One trillion dollars doesn’t go as far as it used to towards creating economic excitement.  The European bailout was announced Sunday night and it has already pretty much fallen apart.

Let’s review again what the content of the bailout package was:

There was $76 billion that the European Union was going to add in addition to the amount that they’re already looking at giving to Greece.  This money doesn’t exist.  It would have to be obtained by either countries selling new Treasury debt or countries taxing their citizens at a higher rate.  In other words, the $76 billion is phantom money.

Then there’s the $560 billion that European Union countries were going to gather together and put into a big pile (Special Purpose Vehicle – SPV) to have on hand in hopes of strengthening the Euro.  This money is a fairy tale.  Not only doesn’t it exist – but it will never exist.  The European Union is trying to “encourage” Great Britain to add money, even though they’re not part of the EU.  Does anybody really think that’s going to happen?

Lastly, there is the $321 billion that the IMF is “pledging” to the effort.  This is the pile of money controlled by the bankers that comes with “austerity” strings attached.  Countries would have to agree to put their citizens into an immediate depression environment in order to tap those funds – much like what Greece has done.

The bottom line is that the one trillion was created as a propaganda machine for public and investor consumption.  In reality, none of the government-sponsored money will be forthcoming – and the IMF money would only flow on the cusp of another major collapse.  The Euro is currently trading at 1.2642 to the US Dollar.  That number is on the verge of catastrophic economic consequences for all of Europe.  The one trillion dollar bluff was an abject failure.

I published an article yesterday detailing some of the economic signals that I follow.  A number of readers wanted more detail on why those numbers are important.

Without getting into too much detail on China right now (that’s coming in a future Update) there are severe consequences for China as their stock markets drop.  And, by association, there are major problems heading for the United States as a result of this.  I’ll write more on this later.

The exchange rate signals that I watch are just numbers showing what one currency is trading at with respect to a different currency.  For example, if you were buying a widget that cost 1 Euro right now then it would cost you a $1.2642 in US Federal Reserve Notes.  This is why European vacations are rather expensive for Americans.

Another way of looking at this is it tells how much “value” investors place on the future labor of those operating under one currency as opposed to those under a second currency.  The future labor of those in the European Union is valued more highly than that of the Unites States.  However, the “value” is now dropping, which means that workers in the European Union will be looking at lower wages and fewer benefits as things proceed.

Isn’t the fact that US future labor is being “valued” higher good news for us?  Not really.  It means that our exports will be more expensive for European customers, which can directly impact our Gross Domestic Product (GDP) in a negative way.

Watch for more major news out of Europe in the coming days.  People are beginning to figure out that the one trillion dollar bailout was just a story of appeasement.  Watch for deterioration to pick up speed in Portugal, with Spain following not long afterwards.

Your comments are appreciated…

Brad Hamill

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