Global Economic Crisis

To the delight of equity markets, ECB president  Mario Draghi has announced  officially that the European Central Bank will purchase Eurozone bonds in the secondary market, with three-year maturities, theoretically without any limits. In effect, Draghi has told the world that the ECB will run its printing presses at warp speed, and conjure out of thin air whatever quantities of euros are required to combat what Draghi calls “market distortions.”

The Bundesbank opposes the move, and Germany’s traditional fear of inflationary policies by central bankers will no doubt be awakened. Draghi’s position is that he has no choice, if the euro is to be saved. His policy measure reminds me of what a U.S. Army officer once said, after his unit destroyed a village during the Vietnam War: “We had to destroy the village in order to save it.” Draghi may have unleashed a desperate policy measure which, in attempting to save the euro, will ultimately bring about its demise.

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Increasingly, amidst the worsening Eurozone debt crisis. the European Central Bank is becoming the center of gravity for not just insolvent sovereigns within the Eurozone; the bulk of the global economy is facing towards the ECB president, Mario Draghi, in much the same way as the pious do towards Mecca. With the bulk of Europe, including not only the Eurozone countries but also the UK mired in recession and unending economic crises, the bond vigilantes and investors have largely given up on the politicians.

Will Mario Draghi follow the pattern of the U.S. Federal Reserve and its chairman, Ben Bernanke, in dropping loads of cash from his virtual helicopter, freshly conjured out of thin air through the magic of the central bank’s printing press? It is a sign of the times, and the incessant global economic crisis, that supposedly sophisticated investors are desperately hoping for the unleashing of a torrent of legal counterfeiting by the central bankers as the final chance to ward off fiscal calamity.

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The latest report from the World Economic Outlook, released by the International Monetary Fund, cuts its forecast on global GDP growth. Of greater importance is the focus the IMF placed on the Eurozone debt crisis.  According to the IMF report, “The utmost priority is to resolve the crisis in the euro area.”

The IMF appears to be standing with those who are calling for the European Central Bank to replicate the loose monetary policies and money printing of the U.S. Federal Reserve and its chairman, Ben Bernanke.  The report virtually pleads for the ECB president, Mario Draghi, to place his printing presses in overdrive.

 “The ECB should ensure that its monetary support is transmitted effectively across the region and should continue to provide ample liquidity support to banks under sufficiently lenient conditions,” so says the International Monetary Fund in its report. It appears that the IMF is seeking Weimar style solutions to the European debt crisis, obviously forgetful of what those policies did for Germany  in the 1920s and early 1930s.

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Sex, murder, financial power and pathological greed come together in the explosive suspense thriller by Sheldon Filger, WALL STREET KILLS: A NOVEL ABOUT FINANCIAL POWER, VIOLENT SEX AND THE ULTIMATE SNUFF MOVIE.
This video provides a free audio reading from chapter one of “Wall Street Kills.” The scene depicted involves two characters from “Wall Street Kills” having a business conversation in a Los Angeles suburb. One character is Peter Hoffman, director of new business development for a secretive Wall Street hedge fund and private equity group. The other character is Daniel Iachino, president of a major independent film company specializing in “adult entertainment” for niche markets. Hoffman is on a mission to investigate if portraying unsimulated violent death in the form of entertainment would be a lucrative business investment. The conversation between the two men quickly focuses on the phenomenon of snuff movies.

 

 

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ECB President Mario Draghi, it is rumored, will cut interest rates, in a frantic effort to retard the rampaging Eurozone Debt Crisis. Since assuming the ECB presidency, Draghi has engaged in stealth quantitative easing, buying up sovereign bonds, and engaging in other monetary gimmicks. But nothing seems to be working. With ECB rates already very low, there is not much left to be cut.

The schism is over supposed austerity measures in the vulnerable Eurozone countries with large sovereign debts neutralizing any impact  from ECB monetary policies. However, the real issue involves the bond markets; will they open up their coffers and offer more loans to countries that already have an unsustainable debt to GDP ratio? In the Eurozone, both economic /fiscal and monetary policies are totally detached from the harsh realities of the marketplace.

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Only a few weeks after the latest  version of the Greek bailout package, the President of the European Central Bank, Mario Draghi, is boasting that the worst of the Eurozone debt crisis is “over.” He made this remarkable claim in an interview with a German publication. Draghi boasted that the economies of the Eurozone were now stabilizing.

Draghi must be toking some powerful weed, or otherwise he is attempting to repeat U.S. Fed Chairman Ben Bernanke’s previous boasts about economic “green shoots.” The latest PMI figures from Germany, which show that the country’s manufacturing  sector is weakening, and other similar statistics from elsewhere in the Eurozone, make ECB president Draghi’s boast sound bizarre, to say the least.

Despite Mario Draghi’s high profile delivery of rosy prognostication, the Greek debt crisis is far from over, and the other PIIGS nations (Portugal, Ireland, Italy and Spain)have not seen their dangerous debt and deficit to GDP ratios, poor economic growth figures or catastrophic levels of unemployment magically improve. Draghi may be a wonderful propagandist for the Eurozone, but he is no magician.

