In a blog I wrote about two weeks ago, the first line read “Never underestimate the power of the federal government to borrow or print money.”
Since I wanted to keep the blog focused on just the United States, I said "federal government."
After what happened during the weekend in Europe, it is keenly relevant to simply say: never underestimate the power of a government to borrow or print money.
As I said in that blog, the ability to do so will greatly limit the impact of any short term crisis.
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The European governments, as well as the U.S. government through the IMF, have shown tremendous willingness to borrow and print money to deal with a crisis.
And, it will greatly reduce short term problems as the tremendous worldwide stock-market rallies on Monday showed. Of course, this bailout doesn’t solve the problem of sovereign debt; it actually makes it worse in the long term.
As we said in both our books, "America’s Bubble Economy" and "Aftershock," it isn’t just America’s Bubble Economy; it is the World’s Bubble Economy.
And, because it’s a bubble economy, long term doesn’t mean it’s our children’s problem, as many would like to believe. It is likely the problems will begin again with the Europeans, but much worse, within just a few years.
Of course, during that time, another European bailout can be crafted, one in which the United States will likely be a bigger player. But again, in a bubble economy, such bailouts only help short term.
What’s so interesting about this bailout is the speed with which all these governments moved.
Before last week, it seemed to take months to develop a $50 billion bailout.
However, these same governments had no trouble crafting a $1 trillion bailout in 48 hours that was timed to be announced before the Asian markets opened.
This enormous concern about the stock markets meant just one thing — last week’s market collapse scared them to death.
I’m not sure who said what to who, but clearly someone made a very convincing argument that there would be a meltdown in the stock markets this week if something extremely dramatic wasn’t done before the first markets opened.
Clearly, no one in those meetings thought last week’s stock market collapse was due to a technical glitch. They felt it was a prelude to a meltdown this week.
Cheerleaders on Wall Street might not read it that way, but that’s obviously what those governmental leaders were thinking.
It’s also a very clear sign that we are in a bubble economy and many people sense it, even if they don’t say it.
Indeed, the World’s Bubble Economy gets more interesting every day.
And, let’s not forget the enormous role China is playing in maintaining the World’s Bubble Economy through its massive governmental intervention in its financial markets and its economy.
It wouldn’t be at all surprising to see bubble-popping in China’s credit, real-estate or stock markets causing a European-like problem.
Yes, it too could be bailed out. But again, it only helps in the short term, and the long term isn’t that far away.
About the Author: Robert Wiedemer
Robert Wiedemer is president of the Foresight Group, a macroeconomic forecasting firm that customizes its forecasts for specific businesses and investment funds. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here
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