The European Central Bank (ECB) has come to the rescue! On Friday, they announced a separate permanent fund to buy €500 billion worth of national bonds from EU member nations. Markets were up worldwide in response to news that the Euro would be preserved and stabilized. It’s nothing but good news all around! Right?
Not so fast. Like all good news these days, it has its roots in bad news. Two days earlier, the German government was unable to sell enough bonds at auction, as demand fell for anything tied to the Euro. Bailing out Greece or Spain was never really on the table, but bailing out Germany is a priority for the Frankfurt based ECB. And this starts the twisted and difficult tale of the bailout that may or may not culminate in the closing chapter of the Eurosaga that has plagued markets for over four years.
The complications are many. First of all, the action by the ECB was spurred by a distinct lack of confidence in Germany, the engine of the Eurozone. That’s bad news, but like so much bad news these days risk-adverse investors take it as good news because it spurs action by a central bank. That’s what happened on Friday. The ECB will put a floor on the whole situation and save everyone’s backside by one again socializing as much risk as possible. Investors are not looking for opportunities as much as places to park “money” so that it stays safe. Thus, bad news is often good news.
That good news came just two days later with the new European Stabilization Fund (ESF), the latest Three Letter Acronym (TLA) starting with “E” to get a lot of press. Everyone has been saved, at least until the ESF runs out of Fancy Looking Toiletpaper (FLT) to keep bailing out the system. No one paying attention should believe for a second that this is a permanent solution – it simply moves the problem along for another two years of hoping that everything will turn around.
The next wrinkle in the story comes from an even stranger place. This may seem like good news for Germany, the nation who cannot fail no matter what happens. But lawsuits from members of the German Bundesrat are threatening to derail the whole procedure before it even gets started. While Angela Merkel supports the bailout, for obvious reasons, the German public fears this is the first step towards Weimar-like inflation and the destruction of the currency they have come to rely on. The lawsuits to stop the fund were filed by members of Merkel’s own Christian Democratic party.
So, to summarize: The ECB didn’t act until Germany needed it, but the weakness of Germany was overlooked by investors who really don’t even pretend to care about underlying economies anymore as they look to cover their own backsides. The news was received well all around the world, except in Germany, where members of the ruling party have acted to block it.
Got it? Good. Please explain it to me, now.
Over here in the US, the news remains nothing but positive. Investors are looking forward to another big honkin’ pool of acronym-laden Other People’s Money (OPM) that they can play with. This also means, like all bad news, that the Federal Reserve is more likely to act and print some of our own Dead President Toiletpaper (DPT) for them to play with, especially after weak job numbers were released (or not released, depending on which report you believe).
Meanwhile, there is no good news on the horizon, which would of course be bad news because it would mean that there is no reason to keep printing more money to play with. The only really bad news these days is good news, which would mean that actual investments might have to be found for real money that has some kind of connection with reality.
Don’t worry. There is little sign of a Reality Induced Collapse (RIC) in the near future. We have plenty of news stories full of official pronouncements to keep us going at least a little while longer. There will be more paper and more acronyms. What more could anyone ask for?
Nice post. Where is Mr. Whipple when we need him?
OK, that will take some more explaining. 🙂
This is absolutely a temporary fix because at the end of the day they still have the debt outstanding. The lawmakers suing to stop it are right because this does not help a thing. The German bond sale is a new twist, weren’t they talking about negative interest just a few months ago? What changed to make german bonds so unattractive?
The world has gone nuts. They really are just printing more money.
I love it when your conservative streak comes out. 🙂 The negative interest note is very interesting – you’re right, it’s a big change, fast.
They are printing Euros. We all said a year ago they’d have to (the link is in the article).
Erik, hello.I have not seen you for a while,just saying hello, JIT
Wow, time has gone by. I will be there this afternoon!
This seems like an incredibly strange and complex development that will only delay any real solution. Everything is so complicated out of Europe, I doubt they will ever get it together. How the markets could take this as good news is very strange.
Agree on that last part – only bad news is good news. It’s so complex it will take months more to figure out what, if anything, actually happened. Ug.
I’m’a just start putting my cash in WCH (Window Curtain Hems), like GUD (Granny Use’ta Do).
And if everyone did that, you know there’d be a futures market for WCH in no time. And then a bubble as the price skyrocketed. 🙂
The only news out of Europe that would surprise me is if they actually fix the mess they are in. Everything else is just more of the same.
Yuppers. They are in very deep. I’m starting to think that the Jubilee is the only way out for them.
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