The Greek Countdown

Email Print

Recently by Bill Buckler: Is Ron Paul 2012’s Black Swan?


Ever since the US government got its own debt and budget deficit debacle out of the headlines last August, Treasury Secretary Tim Geithner has been telling Europe that it needs more "firepower" to address its own version of the same. The US-based ratings agencies have been unrelenting. On January 13, Standard and Poor’s reduced its list of European AAA rated nations to four, with only Germany retaining its "stable" status at that level. Christine Lagarde, the IMF’s managing director, has been warning of a "1930s moment" if Europe in general and Germany in particular do not come "on board" with more money for the Greek rescue effort. Ms Lagarde does not refer to this as a larger yoke hung on the neck of German taxpayers. She prefers to describe it as a "strong leadership role" from Germany.

The IMF’s "sister organization", the World Bank, has come on board in warning of a potential global financial crisis with the focus squarely on Europe. On February 3, the Organization for Economic Co-operation and Development (OECD) warned that the latest tranche of bailout funds aimed at Greece is not big enough. The pressure is still on for Germany to "do more", for the European Central Bank (ECB) to be allowed to "lend" Euros to the IMF, and of course for the introduction of "Euro bonds" so that Europe can join the US, UK and Japan in papering the whole mess over with their own version of QE.

To understand the urgency in all this, all that is necessary is to compare the methods used in the "1930s moment" of late 2008 and the potential "1930s moment" of today.

Keeping It Off The Books:

When the global credit system froze up in late 2008, it had to be "thawed". There were two alternatives. Either the financial entities all over the world which stood with bank-issued paper and derivatives of all descriptions could sell these for whatever they could get on the markets and attempt to "re-liquify" themselves. Or the paper could be taken into the "safekeeping" of the central banks and the myth of "face value" maintained. The second alternative was, of course, the one chosen. With the exception of Bear Stearns and Lehman, the financial entities concerned did NOT have to face what is called a "haircut".

Read the rest of the article

Bill Buckler [send him mail] is the captain of The Privateer.

Email Print
  • LRC Blog

  • LRC Podcasts