Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
This Invisible Tech Stock Threatens Amazon with 800,000+ Online Stores - 21st Nov 19
Crude Oil Price Begins To Move Lower - 21st Nov 19
Cracks Spread in the Precious Metals Bullion Banks’ Price Management System - 21st Nov 19
Why Record-High Stock Prices Mean You Should Buy More - 20th Nov 19
This Invisible Company Powers Almost the Entire Finance Industry - 20th Nov 19
Zig-Zagging Gold Is Not Necessarily Bearish Gold - 20th Nov 19
Legal Status of Cannabis Seeds in the UK - 20th Nov 19
The Next Gold Rush Could Be About To Happen Here - 20th Nov 19
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

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

Economics

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 Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

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 http://www.MarketOracle.co.uk - 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