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Posts tagged ‘Euro’

Is the US Killing the Euro?

by  Dr_Volkmar_G_Hable  :

The technical picture of the USD shows a large  descending triangle which is an indication for further downside for the USD. This  chart is in sharp contrast to the repeatedly announced “strong-dollar policy”  by the US administration.

So what is going on  here?  Did the US government surrender to the  power of the Euro, or is it part of a new tactics not yet quite understood by  European policy makers? Fighting an opponent doesn’t always mean opposing his  force. When faced with overwhelming power, good fighters often use their  attacker’s force to their advantage (Sunzi,  1901), like in Judo, for example. In my view that appears to be the case  with US tactics against the Euro.

Let me explain that  view by having first a look at the current situation:It is with utmost  interest that I watch the usually very upbeat news on CNBC, one of the reasons  being to be able to answer anxious questions from nervous investors, who call  in the next morning in order to inquire about the latest CNBC broadcast. So at  the same time I also have the pleasure to regularly watch two fast-talking and  squeaky clowns in the CNBC circus (Vieira  da Cunha, 2001) who, for the last few years, have given their upbeat views  on any economic, financial, and political issues. The “know it  all” duo’s advice has not been particularly rewarding for investors, and  had you invested your money according to their “never in doubt”  bullish mantra, your assets would be worth today at least 78% less than in 2000  (in terms of Euro or in a hard currency such as gold, they would be down in  value by another 25%), (Hable, 2004, and Lefevre, 1994). But since poor advice  is not only endemic to those two relentlessly irritating financial commentators  but is almost a prerequisite for success in the financial service industry, I  shall not hold it against them. Still I have a question relating to a statement  by Mr. Kudlow, which somewhat surprised me and others. In an article he  explained why “the current economic situation is a lot like the start of  the Reagan Boom 30 Years Ago”. Hello?!

Now, I have some serious  reservations about this comparison for the following reasons. If you look at  interest rates over the last 40 years or so, you will see that when, in 1980,  Mr. Reagan became President of the US, rates were near their highs and since  Mr. Volcker (then the Fed chairman) pursued at the time very tight monetary  policies he managed to bring down the rate of inflation, and subsequently also  interest rates, which then fell for the next 22 years and also enabled him to  keep money supply under tight control. Needless to say that whereas interest  rates were sky high in 1980 and significantly above the rate of growth of  nominal GDP, today the Fed Fund rate is significantly below the rate of nominal  GDP, which suggests that short term interest rates can only rise if nominal GDP  continues to expand.

full article at source:http://www.marketoracle.co.uk/Article34407.html

Seeking Clarification Please!

EU Economic and Monetary Affairs Commissioner

EU Economic and Monetary Affairs Commissioner (Photo credit: Wikipedia)


From :Christopher M. Quigley

to: Thomas For your attention:

Sent To All Dail Member Today:

“Pacta Sunt Servanda”

“Article 4 states that a country must not have a debt bigger than 60%of what it produces in a year (its GDP). If it does, it must reduce its debt byone-twentieth of the excess each year. This is an existing EU rule.”

Seeking ClarificationPlease.  This is my understanding ofArticle 4 of the Stability Treaty and its implications for the Irish economy.If I am wrong will somebody please elucidate.

Theabove statement regarding Article 4 is on the Government’s referendum  website. Please notice that it says that the60% provision relating to GDP and debt level is ” an existing rule”.

CurrentlyIreland is breaking this rule but has had bonds backed by the old”Stability Facility”.

Underthe new treaty we are told the letter of the law will be applied. (“PactaServa Sunt”: Olli Rehn is so quoted as saying that the Euro Community”is a community of laws” and as such “all written commitmentsmust be fully adhered to”).  Thusgoing forward, under the new paradigm, Ireland will not be allowed to havetotal government borrowings in excess of 60% of GDP. Ergo:


Our total debt isapprox:               148 Billion Euro

Our GDP is approx:                      156Billion Euro

60% of GDP is approx:                  94 Billion Euro

GDP Austerity Cutsapprox:            54 Billion Euroover 20 years which means 2.7 Billion a    year.

Source:  CSO Press Release November 2011. Seeattachment.