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It appears that the European Central Bank under the leadership of Mario Draghi is following in lockstep with the policy prescription devised by the Chairman of the U.S. Federal Reserve, Ben Bernanke. Just as the Fed expanded its  balance sheet to over $2 trillion, in the process becoming the lender of last resort to U.S. banks  that would otherwise have been insolvent without the cheap credit from Bernanke (and changing accounting rules from “mark to market” to “mark to fantasy”), the ECB is now doing exactly the same in the Eurozone.

Already, through its stealth quantitative easing program, the European Central Bank has expanded its balance sheet by more than $1.3 trillion, thus preventing Europe’s banks from collapsing due to the weight of worthless assets they hold in sovereign loans to insolvent (and defaulting)nations such as Greece, along with Ireland, Portugal, Italy and Spain on their balance sheets.

It is no surprise that many investors, and certainly all the banks, are cheering central bankers such as Bernanke and Draghi. They seem to ignore the fact that if money printing by central banks were truly an effective method of restoring genuine economic  growth, than counterfeiting would be legal for us all, and not just the trans-sovereign central banks.

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It appears that the ECB is abandoning its policy of monetary prudence, and imitating U.S. Fed Chairman Ben Bernanke in running its printing press wildly. Mario Draghi, ECB boss, has made available cheap loans to European banks experiencing liquidity problems. In response, more than 500 European banks stampeded to the ECB discount window, and have borrowed nearly 490 billion euros, equivalent to $643 billion USD at current exchange rates. Clearly, the European banks had desperate need for new capital, while the Eurozone politicos hope the banks will use the newly minted euros to buy European sovereign debt.

Nouriel Roubini I think described this rather nicely as in essence quantitative easing and stealth debt monetization. As with Ben Bernanke’s repeated bouts of money printing, I don’t think this new loose monetary policy by Mario Draghi will avail itself of any meaningful results. Since the global financial and economic crisis was unleashed in 2008, money printing by central banks has been a symptom of the problem, not its solution.

WALL STREET POLICE: GLOBAL ECONOMIC CRISIS

Officer Larry of the NYPD is on his way to Zuccotti Park in lower Manhattan to arrest peaceful protesters involved with the Occupy Wall Street movement. Being a public spirited member of the New York Police Department, Officer Larry does remind us that there is a global economic crisis underway that rivals the Great Depression of the 1930s.

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As all but the most gullible no longer have faith in the European politicians to resolve the increasingly deadly sovereign debt crisis among the PIIGS nations in the Eurozone, the last ditch hope is now resting with the European Central Bank. The new president of the ECB, Mario Draghi, is under increasing pressure to abandon the bank’s defined mandate to maintain price stability, and to instead become the Eurozone’s lender of last resort. It can only do that by firing up its printing press, and conjuring new euros out of thin air.

Only Germany, with a long historic memory dating back to the massive monetary inflation of Weimar Germany in the early 1920s, remains in opposition to the ECB unleashing its printing press. Otherwise, politicians, hedge fund managers and investors are demanding that the ECB flood the world with euros. In their eyes, inflation is preferable to a deflationary recession, and the inevitable devaluation of the euro resulting from monetary creation would cheapen European exports. All a good thing, so they claim. No wonder Mario Draghi is being cajoled into becoming the savior of the European monetary union, and possibly the global economy.

My take on the ECB becoming the lender of last resort? I think we have the evidence of what would likely occur right in front of us. In the U.S., the Federal Reserve under the direction of its chairman, Ben Bernanke, has been in the money printing business since the onset of the current global financial and economic crisis in 2008. The Fed has been in many cases the lender of last resort in America, buying everything from U.S. Treasuries to toxic assets from banks and companies, while flooding the land with instantly manufactured liquidity and maintaining a zero interest policy at its discount window. We have all seen how effective such a policy measure has been in the United States. Bernanke’s record includes unprecedented fiscal deficits, many state and local authorities in the U.S. tottering on the brink of bankruptcy, unemployment levels not witnessed since the Great Depression of the 1930s and an economy functioning at stall speed and about to enter a double-dip recession, despite unprecedented levels of monetary, not to mention fiscal stimulus.

 If the European Central Bank follows in the footsteps of Bernanke, I don’t see how the results will be any different for the Europeans. Printing money may sound attractive to the desperate, but it is at best a short-term panacea, which solves nothing in the long run, and creates its own set of complications and economic distortions. Ultimately, a printing press cannot correct the flawed concept of a single currency for a multitude of different political cultures and economies.

WALL STREET POLICE: GLOBAL ECONOMIC CRISIS

Officer Larry of the NYPD is on his way to Zuccotti Park in lower Manhattan to arrest peaceful protesters involved with the Occupy Wall Street movement. Being a public spirited member of the New York Police Department, Officer Larry does remind us that there is a global economic crisis underway that rivals the Great Depression of the 1930s.

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