Farewell, the EU Superstate

Mike Whitney discusses "How Ireland Can Strike a Blow Against the Imperial Bankers." - Ilene 

Courtesy of MIKE WHITNEY

Wednesday's press conference with ECB President Jean-Claude Trichet turned out to be a real jaw-dropper. While Master illusionist Trichet didn't commit himself to massive bond purchases (Quantitative Easing) as many had hoped, he did impress the gathering with his magical skills. The Financial Times recounts Trichet's what happened like this:

"...as Trichet started to speak, his ECB troops stepped into the market to buy as many peripheral bonds as they could, particularly Portugal and Ireland. Started evidently in bidding for 10 -25 mln € clips and then moved onto 100 mln € clips … which is very rare indeed."

Nice trick, eh? So while Jean-Claude Houdini was somberly reading from the ECB's cue cards, his central bank elves were beating down bond yields to convince investors that the contagion had been contained. Not bad for a 70-something bankster with no background in the paranormal. And it seems to have worked, too, at least for the time being. But, unlike the Fed, Trichet can't simply print money. He's required to "sterilize" the bond purchases, which means he'll have to mop up the extra liquidity created by the program. And, that's the hard part. If he pushes down yields in Ireland and Portugal, he has to tighten up somewhere else.

Trichet's critics, like Bundesbank President Axel Weber, think he's gone too far by buying up the bonds of struggling PIGS. (Portugal, Ireland, Greece and Spain) But these countries borrowing costs have skyrocketed and they're quickly losing access to the markets. The more it costs to borrow, the quicker the slide to default, which is trouble for the EU, because it means a wider meltdown across the continent. So what better time for Trichet to stretch the rules?

Maybe Weber hasn't noticed, but the EU is disintegrating, and if Irish voters reject the budget in the December 7 elections or if Spain starts to teeter, the dominoes could start tumbling and bring down the European project in a heap. That's why Portugal, Spain and the rest are counting on the ECB to lend a hand despite Berlin's relentless fingerwagging. Here's an excerpt from the Telegraph which gives a good summary of what's going on:

"Spain's former leader Felipe Gonzalez warned that unless the European Central Bank steps into the market with mass bond purchases, the EMU system will lurch from one emergency to the next until it blows up....

Arturo de Frias, from Evolution Securities, said the eurozone will have to move rapidly to some sort of fiscal union to prevent an EMU-break up and massive losses on €1.2 trillion of debt lent by northern banks to the southern states....

The market will keep selling until the yields of Spanish and Italian bonds (and perhaps Belgian and French also) reach sufficiently horrendous levels. ("Mounting calls for 'nuclear response' to save monetary union", Telegraph)

The so-called Irish bailout solved nothing. Brushfires are breaking out everywhere. Bondholders have figured out that Ireland and Portugal are broke and their debt will have to be restructured. Its just a matter of time before the haircuts. That's why bond buyers have gone into hibernation. It's not really a panic; it just shows that investors know how to read the financial tea leaves and make rational choices. Here's more analysis from Michael Pettis who points out the inherent contradictions of the one-size-fits-all currency (euro) and the urgency of settling on a remedy:

"If Europe is going to "resolve" the current crisis in an orderly way, it is going to have to move very quickly – not just for the obvious financial reasons, but for much narrower political reasons. I am pretty sure that the evolution of European politics over the next few years will make an orderly solution progressively more difficult.

For ten years I have used mainly an economic argument to explain why I believed the euro would have great difficulty surviving more than a decade or two. It seemed to me that the lack or fiscal centrality and full labor mobility (and even some frictional limits on capital mobility) would create distortions among countries that could not be resolved except by unacceptably high levels of debt and unemployment or by abandoning the euro. My skepticism was strengthened by the historical argument – no fiscally fragmented currency union had ever survived a real global liquidity contraction…...The eurozone is maneuvering itself into a position where it confronts the choice between two alternatives considered "unimaginable": fiscal union or break-up." ("The rough politics of European adjustment", Michael Pettis, China Financial Markets)

The real problem is political not economic, which is why Trichet's "liquidity injection" snakeoil won't do anything. The euro just isn't going to work unless it is backed by a centralized fiscal authority and perhaps an EU-wide bond market. But that means that every nation will have to sacrifice some of their own sovereignty, and no one wants to do that. So, the 16-state union keeps inching closer and closer to the chopping block and the inevitable day of reckoning.

