Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

E.U. Politicians Seek to Unload PIIGS Bonds

Interest-Rates / Global Debt Crisis Mar 16, 2011 - 10:10 AM GMT

By: Claus_Vogt

Interest-Rates

Best Financial Markets Analysis ArticleSince last Friday all eyes have been geared toward the catastrophe in Japan. That’s indeed understandable. However, there has been another important development with far-reaching implications that is worth discussing today …

While the media was totally focused on the Japanese disaster, German Chancellor Merkel and her European brethren insidiously decided to make a major change within the European Financial Stability Facility (EFSF), the EU’s euro rescue fund …


That change will let the European Central Bank (ECB) stop buying sovereign bonds from debt-ridden PIIGS countries like Greece. And it could transfer all those bonds it’s currently holding to the EFSF.

The decision came as a major surprise, since discussions of this controversial topic were officially scheduled to take place at the end of March.

So why now?

There Could Be Two Reasons …

First of all, the European bond market started sending stress signals again. As you can see in the chart below, interest rates of Greek 3-year government bonds shot up from 13 percent in January to 18 percent by March 10.

Greek 3 year bond yields

And last week Portugal was forced to borrow money at 5.99 percent, up nearly 2 percentage points since September — an unbearable leap.

These renewed bond market turbulences may have been an important driver for this emergency summit.

But there could be a second, more cynical explanation for the timing …

German Chancellor Merkel faces some important elections. And the concept of Germany as the main paymaster for troubled PIIGS is very unpopular amongst German tax payers.

And then German Finance Minister Schäuble said that the EFSF was too small and had to be increased.

Consequently, the EFSF’s funding was increased from $347.5 billion to $611.5 billion. Plus, it will now be allowed to buy bonds directly from ailing European governments. To crown this outgrowth of stupidity, it comes without any coercive rule to detain former and probably future sinners from further fiscal recklessness.

Incentive for Profligacy Leads to More Inflation

Unrestricted bailouts lead to more profligacy, more government debt, more inflation, and finally to more hardship somewhere down the road. There is absolutely no incentive for any politician to return to prudent policies. And the prudent ones will be punished since they will have to pay the bills of their imprudent brethrens.

European politicians have just decided to dig deeper into the hole they find themselves trapped in. And a return to prudent fiscal and monetary policies has become even less likely than it was before.

Just like the U.S. dollar, the euro is poised to take an extended beating.
Just like the U.S. dollar, the euro is poised to take an extended beating.

By taking on more debt, Europe is following in the U.S.’s footsteps, which will lead to a weaker euro, higher inflation and rising interest rates.

So unfortunately the euro is no alternative to the equally beleaguered dollar. And European sovereign debt bonds are no better than longer-term U.S. Treasuries. They both seem to be doomed.

All of this tells me that interest rates are sure to rise — both in Europe and in the U.S. And I have two ways you can use to potentially profit …

The first, is with ProShares UltraShort 20+ Year Treasury ETF (TBT). This fund seeks daily investment results that correspond to twice the inverse of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index. That means for every 1 percent the index drops, TBT is designed to rise 2 percent.

And the second, learn more critical background information about money printing, asset bubbles, opportunistic central bankers, and government debt and what this all means for your financial health. I suggest you get a copy of my new book, The Global Debt Trap. Click on your choice of bookseller to order it online — Amazon, Barnes & Noble or Books-A-Million — or stop by your nearest bookstore.

Best wishes,

Claus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in