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Loose Canons

The EU’s Big Kazoo

By on 12.5.11 @ 6:08AM

As Europe insists on still more socialism as a solution to its ill, the U.S. Fed is doing its best to help out — in deep secrecy, of course.

Europe has no time for clichés, so Europe’s currency crisis has skipped two cycles. Instead of allowing one cycle of history to complete itself before it is repeated — first as tragedy and then as farce — the Eurozone nations have decided to pass by the end of the current course, skip tragedy, and go directly to farce.

France’s President is pressing hard on the trigger to fire the EU’s “big bazooka” but he can’t fire because Germany’s PM has her finger stuck behind the trigger and isn’t budging. Meanwhile, Mr. Radoslaw Sikorski, Poland’s Foreign Minister, last week demanded German intervention to save Poland (and the euro). Sikorski said, “I demand of Germany that, for its sake and ours, it help the Eurozone survive and prosper. Nobody else can do it. I will probably be the first Polish foreign minister in history to save this, but here it is: I fear German power less than I am beginning to fear its inactivity.”

A week before Sikorski’s plea, EU Commission chief Jose Manuel Barroso said that the only way to save the world was to give more power to — wait for it — the EU Commission. If there isn’t an increase in the EU’s power to regulate national economies, Barroso warned, Europe would “hand sovereignty to markets.”

Jacques Delors, one of the euro’s creators, echoed Barroso’s remarks saying that the euro wasn’t created on a sound basis. The sound basis, according to Delors, would be centralized economic power in the EU.

There’s not a lot to be learned from all this, given the fact that there’s nothing but Keynesian economics going on here. But Barroso and Delors do prove redundantly that for socialists, success and failure are one and the same. They have to be because socialism never works. So when it fails, the reason can’t be that socialism is a bad idea: it has to be that socialism wasn’t tried hard enough.

The second lesson — dispensed hilariously by Barroso — is that markets are always sovereign. Dear Jose: read a little history in your spare time (which should be abundant when the euro collapses). Start with the fall of the Roman Empire (resulting in part from the devaluation of its currency), continue through the 1929 stock market crash and proceed to the 2008 banking crisis in which George Bush said we had to break the rules of the free market to save the free market. In those events we — at least those of us who aren’t Keynesians — learned that financial markets will always respond to government policy. But the response will be on the markets’ terms, not on whatever terms the government elites tried to impose.

For Sarko, the problem is that the EU’s “big bazooka” can’t go “boom.” In reality, the “big bazooka” — the idea that the European Central Bank will just print enough money to bail everyone out — looks and sounds more like a marching band-sized kazoo. The European Central Bank’s creators didn’t give it the power to be the European lender of last resort. Merkel has said “nein” to that, because she knows the inflationary impact would disproportionately rob Germany and the euro would quickly become valueless.

On her side, Merkel wants to rewrite the EU treaty to provide unification of power over national budgets and spending, and a means of enforcement through the EU courts. It’s a technocratic approach, a ten thousand-page repair manual written in German which, even if Greece and Italy promised solemnly to follow it, they couldn’t because their citizens aren’t, well, Germans.

What will happen this week is what has happened at every “last chance” summit before it: a lot of window dressing will be peddled without any solutions to the fundamental problems that beset the euro. There will be promises of future action and an attempt to again seduce the markets to not impose the proper penalties that capitalism, in a free market, demands.

This time, however, the markets won’t buy it. And they won’t buy the Eurozone nations’ national bonds because the risks are just too high. Even German bonds proved unsellable in their latest round of offerings. The crisis will build, and will probably blow up in another three months or so when Italy, Spain, and Greece have to sell another major round of bonds.

If that were all we had to worry about, life would be easy. But we do have our Federal Reserve, and at its head Mr. Ben Bernanke. The Fed, under Bernanke and his predecessor — Henry Paulson — have had a penchant for lending out our money in trillions of dollars and keeping the loans secret.