Meanwhile, Trichet continues to do exactly what he has done from the beginning; extend more cheap loans to sinking banks, more low rates, and more propping up of collapsing bond markets. The only difference now, is that investors see the political roadblock ahead and are getting nervous. EU leaders will have to agree to a "quasi" fiscal union or the current slow-motion bank run will turn into a full-blown stampede.

From the Wall Street Journal: "The market was hoping the ECB would get ahead of the curve. They've disappointed us," said Marc Chandler, an analyst at Brown Brothers Harriman. Merely declining to unwind liquidity measures will do little to combat the risk of contagion on distressed assets in Spain and Portugal, he said, describing Trichet's comments as "toothpaste coming out of the tube."

Ireland's problems are just the tip of the iceberg, but its a good place to start. The easiest way to explain what's going on, is by using an example:

Imagine you owe the bank $100, but you can only pay $10 per year. The bank agrees to the payment-schedule but only if you accept a rate of 15% per annum.

"Okay", you say. "I accept your terms."

At the end of the first year, you make your payment of $10 which reduces the amount you owe to $90. But the interest on the loan turns out to be $15, which means that you now owe $105 --more than you owed at the beginning. Finally, you realize that every year the debt will get bigger and harder to pay.

This is the pickle that Ireland is in. The IMF/EU loans put them in a fiscal straightjacket from which there is no escape. They'd be better off defaulting now and restructuring their debt so they can start over. It's better to put oneself on a sustainable growth-path than to submit to long-term economic hardship, harsh austerity measures, loss of sovereignty and civil unrest. That's just a lose-lose situation. For Ireland, leaving the EU is not the just best choice; it is the only choice. Here's how economist Barry Eichengreen sums it up:

"The Irish "program" solves exactly nothing – it simply kicks the can down the road. A public debt that will now top out at around 130 per cent of GDP has not been reduced by a single cent. The interest payments that the Irish sovereign will have to make have not been reduced by a single cent, given the rate of 5.8% on the international loan. After a couple of years, not just interest but also principal is supposed to begin to be repaid. Ireland will be transferring nearly 10 per cent of its national income as reparations to the bondholders, year after painful year.

This is not politically sustainable, as anyone who remembers Germany's own experience with World War I reparations should know. A populist backlash is inevitable. The Commission, the ECB and the German Government have set the stage for a situation where Ireland's new government, once formed early next year, rejects the budget negotiated by its predecessor. Do Mr. Trichet and Mrs. Merkel have a contingency plan for this?" ("Ireland's Reparations Burden", Barry Eichengreen, The Irish Economy)

Still Irish Prime Minister Brian Cowen is moving forward with the faux-bailout, perhaps to endear himself to his ruffle-shirt EU overlords. And even though his administration has lost all public support, he's still pushing through his slash-and-burn budget that will pare 15 billion form public spending--raise taxes on the poor, reduce the minimum wage, slash social welfare programs and fire thousands of government workers. Irish workers will see their standard of living plunge, only to find that at the end of the year they are more in the red than ever. Here's how Edward Harrison of Credit Writedowns sums it up:

"...given the debt burdens in the periphery, some combination of monetisation and default is the most likely eventual scenario for Europe. Ireland, for example, cannot grow nominal GDP at or above the 5.8% interest rate on offer under the bailout terms. Unless the country sheds its bank debt guarantee as I recommend, default is likely. Therefore, the ECB will have to step in or Europe will risk a meltdown and dissolution." ("Brynjolfsson bets on spread convergence...", Edward Harrison, Credit Writedowns)

Ireland is being thrust into a Depression. Its leaders have chosen obsequiousness and expediency over clear-headed resolve to face the challenges ahead. Cowen is condemning his people to years of high unemployment and grinding poverty for nothing. There are alternatives. It will just take a little guts.

The Irish people are being asked to suffer needlessly so that bondholders in Germany, France and England get paid-in-full on their soured investments. It's worse than a bad idea; it won't work. Ireland is just digging itself a deeper hole. But there is a way out, as Wolfgang Münchau points out in a recent op-ed in the Irish Times. Here's what he said:

"What should be done now? My ideal solution – from the perspective of the euro zone – would be a common bond to cover all sovereign debt to be followed by the establishment of a small fiscal union; furthermore, banks should be taken out of the hands of national governments and put under the wings of the European Financial Stability Facility. That would clearly solve the problem.

If this is not going to happen, what can Ireland do unilaterally now?...

