Tuesday Reflections

Euro Exit Inevitable

Billionaire investor George Soros said it’s “probably inevitable” that a mechanism will be put in place to allow weaker economies to exit the euro.

“There’s no arrangement for any countries leaving the euro, which in current circumstances is probably inevitable,” Soros, 80, said at a panel discussion in Vienna yesterday on whether liberal democracy is at risk in Europe. “We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread. The financial system remains extremely vulnerable.”

Concern Greek lawmakers will fail to pass austerity measures to ensure the next installment of the nation’s bailout is roiling global markets and pushed the euro to a record-low against the Swiss franc last week. Greece is one of three euro- region members to have sought international bailouts amid the sovereign debt crisis.

“I think most of us actually agree that” Europe’s crisis “is actually centered around the euro,” said Soros. “It’s a kind of financial crisis that is really developing. It’s foreseen. Most people realize it. It’s still developing. The authorities are actually engaged in buying time. And yet time is working against them,” he said.

The euro was created in 1999, with 11 member states -- Germany, France, Italy, Belgium, the Netherlands, Luxembourg, Finland, Austria, Portugal, Spain and Ireland. Greece was the 12th country to adopt the shared currency in 2001, while Estonia is the newest member of the euro region, joining this January.

Fed Seen Purchasing $300 Billion

The Federal Reserve will remain the biggest buyer of Treasuries, even after the second round of quantitative easing ends this week, as the central bank uses its $2.86 trillion balance sheet to keep interest rates low.

While the $600 billion purchase program, known as QE2, winds down, the Fed said June 22 that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300 billion of government debt over the next 12 months without adding money to the financial system.

The central bank, which injected $2.3 trillion into the financial system after the collapse of Lehman Brothers Holdings Inc. in September 2008, will continue buying Treasuries to keep market rates down as the economy slows. The purchases are supporting demand at bond auctions while President Barack Obama and Republicans in Congress struggle to close the gap between federal spending and income by between $2 trillion and $4 trillion.

Interest rates must rise worldwide - BIS

The BIS warned low cost of borrowing had resulted in a credit and property price boom that was fuelling inflation, especially in emerging economies.

Central banks across the globe have cut interest rates in an attempt to boost growth after the 2008 financial crisis.

However, BIS warned that the policy may prove to be counterproductive.

"The prolonged period of very low interest rates entails the risk of creating serious financial distortions, misallocations of resources and delay in the necessary deleveraging in those advanced countries most affected by the crisis," the bank said in its annual report.

The BIS is an organisation of international central banks which is not accountable to any national government.
'Inflation fighting credibility'

While loose monetary policies and availability of easy credit have triggered growth, there has been a flip side to it as well.

Emerging economies, especially in Asia, have had to deal with rising prices for food and other essential commodities.

This has pushed up the cost of living and has threatened to derail growth in many developing nations.

The BIS warned that the central banks needed to change their policies in order to deal with the situation.

"Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks," it said.

"It is also crucial if central banks are to preserve their hard-won inflation fighting credibility," the bank added.

One of the things we do on this blog is attempt to profile the authorities to get a sense of their thinking and direction. Many times their words do not conform to their actions, so we focus on what they do more than what they say.
George Soros, the old crocodile, suggests that we are on the edge of economic collapse that may spread beyond Greece. He is quite right in his assessment, in my view, but one wonders about his motives for saying such things. He also now acknowledges the obvious, that the Euro is failing in its present form. As we noted in the past, he is a Fabian Socialist, and believes in global governance, which is why we have included the other two articles aimed at economic meddling.

Big surprise number 2 is Ben Bernanke's extension of QE2 by re-buying maturing bonds to keep interest rates down. We suggested some time ago that he would implement QE3 in an attempt to maintain the status quo rather than deal with the problem. His latest actions are a variant of QE and fit his profile nicely.

The Bank of International Settlements (BIS) is also behaving in a predictable manner. While it appears to be the voice of reason in the fore-mentioned articles, its very existence is a likely threat to civil liberties globally. As a supra-national entity, it answers to no one. Perhaps it is building a profile to become the one and only central bank after the next crisis hits. It would then "manage" interest rates for a global currency, a "super-Euro".

Ironically, none of this superstructure needs to exist.
Fiat currencies have brought us to the brink of collapse.
The obvious alternative is gold which served the purpose of commerce for over 5000 years, and a real bills clearinghouse for commerce.

No central banks.

No Euro.
No globalist, socialist agenda.

No worldwide economic collapse.