We have a glimmer of hope. The key indicators of the US money supply are at last firing on all cylinders, a dramatic turn for the better that would normally signal recovery or even a mini-boom within the next six to 12 months... data from the St Louis Fed show that America’s M2 money supply grew at a 6.4pc annual rate in the second quarter, accelerating to 12.2pc in June.What Pritchard fails to point out, however, is that the coming manipulated-boom is a Trojan horse that will contain within it major accelerating price inflation.
On Europe, Pritchard warns of a possible 1931 scenario:
My recurring nightmare ever since the Western debt edifice began to crumble four years ago is that the denouement would track the events of mid-1931, when leaders failed to reform a destructive fixed exchange system (Gold Standard) and the fuse finally detonated on Europe’s banking system. It was when political blunders turned recession into the Great Depression, and ideology intruded with a vengeance.I can not disagree. While Bernanke is printing dollar upon dollar at the Fed, the European Central Bank has stopped printing money. A stable, non-growth monetary policy is something that should not be criticized. It is a sane policy. However, Europe does not appear ready for stability or sanity. Accompanied with a stable non-growth monetary policy should be full defaults by EMU members in over their heads financially. This means all of the PIIGS. However, given the view of the populace in these countries that even a broke nanny should be supporting the populace (and bankster desire to be protected), sanity, in the form of full defaults aren't likely. Instead, we get games and limited hang out defaults. This does not mean that the PIIGS will escape full defaults, just that reality will down the road force upon the PIIGS a much harsher form of crises and defaults. And that "down the road" may not be that far away.
The narrative of 1931 is already well-known to readers. France sabotaged a rescue of Vienna’s Credit Anstalt because of strategic disputes with Germany. This set off a financial chain reaction. Frightened markets tested the weak links of the Gold Standard. They withdrew funds from Britain after naval ratings “mutinied” over pay cuts. Contagion spread back to New York. By October 1931 the international system had collapsed, though the full horror did not become evident until the next year. A string of countries retreated into variants of autarky, or fascism, or both. Communists and Nazis together won more than half the seats in the Reichstag election of July 1932.
It is far from clear that the international order is more secure today than it was in the seemingly calm days of May 1931...
The EU has brought about the first sovereign default in Western Europe since the Second World War and set a fateful precedent without actually resolving the Greek problem. This is the worst of all worlds.As long as the grown-up members of the EMU, the Germans, the Dutch and Finnish, throw the PIIGS life lines made of string, the crises will continue and get worse. The only real solution, that would end the madness, is for the EMU to disband and let the PIIGS fend for themselves. It's a lot better solution than a replay of 1931. It would at least protect the adults G,D and F, and offer a role model for the PIIGS. However, if G,D and F are dragged deeper into the PIIGS problems, then ultimately a Great Explosion will take place with completely unknown consequences. Nineteen thirty-one might then prove a guide to what might occur, or it might be much worse.
Moody’s cited the summit terms as a key reason why it put Spain on negative watch last week. “Pressures are likely to increase still further following the official package for Greece, which has signaled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits,” it said.
EU ineptitude - or rather, German, Dutch and Finnish unwillingness to face up to the implications of EMU - have raised the risk of a traumatic August crisis in Italy and Spain. EU leaders are bringing about exactly what they pledged to avoid.
(Thanks 2 Lew Rockwell)