Bailouts Create Zombie Club of Nations: Opinion

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Greece has supposedly received a bailout, and markets across the globe are soaring.

In fact, they are rising in the same manner they did a few months after the bailout of the U.S. financial system, now known as the Emergency Economic Stabilization act of 2008.

The truth, however, is there is no such thing as a complete and genuine bailout. There is only a transfer of the burden from the government and banks to the middle class.

In this latest example of government interference in the cathartic rebalancing that the free market demands, the troika (the European Central Bank, the International Monetary Fund and the European Union) has agreed to leverage their European bailout fund to $1.4 trillion.

Where is this money supposed to come from? Perhaps from the Chinese, but I sincerely doubt Beijing would divert one-third of its currency reserves to purchase European debt.

Even if they did, the Chinese would have to sell bonds of another country -- most likely U.S. Treasuries. But that would send yields sharply higher here, and the Chinese would then soon be on the spot to bail out the U.S.

The government of Greece must be elated because the principal on its debt has been cut in half. And European banks must be filled with alacrity because even though their holdings of Greek debt have been halved, governments have promised to recapitalize them with at least $150 billion. Although this amount will prove woefully inadequate in the end, the commitment has been made and insolvent institutions will be allowed to live another day.

But what about the citizens of Europe? If you are a private owner of Greek debt, no money will fill your hole.

What you can look forward to is the European Central Bank's inevitable printing of hundreds upon hundreds of billions of euros to support insolvent banks and countries.

And that's the point that is lost as the politicians pat themselves on the back for coming up with these bailouts. They are indeed capable of saving insolvent institutions, but in the process they bankrupt the middle class via inflation.

The rich can afford to own gold and certain assets that rise when central banks counterfeit money. But middle-class citizens become decimated because they can't afford to properly hedge against the destruction of the purchasing power of the little currency they own.

Is it really any mystery why gold and gold stocks skyrocketed right after the announcement of the agreement to bailout Greece? European citizens of any means rushed to avail themselves of gold, the proven store of wealth when governments are busy debasing their currencies.

By the way, the bailout of Greece concocted by the European oligarchy is a complete farce on every level. The restructuring of Greek debt is supposed to bring Greece's debt-to-GDP ratio down to 120% from the current 170% by the year 2020.

But Greece's debt ratio will never drop to that level by 2020, and even if it does, so what!

Italy's debt-to-GDP ratio is already 120%, and its bond market is in full revolt.

Even though the ECB has been actively buying more than $100 billion worth of Italian debt in an effort to keep yields from rising, the yield on the Italian 10-year note closed at more than 6% for the first time since early August. One year ago, the yield was significantly less than 4%.

This has occurred even though Mario Draghi (designated to succeed Jean-Claude Trichet as president of the European Central Bank by November 2011) has promised to continue the practice.

On Oct. 26 the incoming President stated that the ECB remains "determined to avoid a poor functioning of money and financial markets." (Translation: We will print all the money that banks and governments will ever desire.)

But all the money-printing and inflation in the world can't save these countries. In fact, it only will make matters much worse. Europe has now joined Japan in what I call the "Zombie Club of Nations."

These nations have zombie banks and zombie-like GDP growth due to high levels of government debt that suck all available capital out of the private sector. And the sad truth is that the U.S. is next in line to join that ignominious club, if it hasn't done so already.

The bottom line is that real interest rates continue to fall across the globe as fiat currencies get debased at an increasingly alarming rate.

This is the case just as the debt of the U.S. continues to soar, both in nominal terms and as a percentage of GDP. It leads me to several conclusions: The dollar will soon lose its status as the world's reserve currency; inflation and nominal interest rates in the U.S. are about to soar; and the American citizen can find his or her own ultimate bailout by owning gold.