Jump to content
House Price Crash Forum
The Masked Tulip

Italy And Spain Must Pray For A Miracle

Recommended Posts

Once again Europe's debt crisis has metastasized, and once again the financial authorities face systemic contagion unless they take immediate and dramatic action.

If the ECB's Jean-Claude Trichet is right in claiming that Europe was on the brink of a 1930s financial cataclysm a year ago - and I think he is - it is hard see how the threat is any less serious right now.

Fall-out from Greece flattened Portugal and Ireland last week. It is engulfing Spain and Italy, countries with €6.3 trillion of public and private debt between them.

Yields on Italian 10-year bonds hit a post-EMU high of 5.3pc on Friday. This is not just a theoretical price: the Italian treasury has to roll over €69bn (£61bn) in August and September; it must tap the markets for €500bn before the end of 2013. The interest burden on Italy's €1.84 trillion stock of public debt is about to rise very fast.

Spanish yields punched even higher, through the danger line of 5.7pc. The bond markets of both countries are replicating the pattern seen in Greece, Portugal, and Ireland before each spiraled into insolvency. And the virus is moving up the European map. French banks alone have $472bn (£394bn) of exposure to Italy and $175bn to Spain, according to the Bank for International Settlements.

"We believe the European sovereign crisis might be entering a new phase with contagion reaching the larger economies," said Jacques Cailloux, chief Europe economist at RBS.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8628939/Italy-and-Spain-must-pray-for-a-miracle.html

Share this post


Link to post
Share on other sites

also im suprised that people havent picked up on the effect of inflation on the cost of borrowing.

who will want to lend you money at 5% when inflation is 5.5%.

soon enough rampant inflation is going to catch up with the money markets.

Share this post


Link to post
Share on other sites
All these "doom and gloom" posts. Never seems to actually kick off.

I think there's a bit of boiling frog syndrome here- things that seem normal today would look totally shocking to a time traveller from 2005.

I can still just about recall how odd the idea of packaging debts as a 'product' and selling them on struck me when I first came across the MBS racket. Yet now I don't find this notion strange at all- I've just accepted it.

And the idea that an EU member like Greece would ever be seen as any kind of credit risk would strike our time traveller as ridiculous.

So in reality it has already 'kicked off'- you've just adapted to the reality and now see it as normal.

Share this post


Link to post
Share on other sites

I think there's a bit of boiling frog syndrome here- things that seem normal today would look totally shocking to a time traveller from 2005.

I can still just about recall how odd the idea of packaging debts as a 'product' and selling them on struck me when I first came across the MBS racket. Yet now I don't find this notion strange at all- I've just accepted it.

And the idea that an EU member like Greece would ever be seen as any kind of credit risk would strike our time traveller as ridiculous.

So in reality it has already 'kicked off'- you've just adapted to the reality and now see it as normal.

Good answer. We get a constant trickle of these "end of the world" predictions, usually via links posted from zerohedge or market ticker. I've kind of become immune to them.

I'm sure those that deal with MBS in the City will not be walking into their offices tomorrow and thinking "oh my god, what if the contagion from Greece speads" and start heading for the office windows.

Edited by John Steed

Share this post


Link to post
Share on other sites

also im suprised that people havent picked up on the effect of inflation on the cost of borrowing.

who will want to lend you money at 5% when inflation is 5.5%.

soon enough rampant inflation is going to catch up with the money markets.

I thought this was the beauty of fractional reserve banking? The only reason that banks can't lend at 5% with inflation at 5.5% is that people might wake up to the scam......hang on a minute, that is what's happening, after all the true inflation rate is 7 or 8% and yet you can get a mortgage and pay 3% or less....maybe it's something to do with banks needing a reserve of only 6% and explains why Greece cannot be let go.(and certainly not spain and Italy)

Share this post


Link to post
Share on other sites

I think there's a bit of boiling frog syndrome here- things that seem normal today would look totally shocking to a time traveller from 2005.

I can still just about recall how odd the idea of packaging debts as a 'product' and selling them on struck me when I first came across the MBS racket. Yet now I don't find this notion strange at all- I've just accepted it.

