Portugal recently. It’s not a pretty story, but well worth reading. His
conclusion is that Portugal will follow Ireland very soon. AEP ends his
piece with:
Any better ideas out there?
I will give it a shot. But first let me say that I do not believe in
plans that push problems down the road. I think we would all be better
off to let nature rule on the economies. We have already had far too
much intervention. Between bailouts, dangerous fiscal policies and
downright whacky monetary policies it is hard to determine what is real
in the global economy. A good chunk seems to be on permanent life
support. That said:
To address the European sovereign debt problem a very big bazooka is
required. It is a trillion dollar (equivalent) problem (including Spain,
but excluding Italy). No one has that kind of money. For there to be a
“solution” to the EU debt problems there has to be a new Brady Plan. It
would require cooperation and involvement by all of the big global
players including the IMF, Switzerland and China. It would require
sacrifice by the countries affected; there would be costs to all EU
countries. Lenders and bondholders would have to pay a price.
The Brady Plan relied on zero coupon bonds to securitize the principal
of a sovereign borrowers debt. In 1989 Mexico restructured $50 billion
of external debt. Holders got a new instrument in exchange for their
un-payable old ones. The new bonds had an interest rate that was both
favorable to Mexico, but still profitable to the banks (Libor + 13/16th
or a fixed rate of 6.5%). The principal of the new bond was guaranteed
by a 30 year zero coupon bond issued by the US Treasury. Over a short
period of time Mexico’s problems went away and they prospered for many
years (so did Brazil and a number of others). Mexico was no longer faced
with any rollover risk. The principal had been defeased. They had a
stable/predictable debt service cost of the old debt.
It is very hard to recreate the Brady Plan in 2011. The simple reason is
that interest rates are too low and zero coupon securitization would
cost too much. Outside of the market rate restriction there is the
question of who would be the issuer of the new zeros? The USA is not the
right answer this time.
In 1989 30-year interest rates were 9+%. Using the miracle of compound
interest a 30-year Treasury zero cost only 9.5% of par. Mexico was able
to secure the principal on $50b of debt at a cost of only $4.5 billion.
Today that zero would cost closer to 30%. Two solutions. The zero must
be 40 years and the implicit interest rate must be at 6%. The present
value of that theoretical zero is $9.72 today. Using this number, $1
trillion of sovereign bonds could be secured with approximately $100b.
That is progress.
Who would be an acceptable issuer to the marketplace of the zeros? My
candidate is the IMF. The IMF would love to issue 40-year bonds at a
fixed rate of interest, but they most certainly would not be willing to
pay 6% to achieve it. A fair rate for this today would be 4.5% so there
is a cost of 1.5% that has to be addressed. The cost in the first year
comes to a manageable $1.5b (.01% of EU-GDP). But that miracle of
compound interest works in reverse as well. Over the 40-year period it
comes to a total of $81b. Who would pay this subsidy? In my opinion the
cost should be allocated among the EU members. I propose that it be done
annually, on pro-rata basis based on GDP. Yes, that implies that
Germany and France would carry the heaviest weight. But they also have
the most to win (and lose). Germany’s cost would be ~$500 mm in 2011,
~$30b over forty years. What would the alternative cost? Many multiples.
The next hurdle: Assume that Greece, Ireland Portugal and Spain are in
need of a $1T recap. Assume the percentages of that are Greece-10%
Ireland 10% Portugal 5% Spain-75%. Assume finally that the cost of the
zero is 10% of par. You get these capital requirements to initiate the
restructuring:
Greece=10b
Ireland=10b
Portugal=5b
Spain=75b
Total=100b
These are daunting numbers. Coming up with this much money is essential
to the transaction. This will prove to be the thorniest part of the
“fix”.
Each of the countries has reserves that could be used to fund a portion
of the capital required. For example, Spain has $25b of reserves
available. Reserves are necessary for any country to manage liquidity. A
trouble borrower like Spain must have adequate reserves, therefore the
amount that each country could come up with is limited. However, post
the proposed restructuring the countries will not have any maturities of
debt. Their re-financing of future maturities will have been largely
eliminated. Therefore they can manage with a lower net reserve position.
