In this week's Off the Cuff with Mish & Chris podcast, Mish and Chris tackle:
- Rumors of Bailouts in Europe
- Germany looks like it may be willing to compromise, and many pundits are hinting that the US may pitch in.
- A 'Nannycrat' Future for the EU
- The clamor for more central authority is increasing, but will the populace vote for it?
- A New Drachma Backed by Silver?
- An interesting proposal worth considering…
The situation in Europe continues to drive market sentiment, as does increased speculation that — to prevent contagion from crossing the Atlantic — the Fed is preparing to ease again. With all of the machinations being discussed, there really is nothing new in terms of actual progress. The proposals being considered (like the new Spanish "FROB") are simply shell games designed for optical purposes, nothing more. The key question remains unanswered at this point: Who will take the colossal losses on Europe's bad debts?
Bailout Chatter
Lots of speculation swirling that Angela Merkel has blinked and signaled that Germany is willing to give Spain a little more leeway in how it services its debts. In pure "let's-see-if-this-will-fool-folks" mode, the German Finance minister is proposing lending funds to a Spanish Fund for Orderly Bank Restructuring ("FROB"), which will in turn give the money to Spanish banks — because, of course, it would look bad for Germany to simply give the funds to the banks directly.
Meanwhile, a growing number of neo-Keynesian economists such as Paul Krugman are banging the table that the Fed must intervene now to bailout Europe, using more liquidity than ever. The news cycle over the past 48 hours has been buzzing with speculation that a new round of quantitative easing (QE) could be announced as soon as later this month.
The Nannycrat State
Along with the debate on how to solve the credit crisis, proposals are being put forth regarding how further centralization of power within the Eurozone will avoid a repeat of today's troubles. Think a US-Federal type authority that sets tax rates, tariff policies, etc.
The big question is: Would diverse region of autonomous countries with centuries of distinct culture be willing to vote for this?
by former_user