The Greek debt crisis is for real. The U.S. debt ceiling crisis culminating on August 2 is a politically manufactured crisis with little reality to it. The Euro Zone could split apart. The euro could cease to be a currency. It could cause another financial panic. What could the U.S. debt ceiling crisis cause? The end to Social Security? The end to all social welfare programs? The end to the U.S. military?

Not likely.

The U.S. treasury bond is the world standard. All other bonds are tied to it. If the U.S. delays paying a debt, no one will react. They will act as if we are a special exception to the rule. They will believe that we will pay the debt in the future and correctly attribute it to political wrangling. The reason? We are the exception to the rule.

We acquired this privileged status after World War II when we became the top dog that plays policeman around the world and protects freedom and democracy. All other countries, including our former enemy Germany, depend on us. The only alternative to trusting us to pay our bonds would be world chaos and the lead up to World War III.

Since the newspaper reporters don’t want World War III, they ought to behave more responsibly when reporting that August 2 will be the day the world ended if we don’t raise the debt ceiling.

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It’s obvious that the EU crisis continues. It paused briefly last Thursday and Friday swept up the initial euphoria about the second Greek bailout in two years. But larger questions remain in the minds of investors.

In Europe German bunds are considered to be the risk-free investment just as over here U.S. bonds are regarded the same way despite the so-called crisis about the debt ceiling. So when Italian bonds crept up on Monday to 5.5% from 5.2% on Thursday, there was concern. Likewise no one liked it when Spanish bonds crept up to 5.7%. And by Monday afternoon the Spanish bonds hit 6%, 3.24% above the rate on German bunds.

The crisis has reached a systemic level. It is clear. But is Germany expected to bailout all her sister countries in the EU? Stay tuned . . .

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Germany seems to have made an impression on Spain, the Euro Zone’s fourth largest economy. New budget controls have been slapped on the regions of the Iberian peninsula to make sure that the country meets is budget deficit targets. The regions control one-third of the spending in the country, so the central government can do nothing without their cooperation. Germany has imposed penalties for non-compliance, i.e. countries that don’t meet their targets. The fines are automatic for all states in the European Union. This is Germany’s latest attempt at expanding their system to the rest of Europe. But it could be too little, too late.

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If anything was accomplished by Thursday’s summit of Euro Zone leaders, it was a photo shot and a one and a half day rally in the stock markets. The euro is now lower against all major currencies. What is everybody anxious about? Despite all the window dressing, the fundamentals aren’t there. Europe may be willing to take care of Greece’s financial needs for this summer. But in the future it clearly won’t work. Nor is it possible to pay for Spain and Italy, if their financial situations continue. After all, they are the Euro Zone’s third and fourth biggest economies next to Germany and France.

What can be done if anything? The European bailout funds needs to be increased. Just giving them extra responsibilities without extra cash is a disaster waiting to happen.

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The headline in of the Saturday, July 23, 2011 article in the Wall Street Journal reads “Europe Debt Plan Relieves Pressure”. But that’s all propaganda and what the politicos want you to believe. The real truth of the matter is that the new 109 billion euro bailout for Greece is nothing compared to what is needed.

The so-called “contagion” could still spread to the other PIIGS, Portugal, Spain, Ireland, and maybe even Italy which is the third largest economy in Europe. Greece still has a monstrous debt load. In fact the leaders have pushed off responsibility onto the directors of the euro bailout fund. They are supposed to act more immediately to aid economies in distress, but they have no more money to do it with!

The ratings agencies are about to declare Greece’s bonds junk and proclaim a selective default. The ECB has been bought off. If they could, they’d buy off the rest of us to keep our mouths shut, too.

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The meeting of European leaders in Brussels on Thursday was built up as if it were the meeting of the Gods on Mount Olympus. Angela Merkel was cast as Zeus and Hera at the same time. People were expecting great things. They at least expected Merkel to throw a few thunderbolts.

But as it turned out when we read what was decided there’s very little that’s new or different. It’s the same warmed over Greek debt crisis with Germany winning instead of France about what to do about it. The proposals are as follows:

1)restructuring the debt

2)extending the maturity of the Greek bonds, reducing the interest rate on current EU loans to Greece from the first bailout

3)commit to a spending program to boost the Greek economy

4)a second bailout loan to Greece which has been in the works all along

5)allow the 440 billion bailout fund to buy up sovereign debt and recapitalize the debt

Then there’s the laughable part. All the other gods on Mount Olympus, i.e. the other nations besides Greece, all took an oath not to go bankrupt themselves. Even more telling, they all earnestly promised to stop listening to those bad bond ratings firms that caused them to be forced to do anything about it.

