The question of the day (for which everyone should know the answer) is Can Government Lies Calm the Markets?

In spite of the fact most of us realize lies will not help, and most often makes matters worse, governments repeatedly resort to lies, platitudes, and wishful thinking.

Jean-Claude Juncker, Luxembourg PM and Head Euro-Zone Finance Minister admitted as such in his statement "When it becomes serious, you have to lie"

Things are clearly serious, so everyone should expect lies, and lies we have in spades.

MarketWatch reports G-7 seeks to calm market fears on Europe, banks

The finance ministers and central bankers of the Group of Seven richest industrial countries sought late Friday to calm market fears about Europe's debt crisis.

A senior U.S. official told Dow Jones that the G-7 leaders spent most of their time behind closed doors dissecting Europe's problems.

The group trumpeted the EU's July 21 agreement to ease financial tensions, saying it would make the European Financial Stability Fund more flexible. At the same time, the euro-zone countries reaffirmed their "inflexible determination" to honor their sovereign debts and their commitments to sustainable fiscal policies and structural reforms.

If G-7 really has "inflexible determination" in the face of default of Greece, then they are not doing what they should be doing, which is to prepare for a Greek default and exit of Greece from the Eurozone. For additional comments please see Common Sense from Eurozone Member Estonia: "Illogical to Exclude the Possibility of Bankruptcy".

This of course leads to the second question: Is "inflexible determination" a lie or just plain stupidity?

MarketWatch: The G-7 said that their central banks "stand ready to provide liquidity to banks as required.... We will take all necessary actions to ensure the resilience of banking systems and financial markets."

Mish: That paragraph is a set of half-truths and lies. The half-truth is the ECB will most assuredly attempt to provide liquidity.

The problem is banks face capital shortfalls. And regarding capital shortfalls the banks, the ECB, and the EU are all in stupefied denial even after Christine Lagarde, new head of the IMF stated banks were undercapitalized. See Lagarde shows independence from Europe as IMF chief .

Sadly Lagarde may have shown independence but the article points out she was immediately attacked by banks for her statements. Christian Noyer, head of the Bank of France, said in response "Either she had been misinformed by her staff at the IMF, that's a possibility, or she did not have French banks in mind." Yeah right.

MarketWatch: The group also said it would maintain close consultations about exchange markets.

That statement is undoubtedly true, but the implication is not especially pretty. Besides, what can they do but monitor things? If they could do anything the DAX (German equities market) would not be in freefall.

MarketWatch: After the meeting, German Finance Minister Wolfgang Schaeuble dismissed a report by Bloomberg News that German officials were readying a plan to recapitalize German banks should their Greek holdings overcome balance sheets.

Schaeuble insisted that the agreement reached with Greece in July was still the focus of the government. "To speculate over other outcomes is pointless," he said, according to Dow Jones.

Mish: Schaeuble's, statements are blatant lies or seriously discomforting truth. In this case, it is hard to know precisely which. I suspect lies (and we should all be hoping for lies) because unless the EU, ECB, and other government officials are making contingency plans for a Greek bankruptcy, there are going to be some very serious consequences soon.

MarketWatch: European Union Commissioner for Economic and Monetary Affairs Olli Rehn told reporters after the G-7 meeting that European banks were better capitalized than they were a year ago.

Mish: There's a lie, especially when the new head of the IMF is willing to admit banks need to be recapitalized.

MarketWatch: The G-7 statement said that countries must find a way to support the global recovery given the clear signs of a slowdown: "Given the still-fragile nature of the recovery, we must tread the difficult path of achieving fiscal adjustment plans while supporting economic activity, taking into account different national circumstances."

Mish: That is the impossible dream, yet probably an implied lie as well.

MarketWatch: U.S. officials said that the G-7 offered strong support for President Barack Obama's $450 billion jobs plan.

Mish: That statement is believable, yet the implications are disastrous for the US if implemented. Everyone wants the US to dig a deeper debt-hole and wreck its economy for the benefit of the rest of the world.

MarketWatch: ECB President Jean Claude Trichet told reporters that Stark resigned for personal reason, Dow Jones said.

Mish: That is a blatant lie by Trichet. Stark did not leave for personal reasons, nor did Axel Weber. Neither wanted to go down with a sinking Euro ship. Please see Germany Prepares "Plan B" Default; Top ECB Official Resigns; German-Italy Bond Spreads Widen Again; Dollar Soars, European Equities Hammered

MarketWatch: Bundesbank President Jens Weidmann said many of the factors that affected the German economy in the second quarter were only temporary and that no new stimulus was needed.

Mish: That is a blatant lie by Weidmann. Europe is imploding, austerity measures without reforms will not help at all, and austerity measures with reform will take a long time to work. There is no way the vaunted German export machine keeps humming along in this global backdrop. The only way "temporary" might be construed as true is if Weidmann means "years".

Obama Lies to Congress and the Nation

While on the subject of lies, there were plenty of them in Obama's address to Congress. Please see Dissecting the Lies in Obama's $447 Billion "Shock-and-Awe" Reelection Ploy; Dead-on-Arrival in Congress? Alternative Proposal Will Not Cost a Dime

Can Government Lies Calm the Markets? It hasn't worked recently as the public and the markets are both fed up with lies. Unfortunately, lies are all the Fed, the ECB, and governments have to offer.

Progress on badly needed structural reforms languishes in favor of "impossible dreams", failed stimulus ideas, wishful thinking, and a mass of blatant lies.