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Euros are in a muddle for the next decade


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'This is payback time' for Greece, says IMF Chief

THE head of the IMF has said she is more concerned about poor Africans than by Greeks hit by the economic crisis.


IMF boss Christine Lagarde told the Guardian newspaper in an interview published online on Friday, "As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax."


The IMF managing director said Greeks should "help themselves collectively" by "all paying their tax", adding that she thought "equally" about those deprived of public services by the crisis and those involved in tax avoidance.


Caught in a fifth straight year of recession, Greece is struggling to apply a tough austerity overhaul in return for EU-IMF loans, but has already made drastic cuts to public services.


On children affected by the cuts, Ms Lagarde said their parents needed to take responsibility.


"Parents have to pay their tax," she was quoted as saying.


"I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education," she added.


"I have them in my mind all the time. Because I think they need even more help than the people in Athens."


Asked whether it was "payback time" for Greece and other debt-ridden eurozone economies, she responded, "That's right", the newspaper said.


Greece in 2010 committed itself to a reform program in return for hundreds of billions of euros (dollars) in bailout funds from the EU and the International Monetary Fund to prevent a default.


Many of the reforms are currently in limbo, however, as Greece awaits a new general election on June 17 after an inconclusive vote on May 6.


The IMF, along with European leaders, has said it will not bend on tough conditions attached to its loans to Greece, with fears rising that the debt crisis could culminate in a Greek exit from the eurozone.


We all thought it but logic said, tread carefully. Just WOW!!!!

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It's possible that the only way Mr Market is going to be able to "talk" is thru currency. The politicians are moving at the old Euro pace... glacial.

Mr Market is a snappier mover than that, he needs to express himself.

He is being squeezed by QE in a kick the can down the road approach. However, the Euro could be his vehicle of expression. (I could buy that BMW). German exports would soar, maybe. US, Japan could then extend their own currency devaluation. A rush for hard assets could lead to that "crack-up boom".

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'Glacial' - being a bit generous there.


Something to watch. EU markets up but this is where the action is.


And what is Bankia's true value?


JPMorgan says Bankia share value is ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’‚¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¬0.35. Nomura says value is ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’‚¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¬0.20. Someone is buying them in the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’‚¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¬1.10 - ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’‚¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¬1.20 range.


Looks like the bank is to become fully nationalised any day now. This will do wonders for the Debt/GDP ratios.



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The idea that those PIIGSFG countries with large bullion reserves would put those reserves up as collateral for EuroBonds is stretching the imagination. These euro's like hugging and kissing but aren't really that close and trusting - see history.


Not to mention that those gold reserves would then have to be audited. Maybe they are like the gold smiths of olde, who did not necessarily have the gold to back the paper. Although given the German thoroughness, I would guess their reserves are correct to the ounce.

UK is also probably correct as they have little, having sold half at $256 per ounce creating what is known in charting circles as "Browne's Bottom".



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Austerity and debt realism by Kenneth Rogoff


What should governments be doing? The Keynesians think that deficits don't matter in a recession; at the opposite extreme are the debt-ceiling absolutists


Many, if not all, of the world's most pressing macroeconomic problems relate to the massive overhang of all forms of debt. In Europe, a toxic combination of public, bank, and external debt in the periphery threatens to unhinge the eurozone. Across the Atlantic, a standoff between the Democrats, the Tea party, and old-school Republicans has produced extraordinary uncertainty about how the United States will close its 8%-of-GDP government deficit over the long term. Japan, meanwhile is running a 10%-of-GDP budget deficit, even as growing cohorts of new retirees turn from buying Japanese bonds to selling them.


Aside from wringing their hands, what should governments be doing? One extreme is the simplistic Keynesian remedy that assumes that government deficits don't matter when the economy is in deep recession; indeed, the bigger the better. At the opposite extreme are the debt-ceiling absolutists who want governments to start balancing their budgets tomorrow (if not yesterday). Both are dangerously facile.


The debt-ceiling absolutists grossly underestimate the massive adjustment costs of a self-imposed "sudden stop" in debt finance. Such costs are precisely why impecunious countries such as Greece face massive social and economic displacement when financial markets lose confidence and capital flows suddenly dry up.


Of course, there is an appealing logic to saying that governments should have to balance their budgets just like the rest of us; unfortunately, it is not so simple. Governments typically have myriad ongoing expenditure commitments related to basic services such as national defense, infrastructure projects, education, and health care, not to mention to retirees. No government can just walk away from these responsibilities overnight.


When US President Ronald Reagan took office on 20 January 1981, he retroactively rescinded all civil-service job offers extended by the government during the two-and-a-half months between his election and the inauguration. The signal that he intended to slow down government spending was a powerful one, but the immediate effect on the budget was negligible. Of course, a government can also close a budget gap by raising taxes, but any sudden shift can significantly magnify the distortions that taxes cause.


If the debt-ceiling absolutists are naÃÆâ€â„¢ÃƒÆ’ƒâ€Â ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒ¢Ã¢â‚¬Å¾Ã‚¢ÃƒÆ’ƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¯ve, so, too, are simplistic Keynesians. They see lingering post-financial-crisis unemployment as a compelling justification for much more aggressive fiscal expansion, even in countries already running massive deficits, such as the US and the United Kingdom. People who disagree with them are said to favor "austerity" at a time when hyper-low interest rates mean that governments can borrow for almost nothing.


