$1 Trillion Was Not Enough

The dizzy honeymoon created by the EU and IMF pledge yesterday to throw a trillion dollars at eurozone debt has faded as predicted. Investors realize the “fiscal tightening” — pensions looted, social services slashed, standards of living sent into free fall — will negatively impact growth in the euro zone and result in central bankers cranking up interest rates in anticipation of looming default.

Following a euphoric surge of the Standard & Poor’s 500 Index yesterday on the announcement, U.S. stock future tumbled 1.1 percent to 1,143.5 at 9:01 a.m. in New York this morning. The euro lost all of yesterday’s gains. The euro weakened 0.7 percent against the dollar at 8:44 a.m. in New York, trading below the level it was before the European Union-led aid package was announced early yesterday, according to Bloomberg.

“The euphoria of 24 hours ago has passed,” Derek Halpenny, European head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in London, wrote in a report today. “We are in little doubt that steps taken will offer the euro little support and the aid package does not change the fact that Spain and Portugal in particular will still have to undergo further painful austerity measures.”

Expect the central banks and EU apparatchiks to call for even more money in the days ahead. Banker “long term solutions” invariably require long term fleecing of producers.Zero Hedge notes that European banks are betting against the beleaguered euro.
“Zero Hedge has received confirmation that several of the largest French banks are now actively shorting the euro to take advantage of globalized moral hazard, which with every ensuing bailout does nothing but make the bonuses of French FX traders surge.”
In other words, the very banks the EU plans to bailout in part with U.S. taxpayer money (or tax payer long term debt) via the IMF are placing bets against the survival of Europe.

In response to the almost instantaneous cynicism about the effectiveness of throwing a trillion bucks down the black hole of engineered debt, investors are smartly moving into gold. Gold hit a five month high today and moved to within $10 of its December record peak in response to eurozone risk aversion.