Europe’s QE Suicide! Escalating Debt and Outright Monetization
By Bill Holter
Global Research
January 22, 2015
As you now know, Europe is set to announce a new QE program. I wish these money printing rocket scientists would call it like it really is, outright monetization but then again the average non thinking person might ask questions? The leak yesterday said the size would be 50 billion euros per month, or more (it turned out to be 60 billion). Thinking about this from a far away view, we can glean a few hilarious aspects.
First, let’s look at “size”. If the program is “only” (more was expected) 60 billion euros per month, this will amount to around 720 billion additional euros outstanding a year from now. From a “money perspective”, this amount is far less than the QE 3 the Fed just publicly (privately maybe not) ended and smaller than the current Japanese operation. The markets may view this as “smaller than hoped for”, I of course have a different perspective. If we add up the production of all gold globally from the mines, we come to a ballpark number of a whopping $100 billion. Compare this to the (newly devalued) figure of 720 billion euros and we can round this off to just over $900 billion. So, in just one year, Europe will create nine times the amount of trash currency as the entire world creates of gold …in one year! The ECB plans to purchase this amount of debt for two years, nearly $2 trillion worth!
Going just a step further, let’s look at this $100 billion worth of gold which is produced annually. I am going to tell you that as far as the “world” is concerned, there is NO new gold produced! How can I say this? All you need to do is look at how much gold just China and India combined take off the markets each year. The answer is “all of it”! Actually, that’s not true unless we add the phrase “and then some”! So from a size standpoint, Europe is proposing to create nine times the amount of currency as new gold is produced, yet none of the gold even hits the market to add to the current stock. Yes I know, there will be those amongst you who say this is wrong. But is it really wrong if 100%+ of new gold supply gets devoured and vaulted by China and India never to see the light of day again? Yes it is “stock” but it will never in our lifetimes “flow”!
Let’s now look at few of the other “little snags” in this European brainchild. First, can Europe handle more debt collectively and what about the ones who cannot? The ECB is proposing a “one for all and all for one” strategy when it comes to responsibility to this debt, will the Germans agree to this? What will happens when push comes to shove and countries with no financial wherewithal just shrug their shoulders when they cannot make the debt service payments? Does this mean that Germany becomes the “one for all”? Wasn’t it just a couple of years ago the PIGS debt was on the verge of collapse and rates were skyrocketing? Have they really healed their balance sheets or do they now have MORE debt and HIGHER debt ratios? Are we to believe they are now safer? One last thought, the ECB is the central bank to Europe, should they really be prompting their flock into issuing more of the poison that caused the problem in the first place?
Another question becomes, what about Greece? Will the ECB purchase their bonds? What if Greece’s elections finish and the winning party decides to hold the ECB ransom “restructure our debt or we will default …or just take our ball and leave”? How is this going to be handled? Another aspect going back to “size” is that the 720 billion euro QE will be three times or more the size of current issuance, isn’t this the reason the Fed was more or less forced to stop QE …because they were taking too much collateral out of the system? Will this force banks to purchase lower credit quality debt in their reserves or does it just mean interest rates all throughout Europe will be negative? Does this mean investors will “pay” interest to insolvent deadbeat nations like Portugal, Spain and Italy amongst others? I know it sounds quite strange to have to pay interest on your lent money to an insolvent entity, but this is where we are headed!
The Rest…HERE
