The Core
Why We Are Here => Economics & Investing => Topic started by: rcjordan on February 15, 2012, 04:40:29 PM
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Since late yesterday, the general feel of the financial & political articles I read seem to be turning toward a Greek default (March 27th at the latest) rather than a second bailout.
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The buzz is definitely there. BBC World service just had a big segment on it today.
1. I have been thinking over the last week or so that the big economic states in the Eurozone want to push Greece out, but don't want it to appear that they kicked Greece out.
2. I think there is a media campaign going on to prepare the world public and the markets psychologically for Greece to default.
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Don't know if you've seen much about it, but Athens has been more or less permanently in a state of riot for a couple of years now. Some days it's better, some days it's worse, but it's been bubbling along more or less since this all kicked off. It's not been pretty, and I think it'll get worse when they realise that default and reverting to the drachma actually makes things worse for them
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The bad news is it'll be burned down by the end of the year ;D
This could go on for some time...
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>you've seen much about it, but Athens has been more or less permanently in a state of riot
Given where I read (US/UK/DE), yes, I knew. I'm not sure what the average US reader has heard, though. Probably very little.
>reverting to the drachma
>buy a hotel in the Greek islands for the same price as a week's cappuccino
There is a plausible argument that the resulting devaluation of the drachma relative to the euro would cause an explosion in tourism (one of the few Greek industries that might benefit).
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> burned down
Buy one made of stone, Jason.
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The question has never been *if* Greece defaults, as much as *when*. Earlier media reports had been suggesting that the default would be managed to occur next year, when the other European economies have had a chance to develop some degree of growth, and therefore feel more protected.
So don't dismiss a bail out going ahead as planned in March.
However, the really big issue has never been just about if, when, or why Greece would default. It's about how many other countries will have to as well.
Portugal, Ireland, Italy, and Spain, are all moving into effective default territory - unable to service their debts. Once Greece goes, others will follow, and it's that which will cause the actual upheaval.
In the meantime, hoping Greece will default sooner rather than later as would actually like to go on holiday there sometime soon - had my eye on taking the family to Rhodes. No point while there's a constant threat of national strikes, though.
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>reverting to the drachma
The way I heard it: in the pre-Euro days countries could regain some competitive advantage by revaluing their currency in comparison to their neighbors in response to economic hardship. The Euro killed that. Long term there might be a benefit with going back to the drachma.
I think Brian is right. It's "when" Greece defaults not "if". And I'm not convinced that the Euro will survive either, there are too many underlying structural problems, the biggest one being that it is not based on the "full faith and credit" of anyone or anything. It's all got to be scary for the smaller states in the Euro.
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If Greece goes down, the rest of the euro is doomed. Uncertainty should make the dollar temporarily strong, which should push the price of metals down, and even more later as euro banks flood the market with metals as they scramble for cash. This will probably the last best time to buy metals 'cheap', before the dollar buckles, and goes down as well.
Once everything is crashed, the only proven idea (historically) is to trade the metals for cash to buy rental properties and hotels.
Of course, you got Iran getting a bomb, and the final Shite/Sunni showdown that will go down on the oil fields of Saudi Arabia.
And that should just about do it...
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The euro isn't doomed. Too many big players have got too much invested in it to allow that to happen.
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Gurtie, that was the exact same argument for why WWI could never happen. And the exact same argument as to why monarchy would *always* be the way European nations ruled themselves. When the Euro elites want something diametrically opposed to objective reality, reality always wins in the end.
In the long term, I agree, the Euro is a great idea. But it'll happen (and work) when the peoples of Europe are ready for it to, not when a bunch of self absorbed politicians decide it's time to get their names in the history books
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Respectfully, I think a lot of Eurozone members are trying to figure out how to land the Euro plane without crashing and burning. I'm willing to bet at least the smaller states are very quietly running "what if" scenarios about somehow leaving the Euro even as we speak.
I remember reading an article years ago (well before all this current crisis started) that even then the international financial community did not consider all Euro's to be equal for long term holding (currency reserves?) and that German Euro notes were preferred while Euro's notes issued from less wealthy/powerful/viable Eurozone states were not being held. I'm fuzzy now on the details but it sent up warning flags to me at the time.
When the Euro first came in I made a prediction over at SEF that if it ever became a question of choice for real survival for the Euro vs. the individual nation-states that the Nation State's would all cut and run. It goes back to that full faith and credit bit. A common currency is nice in good times but I don't think support goes that deep in the populations.
Not fun in any event.
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>euro doomed
It is among the peripheral euro economies. Either that, or their citizens will have to ultimately come up with significantly reduced wages and/or sell off their country's remaining natural resources and/or significantly increase productivity and/or maintain or reduce their cost of living. Otherwise, stuck with a common currency the balance of trade with other nations will eventually hollow out their economies.
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“There’s no way Greece can actually ever fully meet the conditions laid down by the EU and IMF – particularly if they keep piling on new demands. The scale of the cuts goes far beyond any fiscal consolidation – successful or failed – that any country has gone through in living memory.”
“The question is instead one of how long the eurozone’s charade of unrealistic conditions in return for more bailout cash can continue. Specifically, will Germany and other Triple-A countries accept half-baked solutions to the big unanswered questions that still haunt the efforts to save Greece?”
Worth a read: http://www.openeurope.org.uk/Article?id=8497
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Local UKIP Euro-MP Godfrey Bloom, the Party’s Economics spokesman, today called for sanity to prevail over the state of the Greek finances.
"Finally reality is beginning to dawn in Brussels and across Europe. One of the most senior European Commissioners, its Vice-President no less, has announced that, 'It is simply not true' that if Greece were to leave the Euro there would be disaster across the European financial system.
