What is your take on this:
http://www.telegraph.co.uk/finance/financialcrisis/8858816/China-warns-it-cannot-cure-eurozones-debt-crisis.html
Basically countries seem to spend more than they generate but some are unwilling to change and moan like fuck when cuts are suggested.
http://blogs.telegraph.co.uk/finance/ianmcowie/100012894/fast-cars-and-loose-fiscal-morals-there-are-more-porsches-in-greece-than-taxpayers-declaring-50000-euro-incomes/
What is the solution and how do you see it affecting online stuff, especially since there are all these online buy ups and lots of cash around.
Option 1.....rough time for loads of people, but some how it gets sorted and online keeps working
Option 2.....tanks on the streets
Either way, this is the end of the current empires.
It's now the era of Asia, Brasil and the Sovereign states....all have limited debt if any, current account positive, youthful populations not expecting to have nanny states to look after then in later life, earlier average ages of death.
And at heart I believe in welfare systems, but the current expectations are not sustainable.
Doug
All just my opinion and I may not be sophisticated enough to be right.
Currencies like the US dollar, Pound Sterling, Canadian dollar are all backed by the full faith and credit of those nation states. The Euro is not. Modern currencies are all built on confidence rather than reserves of precious metals, you have to ask yourself, "Will European businesses and the people continue to Trust the Euro or will the sovereign states cut and run? Germany has already put a limit on how much they will risk for other Euro states so if things get much worse I think they will not allow Germany to go down with the Euro - and I don't blame them.
Frankly, I would not be holding large amounts of Euros right now. And if I was a non-Euro EU member state like Britain I would not be too anxious to chuck the Pound anytime soon. Don't surrender your sovereignty for the Euro - that goes for all of Europe too.
The good news is that people have found ways to trade for centuries despite political borders and different currencies. Just start dusting off your old pre Euro shopping cart code and make sure it works to start accepting many different currencies just like it did in the old days.
My 2 cents for what it's worth.
Agree with Doug.
I also don't trust fiat money so I like to have Gold, the original and unprintable money!
I don't particularly like this author, but -unfortunately- the worst I can say about him is that he doesn't pull his punches....
http://www.oftwominds.com/blogoct11/euro-debt-dominoes10-11.html
He forgot to mention that the big PIIG that everyone is really worried about, Spain, holds much of the Greek debt. Note that this was written before Papandreou's latest gambit.
Personally, I'm in a straddle position; 50% cash, 20% tax-free municipal bonds (NC supposedly has low risk of default), and 30% equities.
Straddle = too scared to get in, too greedy to get out.
<Correction>
Spain is not the country with the most direct exposure to Greek debt but it seems to be hit from all sides once the defaults start to cascade.
http://www.reuters.com/article/2011/07/20/us-greece-ratings-idUSTRE76J17420110720
Can't remember where I read it - probably the Telegraph - but a report from Morgan Stanley was mentioned that predicted that Spain should survive fine for one reason or another, but that Italy was fundamentally insolvent, and that's an even larger economy.
One of big clients is an Irish agency who outsource all of their SEO and PPC to us down here - a few of their medium sized clients felt the squeeze when Ireland was in the thick of it earlier this year, as such we felt a small knock on with reduced spends on paid search and those that didnt reduce their spend wanted more bang for their Euro.
For SEO it was the complete opposite, they would take their PPC spend and give to it to SEO to invest in their medium to long term future!
As Brad said no idea. But my theory of how to cope is:
Well, it will all shake down. Man is an optimist, and will find ways of trading, even if it is with labour and food.
There is a part of me in the UK that says the one thing we cannot make more of is land.
We can print money.
Gold is very high now, might go higher, but property is still on its way down. Rampant inflation, as the gvt prints more, will bring the real cost of property down further.
There are some forced sales, (debt, death, divorce and dearranged) that go for fairer prices now, and soon property will be at a point that you can make a rentable income again.
Those displaced owners are going to need somewhere to rent.
Never seen this before, but that is my gut feeling. It is going to be even more difficult to borrow soon, also forcing down prices. The flaw in my strategy, is how to raise the cash to buy when the opportunity is right. And the time to buy, is when what you have is reduced in value..... so should we still be buying gold?
>property is still on its way down. Rampant inflation, as the gvt prints more, will bring the real cost of property down further.
I lost you here... why doesn't the property go up in price, as the euro goes down?
UK property is much more effected by our economy than what's happening with the Euro (although if Greece goes totally tits up that will change I guess as it seems like we underwrote half of it one way or another).
Inflation is high, most of us haven't had a pay rise for 2 or 3 years, pensions are in trouble, banks don't want to lend, and very few people have enough savings for a deposit - that was a problem even before the recession - so there's no one out there to buy houses. Where an average property used to cost something like 7 or 8 times the average income, it's dropping quite quickly, it must be down to something like 5x now.
Well,
it is a theory of what might happen :)
There are so many forces, involved it is only a guess.
I think Property for a while in the UK will go down more, as fewer people can get mortgages, unemployment goes up, so there are more repossessions etc.
My guess is that the Euro problem will just fuel it all.
Property is still very highly priced in investment terms, you cannot get much of a return if you buy-to-let at the moment. 15 years ago a local flat would be £25,000. For the last 3 years they are "priced" at £60,000. Well rent has not changed that much. Something has to give.
Property prices will drop more. imho.
>Italy fundamentally insolvent
Roubini pretty much nailed it, January 2006:
"I would argue that Italy has done little and is experiencing "stagdeflation", a combination of stagnation and deflation. Indeed, as shown by Daniel Gros Italian labor costs have increased by 20% relative to those of Germany since EMU while Italy's trade market shares have fallen by 20% relative to Germany. Similar competitiveness problems are faced by Greece, Portugal and Spain.
