Recently by Bill Bonner: The Symbiotic Relationship of Feds and Insiders
Markets closed today. And not much from us either. We’ve got family chores to attend to.
As expected, Europe is falling apart. Yields are rising. France’s debt no longer looks safe. And Germany can’t sell its bonds.
The failure of the German bond auction earlier this week was the latest shock. It tells us that pressure on the ECB is mounting.
It’s one thing when Greece and even Italy can’t finance their debt. Who cares? But it must surely get German bankers’ attention when nobody wants to buy their bonds.
And why should they? Guess how much growth the Eurozone has had over the last 4 years? Zero. Less than zero. The euro economy has shrunk. Not as much as Japan’s 5% decline, but it’s still down.
And guess which bank is safer – a solid German bank such as Deutsche Bank…or one of Wall Street’s finest, J.P. Morgan? Grant’s Interest Rate Observer compares the two and finds the American bank ahead by almost every measure. In terms of leverage – measured by assets-to-equity – Deutsche Bank has more than 3 times as much.
And Germany has almost as much debt, compared to GDP, as the US. Practically all the rest of Europe has even more. No wonder people don’t want to buy their bonds.
So what gives? Our guess is that the ECB – Europe’s answer to the Fed – gives. Here’s the report from The Daily Crux:
The European Central Bank (ECB) must pump liquidity into the 17-member financial system to stop a run on bonds and even slap a ceiling on yields to avoid a breakup of the currency zone, says billionaire financier George Soros.
Soros writes in a Financial Times column that policymakers should use the European Financial Stability Facility – an emergency assistance fund – to help the European Central Bank flood the economy with liquidity, a move that would aim to curb skyrocketing yields on sovereign bonds issued by indebted southern European nations. “The financial markets are testing the ECB and want to find out what it is allowed to do. It is imperative that the ECB should not fail that test.”
Will the ECB fail to inflate? Will its printing presses remain silent…deaf to the cries of so many bankers and rich people? How could it be so hard-hearted? So insensitive?
No, dear reader, the best bet is that the ECB will come to the rescue – whether it is legal or not…whether it is sensible or not – and buy the bonds itself. This is classic “monetization” of debt…because the ECB would have to create the money out of thin air to do so. It’s not authorized to counterfeit money like that, but you know what happens in a crisis. People forget the rules.
Just this… You know how we always take the part of the underdog…we always champion the lost cause…and stand up for the die hard. Well, we’re beginning to feel a responsibility to defend the “1%”…the poor people who, through no fault of their own, got rich!
More on this…when we pick up our labors…on Friday.
Bill Bonner is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and The New Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007). His latest book is Dice Have No Memory. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning.