Weimar 2012: The Trans-Atlantic Garbage Paradox ~ The Risk Averse Alert

Thursday, December 13, 2012

Weimar 2012: The Trans-Atlantic Garbage Paradox

Here's another problem with Capo Confetti's vain, ultimately hyperinflationary policy feeding the illusion that, the Fed possesses power to bail out derivatives-laden garbage choking the U.S. banking system: suddenly, the keepers of such trash are made to appear viable, and thus more attractive (thereby explaining why banks and financials have been holding up so well since September).

This would not necessarily be a terribly vexing problem were it not for the fact that, the U.S. banking system's uber-levered trash is in no small part correlated with garbage stuffed into the euro-zone's banking system (with much help from London, of course) by way of the euro scrip scam.

What is a euro-zone investor to do, then, having only a Brussels Reichsbank with no seamless, robust Treasury backstop to "insure" the European banking system does not suffer a systemically threatening run? That's right, move capital to a place where such risk appears less likely to develop.


You have to wonder whether the Fed understands this. Likewise, might it be inciting another "damned if they do, damned if they don't" dilemma. Namely, on the one hand a run on the European banking system lifting the dollar (and, more critically, sinking the euro), which the Fed's unilateral bailout policy seemingly invites, and this probably undesirably, and on the other hand capital controls imposed on the euro-zone whose effect could send the dollar into a death spiral.

Following the crash of 1929 matters involving the movement of capital throughout the trans-Atlantic banking system soon enough provoked capital controls and extraordinarily problematic bank runs. Odds of a repeat performance sometime in the not-too-distant future being rather elevated, the Fed might finally get itself "ahead of the curve" if it acts, right now, to measure Bernanke for a straightjacket, as his "activist" insanity is likely to become quite acute and, indeed, dangerous.

Recent developments in Italy finding Goldman-educated fascist Monti losing his grip on the piggy bank only portend more unwanted upward pressure on the dollar in the lead up to early elections sometime in February for a new Shadow Greek Prime Minister who speaks Italian. The need for a dollar-denominated asset dump big enough to keep a sufficient sum of European capital frozen in the euro-tomb could be but one "fiscal cliff" away.

Word on the Street
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