On May 10, 2010, in the early hours of the morning the news came out.
The European Central Bank (ECB) and the International Monetary Fund (IMF) had established a line of credit for more than a trillion euros for countries struggling with debt.
The markets went wild, and the Dow Jones Industrial Average, for example, rose over 4%.
Here at last was the solution for the countries drowning in debt: blast them with a firehose of more debt.
That problem solved, the markets were free to resume their rise to the heavens, Obama was free to turn his attention to the educational merits of video games, and everybody was allowed to forget about the tragedy unfurling in the Gulf of Mexico.
Gold plunged as the hot money poured back into the equities markets.
Just like the good ol' days.
Even while it was happening it lacked conviction.
How could lending more money to countries already swamped with debt help them improve? And of course, as usual, the true beneficiaries of the money, the international banks, were never mentioned.
Eventually people are going to wonder why the banks, who make so much money by making such ill-conceived loans, should never take a bath when the cows come home.
Perhaps those concerns won't reach the media until there are actually riots in more than one country.
Under the smoke and mirrors, and behind the banking bailouts, are some problems that were not solved by the ECB and IMF.
The PIIGS (pronounced "pigs," as they are derogatorily known) Portugal, Italy, Ireland, Greece and Spain are drowning in debt.
On average their sovereign debt level is approximately 100% of their gross domestic product.
The triggering factor for Greece was that a significant quantity of their debts were due to be paid within the next couple of weeks.
Of course it was never a question of Greece paying them off-sovereign debt is never paid off.
Instead, it is "rolled over" into the next issuance of bonds.
In other words, Greece was about to auction more bonds, and it did not look like anyone was going to buy them.
That was going to lead to the catastrophe of sovereign default.
And it would be-it will be-a catastrophe.
This was deferred (and increased) by the addition of more debt.
To this debt was attached the first of a series of demands for "austerity," namely the reduction of government expenditure of all sorts.
One could take a variety of positions on that, but anyone observing the situation would not be surprised to learn that there have been riots already.
And there will be many more if the government actually does what it promised to do.
The bigger problem was that the rest of the PIIGS were going to need the same slop coming up soon.
In order to prevent the problems from arising one after the other for the next six months, the ECB decided to solve it all at once.
More hair of the dog that bit them.
And in order to earn the remedy, all these countries that have for the past ten or more years been living beyond their means are suddenly going to have to adopt austerity too.
As I see it, the chances of that are slim, but if they did adopt austerity, there would almost certainly be large-scale riots.
Because when the pensioners start going hungry and homeless as the austerity programs contemplate, then people start looking at who is getting the money: the world's richest people, that's who.
The beneficiaries of all the austerity to come will be the bankers whose actions primarily led to the problems the countries are facing.
Reduced to a simple economic question, one might ask why the lenders who made bad loans should get all their money back; in a capitalist world, consequences should flow equally to the debtor and creditor.
That is not happening here.
And again, behind all the smoke and mirrors is the hopeful Wizard of Oz, trying to keep attention away from the fact that Great Britain and the United States are in very similar positions to the PIIGS.
When this news starts filtering into the markets, expect more of the precipitous collapses in the market averages such as happened on May 7th, 2010.
The European Central Bank (ECB) and the International Monetary Fund (IMF) had established a line of credit for more than a trillion euros for countries struggling with debt.
The markets went wild, and the Dow Jones Industrial Average, for example, rose over 4%.
Here at last was the solution for the countries drowning in debt: blast them with a firehose of more debt.
That problem solved, the markets were free to resume their rise to the heavens, Obama was free to turn his attention to the educational merits of video games, and everybody was allowed to forget about the tragedy unfurling in the Gulf of Mexico.
Gold plunged as the hot money poured back into the equities markets.
Just like the good ol' days.
Even while it was happening it lacked conviction.
How could lending more money to countries already swamped with debt help them improve? And of course, as usual, the true beneficiaries of the money, the international banks, were never mentioned.
Eventually people are going to wonder why the banks, who make so much money by making such ill-conceived loans, should never take a bath when the cows come home.
Perhaps those concerns won't reach the media until there are actually riots in more than one country.
Under the smoke and mirrors, and behind the banking bailouts, are some problems that were not solved by the ECB and IMF.
The PIIGS (pronounced "pigs," as they are derogatorily known) Portugal, Italy, Ireland, Greece and Spain are drowning in debt.
On average their sovereign debt level is approximately 100% of their gross domestic product.
The triggering factor for Greece was that a significant quantity of their debts were due to be paid within the next couple of weeks.
Of course it was never a question of Greece paying them off-sovereign debt is never paid off.
Instead, it is "rolled over" into the next issuance of bonds.
In other words, Greece was about to auction more bonds, and it did not look like anyone was going to buy them.
That was going to lead to the catastrophe of sovereign default.
And it would be-it will be-a catastrophe.
This was deferred (and increased) by the addition of more debt.
To this debt was attached the first of a series of demands for "austerity," namely the reduction of government expenditure of all sorts.
One could take a variety of positions on that, but anyone observing the situation would not be surprised to learn that there have been riots already.
And there will be many more if the government actually does what it promised to do.
The bigger problem was that the rest of the PIIGS were going to need the same slop coming up soon.
In order to prevent the problems from arising one after the other for the next six months, the ECB decided to solve it all at once.
More hair of the dog that bit them.
And in order to earn the remedy, all these countries that have for the past ten or more years been living beyond their means are suddenly going to have to adopt austerity too.
As I see it, the chances of that are slim, but if they did adopt austerity, there would almost certainly be large-scale riots.
Because when the pensioners start going hungry and homeless as the austerity programs contemplate, then people start looking at who is getting the money: the world's richest people, that's who.
The beneficiaries of all the austerity to come will be the bankers whose actions primarily led to the problems the countries are facing.
Reduced to a simple economic question, one might ask why the lenders who made bad loans should get all their money back; in a capitalist world, consequences should flow equally to the debtor and creditor.
That is not happening here.
And again, behind all the smoke and mirrors is the hopeful Wizard of Oz, trying to keep attention away from the fact that Great Britain and the United States are in very similar positions to the PIIGS.
When this news starts filtering into the markets, expect more of the precipitous collapses in the market averages such as happened on May 7th, 2010.
Source...