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!

EUROPE’S FINANCIAL TROUBLE

The global financial crisis, which had been stirring for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets had fallen, large financial institutions had collapsed or been bought out, and governments in even the wealthiest nations had to come up with rescue packages to bail out their financial systems. Now comes recovery, a time where the economy is supposed to rebound…but is it rebounding? Look at where Europe is at currently. January 1^st, 1999 the Euro made its debut, and now just over 10 years later the continent is in its own major financial crisis while the world is supposed to be rebounding from the global financial crisis. Europe has many countries, each with distinct financial and cultural histories, that have made this transition and are caught up together in this European Financial Crisis. Maybe if each country didn’t abolish their own currency to turn to the Euro each country could have stood stronger to help the ones that were failing, however they are now all in the same pot and it is taking other continents and countries around the world to look at bailing them out. The issue in Europe is already affecting the world wide economy and the rebound tougher for many countries especially the U.S. Recently the European Union has been working on limiting Europeans from investing in world markets to keep most European investing to Europe only. The issue has also caused the E.U. and G20 to look at developing another world wide tax, and other measures that would hinder the progress of recovering economies. Many are accrediting this financial crisis to Portugal, Italy and Greece not collecting their taxes. Why is it that taxing seems to be the solution. If taxation is increased more than it has already over the last 50 years most people will not be able to adequately manage a household budget without continuously going into further debt. Where will the taxing stop? There are two ways to increase cash flow, increase incoming and decrease outgoing. It seems like governments always to look at more coming in as more important than cutting back on what is going out!