A week ago, we learned that the Fed — in concert with the Eurozone nations’ banks and those of Japan, Canada, the UK, and Switzerland — reduced the cost of borrowing dollars to Eurozone banks. This was, we were assured, just another “credit easing” maneuver. But “credit easing” means providing something to someone at below-market rates. It’s a subsidy and someone has to bear the cost. In this case, the biggest “someone” was, apparently, the United States.

Right now, we don’t know what the cost was, or how much it may grow if it’s not repaid. And, even more dangerously, we don’t know what else the Fed is doing.

A November 27 Bloomberg News report told us that the Fed — acting without congressional knowledge — gave endangered banks loans and guarantees that may have amounted to over $7.7 trillion in the last four years. In comparison, the now-infamous TARP program dispensed “only” about $700 billion.

Think about those numbers. In 2008, the United States gross domestic product — all the wealth created and earned in the year by the entire nation — was about $14.6 trillion. So without our knowledge, acting on its own, the Fed gave guarantees and loans in an amount of 53 percent of our GDP.

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About the Author

Jed Babbin served as a Deputy Undersecretary of Defense under George H.W. Bush. He is the author of several bestselling books including Inside the Asylum and In the Words of Our Enemies. You can follow him on Twitter @jedbabbin.

Letter to the Editor View all comments (26) |

Martin Owens| 12.5.11 @ 7:06AM

It's amusing to hear all this rhetoric about " big bazookas" and financial "Firepower" from countries that dumped their security requirements on the USA decades ago, and left them there.

Even beating up on Libya, the Euro-gang ran out of their own bombs in a week and had to call on us for ammo ( and logistics, and command/control functions). So when Angela Merkel gives these stern warnings about " save the Euro or it'll be blood and fire again", I have to ask: with what?
With the tanks and planes and ships they never built? The armies they never recruited or trained?

And the financial side is more of the same: America to do the heavy lifting, as usual.

Audace| 12.5.11 @ 9:40AM

Martin O., well actually there are large arsenals of a sort there right now in all the W. European nations.

No, not big scale stuff. But still plenty of zip, zing, blast, and bang. What stuff, you ask? The plethora of rocketry that Eurozone families hoard and bunker as they stock up to prepare for 11:59 p.m. on December 31.

Seriously, if you've ever stood on a street in Amsterdam, Hamburg, Rome, Budapest, or Marseille at that hour on that day, well, you know what I am talking about.

Some individuals come out with a wagon loaded full of this stuff. And it's expensive! They fire it off with abandon for several hours after midnight. It's quite deafening.

Phone a friend at 15 minutes after the ringing in of the new year. Indoors or out, it will sound like your friend or relative is answering back to you from a war zone. Nay, the front lines.

Every year it is a minor miracle that one of these European cities is not burned to the ground in the first six hours of the new year.

Mac Jehoff| 12.5.11 @ 12:47PM

Yeah, and how about the picture of our "big wazoo" at the top of the article.

RJ| 12.5.11 @ 8:01AM

At least in the Wizard of Oz, when the curtain was pulled back, the "wizard" realized that he was discovered as a fraud and had the good sense to stop acting as if he had magical powers. It seems only in old Hollywood movies can we have such happy endings; not in the capitals of government.

At some point, people will learn that money is not wealth, but only represents wealth and that by politicizing the economy, by giving government power over it, has led to the greatest amount of theft in the history of man. Why do poor, unorganized citizens believe that they will win the "battle of the spoils" against highly organized, dedicated pressure groups when it comes to using government to obtain the wealth of others? Time to wake-up folks and downsize government.

Big Tony| 12.5.11 @ 8:16AM

This was a good article until you added "let's not dash into the fever swamps of Ron Paulism". Mr Paul was one of the few if not the only politician warning about the Fed. We don't need the Fed period, you should have left your comment there, the Fed needs us. The USA does NOT need a private bank (the Fed) owned by other banks (and we don't even know what other banks) issuing the currency for the USA then charging us interest for the priviledge. The United States Federal goverment has the contitutional authority to issue money and that authority should have never been given to the Fed and it should now be taken away from the Fed and returned to the US Federal government. And if the current congress and president won't do it (and they won't) then we need to throw them all out and get a congress and a president that will.

