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Irrational Draghi Exuberance

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Germany hasn't enough resources to backstop troubled countries. "No one does. The money simply does not exist." Too much is needed. If Draghi oversteps, Germany will exist the Eurozone and go it alone. It's very concerned about future inflation.

New plans, other strategies and promises together comprise "one big distraction." Draghi and other central bankers are fast losing their grip on things. They'll never say so publicly, but privately they're worried for good reason.

Progressive Radio News Hour regular Jack Rasmus warns regularly about trouble on air. ECB policies have had "virtually no impact" on Eurozone economies or their "drift into recession."

Since spring 2012, "signs and indicators suggest the European banking system is" increasingly unstable. Most obvious is the need to bail out Spanish banks. They're in serious trouble. Amounts committed fall far short of what's needed.

Sovereign Spain and its troubled regions need massive amounts of help. Spanish bailout costs alone exceed ECB's capacity to help. Northern country banks are hoarding cash. Capital flight from peripheral countries is usually "the canary in the coal mine." It signals much greater trouble coming.

Draghi said inter-bank lending is dysfunctional. It's not working. "When inter-bank lending shuts down," says Rasmus, "bank to non-bank business and bank to consumer lending quickly declines." Recession is further exacerbated.

In 2007-08, it happened. History is now repeating. Rasmus believes the Libor scandal may be this year's subprime mortgage debacle equivalent. It may trigger the next banking crisis. How things play out remain to be seen. The immediate effect is declining confidence in banks and how they do business.

"The key transmission mechanism between the banking crisis and spreading European recession is bank lending contraction: banks to other banks, banks to governments, and banks to non-bank businesses and consumer households."

As lending erodes, so do economies. Forced austerity exacerbates crisis conditions. Growing evidence shows troubled EU economies. Greece and Spain are in "bona fide depressions," says Rasmus.

In early 2012, Britain entered double dip territory. France is declining. German services collapsed. The nation's composite index was a negative 46.3 read. So is its export engine and domestic demand. Throughout Europe, manufacturing contracted. 

Business and consumer confidence are sinking. Investment is down. So are government revenues. Unemployment is rising. Less household income and lower consumption follow. Sovereign debt levels rise. So does instability compounded by more austerity.

Policy makers know everything tried so far failed. Instead of addressing crisis conditions responsibly, they keep kicking the can down the road. 

They're also packaging old wine in new bottles. They hope earlier failures will magically succeed this time. Don't bet on it.

Stephen Lendman lives in Chicago and can be reached at Email address removed

His new book is titled "How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War"

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I was born in 1934, am a retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.

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Since money is an abstract symbol representing val... by Theresa Paulfranz on Sunday, Sep 9, 2012 at 5:36:10 AM
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