I believe that each of the countries have the capacity to fund 10% of
the required capital. That still leaves a very big hole.
$90b is not such a big number these days. This amount could come from
the big surplus countries in the EU. The problem that I see is that this
approach creates a political stumbling block. This money could also
come from the IMF. But again, I am concerned with the optics of over
reliance on the IMF. I would prefer to see that this money is raised
from sources outside of the EU/IMF. My two candidates for this are
Switzerland and China (the “S&C” loans).
Both countries have very deep pockets of reserves. Coming up with the
$90b is not an issue. They both have big stakes in the outcome. Yet,
selling this will be difficult. I point again to the fact that post a
restructuring the credit profile of the countries will be dramatically
improved. Their ability to service the S&C loans should not be in
doubt. Therefore the loans are “money-good”. That said, it may be
necessary for a broader EU guarantee on the S&C loans.
China would not want to do this. They have plenty of cash, but they may
require trade concessions as an inducement. Should something like this
happen China would ascend to the top of the list of global Kingmakers.
This would blunt some of the criticism that they face on the currency
issue. How much would they pay to buy some peace on this issue? Plenty.
Switzerland does not want to do this. Again, liquidity is not the issue;
it is politics. In my opinion it is high time that Switzerland step up
to the table. I do not want the Swiss (or the Chinese) to take risks on
their reserves. I want them to use them to facilitate a broader
solution. The Swiss have already spent massive amounts in an attempt to
stop the CHF from appreciating against the Euro. If the EU blows up the
CHF will soar. This outcome would be broadly negative to the Swiss
economy.
I want another role for Switzerland. I want them to be the fiduciary
that manages the financial paper work. There is no cost to this; they
might even make a buck. Their role would go a long way toward giving the
program the necessary respectability.
I feel very strongly that Switzerland must get involved and be part of a
solution. They have had a free ride for a decade. It is now time for
them to step up to the plate. If they resisted this responsibility I
would like to see the EU retaliate with a broad increase in tariffs. A
carrot and a stick.
Now the market side of this: I would propose that an exchange offer for
new Capital Protected Bonds (“CPBs”) be voluntary. Most of the debt is
held by banks. The fact that they would have no future capital risk
would mean they could leave the bonds on the shelf forever and never
face a write down. I would propose pricing on the CPBs to be close to
that of Germany. That concessionary rate is justified as there is no
principal risk.
If a holder of a sovereign Spanish bond chose not to participate in the
restructuring they would not get paid cash at maturity. They would get a
new 5-7 year bond (the “Exchange Bonds” or “EBs”) that have a yield set
at EURBOR plus 1. There would be a market price for the EB paper. The
holder of the original sovereign bond could sell the new EBs for cash.
This would probably imply a loss. Tough luck. If they want to avoid a
potential loss they have the alternative to participate in the CPBs.
This ties the knot on virtually all existing debt. Either it is rolled
into the CPBs or it is exchanged for the new EBs. Functionally this has
the effect of subordinating all of the existing debt. The countries
involved will have “clean” balance sheets. They should be able to fund
existing trade and current account imbalances from the market. Should
that prove to be a trouble spot I would consider that there be EU
guarantees on the new working capital debt. I do not think this step
will be necessary.
The banks will hate this plan. I say, “tough luck”. They are
collectively part of the problem and therefore should be part of the
solution. There is a silver lining for the banks. The new securities
(CPBs and EBs) will create a whole new trading opportunity for them.
Give them something new to trade and they will shut up. I would not
tolerate much opposition from the banks.
Summary
-This proposal avoids all losses to current holders of trouble sovereign
debt. It restructures liabilities for many years. It could eliminate a
substantial portion of the principal indebtedness of the borrowers. The
portion that was not exchanged for CPBs would also be automatically
pushed forward by a significant period of time. Debt service cost would
be stabilized. Rollover risk will be eliminated.
-There is no incremental cost to the IMF.
-China and Switzerland have to step up to the global stage and play
their role. They face little economic risk from this proposal, they
would benefit from the stability/trade deals that would follow.
