Last week, Secretary Geithner was in Europe prior to the SUMMIT in an effort to influence European policy makers. The Obama administration has been trying to impress upon Europe’s key planners that it was of the utmost importance to get ahead of the CREDIT CRISIS and stop solely reacting. It seems that the U.S. Treasury Secretary failed miserably to convince Merkel and the others that the BIG BAZOOKA needed to be fired. As usual, the EUROCRATS tried to FOOL the financial markets they disdain. Chancellor Merkel has openly stated that she will not be coerced by an UNELECTED FORCE CALLED THE MARKET.
As the markets digested the outcome of the SUMMIT, it appears that INVESTORS have decided that the LIQUIDATIONISTS HAVE PREVAILED IN EUROPE AND THE EFFORT TO SUPPORT EUROPE’S BANKS WAS WOEFULLY INADEQUATE. It now seems that the battle in Europe is between those who wish for the profligate to suffer for its SINS OF WAGES TOO HIGH TO COMPETE. The LIQUIDATORS WISH FOR THE SO CALLED PIIGS TO SUFFER A SELF-IMPOSED DEFLATION AS A CLEANSING AGENT. The resurgence of the DEFLATORS could be readily seen in today’s price action. The less forthcoming the ECB and others,the greater the downward pressure on prices.
Tonight, the Chinese have been rumored to have told the Europeans that they would withhold investment until there was some clarity about the genuine intentions of Brussels. So, will investors wish to see a mass liquidation of bank assets in Europe or will they favor a policy of massive injection of LIQUIDITY so as to provide “A FIREWALL” to the financial system? If Europe moves to let the BANKS FAIL then even Germany must realize that Europe’s financial infrastructure will be on the market to those with the money to buy them. Otherwise, eurocrats will have to close off the zone to all others as it works out its problems.
The market is no longer merely RISK ON/RISK OFF BUT A BATTLE BETWEEN THE INFLATIONISTS VERSUS THE DEFLATIONISTS. The politics of this will continue to play out in Europe as it will become evident that President Sarkozy is caught between the two schools of thought. However, for Sarkozy the dire predicament of the highly leveraged FRENCH BANKS ARE GOING TO FORCE HIM INTO A DIFFICULT CHOICE AS THE 2012 ELECTION LOOMS.
***Tomorrow, the FED is meeting and the market is expecting the FED to remain in its present very accommodative position. THE FED CERTAINLY HAS TO PURSUE AN ULTRA INFLATIONIST STANCE ESPECIALLY AS EUROPE WAVERS. THE FED HAS MADE A VERY LARGE COMMITMENT TO A EUROPEAN SUCCESS AS IT HAS LENT MASSIVE AMOUNTS OF MONEY TO THE CENTRAL BANKS.
A massive bank failure in Europe with a liquidationist ECB would leave the FED with a highly stressed balance sheet. Mr. BERNANKE is being placed in a fragile position that he will have to explain to a RON PAUL-led investigative HOUSE COMMITTEE. Why is it that the FED is trying to do that which the EUROPEANS HAVE FAILED TO PREVENT? THE FED STATEMENT WILL BE INTERESTING IN HOW IT MENTIONS EUROPE. Hey BEN, DUST OFF THE PLAYBOOK ON HOW TO PREVENT 1937 AND SEE IF THERE IS A GERMAN EDITION.