First, Ireland should revoke the full guarantee of the banking system, and convert senior and subordinate bondholders into equity holders." ("Will it work? No. What can Ireland do? Remove the bank guarantee and default", Wolfgang Münchau, The Irish Times)

Sure, the experts know what needs to be done, but nothing will come of it. German voters will never support stronger ties with the other EU nations which they have already dismissed as profligate spenders. Nor will the other countries surrender more of their own sovereignty when they see how Ireland and Greece have been treated. That means, the EU is probably headed for the dumpster. And, maybe, that's a good thing. After all, behind all the public relations hoopla, the real goal of the EU was always to create Corporatopia, a place where bankers, business chieftains and other elites lined their pockets while calling the shots. Just look at the Lisbon Treaty fiasco back in 2008, when the EU's corporate Mafia used every trick in the book to push through an agreement that ran roughshod over basic democratic principles and civil rights. Fortunately, the Irish people saw through the ruse and sent the Treaty to defeat. Here's what a spokesperson for the "No Campaign" said at the time:

"The Irish people have spoken. Contrary to the predictions of social and political turmoil, we believe that hundreds of millions of people across Europe will welcome the rejection of the Lisbon Treaty. This vote shows the gulf that exists between the politicians and the elites of Europe, and the opinions of the people. As in France and the Netherlands, the political leaders and the establishment have done everything they could to push this through – and they have failed. The proposals to further reduce democracy, to militarize the EU and to let private business take over public services have been rejected. Lisbon is dead. Along with the EU Constitution from which it came, it should now be buried."

On December 7, Irish MPs will vote on Cowen's austerity budget. If they reject the budget, then the IMF/EU loan package will probably not go through and the eurozone will begin to splinter. Once again, Ireland finds itself with the rare opportunity to strike a blow against the EU and end the dream of a corporate superstate. And all they need to do is vote "No".

Originally posted at CounterPunch.

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A Look At The Upcoming Week's European Events, Straight From The Establishment Propaganda Horse's Mouth

Goldman's Erik Nielsen looks at the immediate European future, is flummoxed by all the end of world calls (bank runs, Ireland rejecting budget, austerity riots everywhere), and sees a future so bright he just has to wear the kind of shades that only a multi-million dollar bonus can buy (especially after Goldman upgrades all banks and its own bonuses by about 10%). After all his colleague Hatzius, despite all the facts and data, just upgraded US GDP. It now appears that just like Moody's 5 years ago, Goldman's excel spreadsheets crash when one input a negative growth assumption. Arguably these are the same spreadsheets that Tim Geithner used to prepare his taxes.

From Goldman Sachs

Happy Sunday,

Winter arrived here in Chiswick sometime last week while I was in California; what a shock to my system when I landed in Heathrow on Friday afternoon!  I spent a very busy – and interesting - week meeting clients there, so my apologies for my poor response rate to the many emails and calls I got last week.  Possibly deluded by the wonderful vibrancy of California (in spite of the crisis), here is how I see Europe on this early winter day:

• Why the rumours of some new big crisis initiative from the EU or the ECB make little sense.
• My best guess what the response will be in the weeks to come, if markets don’t calm down by themselves.
• But don’t question the continued political commitment to the European project.
• It was another week of very good macro numbers throughout practically all of Europe.
• We published – globally – our revised 2010-11 forecasts, and our first suggestion for what 2012 might look like.  We think the global (and overall European) outlook remains robust. [one usually pays good money for this kind of comedy]
• Next week all eyes will be on the Irish budget approval on Tuesday.
• On the data side, we’ll get the first hard Q4 data as almost all of Europe reports industrial production for October.  In the Euro-zone we’ll start with Germany, France and Italy, all of which should show decent growth.
• In the UK, in addition to manufacturing output, we’ll get (high) producer price inflation – and the monthly MPC meeting (no change).
• Switzerland prints the valuation of their FX reserves; interesting in these times of (excessive) focus on central bank balance sheets.
• Sweden and Norway will be reporting IP and inflation.
• Central Europe will print a host of data for early Q4 – and the details of their impressive Q3 numbers.

