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It's Not Just the "Peripheral" European Countries ... Financial Contagion Could Spread to "Core" Eurozone Countries and the U.S.
It's not just the "peripheral" European countries which are in trouble.
As Ambrose Evans-Pritchard reported yesterday:
The
escalating debt crisis on the eurozone periphery is starting to
contaminate the creditworthiness of Germany and the core states of
monetary union.
Credit default swaps
(CDS) measuring risk on German, French and Dutch bonds have surged
over recent days, rising significantly above the levels of non-EMU
states in Scandinavia.
"Germany
cannot keep paying for bail-outs without going bankrupt itself," said
Professor Wilhelm Hankel, of Frankfurt University. "This is
frightening people. You cannot find a bank safe deposit box in Germany
because every single one has already been taken and stuffed with gold
and silver. It is like an underground Switzerland within our borders.
People have terrible memories of 1948 and 1923 when they lost their
savings."
The refrain was picked
up this week by German finance minister Wolfgang Schäuble. "We're not
swimming in money, we're drowning in debts," he told the Bundestag.
While
Germany's public and private debt is not extreme, it is very high for a
country on the cusp of an acute ageing crisis. Adjusted for
demographics, Germany is already one of the most indebted nations in
the world.
(While future demographic trends for the U.S. are not good, for example, Germany's population is even older.)
As I wrote in May:
As the following Reuters chart shows (based on information provided by BIS), France and Germany are the largest holder of Greek debt:
As The Street notes, France and Germany are also greatly exposed to Portugal and Spain:
France's banking sector has the second-largest exposure to Portugal and Spain debt loads, after Germany, according to the BIS.
European
banks have more at-risk assets in Portugal and Spain than in Greece.
European lenders are holding Portugal debt issues of $240.5 billion --
including $47.4 billion by German banks and $44.9 billion by French
firms, according to BIS figures from the end of 2009 quoted in a
Bloomberg report.And as Tyler Durden points out, France Germany and the UK are getting hit with wider credit default swap spreads:
With
a stunning $630 million, $558 million and $370 million in net notional
derisking, France, UK and Germany are the top three most active
recipients in negative bets in the prior week, not just in sovereigns but in all names...Zero
Hedge's outside bet to be the first core country to blow up, thanks to
its massive PIIGS exposure, France, finally made the top spot in net
derisking, with $629 million in net notional, or 189 contracts. The
smart money is now massively betting that Europe's core is done for; as
the PIIGS have demonstrated, the blow out in spreads for the core
trifecta can not be far behind.Given that central bankers
have - for several years - focused on credit default swaps as the most
important economic indicator (see this and this), widening spreads are a bad sign, indeed.
As the Washington Post points out today, the U.S. is not immune:
U.S. banks hold about $133 billion in debt from Ireland, Spain, Portugal and Greece ....
***
A
full-blown debt crisis in Europe could ... also send the euro plunging
against the dollar, making the greenback stronger on world markets and
undermining the efforts of the Obama administration to boost U.S.
exports overseas.
"For now, the U.S. is kind of insulated,"
said Simon White, a partner at the London-based research firm Variant
Perception. But whether it stays that way, he said, "depends on how
deep the crisis goes."
CNN notes:
Americans
will not be spared if there's a recession in Europe, even if U.S. bank
exposure to European government debt is relatively limited.
The
European Union is the second largest market for U.S. exports, behind
only Canada. The EU bought about $175 billion in U.S. goods in the first
three quarters of this year. That's up about 8% from a year ago.
So worsening problems in Europe will clearly be a drag on the U.S. as well.
Niall Ferguson, Marc Faber, and SocGen's Edwards and Grice predicted 9 months ago that the European debt crisis would eventually spread to America.
But the question of what country the "contagion" might spread to next is the really wrong question altogether.
The real question is whether the wealth of the people around the world will continue to be shoveled into the bottomless pit of debts
held by the big banks, or whether the people will prevail and the giant
banks and bondholders will be forced to take a haircut. See this, this and this.
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If the Euro is to prosper it has to show that they are able to make tough decisions when necessary, and not compromise the integrity of associated with any investment currency.
So it is necessary for Greece's Euro partners to expel it from their club, and put it at the mercy of the IMF who have the necessary experience in dealing with delinquent accounts. In the long term it will be of benefit for both Greece and any other weak members of the Euro club.
http://www.financemetrics.com/european-debt-crisis-means-continent-is-on-the-periphery/
With the MASSIVE derivatives market, one default takes out all credit and debt, .....which explains Paulson getting on his knees to Pelosi like someone watching him had a sniper's laser beam dancing on his head. Everyone short of hippy commune living off the land and tribal people in the Amazon will be affected. All wealth goes poof.
