2012-07-28prudentbear.com

For centuries, the seemingly straightforward issues of money and Credit were recognized as extraordinarily, incredibly complex.  Analyses that various monetary fiascos and inevitable collapses came to similar conclusions:  sound money and Credit were paramount.  Credit and speculative excesses were recognized as primary culprits to financial collapse and the Great Depression.  Regrettably, incredibly important lessons learned through devastation and hardship were relegated to the dustbin of history.

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No doubt about it, the Bundesbank is increasingly isolated. They are at odds with most European politicians and they are at odds with other central bankers. They are clearly not on the same page with Mr. Draghi. And no group of government officials anywhere more clearly appreciates myriad risks associated with monetary inflations. The German/"Austrian" view of economics just has a very different perspective, and it goes way beyond some fixation on Weimar hyperinflation. The focus is on how real wealth is created and how wealth is destroyed. Monetary inflations are powerfully destructive. And as a deepening European crisis applies incredible pressure on politicians throughout the region -- certainly including Germany's Merkel and Schaeuble -- I suspect the Bundesbank will hold its ground. They are both right on the analysis and have the support of the German people. They understand that the German economy cannot support the massive debt of the entire eurozone.

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there is no doubt in my mind that ongoing monetary injections -- albeit European, American, Chinese, or others -- come with the cost of increasingly unstable -- I would argue perilously dysfunctional - global financial markets. And there should be little doubt where Mr. Draghi was directing his "trust me, it will be enough" tough talk (kind of reminded me of, "go ahead, make my day"). The Europeans believe hedge fund and other speculator bets against their bonds, stocks and euro currency are a major contributing factor to the region's woes. There wasn't an issue back when speculators were leveraged long Europe's (Greece's, Spain's, Italy's, etc.) securities during the upside of the cycle.


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