Be Very Afraid of Europe’s ‘Re-Hypothecators’

Who’d have believed that the word “hypothecation” would grab the financial world’s shakers and movers by the balls last week, whirl them round-and-round, then dash their cynical pretenses of “saving” Europe against a stone wall?  Click here to read the article on this topic at ZeroHedge if you haven’t done so already. And then send it to everyone you know. We did, with a warning that the collapse of the banking system is no longer merely possible or likely, but unavoidable. The article takes pains to explain precisely exactly why in terms that even the layman can understand. It will undoubtedly have created quite a stir not only among the broad readership of web sites that linked it, but among those charged with the task of further delaying Europe’s financial collapse. The spinmeisters and policymakers have been doing their utmost to obscure the details of the supposed rescue effort, since the better those efforts are understood, the more absurd they become.

And yet, as our colleague Bill Buckler, editor of The Privateer, points out, the clamor to “solve” Europe’s debt problems with trillions of ginned-up printing-press euros is nearly universal.  One might think no one could be so stupid as to believe that having the central bank of Europe buy the shaky bonds of Italy, Spain and Greece et al. with “money” created out of thin air will restore the financial system to health.  In fact, as Buckler observes, it is difficult to find an editorial voice that does not fervently support this course of action — support it with every mote of magesterial ignorance the op-end pages can bring to the argument. On the eve of Friday’s EU summit, here’s what the Times of India had to say: “There is one solution. If only the European Central Bank (ECB) agrees to print money in unlimited quantities to support the bonds of eurozone states – something Ben Bernanke would do without a second thought in the U.S. – then the euro crisis would end. This would cause inflation, but would guarantee that all sovereign debt would be repaid in full.”  Only in a world gone mad could anyone believe such poppycock. As Buckler notes, “It takes but a single tiny step behind the crumbling façade of modern economics to encounter a mental wasteland.”

Yes, everyone would be repaid in full, as the India Times says — but with money that will have been rendered worthless not by mere inflation, but by the hyper-inflationary sums required to discharge all debts, everywhere.  Indeed, the amounts involved can no longer even be quantified, since, as Peter Schiff has pointed out, a wholesale bailout of sovereign debt would send all other bond markets into a tailspin requiring more bailouts till the cows come home. To assert that the crisis can only end badly is to make a point that everyone but the bankers, politicians and benighted editorialists seem to understand.