What is truth?

Posts tagged ‘The Euro’

Albert Edwards’ “WOW!” Chart, Or Why “Draghi Makes Greenspan Look Like A Rank Amateur”

Back in January, when European stocks were only starting their unprecedented QE ramp, we presented the “Driver Behind The European Stock Surge” in which we showed that ever since Mario Draghi’s “whatever it takes” speech in July 2012, European equity prices were up 50% (even higher now) even as corporate earnings had actually declined by 7%.

It is a take on the chart above that has sent Albert Edwards over the edge once again, and in his latest letter he presents another way of visualizing the data above, with the help of what he dubs the “WOW!” chart.

Edwards begins with the standard, and well-deserved, rant against central bankers who now merely need – and create – ever greater bubbles in hopes of preserving a system, which can no longer function away from a “bubble” state.

We have long fulminated against strategists who are unwilling to predict sharp market moves. The violent downmove in the euro over the last few weeks is a case in point. Mario Draghi and the ECB’s manipulation of asset prices makes Greenspan’s Fed look like a rank amateur. More shocking though than the plunge in the euro, and more shocking even that 25% of sovereign eurozone bonds now trade in negative territory, is what has happened to eurozone equity valuations. For, as we approach the sixth anniversary of the US cyclical bull market (a post-war record), the PE expansion of eurozone equities is simply off the scale. History suggests this will end very badly indeed. Ask Alan!

What is he talking about? Presenting Albert Edwards’ “WOW!” chart:

Edwards’ explanation:

This extraordinary multiple expansion is most shockingly illustrated by the chart [above] showing eurozone trailing PEs expanding to the moon (on trailing PE, the eurozone now stands at 20x vs 18.5x in the US). The chart below shows developments for only the past couple of years – this time using the 12m forward PE. The interesting point here is how, despite a profit explosion in Japan, the Japanese forward PE is unchanged at around 14x whereas US and eurozone forward PEs have both surged.

While we agree with everything Edwards is saying, we don’t agree with his assessment that Japan’s epic clobbering of its currency is helping its corporations. Sure, there are benefits, mostly in the area of exports and a brief spike in profitability, which Edwards notes in detail…

The surge in Japanese company profits on the back of the yen?s devaluation since early 2013 is truly extraordinary, but this has not (yet?) fed through to a booming Japanese economy. Like QE, the liquidity surplus…………………………….

full article at source:http://www.zerohedge.com/news/2015-03-12/albert-edwards-wow-chart-or-why-draghi-makes-greensplan-look-rank-amateur

 

 

The Irish property bubble made Las Vegas and Miami look like amateurs.

Assorted international currency notes.

Image via Wikipedia

According to the Wall street journal  

Ireland is struggling to recover from one of Europe’s messiest real-estate busts, which has left its banks awash in souring loans to property developers that likely won’t be paid. The International Monetary Fund expects Ireland’s economy to contract by 0.5% this year, before growing 2.3% next year. Further headwinds could be in the cards. Exports fuel about 50% of Ireland’s economy, but signs of slowing recoveries have grown in the U.S. and Britain, two of Ireland’s biggest trading partners. The euro’s appreciation in recent months also could hurt Irish trade.

The danger is that Ireland’s economic woes will amplify its fiscal and banking problems. A weaker economy means less tax revenues, making it harder for the government to meet its goal of cutting the deficit to Europe’s limit of 3% by 2014. As the economy weakens, Irish borrowers will also find it harder to repay their loans, saddling Ireland’s banks with more bad loans. That, in turn, could force the Irish government to provide more financial assistance, eroding its own creditworthiness.

Even before Thursday’s figures, the cost to insure Ireland’s sovereign bonds against default jumped to a record as investors fretted over the government’s plans for winding down Anglo Irish.

It now costs roughly $475,000 a year to insure $10 million of Irish bonds for five years, according to data provider Markit. Earlier Thursday, Ireland’s credit-insurance costs hit $500,000 for the first time. Before October, Ireland’s central bank is expected to provide more details on plans to split Anglo Irish into a deposit-holding bank and an “asset recovery” bank that would be wound down over time.

Of particular concern to investors is the fate of roughly €2.4 billion ($3.2 billion) of riskier bonds issued by Anglo Irish Bank . Of that, €1.7 billion will no longer be protected by the government once a key guarantee expires at the end of the month.

Then we have this  from WSJ to-day Friday

A daisy chain of disaster and desperation.

Of course, there was some news to trigger the latest volley of market misfortune aimed at Ireland. The second-quarter GDP figures make grim reading; the economy contracted by 1.2% from the previous three months. Read our coverage here.

And then there are the rumors about yet more ugliness in the Irish banking sector. Opposition politicians are calling for Ireland’s beleaguered banks to default on their bondholders, while there have been hints from the government that subordinated papercould be “renegotiated”.

Given the size of the liabilities of the Irish banking sector–vastly bigger than an economy Ireland’s size can comfortably support–and Ireland’s commitment, so far, to guarantee them, little wonder credit default swaps on Irish sovereign debt have blown out. The market clearly thinks Ireland runs a significant risk of going bust.

Sure, the Irish managed to flog some of their sovereign debt this week, albeit with a big thank you to European Central Bank guarantees. But investors are rationally wondering how much of a bill core Europe, namely Germany, will be willing to pick up from the periphery. After all, it’s not just Ireland, it’s Portugal and Greece and…

Not just that, there’s the additional question of whether the Irish (and the Portuguese and the Greeks) will ever really fit into the one-size-fits-all currency region.

The ECB has run monetary policy with both eyes firmly on Germany. During the late 1990s and early part of the new century, that meant keeping interest rates low to accommodate Germany’s struggles with financing reunification. Those low rates might have suited the German economy, but they were deeply negative in real terms across peripheral Europe, igniting massive booms. The Irish property bubble made Las Vegas and Miami look like amateurs.

