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Reply #83: The Never-Ending Eurofiasco By Mike Whitney [View All]

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Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Dec-01-11 11:07 AM
Response to Reply #73
83. The Never-Ending Eurofiasco By Mike Whitney
http://www.informationclearinghouse.info/article29547.h...

Imagine if the local fire chief, in the spirit of conservation, decided hed use no more than 1,000 gallons of water to put out any given house fire. Do you think the citizens would support that policy if their town was burned to the ground? And, yet, this is the same approach that eurozone leaders are using to address the debt crisis. The central bank (ECB) has virtually limitless resources (Think: printing press) to defend the debt of the individual states and to act as lender of last resort, but the eurocrats wont hear of it. They refuse to use the ECB as every other central bank in the world is used. Theyd rather reinvent the wheel by creating a funky, improvised emergency fund (European Financial Stabilization Facility or EFSF) thats massively leveraged and which only provides a 20 percent first-loss guarantee on sovereign bonds. So, for example, if Italy goes belly-up in the next year or so and cant repay its debts, then Mr. bondholder gets a whopping 20 cents on the dollar. Such a deal!

Can you see how ridiculous this is?

Look; US Treasuries are backed by the full faith and credit of the United States of America. What are Italian bonds backed by? Or Portuguese bonds? Or Irish bonds? Under this new regime, theyll be partially backed by a dodgy, undercapitalized insurance fund. That ought to shore-up investor confidence. Is this any way to run a multi-trillion confederation of states?

And the EFSF is only part of this latest Eurofiasco. Theres also a special purpose investment vehicle (SPIV) that will be used to attract foreign investment. (Re: China) EU leaders assume that the Chinese are so yield-crazy that theyll scarf up hundreds of billions of these (toxic?) EU bonds to stack atop their cache of USTs. Dream on. Apparently, Nicholas Sarkozy has already been on the horn to leaders in China inquiring about future investments. But, so far, no takers. The truth is, investors are exiting Europe as fast as their two feet will carry them, not lining up to get back in...The good ship Eurozone is taking on water from all sides...

Everything is worse. The Eurozone is imploding, and its imploding because the policies theyre implementing are, well, stupid, which is to say, they wont work. And investors know they wont work which is why they keep fleeing Europe en masse.

Can you blame them?

AND THIS IS FROM OCTOBER....
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