1     Following the disappointment with the Irish package last weekend (justified in as much as uncertainties surrounding the 2011 budget and the future political landscape is shifting so fast), contagion spread early in the week to the Iberian Peninsula and beyond, in turn raising speculation about what the next official sector move might be.  Most questions related to the possibility of an expansion of the EFSF and an announcement of big ECB purchases of sovereign assets.  In my view, both ideas are very unlikely for a long time, if ever:  Reality is that crisis responses are not pre-empty but reactive, so it just does not seem reasonable to expect the EFSF being topped up until its present capacity has been exhausted (if even then), and I very much doubt the ECB would ever announce a specific quantified purchase program for two reasons:  First, why do it when they already have a de facto open-ended facility (and Trichet says that they’ll do what they have to do!) while a new quantified program would most likely trigger unhelpful headlines in the German (and other countries’) press?  Second, would a quantitative announcement actually be better than the present set-up? I doubt it.  Remember the issue they are out to address is not too weak growth and too low inflation (which might justify QE) but a market which – in their view – misprices assets to a degree that there might be broader systemic risks, so they intervene in the sovereign debt market like they would in the FX market – and here there is no history of pre-announcing quantities or time periods for their interventions.

2     Rather, if markets do not calm down substantially in the next few weeks then I rather suspect that we’ll get a “traditional” EFSM-EFSF-IMF program with Portugal that would finance them for the next 2-3 years.  Indeed, I wonder why they didn’t come along with the Irish process apart from the fact that Portuguese policies still seem to lack some for the conditionality that would accompany such a program.  Spain is different in as much as they have moved much more aggressively on the policy front ever since the drama in April-May.  Just this past Friday the Spanish government passed the initiatives they announced earlier in the week, and added three more for good measure, namely (very importantly) plans to raise the retirement age to 67 from 65 (details to come through in late January); an increase in tobacco excise taxes; and a 35% cut in existing subsidies for wind power.  In my book, we are now very close to a policy set-up in Spain that would qualify as proper conditionality for a program, but since Spain would practically exhaust the EFSF if it had to be fully funded for a 2-3 year period, I think the smart thing would be to provide them with a contingent facility – or a credit line – not that different from what the IMF provided to Mexico and Poland in recent years.

3     If still not enough to put an end to contagion, then I remain convinced that we’ll get further policy actions through official lending, ECB purchases, or – if markets are seen as irrational [otherwise known as perfectly rational markets responding to a demented authoritarian and quasi dictatorial regime, see Nigel Farage]– by some form of capital controls or other measures.  The money is available in the Euro-zone (running a small current account surplus), so it is “only” a question of re-distribution of savings – and the overall commitment to the overall European project (and to avoid a European version of Lehman) is not at risk.  There’ll always be political noise when official lending has to be agreed, but it takes place against conditionality which is pushing through policy reforms at an unprecedented clip in the recipient countries, and it is taking place at a positive carry for the lenders.  But sometime transparency might not work to one’s advantage in a political sense, of course: Compare the European rescue of the periphery to a system of fiscal federalism in which tax money is being shared (given away, not lent) against no conditionality, with imbalances dragging on for ages.  I guess it all comes down to one’s concept of solidarity with one another; a topic on which reasonable people can surely disagree.  On this general topic, I can highly recommend Peter Singer’s little book: “The Ethics of Globalisation”, which – to give credit where credit is due – came to my attention from the interview with Dani Rodrik on the excellent website “Five Books”:  http://fivebooks.com/interviews/dani-rodrik-on-globalisation

4     But maybe markets calm by themselves as the good data continues to roll in!  We are through another week of generally robust growth-related numbers throughout Europe.  The Euro-zone printed a manufacturing PMI for November of 55.3 (consistent with about 2.5% annualised GDP growth) with acceleration in the output, news orders and employment components.  Not surprisingly, Euro-zone growth continues to be driven by the 75% or so of the economy in the “core” (German retail sales were up a solid 2.3%mom in October in line with our overall forecast of stronger domestic demand), while the periphery keeps struggling.  In Spain we saw another decline in industrial production although better than expected retail sales.  The UK composite November PMI increased to a six-month high of 55.0, suggesting annualised GDP growth in the 3.0%-3.5% range, while the Swiss PMI reversed three months declined and returned back up above 60.  Norwegian PMI also moved higher to 56.0.  In Sweden, where we already are in the 60-stratophere, the PMI eased a tad, while Q3 GDP came in an eye-watering 2.1% higher than Q2; i.e. 8.7% annualised growth!