TrueBlue| 12.5.11 @ 3:06PM

When it gets handed back to the Federal Government it also needs to be put on either the gold standard, or another similar standard based on precious metals. Otherwise things will just get worse than they are now with them printing up money just because they can.

numbatdog| 12.5.11 @ 8:30AM

"We need to know what's going on. It's our money, damnit."
Sorry Jed, that horse left the barn a long time ago.
Let me list the institutions who control you and over which you have zero say:
The Fed, the Supreme court, the EPA, the IRS, the Czars and many others.
And it's probably not your money either. It's borrowed from China and your kids will have the privilege of paying it back.

Pat| 12.5.11 @ 4:29PM

Numbatdog: Ouch, that was a brutally honest riposte. But if Signor Vitelli wants to steal from Monsieur Rochambeau and M. Rochambeau wants Herr Schmidt to loan him the money for Signor Vitelli to steal, then Americans should support their right to do just that – or so we’re told. Why our government is even bothering to tell us is a good question – it’s no longer our money as you pointed out and the government isn’t asking our permission to give it away.

My understanding is that Greece, where everyone’s last name must start with “Papa”, is much like Detroit and Germany is much like the state of Michigan which will take over managing Detroit next Spring when the city goes completely broke and can no longer find the money to pay its legitimate bills, let alone its normal graft. No one in Lansing, Michigan actually wants to take over running the City of Detroit – the Lansing bureaucrats are like the Germans in that respect. Besides being a thankless job, they realize you can’t change the people of Detroit.

And according to the Detroit Free Press it isn’t the fault of Detroiters anyway, the problem stems from inherent racism. Of course, in Detroit, all problems stem from inherent racism and, even though the last white person left Detroit seventeen months ago, the problems within Detroit are mainly caused by white folks living outside Detroit. In that respect, the Greeks are like Detroiters but they can’t adopt the “racism” excuse due to looking pretty much like the folks they blame for causing their problems.

So, in the end, the financial crisis must be solved by taking money from productive people and giving it to folks with a proven track record of not being able to manage their own money. The European solution sounds pretty much identical to that tried and tested solution we always adopt here in the good ole USA.

Kade| 12.5.11 @ 8:31AM

Good article Mr. Babbin. Finally, someone in the conservative media pointing out that bailout Bernanke is on the move again – this time bailing out socialist Europe with our money. A global TARP is coming for sure along with another round of Quantitative Easing.

Why aren’t the GOP presidential candidates speaking out on this continuing leftist Fed policy? I suspect the reckless behavior from Bernanke is fine with Newt and Mitt -- both who are Internationalists.

There are no free markets anymore (just on the upside) and the sooner the GOP and the conservative pundits point this out and stop defending quasi-socialist Wall Street the better. You can bet Obama and the Dems are salivating over tying the GOP to corrupt Wall Street in TV Ads for the 2012 elections.

Big Tony| 12.5.11 @ 2:29PM

Have you been listening to the GOP debates? Last time I checked Ron Paul was still in them and he has been warning about the Fed for decades. Rick Perry has also been speaking of Mr. Bernanke's effort to destroy what little value the dollar has left.

QE3? No, not me| 12.5.11 @ 9:45AM

nuff said

Who Knows?| 12.5.11 @ 12:22PM

So, Mitt Romney is being slammed for using the royal “we” in an interview. And, here we have Jed Babbin writing that it’s “our” money, dammit.

The trouble with learning to speak is you never have a chance for silence.

Never is that truth more applicable than when it comes to “money”!

The Real currency of our human realm is----honesty. And, hence, as we swim in the flood of words that make up our noosphere, we are bound to have to deal with the consequences of the overwhelming lack thereof.

Money, politicians, public sector, private sector, wealth, religion, sports---you name it: isn’t it TRUE that lies are rampantly pervasive?

