Saturday, November 19, 2011

Martin Armstrong: The Federal Reserve vs. The European Central Bank

Martin Armstrong is back with his latest: The Federal Reserve vs. The ECB, which discusses the ability of The Fed to create an elastic money supply on demand (which is why The Fed is so opposed to any audit of its books) vs the ECB, which is not authorized to simply print its way into oblivion and create an elastic money supply.  Armstrong believes this inability of The ECB to create an elastic money supply behind the scenes (print to purchase every european bond) will create a collapse of confidence in the European banking system.
Armstrong also discusses why a gold standard will not completely cure the boom/bust cycle (a concept also discussed here by The Doc in a post titled Is Compounding Debt Mankind's Kryptonite?).

The ECB is NOT authorized to create an ELASTIC MONEY SUPPLY. Consequently, the ECB cannot continue to just buy-in sovereign debt of member states as the market forces come down upon them. The ECB, unlike the Fed, will run out of money and then there will be a very public crisis whereby the ECB will have to be recapitalized. Now the fiat money crowd will argue that is the way it should be. The problem then becomes PUBLIC and now we introduce politics into the equation. This warns that the CONFIDENCE in the entire banking system in Europe may collapse because there is no automatic ELASTIC MONEY SUPPLY so bank failures and sovereign debt collapses cannot be dealt with immediately behind the scenes.
A gold standard by itself FAILS to restrain government spending and by no means has it EVER produced a period where the value of MONEY is a flat line. This harping about a gold standard will cure everything is like the girl’s father in the movie My Fat Greek Wedding who believes Windex cures everything. The gold standard never stopped inflation & deflation nor did it ever stop government from borrowing & spending. Money has ALWAYS been fiat to varying degrees because government makes a profit by issuing it.

Federal Reserve v ECB