EPTOr so it feels like....
The European Debt Crisis and the Euro - Page 46
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FinBenton
Finland870 Posts
Or so it feels like.... | ||
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sksyen
United States359 Posts
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sksyen
United States359 Posts
On September 12 2011 18:46 BrTarolg wrote: ![[image loading]](http://a6.sphotos.ak.fbcdn.net/hphotos-ak-ash4/s720x720/293490_10150285495354542_675714541_7822993_1037952058_n.jpg) A little tidbit for you guys  They increased the benchmark to 1.25 for EURCHF today. Swiss central bank has remained quiet for some time, but the problem is this - they have forgotten that the market is always stronger. Just like every failed intervention in Japan, the same will be the case for the Swiss pairs. It has and will continue to be a safe haven vehicle during times of economic volatility/distress -- unless major additional tax measures are set, the Swiss will continue to rise. And yes , that is no doubt insider trading >=0 | ||
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Velr
Switzerland10837 Posts
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AcuWill
United States281 Posts
I think one of the biggest misunderstandings is the differentiation of how public debt is held in Europe as opposed to in the US. Here is an excerpt taken from the S and A digest from August 19. (It's an investment news letter that bases many investing strategies on global market trends, ie. failing of fiat currencies around the world, the growth of gold, etc.) + Show Spoiler + Currently, the total-debt-to-GDP ratio in the U.S. is almost 400%. (Total debt is the combined federal, state, municipal, corporate, and individual debt in the U.S.) Crushing debt loads have already destroyed the real estate market and led to an economic decline. For now, the government has stepped up to replace the private borrowing and spending. As a result, we're now spending close to half our GDP merely on interest and government taxes. This simple fact should give everyone a reason to worry about the future of our country. Spending half your production each year on the government and interest payments doesn't leave much to live on or invest for the future. In Europe, the problem is a bit different… and slightly more technical. Most of the debt in Europe is held by the big banks, not the sovereigns. Look at just two French banks, for example. Credit Agricole and BNP Paribas have combined deposits of a little more than 1 trillion euro. But they hold assets of 2.5 trillion euro. Those assets equal France's entire GDP. And those are only two of France's banks. Right now, the tangible capital ratios of these banks have fallen to levels that suggest they are probably bankrupt – like UniCredit in Italy and Deutsche Bank in Germany. BNP's tangible equity ratio is 2.85%. Credit Agricole's tangible equity ratio is 1.41%. (UniCredit's is 4.42%, and Deutchse Bank's is 1.92%). These banks have long been instruments of state policy in Europe. They've funded all kinds of government projects and favored industries. Making loans is far more popular with politicians than demanding repayment for loans. As a result, these banks are left with nothing in the kitty to repay their depositors. If there's a run on these banks (and there will be), how will they come up with money that's owed? No one's saying. (But I'll tell you in a moment…) The numbers are similar across most of Europe's biggest banks. And the money that's owed is staggering. The reason the market fears these debts so much is that there's no clear mechanism to increasing the money supply enough to paper them over, as there is in the U.S. As strange as it may seem, investors prefer the U.S. Treasury market precisely because they know there's nothing to stop the Fed from buying as many Treasury bonds as the market wants to sell. On the other hand, in Europe, there's no guarantee whatsoever that the ECB will continue to buy the sovereign bonds – and there are even rules that explicitly forbid the ECB from financing bank bailouts. What's the end game? How will this huge mess be sorted out? The essential problem is there's too much credit and too little money. So a lot more money is going to be created. So some posters have argued that it's a self-fulling prophecy and as long as credit is extended, there would be no crisis. However, the issue is that those extending credit have been exhausted. They have extended more credit than money that they have and an issue has arose over whether the sovereign states can refinance their debt. (This is an important point. The issue is NOT whether Italy for example can pay of their debt, is is whether they can get more loans to pay off their debt. Holders of debt care nothing about whether or not Italy, for example, can become debt free, just that their existing debt obligations can be met.) So what happens when there is concern over whether existing debt can be paid is twofold: First the value of the existing debt goes down, therefore increasing interest rates (ie. a $1000 bond sells for $750, therefore increasing effective interest rate); Second, new debt issued will be at higher interest rate. This occurs because the risk to the investor is higher, so they demand a higher reward in order to get money back. Now the banks with a capital crisis are even more screwed, because the assets they hold, sovereign debt being a large portion, have all of a sudden devalued by hypothetical 25% above. If they value this debt at market value, they will go insolvent. Now, the interests rates have gone up, using Italy as example again, they cannot afford to pay for new debt issued, because the payments are so high. Therefore they go even higher. The only way out of this without the banks and sovereigns going bankrupt, is to print money. This will devalue the currency though. The issue is that the market value of the debt will go down as a result in order to drive interests rates up. Nobody is going to buy debt (that isn't the Federal Reserve, ECB or other money printing organization) that they know will be an effective negative interest rate (ie. loan pays 3%, but inflation is 5%, therefore a -2% gain.) So either there must be infinite money printed (or taken from countries that have it like Germany until they are exhausted and own worthless debt that will default anyway) in order to buy debt at below market value in order to keep interest rates down (like what the ECB did recently at Italian debt auctions.) If nothing is changed by the soon to be insolvent sovereign (ie. austerity measures) the cycle will continue until all capital is exhausted (ie. Germany runs out of money), the currency is completely debased and everyone defaults and a new currencies are put into place. Long winded post, but I think this conceptual understanding is missing from the majority of posters within this discussion. | ||
