The End of the World As We Know It

by

Trillion Dollar Madness

European policy makers have unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases to stop the sovereign-debt crisis. The Federal Reserve will also play a role through currency swaps.

The 16 euro nations agreed in a statement to offer as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank said it will buy government and private debt.

There is nothing more to be said other than this is potentially the greatest inflationary plan ever designed. Although statements have been made in the past that the EU has failed to follow through on, the statements issued last night appear to have a sense of seriousness about them, especially the ECB announcement to buy government and private debt, and the Federal Reserve launching of currency swaps. Both these actions suggest spectacular inflation may not be far away. Although the ECB statement says the purchases will be sterilized, meaning they won’t increase the overall money supply in the system, one wonders how long this will go on. A sterilization of the money printing would mean that money would be drained out of other sectors of the EU economy to be given to the governments of the PIIGS, who are proven irresponsibles with money. Draining from the potentially productive sectors of the EU economy to give to the PIIGS is almost as insane as printing the money without sterilization.

That no objection to this madness has come from any finance minister or central banker signals how far down the road we are from any real concern about inflation or the taking away from the productive sectors of the economy. Indeed some of the the statements coming out of the emergency meeting of EU finance ministers are simply absurd.

“The message has gotten through: the euro zone will defend its money,” French Finance Minister Christine Lagarde told reporters in Brussels early today. How opening up the printing presses defends the euro, she did not explain. The last I looked printing money destroyed a currency. It did not help the currency…

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