We are certainly living in strange times. We are at the crossroads of a global economic depression while the global financial system is being kept alive and running by unprecedented market intervention many of which border on and go beyond outright manipulation. The times, more than being strange, is dangerous. The economic and financial crisis that continues to engulf yet larger and more economies is only worsening – contrary to what politicians and policy-makers would like us to believe. The strategy adopted to counter the rising tide of crisis focuses largely on prolonging the unsustainable system without actually trying to resolve the underlying factors that have caused the crisis in the first place.
The sovereign debt crisis in Europe is far from over. Greece has long been the center of the crisis while it has become evident that larger and more important economies are in the line and their conditions are worsening. Spain and Italy are the two large economies with dangerously rising borrowing costs.
They have to shell out increasingly higher interest rates on their bonds and debt instruments in financial markets. Lenders and buyers of these bonds and debt instruments demand higher rates in reaction to what they perceive as deteriorating financial and economic conditions of these countries.
This means these countries are trapped in a self-reinforcing vicious cycle that is driving their countries, economies towards bankruptcy. Rolling over the sovereign debt that comes due is largely possible only through borrowing and with rates rising to record levels, we are witnessing these governments adopting harsh austerity measures.
As a result we are witnessing the gradual impoverishment of tens of millions of people. These days and nights, life in Spain has come to a halt with mass protests, strikes and millions on the streets demonstrating against the austerity measures which are making the standards of living in Spain drop down a cliff. The situation in Italy is better with the recent "technocrat" government acting swiftly to return confidence to Italian economy.
In Europe, a new plan under the European Stability Mechanism (ESM) is to be set in place from early July which is designed to function as a "firewall" against the prospects of a contagion effect. The plan is to largely confine the crisis to the southern Europe and the periphery economies such as Greece and Spain and prevent it from spreading to other more important and larger economies such as France, Holland, Belgium and others that are vulnerable.
French banks are in a precarious condition. The French Societe General, its largest bank by market capitalization, is effectively bankrupt with tens of billions in bad loans and assets that cannot be recovered. The French government did its best to prevent the country's financial conundrum from becoming an electoral issue during the country's ultra-important presidential elections. With the elections over by early May, we expect more straightforward news coming out and throwing light on the its banking system's dire financial situation.
The European Stability Mechanism (ESM) makes sure that unlimited funds would be available (courtesy the taxpayers!) for unlimited rescue of Europe's banks and its financial system. This means that investors will keep buying sovereign debt and the public will keep bailing out and rescuing banks. This, in actuality, is the modern slavery. Welcome to the brave new world of servitude 2.0.
The European Stability Mechanism (ESM) will replace the current and temporary European Financial Stability Mechanism (EFSM). The ESM's initial capital stock will be $700 billion perhaps aping the $700 billion TARP fund that the Federal Reserve and the U.S. government put together in 2008 to rescue the American banking system.
The reality is that the whole edifice of the Western financial system now lies and has become terminally dependent on money and credit creation. Whether it be the Federal Reserve in the U.S. or the European Central Bank, banks, financial systems, economies and nations are being kept alive and running through pumping in seemingly unlimited amounts of money and credit.
In the U.S. we have the Federal Reserve preparing to unleash the third round of so-called Quantitative Easing which, in reality, is money and credit creation in order to keep the system running. The Federal Reserve admits to having bought some 60% of the bonds (debt instruments) issued by the U.S. government in 2011.
The European Stability Mechanism (ESM) will provide the "firewall" that the Christine Lagarde, the IMF chief, and other European politicians are so excited about. We are going to see bank bailouts, rescues and free handouts to banks for years to come.
But what will be the costs? The cost will be impoverishment of tens of millions of Europeans, plunge of living standards, the exacerbation of the ongoing social crisis and yet much more widespread and more severe austerity measures. What we are witnessing is that whole nations are being impoverished in order to keep a deeply flawed and corrupt financial and system alive. This is what should be referred to as the dictatorship of an oligarchy of bankers and financiers.
The question is whether this strategy of endless creation of money and credit in order to keep together this house of cards will be sustainable over the long run. The history suggests that once central banks start printing money in order to save the status quo, there is no coming back.
It is very likely that printing more and more money and pumping it into the current system can prolong the system and prevent a global financial and economic collapse that otherwise would be guaranteed.The Americans and Europeans have some very tough decisions to make: whether to resign to the circumstances that would impoverish them and the future generations or to stand up for their rights and demand ownership of their lives and their futures.
The way forward for the Europeans as well as the Americans is, of course, to get back what is the right that they are entitled to: rescuing their economies and people from the clutches of 'finance capital' and reclaiming their economies, jobs and the very future of themselves and their children.