Monday, May 10, 2010

Euro Zone Goes Nuclear

Today we received word that in the early hours of Monday morning the Euro Zone has put together a nuclear bail out package worth $1 trillion.

In addition to the bail out package, the central banks have agreed it is time to begin quantitative easing.  This is a fancy term for central banks printing money and buying government bonds.

This is a very important moment and a game changer.  The $1 trillion bail out is certainly not enough to solve the debt problems of the Euro Zone, but it provides the "shock and awe" title that will look beautiful on the Monday morning papers. It also has taken the stock market up over 400 points before the opening bell.

However, the use of quantitative easing has now set the stage for what is to come.  Central banks have an unlimited amount of money that they can print to purchase bonds.  This means the bail out is not priced at $1 trillion, which is a ridiculous amount to begin with, but it is now priced at an infinite amount of paper bills that can and will be created.

I explained in detail many weeks ago when the Greek crisis broke out why this would be the final outcome.

No one fails.

Central banks will use an unlimited amount of money to try and paper over the problems.

The size and speed of the bail out package now puts the coming price of gold at astronomical levels.  It also ensures that the global economy will feel the absolute most amount of pain with this horrifying decision.

The middle class will soon be something read in the history books.  It will be the ultra rich and the poor, as the purchasing power of paper currencies will be transferred to those who are buying tangible investments today.

The tic flows continue to show the majority of Americans putting their money into paper investments such as bonds.  The coming slaughter in the bond market will be the final nail in the coffin for any hopes of the baby boomer generation's retirement plans.

Look for much, much, more volatility ahead.  We are in uncharted territory now, and the global leaders appear to be making the worst possible decision every step of the way.

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