In response to Europe's Financial Troubles, Part 2

The EFSF will be fully operational June 2010, however they are awaiting each country to finish their respective parliamentary procedures. The EFSF will be a limited liability company, operating under Luxembourg law, that will be run by a board of directors appointed by euro zone members, the same people who prepare euro zone finance ministers' meetings. The EFSF will work hand in hand with the IMF, however the company will not need to ask for permission from euro zone national parliaments each time it wants to operate so they will maintain control over the funding alongside of the finance ministers. Once the EFSF raises money through the bond issue, it would lend money to the euro zone country in trouble charging higher interest. They are anticipating Triple A credit rating of the EFSF bonds as the euro zone countries have agreed to guarantee 120 percent of the value of the bonds on top of a cash reserve for the operation of the EFSF.

How is it possible that countries in financial trouble can put a 120 percent guarantee on bonds and make them triple A? It is also stated that it will not cost the euro zone countries anything, how is that possible. The countries are incurring more debt, and debt always costs! Notice that when someone wants to produce currency out of thin air, typically a Special Purpose Vehicle is set up. Most people don’t even understand the concept of a Special Purpose Vehicle. We do teach on this in the Financial Boot Camp. It seems that each time we get in more debt, the way to get out of the financial predicament is to incur more debt! The elastic band can only stretch so far, and similarly you can only put so much air into a balloon before it bursts!