Whilst markets cheered the agreement by European leaders permitting the direct using the bloc’s bailout funds to recapitalize struggling banks, well-known investor Jim Rogers told CNBC the move does not even attempt to help solve the region’s biggest problem, which happens to be its high debt levels. “Just because now you must the right way to have them (banking institutions) to gain access to more money, that isn’t solving the issue, it is making the challenge worse,” Rogers said on Friday. “People ought to stop spending money they don’t have. Panic disorder a lot of debts are no more debt. This all little agreement does is hand them over (banks) the opportunity to have all the more debt for a little bit longer,” he added.
After negotiating late in to the night, European policymakers decided on Friday morning that this bloc’s bailout fund, the eu Stability Mechanism (ESM), can lend instantly to recapitalize banks without increasing a country’s budget deficit, and without preferential seniority status. Summit leaders also agreed that euro area rescue funds they can double to stabilize bond markets without forcing countries that conform to EU budget rules to embrace extra austerity measures or economic reforms.
Countries for instance Spain and Italy are already burdened with sky-high borrowing costs – levels considered as unsustainable for governments ultimately. Rogers argues the deal will not improve solvency of indebted nations for example Spain. Spain’s central government budget deficit has soared to a few.41 percent of GDP inside the first five months of 2012, over the EU limit of three percent.
He adds how the governments must stop visiting the rescue of failing banks, although it ends in “financial Armageddon.” “What will make me very excited is that a lot of folks went bankrupt or maybe a persons started eliminating their debt. We will have financial Armageddon anyways, in the event the world isn’t going to give they will any longer money.” “What can you do by 50 percent, three, 4 years if the market suddenly says ‘no more money’ as well as Germans don’t have an overabundance of money as well as American debt moved tremendous.”
Rogers says the market industry euphoria caused by what is the news, which saw a blast at the in Asian stocks, the euro and risk assets like oil, will likely not last. “How frequently has this happened during the last a couple of years – they (EU leaders) had a celebration, the markets have rallied, couple of days later the industry says wait a moment this doesn’t solve the challenge,” he explained. Rogers, who’s going to be an advocate of commodities-based investing, says he isn’t adding any positions right now. “I own commodities, I’m delighted they go up today – they go up lots. I’m not jumping into anything.”