Bob Tuskin Radio Show
October 31, 2011
More debt agreed on exacerbates an out-of-control problem. Only its final resolution is delayed. The longer crisis conditions continue and grow, the worse they’ll be when day of reckoning time arrives.
Nemesis, the goddess of vengeance and punisher of hubris and arrogance in Greek mythology, may have final say.
She’s here among us, unseen, patiently stalking, and awaiting when she’ll make her presence known. Wagner’s Brunnhilde in Der Ring des Nibelungen collects heros, not fools and hypocrites. However, they both announce themselves the same way, saying “Only the doomed see me.”
Predatory Wall Street and Eurozone bankers will feel their sting. It’s just a matter of time. Rage across hundreds of US and European cities hastens their day of reckoning. Hopefully it’s coming soon. Nemesis will decide, but won’t announce it.
Pledging an “ambitious and comprehensive” debt crisis solution, Eurozone leaders sold out to bankers. Europe’s debt problem is too great to solve. Throwing good money after bad compounds it.
Greece and other troubled countries owe up to $6 trillion. Germany, France, other donor countries, and the European Financial Stability Facility (EFSF) don’t have enough resources to contribute without wrecking Eurozone economies.
As a result, doubts are being raised about optimistic assumptions, sketchy details, and important unanswered questions.
On October 28, the Wall Street Journal’s Matthew Karnitschnig headlined, “Cheers and Skepticism Greet European Deal,” saying:
Doubts remain about how the plan will work. “European leaders offered few details….signaling that it would take weeks, if not months, to work out the fine print.”
As a result, many experts are skeptical. Speaking in Munich, Bundesbank president Jens Weidmann said:
“The envisaged leverage instruments are similar to those which were among the origins of the (2008) crisis, because they temporarily masked the risks.”
RBC Dominion Securities currency strategist Stewart Hall believes funding the package “may prove a tough sell.” Bond Vigilantes already expressed skepticism. More on that below.
Even if investors embrace the deal, bailing out out banks won’t fix sick economies. As a result, economic weakness will deepen and remain protracted with no policy measure considered to boost growth.
Britain’s Financial Times (FT) headlined, “Italy gives EU a post-party hangover,” saying:
“Italy’s borrowing costs have climbed to euro-era highs a day after European leaders agreed on a new plan to reverse the region’s spiraling debt crisis, a worrying sign they have failed to regain the confidence of key financial markets.”
Bond investors know that raising debt levels compounds an out-of-control problem. As a result, they responded negatively to the deal.
Because of its size, Italy’s troubled economy threatens contagion if it needs a Greece-type bailout package as many expect.
Senior Italian financial officials warned Eurozone leaders that “plans to recapitalize banks have not been properly thought out and risk pushing Italy, and other economies, into recession, by forcing banks to withhold funding from businesses and consumers.”
According to one unnamed official:
“This situation has not been fully considered and there is a severe risk that half (or more) of Europe ends up in recession.”
Spain faces similar problems. As a result, bond yields jumped there as well to a deal investors believe falls short of resolution.
Germany’s powerful constitutional court issued an injunction requiring full Bundestag approval for any urgent European Financial Stability Facility bond-buying operations.
Moreover, Eurozone finance ministers haven’t agreed on ways to implement their announced leverage plan to provide around $1.3 trillion in bailout aid.
An end of November deadline was set to approve final details, but many experts doubt the viability of what’s eventually announced. Moreover, some think months will pass before anything substantive is known.
On October 28, FT’s Peter Spiegel headlined, “Deal widens Paris-Berlin divisions,” saying:
Differences between the two countries run deep. During negotiations, they occasionally flared. An unnamed European official said:
“It is not about day-to-day things. There is a political and economic structure behind the two countries that is just too different.”
As they go (along with Britain), so goes Europe. Since the crisis began, German officials “pushed for Greek bond investors to take losses on their holdings as a way to lance the boil of Greece’s unsustainable debt levels.”
Berlin worries about moral hazard risks. Germany finally got bondholders to take a 50% haircut, but not as announced. If enforced, it only applies to some Greek bonds.
Moreover, troubled banks in greater trouble from haircuts will get bailout help to compensate. In other words, taxpayers will bear most pain, not bankers responsible for today’s crisis.
On October 28, New York Times writers Jack Ewing and David Jolly headlined, “Hitches Signal Further Difficulties for Euro Zone,” saying:
Friday “(s)obriety displaced (Thursday’s) euphoria,” signaling a debt crisis far from resolved. Interest rates in troubled economies are rising, exacerbating conditions there. Bond vigilantes reacted negatively to a bad deal, even though details are unclear.
Investors lost confidence in Greece, Italy, Spain and other Eurozone countries. Fragile conditions signal trouble. Wednesday’s deal solved nothing. According to UBS economist Martin Lueck:
“If you ask someone (in Germany), they’ll say they want the Deutschemark back.” Authorities already printed a supply just in case.
Regular Progressive Radio News Hour contributor Bob Chapman said “Europe doesn’t know what to do and neither does the Fed and Bank of England.” Their solutions exacerbate the mess they made, so they keep throwing money at it counterproductively instead of taking constructive resolution steps.
Conditions now are so out-of-control, “there are no solutions offered to solve the problem.” Major US and European banks are insolvent. “Many carry two sets of books. Without a total audit one does not know the actual condition of these financial institutions. Market players and investors don’t want the truth because they can’t handle it. It means the game is over.”
“Almost everywhere we look, problems are being extended and thrown into the future. How long it will take for the world monetary system to collapse no one knows, but it’s inevitable.”
Creating more of it can’t solve debt problems. Economies are wrecked to save banks. Eventually, Greece will default. When it goes, so does Europe and America because financial systems in these countries are inter-connected.
A Final Comment
Kentwillard.com headlined “Euro Bailout Failure,” saying:
“Have so many ever been so enthusiastic over a plan to beg, borrow, and steal $1.5 trillion?”
These type policies don’t instill confidence. Most important, they don’t work. At best, they buy time, creating a greater problem instead of solving current crisis conditions.
As explained above, the agreed Greek bond 50% haircut is far less than announced. Private investors were asked voluntarily to go along. Some will. Others won’t. Moreover, default is certain.
Excluding German and French banks, others have to recapitalize. Italian, Spanish, Portuguese, Irish, and Greek banks need lots of help. Where it’s coming from isn’t clear. Who’ll buy their countries’ depreciating debt? Who’ll buy theirs?
Eurozone leaders want China and Japan to help. They have their own troubles to resolve. Neither will throw good money after bad without something in return. Moreover, no nation will guarantee another $1 trillion in debt, especially from troubled economies.
Out-of-control debt isn’t resolved by more of it. So far, proposed solutions offer little else. In other words, years of failed policies are being repeated.
Nemesis will have final say on when culpable bankers and corrupted officials will be held accountable. Everyone, however, will share pain more severely than already. Expect hard times indeed to get harder.
Stephen Lendman lives in Chicago and can be reached at [email protected]
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