Here’s an idea for everyone who is struggling with massive budget deficits, strangling debt and insolvency: solve your problems with a fresh phase of “unlimited” spending!
This is precisely what the ECB (headed by ex-Goldman Sachs alumni) is recommending this morning in proposing that the European Central Bank embark on a program of “unlimited” bond buying in order to soak up the endless sovereign debts being issued by prolapsed nations. Sound like a good plan? Everyone who thinks so can start by tossing all of their savings and income into the bail out bucket proposed to fund this insatiable capital outflow. The bucket has no bottom so deposits will never be enough, but central bankers don’t think that should bother anyone. Germany and everyone else with savings–get out your cheque book. Except bankers of course, you guys get to keep all of your proceeds of crime. In fact this next phase of madness is sure to supply you with a nice steady flow of income for a while longer still, issuing and trading all the trillions of dollars of Ponzi paper.
Hyperbole language like “unlimted” aside, the proposal to buy sovereign bonds in the secondary market is not a new plan, it has already been tried repeatedly by other central banks including the ECB last summer when they stepped in to try and “save” Italy. We already know how these plans go. The banks receive more excess reserves which they then use to buy up sovereign bonds which initially rise as a result of the buying, before plunging in value to more capital losses for banks who then need more capital injections to prop up balance sheets. And round and round we go. In the meantime the algo trading systems go nuts ramping up risk markets on the most vapid volume ever recorded. Setting up nicely for the next big collapse in prices once the reality of the incoming global recession dawns once more.
The Dutch and Austrians have already said they are not willing to fund more capital flows to Greece. And if the Germans agree to back this plan, they are not the financial conservatives the world has given them credit (literally) for. This morning German’s Spiegel is calling for a German Referendum on the European Union, see: Its time to ask the people what they think.
“The Germany democratic system has suffered as a result of the euro crisis, but it has also made fighting the crisis harder. Now it’s time to hold a referendum on European integration. Only then will Berlin have the democratic legitimacy it needs to take effective action.”