And since the bust, Ireland’s inability to devalue its way back into competitiveness relative to Germany means that it’s now having to deflate. If you can’t erode wages through inflation, you have to cut them. The only alternative would be for Germans to accept much higher rates of domestic inflation. But they won’t.

So Ireland is condemned to continue a painful deflationary process engineered by austerity.

Unfortunately, even this won’t prove sufficient in the long run.

 

 

Comment:

So when the Financial Times, and the Wall Street Journal have this kind of stuff splashed across their very influential pages it should come as no surprise that the money men get nervous and start to crank up interest rates.

We have  leaders telling us that the Economy has stabilized  in spite of negative growth of 1.25% in the last quarter compared to growth of 2.5% in the first quarter and we have turned god knows how many corners Jesus lads, are you completely living in La LA Land ?

With Anglo Irish Bank and Allied Irish Bank in the news to-day again has anybody thought of the possibility of the confusing nature of the names might have on the international bond markets and indeed on Allied Irish Bank?

This simple observation is an example of the incompetence of the people running our country

Even alcoholics know that the first step in handling the problem is to admit that you have a problem and come clean! .The Markets are not fooled, every time these jokers (Cowen and Lenihan ) try to pull the wool over the eyes of the international financiers they will respond in putting up interest rates until it becomes impossible to raise fresh capital or in becomes itself destructive to the economy, a point I believe we are already past!

sorry to say we are saddled with the worst government in Irish history and they are hell bent on pushing us all down a very big black hole buy dogmatically sticking to the disastrous course of bailing out gamblers that do not deserve to be rescued by the hard pressed taxpayers of our great nation

despite all this I personally believe there is a great future in store for Ireland we brought Europe out of the dark ages and we will in the future help guide Europe again once we get rid of the corrupt incompetent gombeen men and woman that infest our Dail

Our problems stem from the corrupt political system we have all become slaves to and it is the duty of every honest Irish citizen to stand up and fight this cancer that is eating away at our democracy  

We are constantly been fed lies by unelected spin doctors the current political masters employ using taxpayer’s funds who distort and manipulate facts and figures and who segment sections of our population a tactic they hope will extend their hold on power

Thank God we have the internet and this will eventually help us rid ourselves of the current batch of leaches infesting the Dai sucking our country dry

God help and protect Ireland. The greatest country on earth!

The Rotten Heart of Europe? A technical note on EMU

The Rotten Heart of Europe?
by Arno Tausch

A technical note on EMU and the rise of world-wide narco-capitalism
fullebook44

Nowhere to Run, Nowhere to Hide!

This excellent article was sent to me this morning and it outlines the true situation facing Ireland and Europe. In the end there will be an “end game”. That “end” will involve a debt restructure for Europe similar to that adopted by Argentina in 1999. The result will be that most of the main European banks will go bust. It is inevitable, it is axiomatic, it is the law of economics. Unfortunately the longer the current denial is allowed continue the more difficult the final correction will be. Ideally the solution now, to save social chaos, is the breakup of the Euro, thus allowing the weaker nations start out on the road to national salvation immediately. Competitive devaluation is the only long term solution for Ireland, Spain, Portugal and Greece. Sometimes the “best” is the “least worst”.

Nowhere to Run, Nowhere to Hide!
• by Satyajit Das
• July 08, 2010
A year of wishful thinking…
The twelve months starting March 2009 was the year of wishful thinking.Central banks cut interest rates and governments opened their check books providing a flood of cheap money that gave the illusion of recovery and a normal functioning economy. Pouring a lot of water into a bucket with a large hole created the impression that the receptacle was almost full. As Norman Cousins, an American political journalist, noted: “Hope is independent of the apparatus of logic.”
Governments merely transferred the debt from private sector balance sheets onto public balance sheets. The Global Financial Crisis (“GFC”) has morphed into a Global Sovereign Crisis (“GSC”) as sovereign governments now face difficulty in raising money.
Stock markets and asset prices have tumbled. Money markets are exhibiting an anxiety not seen since late 2008/ early 2009. The year of wishful thinking has run its course.
Cradle of debt…
If subprime was the Patient Zero of the GFC, then Greece, the cradle of Western civilization, was the equivalent of the GSC. As historian Arnold Toynbee observed: “An autopsy of history would show that all great nations commit suicide.”
Greece’s significance is not its economic size (around 0.5% of global Gross Domestic Product (“GDP”)) but its significant debts. Profligate public spending, a large public sector, generous welfare systems particularly for public servants, low productivity, an inadequate tax base, rampant corruption and successive poor governments created the parlous state of public finances.
Several events focused attention on the problems. Greece needed to borrow around €50 billion to refinance maturing debt and fund its budget deficit. There were damaging disclosures that Greece, like many other European countries, had used derivatives to manipulate its debt figures. The revelations focused attention on underlying problems and set off alarm bells. Smelling blood in the water, markets pushed up the cost of Greek debt. Gradually, the ability of the country, as well as Greek banks and companies, to raise money ground to a halt.
Greece was the “canary in the coal mine,” highlighting similar problems in the PIGS (Portugal, Ireland, Greece and Spain) as well as some Eastern European countries. These countries alone have around €2 trillion of debt outstanding. Larger countries—the FIBS (France, Italy, Britain and the ‘States’)—also have similar problems of large public debt, unsustainable budget deficits and (in most cases) unfavorable current account deficits (both in absolute terms and relative to GDP).
Going nuclear…
Will Durant, an American historian, advised that: “One of the lessons of history is that nothing is often a good thing to do and always a clever thing to say.” Initially, European politicians and bureaucrats, who suffer from delusions of adequacy, did nothing, but wouldn’t shut up about it. The oft repeated battle cry was “no default, no bail-out, no exit,” Germany remained especially hostile to any financial “bailout.”
The major problem was “contagion”—the consequences if Greece was to unable to raise money from commercial sources. Much of Greece’s debt is owed to banks and investors in other European countries. If Greece defaulted, the resulting losses would have serious consequences for the affected banks and banking systems. Countries, such as Portugal, Spain and Ireland, with similar economic problems would inevitably be scrutinized and targeted.
By February 2010, the need for coordinated action by the euro-zone countries and the European Union (EU) was evident. While pledging eternal support, the EU waited for Greece to agree to an austerity program to remedy its finances. The cause of European unity was not served by attacks by George Papandreou, the Greek Prime Minister, that the EU was creating a “psychology of looming collapse” and making Greece “a laboratory animal in the battle between Europe and the markets.”

