Bailout” Of European Financial

Whoops!…Oh dear!…It looks like Ben fell off the wagon again! Such a shame. He had been doing so well ever since he put that bottle of “Old Q.E.” back on the shelf last June… and got sober. But a few weeks back, he tripped up on his 12-step program and started nipping at the bottle again. Slowly at first… then to excess. Yes, it’s true, dear reader, Federal Reserve Chairman Ben Bernanke, is printing money again. That’s bad enough. But this time, after he prints it, he sends it over to Europe. Crazy, but true. The chart below tells the tale. It shows the quantity of currency swaps on the Fed’s balance sheet. What are these things? Technically, they are an exchange of one currency for another currency. Functionally, they are a loan. Typically, one side of the swap pays interest to the ...

Like trying to patch a nuclear reactor with scotch tape and chewing gum, the central banks of the world’s leading economies are trying to Spackle over cracks in the global monetary system with a variety of desperate tactics and measures. Unfortunately, hiding the cracks does nothing to strengthen the underlying infrastructure. To the contrary, hiding the cracks dupes individuals into believing all is well, even as the monetary system is crumbling around them. Many European governments, for example, are spending much more money than they can possibly confiscate through taxation. These guys are broke… plain and simple. But so is the United States, based on any intellectually honest assessment of the facts. According to the US Treasury’s own data, the US ended 2011 with total debt of $15.2 ...

Transparency is essential in a free market. It enables market participants to make informed investment decisions. Unfortunately, in America’s “free market” economy, transparency is a latchkey child. It only sees the light of day when someone breaks down the door and carries it outside. Institutions like the Federal Reserve and the Treasury explicitly and vehemently resist transparency. It is the enemy, they say, of an “independent” monetary policy. During the crisis of 2008-9, the Federal Reserve and Treasury operated as covertly as the CIA – doling out trillions of dollars in bailouts and guarantees to a handful of coddled corporations. Those financial “black ops” produced myriad deceptions in the financial markets. In addition to the Fed’s intended deception that insolvent financial ...

Although we are somewhat agnostic with respect to the theory of global warming, we nevertheless find it a useful metaphor for understanding what is happening at present in financial markets. Imagine an apparently safe, productive city with many factories belching “debt” from their smokestacks. This debt subsequently “rains” down into the seas, which represent the credit risk of that debt. But some of the debt remains unseen, high up in the atmosphere, where it holds in the heat, contributing to a dangerously rising sea of debt, which one day, suddenly swamps the city. What appeared to be safe, productive and sustainable is shown to have been a mirage. Now of course astute observers might have noticed years in advance that the sea was rising. Some of them might have tried to warn the ...

Euro The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3615 level and was capped around the $1.3785 level. The common currency was pushed higher during the Australasian and early European sessions as traders reacted to news of an Irish “bailout” but the pair could not hold its gains and fell sharply early in the North American session. It was reported that Ireland may seek as much as €95 billion in assistance from an emergency fund established by the European Union and International Monetary Fund. Moody’s Investors Service warned a “multi-notch” downgrade in Ireland’s Aas credit rating is “most likely.” There is speculation Irish banks may require €5 billion in more in immediate capitalization. Ireland’s opposition Green party ...

€ The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3575 level and was capped around the $1.3655 level. A flat day for U.S. equities capped the common currency as did rumous of an “emergency bailout” of up to €25 billion for Greece’s economy. European Central Bank member Bini Smaghi said European Union states need to support Greece financially, adding he opposes an International Monetary Fund bailout for Greece. Many traders believe the ECB will be forced to keep its interest rates low for some time on account of the fiscal crises – including Greece’s – in the eurozone. Short-term euro forward borrowing rates have collapsed this month, an indication of expectations for lower rates. ECB member Provopoulos said the Greek ...

€ The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3580 level and was capped around the $1.3635 level. Escalating sovereign credit concerns continue to weigh heavily on the common currency. Dealers sold the euro again today on reports that eurozone finance ministers are not yet ready to provide specific details about what form or fashion a Greek “bailout” might take. Greek finance minister Papaconstantinou today said “My guess is that what will stop markets attacking Greece at the moment is a further, more explicit message that makes operational what has been decided last Thursday.” Eurogroup Chaiman Juncker today reconfirmed the European Union is prepared to assist Greece. European finance ministers meet again tomorrow and ...