The email sent will contain a link to this article, the article title, and an article excerpt (if available). For security reasons, your IP address will also be included in the sent email.
COUNTERPUNCH, OCTOBER 28-30, 2011
by MIKE WHITNEY
Imagine if the local fire chief, in the spirit of conservation, decided he’d use no more than 1,000 gallons of water to put out any given house fire. Do you think the citizens would support that policy if their town was burned to the ground? And, yet, this is the same approach that eurozone leaders are using to address the debt crisis. The central bank (ECB) has virtually limitless resources (Think: printing press) to defend the debt of the individual states and to act as lender of last resort, but the eurocrats won’t hear of it. They refuse to use the ECB as every other central bank in the world is used. They’d rather reinvent the wheel by creating a funky, improvised emergency fund (European Financial Stabilization Facility or EFSF) that’s massively leveraged and which only provides a 20 percent “first-loss” guarantee on sovereign bonds. So, for example, if Italy goes belly-up in the next year or so and can’t repay its debts, then Mr. bondholder gets a whopping 20 cents on the dollar. Such a deal!
Can you see how ridiculous this is?
Look; US Treasuries are backed by the “full faith and credit” of the United States of America. What are Italian bonds backed by? Or Portuguese bonds? Or Irish bonds?
Under this new regime, they’ll be “partially” backed by a dodgy, undercapitalized insurance fund. That ought to shore-up investor confidence.
Return to Article