Why the euro bailout is the biggest Ponzi scheme in history

By Norman Lamont
Mail Online
October 12, 2011

The recent decision by the Bank of England to pump another £75billion into the economy shows that Britain, far from recovering, remains on the edge of another dip.

But what happens to the British and world economy is, to a large extent, out of our hands. The greatest threat to our economic future is what is happening in the euro zone.

The scale of the euro crisis has made one thing abundantly plain: Europe, Britain and the rest of the world would be better off if the euro had never happened. It would be preferable if it were now dismantled in an orderly manner.

Yet leaders of euro zone countries appear determined to keep the show on the road, however much voters and their parliaments object to the project.
At the end of last month, Germany’s Chancellor Angela Merkel had to see off a rebellion from German MPs to win a vital vote in the German parliament to support the expanded €440  billion European bailout fund.

Last night, the parliament of Slovakia, one of the poorest of the euro zone countries, cast still more doubt on the bailout project by voting against paying its share of the rescue fund.

Dubious

Never mind that the €440 billion fund is already considered too little too late — or that the European Commission President Jose Manuel Barroso resorted yesterday to demanding Britain helps bail out Greece even though we’re not a member of the euro zone.

It is clear that euro zone leaders are already drawing up contingency plans to get round their national parliaments to increase funding if necessary.

At the weekend, Mrs Merkel and France’s President Nicolas Sarkozy claimed to have reached ‘total accord’ on a recapitalisation programme of hundreds of billions of euros to rescue ailing euro zone banks.

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U.S. Fed Commits to Erasing the Dollar

Ben Bernanke and his cabal of governors approved the expenditure of at least $600 billion to buy U.S. debt.  This move makes the private Federal Reserve Bank the largest holder of U.S. even debt above China.

CNBC/Reuters

The Federal Reserve launched a controversial new policy on Wednesday, committing to buy $600 billion more in government bonds by the middle of next year in an attempt to breathe new life into a struggling U.S. economy.

The decision, which takes the Fed into largely uncharted waters, is aimed at further lowering borrowing costs for consumers and businesses still suffering in the aftermath of the worst recession since the Great Depression.

The U.S. central bank said it would buy about $75 billion in longer-term Treasury bonds per month. It said it would regularly review the pace and size of the program and adjust it as needed depending on the path of the recovery.

In its post-meeting statement, the Fed described the economy as “slow”, and said employers remained reluctant to add to payrolls. It said measures of inflation were “somewhat low.”

“Although the committee anticipates a gradual return to higher levels of research utilization in a context of price stability, progress toward its objectives has been disappointingly slow,” the Fed said. (Click here to read Fed statement.)

Stocks showed relatively little reaction to the news. The Dow Jones Industrial Average bounced around between positive and negative, a day after closing at its highest level since April 26. The S&P 500 Index and the Nasdaq also were mostly flat.

Longer-dated U.S. Treasurys shed gains, with 30-year bonds falling more than a point.

The US dollar fell against the euro and also pared gains against the yen.

The central bank repeated its vow to keep the federal funds rate on overnight loans ultra-low for an extended period. Some analysts had speculated the Fed might broaden this commitment.

Kansas City Fed President Thomas Hoenig continued his streak of dissents, saying the risk of additional securities purchases outweighed the benefits.

In a separate statement, the New York Fed said it would temporarily relax a rule limiting ownership of any particular security to 35 percent.

It said holdings would be allowed to rise above that threshold “only in modest increments.” Including the Fed’s ongoing plan to reinvest maturing assets, the New York Fed expects to conduct $850 billion to $900 billion in Treasury purchases through the end of the second quarter of 2011.

With the U.S. economy expanding at only a 2 percent annual pace in the third quarter of this year and the jobless rate seemingly stuck around 9.6 percent, the Fed had come under pressure to do more to stimulate business activity.

The central bank had already cut overnight interest rates to near zero in December 2008 and bought about $1.7 trillion in U.S. government debt and mortgage-linked bonds.

Those purchases, however, occurred when financial markets were stricken by crisis, and economists and Fed officials alike are divided over how effective the new program will be. Further bond purchases, however, are viewed with a skeptical eye by many economists and some Fed officials.

Indeed, some worry further bond buying could do more harm than good by providing tinder for inflation that will ignite when the recovery finally gains traction.

Markets had already seen sharp moves in anticipation of a resumption of bond purchases by the Fed. U.S. stocks and government bonds have rallied, while the dollar has taken a drubbing in advance of the decision.

Stocks have also been supported by expectations—now validated—that Republicans, viewed as more pro-business by investors, would seize control of the House and pick up Senate seats in elections on Tuesday that were seen as a referendum on the economy.

