February 10, 2010 03:26 PM EST by Elizabeth MacDonald
Europe is about to go Paulson-Bernanke on Greece.
European Union officials are set to break the "no-bailout" clause that is the main building block of the Maastricht Treaty which launched the European Union and the euro.
With a tortured reading of an emergency clause, the EU treaty says a bailout can be rendered when a member country faces "severe difficulties caused by natural disasters or exceptional circumstances beyond its control."
Sort of like how the Treasury and the Federal Reserve blew out the "exigent circumstances" clause of the Federal Reserve Act of 1913 to enact the $700 billion TARP program and to let the Federal Reserve balloon its balance sheet to $2 trillion from $800 billion pre-crisis.
Bond traders fear Greece is a warm-up act for other debt-bloated European countries, even if the rescue merely takes the form of debt guarantees--a feature of the US bailout programs.
Since the usually fiscally stalwart Germany is about to be persuaded that "exceptional circumstances" are not just of the Mount Vesuvius variety in Greece, but also include reckless, irresponsible bureaucrats, watch how quickly Portugal, Spain, Italy and Ireland come knocking with their tin cups.
Italy's debt as a percentage of GDP is steeper than the levels in Greece, Spain is about as bad as Greece, and rampant unemployment is endemic throughout Europe.
Fiscally Incontinent Greece
The fiscally incontinent Greece has about $27 billion in bonds rolling over in April and May, with $48 billion coming due by the end of the year.
With as much factitious vigor it can muster, Greece is trying to convince European Union officials it deserves emergency loans because it promises to cut its debt to GDP ratios by a huge nine percentage points, down to 3%, in just two years.
This, from a country that has so systematically faked its numbers since at least 2000 that its books need a bilge pump, and which now faces the fulsome self-dramatization of a bloated government sector threatening nationwide strikes.
Costly After-the-Fact Refereeing
This costly, ad hoc, after-the-fact refereeing matters to you and your wallet, because borrowing rates may spike higher as government officials dangerously continue to roll the credit bubble into a sovereign debt bubble.
Traders fear a bond market crackup, as a glut of debt is being issued worldwide to repair economic crises in countries around the globe.
The fear is bond yields will have to rise, as governments try to lure a dwindling group of deep-pocket investors to their debt. Borrowing rates are tied to debt yields.
The US currently plans to issue $10 trillion in debt over the next ten years, a lot of bonds to float, as the country spends about $2 for every $1 it collects in taxes.
US's Rosy Deficit Projections
It would be an understatement to say US deficit projections are rosy, as they are based on these notions:
That there will be no recessions during the next decade;
That there will be no new spending programs after this year's budget;
And that rising national debt will increase the rate of interest on government bonds by less than 1%, says Harvard University economics professor Martin Feldstein, also president of the National Bureau of Economic Research.
Biggest Pay-Go Violation of All
Fiscal rectitude in the US will come in the form of a deficit commission and tougher "pay-go" rules, which say Congress can't enact new spending if it doesn't cut elsewhere or raise taxes, says the Administration.
Never mind that the US government overall has already violated the pay-go rules, by spending $3.8 trillion on a budget while taking in only $2.4 trillion in tax receipts annually.
Stygian Gloom in Greece
Back to the Stygian gloom in Greece. The country is trying to persuade EU officials that it is facing exceptional circumstances.
Even though natural disasters or exceptional circumstances beyond a government's control were always thought to be hurricanes, earthquakes, floods or volcanoes.
Not man-made disasters, as in Greece's reckless spending, or Wall Street deluding impenetrably foolish investors into believing subprime securities were worth more than the sum of their junky parts, the no-income, no-documentation loans they were built on.
The Street made more than $300 billion in profits during the height of the housing bubble years, from 2002 to 2007, going berserk securitizing the issuance from a fire hydrant of bad loan paper.
But recall Goldman Sachs chief executive Lloyd Blankfein in recent testimony before the Financial Crisis Inquiry Commission in DC.
Blankfein likened the economic crisis to the probability of four hurricanes hitting the East Coast in a single season
To which commission chairman Phil Angelides admonished hurricanes are "acts of God"¦financial crises are manmade."
To which JPMorgan Chase's Jamie Dimon said no one on Wall Street saw a housing crackup coming"”as few Wall Street risk models, or in DC, acknowledged a nationwide housing collapse.
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What we have here,... is a default fait-accompli, a'la the avarice "Oligarchy" undressed! The money-changer's opaque anesthesiologist palliating crises having morphed into a "Pyrrhic's Victory" masked only by a pellucid EU's disenter? This is the "Undertaker's" triumph via the "Cenral Banks" of the world...? Thanks E'mac PS. Change'$$$ is good?
Liz, We're trying to compete with the 4th blizzard since December. Can anybody trust Greece? Or Europe itself? The economic model that the Obama administration believes in has been exposed as a fraud.The excessive spending that Europe has done to bring an alleged prosperity to its citizens has not done that. Greece has a high unemployment that resulted in rioting last year. They have a hangover from the Athens Olympics.BobH
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