Patterns and similarities exist between the eurozone and the U.S. in the financial remedies of which are getting administered to debt riddled central banks. Looking further into the comparisons there is a principle being applied.
Central banks in Europe are currently operating on the following terms with handling debt under the system called TARGET2. TARGET2 is an interbank payment system for the real-time processing of cross-border transfers throughout the European Union. European Union is the political confederation of 27 member states of Europe.
TARGET is an acronym for Trans-European Automated Real-time Gross Settlement Express Transfer System which was replaced in 2007 with TARGET2. Namely, this is a real-time system of the Eurosystem for handling payment transactions one by one by a central bank. In other words, a joint clearing system for transactions.
In the world of the European Central Banking system we have the various central banks like the Deutsche Bundesbank (Bank of Germany), Banco de España (Bank of Spain), and fifteen others.
Looking at a sample transaction of the European Central Banking system, it encounters debts passing from the Banco de España to the Deutsche Bundesbank through a claim receipt of the Commerzbank after payment is made. While Banco de España must increase their financing for the debt. So TARGET2 encounters debits out of money created to make payments.
With the gold standard reserves there are no private capital financing instruments being created and debts received are paid in gold. Where in fiat currency debt payments are made with creating of additional currency, therefore, creating additional debt or inflation.
What should result next to balance credits, debits and resolve the debt loans of central banks is to balance finances with increasing interest rates to investors. Rather bailouts have been occurring to fund the encountered debts preventing deregulating of labor markets, adjusting consumable good pricing at the expense of increasing debt. Leading to continued spending sprees and furthering the fiat currency decline in the global market.
In the U.S. we have a Federal Reserve System with debits of their own backed by gold certificates of which payments are being made to balance and settle payments. With Federal Reserve banks in the U.S. one bank from one state settles with another with sending gold certificates to the other to make payments on debts.
If one of the eurozone nations decides to default, due to insolvency, this would bankrupt the banking system. In order to prevent this scenario, the eurozone nation bank depositors will send money to the other eurozone nation’s central bank requesting payment on bank accounts. The receiving central bank posts a credit and a debit is posted to the debit central bank. So in the case of insolvency of a Spanish Bank the European Central Bank suffers a loss. Thus resulting in a bailout.
As in the U.S., we have bailouts occurring out of debt acquired in merger acquisitions by banks of the central banking system. Evidenced in the past by Bank of America acquisition of Countrywide Mortgage and Merrill Lynch and recently JP Morgan Chase trading loss.
The result is the U.S. Federal Reserve funding the national debt with creating additional fiat currency, floating of debts to banks of the European Central Bank, is sending a message the bailout answer is a global financial crisis.