This is what we in UKIP have been saying for months, years even. The best way to help Greece, and by extension ourselves, is if we give them a helping hand down and out from the Eurozone, rather than spending billions of pounds of taxpayer's money building a golden prison.
Our Government has been playing along to the doomster dialogue in order to justify its throwing money at the lost cause.
It would do better listening to the Commissioner and wiser heads and refuse point blank to give any more to the bailouts, whether through increased IMF contributions or otherwise. No more British money should be spent making a bad situation worse"
http://www.godfreybloommep.co.uk/news.htm
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Little article about how to tell which country issued a Euro note:
http://www.telegraph.co.uk/finance/personalfinance/9094221/How-to-tell-where-your-euro-banknotes-come-from.html
Nice pictures if nothing else.
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Well, it looks like they announced another flimsy tentative agreement that will kick the can down the road a while longer. I still think its doomed house of cards, not just Greece, and it will work out just like I said. We are all caught up in a vicious cycle now. And all the governments involved are going to pay off debts with devalued currencies. I knew they would. No one has the stomach to cut off a friendly nation yet.
But the feedback cycles I mentioned before are definitely in play the way they appeared. The bail out temporarily strengthened the euro, at the expense of the dollar, and precious metals spiked. The opposite would have occurred had they not.
Now it looks like the news is coming out that for the 20th time they announced a deal that not everyone has a agreed to, and the markets are pulling back. You can't get out of debt by printing more bills. They should have forced austerity laws on everyone, US included, while this is still a chance. Our debt is at 100% GDP. To my knowledge once it gets to 90%, there is no way out but eventual default.
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Went to a talk given by Nicole Foss last night, very insightful lady.
A few of her Youtubes:-
Finance & Bubbles - http://www.youtube.com/watch?v=kYXA9XHFUCU
Decoupling - http://www.youtube.com/watch?v=FqRGVNUK5x0
Alternative Energy - http://www.youtube.com/watch?v=xmVw4xovjVg
One thing we all have to consider is the possibility of the Internet going down due to insufficient energy to power it. Not as incredulous as one would think.
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>Internet going down.
I actually have been thinking about that alot. As people go broke, they obviously don't have devices and access. If all the first world countries follow Greece, there will be no one to pay all these damn access fees. And without surfers we can't sell stuff. So hosting contracts... it could literally all go the other way. This whole thing has the hallmark of future 'dark ages'. Books get burned for fuel, future generations have to start from scratch.
We're all on the brink of collapse. It's not all that hard to imagine. Go to YouTube and search for 100,000 riot in Athens and then imagine that near a city near you. I think it'll be here in about 3 years. Maybe sooner. Especially if we get involved with Iran.
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Hmmm. Massive problems but it's not the end of the world as we know it. Japan has had a public debt that is close to 200% of their GDP for some time now and they're not exactly a poor nation. I don't think we should be complacent for one minute about Greece etc, but talk of going back to the dark ages looks massively pessimistic and unrealistic to me.
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I don't think we are headed for a blackout but if Israel attacks Iran, and the Muslim factions go at each other, and terrorists, enemies, even some friends, kick each other when they are down, something like that could be a little more likely.
>Japan
The first thing I notice about Japan is that they are doing terrible while the world around them is booming. Imagine how bad off they would be if there was a great depression. Same with Greece. That place is going to require NATO assistance at some point. Its a different situation.
But imagine if The EU couldn't help them. Well they really cant - because everyone is basically in debt. So our Fed is helping out by buying in too. The problem is the US is the biggest debtor in the history of the world.... so we are backing a failed country, by backing a failing currency, by printing money that is not backed by anything. And as far as I can see there is we don't plan on paying any of it back.
And your country isn't really any different. I know you are making a little ground in the right direction but I think the UK is a trillion or so in debt, and accounting for future pensions, is second only to Japan in terms of debt as a percentage of GDP. One could argue the uk is already in recession. Add some wars to the equation, and the bills go up. At some point things (like Greece) collapse.
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"Recent activity has all but confirmed our suspicions: The Fed is “swapping” dollars for euros in a covert method to bailout Europe's big banks.
According to a former Fed official's op-ed in the Wall Street Journal, the Federal Reserve is indeed bailing out Europe by operating in the shadows, which is going mostly unnoticed by American citizens...
By participating in a currency swap, the Fed cannot technically be accused of loaning money to the ECB.
Former Vice President of the Federal Reserve bank of Dallas, Gerald O'Driscoll recently reported on the swap-situation in an interview with the Wall Street Journal:
The Fed is using what is termed a “temporary U.S. dollar liquidity swap arrangement” with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or “swaps” dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
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The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.
Watch this video to see why Mr. O'Driscoll believes this arrangement is wrong for various reasons:
This is especially risky to America because if the Fed loses money, the nation's taxpayers lose money. It's a simple philosophy and the risk is quite real and the consequences are imminent.
The ECB could struggle to pay the swaps back in dollars in due time...in which case, money is lost and everyone here suffers."
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On February 29th 2012, the European Central Bank (ECB) will issue its second round of so-called “unlimited three year loans” – which are loans with unusually low interest rates, just 1% – and are intended to flood the Eurozone banking system with cheap money to help avert a credit crunch like the one seen in the US after the collapse of Lehman Brothers in 2008.
It’s expected that up to 1 trillion euros could be injected into the Eurozone banking system.
-http://ratracefreedom.net/2012/02/17/european-central-bank-secretly-doing-massive-qe/
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A 10 year old boy has drawn a picture with a solution to the Euro crisis.
I'd say that kid is a genius.
http://www.npr.org/blogs/money/2012/04/03/149904853/a-10-year-old-boys-solution-to-the-euro-crisis-in-1-picture?sc=fb&cc=fp