In April 2010, as the market for Greek debt worsened (the additional interest rate that Greece had to pay reached 8.00% over that paid by Germany), after considerable prevarication, the EU proposed a highly conditional €30 billion rescue package. The haiku-writing president of the European Council, Belgian Herman Van Rompuy, hoped “it will reassure all the holders of Greek bonds that the euro-zone will never let Greece fail … If there were any danger, the other members of the euro-zone would intervene.”
Markets considered the proposal inadequate and unlikely to avoid a Greek default. Increasingly desperate as circumstances began to rapidly spiral out of control, the EU increased the package in early May 2010 to €110 billion, including a €30 billion contribution from the International Monetary Fund (IMF) who would supervise the package and the implementation of the economic “cure.”
About a week later, continued market skepticism and increasing pressure on Portugal, Spain and Ireland forced the EU to “go nuclear.” After months of slow and tortured discussions, the EU acted with surprising speed announcing a “stabilization fund” to the value of €750 billion to support euro-zone countries, including an IMF contribution of (up to) €250 billion. The actions were designed to salvage the EU, the euro and over-indebted euro-zone participants by stopping contagion and further spread of the crisis.

Nicolas Sarkozy, the French president, turned the euro-zone’s sovereign-debt crisis into a personal triumph. The proposal, he let it be known, was 95% French. Le Figaro led the cheerleaders reporting Sarkozy’s comment that “in Greece they call me ‘the savior’.”
Struggling for a telling phrase, journalists spoke of financial “shock and awe.” A single word—panic—better summed up the actions. Initially, stock markets rose sharply, especially shares of banks that would benefit from the rescue. The interest rates on Greek, Irish, Italian, Portuguese and Spanish bonds fell sharply. As the announcement over the weekend caught traders unawares, the rally was driven largely by covering of short positions.
“Shock and awe” quickly proved more shocking and less awe inspiring than the EU had hoped. Wiser commentators mused that if €750 billion wasn’t going to do the trick, then what was?
Brussels, we are not receiving you…
Details of the “plan” remain sketchy. The entire package conveys the impression that the EU and European Central Bank (ECB) are hopeful that the announcement will suffice to bring stability to markets and the facilities won’t ever have to be used. A problem of too much debt was being solved with even more debt. Deeply troubled members of the euro-zone were trying to bail out each other. Given that all have significant levels of existing debt, the ability to borrow additional amounts and finance the bailout remains uncertain.
The reality is that Germany, with its large pool of domestic savings, must be the cornerstone of the rescue effort. Predictably, German credit risk margins have increased while the peripheral countries credit margins have fallen. The effect of the stabilization fund is that stronger countries’ balance sheets are being contaminated by the bailout. Like sharing dirty needles, this has drastically increased the risk of infection.
Trader Karl Dunninger, writing at http://www.seekingalpha.com, captured the madness: “The most amusing part of this is that nations seriously in debt and without a pot to piss in will be ‘contributing’ some of the money to fund the debt. Spain, for instance, has pledged to do so. Where is Spain going to get the money? Will they sell bonds at 8% to fund a loan at 5%? That’s a very nice idea…. let’s see, we lose 3% on those deals. That ought to help Spain’s fiscal situation, don’t you think?”
Solvency not liquidity, stupid…
At best, the plan provides temporary liquidity to cover immediate financing needs, repaying maturing debt and financing deficit. In a striking parallel to the early stages of the GFC, the reality that it is a “solvency” problem not a “liquidity” problem remains unacknowledged.
Most of the countries in the firing line have unsustainable levels of debt. For example, beyond 2010, Greece needs to refinance borrowings of around 7%-12% of its GDP (around €16 billion to €28 billion) each year till 2014. There are significant maturing borrowings in 2011 and 2012. In addition, Greece is currently running a budget deficit (currently over 12% but projected to decrease) that must be financed. As noted above, Greece’s total borrowing, currently around €270 billion (113% of GDP), is forecast to increase to around €340 billion (over 150% of GDP) by 2014.
The IMF’s publicly available economic analysis assumes Greece is able to refinance long-term debt by early 2012 and short term debt even earlier. Given that Greece is expected to have a total debt burden of around 150% of GDP and total interest payment of 7.5% of GDP, the ability to raise funds and the assumed 5% cost of refinancing may be optimistic.
The IMF plan calls for a program of fiscal austerity and major structural reform. This would entail a sharp reduction in the budget deficit to less than 3% of GDP and public debt under 60% of GDP. It is unlikely that Greece, despite heroic speeches from politicians, will be able to meet these targets.
Temporary emergency funding will not solve fundamental problems of excessive debt and a weak economy. Government expenditure will need to be slashed and taxes raised to reduce its debt. But the government is too large a part of the economy and the suggested austerity measures will most likely cause a severe recession. In turn, this will drain tax revenues and increase expenditures, making it difficult to reduce the budget deficit and funding needs.
The level of indebtedness may already be too high. Kenneth Rogoff and Carmen Reinhart in their survey of financial crises This Time It’s Different argue that sovereign debt above 60-90% of GDP restrains growth. Greece’s interest payments now total around 5% of GDP and are scheduled to rise to over 8%. Rising interest costs will only worsen this problem. The cure may not be feasible or will not help make it easier to meet future debt obligations. Ireland has already implemented austerity measures. The government debt as a percentage of GDP has increased to 64% from 44%. The budget deficit as a percentage of GDP has doubled to 14% from 7%. The nominal GDP of the country has fallen by 18%.
The plan may also make further liquidity problems inevitable. Instead of allowing Greece to raise funds normally, the bailout package is helping investors reduce exposure via repayment of maturing debt and the sale of illiquid longer-term securities. The package also risks forcing other vulnerable countries to rely on the stabilization fund. As Woody Allen once observed, “More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.”
It always ends in the same way…
