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Wednesday, May 12, 2010

The World’s Big, Fat, Greek Bailout

…will soon become a Greek tragedy. Currently, the very short sighted markets are celebrating. Markets around the world have rebounded ever so nicely, as once again irresponsibility has been bailed out. The world’s largest banks need not worry. It is of no concern that the big banks of France and Germany were over exposed to PIIGS (Portugal, Ireland, Italy, Greece and Spain) debt. They can continue to loan money, and politicians can continue to promise all things to all people to keep them nice and dependent. However, these celebrations and fantasy living will soon come to an end since this move has only added fuel to the impending storm.

The European Union and the International Monetary Fund have coughed up some cash to the tune of $1 trillion, and the Federal Reserve has found yet another way to monetize its debt. Just as it did in 2008, the Fed will swap Euros for dollars. The Fed will then use the Euros to purchase the debt of “Eurozone” nations. This will simply be a contest between the European Central Bank’s printing press and the Federal Reserve’s. In addition, the same excuse that was used to bail out Fannie Mae and Freddie Mac is being used to make a case for the current situation. The bailout will ease market volatility and assure that large banks remain solvent. Take no notice of the fact that Fannie and Freddie are now asking for billions more, as they have disclosed horrendous first quarter losses. However, no one is concerned with those pesky little details.

One may ask what Greece and other European nations are doing to get a handle on the situation. Greece seems to think that raising taxes is the answer. Apparently, Greece seeks to expand its underground market that vacuums almost 30 percent of eligible tax dollars. The old saying “blood cannot be squeezed out of a turnip” applies here. Never in history have tax hikes added life to a stagnant economy, but what would we expect from a country that hasn’t yet figured out that socialism doesn’t work?

This measure is a devastating blow to free markets and sound fiat currencies. What is going to happen when the $1 trillion given to the Eurozone is swallowed up in less than a year? How many more billions should Fannie Mae and Freddie Mac receive? What’s going to happen to individual states such as California, New York and Illinois as they begin to default? How much longer can Asia prop up Europe and the United States? China has a bubble on the brink of bursting, as they have learned to live off the cheap credit hog. Japan also has a debt problem along with an aging population and a healthcare crisis that lies ahead.

Americans won’t stand for bailouts around the world, as no one is going to let go of their entitlements. People who are concerned about the values of their 401ks and taxpayer dollars going overseas are blind to the bigger picture. All of Asia has been financing the United States’ reckless monetary policy for quite some time. The printing presses will never run out of gas; but the currency will be worthless, as the world will see an inflationary storm that it has never seen before. Investments and entitlements aren’t worth anything if the currency in which it is valued is worthless. Am I suggesting people flee equities and bonds completely to hoard gold? No, although I believe gold has not yet peaked out. However, the world had better wake up to the fact that the battle of the printing presses, expanding entitlements and bailing out irresponsibility cannot continue. Either we go down the horrendous inflationary road and continue with statist governments calling the shots at the expense of people’s freedom; or people realize that we need to endure a severe global recession, and let government return to its proper role. The former is certainly worse than the latter. In either instance, recession and inflation is unavoidable; however the sooner we take our medicine, the better off the long-term picture will be.

2 comments:

commoncents said...

Thank You for posting this! I really like your blog!!

Common Cents
http://www.commoncts.blogspot.com

ps. Link Exchange??

Michelle S said...

Thank you for reading!

I'd be happy to do a link exchange. I'll run it by Jordan.