Tuesday, May 25, 2010
Good Money After Bad?
TIMES: Greeks give new meaning to idea of sovereign wealth
This makes no sense to me. If the Greeks stopped using the Euro, then there is a chance that the Euro would appreciate because there would be less drag from supporting one of the PIGS. Any Greek citizen holding Euros would then be able to exchange them for Drachmas at a very favourable exchange rate. Surely exchanging their Euros for gold at this stage is a much riskier strategy? If gold took a serious hit, they’ll be rioting, for real, once they realise that there government profited from their panic. Maybe Gold will soar in value and there will be many happy Greeks but it seems like a an unnecessarily risky gamble to me
Posted by flashman @ 10:15 AM (656 views) Add Comment
6 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. quiet guy said...
Flashman,
What motive might Greece have for abandoning the Euro? My assumption is that it would like to default on its national debts, denominated in Euros. Default might be achieved by redeeming Euro debts in drachma at an exchange rate controlled by the Greek government. In this hypothetical situation, Greek Euro holders would seek to exchange their Euros at more favourable rates abroad to escape the offical exchange rate which leads me to think about currency controls. If the Greek government was willing to go nuclear and leave the Euro, imposing currency controls seems possible.
Anyway, I'm far from convinced that a Greek exit from the Euro would raise the Euro's value and would expect to see more money switch to the dollar.
Personally speaking, I think switching some cash to gold is logical but, of course, I'm biased.
2. rumble said...
"less drag from supporting one of the PIGS"
-- Is it not too late for that to apply? Aren't they really just supporting Europe by proxy? That is, keeping the creditors flush. A bit like like removing an implanted organ, but the (debt) arteries have already been connected with the surrounding organs, remove the implant and the others bleed. Changing the currency doesn't (cauterise) eliminate the debt established with the rest of Europe. At best that's a superficial confidence move. Or not?
I guess as far as euro/drachma/gold is concerned they're thinking gold is the international stand aside option from euro/drachma uncertainty... they're not retired hedge fund analyst something or others.
"clunkier said"
3. flashman said...
quiet guy and rumble: Greece needs to be more competitive and they could achieve that by devaluing their own currency. At the moment I can see no other way out for them. As rumble says, the debt remains no matter what but at least they would have a fighting chance of one day getting back on an even keel. The Euro appears to be a straight jacket that is slowly strangling them, so why persist with it? I am not commenting on the sense of buying gold, as I have absolutely no idea what will happen to its price. All I was saying is that I would rather keep Euros if I was Greek and then exchange them for their own currency down the line a bit. If Greece ditched the Euro, there would be a huge sigh of relief amongst the German population (but maybe not amongst the 'Grand Project' beaurocrats). A huge sigh of relief often translates into a rising market so I don’t think that it is too much of a stretch to imagine the Euro rising in these circumstances. The German and French banks are on the hook whatever happens (there is no way out for them), so it is probably best for everyone if the situation was allowed to gradually resolve itself without the artificial constraint of the Euro. The interventions these people make are more for the political ideal of 'The Grand Project' than the are for actually helping the situation.
4. debtfree said...
I think the uk and us media are over playing the Greece / Euro crisis. Trying to divert attention away from their own highly indebted governments. There is a financial war going on with UKUSA vs Euro, interesting times ahead. No doubt all 3 currencies will come under attack. Sterling next and then the dollar.
5. flashman said...
debtfree: You may have a point. I was almost a lone voice a while ago when France and Germany were crowing about our situation. The consensus was that these countries had managed their affairs better than us. The German and French politicians were revelling in lecturing us. I agreed that we had managed our affairs badly but I was absolutely certain that they were just as badly off. Now it seems that the shoe is on the other foot.
6. debtfree said...
My money is on Europe. The USA needs 5 trillion in 2010, which makes the European problem look small.
As the Chinese have already said:
"the world hasn’t enough money to buy any more US Treasury bonds"