Every “Solution” To The Euro Crisis Involves Printing Money

December 9, 2011

Attempts by central banks to blatantly manipulate the price of gold lower should come as no surprise to long time gold investors.  Market News International reported on Thursday that the Bank of England, the Federal Reserve and the Bank for International Settlements mounted coordinated selling in an attempt to drive the price of gold lower. After advancing to $1,757.80, gold reversed course, ending the day in New York trading at $1,706.80, down $51 from the morning high.

The reported attempt to crush the price of gold coincides with the growing perception that every "solution" offered thus far to resolve the potentially catastrophic debt crisis in Europe revolves around the creation of vast amounts of new fiat currency.

European countries that have piled up ruinous levels of indebtedness are quickly discovering that they have run out of options. The limits on imposing new taxes have been reached, bond markets won't finance additional borrowing, austerity won't work and debt costs are spiraling out of control as Euro zone economies grind to a halt.

Here's a rundown of some of the bizarro world "solutions" that have been offered by European rulers to prevent an economic collapse in Europe.  Try to figure out which option does not, at its core, involve the printing of new Euros.

-European Central Bank (ECB) President Mario Draghi insists that the central bank will not finance government deficits by purchasing new government debt with freshly created Euros.  The amount of government bonds already purchased by the ECB exceed €200 billion and the ECB continues to buy billions of additional euro debt each week.  In addition, the ECB is currently lending European banks as much money as they ask for.  Although the ECB's charter prohibits it from financing governments by buying their debt directly, the ECB has no qualms about buying government debt in the secondary market.

-Financial assistance from the International Monetary Fund is another option being discussed.  Where would the IMF get the money to lend to debt stressed European governments?  The IMF would be funded with money created by Europe's central banks which the IMF would then re-lend to the same European nations whose central banks created the money in the first place.

-The European Stability Mechanism (ESM) was established to bail out insolvent members of the European Union.   The amount of ESM funding was grossly inadequate to address the debt crisis.  The proposed solution - grant the ESM a banking license (read license to print money) which would allow the ESM (as a bank) to borrow unlimited amounts of money from the European Central Bank.

If you correctly guessed "none of the above", you probably are already invested in gold although probably not to the extent that you should be.

Printing money is the last desperate attempt of failed governments to keep the lights on.  Allowing the price of gold to soar would expose the extent to which the Euro, in particular, and all paper money in general have been debased by insane monetary policies.  The Central Banks cannot hide this truth anymore.  Nor can they prevent the price of gold money from ultimately reflecting its true value priced in paper currencies.  Any retreat in gold prices should be viewed as a buying opportunity, courtesy of central banks.

 

Comments

By Shop Gold on December 12th, 2011 at 4:35 am

Great article. I have been trying to explain to people that central banks are essentially the golden goose of big government. Their only solution to taking care of their mistakes is to make more mistakes via hitting that old printing press. You would think by now that people would start to understand that fiat money is actually valueless, but I suppose that is far to wishful of thinking. Thanks for the article, good stuff.

By MrL on December 13th, 2011 at 5:05 am

I second shop gold above, great article.

People cant seem to understand that the Euro crisis will get “solved” by printing more of the stuff that got them there in the first place.

It’s like pouring gasoline on a fire and it will only get worse. It’s unreal.

Thank you for a great blog.

By How Much is Silver Worth on December 17th, 2011 at 1:59 pm

I just can’t believe that in the height of the crisis, the powers that be should concern themselves with ensuring that gold and silver are suppressed rather than focussing on the solutions that matter.

Leave a Comment