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Tuesday, January 18, 2011

Europe proves they are more reckless than USA

The US dollar will keep enjoying some strength, as it proves itself to be not as bad as others. The Federal Reserve Bank has come close to raw printing of money. All money in the USA to-date has been created on the backs of selling US bonds. In effect, every dollar created has an interest rate attached to it, and therefore every dollar created creates a long term drag on US debt.

However, this arrangement is considered a sounder approach than just simply creating money, with no marketplace to counter such actions. The bond market in effect is the counter to the US over-doing money creation, as rates will rise if perception is the US shouldn't be creating more dollars.

The European Central Bank has decided it is OK for Ireland to simply create Euros, without going through the European union to do so. This is in direct violation of the European Union law, and will likely be the doom of the Euro if this opening volley continues unabated in the year to come.

For currency is based upon faith that the currency itself will retain value. By allowing Ireland to circumvent the established process of the European Union itself to create money, they are showing wrecklessness beyond America.

How far the Europeans have fallen, since 2008 when they criticized America for it's "quantitative easing" and other acts that are also a challenge to the US dollar valuation.

It looks like the European union has just lowered the bar to the next level. If the Euro can withstand continued raw printing of currency without a crisis in the years to come, I'd expect more countries to follow.

After all, raw printing of money vs money backed by bonds vs money back by gold vs money backed by sea-shells is all a construct. No one really knows the effect these actions will have on the Euro.

One thing is for sure, it is an indicator that a full out European crisis is a brewing to allow these actions.

I highly recommend reading Mish's summary by clicking here.

I put this on my Financial Ground Zero events. Even if this isn't a direct American crisis act, it is an important moment in world currency.

Notice that this event will get zero press in the mass media. It is amazing how when governments publicly violate their own laws, it doesn't even get a mention.

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