No one, including the IMF, seriously believes the austerity program announced by Greece will work. Argentina had debt-to-GDP of around 60% and a budget deficit of 6%. Adjustments necessary to halve both failed. After a long drawn-out struggle between 1999 and 2001, Argentina was forced to reschedule its debt and has still not quite made its way back to normality. Many of the vulnerable countries in Europe are in a much worse position than Argentina in 1999.
Rapid economic growth or high inflation would improve Greece’s prospects for survival. Neither is a realistic option. The euro-zone could continue to finance Greece, which would require extension of the current package, which is initially for 3 years. Greece may not be able to avoid a debt restructuring. For Ireland, Spain and Portugal, as well as others, the savage austerity measures required are unlikely to be palatable and probably won’t work in any case. All roads may lead eventually to debt restructuring.
The best course of action for Greece would be to “temporarily” (that is, for the next several hundred years) opt out of the euro and unilaterally re-denominate its debt into the “new” drachma. Through the currency devaluation, this would effectively reduce debt and restore competitiveness. In any debt rescheduling, lenders would take significant write downs, reducing Greece’s debt burden, giving it a chance to emerge as a sustainable economy.
The real agenda of the bailout is to prevent foreign lenders taking large losses. The investors were imprudent in their willingness to lend excessively to countries like Greece, assuming EU “implicit” support, and are now seeking others to bail out them out of their folly. As Herbert Spencer, the English philosopher, observed: “the ultimate result of shielding men from the effects of folly is to fill the world with fools.” As of June 2009, Greece owed US$276 billion to international banks, of which around US$254 billion was owed to European banks with French, Swiss and German banks having significant exposures. Bank for International Settlement data indicates that German and French banks’ exposure to Greece is about $50 billion and $75 billion respectively. In aggregate, the exposure of Germany and France to troubled European countries is around $1 trillion. According to the Bank for International Settlements, as of the end of 2009, French banks and German banks had lent $493 billion and $465 billion respectively to Spain, Greece, Portugal and Ireland.
The bailout’s purpose is to prepare for a possible series of sovereign debt restructurings in Europe. In an ideal world, banks and investors raise capital and write down their exposure to the troubled debtors over time, avoiding disruption to financial markets.
Dysfunctional functionalism…
Contagion is already a reality. Highly indebted sovereign borrowers with immediate financing needs are facing higher costs and lower availability of funds. Scrutiny of their public finances is forcing them to adopt austerity programs to remain credible borrowers with access to markets. The risk of losses from a Greek or other sovereign defaults has affected financial institutions. Mirroring events at the start of the GFC, the close linkages between euro-zone banks through cross-border loans and investment to each other remain a serious potential problem. The stress is most evident in inter-bank funding rates, which have risen sharply to their highest levels in a year.
Since 2008, money markets have operated on the basis that large banks are “too big to fail,” due to support from the relevant sovereign. The problems of sovereigns themselves have heightened concern about the credit risk of banks. Banks fearful of the quality of borrowing banks may limit lending.
Banks, especially those in Europe, are paying higher interest costs and may face difficulties in raising funds. The ECB recently warned of the problems faced by European banks in financing their operations and refinancing maturing debt. Markets are stockpiling liquidity, as evident by surplus balances at the ECB and other central banks, fearing a sequel to the deep freeze in financial markets in 2008. Activity in bond markets and new equity raisings has slowed sharply.
In the real economy, forced or voluntary retrenchment of government spending is restricting demand and restraining economic growth. Lack of demand in Europe affects the exporting economies of Japan, China and East and South Asia.
Dollar strength belies the economic fundamentals and will slow the ability of the U.S. to use exports as a growth engine. The weakness of the euro and resultant appreciation of the renminbi by over 14% also reduces Chinese exporters’ earnings and competitiveness. China is now even more reluctant to take steps to allow the renminbi to appreciate.
Sovereign debt problems are creating serious dislocations and perverse outcomes. Paralleling the events after the Asian monetary crisis in 1997/1998, the flight to dollars has pushed down interest rates on U.S. government debt. Paradoxically, lower interest rates reduce pressure for deficit reduction by lowering the cost of servicing public debt.
Fading hopes…
A combination of self-reinforcing events is driving a pernicious reversal of the dynamics of 2008-09. Then, co-ordinated government action on a grand scale stopped the global financial crisis from turning into a depression. Government and central bank strategy was a bet on growth and inflation as the most painless means of adjusting the overly leveraged and deeply indebted global economy. In the words of La Rochefoucauld: “Hope, deceitful as it is, serves at least to lead us to the end of our lives by an agreeable route.” Now, governments have become the problem, perhaps calling time on the wishful thinking of markets.
The most important consequence of Greece and European sovereign debt problems will be to force governments everywhere to stabilize and reverse the deterioration in public finances by a combination of new taxes and cutting expenditures. Many indebted economies, including Britain and Italy, have implemented austerity measures. The sharp reduction of government spending coincides with the end of the effects of stimulus packages and is likely to slow economic growth.
Country-specific factors–attempts by China to rein in excessive lending and rising property prices, higher interest rates in Australia and India driven by perceived inflation in local economies–may also undermine growth. Government demand for funds and deteriorating conditions in the financial system will reduce the availability of funds and increase cost, further restricting growth.
Refusing to acknowledge the real problems, major economies have transferred debt from companies to consumers and finally onto public balance sheets. A huge amount of assets and risk is held by central banks and governments, which are not designed for such long-term ownership. There are now no more balance sheets that can be leveraged to support the current levels of debt.

