Thursday, May 13, 2010

European bailout: “…this is potentially the greatest inflationary plan ever designed.” [update 2]

The Economic Policy Journal sees only “trillion dollar madness” in the European plan “to offer as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank [plan to] will buy government and private debt.”

    “There is nothing more to be said other than this is potentially the greatest inflationary plan ever designed. Although statements have been made in the past on which the EU has failed to follow through, the statements issued last night appear to have a sense of seriousness about them, especially the ECB announcement to buy government and private debt, and the Federal Reserve launching of currency swaps.
    “Both these actions suggest spectacular inflation may not be far away.
    “Although the ECB statement says the purchases will be sterilized, meaning they won’t increase the overall money supply in the  system, one wonders how long this will go on. A sterilization of the money printing would mean that money would be drained out of other sectors of the EU economy to be given to the governments of the PIIGS, who are proven irresponsibles with money.
    “Draining from the potentially productive sectors of the EU economy to give to the PIIGS is almost as insane as printing the money without sterilization.
    “That no objection to this madness has come from any finance minister or central banker signals how far down the road we are from any real concern about inflation or the taking away from the productive sectors of the economy.” 

This is what you get with welfare state economics: the bleeding of the productive in favour of the unproductive, while bystanders and bankrupts applaud.

You might call it broken window meets moral hazard.

Or institutionalised parasitism.

Has everyone forgotten that parasitism can only continue until the host dies?

UPDATE 1: More from the Economic Policy Journal on the “currency swaps,” and what it all actually means:

    “It appears, though, that for all practical purposes, the Fed has agreed to bailout the world. Essentially, foreign central banks will print up any amount of money they want  in their currency and the Fed will print up an equal amount of dollars that they will then loan to the foreign central banks (against the foreign banks newly printed money)who will then  loan the funds to the banksters  who will  use as collateral the securities of the PIIGs, to gain the dollars.”

UPDATE 2: “The Federal Reserve's involvement warrants a closer examination," says international asset manager Ganesh Rathnam.

    “The Fed has indicated that it would participate in dollar-swap agreements with the ECB, similar to one it undertook in 2008. Without an audit of the Fed, we can only speculate as to what exactly this swap entails. However, a reasonable guess is an exchange of freshly printed euros by the ECB for freshly printed US dollars by the Fed at the current exchange rates.
    “The Fed would then use the euros to either directly or indirectly purchase the debt of the eurozone nations. The ECB in turn would use the dollars to purchase US Treasury debt. Therefore, this is just a convoluted scheme to monetize government debt. It's a cinch that the funds necessary for this bailout would be created out of thin air rather than raised via taxes or issuing debt. Only in the world of central banking and thin-air money creation can one bankrupt entity bail out another.”

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