The bad news
out of Europe continues unabated, including debt and ratings downgrades,
sliding economic growth, and exploding red ink.
It is becoming apparent that many of the countries of Europe have
borrowed so much money from the banks of the other countries in Europe, that almost
none of it can or will ever be paid back -- not with the ever falling economic
growth in these countries, which will worsen as austerity measures are imposed. In other words, even though the buyers of the
bonds of these countries don't yet realize it, the fact is that most of these bonds will never be fully redeemed. In other words they are toxic junk;
the loans will never be repaid, at least not for anything like their nominal and originally stated value.
Most
alarming of all is the enormous amount
of money that the US and UK have
borrowed from banks in various countries around the world. (See the beautifully illustrative graphs at
the link provided both here and below,
courtesy of the BBC. Scroll down to see
them.)
Why is this extreme
and growing US indebtedness particularly alarming? Because buyers for US Treasury bonds are
steadily disappearing, and those who own them, like the Chinese central bank,
are trying to sell what they have.
So who is now
the major buyer of US Treasury bonds? Answer:
The U.S. Federal reserve, which simply
creates the money out of thin air, with computer keystrokes, and uses this "funnymoney'
to buy our nation's bonds. But for how
long can such an Alice-in-wonderland process continue?
Much of the
hope in Europe rests upon carefully crafted bailouts which in turn rest,
precariously, upon assumed rates of
economic recovery and growth in order for loans to be repaid, and everything
related . . to work out. However, without
those assumed and anticipated rates
of growth, such plans will fall apart, and more rescue funds -- or outright
defaults -- are in store for us.
The Specific Situations of Some of Europe's
Basket Cases (Recommendation to the
reader: Except for the "Concluding Paragraphs" at the end of it,
skim this section on first reading)
Ireland is an instructive case
because it entered its difficulties earlier, and it has already received a
bailout, and implemented the austerity measures that were meant to balance the
equation.
Unfortunately,
the plan is now in tatters with the recent revelation that the Irish economy is
slumping more than expected under the twin weights of reduced lending and
imposed austerity. From the Irish Times: "Ireland's debt rating
under threat as economy contracts."
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