Friday, April 30, 2010

Encouraging the ECB to go Nuclear!

Central banks and governments are getting a little scared.  The FED and their buddies in Europe have had the belief that as long as we they could drive the stock market and financial markets higher it would in turn propel economies higher.  In other words, some time around 1995 Alan Greenspan and his cohorts decided that they would compel markets higher and the resulting fruit would be a great economic boom.

Guess what?  They were right!----In the short run.  In fact they were so good that our US economy and other world economies thrust higher without any sense for fundamental growth or data to back up the growth.  The low rates, easy money, and lack of regulation created several busts such as our most recent (short-lived) sub-prime debacle and the tech-wreck in 2000-2002.

I've lamented several times though that more pleasure, more stimulus, and more reward all lead the addict to abandon any rational view of the world and suddenly the desire and pursuit of a greater and greater high is all that matters.  In addition, the addict does not worry about the consequences of their actions, they simply crave pain to stop and the resumption of the pleasure (whatever addition that may be).  In this way, we see crack addicts rob stores, kill people, and other terrible things --- not because they are truly bad people, but because their addiction is overwhelming the goodness within and stopping the addiction and placating it is job number one.

Our central banks have the same addiction and means to quell the insatiable lust for economic pleasure.  In the same way a drunk begins to shake and become physically ill when alcohol is out of reach, the FED and the central banks become violently ill when credit is removed and the liquid courage of debt liquidity is withheld. 

Greeks are in the throws of the detox process and they are in complete denial of their level of addition.  Unfortunately the drug pushers (credit markets) have run out of supply (or the desire to supply at rates Greece will pay) and if they have any left over are charging quite a premium that is hard for Greece to stomach.  Has anyone learned from the mistakes of sub-prime borrowers?  Heck no!!!

The ECB, IMF, FED, and other bankers are now determining how best to rescue their addicted fellow.  While Greece is a problem we've failed to notice that Greece has a few drinking buddies that just might be worse than the small island country.  Spain and Portgual are ailing and their supply of cheap drugs too seems to be dwindling.

What is the answer?  If you read the following article, it seems like that stance is to facilitate the additions, not let the sick guys face detox.  In this case the prescription is to begin QUANTITATIVE EASING and buy government bonds directly, therefore artificially creating a ceiling for the bond yields and a floor for the dropping prices.  Instead of demanding that lenders take the medicine for their lack of analysis of true risk, or penalizing Greece for lying and hiding their true debt levels, the answer apparently seems to be to allow the sick countries to feed their addictions with more drugs, not more reality.

So, while the ECB and the FED (don't think for a minute that the FED isn't participating and using your tax dollars) is going to undertake their SHOCK and AWE campaign of dashing reality the market may move higher and we all merrily attempt to look away from the coming disaster.  The knock on effect of this is going to build and build until it is uncontainable.

If you listen to the tv and radio you'll hear that everything is getting back to normal.  I would suggest that "normal" is simply a set up for the next bust cycle courtesy of the FED and central bankers.

We know that the central banks absolutely over do it and hold rates low for too long.  But the real question I'm asking now is simply this, what are they looking at that scares them so much to continue to keep rates down?  I know the answer, but it is worth asking again and again and again.


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