Thrilling Thursday – Can We Be Saved?
by phil - July 1st, 2010 8:29 am
Let’s review first, how we got into this mess:
Not only is a bust cycle the inevitable result of a Capitalistic boom but the way we keep shoveling crises under the rug (to avoid pain and the ensuing political fallout) only exacerbates the problem once the rug becomes too small to mask the problem. Then things begin unraveling at the fringes and then – horror of horrors – someone actually lifts up the rug and says: "OH MY GOD – IT’S TERRIBLE!" Well DUH! Of course it’s terrible. Hayek (Freidrich, not Selma) told us this would happen 60 years ago and it’s happened dozens of times already and it will happen dozens of times again because it’s the nature of a system where there can be winners and losers – sometimes you win and sometimes you lose.
It is no surprise then, that the Europeans are choosing to follow Hayek’s path to austerity, while the Americans cling to the Keynesian delusion that we, if we just buy a bigger rug, we can fit a lot more problems under it and maybe no one will notice until we move out. David Leonhardt has a great article in The Times presenting the Keynsian side of the eqation. Paul Krugman points out that the "bond vigilantes" are behind this massive attack on the markets as they work very hard to drive current rates down and keep them there BECAUSE THAT INCREASES THE VALUE OF THE BONDS THEY OWN.
Come on people, grow up! First Pimpco and company drove rates sky high telling you the World was going to default and there was a "ring of fire" in Europe and that sent swap rates and note rates flying so these evill jackasses were able to buy tens of Billions in sovereign debt at sky-high interest rates. Now those same crooks push for a bailout, using other people’s money to insure their high-yield bonds and then they begin a PR campaign to crack the whip on austerity to make sure that making the bondholders whole is every country’s top priority, no matter what the cost to the population.
How much is at stake here? Pimpco alone has over $1Tn in bonds that get much, much more valuable if they can engineer a low-rate Japan-style deflationary environment. I pointed out that this was happening on June 15th, when Mohamed El-Erian teamed up with…