-The troubled borrowers would still have to face up to the need to
reduce deficits. The amounts and pace of those adjustments will be less
draconian than those that the IMF has currently required. While I doubt
the countries involved would rejoice at this outcome it is far better
than any other alternative they are currently facing.
-Note that there is no role for the USA in this proposal. Very
deliberate by me. The US has no resources, no moral authority given its
debt profile and its involvement would likely prove counter productive
given the political gridlock that is soon to envelop D.C.
I'm going to have to read through this a few more times, but at face value it seems like a pretty workable near-term solution to resolve the current debt-based gridlock in Europe. I do, however, think that the US could have a role to play but it requires the Fed to back away from yield manipulation of longer dated bonds.
In the longer term, this plan doesn't resolve the underlying problem that created the current situation in Europe (the Euro), but a plan like this is necessary as a stabilizing factor before meaningful long-term restructuring can be implemented. (See above post for my thoughts there).
Like a patient with a heart condition and the flu. He needs open heart surgery, but if he goes onto the operating table with the flu he'll probably die. The flu must be brought under control first, then the surgery can begin.
Looks like a good suggestion Bruce. Now I'm going to go away and think for a few days.
The market already creating a solution;Gold will rise
until it covers the total money supply,like it always does.
Gold was and will be the one and only debt eliminator,until
then paperbugs will keep on trying to fill holes with bigger holes.
Creative effort Bruce, but it does nothing to encourage good behavior in the future or reign in the madness in derivatives. Anyone trading over the counter, infinite counter party risk, crap deserves to have their heads handed to them.
I favor bankruptcy for any number of reasons, starting with rule of law, getting prices right and finally letting incentives and disincentives function properly. Free markets are getting trashed everywhere. We're all some sort of commie/socialist ponzi now.
What will happen is some sort of two tiered Euro, one for the productive north, another for the pathetic south. The German idea of gradually increasing haircuts could restore some sense of order and sanity in what will otherwise be an endless daisy chain of crises.
They won't split the Euro. The whole edifice will burn to the ground before they admit defeat. The problem with a North/South Euro is it admits the Euro as a project failed. the next step will be the Germans asking why they can't have the DMark back. In essence its a reduction of power form the EU, and it's the nature of governments to every centralize and gatherer more power. What is more likely is the EU ramming though a non member voted constitution change to allow an EU treasury and greater taxing/bailout powers to the EU itself. Germany will howl, but ultimately will do nothing. The current gov is pro EU and much damage would be done before there would be a gov change, indeed should a strong anti-EU movement be started in the more solvent parts of the EU I would expect them to be labeled as fascist and warmongers immediately. There is no mechanism to leave so if they are extra dastardly I would put in a provision banning leaving in the above mentioned constitution change. One is already on deck to formalize the bailout mechanism, why not make it a doozy?
What the EU crowd want is a "United States of Europe" with a common currency, common laws, single government, lightweight borders and common language. On the one hand it can be viewed as a noble objective, one that fosters longer term peace in a historically war-ridden region. On the other hand it can be viewed as a naive and futile attempt to eliminate the diversity that makes Europe interesting.
They will never abandon the Euro but, as it stands, they put the cart way before the horse. The U.S.E. currency can't work while Europe still insists on being Europe, all it does is amplify international hostilities (by creating economic polarization), which is against a core objective of the EU (but enjoyed by Eurocore corporations).
If all this continues without meaningful debt-restructuring then it's inevitable that people will get violent. When that happens, the Euro will be dropped by multiple EU members. It will not be eliminated but it will revert to the ECU (preceded the Euro), which is a constrained European version of an SDR. If the Euro crowd grow brains and actually allow the ECU to operate freely (the way it should) instead of trying to artificially control the relative valuations of currencies within the basket, then this is a solution that would actually work very well for Europe.
I've written about this before. Allow member nations to revert to their old currencies, re-open the forex markets and ensure that each nation allows a truly floating exchange. Meanwhile, re-instate the ECU but do *not* set valuation constraints on the component currencies. Adjust the weighting of each currency *automatically* and daily based on current open market exchange rates (or an independent stable metric such as gold) and GDP. The ECU can be used as a convenient and highly stable trading currency by entities that are multi-nationally active.
