O B R: We Must Prepare For A Possible Collapse Of The Euro

[Realistbear]

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8185225/Euro-collapse-possible-amid-deepening-divisions-over-bail-out.html

Financial Crisis Deepens

Euro collapse 'possible' amid deepening divisions over bail-out

There is a slim chance that the euro will not survive the current sovereign debt crisis sweeping Europe, one of the Treasury's leading independent forecasters has said.

Under questioning from MPs on the Treasury Select Committee, Stephen Nickell, a member of the Office for Budget Responsibility (OBR) and a former Bank of England rate-setter, said a collapse of the single currency was "a possibility".

Asked more broadly about the sustainability of currency unions, he added: "The general consensus is that sooner or later they fail for one reason or another – but that doesn't mean to say it always happens."

His comments came as deep divisions in the eurozone threatened to drive Spain, Portugal and Ireland into more difficulty.

All things are "possible" I suppose. In the meantime, the Euro stoxx are holding up well and the Euro is not doing badly either. Talk of collapses, HPCs etc. may well prove to be tempests in a coffee cup. We get all this hype and then a damp squibb.

Anyone getting tired of waiting? Yawn-o-lay..........................zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

Edited December 6, 2010 by Realistbear

[Realistbear]

P.S.

"On the euro, Mr Nickell said: "There is a possibility it will collapse but at the moment it is not something to which I subscribe a very high probability."

Asked to estimate the probability he said: "1.7pc

". "

, gasp....

http://www.telegraph.co.uk/finance/markets/marketreport/8120233/FTSE-today-market-report-live.html

Market Report

FTSE today: market report live

FTSE 100 rises to three-week closing high despite eurozone worries.

Edited December 6, 2010 by Realistbear

[Wahoo]

I would have said....1.8%

But I've always been a bit of a pessimist.

[200p]

I don't think probabilities are easy to assign here. Human emotion can turn on a dime. Markets can bomb or go exponential in a matter of days.

[RichM]

I don't think probabilities are easy to assign here. Human emotion can turn on a dime. Markets can bomb or go exponential in a matter of days.

It's all BS though, isn't it? They've learned absolutely nothing. How on earth can anyone produce such a precise figure? Maybe it's all there in the economics 101 text books, "at 2 years after a major credit crunch, European central currencies have always faced a 1.7% chance of collapse".

It's such a chaotic system, with so many unknowns - so many unknown unknowns no less! - and yet they produce this nonsense. Dismal science indeed.

[The Masked Tulip]

It's all BS though, isn't it? They've learned absolutely nothing. How on earth can anyone produce such a precise figure?

Because they believe it. Ego is a terrible and yet amazing thing. Many people like to have certainty in life. These figures, reports, meetings, etc, all reaffirm the group-think. If enough people believe it it must be true.

This is why so many nations and civilisations end up going to Hell in a hand-cart.

Nazi Germany is a good example - even with Berlin being blown to bits fervent Nazis still believed in the power of Hitler to save them and he, in turn, believed that Armies would come and rescue Germany. Nuts.

In the 12th and 13th Centuries when Mongol hordes threatened Christian Europe entire nations believed that far beyond China there was a Christian Empire that would come to Europe's aid.

Then there is us

[RichM]

In the 12th and 13th Centuries when Mongol hordes threatened Christian Europe entire nations believed that far beyond China there was a Christian Empire that would come to Europe's aid.

Then there is us

That's a good one!

It does seem that the West is content to push this one to the very limit, till the system properly collapses. A recession in '01, even '04-05, and we'd be well over the worst of it by now. Instead we're looking down the barrel of heaven knows what.

***edited for SPAG***

Edited December 7, 2010 by RichM

[wonderpup]

Dismal science indeed.

Dismal yes- science no. Economics is more akin to a religious cult than a science- theirs is the role of witch doctors throwing the runes to discern the future.

The truth of this can be seen in the fact that most economists kept their jobs despite their catastrophic failure to see the crisis coming- this is because their role is essentially ceremonial in nature and on some level their employers understand this- they need somebody to be filling that volume of air when they introduce 'their economist' to a visiting cash cow.

