[kitchencabinetforum] CENTRAL BANKERS PLAY MISTY WITH ALL CITIZENS

Play misty to me! Central banks play a confidence game with us. A confidence
game is defined as an attempt to defraud a person or group by gaining their
confidence. The victim is known as the mark, the trickster is called a
confidence man, and any accomplices are known as shills. Confidence men exploit
human characteristics such as greed, vanity, honesty, compassion, credulity, and
naivete. The common factor is that the mark relies on the good faith of the
confidence man.

Central bank's mission to instill confidence in us about the economy while
simultaneously instilling confidence in us about the abilities of the central
bank itself. Central bankers are almost always publically bullish and hardly
ever publically bearish about the economy. The economy always looks good, if not
great. If there are some problems, don't worry, the Fed will come to the rescue
with truckloads of money, lower interest rates, and easy credit. If things were
to get worse, which they won't, the Fed would be able to respond with monetary
weapons of mass stimulation.

Central bankers are the people who said that there was no housing bubble, that
there was no danger of financial crisis, and then that a financial crisis would
not impact the real economy. These are the same people who said they needed a
multitrillion dollar bailout of the financial industry, or we would get severe
trouble in the economy. They got their bailout, and we got the severe trouble
anyways. It is time to bring this game, this confidence game, to an end.

Central bank's artificial creation of credit is the culprit in the business cycle. As the boom turns into bust, the economy tries to readjust itself into a configuration that conforms to consumer preferences. That is why it is so essential for government to stay entirely out of the adjustment process, because arbitrary government behavior can only delay this necessary and healthy process.

When the Fourthreichian bank stress test results were made public in July of 2010, skepticism soon followed. After all, just seven of 91 banks failed, leading some to consider the tests a hoax. None of Greece and Ireland's banks failed. Yet Greece and Ireland floundered under the sheer expense of bailing out and reforming their financial system. We now know the stress tests were nothing more than a placebo for the market! Now Greece is ready to go bankrupt any moment!

Without eurobonds, Greece will go bankrupt. But eurobonds violate the Maastricht Treaty, which stipulates that no country can be held liable for another country in Fourth Reich(EU). Eurobonds would even elevate liability to the level of a principle and force Germany to vouch for the debts of other countries whose fiscal behavior they cannot control. Germans would not tolerate the tax increases and reductions in transfer payments that this would necessitate.

Eurobonds would not be as safe as German government bonds. And since they would stimulate even heavier borrowing, they would have to yield higher rates. In the wake of the current bailout measures, the German government burdens taxpayers with risks worth one trillion euros. Likewise, over the last year, risk premiums for German government bonds have doubled. There simply isn't any more room for maneuver.

There is nothing wrong with Greece going bankrupt! Throughout history, there have been hundreds of government bankruptcies. Look at Argentina and Russia, for example. But in none of these cases did the entire financial system collapse. Of course, the financial industry likes being able to collect hefty risk premiums without risk. But, it can't be right for Germany's taxpayers to prop up the banking sector under the guise of saving countries or the euro.

Jean-Claude Trichet points out that ECB, as a central bank, issues a currency for absolutely all political sensitivities, including Graecokleptocracy. ECB is the guardian of a public good – a credible and stable currency – and that public good is for the service of all our fellow citizens. ECB, by construction, is a multi-partisan and multinational institution.

In a democracy all opinions are expressed. Trichet has observes there was always a very strong European drive in Greece, and he is very happy with that. Trichet notes the euro was created on the basis of a multi-partisan and multinational vision to deepen European construction and to reinforce solidarity between Europeans.

Taking into account the historical challenge, which Greece knows better than other European countries, it seems to Trichet that all the reasons why the founding fathers had this vision of European unity are still there and they are even stronger now. When Trichet looks at the changes all over the world, the extraordinary growth of the emerging economies, such as India, China, Brazil, Mexico, Russia, and the remarkable development of Latin America and Africa, he sees that European unity is more important than ever.