The ECU worked quite well in the past but ran into trouble due to men in suits trying to maintain currency valuations at unnatural levels. Soros saw an opportunity and went for it, taking down the BoE. Had the ECU been allowed to operate freely, this wouldn't have happened.
What is absolutely amazing (because of the stupidity involved) is that in response to the trouble caused by the ECU being too static, the PTB decided to make it even *more* static and introduce the Euro! And here we are. What a bunch of clowns.
http://support.instaforex.com/en/index.php/Chapter_19_George_Soros:_stor...
The Europeans would be extremelly naive, borderline delusional to hold this kind of views, considered their past history and the data at hand. US Americans no so much as they only knew the last paradigm.
Traditionnally, the Western world have managed its potential internal issues by growing stronger enough to fleece exteriour groups, transfer wealth from these exterior groups to buy internal appeasement (the only paradigm the US has known so far)
Still, the Europeans can not ignore that up to the 18th century, in Italy, for example, the common situation was not different from what is happening in US black ghettoes, with furious battles going on from one street to another, one block to another.
Up to the end of the 19th, in Europe, it was quite common for young villagers to band together to go and fight the other young villagers.
The UK tried to capitalize on the spirit by enlisting people from the same village in the same division. Up to WWI, when casualities became so high that villages were sent with news of 30 of their own were killed in a day, breaking morale and leading to question commandment.
They then adopted a mixing conscription system, where people were sent in different corps, this to minimize the effect of mass casualties. Better 30 villages receiving one casualties news than one village 30.
European countries have quite a lot of bad blood on their hands. While some of the countries they fleeced to achieve social peace are totally no threat, the idea that China and India might adopt one day the same way as the Western world give nightmares to some Europeans, especially as this time, China and India will act with the fairness of retaliation.
That is what the Europeans are looking for, growing big enough not to face pay back days.
Europeans, considered the data they have thanks to their history, would be extremelly delusional to take the route of diversity to explain their internal chaos.
Well said.
But can there be a debt restructuring? We are not talking about tiny sums here. And it's common knowledge that many nations cheated to hit the Maastricht treaty. It was revealed here months ago about the chicanery that Italy did and perennial favorite Greece. There was not enough due diligence for Maastricht, and I'll point out I don't think a single Eurozone nation actually is in compliance with it, not even Germany.
The real question is what with the EU bureaucrats do? I'm inclined to think they will try to use the crisis to push for more power, oblivious to the feelings of the people. There is no mechanism to leave the Eurozone or the EU and if that also leads to some uncertainty. The first nation out will be taking a lot of risks, after all changing ones currency at the best of times is chaotic. Changing when there is a global ponzi crisis, and having to do so under the baleful gaze of Brussels would be doubly hard.
I'm not familiar with the ECU to make a meaningful comment, but I imagine competing currencies would be fine along with the free flow of goods. It's really just an accounting system. Even using the DMark would not be terrible as a unit of exchange as the Germans were paranoid about the DMark losing value so if history repeats it would be stable.
My opinion (like yours I assume) on economic agreements and targets is that they aren't worth the paper they're printed on. A complete load of crap. Most nations will fudge their numbers particularly when there is an incentive to do so.
This is why I insist (each time I talk about the ECU) that there be no twiddling by men in suits, particularly if those men are bankers, economists or politicians. Leave the open forex markets to decide the relative strengths of economies because, although they are imperfect, they do a much better job that anything else. We'd all benefit if central banks would just stay the hell out of it, but as multiple interventions showed throughout the year, they just don't learn, even after getting their asses handed to them on a plate each time.
As for the EU bureaucrats, I met quite a few in Germany (the social circle of my profession occasionally mixes with theirs). Hardly a bad word to say about them, they're good people, just tragically naive about what goes on in the heads of the lower classes (with whom no mingling occurs).
My experience with Europeans on the street is that, in general, they are far more savvy about political and economic matters than Americans. They have to be; the nature/history of Europe demands it.