Thus additional cutsof 2.7 Billion Euro will have to be added to the cuts already beingadministered by the Troika. When this IMF/ECB/EU facility expires in 2013yearly “GDP Austerity Cuts” in addition to the current “FiscalBudget Austerity Cuts” will apply for the foreseeable future (possibly for20 years or as long as 60% Gross Gov. Debt/GDP deficit applies). Given that major economies are now in doubledip recessions it is unlikely that “growth” will be able to mitigatethese cuts which now have to be set in unbreakable constitutional terms. Ittherefore appears to me that this treaty is an “austerity treaty”

and it would appearthat this is why it was not backed by Britain and is being fought against byHolland, France and Spain as we speak.

Thanking you all foryour assistance in this critical matter.


BY  Jim_Willie_CB

Notice the debt  solution to the debt problem handed to Greece, shoved down their throats.  More specifically, observe the austerity budget requirements that assure  economic deterioration. No exception has been offered, yet the same  prescription is applied that results in job cuts, project termination, and  greater deficits. Observe the bond swaps of new faulty bonds for old impaired  ruined bonds. No solution there. Observe the strongarm methods of powerful  coercion to enable the bond holders a cooperative role in the process. Observe  the asset grabs and seizures tied to collateral in previous debt agreements.  Observe the vacuum effect of money fleeing the Greek banking system. Observe  the profound economic recession, far worse than reported. Observe the chaos in  the streets, as the people are angry that decisions are made without their  participation, acknowledgement, or approval. As the Greek debt default  continues down the road, with delays and distortions to its view, the only  assurance is the end point. The banks resist a liquidation or exit from the  Euro currency, since it would spell sudden death failure for many large  European banks. The nation must exit the Euro currency in order to write down  its debt more effectively (rather than trade it), in order to be in a position  to devalue it for a true stimulus, in order for a fresh start out from under  the banker thumb. Let’s watch the details of the Credit Default Swap, whether a  default event is ordered. Be sure to know that the claimed $3.2 billion in net  CDS payouts is a grand lie. If $200 billion is offset by $196.8 billion between  Group A versus Group B (guessed hypothetical numbers), then know clearly that  Group A is deader than dead, while Group B will never by paid by the dead  counter-party. The CDS sham reveals mutually dead financial entities, not  offsetting calculus.

full article at source: http://www.marketoracle.co.uk/Article33529.html



I cannot for the life of me understand how the loss to somebody of 100, Billion Euros on an investment can be categorised as a success. Clearly somebody must pay for this loss and I suppose it’s going to be the taxpayers of Germany but this is not the end of this crises .I see Greece polishing its begging bowel for the next round of free money. Meanwhile the Irish are been the teacher’s pet and are paying off the bad investments of Deutsche Bank and what do we get for it another kick in the googlies as we are handed another list of austerity measures !

Wake up Ireland!



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)


> 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


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

Sorting Out the Euro Mess

By Anatole Kaletsky, Charles Gave, Francois Chauchat – GaveKal

Starting With the Bad News…

Although the usual post-summit rally should not be too hard to   orchestrate in the thin markets around Christmas, there was more bad   news than good for the dwindling band of bureaucrats and politicians who   are determined to save the Euro, regardless of the costs to the   democracies and economies of Europe. We will begin with the “bad”   news–partly because our bias is to treat bad news for the Euro as good   news for the world and Europe, but mainly because this so-called   comprehensive and final “fiscal compact” was no more comprehensive and   final than any of the previous failed deals. As in all the previous   summits, the only truly definitive decision on Friday was to have   another meeting in three months’ time, when a new agreement would   supposedly be cooked up to resolve all the controversial issues left   undecided on Friday. Once the holiday season is over and investors start   to think seriously about this “fiscal compact,” the economic and   political uncertainties are bound to intensify, building to another   crisis ahead of the next summit in March.

