August 27, 2012
By gpc1981
‘For several months now, I’ve been stating that the world’s
central banks are in a bind. That bind is that their monetary policies are
becoming less and less effective at placating the markets while the
consequences of said policies (higher costs of living, the targeting of
troubled banks in the credit market, etc.) are increasing.
As a result of this, central banks have begun resorting to more
and more “verbal intervention” or promises to “act” without ever acting.
We received confirmation of this over the weekend when Angela
Merkel chastised Germany Bundesbank Head Jens Weidmann for stating that an ECB
policy of buying bond was like a dangerous drug.
Angela Merkel tried to calm a growing storm over euro zone
crisis strategy on Sunday after the Bundesbank likened ECB bond-buying plans to
a dangerous drug and a conservative ally of the German leader said Greece
should leave the currency bloc by next year.
The comments, from central bank chief Jens Weidmann and a senior
figure in the Bavarian Christian Social Union (CSU), Alexander Dobrindt, point
to mounting unease in Germany with the policies being used to combat the
three-year old debt crisis.
Domestic criticism has narrowed Merkel’s room for maneuver at a
time when Greece is in dire need of more aid and policymakers are scrambling to
prevent contagion from enveloping big countries like Spain and Italy.
Two days after Greek Prime Minister Antonis Samaras visited Berlin
and made an impassioned plea for politicians there not to talk up the
possibility of a Greek euro exit, Merkel herself sent a warning to allies who
have said the euro zone would be better off without its weakest link.
“We are in a very decisive phase in combating the euro debt
crisis,” Merkel told public broadcaster ARD in an interview. “My plea is that
everyone weigh their words very carefully.”
http://www.reuters.com/article/2012/08/26/us-eurozone-idUSBRE87P0AI20120826
For over two years now, we’ve been hearing time and again that the
European crisis was “solved” and that things would improve. It’s obvious now
that all of those claims were lies. Indeed, we’re now at the point that
politicians are openly asking central bankers not to discredit
attempts to prop up the markets.
Let me ask you, how desperate do things have to be that a
politician asks a central banker not to use certain words during
public appearances?
The answer: very, very desperate.
Indeed, the situation in Europe is fast approaching a crescendo.
The German Constitutional Court votes on whether the ESM bailout fund is
even legal on September 12. If it doesn’t, it’s the end of the EU as we know
it.
Could this happen? The majority of Germans are fed up with Greece,
worried about inflation, and want the Deutsche Mark back. Also bear in mind
that Angela Merkel is up for re-election next year. So the courts could
in fact rule the ESM is unconstitutional which would end the EU right then and
there.
But, for the sake of argument, let’s say that Germany does
ratify the ESM and the ESM is given a banking license (which Germany
says will never ever happen). Even then Spain and Italy are supposed to fund
30% of it!
So even in a best case scenario, the bankrupt nations asking
for bailouts are going to fund 30% of the very bailout fund that will bail them
out!?!?
You couldn’t make this stuff up if you tried.
Make no mistake, the crisis in Europe is far from over. If
anything, we’re fast approaching the REAL storm over there: when countries
actually start defaulting and leaving the Euro.
When this happens, we will see the return of systemic risk. And
the US will not prove immune to it. Europe is the single largest economy in the
world. It’s also China’s single largest trade partner. If the EU goes down, it
will send ripple effects around the globe. And with China entering a hard landing
and the US re-entering a recession the potential for another 2008 type event is
higher than at any point in the last three years.
On that note, I’ve already alerted my Private Wealth Advisory subscribers to a handful of investments
that will explode higher as this situation picks up steam.
To find out what they are… and start receiving my bi-weekly
investment research reports including real time “buy and sell” alerts via
email, you need to take out a subscription to Private Wealth Advisory. To do so…
Graham Summers