virtual cantons (Click to view link). Keep pushing for DEcentralization everywhere.
Posted by joeburzell on 12/20/11 12:39 PM
Faced with the choice between deflation and inflation, all countries have chosen Inflation... except Germany... which is the only relevant country to have experienced a hyperinflation in the past 100 yrs. Once Germany flips to full inflation mode to salve the EU debt crisis, there's no backstop.
The system will never let those banks fail that are the primary issuers of govt debt. The govts need them to sell their paper. And the bailout of any EU country is simply a pass-through to pay the banks imo.
Posted by Abu Aardvark on 12/20/11 12:20 PM
DB: "Well ... it is not a question of victory or defeat is it? More like a constant struggle in which first one side and then the other has the advantage"
Ha, don't you mess with my encouragement!
But seriously, while I agree that it IS (and will be - to some degree - in the future) a constant struggle indeed, it seems to me that the situation we're finding ourselves in is (who knew?) unique in many aspects. Hence my optimism regarding them "taking a step back" for a rather long period. And I would bet any money that "they" would experience this as a defeat.
Posted by WellWisher on 12/20/11 12:20 PM
New World order on the way to resolve all the world issues... ..
Click to view link
Posted by Thomas Molitor on 12/20/11 12:19 PM
Currency wars are one of the most destructive and feared outcomes in international economics. Especially to those who have taken it upon themselves to try and influence outcomes. Hint, hint.
Currency Wars by James Rickards:
Click to view link
Posted by Thomas Molitor on 12/20/11 12:11 PM
Very interesting... I was unaware of Executive Order 11110... conspiracies abound.
Posted by laceja on 12/20/11 11:49 AM
Maybe it's a little like discovering you have cancer. You need to make a decision, am I going to have the surgery and hope for the best, or do I just give up and accept that I will die of it. Seems to me, the sooner one has the surgery, the better the odds of recovery.
Posted by Abu Aardvark on 12/20/11 11:45 AM
"If, however, the PTB take a step back, it will only be a strategic retreat--not a real defeat for them. IMHO"
Why not? NEVER, according to the official record at least, has ANYTHING happened in human history similar to the ongoing mutual awakening of BILLIONS ... to some rather crucial facts of human life and history regarding the last 100 to 300 years. How can this NOT end with a "real defeat" for the few who strive for a continuation? I'd say ONLY when WE THE PEOPLE, predominantly, acknowledge their "superiority" ... which, hehe, is crumbling as we speak.
What I'm trying to say is this: Of course we CAN be defeated. It happened before, obviously - albeit under very different circumstances. However, if we preclude the chance to WIN AT ALL, just HOW can or could we, then, win?
Reply from The Daily Bell
Well ... it is not a question of victory or defeat is it? More like a constant struggle in which first one side and then the other has the advantage. We have strong feelings about which side has the "advantage" right now - and what the "sides" are as well ... as do you ...
Posted by dotti on 12/20/11 11:23 AM
Thanks much, Abu!
Yes. I know that we cannot know the future. If I was certain that we were headed for the collapse that i described, I would be "all in" for survival techniques. I don't have large supplies of food/meds, currencies, or chickens. Don't have thousands of rounds of ammo and arms to dispense them. Mostly... don't have chickens.
The "normalcy bias" keeps me from positioning myself for survival in a total collapse.
After all, they have kept the can going down the road for much longer than I would have thought possible. If they can create inflation without hyperinflation, they may can get past this crisis.
If, however, the PTB take a step back, it will only be a strategic retreat--not a real defeat for them. IMHO.
Thanks for the cheer up!!!
Speedy, wonderful quote. Enjoyed that a lot. Thanks.
Posted by Abu Aardvark on 12/20/11 11:07 AM
"I mean no disrespect to RP. It is good that he has some optimism. I just am unable to share it."
Here's a thought, Dotti: How about some prosaic logic?
NO ONE knows the future ] Consequence:
There may be a collapse. There may be not. No one knows ] Consequence:
Hope for the best, prepare for the worst. However, if we, largely, rule out that there may be NO collapse AND/OR the possibility that the situation will turn out for he better - after/or even without a collapse - human action to the effect that we WILL manage an improvement (read, perhaps: the elite will "take a step back") will fail to appear ] Consequence: We lose.
] Consequence: Cheer up, Dotti!
Posted by Danny B on 12/20/11 11:02 AM
Once again the GEAB link.
Posted by Danny B on 12/20/11 10:57 AM
There is more to this than meets the eye. The Anglosphere is in full war with the dollar pitted against the Euro. The Brits are trash-talking the Euro.
Click to view link
Click to view link
The Aussies have given their banks 1 week to do a stress test that prepare them for a collapse of the Euro.
On the other side GEAB says that the Euro and EU will be fine.
They're trash-talking the dollar. Truth be told, the dollar zone is in bad shape.
Click to view link
It appears that all these loans are to keep a very big presence of dollars in Europe,,,, hoping that the dollars will be used to make up for the lack of printing of Euros.
Keep the reserve currency thing going for a while longer.
If America can flood Europe with dollars at the same time that there are HUGE demands for "money" for debt service, the dollar may go on for a while longer.
EU countries will use their Euros where they have to and use dollars to pay OPEC and their dollar-denominated debt.
Posted by speedygonzales on 12/20/11 10:40 AM
'"When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal, not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you. . . you may know that your society is doomed." Ayn Rand - Atlas Shrugged
Click to view link