Nigel Farage, again telling it like it is. Below he calls out the members of the EU for systematically destroying Greece by forcing them to stay in the Euro. With a puppet government and ceaseless demands for austerity, Greece’s economy has contracted for 5 straight years and is currently falling off a cliff.
It is refreshing to hear Farage call out the EU, and it is painfully obvious that his pleas fall on deaf ears as his Eurocrat colleagues simply mill about. The EU Commission would be a funny joke if their idiocy didn’t cause such widespread suffering. From zerohedge.com:
Today after the western stock markets closed, the German lawmakers announced yet another plan in an attempt to stem the Eurozone’s tandem sovereign debt and banking crisis, which is rapidly accelerating. The plan, according to AP, would boost the European Financial Stabilization Fund from its current 440 billion Euros approximately one trillion Euros.
The one trillion Euro figure is an estimate due to the nature of the plan which involves enticing capital to invest in the Sovereign debt issues from Euro member states by creating an insurance fund to partially back sovereign debt issues that would otherwise attract little investor interest.
Think of it as a partial Fannie Mae guaranty for European Governments.
There is a reason that foreign capital is hesitant to invest in Euro sovereign debt, and it is not for lack of enticement. Greek, Spanish, Portuguese, and Italian bonds all offer fixed income investors a decent premium over other sovereigns for their perceived risk. The problem from the point of view of the investors is that the premiums are not high enough if considered against the likely event that they will not get their principal returned. The problem from the perspective of the Euro sovereign issuers is that they cannot realistically pay even these reduced premiums.
Once it is generally perceived that a nation state will default on its obligations, it is very difficult to attract capital, whether it be the purchase of sovereign bonds or investments in businesses located in the troubled country.
Default, while the most practical solution for any normal debtor, is apparently unacceptable for modern western nations. For this reason, the Eurozone leadership is moving in slow, measured steps to appear to do just enough to preserve the credibility of the debt issued by the weaker, peripheral states such as Greece, Spain, and Portugal.
Will this latest Eurocrat concoction be enough?
For the moment, it may be. The German Parliament must vote on their new obligations on Wednesday, just hours before the broader Eurozone working group is set to formally announce the plan, leaving no room for dissent, ala Slovenia earlier this month. Once the political drama in Germany passes, it will be smooth sailing for the Euro and its sovereign debt markets…for about a week.
At that point, it will again become clear that the banks and sovereigns will require additional funds (currently the estimate is north of 2 trillion Euros) in order to continue the illusion solvency.
The problem of Euro solvency is no secret. This is why both banks and sovereign governments are having a great deal of difficulty getting credit from anyone other than other broke European governments, banks, the ECB, and the Federal Reserve. This latter list of entities have two things in common. First and foremost, they all have a vested interest in perpetuating the charade that the Euro is a viable currency. Second, these entities, by virtue of their activities, can only destroy wealth and therefore must coerce the productive class into lending its resources.
To make matters worse, no one in their right mind can invest real capital in the Eurozone under these conditions. With sovereign governments pushing austerity measures and increasing the confiscation of private assets via increased taxation, any further investment in the Eurozone must be properly seen as an act of charity.
Such is the paradox of solving debt problems by incurring more debt. Once one believes that the debt cannot be repaid, this belief becomes a self fulfilling prophecy. The Eurozone is becoming the world’s latest example of this inescapable truth.
Meanwhile, commodity prices, which reflect the fruits of productive activities, are on the verge of exploding to the upside, signaling a growing distaste for fiat currencies. Will this be the final, violent blow off in commodities?
Today Bernanke went before the US Congress and gently laid down the gauntlet. If Congress fails to raise the debt ceiling soon (by August 2nd, we are told), it could have catastrophic effects on the economy.
Given that nearly the entire banking system on the planet depends upon the US Treasury being Grade A debt, Mr. Bernanke may again be credited with the understatement of the year!
We pity Mr. Bernanke. He is like a pilot flying an Airbus aircraft that is stalling at extremely high altitute. We don’t know much about aircraft but we understand that Airbus aircraft, with their European design slant, do not give a pilot much freedom to override the plane’s automated systems. It assumes that all of the necessary corrective actions can be pre-programmed and, if the plane begins to stall, the computers take over to attempt to correct the problem.
Actual Airbus pilots are free to dispute the merits of our oversimplification. We just needed a metaphor.
Back to Bernanke, with the autopilot mechanism failing, the pilot does not know what to do. If the US Congress had dutifully raised the debt ceiling as it had 94 times in the past, as the Airbus autopilot manual said it would, Bernanke’s reaction to the most recent US jobs report would have been to simply propose a third round of quantitative easing (read: money printing or counterfeiting of currency).
On the Airbus, he would get on the intercom and say “please fasten your seatbelts until we pass through this patch of rough air.”
However, the failure of the US Congress to reach a deal to raise the debt ceiling has thrown a wrench in his plans. What is his plan now? Think helicopters, Zimbabwe, Gideon Gono.
Mr. Bernanke is going on a safari!
Yes, fellow taxpayer, with each day that passes, it is becoming clearer to the majority that Mr. Bernanke is unwittingly following in the footsteps of none other than Gideon Gono. Some may recall that Mr. Gono, the Governor of the Reserve Bank of Zimbabwe, was forced to “do extraordinary things that aren’t in the textbooks,” meaning that he oversaw the printing of large amounts of his country’s currency which produced an amazing modern example of hyperinflation.
In an interview with Newsweek in early 2009, Gono offered an explanation for his actions and predicted that the US would do the same, as it has:
“I’ve been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren’t in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.”
The hyperinflation in Zimbabwe led to shortages of real goods and destroyed the economy. Why would Mr. Bernanke’s experiment end any differently?
Meanwhile, over in the Eurozone, the Airbus is in rapid descent and everybody on the plane is offering ideas as to what went wrong and how to fix it. Its auto-pilot has not been programmed to deal with the failures the plane is experiencing and as the pilots and passengers engage in a heated debate, none are able to grab the controls much less safely land the aircraft.
Back in the US, whether or not Congress passes legislation to raise the debt ceiling is irrelevant. The US Treasury will borrow and the FED will print even without Congressional approval. That is what makes modern Government fun, if you don’t like a rule, just ignore it and claim that you were exercising “Leadership.”
All of the countries in the Eurozone will soon surrender their sovereignty to Germany and the IMF in exchange for the “privilege” of using Euro as currency. The ideological divide that is being exposed in the US may eventually lead to civil war.
And keep your eyes on Palestine. The UN vote on Palestinian statehood in September is eerily similar to the vote 62 years ago when the UN accepted Israel as an independent state. Our guess is that this vote will spark events there that will capture the attention of the whole world.
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*See the MINT Perceived target Rate Chart. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.