How the US, UK, Japan and China can provide a backdoor bailout of the eurozone..

[Beet]

Okay folks, here is the plan...

1. The ECB prints trillions of euros, pumping them into bank balance sheets and sovereign debt as needed, while a Geithner-style "stress test" is conducted on the European banks. This causes the euro to devalue and investors to sell euros.

2. The Federal Reserve, Bank of England, Bank of Japan, and Chinese government prints trillions of dollars, pounds, yen and RMB, respectively. The Federal Reserve leads the way and the others follow in the name of 'exchange rate stability'.

3. As the investors in (#1) sell euros, the other four central banks purchase euros with their respective national currencies, propping it up. Inflation rises somewhat, but it's far better than the alternative. Gold surges, and for once I am happy about Peter Schiff being right.

4. The GIIPS use the time to adjust their labor markets and government budgets.

[2952-0-0]

Just a quibble:

The RMB is not convertible and it will make little sense to print massive amounts of RMB for a foreign problem.

China is gripped by demand-driven inflation: just witness the massive pay raises made in order to stem strikes and the spate of suicides, and the out of control food and property prices. Inflation has brought down many dynasties in the past and the existing one doesn't want to follow suit. Again, letting the RMB to appreciate could help resolve this, but they still are not budging.

Also, I'm afraid of the moral hazard this will create. Japan is in a potentially dire situation with its massive debt and terrible demographic future. Will Japan demand a similar bailout if it reaches a Greek-style crisis?

[Free Trade is managed by the invisible hand.]

Just a quibble:

The RMB is not convertible and it will make little sense to print massive amounts of RMB for a foreign problem.

China is gripped by demand-driven inflation: just witness the massive pay raises made in order to stem strikes and the spate of suicides, and the out of control food and property prices. Inflation has brought down many dynasties in the past and the existing one doesn't want to follow suit. Again, letting the RMB to appreciate could help resolve this, but they still are not budging.

Also, I'm afraid of the moral hazard this will create. Japan is in a potentially dire situation with its massive debt and terrible demographic future. Will Japan demand a similar bailout if it reaches a Greek-style crisis?

Japan is in a better economic situation than greece was in.

[2952-0-0]

Not when its 200%+ Debt/GDP ratio and its shrinking pool of savings cause chickens to come to roost.

[Beet]

Just a quibble:

The RMB is not convertible and it will make little sense to print massive amounts of RMB for a foreign problem.

China is gripped by demand-driven inflation: just witness the massive pay raises made in order to stem strikes and the spate of suicides, and the out of control food and property prices. Inflation has brought down many dynasties in the past and the existing one doesn't want to follow suit. Again, letting the RMB to appreciate could help resolve this, but they still are not budging.

Also, I'm afraid of the moral hazard this will create. Japan is in a potentially dire situation with its massive debt and terrible demographic future. Will Japan demand a similar bailout if it reaches a Greek-style crisis?

The fact that the RMB is not convertible makes this plan much easier. All they have to do is maintain the peg while the Fed depreciates the dollar; the dictates of peg maintenance will force them to inflate.

Also, China's inflation today is nothing. In 1993 or 1994 inflation was in double digits.

The moral hazard argument might be more convincing to me except that we are facing a liquidity problem. The problem in June 2010 (as opposed to say, 2006 or even 2009) isn't that countries like Greece or Spain lack the political will to cut spending and face austerity, or even reform their labor markets, it's that they aren't being given the time to implement even workable plans.

[opebo]

This is the solution, but it isn't a 'bailout'.   It just makes the problem go away completely.  And by the way there wouldn't be any inflation either, just less DEflation.

[opebo]

Also, I'm afraid of the moral hazard this will create. Japan is in a potentially dire situation with its massive debt and terrible demographic future. Will Japan demand a similar bailout if it reaches a Greek-style crisis?

By the way, why worry about 'moral hazards'?  If this fixes things, as I believe it would, the point is we can engage in enormously greater State fiscal stimulus.

We need to remind ourselves that it was a policy failure that got us here, and that in order to correct it would shouldn't merely react to the current crisis but prevent further crisis - by instituting massive Keyensian spending and redistribution on a permanent and on-going basis.

[Beet]

They better implement this plan soon. I don't think the people in charge realize that things are just going to keep getting worse until they do something.

[opebo]

They better implement this plan soon. I don't think the people in charge realize that things are just going to keep getting worse until they do something.

They don't and they won't.  Keep in mind that it is precisely the same elite which broke the Keynesian machine in the first place, purely out of spite.  They're almost unbelievably foolish.