Imagine a world wide systemic failure of bridges, in which thousands of these structures collapsed- and when questioned the engineers that built them said ' We have no idea how this happened.'- what would be their chances of staying in post?

The empirical proof that economics is simply cultural window dressing is the simple fact that these people still have their jobs. They must be essentially fluff, otherwise leaving them in post would be dangerous to the institutions that employ them.

But nobody is really concerned that they missed the single biggest event in their field for 70 years, because intuitively there is recognition that they don't really have any impact on reality.

[interestrateripoff]

It's all BS though, isn't it? They've learned absolutely nothing. How on earth can anyone produce such a precise figure? Maybe it's all there in the economics 101 text books, "at 2 years after a major credit crunch, European central currencies have always faced a 1.7% chance of collapse".

It's such a chaotic system, with so many unknowns - so many unknown unknowns no less! - and yet they produce this nonsense. Dismal science indeed.

Yes it's rather sad that people make such ridiculous statements so many unpredictable events can happen which spiral out of control, how many currency unions have survived I would have asked him to clarify which ones haven't failed and why did those that fail end.

It's impossible to predict anything, it's time for these charlatans to admit it.

[Bloo Loo]

Yes it's rather sad that people make such ridiculous statements so many unpredictable events can happen which spiral out of control, how many currency unions have survived I would have asked him to clarify which ones haven't failed and why did those that fail end.

It's impossible to predict anything, it's time for these charlatans to admit it.

you can predict this.

scenario: you have 10. you spend 11.

somewhere, someone has made something up to the value of 1. that would be an entitity claiming they have 1 on the books....the one you overspent and now owe them.

the 1 is a thing yet to materialise,

[interestrateripoff]

you can predict this.

scenario: you have 10. you spend 11.

somewhere, someone has made something up to the value of 1. that would be an entitity claiming they have 1 on the books....the one you overspent and now owe them.

the 1 is a thing yet to materialise,

But if you then get 10 and then spend 9 this balances.

It's when you keep doing the I have 10 but spend 11 or more perpetually you end up where collapse is inevitable.

[Bloo Loo]

But if you then get 10 and then spend 9 this balances.

It's when you keep doing the I have 10 but spend 11 or more perpetually you end up where collapse is inevitable.

but you might not get the 10, or yo might say...up yours, I aint payin that 1.

the risk of the claim thatyou have a right to someone elses 1 should be priced in...ie, you actually need that 1 to be paying back to cover the risk....

[non frog]

Dismal yes- science no. Economics is more akin to a religious cult than a science- theirs is the role of witch doctors throwing the runes to discern the future.

....

LOL. So true.

But I must correct you slightly. Economics is in fact a collection of competing religious cults. You have the Keynesian cult fighting the Austrian cult for example. The high priests of the followers of Lord Keynes (may the prophets smile upon Him) saying we must sacrifice a chicken and throw its entrails down the volcano. While the high priest of the followers of the Almighty Hayek saying we must feed the chicken with corn and see if it sh1ts dollars, only then will we see the true path.

Loonies. Both lots. (And the other peripheral loony sects too)

[leicestersq]

In the 12th and 13th Centuries when Mongol hordes threatened Christian Europe entire nations believed that far beyond China there was a Christian Empire that would come to Europe's aid.

Then there is us

What fools they must have been to believe that.

Bit like the nutters today who say that the Venusian bailout of earth wont be finalised this weekend.

[co2_is-not_man_made]

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub.

The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times has

and has had to offer him “services” on credit

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the £100 note.

The hotel owner places the note back on the counter so the rich traveller will not suspect anything.

At that moment the traveller comes back down the stairs, picks up his note, states the rooms are not satisfactory for the money, and leaves town

No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

And that is how the bailout package works

[leicestersq]

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub.

The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times has

and has had to offer him “services” on credit

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the £100 note.

The hotel owner places the note back on the counter so the rich traveller will not suspect anything.

At that moment the traveller comes back down the stairs, picks up his note, states the rooms are not satisfactory for the money, and leaves town

No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

And that is how the bailout package works

The flaw being that each of these people also had assets of 100 Euros each, which in conjunction with the cash, allowed them to pay off their debts and leave a zero balance.

