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Financial Debt Cancer Spreading In Europe
By Joel Skousen
Editor - World Affairs Brief 
Begin Excerpt
After months of trying numerous public relations gimmicks to calm market fears of a debt collapse in Greece, (downplaying the magnitude, giving assurances of EU backing, and making token reforms, etc), nothing has worked. Instead justifiable fears are spreading to Portugal and Spain. Either the monetary union will begin to unravel or a bailout will be initiated--which is technically not legal within current EU treaty law. Speculation is high that despite the legal prohibitions the IMF and the European Central Bank (backed by some sleight-of-hand-lending by the US Federal Reserve) will engineer a bailout. The global Powers That Be (PTB) will never tolerate the disintegration of the EU monetary union, a major stepping stone in the New World Order.
As the Wall Street Journal commented, "Europe's hopes of containing Greece's credit crisis dimmed as the country's debt woes spread to Portugal, sparking a selloff in markets across the globe and testing the European Union's ability to protect its common currency. The euro tumbled to its lowest point in a year against the dollar after Standard & Poor's Ratings Services cut Portugal's credit rating two notches and downgraded Greece's debt to 'junk' territory, a first for a euro-zone member. The move is bound to worsen Greece's already dire fiscal situation and hamper a recovery. The news sent the bond yields in both countries soaring, a sign of distress." MarketWatch.com added that "It was Spain's turn Wednesday to feel the heat from Standard & Poor's as the ratings agency cut the country's credit rating from AA+ to AA, pinning the decision on fears that an extended period of weak economic growth could damage the government's budget position."
Ambrose Evans-Pritchard, International Business Editor of the UK Telegraph broached what everyone sees as inevitable. "The European Central Bank may soon have to invoke emergency powers [all governments claim them, even if not specifically authorized in founding agreements] to prevent the disintegration of southern European bond markets, with ominous signs of investor flight from Spain and Italy... 'We have gone past the point of no return,' said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland. 'There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day. 'The ECB has been side-lined in the Greek crisis so far but do you allow a bond crash in your region if you are the lender-of-last resort? They may have to act as contagion spreads to larger countries such as Italy. We started to see the first glimpse of that today.' Mr Cailloux said the ECB should resort to its 'nuclear option' of intervening directly in the markets to purchase government bonds.
"This is prohibited in normal times under the EU Treaties but the bank can buy a wide range of assets under its 'structural operations' mandate in times of systemic crisis, theoretically in unlimited quantities. Mr Cailloux added: 'This feels like the banking crisis in late 2008 post-Lehman, though it has not yet spread to other asset classes. The ECB will have to act if it does.'"
Tyler Durden of Zerohedge.com is disgusted by the various maneuvers by central bankers and the IMF commitment of $100M to the Greek bailout--knowing that it is leading to the inevitable financial meltdown that all fiat currencies experience sooner or later. "Where does it end? 100 billion? 1 trillion? 1 quadrillion? And yes America, this is your money, going to bail out Greece... Then Portugal... Then Ukraine....Then Dubai....Then Italy....Then Spain....Then Hungary....Then the Baltics...Then the UK....Then Japan... and by the time we have to bail ourselves out, there will be nothing left, except the Turbo Bernanke 3000... with an empty ink cartridge and empty paper cart, while gold oz will be worth one quadrillion Benjamins (or is that Bernankes).
"In the meantime, as Erik Nielsen, who finally woke up, predicted, the final bailout cost of Greece alone will be ¤150 billion. So the IMF will do rookie mistake 101 and keep raising the bailout requirement incrementally, even as the depositor runs on Greek banks and the ongoing strikes and riots, destroy the country. [Quoting the Financial Times], 'The International Monetary Fund is looking at raising its share of Greece's financial rescue package by ¤10bn ($13.2bn) amid fears that the planned ¤45bn bail-out will fail to prevent the country's debt crisis from spiraling out of control. Stock markets on both sides of the Atlantic fell on Tuesday, with leading European indices suffering their heaviest falls of the year.'"