There are some heavily indebted nations within the euro area, most prominently Greece. Clemens Fuest, who chairs the German Finance Ministry's Technical Advisory Committee, asserts Greece's extremely weak balance sheet means a restructuring of the Greek sovereign debt is inevitable. One must recognise the realities – Fuest is expecting a haircut.

Trichet points out there is an important adjustment plan which has been adopted by the Greek government to reform its fiscal and structural policies. This plan has been approved by the IMF, by the international community and by the European Commission in liaison with the ECB. This plan is being applied.

A bailout is a perverse transfer from poor taxpayers to rich taxpayers. Founding Fathers surely never envisaged that the federal government would take money from one group of citizens and give it to another group. Yet much of the federal budget is devoted to redistribution programs.

Bankruptcy will allow these companies to restructure to a more cost effective format, and it will allow them to trim the fat from their overhead so that they may once again become productive and profitable without risking trillions of dollars in taxpayer money. Overall, letting these companies go into restructuring, instead of preserving the status quo with taxpayer funds, is best for the long-term economic stability of both these companies and the nation.

The euro has been rescued for the moment, but Eurokleptocrats have thrown the
foundations of Fourth Reich's common currency overboard with their unprecedented
bailout package. In the longer term, the dangers of the crisis can only increase, and the flood of billions of euros will lead to inflation. Eurokleptocrats have thrown overboard all the noble principles and promises of the formal, tough treaty-based foundations for the introduction of the euro and the independence of the European Central Bank.

Eurokleptocrats sacrificed the independence of the European Central Bank and
paved the way for a European Inflation Union. There won't be any state
bankruptcies in the eurozone in the future. ECB will just purchase government
bonds of the country in trouble. The money can't run out as ECB prints it
itself. A flood of money like that can't continue without any consequences. The
currency's stability will be undermined and inflation will destroy Fourth Reich.

ECB now purchases government bonds in emergencies. Not only has this been
prohibited until now, it also contradicts the central bank's overarching goal,
keeping the value of money stable. Now this taboo is broken, and the very
foundations of eurozone are eroded. ECB's independence' has now been shown to be
nothing more than a sham, a chimera, a will-o'-the-wisp. In the end, ECB and
euro will be punished for this decision to stand down from what had previously
been considered sacred.

This policy effectively makes ECB a bad bank, a bank that buys up toxic assets
as a means of helping out other institutions, all protestations of its president
to the contrary. The pile of junk bonds on the ECB's balance sheet continues to
grow. The fact that the ECB is keeping prices artificially high is downright
encouraging banks to unload their risky assets onto the central bank.

The European Central Bank has been buying up Greek bonds by the bucketload, even
though Athens is already getting money from an EU rescue fund. There is a
French plot behind the massive buy-up, as it gives French banks the perfect
opportunity to get rid of their Greek assets. German banks, on the other hand,
are not potential sellers, because they have made a voluntary commitment to
Finance Minister Wolfgang Schaeuble to hold their Greek bonds until May 2013.

ECB is creating excess supply by buying at overinflated prices. In other words,
many creditors are more inclined to sell their risky assets to the central bank
under these terms. It's a free lunch. Anyone who doesn't take advantage of this
opportunity to get rid of his securities now only has himself to blame.

European Central Bank President Jean-Claude Trichet calls for more effective
sanctions against countries violating eurozone's Stability and Growth Pact.
Trichet plays kangaroo, calling for a quantum leap of mutual control among
eurozone governments. ECB should not be listening to recommendations from
Eurokleptocrats.

Kleptocrats are creating zombie banks and companies that are kept alive artificially. We started with a too-big-to-fail problem, and part of the policy response to the crisis has been
even more financial consolidation. JP Morgan took over Bear Stearns and Bank of
America took over Merrill Lynch. What we have now is financial institutions that
are even bigger. Those institutions, even more than before, know if they do
something very risky, something reckless, they will be bailed out again.

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