Since Republicans campaigned on a platform for smaller government, Congress may be less likely to offer fresh stimulus spending if the economy sputters, leaving the Fed as the primary source of support.

With the prospect of a long period of ultra-low returns in the United States, investors have flocked to emerging markets, pushing those currencies higher. Emerging economies, worried about a loss of export competitiveness, have cried foul.

“We are all under attack by the relaxed monetary policy of the United States,” Colombian Finance Minister Juan Carlos Echeverry told investors on Tuesday.

The Bank of Japan, which meets on Thursday and Friday, is also poised to launch a new round of bond buying. The European Central Bank and Bank of England also meet this week, but are not expected to shift policy.

The Fed move is likely to weaken the dollar further, which will helps big exporters like CNBC parent General Electric

Strikes costing up to $557 million per day in France

AP

France’s massive strikes are costing the national economy up to 400 million euro ($557 million) each day, the French finance minister said Monday as workers continued to block oil refineries and trash incinerators to protest a plan to raise the retirement age to 62.

Rotting piles of garbage — now at nearly 9,000 tons — are becoming a health hazard in the Mediterranean city of Marseille, which has been hit hard on land and at sea. Striking dockers at France’s largest port are intermittently blocking ships trying to unload fuel there.

France’s 12 striking refineries have been shut down for nearly two weeks, and the government has forced some of them to make stocked fuel available, but at least one in four gas stations in France has run dry.

President Nicolas Sarkozy stood firm amid the growing pressure, determined to reform the retirement system to ensure funds for future generations as life expectancy increases and the nation’s debt soars.

The bill to overhaul France’s pension plan is to be definitively voted on this week by the two houses of parliament, likely by Wednesday, officials said after a meeting of a committee that wrote a final version of the legislation to raise the retirement age from 60 to 62. It is all but certain to pass.

“We must be aware that in a world without borders we can’t have a French exception … that exists nowhere else,” said lawmaker Pierre Mehaignerie, of Sarkozy’s UMP party.

Strikers were clearly counting on derailing the measure before it is signed into law after this week’s final voting.

Garbage and gas are critical weapons for the strikers, who decry the reform as unjust. Besides raising the minimum retirement age to 62, it increases the age to access full retirement benefits from 65 to 67. It was only in 1982 that French employees won the right to retire at 60, and since then it has been considered a well-earned right.

“We aren’t going to work on the docks until 65. It’s just not possible,” said Frederic Chabert, 47, at Fos-sur-Mer, a Marseille area port. Strikers unblocked the town’s fuel depot Monday after negotiations with regional officials.

Workers at a large Paris waste incineration plant, in their fifth day of a strike, were catching up with colleagues who have let trash pile up in Marseille, the nation’s second-largest city.

“If we manage to get to a point where unfortunately Paris becomes like Marseille, covered in garbage, I think then the situation could change because Paris is France’s showcase,” said Olivier Nave, a 39-year-old garbage collector.

“No one wants Paris to look bad with tourists,” he told Associated Press Television News.

Currently, the French capital’s trash is being rerouted to several other waste treatment sites.

Marseille has requisitioned workers to try to clean up some of the mounds of filth after warning Friday of a “growing risk for people’s safety.” The regional prefect, Michel Sappin, spoke last week of “a pre-epidemic situation.”

Final passage of the pension reform legislation through parliament this week has not deterred unions, which have already announced two new nationwide protests — for Thursday and Nov. 6.

The strikes have hit a wide swath of the economy and life in France, sporadically in some cases, like at schools and post offices. A national train strike that started Oct. 12 has been tapering off, but oil refinery workers, who have been striking steadily for about two weeks, are chipping away at the economy.

Finance Minister Christine Lagarde said on Europe-1 radio that it was difficult to put a daily price tag on the strikes, but she estimated it at between euro200 million ($278 million) and euro400 million ($557 million). Beyond that, the strikes are damaging France’s image, she said.

Lagarde said foreign news stations were constantly playing clips of the French protests.

“The territory’s attractiveness is put into question when you see images like that,” she said.

The gas-dependent trucking industry is among the sectors suffering. Nicolas Paulissen, deputy head of the French trucking industry body FNTR, said the industry was losing money due to lost business and an “explosion of costs.” He said it was too early to pin down a figure.

The demonstrations against the retirement reform have brought millions into the streets, and polls have shown that a vast majority of French people support the strikers. Meanwhile, the conservative Sarkozy’s popularity is plummeting.

A poll published in Sunday’s Journal du Dimanche newspaper showed that only 29 percent of those surveyed were satisfied with Sarkozy’s performance. It was the French leader’s lowest rating since taking office in 2007.