Monday, May 10, 2010 ... //

A trillion of dollars to save the euro

During the night, the European Union and the International Monetary Fund, being in touch with the European Central Bank and even the Fed, decided to order ECB to buy the government bonds and pump dollars into the European markets.

Because this infusion is even bigger than the package that America added to the system in 2008, the markets reacted abruptly. The euro gained 2.5% on the U.S. dollar and the stock markets in countries such as Spain, Portugal, Hungary, Romania, and others gained as much as 10% during the morning.

That's, of course, nice. And if these changes help to decimate the "wolf packs", as a Swedish minister called the speculators who conspire to attack particular countries, I am happy. There are lots of nasty traders who suffer from group think, who want to hurt others, who do hurt others, and who ultimately benefit out of the behavior. It would be great to exterminate them, figuratively speaking. On the other hand, I am very uncertain about the sustainability of such shock-and-awe interventions.

Ultimately, the inflation has to kick in. I am kind of surprised that we are still not seeing it around. But qualitatively speaking, I still believe it is impossible for the negative impacts of such miraculous interventions and "erasures of the debt" to be absent forever. Even if the inflation doesn't kick in, such "free money" and "forgiven debts" surely have to undermine the motivation of the economies to "seriously work".