Full Speed Ahead! Now Where Are We Going?

Posted: Sep 11, 2012 12:01 AM

Full speed ahead! 

The similarity between the two captains is almost eerie, namely Smith and Draghi. 

Let me explain. 

Knowing there was an unusual heavy concentration of ice made absolutely no difference to Titanic Captain Edward Smith on that fateful evening of April 15th, 1912. 

The skipper was determined to break the speed record for a transatlantic crossing. 

After all, the mighty passenger liner had been built to handle all forms of distress and it was unsinkable. 

Thus, all the theories that had appeared to work so well on paper would be given the ultimate test. 

Yet, once again, the irresistible force met the immovable object and man’s ego resulted in disastrous consequences.  Sometimes speed does, in fact, kill.  100-years later, the captain of the European Central bank, Mario Draghi, announced full speed ahead (Maastricht Treaty be damned.) 

It is Draghi’s intention to violate the law (it seems to be a Goldman Sachs tradition) by buying unlimited quantities of both 3-year and less-than-3-year paper.  In so doing, and by disregarding all the ramifications, he hopes to finally solve the crisis that has troubled Europe for so long, and the IMF applauds. 

Unfortunately, this is not the first time we’ve seen this strategy, but true to the Keynesian tradition more of the same was to be expected. 

It seems the bane of every central banker is to disregard the past.  So far, buy, buy, buy has resulted in increased record unemployment, unprecedented interest rates for the PIIGS, widespread business failures, and an economic despair not seen since the Depression of the 1930s. 

The U.S. stock market’s wild enthusiasm was predicated on the assumption that more money given to the bankers will save the day.  It is assumed that the additional sum of money will do what other amounts could not do, and that is to spur both lending and borrowing, resuscitate the gold cycle, and lead Europe back toward a path of success

The above words written in italics represent the official statement for public consumption.  However, the real facts undoubtedly reveal a Keynesian attempt to preserve a select few for just a little while longer before the inevitable occurs. 

Like the Titanic, the Draghi plan has serious design flaws not the least of which is Germany.  The sea ahead for Captain Draghi is fraught with many icebergs and he would best be served by learning from his predecessor of 100-years ago. 

Full speed ahead is not the best strategy.