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tenacity
1587 Posts
I formly believe, however, that Europe will become even stronger and more united. The scenario stated in the WSJ article is far from being realistic. We will prove that. | ||
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BlackFlag
499 Posts
On September 21 2011 22:52 tenacity wrote: I formly believe, however, that Europe will become even stronger and more united. The scenario stated in the WSJ article is far from being realistic. We will prove that. hahahahahahahaha There is nearly no sign for it, EU countries are already tearing each other apart. Nice vision, but I am seeing it NOWHERE. | ||
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jdseemoreglass
United States3773 Posts
On September 21 2011 23:42 BlackFlag wrote: hahahahahahahaha There is nearly no sign for it, EU countries are already tearing each other apart. Nice vision, but I am seeing it NOWHERE. You should have braced yourself after reading that one of his trusted sources is Paul Krugman | ||
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L0n3W0olf
Slovenia34 Posts
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Too_MuchZerg
Finland2818 Posts
On September 21 2011 23:55 L0n3W0olf wrote: I find it funny how people that don't live in EU are way more paranoid about it's debt crysis than those of us who do. Chill out, worse comes to worse, Greece will just have to switch from euro to some other currency. But you can't leave from Euro legally according to Treaty of Lisbon. | ||
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AcuWill
United States281 Posts
On September 21 2011 23:55 L0n3W0olf wrote: I find it funny how people that don't live in EU are way more paranoid about it's debt crysis than those of us who do. Chill out, worse comes to worse, Greece will just have to switch from euro to some other currency. Not so simple for entire Eurozone. The purging will be painful and there will be much fire and death. | ||
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Gaga
Germany433 Posts
the ESM (European Stability Mechanism) -this ESM should get starting captial of 700 Billion €, -whenever it asks to get money member states agree unconditionally and irrepealable (future goverments won't be able to change that?) to make that payment in 7 days. -the Board of Governors can change the amount of Kapital required. -the ESM can sue anyone in court but itself and all of its property are immune to court hearings -All property of the ESM is exempt of search or seizure of goverments or court cases. -The board of governors and all their employees enjoy immunity of the jurisdiction. sounds like tyranny? and this will happen ... because the people who want this have us by the balls. (sadly in German) | ||
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tenacity
1587 Posts
On September 21 2011 23:51 jdseemoreglass wrote: You should have braced yourself after reading that one of his trusted sources is Paul Krugman 1. @jdseemoreglass: Why do you consider Paul Krugman as not being a trustworthy source? 2. @Blackflag: We can have different opinions and judgments on the subject but I'd rather be an optimist than a pessimist that is right. And yes, I am not denying reality. I am well aware of the fact that it will be very tough, especially for Greece, but all other countries will not default. It's high time for substantial laws regulating the fiscal policies of some, if not all member states. This is a sensitive topic but something needs to be done. The biggest concern I have right now is that the leaders in the biggest countries, especially Germany, do not take any risk and shut down any speculation that may arise from the markets. Clear signals have to be send out that countries like Italy, Spain, Portugal, Ireland will never default because they are backed up by everybody else. | ||
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BlackFlag
499 Posts
On September 22 2011 02:00 tenacity wrote: 1. @jdseemoreglass: Why do you consider Paul Krugman as not being a trustworthy source? 2. @Blackflag: We can have different opinions and judgments on the subject but I'd rather be an optimist that hopes that Europe will stand strong than a pessimist that is right. And yes, I am trying to face reality. I am well aware of the fact that it will be very tough, especially for Greece, but all other countries will not default. It's high time for substantial laws regulating the fiscal policies of some, if not all member states. This is a sensitive topic but something needs to be done. The biggest concern I have right now is that the leaders in the biggest countries, especially Germany, do not take any risk and shut down any speculation that may arise from the markets. Clear signals have to be send out that countries like Italy, Spain, Portugal, Ireland will never default because they are backed up by everybody else. Everyone of these countries (germany too) will default, the question is not if, but when. Greece is bankrupt basically, they are just winning time by throwing money at the country so the french and german banks can pull out because they are in it with billions. The debt will and can't be payed back by no European country (and btw. the USA will never pay back their debt too), this isn't pessimism. They interesting question is what'll come out of this and after this. (My opinion) | ||
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xDaunt
United States17988 Posts
