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Wednesday, November 23, 2011

When will the ECB backstop this mess?

"Disastrous" bond sale shakes confidence in Germany:

The Bundesbank was forced to retain almost half of a sale of 6 billion euros due to a shortage of bids by investors.

Fortunately, that could never happen here in the good old USA.  Why not?  Because the Fed would buy all the rest of the bonds.

 But wait.  Isn't that like the Fed borrowing money from the Fed?  Yes, it's exactly like that.

It's like you needing money and your wife printing the money, loaning it to you, then you turn around and issue a bond to pay your wife back - and your wife buys the bond.

 Too bad they won't do that in Europe.  Yet.  They better do it soon, though, or the world economy will collapse.  Unfortunately it's the only solution the markets will tolerate.

German Chancellor Angela Merkel speaks during a federal budget debate in the Bundestag, the lower house of parliament in Berlin, November 23, 2011.   REUTERS-Thomas Peter

(Reuters) - A "disastrous" German bond sale on Wednesday sparked fears that Europe's debt crisis was even beginning to threaten Berlin, with the leaders of the euro zone's two strongest economies still firmly at odds over a longer-term structural solution.
Financial markets were also unnerved by newspaper reports that Belgium may be pressing France for an expansion of a 90 billion euro ($120 billion) bailout of failed bank Dexia.
On top of this, a special report by Fitch Ratings suggested France had limited room left to absorb shocks to its finances like a new downturn in growth or support for banks without endangering its cherished AAA credit status.
After one of the least successful debt sales by Europe's powerhouse economy since the launch of the single currency, the euro fell and European shares sank to 7-week lows.

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