I dont think that the Irish have assets equal to their liabilities.

[Traktion]

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub.

The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times has

and has had to offer him “services” on credit

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the £100 note.

The hotel owner places the note back on the counter so the rich traveller will not suspect anything.

At that moment the traveller comes back down the stairs, picks up his note, states the rooms are not satisfactory for the money, and leaves town

No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

And that is how the bailout package works

Not only does the traveller have to forgo spending (in a workable example), but they also have to bear the risk that the money won't come back (should someone default etc).

It also ignores the fact that the €100 wasn't the hoteliers to risk/use in the first place - that's fraud, as no loan was agreed. I don't think the traveller would have been very pleased if the €100 wasn't waiting for him when he returned.

It's a good story though, but it misses out important points, for the sake of making it sound simple and risk free.

[Bloo Loo]

Not only does the traveller have to forgo spending (in a workable example), but they also have to bear the risk that the money won't come back (should someone default etc).

It also ignores the fact that the €100 wasn't the hoteliers to risk/use in the first place - that's fraud, as no loan was agreed. I don't think the traveller would have been very pleased if the €100 wasn't waiting for him when he returned.

It's a good story though, but it misses out important points, for the sake of making it sound simple and risk free.

the traveller should have noticed the note changed to £100...not a legal note. damn hookers.

[Democorruptcy]

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub.

The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times has

and has had to offer him “services” on credit

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the £100 note.

The hotel owner places the note back on the counter so the rich traveller will not suspect anything.

At that moment the traveller comes back down the stairs, picks up his note, states the rooms are not satisfactory for the money, and leaves town

No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

And that is how the bailout package works

Who pays the 5.83% (or 7.25%) interest on the €100?

[Traktion]

the traveller should have noticed the note changed to £100...not a legal note. damn hookers.

Ha! That's quite a trick the hooker did too - if she could convert a few more Euro notes to Sterling, Ireland's problems would be over!

[Bloo Loo]

Who pays the 5.83% (or 7.25%) interest on the €100?

interestingly, this is more like a model of the cascade of bank failures the FEDs threaten.

Point is, if they all cancel each others debt, then they dont need the bailout at the beginning.

[Traktion]

interestingly, this is more like a model of the cascade of bank failures the FEDs threaten.

Point is, if they all cancel each others debt, then they dont need the bailout at the beginning.

It also shows why lending more money can't fix the problem - it just feeds the imbalance, unless the debtor country manages to start outperforming the surplus country, in turn rebalancing. What are the chances of Ireland managing this trick, especially with the additional interest burden? Even if there was no interest, what are the chances of the debtor country turning things around quickly enough to avoid default? It seems very much like hopeful can kicking to me.

One solution is for the surplus countries to spend the money, thus decreasing the imbalance. If they don't, the debtor country will end up defaulting anyway, so they may as well spend the money instead - it would be more enjoyable, for sure.

The same imbalances are mirrored at the national level. Those with surplus money need to spend it, in order for debtors to repay it. If they don't the debtors will default (reflected via the printer or a haircut to those with a surplus).

You could argue that it is up to the debtor to find ways to entice the money from those with a surplus, but they have the latter are over a barrel. With the surplus holders having loaned out more of their money than they should have (or rather, 3rd parties have on their behalf), they are now between a rock and a hard place. They need to use it or lose it.

[happy_renting]

It's all BS though, isn't it? They've learned absolutely nothing. How on earth can anyone produce such a precise figure? Maybe it's all there in the economics 101 text books, "at 2 years after a major credit crunch, European central currencies have always faced a 1.7% chance of collapse".

It's such a chaotic system, with so many unknowns - so many unknown unknowns no less! - and yet they produce this nonsense. Dismal science indeed.

Yes, it is chaotic in the mathematical sense, and the supposed precision is absurd.

Perhaps he meant 1.7% +/-84%

[Tired of Waiting]

(...)

Anyone getting tired of waiting?

(...)

Yes.

[Realistbear]

Yes.

I have more or less given up and am in contact with my EA in California to find us a nice gaff at a 50% discount from peak to move into in a few years time after my "contract" is fulfilled here.