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Posts tagged ‘Argentina’

20 Early Warning Signs That We Are Approaching A Global Economic Meltdown

ubmitted by Michael Snyder of The Economic Collapse blog,

Have you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China?  If you are like most Americans, you have not been.  Most Americans don’t seem to really care too much about what is happening in the rest of the world, but they should.  In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on the banks.  We are not at a “global crisis” stage yet, but things are getting worse with each passing day.  For a while, I have felt that 2014 would turn out to be a major “turning point” for the global economy, and so far that is exactly what it is turning out to be.  The following are 20 early warning signs that we are rapidly approaching a global economic meltdown…

#1 The looting, violence and economic chaos that is happening in Argentina right now is a perfect example of what can happen when you print too much money

For Dominga Kanaza, it wasn’t just the soaring inflation or the weeklong blackouts or even the looting that frayed her nerves.

 

It was all of them combined.

 

At one point last month, the 37-year-old shop owner refused to open the metal shutters protecting her corner grocery in downtown Buenos Aires more than a few inches — just enough to sell soda to passersby on a sweltering summer day.

#2 The value of the Argentine Peso is absolutely collapsing.

#3 Widespread shortages, looting and accelerating inflation are also causing huge problems in Venezuela

Economic mismanagement in Venezuela has reached such a level that it risks inciting a violent popular reaction. Venezuela is experiencing declining export revenues, accelerating inflation and widespread shortages of basic consumer goods. At the same time, the Maduro administration has foreclosed peaceful options for Venezuelans to bring about a change in its current policies.

full article at source: http://www.zerohedge.com/news/2014-01-24/20-early-warning-signs-we-are-approaching-global-economic-meltdown

“The Rotten Heart of Europe”.

Distribution of the languages in Greece. (Bulg...

Distribution of the languages in Greece. (Bulgarian in pink) (Photo credit: Wikipedia)

By Bernard Connolly (Economist)

  • • We suspect that Germany has given up the ghost on Greece and now actually wants that country to leave

the euro area but is terrified of getting the blame when Greece leaves, as it surely must; so Germany has

to give Greece enough rope with which to hang itself.

  • • In 2001, The US and the IMF, after Cavallo’s zero-deficit plan was announced, gave the Argentine

government enough rope to hang itself; the announcement of that plan was, rather than the salvation of

Convertibility, its death-knell.

  • • In Greece, let us say it again, the second loan package will be the death-knell either of Greece as a

member of the EMMA1 or of Greece as a democratic polity.

  • • Germany has more at stake, politically, in monetary union than the US had in Argentina’s unilateral

Convertibility; and the systemic financial consequence of Greek exit will be much more serious than those

of the abandonment of Convertibility.

  • • The credit losses which must be implied by the EMMA credit bubble have still to be realised; they will be

very large indeed.

  • • Counterparty suspicion, contagion to other cads and generalised financial panic would probably initially

ensue if Greece were to leave and re-denominate; a “Scandinavian-style” workout of the banking system

in Germany would be a sensible reaction (and Germany, unlike the Scandinavians two decades ago, does

not need currency depreciation).

• The alternatives to Greek exit would end up being enormously more expensive for Germany

full article can be seen on PDF DOC  “The Rotten Heart of Europe

Greece Exit, Euro-Zone Collapse, Spain and Portugal Will Follow Within 6 Months

By: Nadeem_Walayat

This analysis continues on from my last articlein light of the recent French and Greek elections where voters rejected economic austerity in favour of money printing Inflation stealth debt default as politically an smoke and mirrors Inflationary depression is being seen as far more palatable for populations than a deflationary depression slow motion economic collapse. However to be able to print money inline with the true state of the respective  competitiveness of euro-zone economies, then these countries governments have no choice but to exit the euro-zone, or be forced out as they one by one fail to follow through on agreed austerity measures.

Greece Slow Motion Economic Collapse in Progress

What may be lost in the noise that is the mainstream press is the fact that Greece has not been in a recession or even a depression, Greece has been in a state of slow motion economic collapse on the scale of past economic collapses such as that of Argentina but so far without the ability to default, devalue and inflate.

