I’m not sure people have grasped the magnitude of what has just happened. The European Central Bank firehosed €489,190,000,000 at the eurozone banking system. Five-hundred-and-twenty-three banks snatched greedily at the cheap cash. And the markets fell.
Furthermore …
There is a strange belief out there that the Boy-King has vetoed a treaty and all is well with the world. Setting aside the truth that we are still in the EU and subject to its ever more insane laws and regulations, there is a problem with the word. To quote The Princess Bride (ha, didn’t expect that, did you): “You keep using that word. I do not think it means what you think it means.” To be fair, I have no idea what the Boy-King, his supporters, the ToryBoy blog or the so-called eurosceptics who are still whooping with joy think the word “veto” means. But I do not think it means whatever it is they think it means.
(h/t Ken Kulak, Adrian)
Quick, get a bigger hose.
The future historians will ask: where were the adults at the time?
The Europeans find themselves careening down a continually narrowing path, with increasing speed. On one side of the path they fall off into a deflationary spiral, and the other side offers an ever accelerating inflation.
Which way they fall will be a political choice, and all the wrangling underway is the machinations of that political struggle.
What is not available for much longer is status quo and procrastination.
Place your bets, ladies and gentlemen.
C’mon folks. Don’t you know that there’s no problem out there that can’t be solved by creating capital out of thin air? And if this gambit fails, it will be blamed on the central bank injection of make-believe capital just not being big enough.
I’ve read that the Bloomberg Fed FOI on “undisclosed lending” showed that the very controversial $700 B TARP lending was accompanied by ten times that amount on the sly at less than .01%…the same funds now being used to buy US government borrowing at 2% or 3%…seems likely that similar tactics would be used by the ECB…like you say, “what could go wrong?”
Boy-King… ouch!
faster please
The future historians will ask: where were the adults at the time?
Posted by: xiat at December 23, 2011 11:33 AM
The more detailed answer: This was when the Western political class, after “tinkering” their respective economies into over-leveraged stasis, allowed their Keynesian central bankers to go on steroids. Although the results were predictable, the masses had gradually been passivized into over-entitled, mal-educated and over-stimulated bovine grazers.
The future historians will ask: where were the adults at the time?
Posted by: xiat at December 23, 2011 11:33 AM
The more detailed answer: This was when the Western political class, after “tinkering” their respective economies into over-leveraged stasis, allowed their Keynesian central bankers to go on steroids. Although the results were predictable, the masses had gradually been passivized into over-entitled, mal-educated and over-stimulated bovine grazers. Posted by: John Chittick at December 23, 2011 12:39 PM
And the sad part is WE (by that I don’t mean myself) voted for it.
Does all this really matter? After all is it not one year from today that the world will end?
Our own Finance Minister Jim Flaherty,has said Canada will join in a EU bailout if the rest of the
G-20 Countries will do the same.
Just what we need,more money from our middles class going to bail out the wealthy of other Countries.
Let’s hope more sensible people prevail.
Nobody believes the great socialist machinery which swallows all this money, and for which there is no monetary solution, has even been acknowledged, much less uprooted.
Nobody.
The parasites must either cull their numbers and influence, or things will only continue as they have been until there is nothing left.
We need some “Let It Fail!” protests.
Mr. Hannan has failed to realize that there are no buffers at the end of that crazy train ride. Those buffers are sitting in a pawn shop in Brussels.
Sit back and watch the train wreck.
And Merry Christmas.
Of course the markets fell. Half a trillion is barely 20% of the money needed to stabilize the Euro. It’s been known for nearly two years that the money required for a US-style TARP program in Europe is about 3.5 billion Euros.
Of course the markets fell. They were waiting for a solution. All they got was another kick-the-can-down-the-road. Which is all Brussels, France and Germany have been doing from the get-go on this.
Criticise the US TARP program all you want. But the only alternatie to it was a depression that would make the Great Depression look like a bull market. Europe has to do the same thing. All that’s being argued about is whose citizens have to absorb it as added national debt when the bad assets are written off.
And until Europe faces its problems, things will only get worse. Please don’t waste time sniveling that “It’s not our problem; why should I pay for it.” This problem is so severe that there’s no isolating ourselves from it and no defense against it. The US averted a global credit crash in 2008. Now Europe has to do the same thing. If they don’t, the losses to us will be far more severe than whatever we contribute to an IMF bailout fund.
Princess Bride
‘Inconceivable’
@ cgh
“whatever we contribute to an IMF bailout fund”.
I doubt if we will contribute anything. Our books don’t look much better than theirs do. China maybe.
Peterj, it’s not about the shape of our books. It’s basic arithmetic. In the case of the GM bailout in 2008, which costs less, bailing out GM or letting it fold and paying all of the unemployment insurance and other costs of the laid off workers?
The same kind of consideration applies here.
