Emu Debt Crisis Edges Ever Closer To The Core

[interestrateripoff]

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8251389/EMU-debt-crisis-edges-ever-closer-to-the-core.html

The European Central Bank (ECB) intervened heavily in the markets, buying Greek, Irish and Portuguese bonds to drive down yields again, but has yet to broaden its emergency purchases to a fresh set of countries. Germany's Bundesbank is vehemently opposed to policy "creep" that involves the ECB in fiscal rescues by the backdoor.

The bank's refusal to be drawn further has left Belgium fending for itself as an escalating constitutional crisis pushes yields on its 10-year bonds to a post-euro record of 4.27pc. The country has not had a government since Flemish separatists emerged as the biggest party in elections seven months ago.

Stephen Jen, chief economist at Blue Gold Capital and a former IMF official, said Greece, Ireland and Portugal are already "insolvent". Refusal to face up to reality draws out agony, with a "cancerous" effect on the whole eurozone.

Mr Jen said the bail-outs themselves - done in the in the name of "saving the euro" - are causing the crisis to spread ever wider by contaminating stronger states instead of separating the balance sheets of good from bad, as would be normal in a debt clean-up operation.

The danger is that this will infect Europe's core, threatening the AAA ratings of France, Germany and others. If the EU's bail-out fund is enlarged by a further €250bn (£208bn) to €700bn, "one or more" of the AAA states may be downgraded, "most likely" France. "We see a further escalation of the debt crisis. There is no silver bullet because the underlying problems are 'knotted'," he said.

We all know our political elite don't work with reality. Denial is strong in these people.

Still I'm sure just one more bailout will contain the problem.

[Bloo Loo]

Bonuses all round.

[interestrateripoff]

http://www.bbc.co.uk/news/business-12149974

The interest rate Portugal must pay to borrow funds hit a fresh high on Monday, as speculation mounted it would join Greece and the Irish Republic in needing an international bail-out.

The yield on 10-year Portuguese government bonds rose for the fourth consecutive day, hitting 7.16%.

The country's borrowing costs have surged as investors worried over its financial health.

However, Portugal has continued to maintain it does not need rescuing.

So if the ECB are throwing money around like confetti it's clearly working....

Still just one more bailout, just one more and it will all be fixed.

[leicestersq]

The remorseless rise in Italian and Spanish bond yields is helping to keep a lid on things.

The only mystery is why France, famous for government largesse on almost everything, hasnt joined in the party. I can only guess that their finances must be completely sound.

[fluffy666]

The remorseless rise in Italian and Spanish bond yields is helping to keep a lid on things.

The only mystery is why France, famous for government largesse on almost everything, hasnt joined in the party. I can only guess that their finances must be completely sound.

IIRC, they are a bit like Germany/Japan in that they have run a trade surplus for a long time (until 2005, it seems); so a lot of what France 'owes' will be to themselves. Plus, like Germany and the UK they have a pretty 'deep' economy based over many sectors.

[leicestersq]

IIRC, they are a bit like Germany/Japan in that they have run a trade surplus for a long time (until 2005, it seems); so a lot of what France 'owes' will be to themselves. Plus, like Germany and the UK they have a pretty 'deep' economy based over many sectors.

Ah yes, of course I overlooked their legendary industrial relations harmony and flexible workforce and accommodating trade unions, a magnet for capital investment from all over the world.

[HPC=dream]

http://www.bbc.co.uk/news/business-12149974

At this rate they will soon be better off borrowing from Sainsburys or Tesco who are charging 7.4%

[MrFlibble]

Still just one more bailout, just one more and it will all be fixed.

Everything will be fixed with just one more bailout - you know it makes sense

[Bloo Loo]

Ah yes, of course I overlooked their legendary industrial relations harmony and flexible workforce and accommodating trade unions, a magnet for capital investment from all over the world.

Baby Loo is getting 800 Euros per month "dole", her boyfriend gets more as he is French, and they both live with his parents, who, because of the seasonal nature of their business ( camp catering) are also claimants.

They are all back to work April....no breaks till October though.

I thought the idea of seasonal work was you made enough money to cover the dead months....silly me.

[aa3]

The ECB needs to step in with a huge monetization of bonds across the EU.