As the below graph illustrates that following the financial crisis of 2008, Greece had been following a similar economic trend trajectory to that of most western economies including that of the UK, US and Germany, however the real crisis began in late 2009 when the economic recovery from the pit of the Great Recession of 2008-2009 evaporated and the Greek economy began a slow motion collapse that has  so far seen Greek GDP in real terms contract by 16% since the 2008 peak, with no end in sight Unlike the V shape of the more regular debt default economic collapses such as that of Argentina’s of 2001 and more recently Iceland.

full article at source: http://www.marketoracle.co.uk/Article34625.html

 

Default, Exit and Devaluation as the Optimal Solution

 

English: The European Central Bank. Notice a s...

Image via Wikipedia

This report was sent into us today :

Many economists expect catastrophic consequences if any country exits the euro. However, during the past century sixty-nine countries have exited currency areas with little downward economic volatility. The mechanics of currency breakups are complicated but feasible, and historical examples provide a roadmap for exit. The real problem in Europe is that EU peripheral countries face severe, unsustainable imbalances in real effective exchange rates and external debt levels that are higher than most previous emerging market crises. Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable. Exiting from the euro and devaluation would accelerate insolvencies, but would provide a powerful policy tool via flexible exchange rates. The European periphery could then grow again quickly with deleveraged balance sheets and more competitive exchange rates, much like many emerging markets after recent defaults and devaluations (Asia 1997, Russia 1998, and Argentina 2002)

KEY CONCLUSIONS

> The breakup of the euro would be an historic event, but it would not be the first currency breakup ever – Within the past 100 years, there have been sixty-nine currency breakups. Almost all of the exits from a currency union have been associated with low macroeconomic volatility. Previous examples include the Austro-Hungarian Empire in 1919, India and Pakistan 1947, Pakistan and Bangladesh 1971, Czechoslovakia in 1992-93, and USSR in 1992.

> Previous currency breakups and currency exits provide a roadmap for exiting the euro – While the euro is historically unique, the problems presented by a currency exit are not. There is no need for theorizing about how the euro breakup would happen. Previous historical examples provide crucial answers to: the timing and announcement of exits, the introduction of new coins and notes, the denomination or re-denomination of private and public liabilities, and the division of central bank assets and liabilities. This paper will examine historical examples and provide recommendations for the exit of the Eurozone.

> The move from an old currency to a new one can be accomplished quickly and efficiently – While every exit from a currency area is unique, exits share a few elements in common. Typically, before old notes and coins can be withdrawn, they are stamped in ink or a physical stamp is placed on them, and old unstamped notes are no longer legal tender. In the meantime, new notes are quickly printed. Capital controls are imposed at borders in order to prevent unstamped notes from leaving the country. Despite capital controls, old notes will inevitably escape the country and be deposited elsewhere as citizens pursue an economic advantage. Once new notes are available, old stamped notes are de-monetized and are no longer legal tender. This entire process has typically been accomplished in a few months.

> The mechanics of a currency breakup are surprisingly straightforward; the real problem for Europe is overvalued real effective exchange rates and extremely high debt Historically, moving from one currency to another has not led to severe economic or legal problems. In almost all cases, the transition was smooth and relatively straightforward. This strengthens the view that Europe’s problems are not the mechanics of the breakup, but the existing real effective exchange rate and external debt imbalances. European countries could default without leaving the euro, but only exiting the euro can restore competitiveness. As such, exiting itself is the most powerful policy tool to re-balance Europe and create growth.

> Peripheral European countries are suffering from solvency and liquidity problems making defaults inevitable and exits likely – Greece, Portugal, Ireland, Italy and Spain have built up very large unsustainable net external debts in a currency they cannot print or devalue. Peripheral levels of net external debt exceed almost all cases of emerging market debt crises that led to default and devaluation. This was fuelled by large debt bubbles due to inappropriate monetary policy. Each peripheral country is different, but they all have too much debt. Greece and Italy have a high government debt level. Spain and Ireland have very large private sector debt levels. Portugal has a very high public and private debt level. Greece and Portugal are arguably insolvent, while Spain and Italy are likely illiquid. Defaults are a partial solution. Even if the countries default, they’ll still have overvalued exchange rates if they do not exit the euro.

