Inter-galactic bailout?! The Fed reaches beyond borders(Read article summary)
According to some reports, the U.S. Federal Reserve plans to bail out Europe by adding cash from the International Monetary Fund. What next?
NASA / AP / File
The Fed is now bailing out the whole world! But who will bail out the Fed?
After the news came out yesterday, the Dow rose 249 points. Gold was up $2.
Hereâ€™s the latest from Bloomberg:
Stocks jumped, sending US benchmark indexes to their biggest gains in three months, while the euro and commodities rallied and Treasuries slid amid improving data on the American and Chinese economies and speculation of a larger effort to end Europeâ€™s debt crisis.
The Standard & Poorâ€™s 500 Index gained 2.2 percent, the most since Sept. 1. The MSCI Emerging Markets Index rose 2.2 percent, its biggest gain since Aug. 2. The euro rebounded above $1.31 while Spanish 10-year bonds snapped an 11-day drop. The rate on 10-year Treasury notes increased 17 basis points to 2.97 percent, a four-month high. Oil and copper advanced more than 3 percent. After the US close, S&P 500 futures added 0.1 percent at 7 p.m. in New York and Japanâ€™s stocks rose in early trading.
European Central Bank President Jean-Claude Trichet said yesterday that investors are underestimating policy makersâ€™ determination to halt the regionâ€™s debt crisis and shore up the euro ahead of a meeting of the bankâ€™s Governing Council tomorrow.
The Dow Jones Industrial Average surged 249.76 points, or 2.3 percent, to 11,255.78. The Dow has rallied in December more than in any other month over the last century, according to Bespoke Investment Group. The 30-stock gauge rose 1.3 percent on average in the month during the past 100 years and gained 1.5 percent and 1.7 percent over the last 50 and 20 years, respectively, the Bespoke data show.
Stocks and the euro extended gains after Reuters reported that an unidentified official said the US may support enlarging a European financial rescue program by adding cash from the International Monetary Fund. The US is not discussing extra IMF money for Europe, a US official in Washington told Bloomberg News.
â€śWhoaâ€¦did you see that?â€ť asked an Indian analyst we met this morning. â€śThis is it. Theyâ€™re really turning on the presses now. Theyâ€™re trying to bail out the entire world. I never would have believed it. But it makes sense.â€ť
The US official may not be discussing it openly, but Fed figures show that the US central banks is already bailing out foreigners. Reports tell us that 35 foreign banks took advantage of its EZ money policies. It appears that the Fed is supporting Europeâ€™s banking sector.
And it would not be surprising if the US also backed the IMF. Itâ€™s not just the banks that are in trouble in Europe. Governments are deep in debt too. They are so intertwined, that itâ€™s hard to know where private debt ends and public debt begins.
Americans may see the dollar rising against the euro and feel a little patriotic pride. But this is not a good thing for Americans. If Europe comes unhinged, the crisis will waste no time in hitting American banks and the US economy. Ben Bernanke has been trying to get the dollar to go down. A rising greenback makes Germanyâ€™s products less expensive and US exports less competitive. It contributes to the threat of deflationâ€¦and encourages a long, drawn-out Japanese-style slump by prompting people to save, rather than spend.
Not only that, collapse of European economies would kill world trade. Exporters would be out of business. Importers would be out of money. The whole planet would be out of luck. The crisis would make its way around the world like a giant tsunamiâ€¦wiping out stock markets immediatelyâ€¦and then swamping almost all economies.
Yes, dear readerâ€¦this is the downside of globalization.. One regionâ€™s problem can easily become a disaster for everyone.
So, whatâ€™s going to happen? We wish you wouldnâ€™t ask us questions like that, dear reader.
But weâ€™ll take a guess.
The European situation is more dangerous than most Americans realize.
It could still melt down. US authorities must know this. And they must know too that if Europe melts down, so will the USA.
So, the rumors will probably turn out to be true. The US will back the IMF. The IMF will back Europe. Europe will back Ireland. Ireland will back its banks. And the banks will back their lenders.
Meanwhile, the euro will be backed by the dollar, which will also back the US economy, US banks, the US government, and about half the households in Christendomâ€¦not to mention the others!
Whoâ€™s got the kind of money you need to do all this backing?
Ahâ€¦thereâ€™s the rubâ€¦ Thereâ€™s the weak link in this strange and magical chain.
Letâ€™s see, if all the worldâ€™s debts are guaranteed by paper moneyâ€¦isnâ€™t the paper money itself impaired by the amount of the losses? Wonâ€™t the losses be passed along to dollar holders everywhere?
Yes. But, no one knows how much the losses are. And no one knows how much extra â€śstimulusâ€ť money the feds are going to put out. And no one knows when people will get scared and flee the dollarâ€¦the euroâ€¦and all paper currencies. And no one knows what a panic out of the dollar would produce. And no one wants to find out.
So, whatâ€™s the solution? We wonâ€™t bother to offer a solution to the worldâ€™s financial authorities. They wonâ€™t pay any attention anyway.
But how about a solution for you? Did you buy gold when we suggested it, dear reader?
We hope so.
And more thoughtsâ€¦
The New York Times tells us that astronomers had seriously underestimated the number of stars in the universe. They canâ€™t see the little ones. Which means, their last count was probably a few trillion off. Or maybe a few gazillion off.
Which suggests to us that astronomers and federal debt analysts must be using the same calculators. Both are trillions off the mark.
But the reason we bring this up is to give dear readers hope. Maybeâ€¦circulating around one of these invisible starsâ€¦a few billion light years away from earthâ€¦is a habitable planet. And maybe, the people who live there are very good with figuresâ€¦and money. And maybe theyâ€™re also very accomplished space travelers. And very generous.
And maybe theyâ€™ll show up â€“ any time now â€“ and offer to bail out the whole Milky Way â€¦if not the whole universe.
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