Monday, December 12, 2011

Did Europe Solve The Debt Crisis Threatening To Crash The Global Economy?

On Friday, it seemed so as the Dow Jones Industrial Average skyrocketed 186.56 points. But its sharp rise won't last for long, for what was far more important is the government bond markets barely responded. These bond markets fund the staggering and rapidly mounting debts of these European nations.

Most bond investors are already frightened of all of Europe, including Germany, which is very strong financially but heavily exposed to the huge losses of its European neighbors, which are pleading for money and importing German made goods. Meanwhile, Portugal, Ireland, Italy, Greece and Spain are paying very high rates for whatever money they can raise. Despite all the supposed good news, last week the only thing Europe's leaders committed to was a financial penalty system for nations whose deficits are too big and a rule that all nations must pass balanced budget laws to go into effect in the future. But if nations are penalized for having their deficits too big, how will they pay the penalties? With more deficit spending? As for balanced budget laws, when? What enforcement?

What Europe really wants is for the European Central Bank (ECB) to bail them out. But with what? The ECB is them. To gain massively more bailout resources would require the ECB to print Euros, which will only inflate the currency and crash their economies. But in any case, to take major action requires all 27 EU members to agree, a near impossibility. In the meantime, desperately cash strapped nations will try to borrow money in a market growing more fearful and charging them ever higher rates. At the same time, those nations are confronted by downgrades from rating agencies determined not to miss the pending collapse as they did 3 years ago, that led to all the bailouts.

For 2 1/2 years, we've received European assurances that their financial problems are behind them and each time stock markets skyrocket and then plummet when those financial problems grow even worse. And what effects Europe will soon impact all of us, for our finances and economies are all inter-connected. If you haven't already done so, please prepare yourself for tougher times to come by cross-training to make yourself more valuable at work and by selling costly assets you no longer need such as an extra car, motorcycle or boat. Pay down your credit card balances for the interest charges alone can eat you alive. You will be thankful you took these protective steps. And please rest assured that as happened in the Great Depression, we will unite to help one another.

What is the real problem? It is as Gordon Gekko said in "Wall Street: Money Never Sleeps" (2010), the severe financial troubles confronting the world are "systemic, malignant and global." And thanks to the gargantuan greed that overran the world in recent years, there is no painless way out of this mess.

Dick
To learn more, please see "Questions Plague EU Pact," The Wall Street Journal http://online.wsj.com/article/SB10001424052970203413304577087562993283958.html

2 comments:

beachfnt said...

It is clear that no politician around the world (perhaps with the exception of Ron Paul) would suggest accepting the consequences right now. Also at some point the citizens of these many nations (including ours) will vote against austerity measures while still borrowing to save the banks from their own demise.

Right or wrong, it looks like the path of lease resistance (at least up front) is inflating the currencies around the world. This will actually be extremely painful in the end since everything promised in paper will now be virtually gone.

Hard assets will rule the day...

OUCH!!!

Dick Kazan said...

As my son Kyle (beachfnt) said, no politician with the exception of Ron Paul will confront these vsst economic issues. And Republican presidential candidate Paul is being marginalized by the Republicans in favor of conventional candidates not prepared to address and act on these serious issues.

Yet the global economic system is crumbling