Bailouts | - Part 5

Europe a Preview of Debt Crisis in the U.S.

Former Kansas governor Mark Parkinson appeared on CNBC yesterday and made the point that you don’t hear too much anymore these days with European credit markets being such a mess – that the U.S. will someday have a similar crisis.

Unfortunately, with the election season now well underway, officials in Washington are not likely to take any action to make the looming U.S. debt crisis any less menacing, in fact, with borrowing rates so low for the Treasury Department, you get the feeling that we’re whistling past the graveyard louder than ever.

Ambrose Covers the Debt Crisis

Ambrose Evans-Pritchard of the Telegraph has been writing some of the most colorful, alarming, and (as far as I can tell) prescient commentary on the latest developments in the two-year old, credit market saga better known as the European sovereign debt crisis.

Last week’s Better a horrible end for Euroland, or endless horror? offered the imagery shown to the right when it appeared at his blog where, presumably, there are less strict rules on decorum than in the newspaper.

That’s Ambrose on the left.

Friday’s blog entry Europe’s blithering idiots and their flim-flam treaty attracted nearly 2,000 comments, so, clearly, as far as generating discussion, he’s doing a very good job and an opening line such as “What remarkable petulance and stupidity” does little to make readers think that they’ll be disappointed upon reading further.

Three entries yesterday for the print edition of the paper are more reserved, but not much:

Links to all his work appears at this page at the Telegraph and it provides a good diversion from the coverage provided by the mainstream media that rarely includes any pictures from Lord of the Rings, though I’m guessing that Balrog (as Germany) would be a better metaphor for what’s been going in Europe lately.

[BTW - if the image above is not from Lord of the Rings (which I wasn't able to verify), try not to let that distract from the significance (and light humor) of the Balrog comment.]

Just One Day Left to Save the Euro…

With just one day left to “save the euro” (as policymakers put it early last week), it appears that Lucy is about the pull the ball out from under Charlie Brown’s swinging foot one last time and, perhaps after this big miss, Charlie will wind up flat on his back and stay there.

Hopes were never very high for officials to accomplish much at tomorrow’s European Union summit (a meeting dubbed the most important gathering of this group in two years), but markets were instead placing their faith in the ECB (European Central Bank) to finally taking some sort of action to bolster credit markets.

But, after ECB President Mario Draghi spoke earlier today following the announcement that the bank had lowered short-term interest rates (a move that was widely expected) and offered banks long-term loans (a move that won’t make any difference over the near-term), markets appear to be quickly coming to the conclusion that Europe just doesn’t seem to care that they’re about to enter the abyss.

Word earlier today that the International Monetary Fund was riding to the rescue had raised the hopes of many and Bloomberg reports that European central banks are considering sending $200 billion to this group, which they’ll presumably “leverage up” somehow to a much higher amount before buying sovereign debt of spendthrift European governments.

We’ll see how that works out – it would appear to be the only hope at this point.

They’re starting to call tomorrow’s meeting the “No Second Chance Summit” after French President Nicolas Sarkozy warned that policymakers had better get it right this time, despite the fact that they’ve failed to get it right regularly over the last two years.

Something tells me that Lucy’s going to do what she always does…

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Well, That Was Interesting

The next day or so should be fairly exciting for financial markets as developments in the on-again, off-again rescue of the European public debt market reach some sort of a climax. Like most other assets, gold has become quite volatile as of late, surging by almost $20 an ounce earlier today and then diving about $25 an ounce in short order after the European Central Bank announced another interest rate cut.

The gold price is rebounding a bit now and commodity prices are mostly positive, but equity markets appear headed lower as U.S. markets prepare to open. A seat belt and a bottle of Maalox might not be a bad idea for the next 30 hours or so.

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When Guarantees are Not Loans

Since Bloomberg’s  Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress article appeared last week, apparently a lot of people (including The Daily Show’s Jon Stewart) have been going around saying that the nearly $8 trillion in loans and guarantees made by the Fed were actually loans, when anyone who’s seen a chart like the one below would know immediately that this was not the case – loans at the crisis peak were under $2 trillion.

Not that a little under $2 trillion in newly printed money to bail out the big banks is all that much better than just under $8 trillion, but, it’s important to get the facts straight. As you might conclude yourself by perusing the many items in the previous links post, the Fed did a good job by not naming Bloomberg in their letter to Congress and addressing criticism of Fed emergency lending in general so that they could lump Bloomberg’s report (which, was not in error) along with the rest of them, many of which were in error.

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