Wouldn’t it be a hoot if Mark Steyn’s humorously offered take that America (and Western Civilization, therefore) is, in a self-chosen way, kaput, was an UNDERSTATEMENT?

That is, what if he’s just a “kinder, gentler” Cassandra, and that the real horrors about to be chosen by the vast majority of people, who believe all the regnant lies are conventional wisdom, will be existentially challenging?

Bachman says Gingrich is “memory challenged”?

Well, folks, that’s just a nice way to tell it like it is for practically the whole human race, one person at a time.

As that old mother’s tale goes---it’s not enough to KNOW something is bad for you. One must act on such knowledge, in order to avoid the BAD---and, these days, most people are essentially full of self-esteem that manifests as haughty knowledge about this and that, while at the same time ACTING as if they DON’T know any of it.

Honesty---there are more takers than makers, ALREADY!

The American Exceptionalism bubble is bursting as we live---and soon enough, die.

Buy gold.

squalis| 12.5.11 @ 1:37PM

You can't eat gold.

9thID| 12.5.11 @ 4:34PM

True, and that’s why I’m also stocking up on semi-precious metals like lead and brass. It was reported elsewhere that this Black Friday’s gun sales topped even the record set when Barry began his reign of terror, by 32%. An apparent sign of the times ahead...

Who Knows?| 12.5.11 @ 5:57PM

Just because I think one should buy gold doesn't mean one shouldn't buy food---

"Buy gold" is short for CYA!

Expanding---as if most people don't already realize it, being as debt free as possible is also much preferred. When the spit hits the fan, it seems to me to be a good idea to NOT have to deal with the lawyer class!

One way or another, a wrenching scenario seems to be coming, IMHO.

And THAT'S the truth!

JFGalt| 12.5.11 @ 12:32PM

Why do people continue to deny what Ron Paul has been saying for so long? That's because they want it both ways. They will acknowledge that he is right about the problem but they still deny the solution and want to keep trying the same old rememdies as if this time it will work.

Otis Cribblecoblis| 12.5.11 @ 12:45PM

That's insane.

Pat| 12.5.11 @ 3:20PM

Young American males may enjoy playing Modern Warfare II on their X-box, but have no desire to push up more poppies in Flanders’ Fields. Yet, we’re told we can’t just sit by and watch Europe melt down financially and then go to a European Union war over it. We, meaning us Americans, must “do something”. Which brings up the legitimate question of when have Americans ever sat by and done nothing? Seems we’re always butting into other folks problems and trying to solve them – guess that’s just the kind of caring people we are. But ensuring that some falafel vendor working Baghdad’s streets has the right to vote is different from intervening in Europe’s current financial crisis.

We, as well as our European friends, don’t understand the present Euro Union crisis. Heck, we don’t even understand our own financial meltdown – the Federal Reserve’s board of governors admit they’re clueless, but they’d prefer we don’t cut their paychecks and perks over that minor lack of competence. Socialism doesn’t work in Europe and, so far, not in America either - but you can’t stop folks from wanting to spend other people’s money. And, short of sending in the Marines, we should support Europe’s right to steal from each other – because that’s the kind of caring people we are.

cicero| 12.5.11 @ 3:55PM

First you have to identify the real problem. The various governments have spent more money than they take in. In order to do this, they borrow money - issue bonds. The large banks buy the bonds. The governments are now saying that they cannot pay back the money due on the bonds. That is the problem.
The proposed solution? The banks now want someone to buy the next issue of government bonds that will be used to pay off the money due on the bonds held by the big banks. If no one buys those bonds, the banks will have to eat them, and lose a lot of money. This will not be good for the bankers who had their banks buy the bonds.
So ... have the litttle old taxpayers buy the next round of government bonds. The proceeds will be used to pay what is due on the bonds presently held by the banks. Of course, when the new bonds come due, and the governments cannot pay what is due on them, there will be no one stupid enough to buy the new bonds. Guess who gets stuck, again?
If the lowly taxpyaer ever figured this out, he would march on his own government and insist that no government money be used to buy those bonds. At that point, the governments issuing the bonds would have no one to sell them to. They could not borrow any more money. They would have to go to their citizens and tell them that the game is over, and live within their means. Sanity would return, and socialism would cease tol have any charm.
Don't hold your bereathe. The Fed is made up of bankers. The bankers want to make sure that their little club is well insulated from economic reality. But don't get me started . . . . .

