Like a Fat Kid at a Christmas Cookie Walk

Folks, I have been that fat kid at a cookie walk, so I know whereof I speak.  The Federal Reserve has opted to bail out Europe in the form of liquidity swaps.  Although the money is not going directly to sovereign nations – although I might ask, under the EU government, how sovereign any of them truly are nowadays – that money will essentially allow the European governments to keep spending, which is partly what got them into this mess in the first place.  Isn’t giving more money to Europe a bit like inviting a fat kid to a cookie walk?  The kid is probably going to eat up everything in sight and certainly isn’t going to lose any weight.

The Fed has entered into liquidity swaps with the European Central Bank and several other foreign banks.  In a nutshell, the Fed is making more dollars available to the ECB and other foreign banks.  Translation: The Fed is flooding the market with dollars.  Again.  The Fed has also cut the interest rates for those loans and is insisting that there is no risk involved with these loans.

One might ask, at this point, why the ECB, the so-called “lender of last resort” for Europe, hasn’t bailed out Europe itself.  Well, nobody wants to do business with Europe right now.  Europe is not seeing an influx of money, and nobody wants to buy increasingly worthless government bonds.  The ECB is not actually mandated to print money; the ECB supposedly exists for price control of the Euro only.  That said, they have purchased something like $300 billion worth of government bonds, which does allow the individual nation to keep the printing presses turned on, so to speak.  The problem now is that the ECB has – correction: had – nothing with which to buy those bonds.  Enter the Fed.

The Fed has loosed more easy money into the world, and the ECB is likely going to use it to buy up government bonds and keep Europe from collapsing for another week or month or whatever.  Ultimately, the result is the same: the Fed is creating another bubble out of the ruins of the one from 2008, and I suspect that when this one deflates, it’s not going to take any prisoners.

There has been talk about nations giving over their printing presses to the ECB, and Germany has been against it.  Small wonder, given that some folks in that country still remember the fate of the Weimar Republic and its hyper-inflated currency.  Nevertheless, faced with a breakup of the Eurozone or turning on the presses, it seems that Germany is considering breaking one of its golden rules.

In any case, the Fed has just bailed out another group.  Only this time, instead of bailing out the big banks here at home, they’ve bailed out the banks and governments of Europe.  Interestingly, the Fed does not make these bailout records available to Congress.  They say that it would interfere with the Fed’s independence.  Of course, this bailout took place shortly after President Obama pledged to help Europe any way we can.  I guess he wasn’t kidding.

I would honestly laugh, if this whole thing weren’t so damn tragic.  Giving European nations more money is like giving that fat kid an open wallet to buy and eat as many delicious Christmas cookies as possible.  If those European nations are even half as gluttonous as I was as a child, we can kiss our butts goodbye.  Because I could seriously mess up some cookies – and I still can.

Check these out, if you want to read more about the Fed’s newest bailout.

Ron Paul’s Statement on the Bailout of Europe
“Should the Fed Bail Out Europe?” – Forbes
“Fed Says it Takes No Risk Lending Dollars to Europe” – LA Times
“The Easy Fix?  Can Europe Print its Way Out of Trouble?” – ETF Guide
“The Irish Subjugation” by Philipp Bagus via Mises Daily  (As always, I highly recommend Bagus and Mises for all your econ lit needs!)