Sunday, April 11, 2010

Let The Bail Outs Begin, Again

This weekend Greece leaders are meeting with members of the European Union, the European Central Bank, and the IMF. (International Monetary Fund)

They are meeting to discuss a topic that has become common place in our language over the past 24 months: Bail Out.

A few weeks ago when it became clear that Greece did not have the ability to pay on the debt it borrowed, I stated that the ultimate outcome would come in the form of a bail out from the IMF and ECB. Why did I believe this would be the final outcome?

The ECB and the IMF have the ability to print money out of thin air. 

The European Central Bank is the European Union's version of the Federal Reserve.  They are in charge of the money supply and the interest rate banks are lent to in the EU.

The IMF is the world's central bank.  It is a global bank that all central banks around the world contribute money to.  The IMF currently has $750 billion in funds ready to be lent to banks or countries that run into trouble.  Here is where they received the majority of their funds:

United States: $100 billion
Japan: $100 billion
European Union: $178 billion
Norway: $4.5 billion
Canada: $10 billion
Switzerland: $10 billion
Korea: $10 billion
Australia: $5.7 billion
Russia: $10 billion
China: $50 billion
Brazil: $10 billion
India: $10 billion
Singapore: $1.5 billion
Chile: $1.6 billion

I pulled this information from the IMF website which you can view here. 

All central banks are private companies.  They are not government entities. They print money, lend it to governments and charge interest on the money they lend.

Governments then tax citizens to pay for this interest.  The central banks are owned by a group of the wealthiest people in the world.  Names like Rockefellar and Morgan.  The names that have wealth beyond Bill Gates and Warren Buffett.  They do not control companies, they control countries.

The reason I am explaining this is so you can understand what you are hearing in the news.  When you hear that the IMF will be bailing out Greece, you need to understand that the IMF receives their money from central banks around the world.  Those central banks create the money they send to the IMF by printing it, and they charge interest on that money.  That money comes from the taxpayer.

The reason I believe that the final outcome for a Greek bail out will be a central bank bail out is because the central banks have to bail out Greece, just as they had to bail out United States financial institutions back in 2008.

If Greece were to default in a disorderly way it would trigger massive bank losses, and more importantly, it would trigger massive losses in the derivatives market which is currently $600 trillion and growing.  For example, estimates show that the German banking system would incur losses of $150 billion should Greece fail, not including derivative losses.  This would create another domino effect in the financial markets, similar to what we saw in 2008, that the Central Banks cannot allow.

When you understand the larger picture and how the game of bail out is played, it is far easier to see how events will occur before they do and how to prepare your investments for that outcome.

For a more detailed understanding of how the global financial system was created and currently works, I would recommend reading "The Creature From Jekyll Island," by G Edward Griffin.

Once Greece is bailed out, others will follow suit.  I would imagine the domino will fall first in Greece, then move to Italy, Portugal, Spain, the UK, Japan, and end with the USA.

All bail outs will involve printed money, which is paid for by the citizens through taxes and inflation.  The more money that is printed, the more money they use to "save us," the more interest they collect.

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