Even the International Monetary Fund is skeptical about claimed growth in the G20 countries, all eager to put a positive face on current economic woes. According to Reuters, "The world's major economies all seem to think their growth prospects are brightening. Some of them are bound to be disappointed. The International Monetary Fund cautioned the Group of 20 against overconfidence this weekend after reviewing countries' forecasts for the next three to five years to see whether proposed policies would produce a stable mix of growth in rich and emerging economies. 'When we put the figures together, they're rather consistent, but they're rather optimistic,' IMF Managing Director Dominique Strauss-Kahn said on Saturday. 'And in our view, they may be a little too optimistic.' High unemployment and even higher government debt, the consequence of the deep recession and $5 trillion rescue, will drag on demand in most advanced economies, and they are all looking to growth abroad to take up the slack."
But obviously everyone can't grow equally if all economies are dependent upon foreign sales. "Everybody expects to grow and many of them expect to grow through exports. Not everyone can. Ending the boom-and-bust cycles that have plagued the world economy for the past 20 years will require some politically unpopular changes in advanced economies. The United States must curb its debt-powered spending, which will slow economic growth. Europe must tackle labor market reforms that won't go down well with unions. By expecting the rest of the world to drive demand, countries may be putting off these tough changes, Rajan said. Output in advanced countries is now 7 percent below its pre-crisis trend, and the gap is expected to remain large for years, current IMF chief economist Olivier Blanchard said. China, Brazil and India are growing fast and will gobble up a growing share of world production -- the IMF thinks emerging markets will grow 6.3 percent this year, nearly three times as fast as the advanced economies -- but their demand still won't be enough to fill that large gap."
As my readers may surmise, it's not just spreading to Europe. Japan has been struggling for years with debt excesses and it's time to pay the piper. Ambrose Evans-Pritchard reports that "Fitch Ratings has warned that Japan's sovereign debt is rising to ominously high levels as the workforce shrinks and deflation grinds deeper, while the government's reserve assets may prove unusable for defense in a funding crisis. 'The lack of a coherent and credible plan' for fiscal discipline is likely to put 'downwards pressure on creditworthiness in the medium term.'"
I think the best analysis this week came from Michael Pento, of Delta Global Advisors, Inc. "A viable 'V' shaped recovery in the economy and markets has now become the accepted view. My view, however, is that the economic recovery will be ephemeral in nature, whereas the real and lasting recovery will be unfortunately found in the rate of inflation. While nearly everyone on Wall Street remains unconcerned about inflation, the cornerstone for increasing prices has already been laid and the foundation is nearing completion. The zero percent interest rates, which have already been in effect for too long, will have a similar effect--think housing and credit bubble--that a 1% Fed Funds rate did in from June 2003 thru June 2004.
"Just for the record, the target rate for Fed Funds has been one percent or less since October of 2008. In case you are wondering what bubble the Fed is busy blowing this time around you don't have to look any further than the U.S. bond market. A hat tip must go to Keith McCullough CEO of Hedgeye Risk Management for realizing that inflation has made a salient comeback, much like the economy has. While the S&P has inflated up 80% from the March 2009 low, inflation indicators across the board have also gone into overdrive.
"Last week's release of the Producer Price Index should have sent shivers through the spines of those who worry about silly things like profit margins. Prices for finished goods shot up .7% month over month, while surging 6% YOY [Year over Year]. Intermediate goods surged 7.7% YOY. Crude goods soared 3.2% since March and jumped 33.4% YOY! The Consumer Price Index is up 2.4% YOY [the actual rate is always 1.5 times the CPI, which is manipulated downward through a variety of accounting tricks]. Intractable inflation that is not, but it's still a far cry from the 2% drop in CPI of last summer and in no way can be considered deflationary."
End Excerpt
Copyright Joel Skousen
Partial quotations with attribution permitted.
Cite source as Joel Skousen's World Affairs Brief  http://www.worldaffairsbrief.com
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