Like me and others here on this forum said when it first came out.. this bailout fund is just a stupid idea. It would be like individual states in the USA borrowing money to bailout states in trouble. Which over time will hurt their own credit rating, or worse put them over the edge.

700 billion Euros was always too small as well. Its better to get approval for way too much, and not use it. Than to get too little, and then have the market worried about whether more is forthcoming. I would say 6 trillion Euros credit line at the ECB would cover it.

[leicestersq]

The ECB needs to step in with a huge monetization of bonds across the EU.

Like me and others here on this forum said when it first came out.. this bailout fund is just a stupid idea. It would be like individual states in the USA borrowing money to bailout states in trouble. Which over time will hurt their own credit rating, or worse put them over the edge.

700 billion Euros was always too small as well. Its better to get approval for way too much, and not use it. Than to get too little, and then have the market worried about whether more is forthcoming. I would say 6 trillion Euros credit line at the ECB would cover it.

aa3,

are you talking of monetizing and cancellation of those bonds, or are you suggesting that the ECB holds them until maturity, and demand repayment?

What action should the ECB take if it is not repaid?

[aa3]

aa3,

are you talking of monetizing and cancellation of those bonds, or are you suggesting that the ECB holds them until maturity, and demand repayment?

What action should the ECB take if it is not repaid?

Good questions.. I guess I was thinking if the ECB was willing to finance say a 12% of gdp defict in Portugal at low long term interest rates, that Portugal would be able to have some room. Monetizing in a way that Portugal is able to pay its previous debts with borrowed money.

On some level the only way to get out of this would be a moderate inflation and moderate economic growth over a long period. Like say 3% inflation and 2% economic growth over 10 years.

If that isn't working in the coming years I think the ECB would have to cancel some of the bonds it buys. Say Portugal had a debt of 100% of gdp, and the ECB at that point held 50% of the bonds.. the ECB could cancel a percentage of the bonds. Or something like a 10 year holiday where Portugal doesn't have to make payments and interest does not accrue.

Obviously in the long run the ECB and EU are going to need to control borrowing in their member nations. And some better way to bail out banks that fail. Like Ireland the state was perfectly healthy from a debt to gdp ratio before the crisis came. It was bailing out its banks that blew it up.

[General Congreve]

Predictions 1 and 2 on the money so far, great stuff.

[interestrateripoff]

Baby Loo is getting 800 Euros per month "dole", her boyfriend gets more as he is French, and they both live with his parents, who, because of the seasonal nature of their business ( camp catering) are also claimants.

They are all back to work April....no breaks till October though.

I thought the idea of seasonal work was you made enough money to cover the dead months....silly me.

How much a month do they make on the camp site? Sounds a wonderful system, expensive but wonderful.

[Bloo Loo]

How much a month do they make on the camp site? Sounds a wonderful system, expensive but wonderful.

Oh they earned more last year...but that was putting in 3 hours over the lunch, followed by sunbavin, then a 5 hour stretch at the club in the evening.

doing what they love to do anyway...

She sends me food parcels now.

[Bloo Loo]

Good questions.. I guess I was thinking if the ECB was willing to finance say a 12% of gdp defict in Portugal at low long term interest rates, that Portugal would be able to have some room. Monetizing in a way that Portugal is able to pay its previous debts with borrowed money.

On some level the only way to get out of this would be a moderate inflation and moderate economic growth over a long period. Like say 3% inflation and 2% economic growth over 10 years.

If that isn't working in the coming years I think the ECB would have to cancel some of the bonds it buys. Say Portugal had a debt of 100% of gdp, and the ECB at that point held 50% of the bonds.. the ECB could cancel a percentage of the bonds. Or something like a 10 year holiday where Portugal doesn't have to make payments and interest does not accrue.

Obviously in the long run the ECB and EU are going to need to control borrowing in their member nations. And some better way to bail out banks that fail. Like Ireland the state was perfectly healthy from a debt to gdp ratio before the crisis came. It was bailing out its banks that blew it up.

why dont you just say...LEND MORE, and then DEFAULT.

A deficit is a shortfall in the tax take compared to their spending....you finance a debt, and that debt is growing due to the DEFICIT...in other words, a deficit IS the finance shortfall of the nations debt.

If you take your logic to extreme...then the world is going to grow exponentially for ever.....

