RUTHFULLY YOURS

Europe has no time for clichés, so Europe’s currency crisis has skipped two cycles. Instead of allowing one cycle of history to complete itself before it is repeated — first as tragedy and then as farce — the Eurozone nations have decided to pass by the end of the current course, skip tragedy, and go directly to farce.

France’s President is pressing hard on the trigger to fire the EU’s “big bazooka” but he can’t fire because Germany’s PM has her finger stuck behind the trigger and isn’t budging. Meanwhile, Mr. Radoslaw Sikorski, Poland’s Foreign Minister, last week demanded German intervention to save Poland (and the euro). Sikorski said, “I demand of Germany that, for its sake and ours, it help the Eurozone survive and prosper. Nobody else can do it. I will probably be the first Polish foreign minister in history to save this, but here it is: I fear German power less than I am beginning to fear its inactivity.”

A week before Sikorski’s plea, EU Commission chief Jose Manuel Barroso said that the only way to save the world was to give more power to — wait for it — the EU Commission. If there isn’t an increase in the EU’s power to regulate national economies, Barroso warned, Europe would “hand sovereignty to markets.”

Jacques Delors, one of the euro’s creators, echoed Barroso’s remarks saying that the euro wasn’t created on a sound basis. The sound basis, according to Delors, would be centralized economic power in the EU.

There’s not a lot to be learned from all this, given the fact that there’s nothing but Keynesian economics going on here. But Barroso and Delors do prove redundantly that for socialists, success and failure are one and the same. They have to be because socialism never works. So when it fails, the reason can’t be that socialism is a bad idea: it has to be that socialism wasn’t tried hard enough.

The second lesson — dispensed hilariously by Barroso — is that markets are always sovereign. Dear Jose: read a little history in your spare time (which should be abundant when the euro collapses). Start with the fall of the Roman Empire (resulting in part from the devaluation of its currency), continue through the 1929 stock market crash and proceed to the 2008 banking crisis in which George Bush said we had to break the rules of the free market to save the free market. In those events we — at least those of us who aren’t Keynesians — learned that financial markets will always respond to government policy. But the response will be on the markets’ terms, not on whatever terms the government elites tried to impose.

For Sarko, the problem is that the EU’s “big bazooka” can’t go “boom.” In reality, the “big bazooka” — the idea that the European Central Bank will just print enough money to bail everyone out — looks and sounds more like a marching band-sized kazoo. The European Central Bank’s creators didn’t give it the power to be the European lender of last resort. Merkel has said “nein” to that, because she knows the inflationary impact would disproportionately rob Germany and the euro would quickly become valueless.

On her side, Merkel wants to rewrite the EU treaty to provide unification of power over national budgets and spending, and a means of enforcement through the EU courts. It’s a technocratic approach, a ten thousand-page repair manual written in German which, even if Greece and Italy promised solemnly to follow it, they couldn’t because their citizens aren’t, well, Germans.

What will happen this week is what has happened at every “last chance” summit before it: a lot of window dressing will be peddled without any solutions to the fundamental problems that beset the euro. There will be promises of future action and an attempt to again seduce the markets to not impose the proper penalties that capitalism, in a free market, demands.

This time, however, the markets won’t buy it. And they won’t buy the Eurozone nations’ national bonds because the risks are just too high. Even German bonds proved unsellable in their latest round of offerings. The crisis will build, and will probably blow up in another three months or so when Italy, Spain, and Greece have to sell another major round of bonds.

If that were all we had to worry about, life would be easy. But we do have our Federal Reserve, and at its head Mr. Ben Bernanke. The Fed, under Bernanke and his predecessor — Henry Paulson — have had a penchant for lending out our money in trillions of dollars and keeping the loans secret.

A week ago, we learned that the Fed — in concert with the Eurozone nations’ banks and those of Japan, Canada, the UK, and Switzerland — reduced the cost of borrowing dollars to Eurozone banks. This was, we were assured, just another “credit easing” maneuver. But “credit easing” means providing something to someone at below-market rates. It’s a subsidy and someone has to bear the cost. In this case, the biggest “someone” was, apparently, the United States.

Right now, we don’t know what the cost was, or how much it may grow if it’s not repaid. And, even more dangerously, we don’t know what else the Fed is doing.

A November 27 Bloomberg News report told us that the Fed — acting without congressional knowledge — gave endangered banks loans and guarantees that may have amounted to over $7.7 trillion in the last four years. In comparison, the now-infamous TARP program dispensed “only” about $700 billion.

Think about those numbers. In 2008, the United States gross domestic product — all the wealth created and earned in the year by the entire nation — was about $14.6 trillion. So without our knowledge, acting on its own, the Fed gave guarantees and loans in an amount of 53 percent of our GDP.

So now the Fed is in the process of “easing” European access to the dollar. Which means it is subsidizing the EUnuchs to keep doing what they do. Not even their own markets — or their putative partner, Germany — is willing to do that.

What’s to prevent the Fed from throwing a TARP over Europe? At this point, not much.

Let’s not dash out into the fever swamps of Ron Paulism. We need the Fed to be independent, and not subjected to the whims of the White House or Congress. But it needs to be trustworthy. When it gives loans and guarantees equaling 53 percent of our GDP to certain banks without disclosing them, it cannot be trusted. If it is designing a bailout for the Eurozone on our credit, it cannot be trusted.

Let’s not seize the Fed or turn it into another vassal of the president or of Congress. But it needs to be entirely open and above board about what it is doing. Let’s shine a bright spotlight into the Fed’s darkest corners. We need to know what’s going on. It’s our money, damnit.

Letter to the Editor

About the Author

Jed Babbin served as a Deputy Undersecretary of Defense under George H.W. Bush. He is the author of several bestselling books including Inside the Asylum and In the Words of Our Enemies.