It's the printing press or the euro
Despite the latest deal, the European Central Bank remains unwilling to pump out cash as readily as its counterparts elsewhere. And that's the only real way to save the euro.
Hopes were no doubt running high this week that somehow a solution to the euro crisis would be found at the European summit, which began Thursday. Unfortunately, however, that was always extremely unlikely, as I'm sure anyone who thought about it could see.
In fact, world markets rallied Friday on headlines about a deal that includes letting European banks borrow from the European Stability Mechanism, a rescue fund. Details were sketchy, as usual, but a deal in and of itself will not provide much relief.
We need to be clear about what separates the European Union from everyone else and, though I have discussed this ad nauseam, I think it is worth repeating: The problem the Europeans face is the fact that the individual countries, and the European Central Bank collectively, are unwilling to use the printing press with reckless abandon.
The only way is the wrong way
That does not mean they aren't printing already, because they are: Witness the balance sheet of the ECB, which is now more than $3 trillion. Rather, the stumbling block is that the ECB doesn't stand ready to print money in unlimited quantities as the "winners" of the monetary world are, i.e., the U.S., Japan, Switzerland, the U.K., etc.
I don't mean to imply that using the printing press is an intelligent choice, nor is it a solution. In fact, printing money has caused the economic woes of America and the rest of the world. However, as I have said often, we are not going to rid ourselves of this menace until it is carried to its logical conclusion.
Thus, we can only hope that the crisis in Europe will rise to the point where the Germans choose the printing press as the least-bad option. To my mind, they will never agree to "eurobonds," jointly issued bonds proposed as a way to lower borrowing costs for struggling nations. But I do think that, at some point, the ECB will choose to print money, despite the objections from Germany, as opposed to seeing the euro collapse.
A default line in the sand
Though I have felt rather strongly that the problem is as I have described it, I hadn't seen it laid out just that way by others until George Soros defined it similarly in an interview for Bloomberg TV just this week. He said: "The individual members don't now control the right to print money -- they have given that over to the central bank, you see, and that has created the situation with a European country that could actually default, and that is the risk that the financial markets price into the market."
Thus, if he and I are right, it would seem at some point the powers that be in Europe will decide that printing money is better than the disaster scenario conjured in their heads when they think of the consequences of the eurozone fracturing.
The house of cards that Jack built
While I'm on the subject of wrongheaded policies that are perceived to be panaceas, I would also like to point out that the problem in the housing market in America is not that prices are too low but rather that they are still too high. The solution to high prices is high prices. That is what brings on supply, which then curbs demand, just as the solution to low prices is low prices, whereby demand increases, which leads to higher prices and ultimately an increase in supply.
In The New York Times last Sunday, in a lead editorial headlined, "Still depressed after all these years," the editors indicated that we need to avoid "falling prices," stating that, "policymakers need to take steps now to prevent a renewed housing downturn."
The real-estate bubble -- which was aided, abetted and exacerbated by irresponsible lending -- resulted in prices in the stratosphere. If the "authorities" would stand back and encourage the foreclosure process to run to its conclusion and allow prices to fall, the real-estate market would clear, and then cease to be a problem at all.
Maybe they should print lots and lots and lots of Euros so the value of the Euro will fall.That is what America has done for the worthless dollar.
Besides, there isn't a printing press out there that can keep up with the speed of all the lies that the liars are telling. If greed and avarice was currency all these idiots would be trillionaires.
We need deflation now to increase employment. We have low fixes wages and high unemployment. Inflation like high gas prices reduces the consumers buying power. Deflation will increase consumer buying power, increasing demand and employment. The Fed needs to stop printing money, it is causing unemployment.
Want to fix these banking issues raise the fractional reserve rate which will force the world to go back to a cash and savings society instead of living on credit and fake money. Yes it will take time to right the wrong but this is the only true way. You throw money at the problems without creating strict regulations to prevent it from happening again and what have you done? Nothing. What got us in this mess to begin with? CREDIT! Giving fake money to people that couldnt pay it back and when others came calling for the money the owed they didnt have it and the fractional reserve trickle down effect hit everyone....HARD! When businesses start expanding with cash only when they know they can afford it we will have real true economic expansion based on market factors. When businesses expand on credit just to put a store someplace before a competitor you are creating problems.
The best way out of this mess is a strong economy and NO Obami El Salami!
Go Mitt go!
Has everyone lost their mind???????
The Fed recently reported that middle class net worth declined 40%. The financial meltdown has resulted in huge losses for individuals, businesses, and governments here and in Europe and elsewhere.
These losses aren't going to be made up except for a few investors who hung onto their positions as the market recovered. Those who bought houses or anything at inflated prices will have to accept their losses and slowly restore their balance sheets. Those who have lost their homes to foreclosures are totally out in the cold. Countries, Wall Street, or investors who were holders of CDOs (primarily MBSs), CDS, or other derivative investments are also out of luck too. Holders of sovereign bonds and other risky debt are likely going to take a big hit too.
Eventually RE prices will fall to a point where the market will begin to clear. In Europe the ECB will print enough money to re-capitalize the banks but of course that money will be worth less and buy less. We and the Europeans will have to suffer through lean times until the excesses of this past mess finally evaporate or are resolved. Don't forget everyone takes a hit especially the banks and investment houses. Debt will have to written down, off, or forgiven.
If you want to restore our economy and confidence in the American way of progress through capitalism, vote Mitt he'll lead the way to a better tomorrow.
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
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Our own funding crisis could very well be precipitated by trouble elsewhere. And there are signs that Japan's bond market may be rejecting the nation's monetary policy.
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