10 Jul 2012 7:38 PM:

 There is another possibility which is perhaps the most likely.

German taxpayers unwilling and unable to fund the PIGS force Merkel to pull out of the Euro and reinstate the Dmark.

Its widely agreed that the PIGS countries need a devaluation of atleast 30% to get competative again relative to the solvent northern core and to devalue their debt obligations. This would happen under this scenario of the German exit.

It would be much the simplest arrangement because perhaps all the PIGS would then be able to stay in the Euro, with some further debt forgiveness for Greece. Can you imagine the chaos of multiple defections from the euro and currency changes and the effects? This is the reason why Greece is still in, because of the fears of contagion and hyperinflationary depression for those leaving.

They may try massive money printing first in the form of QE or suchlike, but this may just speed the exit of germany as it picks up the bill in inflationary terms. Unless Germany exits it will pay one way or the other, of that much is certain. Of course it will take a hit on exit on its various loans and in currency appreciation hurting exports, but the alternative is decades of being bled to death by the PIGS and their un closeable budget deficits.

 

 

Forum thread: What would happen to a Euro mortgage, if Spain dropped the Euro?

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30 Jun 2012 11:24 AM:

 Hi ads

 

Hope you are well and enjoying the hot weather. I have only just seen this and will try and reply soon. In short i think its a good article which is mostly correct, but there are problems which need to be discussed.

The main problem is that when you have too much debt which all the PIGS countries have and the UK and France etc, there is no easy solution. Its tempting to think that you can interviene in free markets by using other people's money (people who have been prudent and not spent too much ) to try and FORCE interest rates down for countries that have borrowed too much.

But this has huge moral and other hazards. Its these hazards that need to be fully understood, because they can and do make things much worse in the long run. This needs some explaination, but essentially its meddeling with the free market processes that work to keep things in balance.

Everyone needs to understand that the financial crisis that we see now in Spain and all the unpleasant side effects that go with it ARE PART OF THE SOLUTION. The problem was always the boom. The unemployment and the recession and the property crisis are all part of the rebalancing of the economy back to a sustainable basis, its the clearing out of the toxic boom. When you drink too much or take too many drugs, the withdrawal as unpleasant as it may be is part of the healing. If you take more drugs or drink to ease the pain, it just prolongs the agony.

The bailout of countries and the buying of bonds or Eurobonds is getting in the way of this healing process and allows overindebted countries to avoid dealing with structural problems that were the cause of the problem in the first place.

Some measures of help maybe appropriate, but only if the fundamental structural problems are dealy with FIRST. This is essentially what Germany is saying and is the reason why they appear to be taking such a hard line.

What is now apparent is that Spain knows that it can be both a beggar and a chooser, because its too big to fail and allow the Euro to continue. In this way it can ask for help but not agree to tough and very necassary painful reform. The problem with this is that it may look like a solution in the short term, but longer term will only do more and more damage.

All the over indebted nations of the Euro need to get back to sustainable living within their means and there is no two ways arounnd this - it means a economic belt tightening and moves that will be very unpopular. If these moves are not taken then the crisis like an addiction will just roll on and on.

 

 

 

 

Forum thread: The coming worldwide credit crunch

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22 Dec 2011 3:36 PM:

 Hi ads

A very Happy Christmas to you, and to all on EOS.

Briefly to answer your question it was very easy to see what was going to happen even as long ago as 2007 when i first started the thread and actually much earlier. All you needed to do was heed the following quote from Von Mises the head of the school of Austrian economics.

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

So we know from this that there will be a crisis, but there are two paths. One takes it on the chin and admits fault and abandons further credit expansion to paper over the cracks, the other goes on madly to the bitter end printing more and more money until the currency collapses.

Its clear where we are now with the endless expansion of debt and funny money, and denial of the real poroblems, but where will it end?

If policy makers decide to put a stop to the credit debt expansion, there will be a deflationary depression not just in Europe, but accross the world. This is what the free market is trying to do if only it would be left alone. make no mistake that this would be a painful process involving years of depression, BUT it would solve the problems albeit in a harsh manner and enable a fresh start to be made from a sound basis. Had this correct option been chosen years ago, we would now be seeing light at the end of the tunnel.

History shows that sadly this is not the route that is often taken. So we must prepare ourselves for an inflationary depression that will most probably end in destruction of the currency.

When you over blow a balloon you know for sure it will pop, but its actually virtually impossible to tell where it will first break. The same is true of economics. The weakest links go first, but where are these in real life.

My guess in 2012 is that there will be another recession in Europe ( in reality the last one never ended )and the austerity in the Med countries will get too painful, such that  further civil unrest will lead to defaults on soverign debt and exits from the Euro. The obvious candidates are Greece and Portugal to go first, but the rest will be watching to see what happens to them. Italy and Spain need to rollover 500 billion in EXISTING debt in 2012, not including new debt. This debt was financed at around 2% and now the market wants 5 plus. Imagine how that would work out for you and your mortgage!

I can see no other alternative than for the ECB to monetise the debt in 2012 or the whole region will implode as the bond market has had enough. Once the free market is gone it only leaves central banks to print the money, there is no appetite for lending of this money. Even if there was its simply adding more debt to over indebted nations that have a solvency problem, not a liquidity problem!! Solvency problems require restructuring, more debt just makes the problem worse.

Once the ECB goes nuclear on the QE, the Euro will drop like a stone and the stagflation will kick into high gear across Europe. At this point I think Germany may want to pull out of the top. The Med countries need a devaluation of approx 30% in order to get competative again, but this cannot happen from within monetary union. If the Euro was to lose 30% with Germany still in it, the Germans would simply romp home with all the trade and there would be no comparitive advantage that the PIGS desperatly need.

Timing is difficult because you don't know how crazy the policy makers will get to keep this doomed project alive. The one thing we do know is the longer the failure that is EMU is kept alive the more damage it will do and the bigger the final bill.

I note with interest that reality is starting to bite all over the place now with Europe and the economy. Where were they all back in 2007 i wonder?

Anyway what is your opinion ads?

 

 

 

 

Forum thread: The coming worldwide credit crunch

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03 Oct 2011 3:10 PM:

 http://www.zerohedge.com/news/meltdown-part-2-global-financial-tsunami

Forum thread: The coming worldwide credit crunch

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30 Sep 2011 12:24 PM:

 For those interested in a little more detail and i think that should be every decent human being, here is a great short movie into exactly who and what caused the housing crisis.

 

http://www.zerohedge.com/news/meltdown-part-1-men-who-crashed-world

 

However i think its wrong to assume that the sub prime crisis was the sole cause, in reality it just speeded the inevitable bust. All booms based on credit expansion turn to bust, as history shows this happened in exactly the same way long before sub prime was invented. Of note is Brown's light touch regualtion that was key to the UK's role in this.

I have to symapthise with haydnj's view that it was all greed, the blame between greedy lenders and greedy borrowers is morally difficult to share. However banks and governments are now running up huge debts to paper over this crisis and save their euro disaster without any consent from the public. Debt is now being piled onto debt with no vote of confidence from the public as we in the UK gradually lose power to Brussels. 

Forum thread: The coming worldwide credit crunch

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