Is the ECB bluffing?

Mario Draghi told us last week that the ECB will do whatever it takes (within its mandate)  to save the Euro. Not so fast said the folks at the Bundesbank. Draghi wanted the ECB to buy Italian and Spanish bonds to bring down bond rates, so these two countries can finance their deficits. NOT SO FAST, said the Germans, but they were outvoted.

Mario Monti (Italian PM) had warned that the Euro can not survive with Italy and Spain paying bond rates currently in effect.

Egon Von Greyerz of Switzerland thinks the Central Banks (including the FED) are bluffing: making statements to bring down bond rates, but not following through. What we see is a chaotic situation. On the one hand, the ECB's charter forbids it to interfere in the financial matters of each member, but on the other hand, if the ESM is given bank status, then it can buy bonds, create money, just like the ECB. Will such a move require German consent? Spanish banks are insolvent and if they fail they will bring down the whole house of cards.

The US is heading down the same path. The FED manipulates the interest rate, but if the interest rate would move to 6%, the total interest we owe would rise to $1T/year. The FED faces an insoluble problem. If it continues to promote deflation by keeping down gold prices, nothing it does via QE has much of an effect except on the Stock Market. If the FED let's inflation rise, interest rates will rise and the cost of managing the debt will put us in the position of Italy and Spain.