> The euro is like a modern day gold standard where the burden of adjustment falls on the weaker countries – Like the gold standard, the euro forces adjustment in real prices and wages instead of exchange rates. And much like the gold standard, it has a recessionary bias, where the burden of adjustment is always placed on the weak-currency country, not on the strong countries. The solution from European politicians has been to call for more austerity, but public and private sectors can only deleverage through large current account surpluses, which is not feasible given high external debt and low exports in the periphery. So long as periphery countries stay in the euro, they will bear the burdens of adjustment and be condemned to contraction or low gr

CONVENTIONAL THINKING ABOUT THE BREAKUP OF THE EURO: CATASTROPHE AHEAD

It would be like a Lehman-times five event.

– Megan Greene, director of European economics at Roubini Global Economics

A euro break-up would cause a global bust worse even than the one in 2008-09. The world’s most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls.

– The Economist, 26 November 2011

If the euro implodes, [the UK’s] biggest trading partner will go into a deep recession. Banks may well go under, so will currencies both new and old. Investment will freeze up. Unemployment will soar. There is no way the UK is going to escape from that unscathed.

– Matthew Lynn, MoneyWeek

A euro area breakup, even a partial one involving the exit of one or more fiscally and competitively weak countries, would be chaotic. A disorderly sovereign default and Eurozone exit by Greece alone would be manageable… However, a disorderly sovereign default and Eurozone exit by Italy would bring down much of the European banking sector. Disorderly sovereign defaults and Eurozone exits by all five periphery states… would drag down not just the European banking system but also the north Atlantic financial system and the internationally exposed parts of the rest of the global banking system. The resulting financial crisis would trigger a global depression that would last for years, with GDP likely falling by more than 10 per cent and unemployment in the West reaching 20 per cent or more.

– Willem Buiter in the Financial Times

Given such uniform pessimism on the part of analysts and the unanimous expectation of financial Armageddon if the euro breaks up, it is worth remembering the words of John Kenneth Galbraith, one of the great economic historians of the 20th century:

The enemy of the conventional wisdom is not ideas but the march of events.

– John Kenneth Galbraith

http://www.variantperception.com/February 2012

Greek default is inevitable

By Mario Blejer

LONDON (MarketWatch) — The European Central Bank, with its staunch opposition to sovereign debt restructuring in Europe, is making a bad situation worse. By threatening to withdraw support for banks in countries such as Greece if they restructure their debts, the ECB is practically inciting runs on banks.

The argument that Greek state paper could no longer be used as collateral in such cases hardly justifies such a potentially destabilizing step. The ECB is effectively the lender of last resort to such banks. If depositors believe it is about to pull out, then they will withdraw money from the banks — and we will face a self-fuelling downward spiral.

Argentine economist Mario Blejer says Greece must default on its debt; it’s simple arithmetic.

The debt problem of peripheral Europe is structural. It cannot be solved by piling debt on debt. There is an analogy to a Ponzi scheme, under which more money is continually paid in to keep the pyramid-like edifice from collapsing. The debt/GDP ratio increases over time because new loans are given to pay old debt and to finance the remaining fiscal gaps.

In addition, the share of the debt in official hands continues to increase and eventually taxpayers bear the complete cost of the adjustment. This may, however, take time and, since the pyramid is unstable, the construction could break down at any moment –— a source of increasing uncertainty.

“There is no solution without debt relief, which means, without euphemisms, default.”

The International Monetary Fund so far has not performed well in peripheral Europe. It was a mistake to assume that a country like Greece can re-enter the private-sector credit markets next year. This is impossible. It is even more difficult after 2013 under the perverse permanent bailout scheme where protection for private-sector creditors is progressively lowered. Programs are based on illusory “debt sustainability scenarios” that ignore that they lead to recession where countries have no chance of outgrowing their debt.

