That sigh of relief by residents of more parsimonious states who have assured themselves that the inevitable economic pain will be confined to the populations of the bankrupt states are in for a rude awakening.
The actions of the central bank, The Federal Reserve, are not controlled by a Congress who, due to the political climate revealed by last November's mid term elections may decline to bail out the spendthrift states. If Mr Bernanke elects to purchase the soon to default state and municipal bonds of these entities (naturally at face value) those bonds will soon join the worthless "assets" lounging on this or that taxpayer guaranteed "balance sheet".
As disastrous as the above described nightmare scenario is, imagine the following: California resorts to printing "legal tender" dollars at its printing presses in Sacramento. Preposterous you say? Compare such a national disintegrating event with what we just learn is happening in the European Union:
In news reports that have thus far not attracted much attention, the Irish Central Bank has been printing euros out of thin air to prop up its ailing banks. The whole of Europe will pay for this action, as the result will be increased euro-zone price inflation. We can only imagine the reactions of Germans if this continues – though apparently the Irish action is legal from the EU's standpoint so long as the ECB is "informed" in advance and approves. As is often the case, we doubted our reaction to the news, so we went trolling the ‘Net to see if anyone shared our instinctive reaction that this was overwhelmingly bad news for the euro. Here's one comment we found:The nations (states) who responsibly "lived within their means" will be handed the bill for profligate states' irrational policies. This is the stuff of which revolutions are made. We are indeed living in "interesting" times.
"Wait... have I just slipped into a parallel universe? Is this some sort of early April's fools joke? Doesn't this defeat the entire point of a single currency and the ECB? Were the rules changed on the quiet without anyone noticing?"
Got food and ammo?
cross posted at: Eternity Road