What people need to understand is simply this. Since 2008 and the onset of the global recession, what is happening is that bad assets are being written off. That’s what happens in recessions (or depressions). Bad debt is stricken from the books. What’s now being decided is who pays for this. Is it the bondholders themselves, thus triggering a global depression and the wipeout of things like pension funds everywhere, as well as bank capital for loans to business, industry and house mortgages? Is it instead transferred to a different set of taxpayers and taken on as additional national debt carried by somebody else’s taxation?
The South Sea Bubble was primarily a creation of Dutch and English financial trading in the 18th century, but its depression effects spread to all of Europe. Like it or not, we’re all in this boat, and it’s got a huge leak.
The second thing people need to understand is that there’s no protection from the consequences of a financial credit crisis. Not today, not in the 1930s and not in the 19th century.
What you say makes sense to me, cgh, my problem is that at the end of this bailout the very same a$$holes that put us into this will still be sitting in the same chairs. Ready to do it again.
I’m close to thinking that the world needs to endure the depression. Maybe the survivors will finally learn the lesson. So far, way too many people are prepared to continue voting for the a$$holes.
With that, Merry Christmas, everybody.
@ cgh
I agree with everything you are saying, but where is the bailout money from the EU going to come from ? WE and they are flat broke , not to mention in debt to the tune of Trillions. I believe this will be their 3rd attempt to stabilize their currency and once again only a temporary measure. Germany was the only one that had some leeway for helping out but they have had enough and Merkel is digging in her heels on this. There is not one Bank left in Europe (or the US) that is not up to their eyeballs in bad assets and the attempted sale of govt. bonds has fallen flat. People are hanging on to any money they may still have. I’m getting carried away here but back to the initial question, who exept China would have enough money to shore up the IMF ?
Peterj, the money comes from the governments all printing more money (it’s called Quantitative Easing in bankster-speak), and taking it on as added national debt. We and they are not flat broke and indeed have still quite a bit of debt headroom. There are however two key caveats: 1. structural deficits have to be eliminated; and 2. future interest rate hikes will make this added debt burden severe, further increasing the need for governments to operate in the black in their operating budgets.
You are right. This is their third attempt. None of the previous, including this one, are serious because they are only a small fraction of putting up the money required to deal with this problem. It’s about 3.5 trillion Euros, and unless you see a number of this order of magnitude you know that it’s not a cure, it’s a bandaid.
So, what the EU has to do is take on all this bailout as national debts and then slash and burn their national budgets to produce surpluses or at least balanced budgets.
Yes, it’s going to be very ugly. But when all you’ve got in your hand is a pair of deuces, well, that’s what you play. Unlike poker however, bluffing isn’t an option, as the money markets will jack up the interest rates, and you can’t get out of the game.
And there’s no choice. Because the alternative of a global depression will be far, far more costly. Let alone its likely political consequences (fascism, anyone?). What we’re seeing here is a long term object lesson; ALL governmenst MUST run balanced budgets over a complete economic cycle.
BGJ, the issue of moral hazard you are pointing to is very real, no question about it. However, it’s like complaining abot cigarette smoking when your house is burning down. Yes, that caused the problem, but first we have to put the fire out.
As to depressions, there are both economic and political costs to these far in excess of what’s needed here. First, in economic terms depressions will wipe out the savings of average citizens like you and me by the hundreds of millions all over the world. It will do so either by hyperinflation ala Germany in 1922 or by throwing huge portions of the population permanently out of work.
This leads to political consequences. Fascism was a natural result of the severe economic distress of the late 1920s, early 1930s. The French Revolution was a direct result of a financial and economic collapse in France in the 1780s. Similar economic disasters led to the Russian revolutions of 1905 and 1917. And severe economic stress leads to increasing pressures to use dictatorial solutions.
So no, we don’t want a depression. The Great Depression was a large factor as to why WW1 was followed by WW2.
@ cgh
Quantitative easing has been disaster with every country that has ever gone through it. Another major difference is in past recessions industrial output could be restarted or in the case of war, rebuilt with the help of countries that were still solvent. In this case most of the free world is sliding under the waves of debt and industrial capacity has been outsourced rather than idled. For the first time in history the entire free world has nowhere to turn for help except countries that are smaking their chops at our potential demise. Quantitative easing will buy us some time but that’s all. If Obama gets back in we can kiss life as we have known it goodby. Once again I agree with everything you have stated but don’t believe Q easing will do much except send shock ripples through our societies. War seems much more likely as the one thing the USA has not outsourced is anything relating to the military complex. Also good for business and creates full employment, at least for the winners. Hope I’m wrong but stocking up on dry food anyway 🙂
Peterj, to a large extent, I agree with you about the limitations of QE. It is just mortgaging the future. It is only a stopgap over the long run. It will only be meaningful if it’s followed fairly swiftly by the budget-balancing I referenced. It buys time and that’s all.
Otherwise it’s just kicking the can down the road to a greater pile of debt over the long run.