My thoughts on the European bailout.
As the smoke settles after last week's fiasco and the stock market attempts to climb out of a historic point drop we are left to ponder what awaits us. Little know fact about last week's one day swoon, currencies were selling off hard. Looks like someone realized that the inflationary pyramid being constructed by our central banks will collapse sooner or later. In fact the Euro was flirting with multi-month lows before the famous "fat finger" that sent the Dow Jones Industrial into a virtual melt down.
Why was the Euro selling off? Well that is rather straight forward and I am glad you asked. You see, shortly before this swoon the Greek situation was "resolved'. I use the term loosely of course, because essentially the European Central Bank pledged to buy debt even if the world agreed that the debt's quality was deteriorating. A quality of debt is measured by the ability of the debtor in paying back what he borrows. This move was clever because it not only applied at the moment to the Greek development, but any other future member of the European union who might also face similar break downs. As you know of course transactions within the EU happen via Euros and when the central bank announces that Euros will be directed into a location from which they might not return it raises some questions. Specifically, just how much are these Euros really worth? In fact it should raise a deeper question, is anything that can be created out of thin air worth anything at all? This is precisely what lead up to last week's mini-crash.
So how did the brilliant financial elites handle the crisis that was unfolding due to their own chicanery? Well in true fiat style, they decided to double down. All in the name of stopping a mysterious contagion that was threatening to consume all of Europe, the ECB acted bravely and with great ferocity. TARPEU, not a fancy French word, but what I call Europe's plan for bailing itself out. Almost 1 trillion Euros will be pledged to stave off a crisis in exchange for some good behavior from certain PIIGlets. Good behavior in the form of austerity packages that pledge to cut down on debt by curbing government spending. A simpler approach and one much less expensive would be to force these measures with failure to comply resulting in expulsion from the union. No, just like the liberals in America who need to pass a 1 trillion dollar health reform package before attempting fix the waste and corruption, Europeans feel the need to devalue their currency even further.
This brings us to the aftermath. Markets rallied on the European bailout news, but shortly after the good news euphoria wore off there were troubling signs. Specifically in the strength of the Euro! As of this writing the Euro has now retraced all the gains made since the announcement and is looking at multi-month lows AGAIN, with the price at 1.25210 against the Dollar. This essentially means that the currency market is rejecting the bailout and indeed have concluded that this is yet another doomed to failure Keynesian experiment. Visually, this is what one needs to be watching now, Euro vs. Dollar:
Notice that the level I drew here, it is crucial as the Euro has not closed below this on a weekly level in two years. A close tomorrow at this level would almost guarantee further losses.
This means that the entire solvency of the European Union and indeed the Euro is now at stake. Continuing on this trajectory will result in either outright collapse of the EU or further depreciation of the Euro causing heart aches for the Europeans. Interestingly enough, gold and silver continue their march forward as it becomes abundantly clear to everyone that the day of printing money and calling it value is rapidly approaching a climactic end. Money is now rotating into the last vestiges of safety and rightfully so.
Ultimately what is happening in the world right now is a total and systemic government collapse. Policy makers at the highest levels of government are desperately clinging to a hope that they can somehow reflate the bubbles they have so vigorously blown for the past decades. All semblance of growth and productivity are completely eclipsed by debt, credit and fraud. What Europe desperately needs is to acknowledge the debt, square away the bad loans and let the contraction take place. This would be the natural path for an economy that has suffered so much expansion. America is facing the exact same problem and yet politicians are determined to spend our way out of an impossible situation. This really requires repeating: You CAN NOT SOLVE DEBT with MORE DEBT.
Just like 1931 we will see large bank failures rippling through Europe and possibly bankruptcies on a national level. Hopefully Europe's recession will act as a wake up call to America's central banksters to finally stop the failed reflation efforts that have cost the taxpayer trillions of extra dollars and financial servitude for generations to come.
Keep your eyes out on Europe, things will happen quickly.
Why was the Euro selling off? Well that is rather straight forward and I am glad you asked. You see, shortly before this swoon the Greek situation was "resolved'. I use the term loosely of course, because essentially the European Central Bank pledged to buy debt even if the world agreed that the debt's quality was deteriorating. A quality of debt is measured by the ability of the debtor in paying back what he borrows. This move was clever because it not only applied at the moment to the Greek development, but any other future member of the European union who might also face similar break downs. As you know of course transactions within the EU happen via Euros and when the central bank announces that Euros will be directed into a location from which they might not return it raises some questions. Specifically, just how much are these Euros really worth? In fact it should raise a deeper question, is anything that can be created out of thin air worth anything at all? This is precisely what lead up to last week's mini-crash.
So how did the brilliant financial elites handle the crisis that was unfolding due to their own chicanery? Well in true fiat style, they decided to double down. All in the name of stopping a mysterious contagion that was threatening to consume all of Europe, the ECB acted bravely and with great ferocity. TARPEU, not a fancy French word, but what I call Europe's plan for bailing itself out. Almost 1 trillion Euros will be pledged to stave off a crisis in exchange for some good behavior from certain PIIGlets. Good behavior in the form of austerity packages that pledge to cut down on debt by curbing government spending. A simpler approach and one much less expensive would be to force these measures with failure to comply resulting in expulsion from the union. No, just like the liberals in America who need to pass a 1 trillion dollar health reform package before attempting fix the waste and corruption, Europeans feel the need to devalue their currency even further.
This brings us to the aftermath. Markets rallied on the European bailout news, but shortly after the good news euphoria wore off there were troubling signs. Specifically in the strength of the Euro! As of this writing the Euro has now retraced all the gains made since the announcement and is looking at multi-month lows AGAIN, with the price at 1.25210 against the Dollar. This essentially means that the currency market is rejecting the bailout and indeed have concluded that this is yet another doomed to failure Keynesian experiment. Visually, this is what one needs to be watching now, Euro vs. Dollar:
Notice that the level I drew here, it is crucial as the Euro has not closed below this on a weekly level in two years. A close tomorrow at this level would almost guarantee further losses.
This means that the entire solvency of the European Union and indeed the Euro is now at stake. Continuing on this trajectory will result in either outright collapse of the EU or further depreciation of the Euro causing heart aches for the Europeans. Interestingly enough, gold and silver continue their march forward as it becomes abundantly clear to everyone that the day of printing money and calling it value is rapidly approaching a climactic end. Money is now rotating into the last vestiges of safety and rightfully so.
Ultimately what is happening in the world right now is a total and systemic government collapse. Policy makers at the highest levels of government are desperately clinging to a hope that they can somehow reflate the bubbles they have so vigorously blown for the past decades. All semblance of growth and productivity are completely eclipsed by debt, credit and fraud. What Europe desperately needs is to acknowledge the debt, square away the bad loans and let the contraction take place. This would be the natural path for an economy that has suffered so much expansion. America is facing the exact same problem and yet politicians are determined to spend our way out of an impossible situation. This really requires repeating: You CAN NOT SOLVE DEBT with MORE DEBT.
Just like 1931 we will see large bank failures rippling through Europe and possibly bankruptcies on a national level. Hopefully Europe's recession will act as a wake up call to America's central banksters to finally stop the failed reflation efforts that have cost the taxpayer trillions of extra dollars and financial servitude for generations to come.
Keep your eyes out on Europe, things will happen quickly.
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