So bureaucrats can try to make a grab for further power but I'm pretty sure there will be violence as a consequence. The question is just how much. The more the EU elite try to force unity down the throats of peons, the more nationalism they'll get.
It's a bit depressing.
The EU is an evil behemoth and a gravy train of huge proportions.
The EU regulations make fishermen fish with quotas of a certain fish and if other species are caught in the nets they are thrown back into the sea dead.
This has now gone on for years and the seas are emptying.
they build themselves grand parliaments and refuse the people referendums on membership.
it is an evil construct but will be propped up ad-infinitum by the ordinary taxpayer.
Excellent thoughts. My solution (less than 2 cents worth due to deflation), is staring us (them) right in the face.
EU members England and Switzerland retained their own currencies (for reasons now obvious), while other countries petitioned to join the EMU. Why not allow EMU membership to be something that comes and goes, while EU membership remains. If a country mismanages its affairs, it converts back to its old currency. After you've mended your balance sheet, you can reapply to join EMU again.
All manner of instruments (bonds, stocks, bank accounts etc) would convert at 1:1. Then the offending country would be in position to clean up its act. Hopefully, by nationalizing banks quarantining toxic assets, and spinning off new heathy organizations. Floating the new currency is essential part of reestablishing that health. Yes, foreign bond holders would be paid back in a depreciated currency, but elimination of debt can only be delayed not avoided, and wholesale depreciation is much fairer than selective 100% defaults.
While this might work financially, politics has always been the problem. I think the EU and EMU are fatally flawed and are doomed. Mostly because they forgot to include democracy in the constitution (oops). The EU smacks too much of an elite ultra-socialist dictatorship (back to the USSR). And Europe has LOTS of experience with despotic monarchies and dictatorships. And though they seem to quietly tolerate erosions in liberty, history suggests there are limits to their tolerance better left untested. The loss of the EU and EMU will be an enormous blow to the "intellectual elite" that are steeped in a Marxist concept of human behavior (the average person is so stupid that he must be taken care of by an all controlling welfare state run by genius bureaucrats), a terrible idea we spent most of the twentieth century discrediting.
Tough sell Bruce. The only plan I would support is the full elimination of the credit/fiat ponzi system, in total. No nation has the right to live beyond it's means and dump debt onto future generations.
Say one knew that they wanted to attack a presently friendly region economically at some point in the future.
The region had a diverse and robust decentralized economic system, causing it to be a "Hard Target"
By coaxing those decentralized systems to form a single system, your attack efficiencies have multiplied hundreds of times.
Making it possible to take down the entire region at once... Instead of having to attack 5 or more disparate systems all using different mechanisms.
Simply.... Setting up the dominos for a cascading fail.
Solution: Withdraw all your savings and checking accounts, in cash, in full, on December 7th. Worldwide. Take every single fucking bank down, every fucking one. Fuck these "masters of the universe". I'm done being a slave to their system.
Bruce, I think a lot of us have been trying to rethink how to make this thing still work, and this isn't meant as a disrespect of your effort, obviously very well thought out. At the end of the day, the problem is that the very core of the very concept of debt itself is immoral, and leads to human misery. The borrower is slave to the lender. This has been true since the beginning of ethics. Bonds are instruments of slavery.
WTF makes you think that things aren't already occurring according to plan?
A really, really, well thought out plan.
Just because we can't see the obvious outcome of the plan, doesn't mean it doesn't exist. It merely means we are unable to concieve of it.
Perhaps our "black swan" is anothers intended consequence?
If the planner(s) were true "out of the box" thinkers the results may look quite unconventional to any conventional thinker.
Just something to consider.
My plan (same one from 2008): LET THE BANKS FAIL.
Plan? What plan? Arrogance, ducttape and bailing wire do not a nation-state make.
Plan:
Trash the Euro.
Re-institute sovereign currencies, letting each survive according to its means.
Continue pretending that the EU is an effective supranational entity.