Borrowing can only be repaid by the sale of assets, including those funded by the debt, or by redirecting income, perhaps generated by the asset purchased, towards repayments. Unfortunately, the level of income and cash flow is insufficient to cover interest costs or amortize the amount borrowed. The GSC focused attention on the excessive level of debt and how it was used.
Based on per capita income of $30,000 (roughly 75% of Germany’s), Greece gives the appearance of a developed economy. In fact, Greece’s economy and its institutional infrastructure are weak. In the World Bank’s Index for Doing Business, which measures the commercial environment, Greece ranks 109th—behind Lebanon, Egypt and Ethiopia and, among developed countries, next to last. Around 30% of the Greek economy is unreported and informal. Tax revenue losses may be around $30 billion per annum. Productivity and quality are low. Despite the size of the public sector, public services are inadequate. Corruption is endemic.

While entry into the euro may have helped Greece ascend to major league status, it decreased international competitiveness as the country effectively priced itself out of the market for goods and services. Entry into the euro compounded existing weaknesses by providing access to low-cost funds. Greek bonds became eligible as collateral for ECB funding. Assumptions of “implicit” ECB and EU support (since proven correct) facilitated easy access to bank funding. A period of credit-driven expansion financed a construction boom and social policies, such as early retirement with large pension entitlement, often in excess of those available in more affluent countries.
The reality is that much of the debt in Greece was not used to finance productive enterprises but fuelled consumption or was channeled into unproductive uses. There are no substantial assets or income from those investments that will help repay the debts. Many countries and businesses face identical problems and now must adjust to that painful reality.
As Tyler Cowen, Professor of Economics at George Mason University, observed in his opinion piece “How Will Greece Get Off the Dole?” (New York Times, May 21, 2010), “…it’s a moot point whether Greece is a poor country masquerading as a wealthy country or vice versa. … If the old illusion was that Greece was a wealthy country, the new illusion is that Greece will, in short order, become wealthy enough to pay back ever-growing sums of debt.” The lack of viable policy options is increasingly evident in the panicked reactions of governments. In literature, they all quote Shakespeare in the end. When things go wrong in financial markets, it seems that everybody looking for a scapegoat blames speculators and short sellers.
Nowhere to run to, nowhere to hide…
The onset of the GSC marks a new dangerous phase of the credit crisis. At best a withdrawal of government support (through lower spending and higher taxes) will reduce global demand and usher in a potentially prolonged period of stagnation. At worst, increasing difficulty in sovereigns raising money and a clutch of sovereign debt rescheduling may result in a sharp deterioration in financial and economic conditions.
Financial institutions will continue to build up capital and reduce balances sheets, anticipating further losses and write-offs over time, including potential losses on exposures to sovereign loans. Lending growth will continue to be low, reducing growth. Consumption and investment will be below potential.
There is no political will to tackle deep-seated problems. The electorate is unwilling to accept the necessary adjustments and lower living standards. As the credit crisis enters its third year, the scale of sovereign debts means that governments now have limited room to counter any new economic downturn. The liquidity and government-spending-driven rally also caused “bubbles” in emerging markets. There is a risk that the GFC and GSC may morph into an EMC (Emerging Market Crisis).
Until early 2010 markets were, as the song goes, “Dancing in the Street.” Increasingly, another standard also made famous by Martha and the Vandellas is relevant: “Nowhere to run to, baby/Nowhere to hide.”

© 2010 Satyajit Das All Rights reserved.
Satyajit Das is the author of the Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2010) due for release in the U.S.A. in late August 2010.

Who’s right ,Eurpoe or The USA ??

 

By Brian Parkin and Tony Czuczka


June 7 (Bloomberg) — Chancellor Angela Merkel‘s Cabinet is meeting to tie up a “decisive” round of budget cuts that will shape government policy for years to come, fueling disagreement with U.S. officials who favor measures to step up growth.

Ministers met for 11 hours until early today to identify potential savings of 10 billion euros ($12 billion) a year, after Merkel said Europe’s debt crisis underscores the need for budget tightening to ensure the euro’s stability. A large part of the cuts were agreed overnight, a government official who spoke on customary condition of anonymity said by phone. Talks resumed at 9 a.m. Berlin time.

“It’s not exaggerated to say that this Cabinet meeting will give important direction for Germany in coming years, years that will be decisive,” Merkel told reporters yesterday before ministers met in the Chancellery. She is scheduled to hold talks with French President Nicolas Sarkozy in Berlin later today.

Merkel’s government is reining in its deficit and urging fellow euro-region states to do likewise to thwart a sovereign- debt crisis. The savings risk further alienating voters angry at Germany’s 148 billion-euro share of a European plan to backstop the euro and clash with a June 5 call by Treasury Secretary Timothy F. Geithner for “stronger domestic demand growth” in European countries like Germany that have trade surpluses.

At stake for Merkel is “the credibility of Germany as one of the countries forcing the others to start fiscal tightening,” Juergen Michels, chief euro-area economist at Citigroup Inc. in London, said in a phone interview on June 4. “It’s a very fine line between fiscal tightening and not choking off the economy.”