And the idea that an EU member like Greece would ever be seen as any kind of credit risk would strike our time traveller as ridiculous.

So in reality it has already 'kicked off'- you've just adapted to the reality and now see it as normal.

So true!

See this from CNBC on 28th August, 2006. :o Peter Schiff being in the minority about the looming recession, which he says will go on for years, not months. Then listen to Art Laffer that there is nothing wrong, the US economy has never been in a better shape, monetary policy is spectacular. :lol:

Edited by Take Me Back To London!

Share this post


Link to post
Share on other sites

You know, one of the most disappointing things about this forum is the short memory and willingness to state a case without any data.

I would like to see the data corresponding to this link for the UK.

LINK

Lets see what the debt paydowns look like for the UK and USA.

Share this post


Link to post
Share on other sites

You know, one of the most disappointing things about this forum is the short memory and willingness to state a case without any data.

I would like to see the data corresponding to this link for the UK.

LINK

Lets see what the debt paydowns look like for the UK and USA.

that graph doesnt really show any strength or weakness that the writer is talking about.

most bonds mature in the short term becuase thats where the liquidity is. short term bonds carry less risk so thats where everyone puts their money.

saying that greeces debt repayments fall to 96billion in 2016 is pointless. because 1 year bonds 2 year bonds will be rolled over.

bonds that expire in 2012 get paid off by new bonds. if the maturity of some of the new bonds issued is for 4 years for example, that will add to the 2016 debts.

if i have £1million worth of debt that expire in a year, and none that expire in 2013, 2014, 2015, it doesnt mean that ill be fine after this year. because im not actually paying it down - i need to borrow another £1million to pay of my £1million debt. its just gets rolled over.

Edited by mfp123

Share this post


Link to post
Share on other sites

House music can suck my d1ck. I gave it a go, I really did. I had mates that would only go to house clubs. I'm an open minded bloke, so I went with them a few times, mainly because there was nothing else to do on those weekends. Progress, Wobble, that sort of thing. Just full of silk-shirted poseurs and appalling happy clappy tunes like this one with no grit. Some fit birds, but of the 'I'm worth it' variety. Not my scene.

Give me an empty warehouse, with a huge stack of a sound system, lots of dirty bass and wild-eyed girls in cargo pants any day.

Share this post


Link to post
Share on other sites

You know, one of the most disappointing things about this forum is the short memory and willingness to state a case without any data.

I would like to see the data corresponding to this link for the UK.

LINK

Lets see what the debt paydowns look like for the UK and USA.

In my opinion, it's all pretty academic as all the above countries are insolvent, with unpayable levels of debt, and their currencies are going down the pan compared against the grandfather of currencies.

What was done with Greece? It was decided that their problematic sovereign debt levels of 160% GDP was better sorted out with a debt level of 170% of GDP.

Share this post


Link to post
Share on other sites

I think there's a bit of boiling frog syndrome here- things that seem normal today would look totally shocking to a time traveller from 2005.

I can still just about recall how odd the idea of packaging debts as a 'product' and selling them on struck me when I first came across the MBS racket. Yet now I don't find this notion strange at all- I've just accepted it.

And the idea that an EU member like Greece would ever be seen as any kind of credit risk would strike our time traveller as ridiculous.

So in reality it has already 'kicked off'- you've just adapted to the reality and now see it as normal.

It's not the end of the world. It's the beginning of a new dawn, bathed in golden sun rays. :D

Share this post


Link to post
Share on other sites

People think high inflation leads to a reduction in their debt, but this is only the case if you income rises otherwise it becomes expensive to service, if you income doesnt rise then your losing out on many ways.

