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The 750 Billion Euro Bluff
May 23, 2010
The Germans recently approved their portion of the €750bn European bailout fund, and I think that’s all the money we will see. It’s highly unlikely that the EU has the capital to pull off the entire thing, unless the ECB starts printing money à la full-blown quantative easing. They are just trying to bluff the speculator vultures, so that they won’t start circling Portugal, Ireland and other weak EMU economies. But I think eventually the vultures will smell blood.
|Merkel bought some time for Germans (who have large euro savings) and other euro holders, to get rid of their euros and put them in something more solid, like gold or other precious metals, before the ECB starts quantative easing and euro inflation takes a turn for the worst.|
More likely it’s a race to the bottom. The EMU governments want to devalue the euro to make euro denominated debt interest payments cheaper and make the euro more competitive as Germany recently got overtaken by China as the largest exporting nation. Actually China has been doing this for a while now, holding the reminbi under the water by pegging it to the US dollar. But unfortunately that’s not the ECB’s official policy, and when Germany joined the EMU they promised their citizens that the euro would be a stable currency, so that the Germans would not lose their savings to inflation, again. Germany already lost everything to hyperinflation, twice. I think they wouldn’t want to do that a third time. But now because of the Greek crisis the euro has devalued, and without severe sociopolitical reprecussions in Germany as Merkel can put some blame on the Greeks. Outright quantative easing would probably not have been as well received in Germany as the current theatrics have been.
The €750bn bailout is likely a hoax to deter speculators and stabilize the euro devaluation, in the short-term. At best Merkel bought some time for Germans (who have large euro savings) and other euro holders, to get rid of their euros and put them in something more solid, like gold or other precious metals, before the ECB starts quantative easing and euro inflation takes a turn for the worst. Which seems to be happening as recently billions of euros flew out of German banks to Switzerland. Because if the euro starts to deflate, it’s likely the weaker economies will default on their debts, which would be a death knell for the euro, and thus possibly the EU aswell. This is of course unacceptable for the eurocrats, whatever it takes. That being said, gold sales in Germany have been soaring recently, and coin/bullion shops there are running out of the stuff. Same thing is happening in China.
The long-term trends are clear however, just look at precious metals or commodity charts over the last 10-20 years in almost any currency and you’ll see in what trajectory they’ve been heading. Just about all EU countries are deeply entrenched in debt, in fact most countries in the world are near bankruptcy. There is still that $800 trillion derivatives bubble floating above our heads. Soon there are only two options left for governments: default (declare bankruptcy) or inflate (print money out of thin air). That’s why all fiat currencies will continue to devalue until hyperinflation hits or when countries start defaulting. Eventually they will all have to default, which is unprecedented. But it’s baked in the cake of fiat paper currency, fractional reserve banking, compounding interest, and now globalisation, that has tied us all together.
We are approaching maximum entropy. Hold on to your hats.
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