Another Day, Another Bailout

Spain is in the headlines this morning as rumors abound that it is about to formally request a bailout. This, of course, would mean that when such is agreed the ECB will be free to buy Spanish bonds in its role as savior of failed economic ideas.

Therefore, stocks are being pumped again this morning. The real problem is that this artificial pumping is creating a massive divergence between underlying economic conditions and securities markets.

Regardless of whether or not Spain is bailed out and/or the ECB buys bonds, all countries in Europe, with the exception of a few well behaved Nordic countries, are under significant spending restraint as they attempt to honor their treaty or bailout obligations. This restraint is driving Europe into a deep recession, simply because it has been sustained for years by the excess borrowing.

Even the US is going to be forced to do something about its spending habits, at least to the extent of restraining growth.

The Keynesian growth model has failed. The daily headlines don’t matter.

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