As for privatization, this is a red herring. It is useful as a short-term stopgap and for improving productivity but a fire sale of assets cannot solve the debt problem. If there is no demand for Greek debt, then there cannot be too much demand for Greek equity.

The Argentine experience during the first decade of the 21st century is instructive. So are the broader lessons of the Latin American debt restructuring in the 1980s and also that of Mexico in 1994.

Fiscal adjustment and structural reforms are crucial and necessary conditions, and privatization may play a small role, but there is no solution without debt relief, which means, without euphemisms, default. This should be nonconfrontational and as amicable as possible.

Collateralized new bonds (along the model of the Brady bonds initiative in the late 1980s) form the best procedure. This could be backed by direct liquidity and recapitalization actions for the creditor banks under similar conditions to the 2009 “Vienna model” successfully used for central and eastern Europe.

However, without significant write-downs of existing debt, there is no way out.

Contrary to the ECB’s stated view, it is easier to regain credit market access after a significant reduction of the debt burden, as both Uruguay and Argentina showed. The latter did not handle the matter well until 2005 but corporations were soon back in the market. Today, while the issue is not fully resolved, Argentine borrowers can borrow at half the spread paid by Greece.

With regard to the fear of contagion to other countries, explicit debt relief for the most-badly hit EMU members may actually relieve the pressure on Spain and others — as long as the money used today to pay bondholders is channelled directly to recapitalize and sanitize the banking system.

Regarding the ECB’s opposition, I am convinced that the question is not whether but when the ECB will do a U-turn (as it did with purchasing bonds in the secondary markets in May 2010).

There is a good argument for taking necessary decisions on debt restructuring sooner rather than later. Further “muddling through” is a recipe for disaster. Unless a proper program of coordination and adjustment combined with debt relief is decided soon, Europe faces the risk of becoming the next emerging market.

Mario Blejer was president of the Central Bank of Argentina, and has held top positions at the International Monetary Fund, the World Bank and the Bank of England. This article originally appeared in the Bulletin of the Official Monetary and Financial Institutions Forum.

Read more here. at source

Comment:

We in Ireland are in an even worse situation and the government have chosen to cow down to the vested interests of the Bondholders .When the same bondholders have sucked everything that is to be gotten out our country they will then switch sides and call for the government to default but only after putting their Put positions on in the markets so they will benefit from this inevitable Irish default .What a scam. Heads you lose and tails you lose and the Bond holders win every time  

 

Step by Step Guide to the Largest String of Sovereign Defaults in Recent History

The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History

By  Reggie Middeleton

of http://boombustblog.com

There are more and more “professionals” in the mainstream media stating that they expect European defaults. What is interesting is that as there is at least a minority of pundits that are facing this inevitable event. European (and American) equity markets are still chuggling the global liquidity elixir awash in the markets and moving ever higher. From Bloomberg: Shrinking Euro Union Seen by Creditors Who Cried for Argentina

Nine months before Argentina stopped paying its obligations in 2001, Jonathan Binder sold all his holdings of the nation’s bonds, protecting clients from the biggest sovereign default. Now he’s betting Greece, Portugal and Spain will restructure debts and leave the euro.

Binder, the former Standard Asset Management banker who is chief investment officer at Consilium Investment Management in Fort Lauderdale, Florida, has been buying credit-default swaps the past year to protect against default by those three nations as well as Italy and Belgium. He’s also shorting, or betting against, subordinated bonds of banks in the European Union.

“You will probably see at least one restructuring before the end of the next year,” said Binder, whose Emerging Market Absolute Return Fund gained 17.6 percent this year, compared with an average return of 10 percent for those investing in developing nations, according to Barclay Hedge, a Fairfield, Iowa-based firm that tracks hedge funds.

He’s got plenty of company. Mohamed El-Erian, whose emerging-market fund at Pacific Investment Management Co. beat its peers in 2001 by avoiding Argentina, expects countries to exit the 16-nation euro zone. Gramercy, a $2.2 billion investment firm in Greenwich, Connecticut, is buying swaps in Europe to hedge holdings of emerging-market bonds, said Chief Investment Officer Robert Koenigsberger, who dumped Argentine notes more than a year before its default.

