Europe, Spain Temporarily Out of Crisis, But Is Bailout the Right Way Out?

June 21, 2012 by  Filed under: Bankruptcy 

Performances & not failures merit a reward. But nations have been seeking a Bailout as if they are rewards for their grave errors. Right from 2008 when major US & other Banks & lenders across the Globe were on the brink of a major collapse due to the Sub-Prime realty lending, born out of greed, Bailout (from the Tax-Payers money) has been the most preferred support system or a reward for their un-doing. Do they morally qualify for the same? What has led these lenders to collapse in the first place? OR do they need face their own created mess & be punished? Can Tax Payers money so easily be squandered away?

The most ironical part is that “Only the banks get rescued by the Tax Payers money, not the now-unemployed (probably previous Tax payers) or also the now homeless. Unemployment in the US & the Eurozone area have soared. Governments always seem ready to spring into action to defend the banks, but otherwise are completely unwilling to admit that its policies are failing the people who elected them & the economy at large which it is supposed to serve in the first place.

With an agreement to bail out Spain’s struggling banks, Europe again avoided financial chaos in a debt crisis that is in its third year. But Europe still faces far bigger challenges that threaten the Continent and with it, the world economy. What is more, the Spanish bailout will do little to address European banks’ addiction to the borrowed money they have depended on for their daily financing needs. Far harder to calculate are the costs if, after Greek elections, the new government reneges on the bailout Greece negotiated with its European lenders a few months ago. That could lead to a withdrawal from the euro zone, threatening that currency union, which has largely benefited more prosperous members like Germany. A breakup of the currency union would bring extremely high costs and risks that no one can really predict. Europe’s big fear is contagion-an infection of financial panic that could spread far beyond Greece. Italy is yet struggling with economic stagnation and escalating borrowing costs.

Bailouts though will strongly be denied by many, are the Best routes to increase Debt further rather than being the support for rises & growth as questionably perceived. The only positive attribute provided by the Bailout is the immediate, though temporary pain relief from the seemingly unavoidable dark pits of a faltering economy, triggered by foolishly taken hasty decisions, many a times out of greed. Repeat large Bailouts will lead to Only massive debt write downs, a collapse of the financial system and eventually to a deep global depression. The Bailout providers will be in for a bigger & an irrevocable shock – A major reason why Banks avoid providing loans to someone in a miserable financial position.

The only way out of a mess created by a large BAILOUT is a series of Never Ending more BAILOUTS.

A situation alike to: There will always be a heavy Hangover after a massive drinking session & so the Best way to avoid a hangover is to KEEP on DRINKING…
Nations having availed massive Fund supports have been seen returning for more, prove this beyond any doubt.

The end to this may only arrive when the realization sinks into pro-active minds that “If a problem seems to have no solution, it may not be a problem, to be overcome, But it is a FACT – not to be solved, but to be coped-with over time”.

U.S. QE3 undoubtedly is an assured event. The Big question then is the timing, whether it would be slated for a Pre or Post Election launch. It will be surely given a new dissembling name, a fresh acronym and remarketed as something other & better than the earlier version, something on the lines of a new software version with No major new add-ons. The People’s Bank of China cut their interest rate due to concerns of a property crash and because of their slowing economy. Since markets for Chinese exports have been hurt by the economy in Western nations, the supply/demand balance may worsen. As such, commodity prices can continue to decline even as policy rates drop. In fact, this is exactly what has been happening historically. Europe’s debt crisis is creating economic contagion and may be spreading to the already fragile Chinese and American shores. A deeper financial system collapse instigated through current economic, political and financial problems will likely remain & present worse problems for years. Refer to my article- Economic Forecast 2012: 2013 is the year when the pain really kicks in… Something horrible, utterly large in Magnitude & size may be the requirement to wake up these policy makers from their Day dreams of a brighter & stronger tomorrow Based upon these Bailouts. Mind you, the same could just be lurking around the corner, waiting to lash out in large tsunami waves…

Moneyline Futures Consultants P. Ltd
Commodity Trade Mantra

Rajesh J. Shah’s is the Chairman of Moneyline Futures Consultants P. Ltd., which is an Investment & Trade Advisory Organization & offers trading ideas & tips for Trade in all Commodity & Equity Markets. We offer MCX Trade Tips, Gold & Silver Tips, Commodity Trading tips & Advisory Services for Indian, U.S. and other Global Commodity Markets. Get Latest news on commodities, Market data & Live Commodity Rates. Commodity & Equity Market Research, Fundamental & Technical Analysis & Trading Strategy Development are the areas of our expertise.

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