Monday, May 3, 2010

Understanding the IMF/EU Bluff

The unprecedented IMF/EU bailout of Greece has to be viewed as the greatest bluff in the history of world finance. It is a stop-gap measure that won't solve the financial problems in Greece, more importantly, it won't solve the problem for the PIIGS overall.

The fundamental problem with the PIIGS is that they have governments and economies structured to fail financially. They give and give (money) to the politically favored and tax and tax the ever shrinking productive elements in their countries--and they attempt to borrow whatever they can't squeeze out in taxes to continue their giveaways.

The first point of collapse  in this mad scheme is, of course, the bond market when bond buyers realize they might not get paid. That's what the soaring interest rates on Greek debt last week was all about. It was early stage panic. A crazed economic structure was about to collapse. It should have been allowed to do so.  It would have hurt the international bankers that held the Greek debt, but that would have been about all.

Instead, the international bankster controlled IMF and EU stepped in to bailout the, well, the international banksters. The plan is to squeeze the Greeks with even more taxes to kick upstream to the banksters. In the interim, other EU members and the IMF will provide emergency money that will also be kicked upstairs to the international banksters. Even Americans will pay a bit out of their pockets as the IMF kicks in $40 billion, with the U.S. member quota roughly 17%, that's a ding to the U.S. of $6.8 billion.

But, as large as this bailout is, it is a bluff. It is an attempt to calm the markets before the Mother PIIG has to rise money, Spain.

For the IMF and EU to bailout Spain based on the same formula as Greece, the Spanish tab would not be  the record breaking $146 billion announced for Greece. It would be $544 billion.

By bailing out Greece, the IMF/EU is hoping that this calms the markets enough so that there is no panic out of Spanish debt. No one knows if it will work. If the markets are not calmed, the question then becomes one of whether the Germans, the IMF and EU are willing to run the check writing drill again. This time for checks five times the size.

All this check writing, mind you, is only stop gap as long as the PIIGS continue their current socialized economic structures that provide huge disincentives for productive work. The PIIGS will get fatter with debt and stuck deeper in the  mud of their economic structure.The bailouts do nothing but hose the PIIGS down before they head back into the mud and the debt feeding troughs. Eventually, the problem will become  so large that only massive money printing or massive bankruptcies will solve the problem.

The realeconomik solution is to end the EU in its current format, make it a NAFTA-like trade organization, with every country returning to its own currency, and thus allowing every country to fend for itself, versus creating these huge pyramid type structures that will grow and grow until it all results in a huge global collapse.


  1. "only massive money printing or massive bankruptcies will solve the problem"

    Good article, but how is printing money going to solve the problem?

  2. @Maurizio

    By creating a different problem, hyper-inflation.

  3. I agree that the bailout is a stop-gap measure -- it provides monetary seigniorage for interest payments and economic operations on a relatively short term basis.

    I've looked at the so called austerity measures provided by EUIntelligence in article, A Bailout Finnaly, and find them to be a joke to suggest that there is any austerity involved.

    Tyler Durden of ZeroHedge reports in article Greece Bailed Out To Get In Even More Debt that in essence Greece will go from having "only" a 133% Debt/GDP ratio to an insane 149% in 2013 before presumably dropping to 144% lower in 2014, still a good 11% higher than currently. Greece just got bailed out so it can get into even more debt.

    Greece largely has/had a tourism economy and a small family plot cotton agriculture economy; it needs to accept these facts; make adjustments and live in a subistence and not extravagent manner; but it is unlikely to do so; so a desperate depression, failure of both banks and companies and hyperinflation is the future.

    You make a good point about costs being pushed off -- yes moral hazard here.

    Yes, overindulgence in debt, not only in Greece, but world wide has a predictable outcome: firt there is monetizatin of sovereign debt by banks purchasing national debt, then there is massive money printing, accompanied by widespread bankruptcies.

    The EU will NOT be ended in its current format, and it will NOT be make into a NAFTA-like trade organization -- no way, never.

    The announcement by the EU Finance Ministers of funding of the Merkel - Strauss-Kahnwcon Seigniorage Plan for Greece is the dawn of a new era of unified monetary, banking, political, economic regulation in Europe. Here leaders meet in Summits and announce Framework Agreement, and the people follow!

    The EU Finance Mininsters' Announcement of funding of the Euro Stability Pace establishes A One Euro Governement; national sovereignty is history; this being a principle of a bygone era.

    Rising risk from contagion of sovereign debt default, and contagion from downgrade of banks across Europe will REQUIRE universal integraton and regulation of banking globally within Europe.

    Yes, unified regulation of global banking is coming, both in Europe and globally, as James Politi and Gillian Tett of relate that at the onset of the June 10, 2008, EU-US 2008 Summit, held in Krajn, Slovenia: Timothy Geithner, President of the New York Branch of the Federal Reserve and Bilderberg 2008 attendee, wrote a commentary in The Financial Times, in which he called for a global financial system operating under a unified regulatory framework -- unified regulation of banking globally is the way of the future.

    The funding of the Euro Stability Pact by the EU Ministers this weekend is the genesis of a pyramid system: eventually a Sovereign and Seignior will arise to address monetary, economic, and political issues; their word, way and will will be the law of the land.