No disrespect intended to these fine gentlemen and distinguished investors, but the default of several of these states is simple math. You cannot take 8 from 10 10 from 8 and come up with a positive number. It really does boil down to being just that simple in the grand scheme of things. I actually released a complete road map of Portugal’s default yesterday (see ), and today I will walk those who are not adept in the area through it with simple graphs and plain vanilla explanations.This is done as a preview for our subscription only Ireland, Spain and Greece default scenarios. These scenarios, while still denied by most, are actually just the tip of the iceberg, for they will do much more damage together than they could ever do separately. As a group, they will make the Argentina event look like a bull rally. That is where the contagion models come into play (see Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!). Any institutions or professional investors who are interested in accessing our research should subscribe here. To my knowledge, I believe BoomBustBlog is the only source on the publicly available web for such information.

This is what the Argentinian referenced in the article above did to investors…

image001

Price of the bond that went under restructuring and was exchanged for the Discount bond

image003

That’s right! Ouch! Imagine this times 10! That is what we are looking forward to. Let’s jump straight into Portugal’s situation, and remember that many of these countries have deliberately mislead and misrepresented their fiscal situations for years (see Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest? and Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!).

This is the carnage that would occur if the same restructuring were to be applied to Portugal today.

Yes, it will be nasty. That 35% decline in cash flows will be levered at least 10x, for that is how much of the investors in these bonds purchased them. A 35% drop is nasty enough, 35% x 10 starts to hurt the piggy bank! As a matter of fact, no matter which way you look at it, Portugal is destined to default/restructure. Its just a matter of time, and that time will probably not extend past 2013. Here are a plethora of scenarios to choose from…

This is Portugal’s path as of today.

Even if we add in EU/IMF emergency funding, the inevitability of restructuring is not altered. As a matter of fact, the scenario gets worse because the debt is piled on.

Let it be known that there are larger sovereign states that are worse off. There are other states that are not in as bad a shape but are poised to do much more damage,  and then there are a plethora of states that will get dragged down through contagion. Yet, the natural manner of pricing risk in the equity markets does not transmit these facts because of the unprecedented amount of liquidity stemming from central bankers around the world doing the Bernanke/Japanse QE thing.

Anyone interested in seeing the entire scenario analysis for Portugal should look here, you will find it nowhere else:

Euro Crisis or Death by A Thousand Day Trades

 

We in Europe are certainly living in interesting times.

   PDF Document  here   Euro Crisis Or Death By A Thousand Cuts[1]

Labour unrest, collapsing employment, bankrupt public coffers, riots and sovereign debt default.

This all might seem unexpected however in 1995 a former European Union economist Bernard Connolly foretold it all in his classic book “The Rotten Heart of Europe.” Connolly was hounded out of his elite job for telling the truth about the lies and obfuscation about the ERM (Exchange Rate Mechanism), the forerunner of the Euro. He knew that his instincts and training as a professional economist were telling him that the Euro would be a disaster for Nation States yet he was not allowed to articulate his genuine concerns.“As we shall see, in France the long arm of the authoritarian state has pressurized dissident economists and bankers, deployed financial information programmes on international TV channels, threatened securities houses with loss of business if they questioned the official economic line, and shamelessly used state-owned and even private-sector banks, in complete contradiction with their shareholder’s interests and Community law, to support official policy. ……….

The economic profession in Europe organized literally hundreds of conferences, seminars and colloquia to which only conformist speakers were invited; and the Commission’s “research” programmes financed large numbers of economic studies to provide the right results from known believers.”Connolly goes to state the essence of his book:

“My central thesis is that the ERM and the EMU (European Monetary Union, the mechanism with ultimately brought the Euro into technical existence) are not only inefficient but also undemocratic: a danger not only to our wealth but to our freedom and ultimately, our peace.”

