Dysfunctional Markets That Change Every Hour


May 22 2010

markets too hard to follow, Euro bailout continues to fail, Fed the source of liquidity for ECB, Bank failures and home losses continue, layoffs rise, Goldman Sachs likely to payout for SEC suit, California pension pressures, deflation fears

Keeping up with today’s dysfunctional markets is very difficult because they change hour by hour. The problems of Europe have stolen center stage from US problems. The focus is on Europe, but we all should remember trillions of dollars have been injected into the US financial system since mid-2007. All are attempting to maintain the façade that all is well, when in fact all is not well. Underlying assets are worth far less than their stated value. As a symptom of this corporate bank lending has fallen off a cliff and in Europe it doesn’t exist. Without such lending there can be no recovery. The American implosion will now be repeated in Europe. The green shoots of recovery have now turned into poison ivy. The abyss has again been filled with more debt and more fiat currency. In the process the Fed and now the ECB have lost all credibility.

The $1 trillion initial package to save the euro thus far has been a failure as the euro continues its decent. This bailout plan has US fingerprints all over it. The elitists figured they could take down the entire system in 1-1/2 to 2 years, but the poster child Greece didn’t cooperate, so all their plans have been split asunder. As far as the bailout is concerned will the effort be stopped in German courts and will the austerity programs in the weak countries work? Greek citizens say no. We will just have to see if they are serious. Do not forget that the bogus books in Greece are nothing different than almost all nations have been engaged in. Greece is no better or worse than the rest. Again, like the US, Europe is only trying to buy time. In fact, Mr. Trichet and Mrs. Merkel tell us officially that is what they are up too, buying time. This is not a situation where Greece acted alone; every nation has been doing something very similar. What is different this time is that the Greeks have responded with rage over the past month. As a result of that, the falling euro and skepticism as to whether the stimulus will work has pushed acceptance in the wrong direction.

Needless to say, all these machinations have led to deep disappointment in the wealthier EU member countries. At this point we don’t see cooperation between Greeks and their government and the bureaucrats led by a Bilderberger. On the other side the other members of the EU and the IMF refuse to conduct a bailout, which is supposed to protect the members. The Greek government may have signed the treaty, but the Greek populace hasn’t. Stringent austerity measures are not something they’ll stand still for encompassing the next ten years.

The question also arises is $1 trillion going to be enough? Germany and France alone own $635 billion in PIIGS bonds.

World banks, particularly European banks, made some very bad decisions in buying bonds from the PIIGS nations, and that is what this finally boils down too. - the loans and bonds, the money for which was created from out of thin air. What this amounts to is another giant bailout by world taxpayers for banks, particularly European banks in this case. You might have also noticed that the ZEW German Investor Confidence Index fell from 53 in April to 45.8, reflecting further German reaction to the $1 trillion aid package. Many believe the eurozone will collapse and many want it to, especially in Germany. As a reflection of that the ZEW Index fell from 53 in April to 45.8 in May. The Index aims to predict developments six months ahead. German confidence is waning. Prior to the allocation of $1 trillion to aid Europe’s basket cases, eurozone central banks bought the junk club med bonds. All the funds coming from taxpayers. If that had not occurred BNP Paribas, Unicredit, BBVA, Societe General and Santander would have collapsed. That is what this package is all about, bailing out the oligarchic banks. Of course, Mr. Trichet, head of the ECB, tells us we have not changed monetary policy, which flies in the face of reality. He also tells us all the money will be returned to the people, the lenders. Of course that isn’t true. Even if it was returned we have no way of verifying it, because everything is a big secret. What Mr. Trichet is not telling you is that secretly the Fed has been feeding liquidity into the ECB for 2-1/12 years, otherwise it would have been insolvent long ago. The euro has been a failure, as we predicted it would be 12 years ago. As the Fed feeds the ECB liquidity via swaps and other more subtle methods, the ECB feeds the banks fund to keep them from collapsing. In turn, the banks buy eurozone government bonds in another form of quantitative easing. Such phony antics don’t fool real professionals, who know from history what the results will be. This 3-card Monte game is not fooling the average European, who for the last month has been wiping out gold and silver coin dealers in Germany and Switzerland. The euro is history. It is just a question of when. The fight for supremacy is now being waged between the dollar and gold, a battle the dollar cannot hope to win. What you are seeing is a flight to quality, something we have described for more than 50 years. Presently, as far as the euro is concerned, it’s garbage in garbage out. The ECB and other central banks are buying junk bonds, toxic waste, how can it be expected the quality of their reserves are anything but junk? This is not only a euro-ECB problem, but it is also a Fed-dollar problem. How can any Europeans and Americans not want gold? Just like the dollar, and all currencies have been devaluing versus gold, so has and will the euro. The next steps for the eurozone and the US will be much higher inflation and perhaps even hyperinflation. This means Germany, the trading powerhouse, will become less competitive. They’ll lose business and their profits will fall.

Part of the liquidity game is not only to save the financial sector, but also to keep European stock markets from falling, much the same as the Treasury and Fed have done in the US via the Executive Order for “The Working Group on Financial Markets.â€