On September 22 2011 02:07 BlackFlag wrote: Everyone of these countries (germany too) will default, the question is not if, but when. Greece is bankrupt basically, they are just winning time by throwing money at the country so the french and german banks can pull out because they are in it with billions. The debt will and can't be payed back by no European country (and btw. the USA will never pay back their debt too), this isn't pessimism. They interesting question is what'll come out of this and after this. (My opinion) Eh, I'm not willing to concede that the US will default yet. If republicans are voted into office en masse next year (which is looking very likely), they will hack and slash government spending -- especially the entitlement programs -- and put the US on a better fiscal trajectory. | ||
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tenacity
1587 Posts
On September 22 2011 02:27 xDaunt wrote: Eh, I'm not willing to concede that the US will default yet. If republicans are voted into office en masse next year (which is looking very likely), they will hack and slash government spending -- especially the entitlement programs -- and put the US on a better fiscal trajectory. At the expense of those Americans who are already poor or barely above the poverty line. In 2010, 46.2 million people were in poverty. (http://www.census.gov/hhes/www/poverty/data/incpovhlth/2010/tables.html) | ||
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xDaunt
United States17988 Posts
On September 22 2011 02:35 tenacity wrote: At the expense of those Americans who are already poor or barely above the poverty line. In 2010, 46.2 million people were in poverty. (http://www.census.gov/hhes/www/poverty/data/incpovhlth/2010/tables.html) I'm not sure that it would be that bad. Nonetheless, it doesn't really matter. The state can't afford it, so changes and cuts have to be made. We might as well put a gun to our heads if we're not going to make the changes and cuts. | ||
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Gaga
Germany433 Posts
On September 22 2011 02:58 xDaunt wrote: I'm not sure that it would be that bad. Nonetheless, it doesn't really matter. The state can't afford it, so changes and cuts have to be made. We might as well put a gun to our heads if we're not going to make the changes and cuts. What will happen is that your GDP will shrink with your cuts (70% consumption wont stay that way if people get poor) and making every saving effort useless ... dept is always measured in gdp/dept... if both sink it does not change the equation. look at greece... they cut the hell right know ... but i won't help because of that reason .... their GDP drops faster than the money they can save. And their spending cuts are extreme. default is the only way... and i'ts not the end of the world for fucks sake... default if done the correct way is a new and fresh start. | ||
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AcuWill
United States281 Posts
On September 22 2011 03:11 Gaga wrote: What will happen is that your GDP will shrink with your cuts (70% consumption wont stay that way if people get poor) and making every saving effort useless ... dept is always measured in gdp/dept... if both sink it does not change the equation. look at greece... they cut the hell right know ... but i won't help because of that reason .... their GDP drops faster than the money they can save. And their spending cuts are extreme. default is the only way... and i'ts not the end of the world for fucks sake... default if done the correct way is a new and fresh start. 40% of US GDP is from government spending. But government creates nothing, ever. It simply takes and redistributes, at BEST, very inefficiently through a bureaucratic process. With severe spending cuts there should be severe cuts on regulatory and tax burdens on individuals and businesses. (And leave corporate debate out of this, the backbone of US has always been small business and current climate is the worst in US history for small business.) This spending cut and regulatory/tax cut would lead to a recession, which is actually the recapitalization of an economy from malinvestment. Sure jobs would be lost from industries that were only around because of government backing, incentives, etc., but the the financial and labor resources would be liberated from these enterprises which cannot stand on their own and redistributed to productive areas. Then, the economy, jobs, standard of living, etc., would increase. It's like a drug addict, where the drugs government funded malinvestment: Sure the high feels good for a short period of time, but it cannot and will not last. The amount of drugs needs to be increased continuously. Eventually, one will run out of drugs and rehab will commence. The withdrawal symptoms will be terrible, often worse feeling then being the drug addict itself, but once the drugs work their way out of the system, the opportunity for a new life and good health are available. The only question is how long until we start rehabbing and how bad the withdrawal will be; it will be worse the longer we wait. | ||
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FabledIntegral
United States9232 Posts
On September 22 2011 03:11 Gaga wrote: What will happen is that your GDP will shrink with your cuts (70% consumption wont stay that way if people get poor) and making every saving effort useless ... dept is always measured in gdp/dept... if both sink it does not change the equation. look at greece... they cut the hell right know ... but i won't help because of that reason .... their GDP drops faster than the money they can save. And their spending cuts are extreme. default is the only way... and i'ts not the end of the world for fucks sake... default if done the correct way is a new and fresh start. Why would cutting spending shit on our GDP exactly? Taxing people to give them money to spend in back doesn't raise GDP. It hurts it. Personally I think we're in a shit situation. I think we need to cut a shitton of spending, and the Republicans are the only ones that will do it, but they have the worst priorities in where to cut said spending (they won't even touch military spending). Bleh. Default is the biggest bullshit ever and to me is nothing more than giving a big "fuck you, it's your problem, not mine" to everyone else. | ||
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