Twenty marathon meetings in two years time, - about once every month - EU leaders solved finally the debt crisis, at least the door went open letting the EU rescue fund inject money in the banks, to enable them buying the bonds from their respective troubled countries, to drive down the yields. The EU leaders agreed on a widely anticipated 120 billion euro ‘growth’ package. There was just one relevant phrase uttered in all, and ironically it came from Italy's own Mario Monti who said that there are "no plans for boosting bailout funds." And this really just is what matters.
"The market will not turn around until it believes Europe's leaders have the resolve to inflate their debts away, as the U.S. has done in spades since 2009. And that's exactly what they'll do at some point this year".
Germany, Finland and The Netherlands couldn't let Spain, Italy, Greece, and their banks fail. As the banks support their government and the government their banks, they together are de facto sovereign credits entities ‘too-big-to-fail’.
“Simply put, we don't believe Europe's monetary authorities are going to let a run on the banks develop. Why not? That outcome would be disastrous for the world's major corporations and big banks. And these institutions exert massive influence on the world's major political leaders. A banking crisis is bad for business. That's why it won't happen.”
In other words, the ECB will now print as much money as is needed to "fix" every bank in the EU. Again another temporary fix or a can kicked down the road. The biggest problem remains, the high debt levels. You can't fix a debt problem with more debt. Expert investor and government critic Jim Rogers told, “The European bailout would lead to financial "Armageddon."” And that is going to happen eventually.
Nevertheless, these new measures appear to be a positive development for banks, stemming interbank lending pressures that have threatened to upset stability in the euro area. But the main problem with the significance of this new plan; it still doesn't fix the financial plumbing of the EU. The plan is merely an attempt to temporarily reduce borrowing costs for Spain and Italy, otherwise it would have addressed the root problem; too much debt without finance.
The lack of capital markets in Europe means that financing in general is hardly transparent. The public knows fewer details about investments and what goes on at banks because little of this data is public. These European bailout funds to finance new bond purchases by banks of sovereign debt do not fix any of the existing problems that plague sovereign borrowers. For the time being European banks can muddle through the crisis, thanks to the positive short-term effects.
The EU debate is mainly a dispute over which fraudulent solution will cause ‘growth’. The austerity crowd believes it has to clamp down on government spending. This will give investors confidence in government bonds. The sovereigns will be able to borrow again. The economy will grow. All will be well.
The stimulus crowd targets growth directly. It wants the governments to spend, creating jobs, incomes, and more spending. Economists worry about deflation, not inflation. So deflation is an obstacle to ‘growth’.
So GDP figures are important to measure ‘economic growth’, but those are almost completely worthless. “They tell you something; but do they tell anything important? Apparently not, if you look at this example: You cut our lawn. We pay you. We cut your lawn. You pay us. We both have jobs. And we each pay a portion of our earnings to the government. The GDP goes up. Government revenues increase. And economists tell us we are ‘growing.’”
“The biggest fraud in economics is economics itself. What’s the point of having an economy? It is so that people will get the stuff they need and want. The more efficient the economy, the more stuff people get with the least effort and expense of resources.” It makes no sense to waste trillions of dollars’ worth of resources just to “protect the economy.” The whole purpose of an economy is to create more - not to waste it.
A huge move upwards for gold and silver will certainly be the result of the absolute expansion in government debt, it continues with deficit spending, and money printing. Expecting that this irresponsibility will end without inflationary consequences seems naïve or foolish. Inflation may not attract investors to gold and silver as much as to force them to it.
“Now, one could make the argument that any rush into gold and silver will be muted if no one has any savings, especially given that demographers say a quarter of the developed world will soon be retired. But even if individuals are wiped out, the world’s money supply isn’t getting any smaller, and all that cash has to go somewhere.” Eventually Gold and Silver are one of the few save havens.
Tags: Gold, Silver, EU crisis, Euro, Eurozone, Europe