Gros correctly also points out that the divergence in GDP growth rates has been lessened by the housing bubbles in countries like Italy, France, Spain, Portugal and Greece as low short rates and low long rates (driven by a global bond market conundrum) have caused unsustainable asset bubbles. The current loss of competitiveness of Spain is hidden by the housing bubble but, once this bubble burst, these problems will seriously emerge.
And unfortunately, the lack of serious economic reforms in Italy implies that there is a growing risk that Italy may end up like Argentina. This is not a foregone conclusion but, if Italy does not reform, an exit from EMU within 5 years is not totally unlikely. Indeed, like Argentina, Italy faces a growing competitiveness loss given an increasingly overvalued currency and the risk of falling exports and growing current account deficit. The growth slowdown will make the public deficit and debt worse and potentially unsustainable over time. And if a devaluation cannot be used to reduce real wages, the real exchange rate overvaluation will be undone via a slow and painful process of wage and price deflation. But such deflation will keep real rates high and exacerbate the growth and fiscal crisis. Without necessary reforms, eventually this vicious circle of stagdeflation would force Italy to exit EMU, return to the Lira and default on its Euro debts. Some argue that Italy or other EMU laggards would not exit EMU because a sharp devaluation of the new Lira – needed to regain the lost competitiveness – would make the real value Euro debt much higher and unsustainable for the government, the private sector and households. But look at what happened to Argentina: it devalued and given the balance sheet effects of the depreciation on their US debts it was forced to pesify its dollar debts. Similarly, Italy would be forced to liralize its Euro debts. If Italy were to exit EMU this effective default on domestic and external – public and private – Euro debt obligation would become unavoidable. And a sovereign nation is able to follow such policies – EMU exit, return to national currency and effective default on Euro debt – regardless of any legal or formal constraints that the EMU treaty imposes in terms of no exit clauses. This is not science fiction as Argentina was forced to do the same.
What would be the systemic effect of such Italian exit from EMU? They would be extremely severe on EU capital markets as Italy would default on some of its external debt – the part of its Euro debts held by non-residents. The contagion effects to other EU capital markets and banks would be severe. And the no bailout rule of the ECB would become effectively threatened as the ECB would be forced to monetize both liquidity and solvency induced runs to avoid a systemic effect on EU financial markets.
In conclusion, my view is that EMU can work and has worked for the Eurozone countries that have reformed and are reforming. But, unless Italy and other Eurozone laggards change their policies to pursue serious economic reforms that restore competitiveness and growth, they will eventually be forced to exit EMU. This would be a disaster but a disaster that may become unavoidable unless policies change. And I am currently pessimistic about the chances that such changes may occur given the policy makers and policies currently in place in countries like Italy."
http://www.economonitor.com/nouriel/2006/01/28/italys-tremontis-temper-tantrums-on-emu-in-davosa-sad-embarrassing-episode-for-italy/
QuoteItalian bond rates soared to a new high of 7.4%, up 0.82% from the previous day. (Greece and Portugal were bailed out after borrowing rates reached 7%.) Commenting on the world's third-largest sovereign borrower, Barclays said, "Italy is now mathematically beyond the point of no return."
I heard all this, and am not in the know of how this works. And last night, I could not help thinking:
Who sets the rates? By putting them up, they are effectively forcing Italy to Default.
This is the rate at which the banks and other institutions are prepared to lend money to Italy, yes?
They set it higher as they think the risk of default gets higher - it can be a nasty spiral,
Quoteit can be a nasty spiral
my thought. So why do it?
unless they have decided that it is time to push them over the edge.
(BTW 4eyes, its 6.30 am.... have you not gone to bed yet?)
Quotemy thought. So why do it?
cos the options are :
* don't lend them any more money = worse
* lend them money at the same interest rate = bad business decision, better to lend to people who can pay you back
* increase interest rates to reflect the risk
... I guess their view would be that they are reflecting the situation, not causing it.
Quote6.30am
Guilty as charged - bollocks to sleep, can get enough of that when I am dead
Related: The Fallout.
BBC News - Germany and France 'discussing' radical overhaul of EU http://bbc.in/uYjtJm
I could use a little insight too: what is it about Germany that is making it so strong now? I assume it's their auto industry, and general engineering and manufacturing, but is there anything else? I was thinking that after the second war they wouldn't have that much of an armed forces but I guess they still have one, although I don't really hear of anyone's military besides the Brits and the French.
Germany was the world's largest exporter up until a year or two ago when China overtook it. Pretty impressive for a country of 80 million people.
And one of the only areas which the Greek and Italian budgets have not been forced to slash?
(Both being heavy consumers of the German, French, US and UK arms industry...)
Dogboy, it's also down to lack of personal debt. (And the fact that Germany post-WW2 essentially had the same happen to it as Argentina did when it defaulted.)
>Personally, I'm in a straddle position; 50% cash, 20% tax-free municipal bonds (NC supposedly has low risk of default), and 30% equities.
>Straddle = too scared to get in, too greedy to get out.
I called a meeting with the financial advisor for a couple of hours yesterday to discuss how the EU financial drama was going to knee-cap the US stock market for the next year. The scenario I outlined says that though the US is showing signs of an upturn the cascade of problems with the PIIGS is going to take a year to smear enough lipstick on it to make it look even nominally resolved. During that time, the market will be (emotionally-driven) boom or bust with every news update out of Europe sending it off on a tangent. Overall, there isn't much chance of a structurally sound, sustainable plan coming out of this mess in the short term but there IS a big risk of taking a substantial hit. The advisor didn't disagee. He's cutting the equities by roughly a third for the next year or so.
This, IMO, is the best explanation of what's to come.
http://www.businessinsider.com/staring-into-the-abyss-2012-1