My ignorant guess is the opposite of what has been happening with credit and massive money printing has done, blowing asset bubbles worldwide....so not all things will default/deflate at once, not evenly, not like a deflating air mattress, rather is will be sink holes here and there in differnat markets, different commodities/assets, different countries as those with money front run deflation just as they front ran bubbles, until the sink holes span across the land and start merging into one big continent of depression.
"We're not swimming in money, we're drowning in debts," he told the Bundestag.
Actually, you are both. Money is Debt. Money is created as debt with interest. The more debt you have, the more money you have. It's the ultimate short... aka highway bankster robbery of the value from the economic and financial systems of the world.
Why aren't the lot of them, about 1000-2000 people, maybe, that continue to perpetrate this crime against our Constitution, in jail? America is the most prison-happy society in the world... only, if these criminals were locked up then half the current prison population would be released when alcohol and marijuana are equalized. (BTW, tobacco and alcohol are the 1 and 2 "gateway" drugs). so, halve the prison budget and start to fix the ginormous budget holes at every level of government. Who benefits from subsidizing the "drug war"-prison-security-industrial-complex? The corporations that lobby against sane laws benefit.
Maybe then we can stop these insane wars that are decreasing our national security and really just perpetual corporate handouts at the behest of the lobbyists and campaign contribution bribes, which are really just recycled tax payer money. Are we really paying taxes for this system of non-representation?
Nothing about our political system is really functioning due to the corruption of the Constitutional right of Congress to issue money without debt and in service to no one but ourselves. Corporations really have taken over the country. Sad day for us.
If every country is insolvent, who will notice?
Of course, the big problem is that U.S. debt is a black box. No one has the slightest idea how big it is--and there are too few details to guess.
But as long as the clerks in the U.S. are still working, expect the Ponzi scheme to continue.
Did I read that right "The European Union is the second largest market for U.S. exports, behind only Canada" Canada buys more US stuff the the entire EU. I find that hard to believe.
I have the feeling that the US artificially propped up the markets so that the IMF can work on one country at a time. It looked like they wanted to keep the Dow over 10K to avoid a panic here (or maybe as a promise to the IMF). Then I think they got sick of watching the Dow hover around 10K so they propped it up to 11K so they could have some breathing room. But yes, I too believe that after all of the little countries get bailed out then the US will be somewhere in line waiting for their turn to get IMF'd.
The main problem in the World is US insovency. We run such a deficit that we can't even borrow it anymore and have resorted to printing it. Until this stops none of the minor debtors can be settled. As to the US the problem we are having is we are going broke maintaining the post WW II grand area. This is best symbolized in the public mind by our 12 carrier navy and 800+ foreign military bases and the expansion into the middle East directly. We simply can't afford it. Yet our "leaders" won't even broach the problem therefore it won't get solved and neither will these other minor debtors. When I look at the total of the irish bail-out verses the QE2 printing for just nine months alone the comparisson is laughable. The QE2 is at least 6 times as large as the entirety of the irish problem yet nobody, save the Chinese, says a word.
The main problem in the World is NOT insolvency.
The main problem in the World is a monstrous shortage of well-paying jobs and citizens who are educated and trained enough to fill them.
Without that, all the rest is just conversation.
If we were solvent, it would only be a matter of time before we were in this mess again.
If we had well paying jobs, it would only be a matter of time before we were in this mess again.
The crux of the problem is due to our political and legal systems. Solve those correctly, and we won't be in this mess again.
You can start by reimplementing Glass-Steagall, and throwing the current financial fraudsters in jail.
Until that happens, the rest of the system won't be reformed. And much more would remain. But that would be a good start.
after spain, comes the big one:
it's understood that hollywood
sells californication
http://www.youtube.com/watch?v=JQYJRw4R4-Q
As Ambrose Evans-Pritchard reported yesterday:
As I wrote in May: (more like pasted a graphic)
As the following Reuters chart shows (based on information provided by BIS), As The Street notes,
As Tyler Duden points out,
As the Washington Post points out today,
As CNN notes,
This is the worst Contributer post yet...
No actual content. Just a copy and paste job.
What no call for a "revolution" that you can paste and copy?
....there is just SO MUCH "information traffic" these last few days that EVERYTHING is buried, trivialized...amazing..
"refudiated....." http://voices.washingtonpost.com/44/2010/07/palin-invents-word-compares-...
"refudiate" everything
http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html