States And Citizens Alike Under Crushing Financial Stress

Thursday, February 9, 2012
By Paul Martin

By Bob Chapman

Greece stonewalls against law changes, Ireland issues to come, France VAT rise, debt per American is growning, Europe demands more liquidity, after SOPA and PIPA, more efforts to impose censorship and control over the internet, states and people running out of cash.

There are many ways for sovereigns to sell their bonds or roll over existing bonds, and one of those wrinkles we mentioned last week. We saw European banks buying US Treasuries and that is happening. These euro banks buy Treasuries and then put them up for collateral with the ECB and purchase the three-year 1% yield repos being offered by the ECB. This is really another form of quantitative easing. It may be debt but it is also an expansion of the money supply. This little game allows US Treasury financing and if something goes wrong the ECB, the public, gets caught holding the bag. Obviously this is another part of the Ponzi scheme that the elitists are using to keep the monetary system afloat.

The idea that Germany wants Greece to give up control of tax and spending decisions has met a stonewall in Greece, as one would expect. That is like financial occupation, what the Greeks went through in the 1940s. We do not think the German demands have a chance of acceptance and that $170 billion bailout will take place.

The Troika has proposed extra Greek spending cuts of 1% including health spending, defense and an additional 150,000 jobs over the next three years. The IMF has said such cuts will impair any recovery, so the question arises why do they want to keep on cutting when they know the economy will experience depression?

The merger of the EFSF and the ESM is off as Germany parliamentarians refused approval. It was stopped by Volker Kauder, the floor leader for the CDU, Chancellor Merkel’s party. Mrs. Merkel is in serious political trouble.

Greek problems are on the forefront, but lurking in the wings is Ireland, where the government is under fierce pressure to hold a referendum on the euro zone fiscal treaty. A poll showed 75% of the public want a vote on the agreement.

Over in France, the French wild man, Mr. Sarkozy, wants to raise the VAT, the Value Added Tax from 19.6% to 21.2%. He has also unilaterally proposed a financial transact tax of 1% on French securities. Such a tax would drive stock and bond business from Paris to other markets.

As you can see Fed Chairman Ben Bernanke doesn’t like being totally frank. He failed to tell you how banks in Europe can bypass the normal course of borrowing by buying US Treasuries, making the Fed very happy and then using the Treasuries for collateral to get cheap loans from the ECB. This brings a new dimension to leveraging. It is diabolical and changes the funds available tremendously. There is far more money available in Europe than immediately meets the eye.

The Fed will keep Fed funds rates near zero thru 2014 and who knows perhaps forever. These unbelievably low interest rates guarantee few will be savers and retirees are going to be eating more cat food. They will not be marginal buyers we can assure you of that. At the same time these poor souls get nothing for their savings and they also have to contend with real inflation of more than 11% annually.

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