Bund Yield Record

German 10-year bunds rose, pushing the yield down to a record low today, as concern the debt crisis may spread boosted demand for the perceived safety of the 16-nation currency’s benchmark securities. The yield fell three basis points to 2.55 percent as of 8:52 a.m. in London. It reached 2.548 percent, according to Bloomberg generic data, the lowest since at least 1989, the year the Berlin Wall fell. The euro fell 0.2 percent to $1.1940 at 10:49 a.m. in Frankfurt.

Tax increases, cuts in welfare and jobless benefits and the loss of about 10,000 civil service posts are among the German measures being considered, Deutsche Presse-Agentur reported, citing unnamed government sources. Utilities face 2.3 billion euros in higher taxes if parliament agrees to extend the running time of German nuclear-power plants, the news agency said.

‘No Taboos’

The Defense Ministry said last week there are “no taboos” when it comes to potential savings. Merkel’s Cabinet seeks to cut almost 30 billion euros to 2013, Bild newspaper said June 5, without saying how it got the information.

Germany’s budget deficit is forecast to rise to 5.5 percent of gross domestic product this year. While that’s less than half the 13.6 percent of GDP in Greece last year and smaller than the U.K.’s 11.1 percent for the fiscal year to March 2010, it’s still almost double the European Union’s 3 percent limit.

Germany’s top AAA rating is at risk unless Merkel’s government agrees on deficit cuts and persuades other euro-area nations to do likewise, Kurt Lauk, who heads a business lobby within Merkel’s Christian Democratic Union party, told reporters on June 2. “We’re at a decisive turning point,” he said.

Spain, which lost its top grade from Fitch Ratings last month, has seen government borrowing costs soar to a euro-era record, even after Prime Minister Jose Luis Rodriguez Zapatero announced the deepest budget cuts in at least three decades.

Roubini on Stimulus

While countries with large debt such as Italy should trim deficits and contain wages, Germany should spend more and raise wages to help fuel demand in the euro area, Nouriel Roubini, the New York University economist who predicted the financial crisis, said in an interview.

“Germany can afford having more stimulus not just this year but next year,” Roubini said June 5 in Trento, Italy.

Finance Minister Wolfgang Schaeuble, in an interview en route to a meeting of Group of 20 counterparts including Geithner in Busan, South Korea, said there’s no disagreement “in principle” over the need to reduce deficits, only over the pace at which action is taken.

While “it’s possible that the U.S. could use accelerating growth over time to help them reduce their deficits, in Europe we can’t count on growth alone to mend our fiscal position,” Schaeuble said June 4. “I don’t share the view that reducing deficits and strengthening growth are mutually exclusive.”

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net. source http://www.bloomberg.com/apps/news?pid=20601087&sid=aVGqrlbamDjE

 

 
May 26, 2010Don’t Doubt Bernanke’s Ability to Create Inflation

With the Dow Jones now down 11% nominally from its high last month, NIA has been getting hundreds of emails and phone calls asking if there is any way we could be wrong about the threat of hyperinflation in the U.S. and if indeed deflation is the real problem we need to be worried about. The names Nouriel Roubini, Robert Prechter, and Harry Dent get mentioned to us a lot, with many NIA members asking why these so-called “experts” believe deflation is in our future.

Roubini, Prechter and Dent have been wrong about the overwhelming majority of their economic forecasts over the past decade. When it comes to their latest predictions about deflation, they will actually be right to some extent. We will see deflation in some assets like stocks and Real Estate, but only when priced in terms of real money – gold and silver. In terms of dollars, prices for pretty much all goods and services are guaranteed to rise dramatically over the next few years. Creating inflation is the only thing in the world Federal Reserve Chairman Ben Bernanke knows how to do and is good at.

During the past week, the mainstream media has shifted from saying we are experiencing an “economy recovery” to now saying we are at risk of a “double dip recession”. Nothing fundamentally has changed in our economy. The fact is, the U.S. economy has been in a recession since mid-2000. All government reported positive GDP growth since mid-2000 has been due to nothing but inflation. Our economy should have experienced a depression in 2001 and an even greater one in 2008, but the depression has been temporarily avoided at the expense of an inevitable Hyperinflationary Great Depression down the road.

NIA believes it is impossible for the U.S. to experience price deflation when the Federal Reserve has held interest rates at 0% for the past 17 months. Sure, there will probably be a second wave of mortgage defaults that could cause another round of forced liquidations on Wall Street, but during any future period of forced liquidations, we doubt the U.S. dollar will still be looked at as the “safe haven” it was in 2008/2009. Gold and silver will soon be looked at as the only real safe havens because they are the only assets that provide protection from both a deteriorating economy and massive inflation. Precious metals will decouple from the Dow Jones and we will begin to see gold and silver rise at the same time as the stock market falls.

Bernanke was questioned yesterday following a speech at the Bank of Japan about whether a 4% inflation target would be better than the Fed’s current inflation target of 2%. Bernanke responded that “it would be a very risky transition” if the Fed changed their inflation target, claiming that U.S. inflation expectations are currently “very stable”. (NIA estimates the real rate of U.S. price inflation is already north of 5%.)

Unfortunately, no policymaker in the world is smart enough to accurately control the rate of price inflation through the manipulation of interest rates, and certainly not Bernanke. It’s mind-boggling to us how the mainstream media could believe anything Bernanke says about inflation after how wrong he has been about everything else. Maybe the press has already forgotten that it was Bernanke who in July of 2005 said, “it’s a pretty unlikely possibility” that home prices will decline across the country, “house prices will slow, maybe stabilize but I don’t think it’s going to drive the economy too far from its full employment path”. We are 100% sure that Bernanke will be proven wrong again when it comes to inflation.