Kade| 12.5.11 @ 4:58PM

Yes, We the People are ultimately bailing out the gambling bankers and Wall Street too. Bernanke is constantly bailing out Wall Street from one crisis to the next and the conservative media is generally silent. Just today the Fed, via the front IMF, gave several billion to Greece -- I had to read the bottom ticker of the TV screen to find this out.

I hope that Trump asks some penetrating questions regarding the Fed in his debate. Both the Left and Right media will not since they are part of the Fed scam, winking and nodding while the dollar and America gets destroyed to prop up the stock market.

Meanwhile inflation runs rampant while the Fed continues to stoke it instead of fighting it -- REAL inflation that is, not the bogus CPI they report each month, which gives credence to lies, damned lies and government statistics.

Asleep and unaware| 12.5.11 @ 6:51PM

Why we have no national, long, substantive, thorough debate on the Fed/US Treasury/US government bonds/quarterly Fed actions:

Because it is so much easier for people in the positions to do something to make snide remarks about Charlie Sheen snorting coke and Anthony Wiener's wiener. Go on congressional vacations, hit the campaign trail, fundraise, get that photo op with troops for 25 seconds....

No one advances in government attacking the status quo.

These's deeper issues do make one's head ache, nay throb as one tries to first comprehend then disect the problems one by one.

And we have a cadre of 20 - 25,000 higher banking, finance, Fed system, and government employees who don't want us to understand the machinations.

Intelligent Design| 12.5.11 @ 6:16PM

I am sure Obama, his comrades, and most Congressmen don't even understand what the Fed is doing, and I suspect none of the Republican candidates understand it either. Congress should call upon the Fed to 'splain itself, as Ricky Ricardo would say.

Merlin| 12.5.11 @ 11:30PM

I certainly do not understand much of what the Fed, big banks, Wall Street etc. are doing. I have more important things to do than spend what remains of my life studying it. So, serious question; Who can I trust for a thorough, unbiased understanding of what those bozos are doing and how it will affect me?

POST American| 12.5.11 @ 9:58PM

"Understand folks, things have NEVER
been more UNDER CON---troll. This was
ALLL planned half a century ago. It's the
'age-enda'. It's USURY and ALLL the CONs
of USURY. It's the implementation, the
FINAL implementation of a SIS--stem of
psychopathic, SO-shall Dar--WIN--ist
CON-troll. In this FINAL system ALLLL
is to be run on efficiency and X--speediancy.
What they are bringoing in is the END of
all that was that's HUMAN. They've said
it themselves."

CHECK IT OUT. -------They have.

USURY remains an ABOMINATION.

Fractional reserve, INTER-national USURY
is, more than ever, the work of actuarial
psychopathy with all that implies.

You WILL find out --for yourselves.

--------------HUAC/ NEW-remberg 2012-------------

Merlin| 12.5.11 @ 11:35PM

I should have said ". . . thorough, unbiased and comprehendable understanding . . . ."

wedding dresses | 12.6.11 @ 3:28AM

"Understand folks, things have NEVER
been more UNDER CON---troll. This was
ALLL planned half a century ago. It's the
'age-enda'. It's USURY and ALLL the CONs
of USURY. It's the implementation, the
FINAL implementation of a SIS--stem of
psychopathic, SO-shall Dar--WIN--ist
CON-troll. In this FINAL system ALLLL
is to be run on efficiency and X--speediancy.
What they are bringoing in is the END of
all that was that's HUMAN. They've said
it themselves."

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http://spectator.org/archives/2011/12/05/the-eus-big-kazoo

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