If Bernanke tries to bail out the Eurocrats by printing money, expect a revolt that made previous Tea Party rallies look like Sunday picnics.
[Update a few minutes later]
Don’t even think about it:
In the days leading up to the collapse of Lehman Brothers, then French Finance Minister (now IMF Managing Director) Chistine Lagarde told then-Treasury Secretary Hank Paulson that he could not allow Lehman to fail. The ramifications would be catastrophic, she said. She was mostly right.
Three years later, it will be Angela Merkel talking to President Obama,Treasury Secretary Geithner and Federal Reserve Bank Chairman Ben Bernanke with exactly the same message. The United States government and the Federal Reserve must come to the rescue of the Eurozone or the ramifications will be catastrophic. And she will say that she needs roughly $1 trillion in financial guarantees and liquidity support. That’s the number that will calm the markets.
She will do this publicly (it will be leaked to the FT or the NYT) because (a) she wants to maximize the pressure on the US to ride to the rescue and (b) she wants the blame to fall elsewhere in the event that the “situation” goes haywire.
And there will follow perhaps the defining moment of the Obama Presidency. If Obama goes forward and provides all or part of the $1 trillion guarantee, he will likely cut his own political throat in so doing. If Obama declines to go forward and provide all or part of the $1 trillion guarantee, he will likely preside over the second massively destabilizing financial panic in four years, thus insuring a second Great Recession, thus cutting his own political throat.
It’s not like he has the unilateral power to do it anyway. Bernanke is nominally independent (particularly since he just got reappointed) and there’s no way he’d get it through Congress. I wonder if Merkel doesn’t understand what powers an American president does and doesn’t have?
We could use about fourty of these guys in the Senate. Let get a few for the House while we’re at it.
So we’re going to rescue Greece and the rest of the EU by doing the same things that got Greece into trouble? Right…
At that time I’m going shopping for torches and pitchforks.
It’ll make the Tea Party look like a tea party.
Likely cut his own throat? Likely? As likely as the sun rising yesterday.
And so many people thought we needed to be more like Europe.
” Worried that a mounting debt crisis in Europe could trip up the global economy, the Federal Reserve opened its vault Thursday to the central banks of other countries in an effort to head off a crippling shortage of dollars.
The main recipient of the Fed’s money is the European Central Bank, which will in turn extend dollar loans to banks in the nations that use the euro currency. Those banks do significant business in dollars, for instance making loans to customers operating around the world, and have been finding it harder to raise dollars from anxious investors.”
http://pajamasmedia.com/richardfernandez/2011/09/16/the-last-throw-of-the-dice/#more-17274
After reading the update, I have a question. Where is Soros standing in all this?
One giant interconnected machine. What are the chances that part will fail without taking out the whole thing?
Individuality isn’t just for people ya know.
Make the loan, charge them payday loan interest rates, and make the euro so worthless they will long for weimar german marks again.
Didn’t we already bail them out with TARP?
Mike Lorrey,
It better be a secured loan. What’s Greece got for collateral besides the Acropolis?
The US is going to loan money to the EU? How? By borrowing it from China? Madness.
It doesn’t make sense to me. Obama no longer has that kind of pull and any sort of appeal (whether public or attempted secrecy) would be humiliating to the ones that made it. Finally, Germany is very sound. They don’t need this bailout. Merkel would be doing something that runs counter to the interests of her country, both short and long term.
I think it more likely that Germany will force defaults by refusing to support further the problem countries of the EU.
The EU is learning the lesson the U.S. learned in the 1780’s about the financial problems associated with a weak central government versus a strong one.
In terms of borrowing the various EU nations probably own more Treasuries then China if you combine them so the Federal Reserve statement is more about perception and sending a message to investors to clam them down then anything else. Hands across the water and so on.
The bigger question will be the impact of the problems of the EU on China. China exports more to the EU then to the U.S. and a slow down in exports in exports to both markets could result in their economy crashing, taking the commodity markets with it.