Thursday, December 1, 2011
The European Union is frantically trying to come up with a plan to fix the debt crisis that is threatening to cause a worldwide financial calamity. It seems every day there’s a new idea to save the union. The latest is some sort of backdoor bailout through the International Monetary Fund (IMF). Why doesn’t the European Central Bank (ECB) just take care of the bailout by itself? It legally can’t according to the treaty that formed the European Union. That hasn’t stopped the central bank from bailing out countries anyway. But now, debt levels are reaching a critical stage as in a possible default, and the biggest problem is Italy. Todayonline.com is reporting, “If Italy defaults on its debt of 1.9 trillion euros, the fallout could spell ruin for the euro zone and send shockwaves throughout the rest of the world. Yesterday, Italy’s borrowing rates skyrocketed to record highs in a 7.5 billion euro bond auction. The yield on its 3-year bonds surged to 7.89 per cent, 2.96 percentage points higher than last month, while yields on 10-year bonds spiked to 7.56 per cent, up 1.5 percentage points.” (Click here for the complete Todayonline.com report.)
The key to saving the euro is Germany because it is the richest of the EU countries and can use its industrial might to help support a bailout fund. But, Germany has been reluctant to bail out deeply indebted countries. Now, calls to bend to pressure to save the day and keep the union together are reaching a fevered pitch. The Guardian UK reported earlier this week, “The Polish foreign minister, Radoslaw Sikorski, urged Germany to save the EU from “a crisis of apocalyptic proportions.” The Moody’s ratings agency predicted that a euro exit by any country would trigger a cascade of sovereign defaults across the eurozone. Jean Pisani-Ferry, director of the influential Bruegel think-tank in Brussels, said that “real businesses” as well as the financial markets were now “pricing in a break-up scenario … If disaster expectations build up and a growing number of players start positioning themselves to protect themselves from it, the consequences could become overwhelming.” (Click here for the complete Guardian UK story.)
So, “any country” that stops using the euro “would trigger a cascade of sovereign defaults across the eurozone.” This reminds me of the verse from the song “Hotel California” that goes “You can check out anytime you like, but you can never leave.” The EU sounded so good when it started, but now it has turned into a nightmare where democracy is smothered by bankers. Defaults would, no doubt, cause the bankers to lose power and lots of money. That is not going to happen without a knockdown, drag out fight. Paul Craig Roberts, former Assistant Treasury Secretary in the Reagan Administration, wrote last week, “The private banks want to avoid any losses either by forcing the Greek, Italian, and Spanish governments to make good on the bonds by imposing extreme austerity on their citizens, or by having the European Central Bank print euros with which to buy the sovereign debt from the private banks. Printing money to make good on debt is contrary to the ECB’s charter and especially frightens Germans, because of the Weimar experience with hyperinflation.”
Roberts points out that the Germans had a failed bond auction last week and thinks it was orchestrated by the IMF, ECB and private banks to put pressure on the Germans to go along with the EU bailout. Roberts went on to say, “My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayer expense and Goldman Sachs’ enormous profits.
If any of the European sovereign debt fails, US financial institutions that issued swaps or unfunded guarantees against the debt are on the hook for large sums that they do not have. The reputation of the US financial system probably could not survive its default on the swaps it has issued. Therefore, the failure of European sovereign debt would renew the financial crisis in the US, requiring a new round of bailouts and/or a new round of Federal Reserve “quantitative easing,” that is, the printing of money in order to make good on irresponsible financial instruments, the issue of which enriched a tiny number of executives.” (Click here for more from Mr. Roberts.)
Now, there is talk of a new “Stability Pact” that would give a central power oversight of the budgets of individual countries. If the countries agree to this “Stability Pact,” they would lose a certain amount of their sovereignty to unelected officials. Former Goldman Sachs bankers have been put into power in Greece and Italy. The new head of the ECB is also a former Goldman Sachs man. The bankers are taking over Europe, and they come in the form of unelected technocrats. The bankers are the ones responsible for creating this enormous global mess through greed and fraud. Countries on both sides of the Atlantic are not only shielding these crooks but allowing them more power and bonuses to boot!!
Nigel Farage, a Member of the European Parliament for the UK, is an ardent critic of the EU. He thinks this latest crisis is all about gaining control and says, “Democracy is deliberately and willfully being destroyed.” This crisis is only going to be tamed with massive amounts of money printing and defaults of some big banks. Expect the IMF, ECB and the Fed to pick the winners and losers. You really want to know what is going on with the EU sovereign debt crisis? Listen to Mr. Farage in the video below. He was interviewed last week by the Italian media. I only wish he could run for President.
This article was posted: Thursday, December 1, 2011 at 4:26 am