And Why Didn't We Untangle Ourselves From Europe THREE YEARS AGO?

I'm not mad, but why haven't we disconnected ourselves from Europe in the last three years? What economic geniuses didn't see this coming from 1,000 miles (or precisely 3653 miles) away?! And then which of those economic geniuses decided the best course of action would be to throw more money at it?

Here's some testimony before a House TARP oversight committee by Federal Reserve Director of International Finance Steven Kamin on the "economic situation in Europe." A fucking situation.

In 2011, we should not even be having this conversation. It should be "Oh, sucks for Europe but we learned our lesson in 2008 when we imploded everyone else and have successfully removed ourselves from the contagion." Instead it's "Ooops, we better throw dollars at them to 'help' the situation." WTF is that?! The euro is dead, no amount of dollars can fix that. We don't even have enough dollars to fix our own shit, let alone Europe's hot mess.

And yet, here is the Board before the House yapping about how "progressively more entangled" we have become. Who let this happen on their watch?

For two years now, the tone of global financial markets has become progressively more entangled with fiscal and financial developments in Europe. The combination of high debt levels and low growth prospects in several European countries using the euro has raised concerns about their fiscal sustainability. Such concerns were initially focused on Greece but have since spread to other euro-area countries, leading to substantial increases in their sovereign borrowing costs. Pessimism about their fiscal situation, in turn, has helped to undermine confidence in the strength of European financial institutions, increasing their cost of raising funds and threatening to curtail their supply of credit. These developments have placed significant strains on global financial markets and have weighed on global economic activity.

Late last week, European leaders announced new steps to address the crisis, including proposals to strengthen fiscal rules and European fiscal coordination, as well as to enhance and provide additional clarity on the timing and design of a more credible euro-area financial backstop. These steps are a positive development and indicate the commitment of European leaders to alleviate the crisis. However, many key details of their proposed policies have yet to be worked out, and implementing them will be a challenge. Hence, it will be critical for European authorities to follow through on their commitments in the days and weeks ahead.

Here at home, the financial stresses in Europe are undoubtedly spilling over to the United States by restraining our exports, helping to push down business and consumer confidence, and adding to pressures on U.S. financial markets and institutions. Of note, foreign financial institutions, especially those in Europe, are finding it more difficult to fund themselves in dollars. A great deal of trade and investment the world over is financed in dollars, so many foreign financial institutions have heavy borrowing needs in our currency. These institutions also borrow heavily in dollars because they are active in U.S. markets, purchasing government and corporate securities as well as making loans to households and firms. As concerns about the financial system in Europe have mounted, many European banks have faced a rise in the cost and decline in the availability of dollar funding. Difficulty acquiring dollar funding by European and other financial institutions may ultimately make it harder and more costly for U.S. households and businesses to get loans. Moreover, these disruptions could spill over into the market for borrowing and lending in U.S. dollars more generally, raising the cost of funding for U.S. financial institutions. Although the breadth and size of all of these effects on the U.S. economy are difficult to gauge, the situation in Europe poses a significant risk to U.S. economic activity and bears close watching.

So what this asshole is saying is that we never learned our lesson and now it's our fault Europe was forced to experiment on a failed economic model of unity? That's bullshit.

He goes on to explain why the Federal Reserve has chosen to open the European spigot:

To address these potential risks to the United States, the Federal Reserve agreed with the European Central Bank (ECB) and the central banks of Canada, Japan, Switzerland, and the United Kingdom to revise, extend, and expand its swap lines with these institutions. 1 These actions were described in a joint announcement by the Federal Reserve and the other central banks on November 30. The measures were motivated by the need to ease strains in global financial markets, which, if left unchecked, could impair the supply of credit to households and businesses in the United States and impede our economic recovery. At present, such strains are particularly evident in Europe, and these actions were designed to help prevent disruptions in financial markets there from spilling over to the U.S. economy.

After an over explanatory explanation on these swap lines, he adds the obligatory disclaimer:

I would like to emphasize that information on the swap lines is fully disclosed on the Federal Reserve's website--through the weekly balance sheet release and other materials--and information on swap transactions each week is provided on the website of the Federal Reserve Bank of New York.

I also want to underscore that these swap agreements are safe from the perspective of the Federal Reserve and the U.S. taxpayer.

That's kind of a dick thing to say. "We're screwing your purchasing power in front of you and here it is fully disclosed on our website and we swear it won't screw you." Who digs through Fed swap data on a weekly basis? People just want to know why milk costs so much these days.

Unfortunately, things like TARP have somehow turned out to be an awesome dollar laundering operation, with Treasury reporting "profits" as if the "money" ever existed in the first place. So guys like this are able to go in front of Congress and say they believe the swaps are "safe" for both the Fed (who has a financial interest in our survival as an economy - if we die, the parasites can't feed on us) and the taxpayer (who doesn't have a choice anyway). Why does that feel like we're getting screwed in the deal?

Because it isn't real. They've built an illusion on top of an illusion and by supporting the failure of the European experiment, they're only prolonging the inevitable. They're borrowing off what they borrowed on, and passing it back and forth without ever actually "creating" more value. Consumers in America are distorted on what things should cost, while the establishment is shipping crates of dollars to Europe and Afghanistan and Iraq. What's wrong with that picture?

Over it. Totally over it.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


OldSouth said...

This is like watching a train wreck in slow motion from a distance, knowing that your children are lashed to the tracks at the point of collision.

At least JDA knows how to express her outrage in writing. OS now just splutters incoherently.

"We" don't exist. Bankers bail out bankers. Zimbabwe Ben will bail out any bankers anywhere anytime. Similary the ECB will bail out our bankers if need be. The Fed and ECB can even perform stress tests together. How romantic. Got gold? Get more! Got: Euros, dollars, yuan, etc., sell immediately!