Friday, December 02, 2011

Much Ado About Not Much

EuroThe World from Berlin: 'Central Banks' Coordinated�Move Has Solved Nothing' - SPIEGEL ONLINE
Global stock markets on Wednesday were euphoric after the major central banks around the world made it easier for banks to access dollars. But the euro-zone debt crisis rages on nonetheless. At the most, say German commentators, Wednesday's move merely buys some time -- but not much
The bankers are determined to save the Euro, because the Eurozone is shaping up to be dictatorship of the bankers. So the Fed dumped billions of US dollars on the European banks. Because what's his name believes he is saving the us from the Great Depression 2.0.

First of all, the situation is grave. Even worse apparently than the bankers want to admit.
The Financial Times Deutschland writes:

"While it is important that the central banks ensure that financial institutions have access to money, the massive intervention is a shrill warning signal. The banking system, it would seem, was close to collapse. Many banks no longer trusted each other and ceased lending to one another. European institutions, in particular, were having a hard time getting access to enough dollars because US money market funds, for example, have become mistrustful. The danger that some European banks would become illiquid or insolvent was apparently greater than many thought."
But as Die Welt points out, this is like giving a fix to a drug addict. Detox isn't pleasant, but probably indicated anyway.
The fact is that the world economy is on drugs -- and they're called credit. The debt burden on states and banks has piled so high that a difficult detox with unpredictable consequences can only be hindered with even more money.

It's clear that politicians will look to the central banks more and more because the glut of money doesn't need approval from any parliament. And the consequences will only be clear years from now, namely, in the form of increasingly swift inflation. This way, just like drug addicts, we're only buying more time. And without the essential therapy, we're only making the withdrawal and later recovery more difficult.
They can pump money into the banks because central banks create money, but eventually they create inflation.

It's funny really. Central banks are supposed to control inflation. But they seem to create an awful lot of it. Currency. Fiat currency has failed in the past. Brazil had an inflation rate of better than 1000% for several years and one year it stretched all the way to 30,000% or more. Germany had people carrying bank-notes around in wheelbarrows. People would dump the bank notes, and steel the wheelbarrow.

Is it happening again? The price of gold is getting awfully high relative to the dollar. Another bubble or the canary in the mine?

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