Capital Gold Group Report: Gold Prices Ride Inflation Fears Higher
May 12, 2010 (The Street) - Gold prices are soaring because of
growing inflation fears. Both the
European Central Bank and the
Neither the reforms attached to the Greek bailout nor banking
legislation in
Congress get at the structural problems that caused failures in Athens
and on
Wall Street.
Soft reform is no reform -- investors are fearful too much money will
undermine the value of euro bonds and U.S. Treasuries, even if those
bonds
don't outright default.
The bailout for Greece and aid for other debt-ridden Mediterranean
economies
provides hard commitment of assistance but doesn't address the
fundamental
structural problems that cause Greece, Portugal, Spain and other less
prosperous European Union states to spend too much. Namely, over the
last 40 or
50 years, economic integration in Europe has increased public
expectations that
social safety nets -- health care, retirement benefits, job security and
unemployment
assistance -- would be as strong and generous in poorer EU states as in
rich
ones.
Unlike the United States, the EU doesn't have well-developed
mechanisms for
taxing high-income states to provide low-income states with the same
level of
social expenditures. The EU can't tax Germany to subsidize Greece, as
Washington taxes New York to subsidize Mississippi.
Consequently, Mediterranean governments spend too much and push costs
on
private sectors those can't bear, and higher inflation results. When
those
countries had their own currencies they could let those slip in value
against
the mark over time. But now with the euro as legal tender, governments
don't
have this option. Instead, they borrow to the point of default, and pose
the
veiled threat of leaving the eurozone if aid isn't forthcoming.
The Greek bailout doesn't address the underlying fiscal problem --
the
absence of an EU taxing and spending authority. The $750 billion fund is
merely
a down payment on even bigger future bailouts.
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