A Voice of Sanity for Glass-Steagall as ECB Plans Hyper-Hyperinflation
July 2, 2012 • 8:12AM

In the aftermath of the Thursday-Friday Brussels meeting of the European heads of state, which Helga Zepp-LaRouche has appropriately labeled as a second Versailles Treaty looting of Germany, Bloomberg reported yesterday that all attention is now focused on the July 5 meeting of European Central Bank, where it is hoped that the next step towards hyper-hyperinflation will be taken by Mario Draghi and company. At that meeting, according to Bloomberg, it is anticipated that the ECB will lower benchmark interest rates by at least 25 basis points to a record low of 0.75 percent and, at the same time, lower deposit interest rates to zero, to discourage banks from parking funds at the ECB. The big question is whether the ESM, due to be activated sometime this month, will be chartered as a bank, allowing it to enjoy unlimited borrowing from the ECB's discount windows. This is the key move to secure what Lyndon LaRouche Sunday described as hyper-hyperinflation—-a flood of money to bail out the banks that exceeds, by orders of magnitude, the anticipated size of the ESM. For example, Bloomberg reported that the ESM bailout fund is expected to have an initial capitalization of 500 billion euros at most, where Italy and Spain alone are holding 2.4 trillion euros in outstanding bonds, bills, and loan obligations.

Bloomberg quotes Holger Schmiedling, chief economist at Berenberg Bank, calling for a third round of long-term loans to the banks and a resumption of ECB purchasing of sovereign bonds. "If the summit result encourages the ECB to step in with serious support for sovereign bond markets, it could be a smashing success. If the ECB hold back instead, the crisis could possibly escalate badly over the summer until the ECB finally relents."

Amidst all of this hype and hyperinflation, at least one media voice expressed some degree of sanity. Writing in Sunday's Telegraph, Liam Halligan once again called for Glass-Steagall and threw cold water on the euphoria over Merkel's capitulation.

Warning that there are critical interim hurdles before the fullscale bailout scheme can be realized, Halligan wrote: "It is abundantly clear, though, to any objective observer, that there is a very long way to go befgore any kind of resolution. Strict conditions still apply to the use of eurozone rescue finance. The exasperated German parliament retains a veto over the deployment of such funds. And the entire notion of direct funding to member states' banks, as opposed to respective sovereigns, still needs to be cleared by Germany's constitutional court. As such, we could yet see this famously nit-picking and powerful judicial body only granting approval following a referendum—which would be the first in Germany's post-war history... And acccording to the Brussels summit communique, the bail-out can, anyway, only happen once a eurozone-wide bank regulator has been 'established.' "

Halligan concluded his dissection of the Brussels fiasco with this assessment: "The circle will only be broken, of course, once politically-connected banks are busted up and their creditors forced to take losses. This has yet to happen in Western Europe—and, until it does, we'll keep lurching from crisis to crisis."

Halligan then went on to highlight the fact that there is a major criminal investigation—of Watergate proportions—now underway in the City of London over accusations that British banks were manipulating the LIBOR rates, on which global interest rates are set. The author concluded that, as bad as the banking crisis is on the continent, the crisis in the UK is far worse. He dismissed the idea of "ring fencing" as folly. "Well, history shows that firewalls don't work, which is why we desperately need a proper 'Glass-Steagall' split. Unless we get one, then the ongoing use of ordinary deposits to finance investment bankers' bets will result in yet more UK bank bail-outs. Given the rescues we've seen so far, and the gargantuan size of our bloated banking sector, this is something the UK simply can't afford."