Trillion Dollar Madness

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European policy
makers have unveiled an unprecedented loan package worth almost
$1 trillion and a program of bond purchases to stop the sovereign-debt
crisis. The Federal Reserve will
also play a role
through currency swaps.

The 16 euro
nations agreed in a statement to offer as much as 750 billion euros
($962 billion), including International Monetary Fund backing, to
countries facing instability and the European Central Bank said
it will buy government and private debt.

There is nothing
more to be said other than this is potentially the greatest inflationary
plan ever designed. Although statements have been made in the past
that the EU has failed to follow through on, the statements issued
last night appear to have a sense of seriousness about them, especially
the ECB announcement to buy government and private debt, and the
Federal Reserve launching of currency swaps. Both these actions
suggest spectacular inflation may not be far away.

Although the
ECB statement says the purchases will be sterilized, meaning they
won’t increase the overall money supply in the system, one
wonders how long this will go on. A sterilization of the money printing
would mean that money would be drained out of other sectors of the
EU economy to be given to the governments of the PIIGS, who are
proven irresponsibles with money. Draining from the potentially
productive sectors of the EU economy to give to the PIIGS is almost
as insane as printing the money without sterilization.

That no objection
to this madness has come from any finance minister or central banker
signals how far down the road we are from any real concern about
inflation or the taking away from the productive sectors of the
economy. Indeed some of the the statements coming out of the emergency
meeting of EU finance ministers are simply absurd.

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11, 2010

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