Sunday, November 20, 2011

Henry Bloget: "The Run On Europe Begins"

"The world's lenders are increasingly deciding
that it's better to be safe than sorry,
and they're pulling their money out of Europe.

...the borrowing costs of many European countries
are rising fast.

...Last week, Italian borrowing costs soared over 7%,
which has been viewed as a sort of Rubicon level.

...interbank-lending problems, by the way,
are exactly what happened in the United States
in 2007 and 2008.

...the effect will be similar to the oxygen
being sucked out of the room.

...once runs like this get started,
they can accelerate fast.

...Europe's leaders are still denying that there's a problem,
and market pundits are still talking about possible solutions.

...The temporary solution that everyone is focused on
is for the European Central Bank to step in
and buy hundreds of billions of dollars of European sovereign debt
to get rates down and keep them down.

[if] the ECB could marshal the support to start buying,
it would have to keep buying...

...It would have to figure out how to deal
with the "moral hazard" of funding the deficits
of most European countries and, therefore,
removing any incentive for the countries
to get their deficits under control. would have to deal with the extreme inflation
this "money printing" would likely produce..."

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