Rube Goldberg, please call home. Too much intervention is followed by....much more intervention. DEFAULT is the simple answer; then some of these countries might have an incentive to actually behave sensibly.....for example, Spain not wasting billions on worthless "green" energy boondoggles.
Wait you are actually saying this plan has no risk? How?
"Hey Switzerland and China! See the infinite ponzi scheme we have built up? Say would you mind backstopping this house of cards for us? We promise we are totally good for it...sure we need to restructure now but that's a once in a lifetime event. You can trust us"
China/Switzerland would have insane to do such a thing. Sure the ensuing chaos might cause them problems, but it's not like putting their necks on the line will solve anything long term. There is such a thing as cutting ones losses and identifying suck costs. Because to execute the plan the EU would need to give financial oversight of some kind to Switzerland or China to make sure that they don't get into to much trouble. Can you really see the EU agreeing to that or the member states?
"Hey Germany, your neighbors got in trouble so the Swiss will be watching you now, the Chinese too" The alternative is China/Switzerland to take it on blind faith. Would you invest with blind faith when you have little recourse in a bankruptcy?
Also you mention the US is not involved but the IMF is. Correct me if I'm wrong but isn't the IMF the biggest funder?
I like your writing but this sounds like just another plan to put a few more years worth of legs under the ponzi. It's not like it will fix the imbalances the currency union has caused. Portugal and Spain just won't become competitive because of this.
In this plan the IMF is not a lender. They are a borrower. They facilitate the transaction by issuing zeros at a FAIR MARKET RATE.
The US is 17% of the IMF, any loans that they make are funded 17% by the USA. So you are quite correct on this.
Again, The IMF loans no money, The US is not on hook for a penny.
Well I'll give it to you that the IMF is a good leg breaker. Though bringing the whole IMF riot thing to Europe might cause problems, but that might happen anyway. I still think it's a fools errand to expect Switzerland/China to kick up. They might be more willing to be involved if the IMF went on record they would squeeze ever last penny out of the debtors, or SOP. But I would rather default then let the IMF take over, but that's just me.
But assuming the IMF is the one sent in to squeeze as is their nature. With EU law what is to stop a flood of the most productive in those societies to running to the more solvent EU nations and further exacerbating the productivity gaps?
Agreed. It is incredibly arrogant to insist that the good money be forced to help out the bad. And it doesn't even solve the problem, but merely kicks the can down the road. This strikes me as a variation on the Bernake approach, and it will undoubtedly work as poorly.
http://dailybail.com/home/video-sir-evelyn-de-rothschild-on-the-global-financial-crisi.html
Sir Evelyn
"...and if you're safety conscious, you hold onto your gold bars..." I only wish I could take his advice.
At least in Ireland this debt subsidy was all very predictable as since the days of "Yes Minister" a independent civil service has been run down and replaced by outside actors.
Rothschild replaces Merrill as State's adviser on sector crisis ...
When a great river changes its course, all the pitiful sandbags in the world only delay the inevitable. Of course if your business is selling sandbags, it seems like a proper "solution", no?
Hi Bruce.. terrific idea, well thought out. IMHO getting such a package together, getting all the players to agree and setting who has what authority, then getting this thru the various parlaiments would take a good amount of forward planning and at least 2-3 weeks to agree and implement.. and that would be if all went smoothly. When things blow up, the markets move at warp speed. I fear that such a complicated plan would only be considered in the heat of a crisis, and its implementation far too late. Your plan requires serious forward thinking.. something that all of these crisis' has proven is in exceedingly short supply.
I have three issues with the idea, yes, in general, using Treasury money to offset private losses. Secondly, the comparitive currency effect particularly while in a $-thin environment- tanatamount to throwing in more junk. But mainly that these countries do not have a plan for substantial employment generation. There isn't anything other than a 'wealth-effect', that would, in my mind, justify a zero-coupon bond. Yes, things are bad. Yes, they need money. But there haven't been any regulatory changes which would facilitate a more vibrant economy - which means not only are they not ready to productively channel an influx of money but also that these flows would just sink into the sand.
