Debt. Solved by Debt. Solved by More Debt... - 2 February 2012

Where does this end...?

IN SOME WAYS the European situation is worse than that in the US, depending on where you are, writes Daily Reckoning founder Bill Bonner.

Youth unemployment is up as high as 50% in some areas. Even in supposedly strong economies it is around 20%.

And, oh yes, you want yield? How about a 10-year note from Portugal? It comes with a yield of 17%.

Portugal's economy is shrinking at a 5% annual rate. Italy, Spain, Greece and Ireland are not in much better shape.

So what do the Euro-crats do? Same thing as the US-crats. They give the banks money, hoping the nice bankers will spread it around.

Last month, the European Central Bank provided 489 billion Euros in 3-year loans. "Super Mario" Draghi — formerly head of the bank of Italy, now head of the ECB — keeps the banks from going bust…and begs them to keep the governments from going bust.

The banks needed about 230 billion to refinance loans coming due in the first quarter of this year. They got the money from the ECB.

What a show! Draghi, Monti, Papademos and all the other 'technocrats' now managing the crisis are the very same guys who created the crisis. They worked for Goldman, ran central banks, and helped organizations such as the IMF and the World Bank make a mess of the world's financial system.

Now, they're solving the crisis the same way they caused it — by creating more debt. The banks can't pay their bills so the central bank lends them money. Governments can't pay their bills either, so the central bank lends them money so they can lend it to the government.

The ECB says it will give away more money on February 28th. Goldman Sachs is advising other banks to take the loot. As much as $1 trillion could be given out.

Let's see, how does this work? You are deeply in debt. So, the bankers lend you money so you can continue making payments. You go even deeper in debt…and the bankers lend you more money so you can keep making payments…

…and so on…

Where does this end? We don't know.

Whee!

Time to Buy Gold?...