5     Generally, these European numbers came pretty close to our expectations, if slightly on the stronger side, so it’s looking good for our 2010 forecast of 1.7%.  On that note, on Wednesday, along with our colleagues around the world, we updated our 2010-2011 forecasts and presented our first look at 2012.  For the world as a whole, we revised our 2010 and 2011 forecast up to 4.9% and 4.6%, respectively, predominantly on the back of stronger US growth than previously thought.  We see good global growth continue for 2012 as well, at 4.8%.  Our European (EU-27) forecast is still for 1.9% this year followed by 2.2% in each of 2011 and 2012.  We have the Euro-zone grow by 1.7% this year, followed by 2.0% next year and 1.9% in 2012.  Please see our global publications from Wednesday for a more detailed discussion as well as our top trades on the back of these new forecasts. 

Looking to the week ahead,

6     The possibly most important event this coming week will be the vote on the Irish budget on Tuesday, which forms part of the base for last weekend’s rescue package.  My guess would be that it’ll pass in spite of the rapidly developing political crisis because of a broader feeling of national cohesion – before the glows then come off for what almost certainly will be early elections, probably in January or February.  If I were to be wrong in thinking the budget will pass then negotiations with the Troika would start up again, surely accelerating the expected early elections with the ECB keeping up its more aggressive asset purchases.   

7     In the Euro-zone this coming week will provide the first hard data for Q4, namely German manufacturing orders and industrial production on Tuesday and Wednesday, respectively, followed by French and Italian IP on Friday (all of which having EMEA-Map relevance scores of 5).  The surveys have pointed to a re-acceleration in activity in early Q4, and our leading indicator has also turned up slightly.  We expect German orders to post a +2%mom gain and German IP to increase by 1.2%mom, both after weak September numbers.  We expect smaller increases in France (+0.1%mom) and Italy (+0.2%mom), reflecting both their less powerful recoveries, but also their positive growth rates in September compared with the negative ones in Germany (remember these are volatile series.)  If we are broadly right on these expectations, then Euro-zone October IP – out the week after next – will be a forceful +0.7%mom; a powerful start to Q4 in Euroland!

8     The UK also reports the first hard data for Q4 this coming week; in the form of October manufacturing output (and industrial production) on Tuesday; we expect both to come in at +0.3%mom.  We also get producer price inflation and PPI ex-food etc on Friday, which we think will come in at a stunning 4.0%yoy and 4.6%yoy, respectively.  The day before, Thursday, the MPC will consider its monetary policy stance; they’ll leave rates and other policies unchanged in spite of the continued significant overshoot of their inflation target.

9     In Switzerland the highlight will be tomorrow’s preliminary estimate of the end-November CHF value of FX reserves on the SNB’s balance sheet.  This is particularly interesting in these days of (excessive) concern about central bank balance sheets because here is a central bank which didn’t hesitate to put its balance sheet to work to correct what it thought was inappropriate market price actions!  Otherwise there is just one data release of interest in Switzerland: the unemployment rate for November (Tuesday); we expect an unchanged headline rate of 3.6%.

10     Sweden also reports October IP this coming week (EMEA-Map relevance: 3), which should see a more sustainable growth rate than September’s turbo-charged +2.7%mom; maybe around consensus’ +1.0%.  We’ll also get inflation data on Thursday.  For the CPIF inflation measure, which excludes the direct effect of changes in Swedish interest rates and is the measure most closely followed by the Riksbank, the consensus expectation is for an unchanged 1.8%yoy in November, which seems reasonable to us (Riksbank: 1.7%).  Headline CPI inflation is released along with the CPIF measure, and the consensus expectation is for an increase to 1.7%yoy (Riksbank: 1.5%yoy).  Also, As Lasse Nielsen has pointed out, Deputy Governor Nyberg’s speech tomorrow on new monetary policy thinking after the crisis will be worthwhile listening to (or reading shortly afterwards).

11     Norway also prints its October IP (EMEA-Map relevance: 4) and inflation this coming week.  The IP is on Tuesday; we expect +0.4%mom after September’s amazing +1.6%mom.  The underlying CPI-ATE inflation rate (which adjusts for tax changes and excludes energy products), and which Norges Bank pays most attention to, should come in at around 1.0%yoy in November while the headline number is likely to ease to 1.9%yoy (from 2.0%).  Also, Norges Bank Regional Network Report for Q4 will be released on Friday.  Given its excellent track record in Q3, this report will be the key source of information of sentiment coming into Q4.

12     Central Europe also gets their first look at hard data for Q4, namely in the form of IP, retail sales, trade and current account balances, as well as unemployment numbers for October. But the most important numbers may be the Q3 GDP breakdown in Hungary and the Czech Republic on Thursday. Flash estimates were better than expected so we will be looking for what led to this outperformance, especially if there was a visible pick-up in domestic demand.

