T Nation

On the Road to HyperInfltion


#1

BRUSSELS (AP) â?? The European Union and the International Monetary Fund pledged nearly $1 trillion Monday to defend the embattled euro, hoping to repel relentless speculative attacks on the weakest of Europe's debt-laden nations and prevent the common currency from disintegrating.

Central banks around the world joined the coordinated effort to prop up the euro and prevent Europe's debt crisis from derailing the global economic recovery. The U.S. Federal Reserve reopened a currency "swap" program to ship billions of U.S. dollars overseas in a bid to pump more short-term cash into the financial system and ensure banks have the dollars they need. Separately, the ECB jumped into the bond market, saying it is ready to buy debt from the eurozone â?? EU nations that use the euro â?? to shore up liquidity in "dysfunctional" markets.

Many investors, rattled for weeks by the prospect Greece would default on its mountain of debt, heaved with relief. The euro climbed as high as $1.2967, up from the 14-month low of $1.2523 it hit late last week. Japan's Nikkei 225 stock average rose 1.5 percent and Hong Kong's Hang Seng index added 1.3 percent. Futures suggested Wall Street would welcome the euro defense. Dow futures jumped 246 points, or 2.4 percent, to 10,581 and S&P and Nasdaq futures were both up more than 2.7 percent.

There was cautious endorsement from analysts who still feared the measures may not be enough to save the common currency, which was adopted by many of the EU's member states in 1999.

"It buys time. We don't know if it will be enough. They're trying to give the impression that they're still united. They've bought some breathing space but that's all," said Song Seng Wun, an economist with CIMB-GK Research in Singapore. "This perhaps just postpones the inevitable, the euro may have to ultimately give way, that's the worst case scenario."

Under the three-year plan, the European Commission â?? the EU's governing body â?? will make euros60 billion ($75 billion) available while countries from the 16-nation eurozone would promise backing for euros440 billion ($570 billion). The IMF would contribute an additional sum of at least half of the EU's total contribution, or euros250 billion.

"We shall defend the euro whatever it takes," EU Commissioner Olli Rehn said after an 11 hour-meeting of EU finance ministers that capped a hectic week of chaotic sparring between panicked governments and aggressive markets.

Officials hope the massive sums will deter currency speculators from betting on a euro collapse after political posturing and soothing words failed to convince investors that Greece's financial implosion could be contained.

Markets had battered the euro and Greek government bonds even as EU leaders insisted for days that Greece's problems were a unique combination of bad management, free spending and statistical cheating that doesn't apply to other euro-zone nations.

Market jitters also partly contributed to a nearly 1,000-point drop in the Dow Jones industrials last Thursday. The Securities and Exchange Commission is meeting with heads of exchanges Monday to discuss how conflicting trading rules may have exacerbated the historic stock market plunge.

In the end, even longtime skeptic Germany realized Europe had to show the money after financial attacks on Greece's debt seemed poised to spread to other weak European nations such as Portugal and Spain. Fear of default led to investors demanding high interest rates that Greece could not pay, forcing it to seek a bailout. Many feared market skepticism would make Portugal and Spain pay more and more to borrow, worsening their plight.

"We now see herd behaviors in the markets that are really pack behaviors, wolf pack behaviors," Swedish Finance Minister Anders Borg said Sunday. If unchecked, "they will tear the weaker countries apart. So it is very important that we now make progress."

Spain and Portugal have committed to "take significant additional consolidation measures in 2010 and 2011," a statement from EU finance ministers said. The two countries will present them to EU finance ministers at their meeting on May 18.

"We are facing such exceptional circumstances today and the mechanism will stay in place as long as needed to safeguard financial stability," the ministers said.

Some eurozone nations, meanwhile, blamed financially weak nations and a lack of European cooperation for the crisis.

"I'm against putting all the blame on speculation," said Austrian Finance Minister Josef Proell. "Speculation is only successful against countries that have mismanaged their finances for years."

Separately, eurozone leaders on Saturday gave final approval for a euros80 billion ($100 billion) rescue package of loans to Greece for the next three years to stave off default. The International Monetary Fund also approved its part of the rescue package â?? euros30 billion ($40 billion) of loans â?? in Washington Sunday.

The Fed's move to back the euro defense plan reopens a program put in place during the 2008 global financial crisis under which dollars are shipped overseas through foreign central banks. In turn, these central banks can lend the dollars out to banks in their home countries that are in need of dollar funding. Swap agreements generally allow one central bank to borrow a currency from another, offering an equivalent amount of its own as collateral.

The Fed said action is being taken "in response to the reemergence of strains in U.S. dollar short-term funding markets in Europe" and to "prevent the spread of strains to other markets and financial centers." A so-called "swap" line with the Bank of Canada provides up to $30 billion. Figures weren't provided for the other central banks involved. They include the Bank of England, the European Central Bank, the Swiss National Bank, and the Bank of Japan.


#2

Long before then, people will simply stop using government paper. We'll return to barter which means we'll all be dirt stinking poor. Without money as a store of value, civilisation basically ends.

In 200 AD, southern Europe had 19 million people. By 800 AD it was 10 million. Rome destroyed their currency as we are doing. The people literally starved and died.

Let's hear it for the Libs!


#3

And how exactly does giving more debt potential to a sovereign state with a debt problem actually solve the original debt problem? It's like giving a shopaholic with maxed out credit cards another credit card to use. Are we not just compounding the issue?


#4

Yes, and not only that but who is giving a bunch of money to this? We the people of the United States. And where did we get this money you ask, well we either are printing it or borrowing it(so when they can't pay we get stuck with the bill).


#5

Yes with lack of fiat paper we'll have to change, but we already have a commodity that we can use as money, gold and silver.


#6

#7

only one problem, how many people actually own gold and silver? not very many. Instead, I am learning how to raise animals to eat and grow my own food.


#8

The ones that do will have to pay for something.


#9

And so it began, as deflation slowly moved in on the deluded masses, as they all looked in another direction.


#10

All the deflation that was going to happen has happened. Food prices are going through the roof now.


#11

Are they really?

Haven't noticed it yet. Everyone on the right has been screaming INFLATION for the last two years now. Still hasn't happened. The dollar is stronger against the Euro than it has been for awhile. China is the lone voice now for ending the dollar's standing as the world reserve currency. Sounds like all those ITM Trading infomercials have gotten to you :wink:

I'd love to see a return to a gold standard, and the elimination of the fed as much as you, as I think it brings long-term stability...


#12

Ummmm....if you are talking about real inflation then yes! it is still going strong because the Fed has not stopped papering over debt -- they are going to bail out Greece!!!

If you are talking about price increases -- which is not really inflation -- then just wait. It takes a while for prices in all sectors to increase. They start in the most heavily subsidized sectors because that is where spending is most rampant. Right now it is going to the financial sector but a lot of the investors are not being fooled.

A depression in the financial industry would be a boon to the entire world economy.