American taxpayers and holders of American dollars got the news today that they are getting ripped off again. Not that many people pay attention, but the Fed announced today that it will be providing liquidity for the European financial institutions. The stock market loved the news and soared.
It wasn't enough that the Fed bailed out American financial institutions in 2008. It wasn't enough that they subsidized foreign banks and foreign governments. Now they are doing it again. The Fed is acting as a lender to European banks. Americans and holders of American dollars (are you paying attention China?) are subsidizing European banks. In a sense, Americans are actually subsidizing the irresponsible European governments and their welfare recipients.
The main reason that the European banks are in so much trouble is because they stupidly bought government debt from countries like Greece and Italy. Now that these countries are on the verge of default, the banks in Europe are in major trouble. Here comes Helicopter Ben and the Fed to the rescue.
The Fed teamed up with the central banks of Europe, Canada, England, Switzerland, and Japan, although it is likely that it will be the American central bank that does most of the subsidizing. I guess Germany could not serve as the host any more. The parasites have to keep sucking the hosts dry before moving on to someone else.
While this might temporarily save the European banks, it kicks the can down the road again. It props up the profligate spending of countries like Greece. These countries should declare bankruptcy and they should be forced to dramatically cut back on their welfare states.
With the Fed essentially subsidizing loans to European institutions, it will once again harm the American economy. It is another misallocation of resources. The voluntary free market economy in the U.S. (at least what's left of it) is starving for capital and investment. With the Fed doing this move and others like it, it is hurting the overall savings pool. This hurts economic growth. In order for the economy to grow sustainably, there must be savings and the government/ Fed are not allowing this to happen.
Nothing should be a surprise any more. If there is one lesson from today, it is that the future is unpredictable. I continue to say that we can't predict the economy and investments with any absolute certainty because the economy is made up of millions of people acting. In this case, the human action is just coming from a few elitist individuals who are affecting virtually the entire world economy.
As Ron Paul would say, "End the Fed."