… and that’s the way Europe looks to me.  The sun is out – if not quite as powerful as it’ll be when it makes it ways over to California later in the day, but its good enough for a stroll on the high street here in Chiswick - and behind the windows of Caffee Nero, it’ll feel very good!

Best

Erik F. Nielsen
Chief European Economist
Goldman Sachs

READ MORE - A Look At The Upcoming Week's European Events, Straight From The Establishment Propaganda Horse's Mouth

Hedge funds bet against euro

By Laurence Fletcher

LONDON (Reuters) - Hedge funds are betting the euro will fall further as Europe's sovereign debt woes spread but have largely abandoned bond insurance trades given uncertainty over political interventions following Ireland's bailout.

Some are shorting the euro or taking long positions in the Australian dollar or Norwegian krone versus the euro, betting interest rates in those countries will rise while euro zone rates will stay low.

"The bulk of the action has been through the currency," one fund of hedge funds manager who declined to be named told Reuters, adding that "relatively few" funds had bet on credit default swaps -- insurance against bond default.

"The reason is that (currency) is the most liquid market. If you think there is another leg to peripheral Europe's problems, the euro is definitely a way to express it."

The euro rallied briefly after Europe agreed an 85 billion euro emergency aid package for Ireland on Sunday, but has since continued its fall as fears have grown that the debt crisis will deepen.

The single currency has dropped from more than $1.40 earlier this month to hit an 11-week low below $1.30 on Tuesday.

Pedro de Noronha, managing partner at Noster Capital, has no exposure to CDS but is short the euro and said that despite recent falls the euro "still has legs to go down".

"Given the issues that this group of countries is facing it is very hard to understand how the euro is so strong given the obvious ineptitude of the euro to serve as a 'one size fits all' currency," he said.

"Euro strength is not due to fundamentals but simply related to central bank reserve diversification. The euro should be closer to parity than to $1.50 in our view."

POLITICAL RISK

Many hedge funds see credit default swaps on indebted European countries -- which have blown out to record levels -- as no longer attractively valued and fear the uncertainty caused by political intervention, as politicians and central bankers argue over rescue packages.

Markets are already pricing in a Portuguese bailout -- and maybe for Spain too -- following those for Greece and Ireland.

"There's not so much (in bonds) as one might think. People recognise there's a lot of political risk," said Morten Spenner, chief executive of funds of hedge funds firm International Asset Management. "They prefer to play the currency.

"In Greece, they invested before (this stage). Once it gets political they pulled out. Now everyone's talking about it, the value has been (and gone). They're not trying to predict what the ECB is going to do."

The cost of insuring 10 million euros' worth of Irish bonds against sovereign default rose to 625,000 euros on Tuesday as markets showed their scepticism over Ireland's bailout package.reuters.com

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Gold, the EU and the Fed

Central bankers hate gold. That’s surprising given that they collectively own the lions share of what’s out there. The record is pretty clear however, most of the majors have sold gold over the past few decades. Today they have even more reason to hate it. It makes them look bad. This chart shows that both the Euro and the dollar are losing the race against gold as a store of wealth.

That the Euro is hitting all time lows against gold is an old story. But the move has gone parabolic of late, including a 3% pasting today

A very high percentage of Europeans own some gold. Much more than Americans. Younger people who don't own gold have parents that do. They are more aware of gold as an asset class and something to turn to when there is trouble. Therefore the collapse of the Euro against gold is much more relevant then the fall in the EURUSD. EURGOLD is probably the best barometer of how desperate Europeans see their collective financial future. This does not bode well for consumer or business confidence.

The US Fed is adding to the misery of the EU Central bankers. They are part of the problem, not part of the solution. They are contributing to the appreciation of gold at a time when the Euro is weak versus the dollar. This creates the exponential price action in EURGOLD.

Many things are influencing gold of late. Inflation in China, nuts shooting cannons, a melt down of Europe’s financial picture and of course the biggest of all is the Fed and its effort to create inflation as a policy goal. What does this story from the WSJ do for gold?

It’s a good bet that Ben Bernanke and his talking heads will get their way. Actual inflation, and even worse, expectations of inflation will rise. Gold will rise against the dollar as a result. It’s an equally good bet that the Euro is headed lower against the Buck. So the measuring stick that Europeans look at is going to get even more stretched. I wonder if those European central bankers (and a few political leaders) are hating Ben for adding to their woes.

Source: www.zerohedge.com

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