The U.S. Dollar Index has rallied from 75 to 87 since December and is approaching its high from March of 2009 of 89. This has given Bernanke the cover to keep interest rates at a record low 0%, but NIA believes Bernanke is misreading these economic signals. When the U.S. Dollar Index reached its high last year of 89, gold was only $900 per ounce. Today, gold is approximately $1,200 per ounce. The fact that gold has held up so strong despite a rapidly rising U.S. Dollar Index, proves that our financial system is getting ready to overdose on excess liquidity. The U.S. Dollar Index has rallied only because it is heavily weighted against the Euro. The Euro is now overdue for a huge bounce, which we believe will send the U.S. dollar crashing while sending gold to new record highs.

It’s not good for us to pay too much attention to short-term volatility in the financial markets. Short-term “noise” often causes investors to second guess what they know is true. In our new documentary ‘Meltup’ (which has now surpassed 441,000 views in 10 days) we said, “If stocks were to see a nominal decline one last time, we will likely see Bernanke shoot up his largest ever dose of quantitative easing, which could turn the current Meltup into hyperinflation.”

We are seeing signs of this coming true already. Washington is now calling for another stimulus. Larry Summers, senior economic adviser to President Obama, has asked Congress to begin drafting a new stimulus bill in an attempt to prevent a “double dip recession”. The proposed size of this new stimulus is so far only $200 billion, much smaller than the last $787 billion stimulus bill. However, we are sure Congress will increase the size of it, especially if stocks continue their nominal decline. The new stimulus bill will likely coincide with trillions of dollars in additional quantitative easing by the Federal Reserve.

Source http://inflation.us/dontdoubtbernanke.html


 

The major difference is that the Americans want to print money and spend

And the Europeans and particular the Germans want to tighten and save and stop waist!

To my mind the most prudent are of course the Europeans but it would suggest that there is a lot more pain heading our way ,with our European partners in contraction mode and the Germans demanding more austerity measures from all the other EU countries I can’t see where the jobs growth will come from

Even when our own incompetent government will be telling that Ireland is now growing again

Without growth in jobs this is just a mirage that soon will fade again.

The Billions that are been poured down the toxic banks toilets will not save or generate jobs

the billions so far have not even stabilized the situation, and with the next phase of the depression now coming down the track at us the government will need to borrow more money to plug even more holes in the toxic Anglo Irish Bank, together with the disaster that is NAMA there is no way we can borrow enough money and remain financial viable as an independent sovereign state !

Somebody please stop this madness

David Mc Williams has a new article ” Kill Anglo to save Ireland” (http://www.davidmcwilliams.ie/2010/06/07/kill-anglo-to-save-ireland) all independent minded people should take the time to read

We cannot afford to just sit back and allow our sovereign nation disappear in an ocean of debt

we owe it to our children and ourselves .


Phase #2 of the Euro-Zone Debt Crisis

Phase #2 of the Euro-Zone Debt Crisis

by Gary Dorsch | may 26, 2010

“A trend in motion, will stay in motion, until some major outside force, knocks it off its course.” For almost fourteen uninterrupted months stock markets around the globe were climbing higher, recouping $21-trillion of wealth since hitting bottom in March 2009. The global economy was pulling out of its worst recession since the 1930’s, led by locomotives in China, India, and Brazil. On May 4th a survey taken by JP Morgan showed that global manufacturing expanded at its fastest pace in six years in April as output and new orders surged to new multi-year highs.

In the United States factory activity was firing on all cylinders, lifting the Purchasing Manager’s Index (PMI) to a six-year high at 60.4 in April, with employers becoming increasingly confident about hiring. Although manufacturing is not a huge component of the US-economy the factory industry is still where recessions tend to begin and end. For this reason the factory PMI is very closely watched, setting the tone for the upcoming month and other key economic indicators.

The US economy added 570,000 jobs during the first four months of 2010. In sharp contrast, just a year earlier, the US economy was losing more than 700,000 jobs during the worst months of the “Great Recession,” which began in December 2007. Still there’s been a worrisome undercurrent lurking beneath the surface – the U-6 jobless rate, including those who can only find part-time work or are too discouraged to look for a job, rose to depression levels of 17.1% in April highlighting the deepening impoverishment of the American middle class.


Still, traders on Wall Street saw the glass as more than half full rather than half-empty. The key numbers were still turning up spades. The combined net income for S&P-500 companies in the first quarter were 46% higher from a year earlier, helping to fuel the S&P-500 Index’s 75% rebound from its recession low in March 2009. Analysts on Wall Street upped their forecasts for S&P 500 profits to grow 29% this year and 19% in 2011, the biggest two-year advance since 1998.

Bullish traders bought increasingly expensive stocks on all dips, comforted by a steady stream of remarks from Fed officials promising to keep the fed fund rates locked near zero percent for an “extended” period of time. So powerful was the hallucinogenic effect from $1.75 trillion of liquidity injected into the markets by the Fed that speculators bid up the Dow Industrials to the 11,200 level, just shy of the 11,450 level – where horror story of the Lehman bankruptcy began.

Yet according to a Bloomberg opinion poll dated March 19th-22nd, there was always a big “disconnect” between the bullish perceptions on Wall Street and the fear and trepidation felt by workers on Main Street. There was great disbelief in the theory that the Fed could simply inflate the US economy to prosperity. Barely one in three Americans thought the economy was on the right track, and less than 10% predicted the economy would be strong within a year. Most American investors plowed their remaining savings in bond funds and missed the “green shoots” rally.

Still, the strategy pursued by the Fed and US Treasury were rather simple – inflate the value of the stock market through any means possible, including massive money printing, pegging interest rates at ultra-low levels, clandestine intervention in the stock index future markets, and jigging the accounting rules for valuing toxic bank assets. Eventually, the “wealth effect” would kick in and consumers would increase their annual spending by 3.5 cents for every dollar of added wealth. The Fed’s QE scheme opened the monetary floodgates driving high grade and junk bond yields sharply lower, and fueling a $5.5 trillion recovery of US-stock values.


