Eurozone winding down toward unavoidable collapse

GATA reported today on an article from The Telegraph and, while not unexpected, the news isn't good.  In short, the global debt Ponzi is collapsing with the weak links going first but eventually it will be understood that there are no strong links – just weak and weaker.  We the people of the world all bought into the scam of fiat currency and fractional reserve lending and nobody did enough to get honest truth tellers like Ron Paul elected and so now we have a problem that must play out no matter who gets elected in 2012.

Once the fuel source of the Ponzi runs out (i.e. new credit and debt), the debt Ponzi must collapse.  If the following sentence from the forwarded article is true, the fuel source seems to be running very low: “Asian central banks and sovereign wealth funds are spurning all EMU bonds because they have lost confidence in a monetary system with no lender of last resort, coherent form of government, or respect for the rule of law.”  Bottom line: the Eurozone is rolling over.  Confidence has been lost in the leadership. “Unless Germany agrees to the full mobilization of the European Central Bank very fast, the eurozone will spiral out of control. As The Economist put it, "The risk that the currency disintegrates within weeks is alarmingly high.". Yeah, well it is now understood by everyone who is thinking clearly that Germany cannot save the Eurozone even if it wanted to.  The best it can do is to stall the inevitable collapse.  Any new money thrown at the problem will be lost.  It is a black hole of debt.  The on balance sheet numbers are bad enough but (because corruption is so rampant) the overall off balance sheet debt is far larger.  It is leverage upon leverage which simply cannot be repaid.  This is true of Europe, Japan, China, Russia, the USA and everyone else who is infected by a fraudulent money supply consisting of fiat currency and fractional reserve lending.  In other words, everyone.

Because the US dollar is the de facto reserve currency of the world, the final backstop of the global debt Ponzi is Ben Bernanke and the US Federal Reserve Bank.  The fact that anyone is talking about using U.S. backed federal dollars to save Europe demonstrates that it is 10 minutes to midnight for this con game.  The temptation will be to try to save the Ponzi from a deflationary collapse by printing more money.  So what if this is unconstitutional?  So what if it will not work anyway?  The con men don't care about any of that.   They don't care about moral hazard.  They don't care about the riots that will occur on Mainstreet if High Street in Euroland gets a bailout at US Taxpayer and US consumer expense.  And make no mistake: the US riots will come and they will make OWS look like a Sunday picnic.

Unfortunately the problem is even bigger than the Federal Reserve can handle.  Much bigger.  But that won’t stop people from believing in false hope, especially when they see it as being in their best interest to do so. Those who will be most tempted to do this will be those with the most to lose: Berkeley's Brad DeLong said it is time for Bernanke to act on this as the world lurches straight into 1931 and a Great Depression II. "The Federal Reserve needs to buy up every single European bond owned by every single American financial institution for cash," he said.  In short, the US bankers already own a lot of Euro debt which will get hammered when the Euro crashes.  Their solution: Just have the Federal Reserve buy them out of their bad investments.  Again.  Yep.  The bankers are at it again.  They collected interest payments for years on that Euro debt but now that the debt is going bad, they don’t want to face the risks anymore.  They want Uncle Warbucks to make them whole.  They already privatized their gains and now they want to socialize their losses.  Again.  The only way to do that is to debase the dollar even more.  That means higher gas and food prices, higher taxes, higher everything.  This will result in reduced imports by the US because Americans will have less buying power.  Reduced imports by the US means less exports by others and thus less cash for Europeans and Chinese and Japanese to spend on paying off debt.  The markets will view this as increased risk and thus demand even higher interest rates for their sovereign debt.  At some point the debt will just get too expensive to roll over.  These are the mechanics of the debt spiral.

One thing people really need to wake up to at this point is that posturing is no longer going to help.  During the early days of the collapse, government used to tell us that if they walked around with a bazooka in their pocket that they would never have to use it.  The threat of government intervention, they said, would force the market to stay engaged.  They thought the market could be so easily manipulated.  Since then this theory has been debunked in actual practice several times.  Still, it didn't stop The Telegraph from repeating the fairy tale yet again: “The Fed could buy E2 trillion of EMU debt or more, intervening with crushing power. The credible threat of such action by the world's paramount monetary force might alone bring Italian and Spanish yields back down below 5 percent before one bent nickel is even spent.”. Based on what I have seen, any improvement in confidence would be short lived – on the order of 7 days or less – and then the panic would set in again.  If real stimulus didn’t reflate things permanently, the simple threat of further stimulus certainly will not.  The market is, in essence, more afraid of getting left holding an empty bag by the other players in the debt Ponzi than it is of the Federal Reserve or any other central monetary authority for that matter.  If Bernanke goes too far with his helicopter drops then pretty soon the US will be the one struggling with increasing interest rates.  Once the US can no longer afford to roll its debt over, I guarantee you that the whole corrupt system will collapse.  There is no more powerful monetary authority on the planet than the Fed and once confidence in it is lost, confidence will be lost in the global monetary system.

At the end of the day people have to understand that, due to the interconnectedness of the global economy, there is no fix that does not result in a major crash.  Every positive sounding false hope action will result in a negative reaction of unintended consequences.  That is not to say that we should not elect Ron Paul and drive honesty back into monetary policy; we must do this so that we don’t continue to have problems years into the future and long after we should have gotten past the upcoming series of defaults.  We need to learn from our mistakes and stop doing the same things over and over expecting different outcomes than before.