02/12/10 Baltimore, Maryland – Well, the Greek story was big this week. ‘The Big Fat Greek Meltdown,’ as Justice Litle calls it. It pushed stocks and bonds down early in the week. By the end of the week it was pushing them up.
What happened in the meantime? Well, the euro-feds made it appear that they were going to do the same dumb things our own feds did. They said they were going to fix the situation. Just like the US fixed Fannie Mae and AIG!
There are 27 different nations in the European Union. And guess how many languages? Two-hundred and thirty. That surprised us too. Spain alone has 6 official languages.
But without doing any real research on the subject, we have discovered one word which is common to all these languages: bailout.
Yes, dear reader, it was ‘bailout’…spoken in hundreds of different languages and dialects…that lit a fire under the financial markets late this week. The embers were still hot yesterday; the Dow rose 106 points. Gold had it best day in weeks – up 18 bucks.
But doth a single bailout a real boom make?
Let us rephrase that. Will bailing out the spendthrift Greeks really make American businesses more profitable?
You know the answer. It won’t. In fact, it will make them less profitable. What it does is allow the Greeks to continue spending in the style to which they’ve become accustomed. And if the Greeks are going to do that you can bet that the Irish aren’t going to want cut back. Or the Portuguese. To say nothing of the Italians. And what about the English?
Bailing out the Greeks is a big mistake. But it’s a mistake everyone seems to want to make. There’s probably a Latin dictum for this sort of thing. But since we don’t know what it is, we’ll have to coin the phrase ourselves: Imbecility begets imbecility; especially when the bankers come out ahead.
What did you think? Who do you think the Greeks owe money to? That’s right, the big banks are behind this. They’ve got hundreds of billions at stake in Greece. If the Greeks can’t pay, the banks take a hit. Since no one wants the bankers to take a loss – except for us – once again, the feds are coming to the rescue.
Oh…why does this make US businesses LESS profitable? Well, it’s a marginal thing. But what we’re witnessing is a shift of economic power away from the private sector towards the public sector. Private businesses no longer borrow like they used to. Now, the feds do the borrowing and the spending. That leaves less capital…and less spending power…in private hands. Ergo, businesses will find it harder to make money.
They’ll also find it harder to make money because interest rates will rise. Instead of letting the bad credit risks default, the feds weaken all credit. They’re giving debt a bad name, in other words. The risk of default for the particular country goes down; the risk of default of the entire system increases. After all, the debt doesn’t disappear. It has to be paid by someone. Sooner or later. Guess who that will be?
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Perspective:
Lot’s o threats of truly deluvial fiat money creation in the last two days, resulting in-
DJIA +0.5%
Gold +1.5%
SIlver +2.5%
Oh, and what’s this? No bailout for Greece at ALL?
I surmise we won’t be seeing Harry’s like again….
There aren’t nearly enough turnips with nearly enough decent jobs to satiate the vampires.
The future therefore is ever more shriveled up turnips and ever more emaciated vampires until both host and parasite are no more.
The foregoing immutable law of economic evolutionary extinction will soon become self-evident.
JW
Beware bearing Greeks gifts?
No, the debt never has to be repaid. Everyone knows that all of the debt will never ever be repaid–will the USA pay off its $12.5 trillion? Of course not! Money is being devalued on the way to an utopian money-less society that is coming soon. The idea of money was good, but it is now outdated. Nothing lasts forever. RIP Money…let’s help the new world now.
Yes Jason, I agree. After WWIII we will get electronic tokens so you can buy your Monsanto GMO soy bean cakes. If you’re a bad boy God will your tokens away. I’m training for the future by eating dirt and dog turds. (Much healthier and easy to find too)
Scott–electronic tokens are already here; they are money. My paycheck goes direct deposit, I pay bills online, use a debit card for most purchases. Most transactions don’t even involve another human any more–just press a button or put a card in the slot. I haven’t written a check in ages now, and I carry only small amounts of cash mostly for impulse purchases: not Monsanto soy, but things like chocolate bars, espresso, beer or books.