As the current crisis unfolds we are just beginning to see the flaws in the Euro system that Connolly foresaw. Under the regime yes we have stable exchange rates between the Euro countries but there is no harmony between the disparate economies that make up Euroland. For example when it comes t0 borrowing “sovereign debt” each country is on its own. This last week Greece had to pay 18% on two year money whereas Germany had to pay only 3% approx. Where Greece has gone Spain, Portugal and Ireland are soon to follow. The technical makeup of the Euro is being brought into the glare of the light of day and business functionaries do not like the weaknesses they see. The idea that the Euro has a “central” bank has thus been exposed as a myth. If the Euro actually had a real central bank the sovereign nations of the European Super State would be able to borrow under its aegis, they cannot.

This means the Euro is not a “currency” as such but in actual fact is an exchange rate mechanism only.

Thus it is a political entity not an economic one. The fact that Germany “cannot assist” Greece in these crises while the Euro burns indicates again that politics and power rules the day not bread and butter and families and jobs. The behavior of Germany is actually frightening in light of the fact that it is the major beneficiary of this artificial exchange mechanism. The Euro is allowing cheap German goods flood.

Europe and explains why it has 200-300 billion Euros of trade surpluses with its economic partners.In a survey last week over 80% of Greeks want to exit the Euro but this voice is not being reported in much the same fashion that Connolly’s concerns were silenced by elite bankers and politicos. However, in 1995 the world was less connected when the Euro mechanism was being set up. Today we have hedge funds connected through Cray computers ready to “play” the markets. As soon as traders realize the Euro is a one way bet they will opt destroy the exchange mechanism because of its exposed failings.

The Emperor has been seen to have no cloths. As sure as night follows day they are going to reap their reward, the same way George Soros reaped his one billion paycheck on the 16th. September 1992 (“Black Friday”) when the bank of England lost 3.4 billion Sterling in one single day defending a flawed exchange link to Euroland. It is my suspicion that Germany sees this as a very real scenario and does not desire to waste its hard won foreign reserves on a “Norman Lamont” (The “Black Friday” chancellor of the British exchequer) type endgame.

All of this would be fascinating if it were purely an academic issue, unfortunately it is not. In Ireland, for example, the country is going through a horrendous economic downturn, one which is being exacerbated by this “currency” crisis. The problem is we now know the Euro is not a real currency and confidence is shot. The end result is lost jobs, non-existent credit, frozen business cash flows, unemployment and emigration. In other words the issues are very, very real. And I am sure it is the same in Greece, Portugal, Spain and Italy.

I do hope that the powers that be put their heads together to solve this developing disaster. Bernard Connolly wrote about it 35 years ago so they have had a lot of time to prepare. Let’s hope wisdom prevails and that the lessons Argentina learnt nearly a decade ago can be used. In that crisis, when she had to break the link to the Dollar (a la our Euro) she allowed devaluation but inspiringly its leaders also insisted the devaluation of all Dollar loans. In doing so the elite realized that they had only two options.

Social catastrophe or neutered bankers. They took on the bankers and substantially diminished the debt. Thus they saved their nation.

Accordingly, the so called “PIIGS” countries; Portugal, Italy, Ireland, Greece and Spain, should form a league based on national economic restructure. This league should form a common secretariat with the purpose of negotiating an exit from the Euro and allowing their currencies to “float” once more. This will immediately allow their economies to become competitive again without widespread deflation. Most importantly all Euro loans must be devalued to a new negotiated exchange conversion, as per the Argentinean model. This action will be greatly resisted by Euro bankers. This is why no one European nation could go this route alone. But together in league they have a chance.

I hope Irish leaders realize the difficulty we are in and have the intelligence and wisdom to formulate the type of solution mentioned. If such leadership was shown by Ireland perhaps the other heads in Portugal, Italy, Greece and Spain would have the courage to join with their fellow European brothers and sisters and save their nations from certain financial destruction. Yes we truly are living in interesting times.

source  thanks to chris at  www.wealthbuilder.ie

Reference: “The Rotten Heart of Europe”

Bernard Connolly

Faber & Faber, London, 1995.

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