I agree with most of what the Former CBH Karl Otto PÃ ¶hl had to say in a recent interview with Der Spiegel, especially the part about the Greek bailout really being an insurance policy for the GERMAN banks, not the Greek ones, who are the ultimate bondholders. In effect, the EU is being asked to guarantee the Greek bonds for the (supposedly) strong members of the EU. In reality, none of the members are that strong, and the banks are all basically insolvent. Here's what I think will happen:
1. In the very near term (today), the German Parliament will pass the
1 trillion rescue package.
2. This won't quell the markets, at least not for long, since questions will be rasied - as Pohl raises them here - as to whether Greece can repay such a loan (they can't), and also, which PIIGS is next in line for a bailout.
3. Either the weak sisters will drop out of the EU, OR there will be quantitative easing (i.e. printing of a trillion Euros or so) OR there will be restructuring (read: loan absolution) OR the predatory IMF will plunge Euroland, but especially Greece into a years-long depression with austerity measures contingent on new loans.
I'm actually voting for the second option, especially after the first becomes a more realistic threat. As far as the stock markets go, this
would be a positive, as it has been in the U.S. (for now), as it will inject liquidity (totally unearned, of course) into the markets via the magic of the printing press (or its electronic equivalent - nowadays, central bankers don't even have to spend money on the Mint!). Kind of makes you wonder what could be accomplished if there was money creation aimed at infrastructure, healthcare, education, or any of the myriad needs of society (a la the American Monetary Institute's Proposal to reclaim the sovereign right to print money for the U.S.). However, since the E.U. is only a monetary union, not a political one, I see near zero chance of that happening. Banking is now a global empire, with global demands - infrastructure, education and healthcare are strictly country by country issues, and only the
concerns of mere citizens (and not the powerful ones either).
Dissolution of the EU would be the best thing, not only for
Europe,
but for America. Our currency would strengthen almost to the point
where everything else would become a sideshow, and we could keep
interest rates low for years. Our stock markets would soar to new
records, while Europe, once the dust settles, could get on with
sovereign currencies - weakened collectively, to be sure, but
stronger
individually. Greece would take a 20-30% devaluation immediately,
but in the long run, be stronger, as people flocked to their now-cheap
labor markets (and the rich Greeks would get a much deserved
thrashing
for historically under-paying their taxes). It might - might -
even
bolster the case for State Banking. Why? Because if the
individual
countries of Europe function better with their own central banks,
than
why wouldn't the individual American states?
Unfortunately, this
lesson might be lost in the face of the soaring DOW here at home.
That would be a shame, because we still wouldn't have gotten any
closer to providing those things I listed above, or energy
independence. for that matter. In fact, a newly strengthened dollar would make that
even harder, and make the Fed stronger.
Before dissolution comes, I predict the EU will try
quantitative
easing - especially as it seemed to work so well here in the U.S. -
and bankers love this solution as it gives them money for nothing,
to
create still more debt and bonuses in fresh new money. The people will suffer, as they always do, through under-reported inflation
(Nouriel Roubini is actually warning of deflation now - has he not
shopped for food, filled his car with gas (still twice what it was
earlier this decade), sent a child to college, bought healthcare,
or
bought anything that wasn't electronic?). Poor is the new Rich,
you
see - at least if you are a banker. And insolvency is to be rewarded the most.
Plan Is All About 'Rescuing Banks and Rich Greeks'
The 750 billion euro package the European Union passed
last week to prop up the common currency has been heavily criticized in Germany.
Former Bundesbank head Karl Otto PÃ ¶hl told SPIEGEL that Greece may
ultimately have to opt out, and that the foundation of the euro has been
fundamentally weakened.
*SPIEGEL:* Mr PÃ ¶hl, are you still investing in the euro
-- or has the
European common currency become too unstable of late?
*PÃ ¶hl:* I still have money in euros, but the question
is justified. There is
still danger that the euro will become a weak currency.
*SPIEGEL:* The exchange rate with the dollar is still
close to $1.25. What's the problem?
*PÃ ¶hl:* The foundation of the euro has fundamentally
changed as a result of the decision by euro-zone governments to transform themselves
into a transfer union. That is a violation of every rule. In the
treaties governing the functioning of the European Union, it explicitly states
that no country is liable for the debts of any other. But what we are doing
right now, is exactly that. Added to this is the fact that, against all its
vows, and against an explicit ban within its own constitution, the
European Central Bank (ECB) has become involved in financing states. Obviously,
all of that will have an impact.
*SPIEGEL:* What do you think will happen?
*PÃ ¶hl:* The euro has already sunk in value against a
whole list of other currencies. This trend could continue, because what we have
basically done is guarantee a long line of weaker currencies that never
should have been allowed to become part of the euro.
*SPIEGEL: *The German government has said that there
was no alternative to the rescue package for Greece, nor to that for other
debt-laden countries.
*PÃ ¶hl:* I don't believe that. Of course there were
alternatives. For
instance, never having allowed Greece to become part of the
euro zone in the first place.
*SPIEGEL:* That may be true. But that was a mistake
made years ago.
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