The summit failed to satisfy the first (and maybe not the second?) of   even the minimum necessary conditions to give the Euro a chance of   medium-term survival. These are (i) creation of a fiscal union, which   will take at least one to two years to set up, and (ii) unlimited ECB   lending to bridge the gap between this multi-year political timetable   and a market timescale measured in weeks or months. While the ECB may   still end up being more pro-active than Mario Draghi suggested last week   (see next page), the summit’s most obvious failure was on the fiscal   front. Despite the self-

congratulation among EU politicians about their “fiscal compact,” the   fact is that Germany vetoed the most important characteristic of a true   fiscal union, which is some degree of joint responsibility for   sovereign debts. Since Germany refused even to discus Eurobonds or a   vastly expanded jointly-guaranteed European Stability Mechanism, the   summit did nothing to reassure the savers and investors in Club Med   countries that their money will be protected from either devaluation or   default.

Secondly, the summit raises huge political uncertainties. With the UK   failing to climb on board, an intra-governmental deal will need to be   arranged outside the EU legal framework. Will all 17 countries in the   EMU ratify the new treaty and how long will this take? Will Ireland be   able to avoid a referendum in a period when Europe is viewed by the   public as a hostile colonial power? Will all 17 members insert   German-style debt-brakes into their constitutions to the satisfaction of   the German courts? If a country fails to legislate or implement an   adequate debt-reduction programme, will it be expelled from the Euro? If   so, can the Euro be described as “irrevocable” any longer and does it   really differ from any previous fixed currency peg? Worst of all,   perhaps, how will this deal affect French politics? If Marine Le Pen and   Francois Hollande denounce Merkozy’s “fiscal compact” as a betrayal of   French sovereignty and democracy, then this agreement will be worthless   until after the French presidential election on May 6.

Thirdly, and most decisive in the long run, is the economic and   political incoherence of what Merkozy are trying to do. Even if the   fiscal compact could be immediately put into practice, even if it   contained provisions for joint-liability debts and even if the ECB   backed it with unlimited monetary support, it would aggravate the Club   Med’s economic nightmare of unemployment and economic stagnation. Small   open economies such as Ireland and Sweden may be able to deflate their   way out of a debt crisis, but for large continental economies in the   Eurozone this is arithmetically impossible. In this respect at least,   Keynes’s key insight of the 1930s—that workers and taxpayers are also   customers—remains as relevant today as it was then. By imposing   permanent austerity, the fiscal compact guarantees permanent   depression—and that in turn guarantees that the citizens of Europe will   eventually turn against Merkozy and the Eurocrat elites.

full article at source: www.JohnMauldin.com.



Could the Euro and Dollar Go One-to-One?

by Anthony Wile

This is a funny question to ask given that the dollar is in the dumps  and the euro has had a strong rally since the region’s top Eurocrats  “saved” the euro this week. But in Europe, where some DB elves are  traveling and especially in Spain, those in the banking community –  especially at the commercial banking level – are beginning to speculate  that the euro and the dollar may eventually reach parity.

The elite’s promotional media guns, of course, are aimed at assuring  us once again that the euro-crisis has finally been contained. But given  the difference between what the Anglosphere elites say and DO, I’d  humbly submit that the crisis is nowhere near finished and that the real  objective may be to unwind both Europe and America preparatory to  creating the kind of full-blown chaos necessary to usher in a world  currency. Stranger things have happened – and we do live in strange  times these days.

Of course, I don’t have any crystal ball. And betting on a market as  large as the currency market is generally a fool’s errand. But it’s an  interesting question nonetheless for those with a stake in the overall  global financial system (that means almost all of us).

full article at source:http://www.thedailybell.com/3160/Anthony-Wile-Could-the-Euro-and-Dollar-Go-One-to-One

Swiss Government Ruins Franc

by Staff Report at the Daily bell

The Swiss franc tumbled against the euro and dollar on Tuesday after the Swiss National Bank   set a minimum exchange rate target of 1.20 francs per euro to combat the strength of the   currency, which it says poses a risk to the economy.  – UK Telegraph

Dominant Social Theme: The Swiss, gallantly, will do whatever they need to in order to defend the euro, even if it means debasing their own currency.

Free-Market Analysis: Switzerland is one of those rare European countries that are doing relatively well in a time of international economic crisis. But doing well is not something that can be tolerated in the “new” Europe. The Swiss have come under enormous pressure on a variety of fronts to make their sociopolitical environment conform to the larger dysfunction of the EU – and now they’re ruining their currency at the behest of Brussels.

full article at source:http://www.thedailybell.com/2888/Swiss-Government-Ruins-Franc

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