Euro is sliding, while ECB is confirming money print via banks-help programs

The Euro has fallen below $1,24 and in fact there is no serious indications of a soon reverse. As this devaluation is not good for US-exports it is possible soon we see a direct (QE3) of hidden (via banks) intervention of FED in support of Euro and weakening the dollar. Some analysts call this a "currency war". Some clever analysts call this "madness" that will lead to overall inflation in all currencies and no one will profit from weakening its own currency. But this is a long term threat, while in mid and short term fighting at currency war is a heroic action.

Today it became clear that ECB will not stop printing money to help the bankrupted banks in EU - even the banks in the worst situation. This behavior is disastrous as exactly this money is stopping the reforms and demotivating the governments to cut costs.

Banks are bad because governments are bad. Banks are lending to defaulted governments that press them politically. This makes the banks dependent on government stability. And as governments are not stable and are on the edge of bankrupt, so the banks are in the same situation.

All this process is fed by ECB, that via different mechanisms in pouring newly printed Euros in the system. By saving banks the ECB is indirectly saving governments. The right decision would be just to leave the banks to bankrupt and repay only the deposits of mass people. But if this happens, then the unconscionable banks will disappear and there will be no one to lend to governments, motivated by political pressure.

If money print decision did not exist, then ECB would not be capable of pouring money and the system would heal itself by natural mechanisms. Banks would be more careful when lending to governments and the non-careful ones would default. This would leave governments without money and they would have to cut spending to the level of tax-income. I.e. to make useful reforms.

By printing money the Central banks are transferring the cost of reforms from the originator of the problem (wasteful governments) to the victims of the reform lack - people and society as a whole. Politics are simply trying to repay their debts via inflation. And as we well know, paper money is very easy to inflate... :)

Soon it is possible the Euro to go up versus the dollar. But this does not mean a higher real value. It is just a game of different paper money measured one against other. At the same time the real value of real assets (oil, gold, property) will go up, measured in this inflating money.

There is a big loser in all this in Europe. It is called Germany. After 60 years of post-war hardworking and building a high living standard, now the Germans will have to sacrifice some of their accumulated wealth to pay for the debts of not so diligent nations. It is clear that the Euro is becoming a problem for Germany. It is importing inflation (even officially recognized by ECB as over limits) that is to help Spain, Italy, Greece and all PIIGS group. It is obvious Germany needs back its Deutsche Mark, that will shield it from the experiments with Euro. And Euro - a perfect paper money to print and devaluate as a currency of bankrupted...

May 30th 2012

Powered by