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Today's Op-Ed By Mohamed El-Erian
It's 3 pm on a holiday. It means it is time for another Op-Ed by Mohamed El-Erian. Tomorrow: the same. Day after: the same. Etc.
Europe Is Running Fast to Stand Still
- Enlarging the lending resources of Europe’s rescue fund would
do nothing fundamentally to address the unsustainable stock of debt and
its adverse impact on growth, investment and employment. - More people are recognizing that the time has
come for another approach, one that involves the orderly restructuring
of some European sovereign debt on terms that allow a meaningful chance
of re-accessing markets in the future at sustainable rates.
This article was originally published on www.ft.com on January 17, 2011.
The sequencing of Europe’s debt crisis is depressingly similar – the
plot stays the same, with a slightly different cast depending on the
country in the spotlight. Yet, judging by the run-up to the meeting of
European Union finance ministers in Brussels on Monday, European
officials seem intent on repeating it over and over again.
Last week, higher borrowing costs raised concerns as to whether
Portugal could successfully tap the market in a regularly scheduled
government bond auction. Fearing that the country would join Greece and
Ireland in both losing access to new market funding and facing
alarmingly high risk spreads on existing debt, the official cavalry
jumped into action.
Portuguese officials sought to reassure the markets of their fiscal
credentials. The EU talked of enhancing the flexibility of its rescue
funds. The European Central Bank stepped up its market intervention,
buying millions more Portuguese bonds. To make absolutely sure that the
auction would succeed – and it did – China and Japan signalled their
willingness to buy European debt instruments.
This is the same game plan that was used for Greece and Ireland. The probability of success is the same – very low.
You do not solve a debt problem by adding new debt on top of old
debt. Yet it seems that European officials are fixated on this approach.
How else would you explain the two main proposals discussed ahead of
today’s meeting – namely, to enlarge the lending resources of the rescue
fund and enable it to buy existing debt?
If implemented, this would
do nothing fundamentally to address the unsustainable stock of debt and
its adverse impact on growth, investment and employment. Instead, it
would facilitate an even larger and quicker transfer of debt from the
private sector to the public sector.
Rather than fantasise that a liquidity approach can overcome a
solvency problem – and it will not – European officials should spend
time discussing the cost of their “active inertia”. In doing so, they
would quickly identify four issues that are further complicating the
region’s debt crisis.
Continuing with an ineffective approach turns regularly scheduled
bond auctions into dramas. It accelerates the private sector’s exit from
peripheral debt markets, meaningfully limiting future demand. It pushes
creditors to ask who is next, fuelling the migration of disruptive
contagion up the European credit quality curve. It gradually weakens the
integrity of the ECB and is likely to intensify the recent
under-performance of German bonds.
More people are recognising that the time has come for another
approach – what this week’s Economist magazine calls “Plan B”. This
involves the orderly restructuring of some European sovereign debt on
terms that allow a meaningful chance of re-accessing markets in future
at sustainable rates. This would be accompanied by measures to enhance
growth prospects in highly indebted European countries; ring fence the
other, fundamentally sound economies; and push banks and other
institutional holders of restructurable debt to raise prudential
capital.
It is not easy to design such a plan. Nor is implementation success
guaranteed. But this should not be used as an excuse to fixate on an
approach that has repeatedly failed, and that will end up making
Europe’s debt crisis even worse.
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Since PIM(P)CO owns a trillion in bonds, and as Gross apparently has Benny 'B52' Bernanke's ear....gee...hmmm...I wonder if Gross or his lieutenants ever talk their book...hmmm...
....gee...
...is it possible?
As are American officials.
Politicians are in office for 4 years. They aren't chosen because they are smart or have a strong economic background.
Nop. They are chosen because they can bullshit the most, and are the most corrupt because they can gather the most funds to get reelected through lobbying.
WHY TRY TO SOLVE ANYTHING that takes a decade or 2, makes you unpopular and of which the results will all be thanks to the last politician who is elected during the timeframe of the solution.
Rule 1 in politics: Be popular.
Rule 2 in politics: Be popular
That's it.
and if your Boehner you'd want to have a Rule #3 which is to shed a few tears of scotch for the audience.
And if your Nancy you shed crocodile tears of pure Botox onto your silicone tits.. Granny Rictus McBotox, aptly named
Popularity rule 1: Don't be a politician.
You solve the debt problem by throwing money at it....once you have printed and thrown enough the debt just sort shrinks to a meaningless number....lets be real, who benefits most from inflation? The debtor...and the biggest one is??? and also happens to own the press...
Now, if you asked all those underwater homeowners if they would like to be made whole with just a bit of inflation, would they vote for you...and how many times?
" You do not solve a debt problem by adding new debt on top of old debt."
Unless your uncle ben. Dollar denominated debt/ via peg/suppression. Exporting ben's problems/inflation.
..... " A reserve currency, or anchor currency, is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, and commodities such as oil, gold, etc.
This permits the issuing country to purchase the commodities at a marginally lower rate than other nations, which must exchange their currencies with each purchase and pay a transaction cost. For major currencies, this transaction cost is negligible with respect to the price of the commodity. It also permits the government issuing the currency to borrow money at a better rate, as there will always be a larger market for that currency than others." .......................
http://en.wikipedia.org/wiki/Main_Page
and "Ronald Reagan Shrugged"
comprende Schoolio????????
Bwhahahhahhahhhaha
Its all good until its not. In the mean time, Have a glass of Merlot and find God.
Merlot?!? Freakin' Merlot?!?
I'll take a nice '04 Brunello to help with my God search, thank you.
I prefer Paul Masson or Bolla. In this economy, I find them cheap and GOOD
Absinthe FTW!
...or the new middle class selection: MD 20/20
I prefer Boones Farm...
The one happy offshoot of these "crises" is the impending collapse of the european soviet socialist state and the accompanying purge of elements that have no right being there.
Everybody talks their books, but when Pimco talks its book they move markets. Thus, they need a sock stuffed in it.
Everybody talks their books
Agreed. Few get the access to write front page editorials with such frequency as the Pimps from PIM(P)CO, however.
Financial reporters certainly do idolize the big boys, and with newspapers so desperate for revenue, why not allow finance the ability to editorialize to their hearts' content.
Keep Stealing from the Middle Class. They are too buys watching Dancing with the Stars, Idol, etc.
Talk about Treading Water, media-wise, he's an asshole.