The situation in Europe is scary and by default politicians got the blamed.
The Europe dithering govt can easy be blamed, but it’s the Washington that looks decisive.
In truth, there’s not much too choose between them. When you strip away the superficial differences you’re left with politicians on both sides of the Atlantic who fear the electoral consequences of betraying there base: Whether it’s German chancellor Angela Merkel, President Obama or Speaker of the House John Boehner.
In Europe, as well as the US, their “too little too late” decision-making is making headlines. This is what passes for leadership these days. It’s pathetic.
Unfortunately this time Politicians are not the real culprit in the melodrama going on in Europe, the contagion could lead the way to US.
It’s the speculators who are making the latest global financial crisis worst. They’ve set up shop in Wall Street and High Street and make a living bringing economies perilously close to collapse.
Green light in 2000 allowed them to leverage beyond there means and the rampage ever since.
Oil, gold, wheat and silver are just some of their favorite targets in the past decade. Their latest?
Government bonds.
Speculators are picking apart Europe’s bond market country by country. First Greece, then Ireland, followed by Portugal, Spain, Italy and France.
And now Germany.
And they’ve been getting a free pass, because their buying and selling of bonds represents the supposed sacrosanct free market.
And we all know that when free markets are allowed to operate unencumbered by rules and intrusive politicians, the end result is fair prices.
So if bond prices are going down and yields are going up, that’s merely the markets serving as the proverbial canary in the coalmine warning us that the finances of these countries are in big trouble.
So how would this play out in the government bond markets?
Those investors expecting interest rates to rise and prices to fall would “short” bonds, meaning borrowing bonds for a fee and then selling them.
If they’re right they can buy them back later for a lower price. Their profit is the difference between the selling and purchase price.
If they’re wrong the holders of these bonds, normally the Treasuries, win. So what’s the problem here?
Nothing if these was normal circumstances. But they’re not. There is a great deal of concern over the future viability of certain European countries, with Greece topping the list.
But is Italy in the same category as Greece? Is France or Germany (they could only sell 61% of their bonds last week)?
This is simply the herd behavior of speculators taking over the bond markets.
There’s a simple, easy solution for governments to nullify financial market (speculators!) influence: stop borrowing money from them!!!
And precisely there lies the rub: politicians in the countries you mention have for decades made promises to their electorate which they do not (and did not) have the money to keep, so they borrow, kicking the can down the road to the next government (and so on, and so forth). And they have now got to a stage where the lender is saying: we will not lend you any more as we suspect you are unable to repay.
And a last point: those “speculators” are frequently pension funds, insurance companies, etc. who you and I have charged with managing our money. I would be most annoyed if they behaved differently with my money, i.e. lent it willy-nilly to errant debtors. I should like to hear the pensioners comments at retirement when his fund/insurance says: “sorry, I can only pay you half your pension, I lent money to states that could not repay, they did not and now I don’t have it to pay your pension!” Riots, I suspect!!
Werner nice thoughts, I believe the biggest reason for the speculation is leveraging and the greed behind it. If insurance / retirement funds leveraged that means the hard earned money of the public is for a toss, and excessive leveraging results in the more & more speculation and creates bubble.
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