Was this article helpful?00ByJohn Robert McDonaldA few weeks ago, UK Prime Minister David Cameron urged European leaders to wheel out their 'big bazooka' to tackle the eurozone debt problem. That's mighty impressive language - a bit reminiscent of the 'shock and awe' terminology that preceded the last Gulf war. The only problem was that I couldn't find any decent explanations at the time in the regular news and media outlets of exactly what Mr. Cameron meant by the phrase 'big bazooka'.
In the absence of any authoritative reporting on the matter, I could only fall back on my gut feelings about what politicians of all stripes usually like to do when backed into a financial corner. What our PM really meant, of course, and what the cowed and controlled mass media was too frightened to report, was that the ECB should be given the same dubious money-printing powers that our very own Bank of England currently abuses...sorry...enjoys and seems happy to wield with abandon. Unfortunately for Mr. Cameron, however, the Germans, who hold the European purse strings and who are still haunted by memories of the 1920's hyperinflation of the Weimar Republic said a definite 'nein' to this idea. They've been there, done it and got the extremely over-priced T shirt to prove it.
German Chancellor Angela Merkel may have thought she'd spiked Mr Cameron's guns with her firm rebuttal, but a week is a long time in politics and a few weeks is an eternity. It's become increasingly apparent during that short period that the deflationary battalions, having already overrun the eurozone periphery, are now massing on the borders of the core countries themselves. Even so, Mrs Merkel refuses to recognise this existential threat to the future of the eurozone and, by extension, the stability of the global financial system. In the end, the Anglo-Saxon controlled financial establishment felt they could stand idly by no longer and decided that if Mrs Merkel wouldn't act to bail out Europe's insolvent banks, they were going to have to act for her.
So that's why, this past Wednesday, we saw the Western world's central banks unleash the first salvo from their bazookas, flooding the ailing European financial institutions with extra liquidity. This action, of itself, is in no way sufficient to solve Europe's debt problems, but it certainly sends a message of intent. Basically, the Western world's politicians and central banks peered into the abyss and decided they didn't like what they saw. In fact, one rumour has it that this latest intervention was prompted by fears that a major European bank was about to fail.
It seems the Western central banks had also recruited an unlikely ally in the People's Bank of China, which decided to open a Far Eastern front in the war against deflation. Last Wednesday, in a coordinated pincer movement with the Western financial powers, China reduced funding requirements for its banks by 0.5%, thus freeing up more capital for investment.
So what happens next? Well later this week (8th and 9th of December) we have a key European Summit in Brussels during which the Germans intend to set out the conditions they require before they'll agree to any kind of inflationary pump-priming.
Increasingly, it's looking like a deal of some kind is about to be stitched together whereby Germany demands and receives far greater control over the spending plans of fellow European states, thus giving cover for the world's central banks, this time joined by the ECB, to unleash a veritable money-printing blitzkrieg to try and cow the forces of deflation.
So the big questions for us as investors are - will the markets find this grand plan convincing and if so, will it actually work? Will the central banks' bazookas have enough firepower to overcome the deflationary menace or do we wake up one morning to be confronted with a wasteland of closed down banks and empty supermarket shelves?
Nobody knows for sure, but my feeling is that governments and central bankers, after their initial skirmishes, are now panicked enough to turn up the printing presses to full speed and engage in 'total war' against deflation. This strategy might fool the markets for a few more months yet and we could be in for quite a strong rally in the stock market over the festive period.
In the longer term, however, I fear we could end up with some kind of catastrophic hyperinflationary depression and the only investments likely to benefit in that situation will be food, energy and the precious metals. In such conditions though, getting a return on your investments will probably be the least of your worries.
My website at http://handsoninvestor.co.uk/ is designed to help complete newcomers to the world of investing gain the confidence they need to abandon their commission-hungry financial advisors and take charge of their own financial futures. By following the guidelines provided on my site and by copying my own portfolio suggestions, my readers will, in time, gain the expertise required to become successful investors in their own right.
I provide my readers with a clear, easily executable investment strategy and what's more, I walk the walk by publishing a regularly updated portfolio of stock picks based on this strategy (at the time of writing all ten investment picks are in profit). At some point I'll be charging for this service, but for now it's all absolutely free, so why not pop by while you still can and see what you've been missing?
Thanks for reading my articles and I hope you'll become a regular visitor to my site.
Yours, John Mac, The Hands-On Investor
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John Robert McDonald
Economics Article FeedFind More ArticlesSearchRecent ArticlesHow To Solve The Homeless SituationProgressivism Isn't Progress, VIIIHow Secure Is Your "Secure" Job?A True Comparison Of Increasing Debt Between Bush And Obama AdministrationsHow To Compete With ChinaWould Einstein Think Us Insane?What Will Happen If Greece Defaults?A Cluster of (Minor) ErrorsThe US Recovery Is Producing SurprisesA Sigh Of Relief For The Economic Status Of The USSubmitted On December 04, 2011. Viewed 6 times. Word count: 772.MLA Style Citation:McDonald, John R.".".4 Dec. 2011EzineArticles.com.26 Jan. 2012
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