The U.S. Federal Reserve was brutally criticized last week for initiating Quantitative Easing II (QE II) – a new $600 billion dollar scheme to inflate the money supply and stimulate the economy. Was Fed Chairman Ben Bernanke’s already aware that the $600 billion dollar European Financial Stability Facility (EFSF) was about to be tapped out.
In May, the European Union gathered in a show of strength to halt the continental debt crisis with the “shock and awe” of a $145 billion cash rescue of Greece. Predominately funded by Germany and France, the EFSF was trumpeted as guaranteeing a decade of fiscal solvency for the infamous PIIGS: Portugal, Ireland, Italy, Greece, and Spain. Sovereign debt markets rallied and the media extolled the virtues of 450 Europeans banding together to prevent the debt crisis’ contagion.
Six months later European bond markets are once more in shambles, as interest rates paid by the PIIGS has again skyrocketed. Ireland is the latest casualty in this game of dominos, after investors began the massive dumping of Irish bonds and pulling money out of Irish banks.
No longer is the tell tale sign of bank run evidenced by lines of desperate depositors waiting for the doors of the local bank to open. In 2010 a click of a mouse key can move billions of dollars from one country to the next. The graph below demonstrates why there are probably millions of mouse keys clicking all over Europe right now.
Although Ireland denies any intention to seek a Greek style bailout, teams of bankers from the European Union, European Central Bank and the International Monetary Fund arrived last night to discuss how to “stabilize” the Irish state-guaranteed banks. If stabilize is the new code word for preventing immediate default, is “QE II” the new code word for the U.S. bailout?
|% of GDP|
|World||56,900,000,000,000||31 December 2009||8,422||98%|
|United States||13,450,000,000,000||30 June 2009||43,758||94%|
|United Kingdom||9,088,000,000,000||30 June 2009||147,060||416%|
|Germany||5,208,000,000,000||30 June 2009||63,493||155%|
|France||5,021,000,000,000||30 June 2009||80,209||188%|
|Netherlands||3,733,000,000,000||31 December 2009||226,503||470%|
|Spain||2,410,000,000,000||30 June 2009||52,588||165%|
|Italy||2,328,000,000,000||31 December 2008||39,234||101%|
|Ireland||2,287,000,000,000||30 September 2009||515,671||1004%|
|Japan||2,132,000,000,000||30 June 2009||16,714||42%|
|Greece||552,800,000,000||30 June 2009||49,525||167%|
|Portugal||507,000,000,000||30 June 2009||47,632||223%|