[Patfig]

why dont you just say...LEND MORE, and then DEFAULT.

A deficit is a shortfall in the tax take compared to their spending....you finance a debt, and that debt is growing due to the DEFICIT...in other words, a deficit IS the finance shortfall of the nations debt.

If you take your logic to extreme...then the world is going to grow exponentially for ever.....

It's the entropy model

[Agentimmo]

Baby Loo is getting 800 Euros per month "dole", her boyfriend gets more as he is French, and they both live with his parents, who, because of the seasonal nature of their business ( camp catering) are also claimants.

They are all back to work April....no breaks till October though.

I thought the idea of seasonal work was you your employer made enough money to cover the dead months....silly me. his 3 month winter holiday in the Carribean or Seychelles.

Fixed. At least that's how it works for 90% of the seasonal traders on the Cote d'Azur.

Edited January 11, 2011 by Agentimmo

[leicestersq]

Seems like China and Japan are now helping to bail out the PIGS.

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a6SUQm1Hamq8

Which means when the whole thing goes down, as it will, it will drag them down too.

[CrashConnoisseur]

Baby Loo is getting 800 Euros per month "dole", her boyfriend gets more as he is French, and they both live with his parents, who, because of the seasonal nature of their business ( camp catering) are also claimants.

They could do that all year round on Manchester's Canal Street.

[aa3]

Oh they earned more last year...but that was putting in 3 hours over the lunch, followed by sunbavin, then a 5 hour stretch at the club in the evening.

doing what they love to do anyway...

She sends me food parcels now.

The French know how to live.. we should learn from them. The French economy is very strong, and they manage it with generous vacations, good but not excessive pay, 32 hour work weeks, etc..

[aa3]

why dont you just say...LEND MORE, and then DEFAULT.

A deficit is a shortfall in the tax take compared to their spending....you finance a debt, and that debt is growing due to the DEFICIT...in other words, a deficit IS the finance shortfall of the nations debt.

If you take your logic to extreme...then the world is going to grow exponentially for ever.....

Yes I believe there is no limits to growth. See in my thread about world electrical production, in 2000 I predicted the world production for the decade to grow from, 13,663 billion kilowatt hours in 1998, to 17,830 billion kilowatt hours in 2008. I simply took the long term average growth of 2.7% per year and extrapolated.

Well in 2008 the world produced 19,103 billion kwh, so it exceeded the long term average.

But the thing is back when I made the prediction all these people were saying it can't happen because resources are running out, peak this or that.. but it happened anyway.

Portugal and co may have trouble paying the debt off now, but fast forward 15 years down the road, and throw in some inflation, and the debt may seem relatively small.

[Bloo Loo]

Yes I believe there is no limits to growth. See in my thread about world electrical production, in 2000 I predicted the world production for the decade to grow from, 13,663 billion kilowatt hours in 1998, to 17,830 billion kilowatt hours in 2008. I simply took the long term average growth of 2.7% per year and extrapolated.

Well in 2008 the world produced 19,103 billion kwh, so it exceeded the long term average.

But the thing is back when I made the prediction all these people were saying it can't happen because resources are running out, peak this or that.. but it happened anyway.

Portugal and co may have trouble paying the debt off now, but fast forward 15 years down the road, and throw in some inflation, and the debt may seem relatively small.

but you forget, they need to buy things all the time up to 15 years hence....

and money isnt real...it can grow exponentially....we cant and dont.

[LJAR]

The French know how to live.. we should learn from them. The French economy is very strong, and they manage it with generous vacations, good but not excessive pay, 32 hour work weeks, etc..

I worked in france for 6 months, and never met a single person who worked 35 hours per week let alone 32.

Everyont that had a job seemed to work pretty damn hard to be honest.

[aa3]

but you forget, they need to buy things all the time up to 15 years hence....

and money isnt real...it can grow exponentially....we cant and dont.

As long as we grow exponentially the debt isn't a problem, if it is in reasonable bounds like 100% of gdp.

If we stop growing we're toast. Which is one reason I pointed out that the green ideology of 'making do with less'.. and a fractional reserve monetary system are not compatible.

Everything is like that. Look at the pension promises by governmentand corporations. If the economy is growing exponentially at say 3% a year, those promises will be no big deal when they come do. If the economy flatlines, those pensions will bankrupt them.