Recently I’ve argued that Deflation is Not on the Menu by pointing out that the immediate and devastating political and economic pain associated with deflation will spur decision-makers to do anything and everything within their power to stoke inflation.
And then, when discussing the Greek situation, I noted that there are only three possible actions for EU leadership to take:
- Let Greece fail
- Let French and German banks fail
- Fire up the QE particle accelerator, buy up all those dodgy Greek (and Spanish and Portuguese and…) bonds, and stuff them onto the ECB balance sheet like the Fed did with MBS paper
Providing no surprise to me at all, they chose option #3 this weekend and fired up the magic money machine to the tune of nearly a cool trillion:
EU Crafts $962 Billion Show of Force to Halt Euro Crisis
May 10 (Bloomberg) — European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases as they spearheaded a global drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro.
As I’ve often mentioned, when a crisis hits, the solutions that get adopted are the ones that happen to be lying around. In the case of the EU “show of force,” all you need to do to understand it precisely is to look at what the Fed has been doing over the past eighteen months. It’s the exact same program.
It works like this: Money is created out of nothing to buy lots and lots of dodgy debts. Although the politicians will spin this as a big win for their citizens, the truth is that it is a big win for the bankers. You see, almost no citizens actually hold any of the dodgy debt. Nearly all of it is parked on Eurozone bank balance sheets as ‘assets’ that will now be replaced with freshly-minted money.
by cmartenson 
