Counterfeiting the Easy Way
Research for Online Investors

by John Dalt

1/24/11

It is looking more and more like Ireland is ground zero of the eurozone credit crisis. The problems are so bad, now all the participants just want to walk away and ignore them. Turn out the lights. I didn’t see it. They ask, 'Are you sure it happened?' We covered the Ireland Debt Rescue on 11/29/10 when Ireland was on the ropes. The European Central Bank (ECB) and International Monetary Fund (IMF) flew in their negotiators and accountants to go over the country’s and bank’s books. The country was on the edge of default. But the day was saved with a $115 billion dollar bailout.

A funny thing happened in December, Ireland’s borrowing from the ECB declined!  How did that happen?  The Irish Independent reported last week that the Irish Central bank increased their lending.  Any sane person would ask how they did that if they were almost broke in November.  Easy they say, they entered $68 billion dollars on their books under “Other Assets” and made a corresponding entry under “loans” to other financial institutions.

Just like magic, Ireland has solved their financial problems by “printing” $68 billion dollars in Euros.  And the ECB, Germany, France or Belgium didn’t say a word.  The Irish bank created more money to pay their bills and nobody said “Hey, wait a minute…You can’t print Euros.”

According to the Irish Independent, ‘An ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.’  It seems the Irish Central Bank had run out of assets to put up as collateral to the ECB for more loans.

All of this passed without the world taking notice.  Interest rates held steady, the dollar sold off and the Euro rallied last week.  It is not an emergency if it doesn’t make headlines, and CNBC doesn’t pick up on it!  Europe now knows how to handle future sovereign debt problems.  Spain, Portugal, Greece and maybe even Belgium…they can all print more Euros.  How are you going to stop them?

Business Insider calls this ‘counterfeiting’ and I agree.  Ireland’s Central Bank did not sell bonds to raise the money; they just made an entry on their books.  Just like the Federal Reserve or the European Central Bank does, except the Irish Central Bank is not authorized to 'create' Euros.

The ECB has surrendered their responsibility to manage the value of the Euro.  Germany can’t be happy, but if they say anything the whole charade could blow up.  Just because it is not in the headlines, you need to know.  The Euro is doomed.  The ECB allowing Ireland to print their way out of a crisis is akin to California printing U.S. dollars to meet their budget shortfall.

Where does it end?  We don’t know but the economic reports telling the world all is well and the days of wine and roses are just around the corner are grossly overstated.  Precious metals are consolidating from their fantastic run-up last year.  How many additional Euros will be printed in the next year?  Who will be accountable for them?  What backs their value besides “other assets?”

Investors should understand the value of the assets they are buying and the underlying currency.

Quote:
I believe that banking institutions are more dangerous to our liberties than standing armies.  If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered.—Thomas Jefferson in 1802

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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