This joke has it right.
Question: A Greek, an Italian and a Spaniard walk into a bar. Who picks up the tab?
Answer: The Americans.
The author understands how the financial markets work. The Europeans will pay for their bankers’ stupidity. So will we. MF Global was just the beginning.
And then there is the decision by the Federal Reserve to ride to the rescue of European banks with more liquidity by cutting rates on dollar swaps. That follows hard on the heels of the news of $7.7 trillion in secret Fed bank bailouts during the mortgage meltdown. The chief beneficiaries of that Fed largesse – JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley – have predictably been identified as those U.S. banks with the most exposure now to the European crisis, amounting to hundreds of billions of dollars. They, too, must have grown accustomed to the bailouts.
Must the rest of us be victimized by the collapse of European debt and its contagion? Is there anything for us to gain from it? The answer to both questions is yes.
You have figured this out. Most Americans have not.
Americans will be collectively victimized by the monetary authority, the Federal Reserve. The Fed will print as much money as necessary to protect the banking cartel which it serves. It has ever been so. And Americans will be victimized by the resulting destruction of the dollar and the further crippling of the economy.
What are you planning to do about this? The author says you had better begin with three assumptions;.
#1: The problem is bigger than the conventional wisdom acknowledges.
#2: The solutions advanced by the governing classes are inadequate to the problem.
#3: With each new initiative the media breathlessly report that the problem has been solved. The equity markets take a ride on those reports.
He makes a good point.
There are always some investors who are taken in by the latest in an unending string of breathless announcements that the debt crisis has been fixed. Wall Street gladly separates them from their money. Remember, the problem was years in the making. Its solution will demand a long process of costly adjustments and debt liquidation. Real solutions will not be greeted with euphoria.
A systemic global monetary breakdown can be delayed, but it cannot be avoided. That is because the debt is too big to be backstopped forever. Despite knowing that Greece lied about its deficits to gain admission to the Eurozone, naïve ratings analysts, state officials, regulators, bankers and investors all believed that Greece would be forever backstopped.
Do you believe this? I hope so. You had also better believe this:
Can the Federal Reserve backstop everybody? It’s been desperately trying to keep the American people from finding out just how much it has been backstopping the rest of the world. And what backstops the Federal Reserve?
Only the printing press.
Nation states and their institutions, the governing classes and the lapdog media are always surprised by crisis. But you don’t have to be. If you understand that the European debt crisis is a dress rehearsal for what is to come here at home, you aren’t likely to underestimate the problem or put much stock in patchwork plans that provide liquidity but leave the underlying debt unaddressed.