The Zman warns that European bureaucrats are trying (perhaps “conspiring” would be a better word) to fix energy prices at higher levels for the long term.
In effect the EU is lending its citizens money to pay their utility bills, without telling them that they are creating a debt for them.
Cornelius is paying $1000 a month right now. In the past, it was $200 a month, but the real price right now is $1500. That $500 is a debt that will be paid back when prices fall. So when the market price is back to $200, Cornelius will keep paying the $1000 rate until the deficit is made up.
The utilities will be able to use those future payments, plus interest, as security for additional borrowing right now. In other words, they are using this to create new debt instruments, which will profit the financial houses at the further expense of the people.
If wholesale prices do not return the old levels, then the utilities will face what is, in effect, a massive short squeeze. They will go bankrupt or require another bailout. Prices will never return to the old levels, so this trick is really just creating a bigger credit bubble in the future to solve the collapsing credit bubble in the present.
There’s more at the link.
Trouble is, this is merely a financial band-aid, not a solution. Europe and its citizens are already awash in debt. Creating more debt in this fashion is simply making that problem worse, while at the same time transferring it “off-the-books” to energy companies rather than individuals, in the form of what are effectively loans but are not described as such. This won’t solve the current debt crisis at all; in fact, it’ll make it worse, while punting the whole issue further down the road for future politicians and bureaucrats to deal with.
Our own government in the USA is doing the same thing. It passes grandiloquent-sounding schemes to spend trillions of dollars (which it does not have) on projects, proposals and plans that have little chance of working (because they’re politically correct rather than grounded in hard reality), but expects us to believe that the money they create out of thin air to fund such programs will never have to be backed up by hard assets, or repaid. Right now, the “full faith and credit of the United States” is looking very ragged about the edges. We’re effectively bankrupt – but nobody will admit it.
Sooner or later, that reality is going to overwhelm both Europe and the USA. It’s inevitable. When the financial storm breaks, you and I had better be hunkered down in as safe a place as we can find (or make) to endure it.