Bruce,
Congratulations on your thought-provoking ideas!
yea, let those fucking banks FAIL !!! I'M NOT PAYING NOTHING TO NOBODY !!! I went my entire life paying cash, or simply not purchasing an item if I didn't have the cash !! I refuse to be a debt slave when I personally didn't go into debt. What right does any government have to plunge me & my kids & grandkids into debt ........... Oh, I forgot all about the CONSTITUTION of the U.S. ........ WE'RE NOT EVEN SUPPOSED TO HAVE DEBT-BASED CURRENCY ISSUED BY A CENTRAL BANK, WE'RE SUPPOSED TO BE ON ASSET-BACKED MONEY! WHEN WILL THOSE IN POWER PAY FOR TREASON .
Lynnebee,
Calm down. This will not cost the US or you a cent. We would have no role to play.
WRONG! Directly no, indirectly yes. The Ponzi is a world-wide Ponzi, everyone ownes everyone else's debt. The longer the Ponzi is propped up, the worse the total cost will be (including the US)
Excuse me if I'm wrong, but doesn't the US provide a significant share of all IMF funding?
See my response to similar question above.
There is no IMF/USA exposure here. I did that very deliberately to address your concerns.
" Calm down. This will not cost the US or you a cent. We would have no role to play. " ...... that's what my kids & grandkids say to me all the time ! I've become distraught over the whole mess & fear for all of us, the no-jobs stuff, the currency destruction stuff, the corrupt government stuff ........ I almost wish I didn't know the things I know......... I'm just a basic mom & grandma who sees our futures being flushed down the drain........... but, thank you for bringing me back to earth ........ I'm going Christmas shopping, but with a reduced budget.
Unregulated credit default swaps and derivatives will have a field day and break the banks and government treasuries.$100billion compared to $700 trillion is nothing. The casino is doomed and should be to get some sense to this madness. Perhaps the real problem is not the financial system per se, but nations attempting to overcome a global trading system stacked against the developed economies. The more we leverage the more capital flows to the cheap labor countries creating unemployment and asset depreciation. Bearded Ben and Bruce dont have the answers
Won't solve the structural competitiveness issues within the EMU. Only fiscal transfers can do that. Might as well start now if they are serious about holding the EU together.
There is a very serious possibility we have a BANK RUN December 7th. Please watch and share this video with the people you care about (http://youtu.be/U0KGv3Xw0KY). Thank you.
Anonymous-
This is really scary guys, people are already talking about it and it has spread from France to the UK and now coming to the United State.
Do you ever pray for a plane crash, or a mid-air collision?
The most logic outcome of rising yield spreads is a common eurobond , a kind of EU/eurozone Treasury.
Interesting idea with some merit. Germany and more scrupulous countries would be hurt by this, but may be worth it to save common currency.
I would not invest in it under current circumstances, but I am repudiating debt before the debtors repudiate in general. There are investors that would put their money there.
Just what the system needs, more moral hazard and punishing the more responsible parties :)
Also doesn't help that Germans in general are less then enthused about hte Euro. Turns out they liked the DMark and are not huge fans of paying for their neighbors mistakes, who knew?
Their neighbors biggest mistake was to think they no longer had a thousand year reich in their minds. To late now.
What?
Have you looked at the situation? Germany is the main funder of the EU, it's the big dog LOSER in this exchange. Sure they get to export goods, but hell they were exporting goods while they still had the DMark! And all the member nations got to issue bonds as if they had the DMark not their base currency.
I'm pretty sure the idea of conquest is not to endlessly give one's labor and treasure to the country you have "conquered". Their dark and evil plan is to bankrupt themselves bailing out their spendthrift neighbors...wow when did evil get so dumb?
"Ha! I totally blocked your fist with my face!"
No, the evil plan is to bankrupt their neighbors. Lure them with a free ride to a utopic land with fairies, unicorns, monetary unity, and a thousand years of prosperity for all. Just sign over your souls, your gold, the little industry you have...oh, yes and your women -need to keep those FKK clubs running!
And now Germany acts disgusted with the "corrupt serial liars" they have as partners. Has the CDU finance scandal been erased from history by the ministry of truth?
