For several months now, I’ve
been stating that the world’s central banks are in a bind. That bind is that
their monetary policies are becoming less and less effective at placating the
markets while the consequences of said policies (higher costs of living, the
targeting of troubled banks in the credit market, etc.) are increasing.
As a result of this, central
banks have begun resorting to more and more “verbal intervention” or promises
to “act” without ever acting.
We received confirmation of
this over the weekend when Angela Merkel chastised Germany Bundesbank Head Jens
Weidmann for stating that an ECB policy of buying bond was like a dangerous
drug.
Angela Merkel tried to calm a growing storm over euro
zone crisis strategy on Sunday after the Bundesbank likened ECB bond-buying
plans to a dangerous drug and a conservative ally of the German leader said
Greece should leave the currency bloc by next year.
The
comments, from central bank chief Jens Weidmann and a senior figure in the
Bavarian Christian Social Union (CSU), Alexander Dobrindt, point to mounting
unease in Germany with the policies being used to combat the three-year old
debt crisis.
Domestic
criticism has narrowed Merkel's room for maneuver at a time when Greece is in
dire need of more aid and policymakers are scrambling to prevent contagion from
enveloping big countries like Spain and Italy.
Two
days after Greek Prime Minister Antonis Samaras visited Berlin and made an
impassioned plea for politicians there not to talk up the possibility of a
Greek euro exit, Merkel herself sent a warning to allies who have said the euro
zone would be better off without its weakest link.
"We are in a very decisive phase in combating the
euro debt crisis," Merkel told public broadcaster ARD in an interview.
"My plea is that everyone weigh their words very carefully."
For over two years now, we’ve
been hearing time and again that the European crisis was “solved” and that
things would improve. It’s obvious now that all of those claims were lies.
Indeed, we’re now at the point that politicians are openly asking central
bankers not to discredit attempts to prop up the
markets.
Let me ask you, how desperate
do things have to be that a politician asks a central banker not to
use certain words during public appearances?
The answer: very, very
desperate.
Indeed, the situation in
Europe is fast approaching a crescendo. The German Constitutional Court
votes on whether the ESM bailout fund is even legal on September 12. If it
doesn’t, it’s the end of the EU as we know it.
Could this happen? The
majority of Germans are fed up with Greece, worried about inflation, and want
the Deutsche Mark back. Also bear in mind that Angela Merkel is up for
re-election next year. So the courts could in fact rule the ESM is
unconstitutional which would end the EU right then and there.
But, for the sake of argument,
let’s say that Germany does ratify the ESM and the ESM is given
a banking license (which Germany says will never ever happen). Even then Spain
and Italy are supposed to fund 30% of it!
So even in a best case
scenario, the bankrupt nations asking for bailouts are going to fund 30% of the
very bailout fund that will bail them out!?!?
You couldn’t make this stuff
up if you tried.
Make no mistake, the crisis in
Europe is far from over. If anything, we’re fast approaching the REAL storm
over there: when countries actually start defaulting and leaving the Euro.
When this happens, we will see
the return of systemic risk. And the US will not prove immune to it. Europe is
the single largest economy in the world. It’s also China’s single largest trade
partner. If the EU goes down, it will send ripple effects around the globe. And
with China entering a hard landing and the US re-entering a recession the
potential for another 2008 type event is higher than at any point in the last
three years.
On that note, we’ve recently
published a report showing investors how to prepare for this. It’s called What Europe’s Collapse Means For You and it
explains exactly how the coming Crisis will unfold as well as which investment
(both direct and backdoor) you can make to profit from it.
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