Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

E.U. Debt Bailout Delays the Inevitable Economic and Market Crash

Economics / Global Debt Crisis May 12, 2010 - 12:44 AM GMT

By: Dr_Jeff_Lewis


Best Financial Markets Analysis ArticleIt took absolutely nothing to bring the stock markets to their knees, but nearly $1 trillion to give them piece of mind.  Yes, the European bailout may solve temporary woes, but in the end, it is nothing more than a temporary solution.

How the Bailout Works

The bulk of the money allocated to bailing out Europe's debt ridden nations is to be borrowed on behalf of other more creditworthy nations.  European officials have decided that 16 nations currently using the Euro as their currency would put up 440 billion Euro in loans, as well as a 60 billion Euro infusion from the EU itself. 

The 440 billion Euro is to be borrowed by the most solvent and largest nations and then given to Greece and Spain.  Since Germany, France, and other more fiscally responsible nations can borrow at rates far lower than Greece and Spain, the EU hopes the measure will allow the countries to solve the current fiscal issues with money due back to creditors years in the future. 

The International Monetary Fund, or IMF, will also contribute a significant 250 billion Euro investment, made on behalf of virtually every developed country around the world.  The biggest contributor to the IMF?  None other than the United States of America, which as many have seen, has fiscal problems of its own.

What the Bailout Really Solves

The bailout of Greece, Spain, and possibly Portugal solves practically nothing.  Rather than allow the three nations to go into bankruptcy, purge themselves of debt, and then reorganize with budgets that are balanced, the loans will allow the three to continue spending like nothing ever happened. 

If history is any indication, as it usually is, the three countries will continue on their perilous paths, and every Euro lent to the three will eventually be forgiven by the 16 main creditors. 

Problems Arising Already

Despite paying interest rates that are multiples less than that of the developed world, Greece is already complaining that the 5% interest rate charged on its 110 Euro bailout is far too much.  The country indicated that the rate would stifle any economic gains, despite the fact that it would allow the nation to “re-mortgage” its already existing debt at a much lower rate.  10-year Greek bonds have recently traded as high as 8.7% and are moving higher, so this 5% rate is incredibly generous at the worst.  Of course, anyone willing to lend money to a nation so burdened with debt would want at least 8%, if not more. 

Contagion Risk Now Greater than Ever

The risk of contagion, that is fiscal problems moving into other nations due to a bankrupt Greece, should only continue to grow.   Now that 16 nations are on the hook for more than $500 billion in money they've borrowed at a rate just slightly lower than the interest at which Greece will be paying them back, the chance that every nation in the EU will encounter fiscal problems has grown larger.  Though this $1 trillion package may solve issues in the short run, expect nothing more than even bigger problems down the line.  The only safe place to be, with every nation now coming to the rescue with their own cash, is in precious metals.  Stocks may fall, bonds may tank, but precious metals, the new currency, have nowhere to go but up.

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of and

Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules