Less than two weeks ago, I wrote that Europe faced a clear, simple choice: “benign default” or hyperinflation. By “benign default”, I am referring to imposing a “hair cut” on bond-holders – much like creditors always take a loss in any structured bankruptcy settlement.
At that time, German Chancellor Angela Merkel had drawn “a line in the sand”, stating firmly that in any future “bail-out scenarios” that bond-holders would be expected to make concessions. In the words of Bundesbank chief Axel Weber, bond-holders had to be “part of the solution, not part of the problem.”
A scant few days later, all those brave words of fiscal sanity have been cast aside. In the latest EU “rescue” (this time of Ireland), Merkel backed-down from bond-holders – and in doing so has sealed the fate of the EU.
Politicians can no more change the rules of arithmetic than they can repeal the Law of Gravity. The arithmetic is clear: with U.S. economic terrorists pushing up Euro interest rates in all of their most debt-laden economies (to more than double their previous levels), it is mathematically impossible for these nations to fix their massive, fiscal catastrophes through “austerity” alone.
Western economies have all already been hollowed-out, primarily via income taxation, which is nothing but an economic device to funnel all of a society’s wealth out of the middle-class, and into the hands of the ultra-wealthy. Expecting the financially-drained middle classes in these nations to “tighten” their belts in order to pay for the fiscal incompetence of their politicians and the reckless greed of bond-holders is nothing less than insanity.
There is nothing left to “squeeze” out of these people. Much like trying to milk a “dry” cow, all that you end up with is a very angry cow – as we have seen with the rioting in Greece. In this respect, bond-holders have revealed themselves for the rabid parasites that they are.
Weaker Euro states are absolutely incapable of repaying their mountains of debt – thanks to the punitive interest rates inflicted on them by Wall Street’s terrorists, via the credit default swaps market. This is true even with the so-called bail-outs that Greece and now Ireland have received. Printing-up a batch of new money, just so these insolvent governments can make payments on that debt for a year or two is not a “solution”, but rather a commitment of infinite money-printing to simply keep postponing the inevitable.
This is what demonstrates the “rabid” nature of bond-parasites. A rational parasite never kills his host. Yet blood-sucking bond-holders are happily prepared to feast today – despite guaranteeing their own “famine” tomorrow.
Ironically, Euro bond-holders have willingly embraced the same “stealth default” on the debts owed to them that the U.S. government is attempting to impose on bond-holders through deceit and propaganda. With the U.S. economy being far more insolvent than the worst of Europe’s debt-sinners, solvency is no longer an option there. Thus, the U.S. has quietly already started down the road to hyperinflation – as evidenced by Ben Bernanke unleashing more “quantitative easing”, instead of the laughable “exit strategy” he had been promising for more than a year.
With Euro bond-holders idiotically demanding “full payment” (in nominal dollars), while prepared to take that “full payment” in rapidly depreciating currency, these short-sighted misers have demonstrated an intellectual level many, many notches below that of China’s government.
China, as the U.S.’s primary creditor/bond-holder, has been unwilling to allow the U.S. to weasel-out of its obligations to China, by driving-down the dollar – and repaying China in grossly depreciated paper. It has maintained the exchange-gap between the U.S. dollar and the renminbi, despite the incessant whining and threats from U.S. political leaders, and in doing so has protected itself (at least to this point) from any U.S. default-through-money-printing.
Meanwhile, across the Atlantic, brain-dead Euro bond-holders are trying to get those governments to give-in to endless money-printing – and repay them with currency suitable for nothing more than a game of “Monopoly”. Clearly, what is necessary here is for these mentally incompetent Euro bond-holders to have some sober trustees step-in to manage their investments for them.
Once that occurs, these trustees can then sit down with the various Euro governments, and negotiate terms of settlement which represent “win/win/win” rather than “lose/lose/lose”. Embarking on hyperinflationary money-printing merely to service (and not even repay) these mountains of debt guarantees that bond-holders only end-up getting pennies on the dollar (in real dollars), guarantees that these insolvent governments will still go bankrupt, and (via hyperinflation) guarantees the destruction of all of the wealth of those economies.
Conversely, in a negotiated repayment schedule, greedy bond-holders merely have to be willing to forgive some/most/all interest payments in order to recover their principal – in fully-valued currency. Putting these debt-laden economies on a feasible repayment schedule restores solvency to these economies, while avoiding hyperinflation prevents the economic annihilation of the people.
This is known as the “doctrine of enlightened self-interest”, a form of wisdom which I try to make a guiding principle in my own affairs. Helping one’s economic partners thrive (or at least survive) in order that (in this case) they can repay their debts isn’t “charity”, it is “common sense”. However, as we see unequivocally today, the phrase “enlightened bond-holder” is an oxymoron, with respect to all such bond-holders except for the Chinese government. Blinded by their insatiable greed, these reckless lenders are seemingly fixated on destroying their own house-of-cards.
Betrayed and abandoned by their own governments, all that residents of Europe’s debt-laden PIIGS can do is to protect themselves through ridding themselves of their Euro “funny money” – in favor of gold and silver. It’s the “Titanic” all over again – with bond-holders showing they are quite prepared to trample the women and children in trying to get to a life-boat.