I knew I had that € 2 Trillion sitting around here somewhere

By Matt Holzmann

So now the ante for saving the Euro has risen to € 2 trillion ( $2.72 Trillion). As part of the proposed plan, Greece's debtors, primarily the French and German banks, will take a 50% haircut and be recapitalized. Remember, these are the same banks who benefited from the TARP bailout over here in 2007/2008. So now their reckless gambles will have cost the global economy, which is in the end you, me, Stavros, Jean Claude, and Anneka over $3.7 Trillion.


Leading Foreign Holders of US Treasury Securities
	Dec-10		Nov-10
Economic Area	billions of dollars (est.)	percent of total foreign holdings	billions of dollars (est.)	percent of total foreign holdings
Mainland China	1,160.10	26.10%	1,164.10	26.40%
Japan	882.3	19.90%	875.9	19.80%
United Kingdom	272.1	6.10%	242.5	5.50%
Oil exporters1	211.9	4.80%	204.3	4.60%
Brazil	186.1	4.20%	189.8	4.30%
Caribbean Banking Centers2	168.6	3.80%	159.3	3.60%
Taiwan	155.1	3.50%	154.4	3.50%
Russia	151	3.40%	167.3	3.80%
Hong Kong SAR	134.2	3.00%	134.9	3.10%
Switzerland	107	2.40%	107	2.40%
Subtotal of top 10 holders	3,428.40	77.20%	3,399.50	77.00%
Grand Total	4,439.60	100.00%	4,413.80	100.00%

Now let's put that number in perspective. China's holdings of U.S. debt is around $1.1 trillion, followed by Japan at $800 billion. I feel much better already not using the "T' word. So, one might wonder where one might find € 2 Trillion ($2.72 trillion). Well, since the United States, the historical lender of last resort is broke and Germany's national GDP , by far the largest in the Eurozone, is only $3.3 Trillion I am not sure where the money will come from.

The Greek debt is only @$350 Billion, so what's to worry? The problem is that this insolvency is likely to spread across Europe, starting in Spain and Italy.

The really crazy part of the plan is that the cash available for the fund would "only" be $450 Billion or so, but then governments and the ECB could borrow against this. Paging Mr. Ponzi.

Everyone wants the Euro Zone leaders to take rapid action, but as can be seen, this is going to take a miracle. On top of this, the parliaments of all 17 Euro Zone countries must approve a July 21 agreement to expand the bailout fund. None of the governments have yet placed the bill on their legislative agendas. In the interim the ECB is buying Spanish and Italian bonds, which if the crisis escalates will decrease significantly in value causing further escalation of the crisis.

We are running headlong into a buzz saw of inflation and deflation. Governments will soon be asking "what number comes after a Trillion?" as they recycle cash to keep the banks afloat. Governments may be forced to run the printing presses until the bearings burn out, and yet all of that liquidity will vanish as it is sucked up by the bottomless pit of debt. And so governments will become so much further indebted that they will cease to be able to obtain credit. Sooner, rather than later, the game of musical chairs ends.