Four leaders of the largest EU nations again came together last week in Rome. Germany, France, Italy and Spain discussed a growth package of €130 billion to defend the Euro currency, but remained divided over the credit crisis as Germany –the only one with sound credit rating - resisted proposals about a common bailout fund to stabilize the financial market. Nevertheless the meeting was intended to demonstrate unity. Disagreement is over the need of short-term intervention, and to achieve greater political union. This kind of results is already old stuff; similar statements were issued many times over in the past. Nobody got any wiser, only that valuable time, energy, and money were wasted. Sadly the EU debt crisis continues and will continue forever; the more things change, the more they stay the same.
The private economy shrinks, while the size of governments’ debt explodes. The Fed and the ECB cannot print money forever and keep rates near zero. The low interest rates are an invitation for more financial bubbles. To recap; during the last 25 years we had numerous of financial bubbles fueled by government spending and easy money. Governments misused their power to print money to stave off financial devastation, and to proclaim the economy is doing better. Think about the 2000-2001-technology crash. The markets tanked. Investors got crushed. The economy tottered on the brink of total collapse. And again the Central Banks saved the day with low interest rates, pumping money into the economy and fueling an unprecedented unsustainable real estate boom. Once that bubble burst, the current credit crisis started in 2008-2009.
Our leaders have an awful habit; they think “doing something” is necessary. The Easy Money cash, made them popular, giving something for nothing to improve their standing. It gives a push, it encourage them in doing more of the same to increase demand by letting people buy things they don’t need. Statistics are massaged, giving the appearance of an improving and stable economy. Pretty soon, however, the market begins grinding to a halt. The stimulus didn’t work.
Then the leaders turn back to the source of artificial ecstasy. Injecting another dose of money, hoping for more improvement. It looks good again, but actually it is not quite as good as the first time. Something is missing. So they increase the amount and try it again. But the response is even less, the lackluster remains. Anyhow the outcome is clear, except for the leaders themselves.
Eventually, the economy is stumbling. But no matter how big the fix, how potent the mix, they never are able to obtain the necessary recovery. The essential problem roots in too much debt, without real finance.
European officials admitted, they were discussing rolling out a series of harsh capital controls across the continent, including bank withdrawal limits and closing down Europe’s borderless Schengen area.
Some of these measures have already been implemented; upon the recommendation and approval of Italy’s bank regulator, customer accounts of Italian bank BNI were frozen on May 31st. No ATM withdrawals, no bill payments, nothing. Account holders were locked out overnight.
In Greece, the government simply draws funds directly out of its citizens’ bank accounts; anyone, to government’s interpretation suspected of being a tax cheat, their funds -without any formal notification- are confiscated. It’s no wonder, according to the Greek daily paper Kathimerini, why over $125 million per day is fleeing the Greek banking system. European political leaders aim, in the worst possible manner, to put a tourniquet on capital flows. Capital controls are policies that restrict the free flow of capital in, out, or through, within a nation’s borders. They can take a variety of forms, including:
Setting a fixed amount for bank withdrawals, or suspending them altogether.
Forcing citizens or banks to hold government debt.
Curtailing or suspending international bank transfers.
Curtailing or suspending foreign exchange transactions.
Criminalizing the purchase and ownership of precious metals.
Fixing an official exchange rate and criminalizing market-based transactions.
Establishing capital controls is one of the worst forms of theft a government can impose. It traps people’s hard-earned savings and their future income within a nation’s borders. This trapped pool of capital allows the government to transfer wealth from the people to their own coffers through excessive taxation or rampant inflation. Ultimately, all governments want to do the same.
When European financial leaders openly admit that they’re making plans to establish continent-wide capital controls, it really begs the question — what additional warning sign does one need?
The dominos have already started falling. Iceland, Ireland, Greece, Spain, Portugal, Italy, Cyprus. Soon even France and the rest of Europe. And then it will come to the United States too.
Spanish government released the results of two independent stress tests on the banking sector. The studies concluded Spanish banks would need between €16 billion and €62 billion of new capital. Spain is asking for a 100-billion euro line of credit. The actual capital needed to bail out Spain's banks will prove to be at least three times higher. And what about Italy, Portugal, or any other troubled European nation? They already are lined up for their respective bailouts. Cyprus is now the next one, after it was downgraded to junk status.
Gold and silver both will soar on this news. A king sized European bailout would require many rounds of money printing from the ECB and the Feds, driving up the value of precious metals.
You are tired of living in the West with all those upcoming restrictions? Think about moving out to Georgia, probably the only sound economic environment within Europe without restrictions. Read the details at: Surprise! An economy with a pulse!
Tags: EU summit Brussels, German resistance, EU bonds, Banking crisis, domio effect in Europe, Spanish banks, Angela Merkel