From wikipedia:
Investigations by the Bundestag into the sources of illegal CDU funds, mainly stored in Geneva bank accounts, revealed two sources. One was the sale of German tanks to Saudi Arabia (kickback question), while the other was the privatization fraud in collusion with the late French President François Mitterrand who wanted 2,550 unused allotments in the former East Germany for the then French owned Elf Aquitaine. In December 1994 the CDU majority in the Bundestag enacted a law that nullified all rights of the current owners. Over 300 million DM in illegal funds were discovered in accounts in the canton Geneva. The fraudulently acquired allotments were then privatized as part of Elf Aquitaine and ended up with TotalFinaElf, now Total S.A., after amalgamation.[citation needed]
Kohl himself claimed that Elf Aquitaine had offered (and meanwhile made) a massive investment in East Germany's chemical industry together with the takeover of 2,000 gas stations in Germany which were formerly owned by national oil company Minol. Elf Aquitaine is supposed to have financed CDU illegally, as ordered by Mitterrand, as it was usual practice in African countries.[citation needed]
Kohl and other German and French politicians defended themselves that they were promoting reconciliation and cooperation between France and Germany for the sake of European integration and peace, and that they had no personal motives for accepting foreign party funding.
Any joe sixpack in the PIIGS can piece two and two together and see how Germany has benefited from this deal. Are you saying Spain was not exporting while they still had the peseta? Italy the Lira? The PIIGS industry has been the object of a controlled demolition, while Germany secures its position to further continue with their expansionist agenda.
Many foretold from the start this was not going to work as advertised.
Countries VOTED against membership, only to have another referendum shoved down their throats, and another one...until they got the result they wanted.
Why did they stop the referendums AFTER they had joined? They could as well change their minds after joining, couldn't they?
Why was there only forced referendums to JOIN, until they said YES?
What "treasure" have the conquered received? Euros?
This has been part of the plan from the beginning. And so far, it's working.
Yeah the EU was forced down everyone's throats including the Germans. Look it up, they didn't want to join and they didn't want the Euro. I've talked to real live people who were there on the ground. The introduction of the Euro brought massive inflation to Germany.
You are confusing EU bureaucrats with the Germans. Some EU bureaucrats are German, not all Germans are EU bureaucrats.
The EU is the new Soviet, I fail to see how Germany profits from the bailouts. Having to bailout all your neighbors is a bad business model if it's meant to boost exports for a couple years. Explain to me how this can be profitable.
Now if you just want to blame Germany for all ills from the dawn of time be my guest, but historically they pretty much get the shaft constantly baring a tiny German elite. So when Germany gets bankrupted by this will that also be part of the secret German plan?
Also look at the instability of the currencies of a lot of the EU member states. It's not like the Italian Lira was stable. But that was probably part of a secret German plot as well.
Here's a better idea - let the banks fail. Keep the sovereigns separate from the banks. Let the sovereigns issue non-debt denominated currency, like the greenback was, and capitalize a few banks. Let debt implode; have a jubilee. Max pain for a year or two, then we all start living within our means. We don't need financial overlords like the IMF and their debt-slave ways. Let them fail too, right alongside every central bank. Ah, heaven. Therefore, I don't expect we'll ever see it.
+100T
That is the outline of the only solution that resolves the fundamental problem and doesn't just kick-the-can a few feet farther. As you say -- for many reasons it is HIGHLY UNLIKELY.
"To address the European sovereign debt problem a very big bazooka is required. It is a trillion dollar (equivalent) problem (including Spain, but excluding Italy)."
And if Italy slips (more than it already has)?
in diplomacy it's called "ripeness." great plan but..."we're dealing with more than pride here." truly "this is the Wealth of Nations" we're dealing with here and what you are offering is treating Europe like Latin America which clearly it is not (although I think the idea that Brazil as a 3rd world country is patently ridiculous now and I'll never understand why Argentina wants to act like one when it hasn't been one since the 1920's.) We shall see--so many diplomatic venues the US could be using (the Organization of American States comes to mind)--perhaps we are simply not understanding that the US really is the 800 lb gorilla and acting accordingly. great post.