But who is being naive? It is quite right to argue that governments should aim only to balance their budgets over the business cycle, running surpluses during booms and deficits when economic activity is weak. But it is wrong to think that massive accumulation of debt is a free lunch.


In a series of academic papers with Carmen Reinhart ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ including, most recently, joint work with Vincent Reinhart ("Debt Overhangs: Past and Present") ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ we find that very high debt levels of 90% of GDP are a long-term secular drag on economic growth that often lasts for two decades or more. The cumulative costs can be stunning. The average high-debt episodes since 1800 last 23 years and are associated with a growth rate more than one percentage point below the rate typical for periods of lower debt levels. That is, after a quarter-century of high debt, income can be 25% lower than it would have been at normal growth rates.


Of course, there is two-way feedback between debt and growth, but normal recessions last only a year and cannot explain a two-decade period of malaise. The drag on growth is more likely to come from the eventual need for the government to raise taxes, as well as from lower investment spending. So, yes, government spending provides a short-term boost, but there is a trade-off with long-run secular decline.


It is sobering to note that almost half of high-debt episodes since 1800 are associated with low or normal real (inflation-adjusted) interest rates. Japan's slow growth and low interest rates over the past two decades are emblematic. Moreover, carrying a huge debt burden runs the risk that global interest rates will rise in the future, even absent a Greek-style meltdown. This is particularly the case today, when, after sustained massive "quantitative easing" by major central banks, many governments have exceptionally short maturity structures for their debt. Thus, they run the risk that a spike in interest rates would feed back relatively quickly into higher borrowing costs.


With many of today's advanced economies near or approaching the 90%-of-GDP level that loosely marks high-debt periods, expanding today's already large deficits is a risky proposition, not the cost-free strategy that simplistic Keynesians advocate. I will focus in the coming months on the related problems of high private debt and external debts, and I will also return to the theme of why this is a time when elevated inflation is not so naive. Above all, voters and politicians must beware of seductively simple approaches to today's debt problems.


Copyright: Project Syndicate 2012

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Germany has signaled that it may be open to euro-zone bonds or further support for the region's banking sector, The Wall Street Journal reported late Sunday. Any lifting of Germany's objections to such moves would depend on other countries agreeing to transfer more power to Europe, the report stated, citing a unnamed German official. "The more that other member states get involved with this development and are prepared to give up sovereign rights to get European institutions more involved, the more we will be prepared to play an active role in developing things like a banking union," the official told the newspaper.



slow reaction,!! they have been calling for euro bond for freaking ages!!



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more on the muddle: http://www.davidmcwilliams.ie/2012/06/04/w...an-needs-europe


and an interesting possibility that may make some sense but will never run:

...an alternative 'solution', one that does NOT include reviving the Drachma. Indeed, if the Drachma were revived ... eventually, there would be a similar need to bring the Spanish Peseta and the Portuguese Escudo out of retirement too ...


... followed by the Italian Lira, and perhaps even the French Franc.


In such a circumstance ...


... ALL of these currencies would be immediately 'devalued'.


So what if we REVERSED the perspective. What if we took the OPPOSITE 'view' ???


What if we suggest that a better solution than pushing Greece back into the Drachma ... would be to let Germany resurrect the Deutsche Mark !!!


This would allow for some level of 'rebalancing' in the underlying macro-dynamic, particularly as it applies to trade.


Moreover, this would also allow for some 'depreciation' in the EUR linked to Spain, Italy, Portugal, Greece, France, et al ... as one unit, relative to the German D-Mark.


Rather than 'seeing' the old Greek Drachma ...


... we 'see' the younger German Deutsche Mark.


Fixed-income markets use the German Bund as the benchmark against which all other sovereign bond yields are measured, as the primary 'credit spread', so why not add the foreign exchange dynamic in the same way, using the D-Mark as a benchmark.


Indeed, the two tiered system is NOT 'dead' ... but rather, the first tier would include ONLY ONE currency, the German currency.


It is Germany's understandable obsession with hard-currency 'driven' monetary and fiscal policies, that ISOLATES THEM from the rest of the EU.


So, let them have their hard currency ... the D-Mark.


And let the rest of the debt-offenders have the softer EUR.


Within the scope of enacting such a seemingly-outrageous idea, perhaps the legal framework can be 'manipulated' to enable the ECB to utilize freshly minted EUR, as a means to monetize, and thus 'eradicate', a portion of the region's sovereign debt ... in a move that would NOT need to be 'approved' by Germany.


Of course, EU officialdom is not likely to be at all enamoured by this thought, but perhaps, maybe, potentially ... plenty of support for such an idea could materialize....

from The Daily Reckoning
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Hell freezes over before that happens!


German Mark would skyrocket in value. Exports down hard, manufacturing hit and eastern side of country would feel the pain harder.


Wait ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ almost like Australia.



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Dave - just posting it because it is "out there". And something has to happen (please, something)


but, wait a minute, ... 2yr German bonds are NEGATIVE ; in other words you pay for the privilege of them holding your money. Why would you do that? flight to safety, sure, but also if such a scenario did play out, face value of said bonds in 2 years would be in a sky-rocketing German currency.


A small allocation .... I believe it is called insurance?

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