Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why We Should Help Debt Crisis Europe!

Stock-Markets / Global Debt Crisis Nov 19, 2011 - 12:26 PM GMT

By: Sy_Harding

Stock-Markets Best Financial Markets Analysis ArticleA major component of the big new eurozone rescue plan is to substantially increase the European EFSF contingency bailout fund, from 440 billion euros to 1 trillion euros ($1.4 trillion). The fund would then be a substantial firewall, with the ability to lend money to Italy, Greece and other countries at low interest rates, helping them cover their debts until the austerity measures being imposed bring their debt loads under control.


It was what the U.S. and other countries advised.

In his advice to eurozone officials, U.S. Treasury Secretary Geithner told them they need to leverage their bailout fund significantly, like the U.S. did in providing the large emergency loan facilities that helped rescue the U.S. from the 2008-09 financial crises.

President Obama has been saying, “Europe must create a credible firewall to restore confidence in European debt markets.”

On Friday, U.K. Chancellor George Osborne said, “We need to focus on getting a firewall in place. It’s all very well to say we have a firewall, but the eurozone now needs to show the world that it exists and has sufficient resources in it.”

But it doesn’t.

Officials in Europe had hoped the G20 group of developed nations would contribute to the fund. But at its summit a couple of weeks ago, the G20 discussed the situation but ultimately decided it was Europe’s problem, and put off further discussion of possibly providing financial assistance until next year.

U.S. Treasury Secretary Geithner continues to say, “This is Europe’s challenge, Europe’s crisis.”

Federal Reserve chairman Bernanke says, “We’re kind of innocent bystanders. I don’t have any suggestions other than to continue to push them to act. It’s Europe’s problem, not ours.”

Major emerging markets including Brazil, China and Russia had previously hinted they might help, but seem to have backed away from the thought. The Russian central bank issued a statement on Friday that it “has no plans to invest in the EFSF rescue fund.”

Here’s a simple question.

What would be more costly, a ‘smallish’ global effort now to help turn the promising eurozone rescue fund into a market-calming ‘firewall’, or a massive bailout next year from another global financial crisis and market meltdown as was required in 2008?

Because the two choices right now seem to be either the eurozone manages to rescue itself, increasingly questionable, or the world is once again in danger of falling into an economic and financial abyss.

The same folks who say it’s Europe’s problem, let them solve it, seem to agree those are the only possible outcomes.

Treasury Secretary Geithner said this week that the eurozone debt crisis is the single biggest obstacle to global economic growth and “even when Europe stabilizes you are going to see growth damaged by the magnitude of the crisis so far.”

President Obama says, “In the international economy there’s nothing else that comes close to the significance of the eurozone debt crisis.”

Economists around the world talk of a systemic crisis, and predict a default by Greece or Italy would result in collapse of the eurozone and a severe recession in Europe that would engulf the entire global economy.

The crisis has already cost Americans and the rest of the world far more than they probably realize.

Those costs include that the U.S. economic recovery would be much more robust for everyone if lenders, corporations, small businessmen, investors, consumers and potential home-buyers were not so fearful of the recession and financial meltdown they have been hearing for two years now that the crisis in Europe might cause.

With similar fears, in spite of a three-year bull market since the market low in March, 2009,  investors are not investing, but have instead parked their money in U.S. and German bonds, hoping it will at least be safe there, even though U.S. bond yields are at record lows, and German bunds are at even more pathetic yields of less than 1%. Without those fears the stock market and 401k plans would be much healthier along with the economy.

Meanwhile those who are trying to invest are being brutalized by the market volatility and whipsawing that follows each twitch in the news reports from Europe.

The U.S. and global central banks spent many $trillions bailing their economies out of the last recession and financial meltdown. The price tag to only ‘help’ Europe in its efforts to increase the size of its EFSF bailout fund to ‘firewall’ proportions now, would be much less than it might be down the road, and a ton less than having to rescue ourselves from another Great Recession.

Because, as Timothy Geithner has also said “These things have a dynamic that the longer you wait the harder they are to solve, and the more expensive they are to solve.”

I realize it would sure be unpopular. Bailing out our own banks in 2008 to prevent a plunge into a Depression was unpopular enough. Let them go under was the prevailing wisdom. They deserve it and if the price we have to pay is putting the next generation into a Great Depression so be it. You can imagine how unpopular it would be to add even minimally to our debt problems in order to help rescue Europe, even if in the process we saved ourselves from a repeat of 2008.

 But it is something governments around the globe should probably be thinking about.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2011 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

mfp
19 Nov 11, 12:47
Debt must be deflated!

The only people "deflation" hurts are the big banking cartels and those profiting from it. Deflation LOWERS PRICES of everything from food to real estate (so now young married couples can actually afford a house instead of paying upwards of $500,000 for a starter home).

As long as the financial system is rigged by the fractional reserve fiat "money out of thin air" repayable by more DEBT + Interest (also DEBT) we will never get out of this mess.

Europe needs $3-4 Trillion! In 25 yrs it will be in the QUADRILLIONS....what comes next? Centillion? Dectillion?

There isn't enough money & resources on the planet to pay back the debt. Let the money lenders and fraud bankers system implode & let the people start over with SOUND MONEY!


Jerry
19 Nov 11, 18:31
Why We Should Help Debt Crisis Europe!

From your vantage point, we are coming/came out of it. From the millions unemployed and we in the Middle Class stuck with the bill for the banks, it doesn't look the same. Let's try a different appoach.....how about like Sweden...why be a FOOL repeating something that didn't work the first time.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in