Sunday, May 9, 2010
European Union Engaged in 25th Hour Rescue of the Markets: Obama Overseas to Show US Solidarity with Europe Against Speculators
Wow, its a busy day for political-economic news. This time I get to report about stuff being published in real-time Germany. Note* in most of Europe right now it is nearly midnight so these are not ordinary proceedings. Having lived in Germany from 2007-2008, I picked up enough German to be able to provide you with a translation of a just released announcement of a coordinated move on the part of the 16 member block of European countries that share the Euro as a common currency. Apparently, the euro countries want to defend their common currency against speculators with an aid package amounting to €560 billion against speculators. The EU countries are rumored to be putting finishing details on the program, which should be announced on Monday morning (a live webcast in English should be available at http://video.consilium.europa.eu/index.php?pl=&sessionno=2899&lang=EN when the time comes). Either way, I'm expecting it shall happen before the opening of financial markets in an effort to provide some stability (in reality it will probably only cause a short-covering rally if anything at all). According to the German article, it appears that the initial package, which will be given directly to the European Commission, will be for €60 billion, however, in the end they expect up to €350Billion to come from the European Union and €150 to come from the International Monetary Fund. (roughly translated) "The point is," according to comments made by the Swedish Finance Minister, "the Euro is being attacked by a pack of wolves, speculators, who will 'break' the weaker European countries, if they are not stopped." He goes on to delineate "the next potential victims of speculation are Portugal, Spain and possibly Italy. They are testing the Euro Zone's ability to provide an appropriate response."
Apparently, at least according to the aforementioned source, President Obama is overseas and engaged in these last minute arrangements as well.
My thoughts on the matter? All this is well and good, but the stock market is up 78% from its March 2009 lows, and was up as high as 89% before the recent weakness in the market came to roost. Why is it, then, that when the market is out of control to the upside we say "the market is healthy, hurray, hurray! Look at all the good our administration has done." Yet, when the market begins to correct and acknowledges it's over-extended state, suddenly speculators are at fault? Be careful folks. Just as I stated in my earlier post today, when the government meddles in the market, there can be powerful unforeseen consequences that cannot be quickly retracted. If, in fact, this sovereign debt bail-out goes through, watch gold. Gold, as over-extended as it seems to be, it will continue to reach new highs as long as Government's continue to dilute the purchasing power of their currencies.