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Talk Is Cheap – Action Is Prohibitively Expensive

The Privateer
By The Privateer / September 19, 2011

Mr Geithner wants his European counterparts to help him maintain the facade that “liquidity” equals  creating “money” out of thin air through the issuance of new debt paper and that the financial markets can  be kept happy by covering their bets.  The financial markets have literally bet the house on the promise  that what they are “investing” in is too big to fail – or even go down in price on a long-term basis.  The banks want to maintain the facade that they are doing their “jobs” as long as they keep accepting “free” money from their central banks and churning it through those same too big to fail investments.  And the central banks, notably the Fed, want to maintain the fiction that “monetary policy” is a permanent road to real wealth.  Mr Geithner’s European counterparts are balking at ALL this.

True, thus far they are doing it only in words and talk is notoriously cheap.  But there is still no direct  equivalent of a TARP program in Europe.  There is no equivalent of an all encompassing debt instrument (like a US Treasury) coming out of Europe either.  And unlike the US, Europe HAS put the brakes on their deficit spending rather than merely talk about it.  The US is concerned that Europe is going into recession.  If the US were to follow suit, the result would be identical.  European spending is a pale shadow of US spending.  ECB President Jean-Claude Trichet has stated that taking the Euro area as a whole, budget deficits are averaging 4.5 percent of GDP – less than half the US situation.  No one has denied it.

 

As long as this disagreement lasts, there is some prospect of the debate reaching its fundamentals.  Those fundamentals begin with the proposition that money and debt do NOT mix.  The disastrous and decades- long attempt to pretend that they do is now unravelling on BOTH sides of the Atlantic.  But only the Europeans are even making the right noises about getting to the heart of this matter.  ACTION to fix the system will be prohibitively expensive, but there is no alternative.  If there were, then Weimar Germany and modern Zimbabwe would be paragons of financial rectitude and REAL wealth.

About the author

The Privateer

The Privateer is an essential, must-read journal published and edited by Australian William "Bill" Buckler:

"We are fundamentally concerned with the underlying ideas which shape the way nations interact, the way economies and markets work, and the way individuals prosper or decline on the basis of their ability to choose and act.

We hold that the fundamental reason behind the present chaos in global relations, in trade, in financial interactions, and in markets themselves is an "absence". What is absent, or missing, is the freedom to choose and act, the security of private property, and the use of sound money. That is the fundamental premise on which The Privateer bases all its analysis."

Every issue of the Privateer is 12 pages of unequaled geopolitical, historical and economic acumen from which the above excerpt was used.

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