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Germany tried to downplay the seriousness of the Greek debt crisis by coming to a late night compromise with France on Wednesday. Than today in Brussels they announced a new bailout of Greece by restructuring its massive debt. They are going to provide a loan of 1099 billion euros. They IMF and the private sector will be involved.

The markets seem to be euphoric — at first. But when they digest what has actually transpired, they will see that it is warmed over repetition of the same old stuff. Germany has been proposing a “restructuring” of the Greek debt for months. And they have been fighting off silly French proposals such as the most recent new tax on banks.

I bet you haven’t seen the last of the Greek debt crisis.

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Maybe because I”m an American I pick it up right away. Jeremy Warner’s article in the UK Telegraph, “Angela Merkel: can she rescue the euro?” sounds so . . . well, British! He sounds like Humphreys talking about the European Union in the 1980’s show. In discussing the possible demise of the euro as the common European currency, he discusses the history of Germany in the twentieth century from the point of view of somebody in London.

Warner acts as if the European Union was the invention of the British for the sole purpose of preventing Germany from causing trouble after the war. Then in the 1990’s when Germany became reunified, Warner says they had to come up with the euro to keep Germany out of trouble again. He even calls Germany “the old enemy at the heart of Europe”.
You have to remember that in 1914 England was the top dog. The British Empire was King. Germany was on the rise, but it was a distant second. The First World War dealt the death knell to the British Empire, which managed to hang around until after the Second World War so it could finally dissolve itself — just long enough for Churchill to talk about it in his war speeches.

The British seem to blame their troubles on Germany. They act as if they exhausted all their resources fighting it and defeating it and like a hydra-headed beast they’re at it again. And the euro crisis is the third act in only one hundred years. He even mentions “war guilt” as a factor that might make Germany do the right thing, which means support its poorer southern neighbors by either bolstering the European bailout fund or by creating euro bonds, which Germany would also have to pay for.

What it comes down to is this: Germany is now the second biggest western economy next to the U.S. Great Britain is number 2.

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One hundred years ago Europe was on the eve of World War I, called the Great War. It was the war that was supposed to end all wars forever. As far as we can tell World War II did just that. It’s hard to see how countries could launch a massive conventional war around the globe without blowing themselves up with atomic bombs. Besides, with the internet, cell phone cameras, and wi-fi, it’s hard to see how military secrecy could be obtained to launch such conventional attacks. They would be reported before they could occur. The enemy would know all about them.

Instead we could be on the eve of a massive cyber war in the financial markets. That could be the World War I of the Twenty-First Century. When you read articles such as the one in the Wall Street Journal this morning, Tuesday, July 11, 2011, “Debt Worries Roil Markets”, you get that idea. The first sentence makes you think of the end of the world as we know it: “Worries about government debt rocked capital markets on both sides of the Atlantic on Monday as fears that the Greek crisis will spread combined with concerns over standoff with the US debt ceiling.”

There won’t be any bombs. There won’t be nuclear fallout. Instead we will have a series of panics in the markets, followed by deep recessions and maybe even a Depression or two. People will be shaken, though still very much alive.

The first volley this week seems to be a planned meeting on Thursday of Europe’s heads of state. They must head off the Greek crisis which is already showing signs of contagion, spreading to Italy. There has already been a sell off of Italian bonds. The phrase on everyone’s lips is “Sell the PIIGS!” or PIGS for short.

Where will the next attack occur? Stay tuned. The financial news is now the war news.

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The Wall Street Journal wrote an article today, Monday, July 18, 2011, “Seeking A New Haven”, discussing how many investors wanted to know how to invest in German bunds, or bonds, which they were considering along with gold and FDIC insured deposits as a safe haven for money. Mike Schumacher of UBS, a Swiss bank says, “Most people regard Germany over the long run as probably the most financially conservative big issuer.”

What’s wrong with this scenario as the August 2 deadline approaches ever nearer when the United States is supposed to raise its debt limit or default on its bonds for the first time in history? Ward McCarthy, a British financial advisor hints at it, “It would be the end of financial markets as we know them now.”

That doesn’t say enough. Really it would be the beginning of America’s decline. That would signal the build up to another world war, World War III. Hitler didn’t win the last war. Nor did the Kaiser win the war before that. Germany is tied up in our political system and our world hegemony. If we went down, they would go down with us despite their conservative bunds.

So the move by investors to buy bunds up is really a “feel good thing”. It doesn’t mean much except that maybe the United States should hire German advisers to run their treasury department.

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