Share this post


Link to post
Share on other sites

Are you not missing the point. The graphs account for the roll-over and I presume represent the annual debt to be paid off each year. The graphs (I presume) are intended to show that Greece will get on top of its debt payments over the next five years or so. The same picture is true of most other EU states. OR DO YOU HAVE DATA that shows the graphs are short sighted and dont show a pick up in debts after 2020? SOME data please. ALSO what about the UK and USA. The current federal debt is some 14trillion. Assuming there are some 100mln taxpayers in the USA then each one has $140,000 to pay of - thats just Federal debt. Add in the private debts and the USA is clearly in Alice in Wonderland.

that graph doesnt really show any strength or weakness that the writer is talking about.

most bonds mature in the short term becuase thats where the liquidity is. short term bonds carry less risk so thats where everyone puts their money.

saying that greeces debt repayments fall to 96billion in 2016 is pointless. because 1 year bonds 2 year bonds will be rolled over.

bonds that expire in 2012 get paid off by new bonds. if the maturity of some of the new bonds issued is for 4 years for example, that will add to the 2016 debts.

if i have £1million worth of debt that expire in a year, and none that expire in 2013, 2014, 2015, it doesnt mean that ill be fine after this year. because im not actually paying it down - i need to borrow another £1million to pay of my £1million debt. its just gets rolled over.

Share this post


Link to post
Share on other sites

I thought this was the beauty of fractional reserve banking? The only reason that banks can't lend at 5% with inflation at 5.5% is that people might wake up to the scam......hang on a minute, that is what's happening, after all the true inflation rate is 7 or 8% and yet you can get a mortgage and pay 3% or less....maybe it's something to do with banks needing a reserve of only 6% and explains why Greece cannot be let go.(and certainly not spain and Italy)

I read somewhere that the total core capital of the EU banking system was circa 300 billion euros.

So a disorderly default of Greece, Portugal, and Ireland would wipe out about half of this, is Spain went as well then it's bye bye system.

Unless someone just prints up another few hundred billion cash to cover it.

Share this post


Link to post
Share on other sites

People think high inflation leads to a reduction in their debt, but this is only the case if you income rises otherwise it becomes expensive to service, if you income doesnt rise then your losing out on many ways.

This is the critical point. I expect that the historical correlation between prices and wages has broken.

As is always the case, people lose the most when historical correlations break down. In times of stress, high correlations change to low correlations and low correlations become high correlations.

This is essentially why VaR doesn't work and needs to be replaced with stress tests. Unfortunately, most people don't have the ability or inclination to rationally test the risk of their own financial situation.

What has worked in the past won't necessarily work in the future.

Share this post


Link to post
Share on other sites

http://www.bbc.co.uk/news/business-14102285

"Senior European Union officials are meeting later to discuss the eurozone's continuing debt woes.

The talks in Brussels were arranged over the weekend by European Council president Herman Van Rompuy. His spokesman denied that it was a crisis meeting" :rolleyes:

"On Friday, shares in Italy's largest bank, Unicredit Spa, fell 7.9%, and the main Italian share index dropped 3.5% on fears over Italy's financial situation.

The yield on Italian bonds also rose, as investors became less willing to purchase them.

The spread of Italy's 10-year government bond yield over the German equivalent hit 2.45% on Friday, its highest since the euro was introduced.

As a result, the yield on Italian bonds reached 5.28%, which analysts say is close to levels that could put pressure on Italy's public finances."

Surely there's no way back from here. It's either widespread defaults and bank failures or money printing on a massive scale.

Share this post


Link to post
Share on other sites

The world isn't going to end even if all the western countries go into financial meltdown. On the 'day after'.. the factories are still there, electrical power plants still there, farms still growing food, science and technology still known.

What it would likely look like is Argentina.

Share this post


Link to post
Share on other sites

I read somewhere that the total core capital of the EU banking system was circa 300 billion euros.

So a disorderly default of Greece, Portugal, and Ireland would wipe out about half of this, is Spain went as well then it's bye bye system.

Unless someone just prints up another few hundred billion cash to cover it.

Writing on wall innit...

Share this post


Link to post
Share on other sites

The world isn't going to end even if all the western countries go into financial meltdown. On the 'day after'.. the factories are still there, electrical power plants still there, farms still growing food, science and technology still known.

What it would likely look like is Argentina.

SShhhhhh!!! You know you are not allowed to say that! Default is worse than selling the entire population for spare parts - just ask any banker!

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 309 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.