And Who Is Expected To Bailout Europe?

Three guesses.

It's not likely that a formal bailout will occur. As the OMB might say (the people who ware supposed to be crunching numbers and protecting the public fisc), the optics of that would be terrible.

But who knows.

But even absent a big, formal, declared bailout, there's some under-the-radar bailing-out going on.

The U.S. is coming to Europe's financial rescue.

So far, America's role is fairly limited. But if the crisis continues to grow and the U.S. takes on a wider role, U.S. consumers and taxpayers could feel a bigger impact. The biggest exposure could come from America's status as the single largest source of money for the International Monetary Fund.

The latest round of American financial assistance came Thursday with a promise by the Federal Reserve to swap as many dollars for euros as European bankers need. In the short run, those transactions won't have much impact because the central banks are simply swapping currencies of equal value. If the move helps avert a wider crisis, it could help spare the global economy from another recession.

But over the long term, consumers could feel the impact of central bankers flooding the financial system with cash, according to John Ryding, chief economist at RDQ Economics.

"This is a lender of last resort function," he told CNBC. "With the dollar injections that the Fed has done, it's like giving a patient medicine with really bad side effects." Ryding said the bad side effect in the U.S. has been inflation, which has picked up to 3.8 percent year over year.

Worse yet, Europe is doing this to avoid a political solution that its elites oppose for political reasons.

I am quite sure that I haven't the foggiest idea about how difficult it would be, in practical terms, to unwind this whole Euro/economies-joined-at-the-hip-of-currency Frankenstein's monster they've created. I'm sure it would be painful and difficult.

But I'm also sure that Europe's Elites have long made huge bets on this and are avoiding it at least partly because of the political repudiation that would follow.

So instead of giving that possibility a full and fair hearing, they keep doubling down on bailouts for the PIIGS, and we are enlisted to backstop this certain doom with our dollars.

posted by Ace at 04:21 PM

| Access Comments