Credit at very low rates of interest is treated as ?free money,? for that?s what it is in essence. Recipients of free money quickly become dependent on that flow of credit to pay their expenses, which magically rise in tandem with the access to free money. Thus when access to free money is suddenly withdrawn, the recipient experiences the same painful withdrawal symptoms as a drug addict who goes cold turkey.
Free money soon flows to malinvestments as fiscally sound investments are quickly cornered by State-cartel partnerships and favored quasi-monopolies. The misallocation of capital is masked by the asset bubble which inevitably results from massive quantities of free money seeking a speculative return… credit-poor economies are suddenly offered unlimited credit at very low or even negative interest rates. It is ?an offer that?s too good to refuse? and the resultant explosion of private credit feeds what appears to be a ?virtuous cycle? of rampant consumption and rapidly rising assets such as equities, land and housing…everyone and his sister can suddenly afford to speculate in housing, stocks, commodities, etc., and to live a consumption-based lifestyle that was once the exclusive preserve of State Elites… the addictive substance is credit and the speculative and consumerist fever it fosters.
The ?too big to fail? Eurozone banks … could loan virtually unlimited sums to the weaker sovereign states or their proxies. This led to over-consumption by the importing States and staggering profits for the TBTF Eurozone banks. And all the while, the citizens enjoyed the consumerist paradise of borrow and spend today, and pay the debts tomorrow.
Tomorrow arrived, and now the capital foundation – housing and the crippled budgets of post-bubble Member States -has eroded to the point of mass insolvency.
Charles Hugh Smith Why the EU is doomed