But just as US consumer confidence was rebounding to a two-year high, buoyed by the Dow Industrials’ rally above the 11,000-level and US-home prices showing a year-over-year gain of 2%, the first increase since 2005, “a major outside force, began to knock the stock markets off their upward course.” Few traders would realize how the tiny nation of Greece with just 11-million citizens could bring the world economy to the brink of another Lehman-style meltdown.

Few traders on Wall Street took notice of the obscure and thinly traded Greek credit default swap (CDS) markets. There was a sense of complacency about talk of a Greek debt default, with traders reckoning that at the end of the day politicians in Germany and France would ultimately bankroll a massive bailout and prevent panic and fear from spreading to other highly-indebted Euro-zone countries, like Portugal or Spain, and plunging the Euro into a death spiral.

However, lying beneath the surface of the euphoria on Wall Street a ticking time bomb was winding up and getting ready to explode. The villain igniting the fuse was a most unlikely source – the S&P credit rating agency – which usually lingers far behind the credit default curve. Surprisingly, S&P roiled Euro-zone politicians and shocked the markets on April 26th by downgrading Greece’s €300 billion of debt three notches to junk status, at BB+, and thus, derailing the upward trajectories in industrial commodities and global equities. 

In the eye of the storm Greek CDS rates soared towards 1,200 bps, and yields on Greece’s two-year notes jumped to 25.8 percent. Suddenly stock markets in the fastest growing emerging markets in Brazil, China, and Russia were at the gates of bear market territory after suffering steep losses of 20% or more. Crude oil plunged $23 /barrel to as low as $64 /barrel, and there was a 20% shakeout in the copper market. The Australian and Canadian dollars tumbled 12% and 7% respectively amid a flight from natural resource shares and monetary tightening in China.


On May 7th, EU monetary affairs chief Olli Rehn spoke about the need to avoid a Greek default on its debts at all costs. “Little did authorities of the United States know in September 2008 what the bankruptcy of investment bank Lehman Brothers would lead to. The consequence was that the world’s financial system was paralyzed in a way that led to the biggest global recession since the 1930’s. Consequences from Greece’s insolvency would be similar, if not worse,” he warned.

Rhen’s apocalyptic warnings were taken very seriously. Euro-zone finance ministers and central bankers huddled behind closed doors during the May 8-9th weekend working frantically to craft a bank bailout plan before the opening of the Asian stock and currency markets on May 10th. What emerged was “shock and awe” – a 750-billion euro ($1-trillion) bailout package, including standby loans and guarantees that could be tapped by Euro-zone governments that were shut out of the credit markets. Putting the squeeze on naked short sellers the Spanish IBEX Index jumped 15% in a single day and the Euro briefly jumped to a high of $1.3100.

Since May 10th however the “shock and awe” effect has worn-off. The Spanish stock market index has completely surrendered its one-day gain of 15%, and the Athens stock index has retreated to within 5% of its March 2009 lows. The Euro has failed to gain any traction and is still sliding lower along a slippery slope towards parity with the US dollar. While the $1 trillion bailout succeeded in preventing an immediate default on Greece’s sovereign debt, the cost of borrowing for Greece’s biggest banks remains prohibitively high, which could choke its economy to death.

Thus, the focus of the second phase of the European debt crisis has shifted from the specter of a sovereign bond default to a frightful situation where European banks may become unwilling to lend money to the private sector, or could demand higher interest rates or impose tougher collateral rules. In other words, the markets fear a “double-dip” liquidity crunch, which could deprive European companies with junk bond ratings of badly needed funds as banks become more risk averse.

Since May 10th credit default swaps for the Euro-zone’s top 50 junk rated bonds has surged to as high as €625,000 to insure €10 million of debt. That’s up sharply from €460,000 since the $1 trillion bank rescue plan was announced. In fact, the European corporate bond market has been effectively shut down for banks with bond issuance slumping to $2.6 billion in May, down from $82 billion in January.


Amid fears of a liquidity crunch in Europe there are expectations in the gold market that the ECB would respond by ramping up its money printing operations to full throttle, and in the process exerting further downward pressure on the Euro. As of May 21st the ECB had already bought 26.5 billion Euros worth of sovereign bonds as part of its agreement to monetize the debts of the most fiscally irresponsible Euro zone governments. The ECB might end up monetizing as much as 750 billion Euros of sovereign debt, including riskier bank bonds, to avoid a full blown crunch.

After climbing to a record 1,000-euros /oz in mid-May, Gold endured a brief pullback tumbling in tandem with sharp slides in crude oil, copper, nickel, rubber, and other industrial commodities. But gold has proven itself a very resilient metal and highly sought after as the purest form of “hard” currency, shining brightly as a hedge against paper currency devaluations and the monetization of government debt.

The European Central Bank (ECB) has crossed the Rubicon agreeing to monetize hundreds of billions of Euros held in Greek, Portuguese, and Spanish bonds. In the process the supply of Euros in world money markets is likely to increase. The ECB’s efforts at sterilizing the bond purchases are voluntary and have been feeble at best. Furthermore, at the end of the day, there is little chance that Greece’s 2.5 million working citizens can repay 300 billion Euros of debt, while at the same time absorbing 25% wage cuts in the public sector and paying 23% VAT taxes.

At some point Greece’s government would seek to untangle the noose strangling its economy and demand a restructuring the country’s debts, and in a polite way tell its lenders to take a big haircut. Argentina is holding a $20 billion debt swap this month at 45 cents on the dollar, nine years after defaulting on $95 billion of loans. The Euro would remain a very unstable and weak currency. Reports that Beijing is becoming increasingly nervous about its Euro zone bond holdings drove the Euro to as low as $1.2180 and fueled a flight for safety into gold.

source

Gary Dorsch
SirChartsAlot, Inc.

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.

Tag Cloud