Plan B: Sink the Euro Zone ~ The Risk Averse Alert

Wednesday, March 21, 2012

Plan B: Sink the Euro Zone

Today's House Committee on Oversight and Government Reform hearing into "Europe's Sovereign Debt Crisis: Causes, Consequences for the United States, and Lessons Learned" — a two-and-a-half hour meeting querying the Treasury Secretary and Fed Chairman (starts at about 2:40) — was a bit of a letdown given the buildup...

There really was no discussion of a "Plan B," should the EMU collapse, as Rep. Issa seemed to indicate would be covered during today's hearing in his Bloomberg interview this morning. Rather, the hearing was sprinkled with fact-finding and relatively mild bouts of posturing, while maintaining the sweetness of the sugar coating wrapping today's fantasy of a Great Depression averted by brilliant measures taken by regulators to counter financial crisis whose impact, admittedly, is ongoing. Effectively, today's hearing brought not-so-subtle, yet entirely diplomatic restatement of the U.S. position that, Germany cough up cash, and strengthen the EMU's "firewall."

Now, there were challenges to the credibility of the Fed's stress test in the event European sovereign duress precipitates a chain reaction collapse of euro-zone nations threatening even the German core. Yet this concern seemed more a warning to Germany of dire consequences if its full support of hyperinflationary happiness to and through the Geithner Minimum were not forthcoming, than a provocation of the U.S. Treasury Secretary and Federal Reserve Chairman otherwise begging their due diligence. All told, today's affair could provide circumstance suitable to provoking war. Being that pretending is all the rage these days, who will be blamed when the best laid plans of lunatics inevitably turn to confetti?


Everything euro-zone is riding on a fiscal compact and a firewall. Neither are certain to be in place when the next domino falls. Thus, today's House Oversight and Reform Committee hearing served to highlight the urgency of so-called euro-zone "reforms" that, already, are bringing failure to every nation of the euro-zone periphery.

Insisting Europe possesses wealth enough to bail itself out certainly is a less substantive "fix" when contrasted to the Fed's QE2 of 2010, with its implicit backing of the U.S. Treasury. Indeed, this is how we know the "Europe" of today's congressional hearing more accurately could be identified "the German taxpayer." Yet these are no more inclined than their American counterparts to tolerate such demand for sacrifice and pain as is claimed necessary to insure the viability of what already is widely understood an ill-fated charade.

So, consider the market's gain since the ECB took to hyperinflating via LTRO sans any material, unified backing from the euro-zone's member states establishing a "firewall" approaching the Geithner Minimum (let alone the estimated 5 trillion needed this year to avoid a euro-zone banking system implosion). Once again appears undue complacency given today's insistence Europe backstop its all the more obviously insolvent banking system to a degree Germany has thus far doggedly resisted.

Remember the Fed's "exit strategy?" Well, you're looking at it. They're setting up to blame the trans-Atlantic banking system's pending collapse on the suckers who bought into Adam Smith's Leveraged Ponzi Scheme big time when King Ponzi Greenspan ran the Fed. (My understanding, too, is Germany was reluctantly roped into the scheme as a price for reunification with the failed, East German Soviet spoil of WWII. So, now it is being induced to commit national suicide in a process not unlike its 1923 Wiemar experience. No matter whether this succeeds or fails the EMU is doomed and Germany could bear the brunt of the blame.)

This thought, of course, raises to a level of critical importance the matter of a "Plan B" discussed this morning by Rep. Issa. The mere prospect that, chaotic conditions could raise the need for such a "Plan B" is another way of saying goodbye Dodd-Frank and hello Glass-Steagall. Understandably, with pretending still all the rage, "Plan B" is more politically correct language.

Fast Money
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