Bailout 2.0 on the way?
The Euro currency union is sinking. It has struck an iceberg, and the name of that iceberg is debt. While the part of the iceberg that could be seen on top of the water looked manageable, it is becoming clearer that the iceberg is massive and the damage to the ship catastrophic. This is a global problem, and Europe’s problem becomes our problem. It is not a European debt crisis, it is a world debt crisis.
Lending to Eurozone countries by US banks has expanded… total lending is still up 67% from December 2007. A cynic might say that the Fed has encouraged US banks to increase their lending to the Eurozone, on the basis that no banker in his right mind would have otherwise done so. But if this is true, the Fed has little flexibility to continue with this support, given that commercial bankers will be increasingly reluctant to commit further funds. It explains President Obama’s interest in the current state of the Eurozone, because if it goes down, there will have to be a major capital injection into US banks to keep them solvent. We get used to trillions being thrown around, but that is government spending and money-printing; in the context of the Wall Street banks, the quantities are not small, with the lending total at end-December 2011 being $347bn.
It is hard to conclude anything other than that all of the avenues for resolution have been explored and substantial sums of money thrown at the problem, much of it without the public’s knowledge. The [European Central Bank] has expanded its balance sheet to offset cross-border lending contraction, and other central banks, particularly the Fed, have done their bit. Germany has committed enough of her own citizens’ savings to fill what is obviously a bottomless pit. New investors, except wild speculators, are non-existent. And without more outside help, Eurozone institutions do not have the resources to avoid a financial collapse.
That outside help is not there. The result is that the Eurozone is failing at an accelerating rate. George Soros is on record as giving Euroland three months. It will be lucky to last that long.
For an expansion on Germany’s role in this — why she is being urged to “fall on the sword” and allow more bailouts through money-printing, read the rest of the article at PeakProsperity.com.
photo © Andrea Crisante | Dreamstime.com
The IMF is not setup to help countries or taxpayers, it was created to rob countries, rob taxpayers, and generally wreak havoc in times of trouble just so the wealthy class can be bailed out again, and again, and again, whenever the banks and bondholders get in trouble by taking on excessive risk.
Michael “Mish” Shedlock, commenting on an IMF call for taxpayer funded bank recapitalization.
US taxpayers bailed out European banks through the original TARP bailout. (TARP bailed out AIG, which paid off American and European banks for insurance on their bad real estate loans.) We participated in further bailouts of Europe through the IMF. I wrote and asked my Congresspersons the amount of the United States’ IMF contributions that had already gone to bailing out Europe. I have received no reply.
During one of the early Republican presidential debates, a moderator was savvy enough to raise the question of European bailouts and the IMF. Mitt Romney said that Europe should bail itself out. Later on he said he supported continued involvement with the IMF. These two statements would seem to be incompatible. Perhaps Romney thought we were dumb enough not to know that the IMF did European bailouts. Someone really needs to confront Romney on this. We are hard pressed to bail out our own banks (in itself a frustrating example of reverse Robin Hood — the rich being bailed out by the average citizen). We cannot spare a cent to bail out Europe.
All eyes remain on our wheezing, conjoined economic twin Europe. The Euro zone seems to have reached an historic fork with two clear paths leading in completely opposite directions. On the one hand, there’s Angela Merkel’s vision of Euro-cratic Utopia, as laid out in Davos this week:
‘My concept is one of political union. We need to become incrementally closer and closer, in all policy areas. Over a long process, we will transfer more powers to the [European] Commission, which will then handle what falls within the European remit like a government of Europe…’
Of course, the notion of gaining the prior consent of the 500 million European voters is nowhere to be found within this gaseous manifesto.
The other scenario is that the same rarified financial and political caste whose carefully laid plans have brought the Continent to the brink of catastrophe for the third time in 100 years will not be able to un-paint themselves out of the corner as Frau Merkel envisions. A disorganized, barely controlled disintegration of the Euro zone and euro, dragging us along for the ride. Expect the panicked 3 AM call from Europe to our Wall Street – Washington Brahmins, followed by the usual suspects condescendingly explaining to the American taxpayer why we must bail out Europe ‘for our own good’.
Will you put up with another bailout, this time for Europe? US taxpayer money — through the TARP program — went to bail out European banks in 2008-2009, and recently we’ve been contributing to more European bailouts through the IMF. Nobody is talking about this. One questioner in the GOP debates did ask the candidates if they thought we should support more IMF bailouts with US tax dollars. Romney said Europe should bail itself out, but also said we should continue to support the IMF. In other words, he answered yes and no simultaneously.
(quote is from dshort.com)