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Euros are in a muddle for the next decade


maxwellreid

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Very good point.

 

So let's work through this. We know in the 90's the EMU helped Germany as at that time the DM was a low risk investment but it was killing exports.

Where is the upside to a new DM? 'Change' is the best answer I can think of. Each time there is a change, people win and lose. The banks / hedge funds etc win, the tax payer, not so lucky. Is there an upside socially or environmentally?

 

What am I missing? Can we too be a winner?

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Hi Dave, have a look into TARGET2 obligations. Germany's support of the EUR is creating a massive blow out in its obligations to the EUR system. The biggest benefit to the Germany would be putting to an end its need to continue funding these exponentially increasing obligations - obligations which although nominally an asset in nature, are looking increasingly impaired in nature given the increasing likelihood of at least someone exiting the EUR. As to who exits the EUR first, it may be as simple as who blinks first. Already the Germans are making noises about already being near their maximum ability to contribute to TARGET2. If something is unsustainable, eventually it will stop, but we may have all gone broke waiting for it to happen in the meantime.
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Sorry to keep posting bad news. It is often the easiest to find and has a lot of impact.

 

Finch downgrades Spain to BBB

 

The rating agency outlined five factors for the downgrade: 1.) The monumental task Spain faces in recapitalising its banks. Fitch said:

 

The likely fiscal cost of restructuring and recapitalising the Spanish banking sector is now estimated by Fitch to be around EUR60bn (6% of GDP) and as high as EUR100bn (9% of GDP) in a more severe stress scenario compared to Fitch's previous baseline estimate of around EUR30bn (3% of GDP).

 

Also....

 

2.) "Gross general government debt (GGGD) is projected by Fitch to peak at 95% of GDP in 2015 assuming a EUR60bn bank recapitalisation, compared to Fitch's forecast at the beginning of the year of 82% by the end of 2013."

 

3.) Recession. Spain is now expected to remain in recession until the end of 2013.

 

4.) Spain's high level of foreign indebtedness.

 

5.) Spain's "much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support."

 

 

 

So what happens now?

 

If Spain drops more it will need a serious bail out.

 

Can we pass the hat around please? Or are we out of cash

 

On a positive note. - Golden Dawn has disgraced itself after one person slapped a female Communist politician on TV overnight.

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Keynes ideas are under attack, although us Economics 101 guys were brought up on him.

 

Talking in 1930 he said "But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand." Whether you believe in austerity or stimulus, the delicate machine may already be beyond repair, whatever path is taken. Who's to blame? Is that important? If we can see who is to blame then we might get the delicate machine back on track. Well it's the world of derivatives, today still a 600Trillion dollar market. Dimon's not a banker but a punter.

 

BTW the idea that we can understand the delicate machine, let alone fix it, may be beyond us. Keynes in that single quote sums up our problem. If you want to read him in context see:

 

http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html

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I have a good friend who has lived in Switzerland for nearly a decade. She is well versed on this topic.

Her summary is - Europe is doomed financially and politically. The social upheavals will be immense.

 

By way of example, Hollande will soon have complete control of France. He will resist all German propositions good and bad. Economics is not his strong point. Spain cannot get it together at all. There has been amazing amount of diplomacy behind the scenes to do the right thing by Spain but they constantly reply with half baked solutions and miss the target of their efforts. Greece is lost. Switzerland and UK will survive because it is not in the EMU but still be hurt badly. Germany will carry the can and they are getting very angry. Europe is not the place to be and there are a heap of people looking for safe places to live, hence why she is setting herself up a base in AU.

 

Interestingly, a heap of people now investing in South America and Rwanda. I was amazed to hear this but apparently Rwanda is the new Singapore, the gateway to Africa.It took some convincing but it appears to be a place many are investing. The government has invested heavily in telecommunications so internet is everywhere and they are working hard to entice investment.

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The Germans strategy must include a plan for an exit from the Euro. A return to DM.

Like Rogoff says in a debt crisis you can ignore what the polies say and look only at what their interests/drivers are. Sure, the DM would soar, their loans to Euro countries would look sick. However, they have been in the process of shifting those bonds back to the owning country. The German bonds are in demand, as if the Germans exit the Euro, then I as a PIIGF member would want Bunds (possibly make 50% on my money. In a crunch), this is what they may do.

 

The real issue for the DM would be that Germany would stop enjoying a depreciated currency. You could look at them currently as as a sort of currency manipulator and that is why they want to keep the Euro. Lijfe is sweet in Germany, low unemployment, cheap money, growth.

 

http://www.bloomberg.com/news/2012-06-10/f...-be-better.html

 

This would work better if it surprised the market and might happen immediately after the Greek election. They vote for less pain and the Germans exitcleardot.gif

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Hello Dave,

Although currently living in Tanzania, I have been in Kigali for a few days last month, possibly heading back there next month.

Rwanda is indeed a revelation.

Its a beautiful country, people extremely friendly, Government progressive and (so far) lacking the massive corruption that

bedevils so much of African colonial "democracy".

As to becoming the new Singapore, that is a big ask.

They still lack reliable power outside Kigali, water is an issue, they have some very unfriendly neighbours, and their road infrastructure needs an enormous injection of funds.

It also needs to be remembered that less than two decades ago they had a civil war and genocide on a massive scale. There are

some significant scars that may have healed over on the surfsce, but underneath are somewhat raw.

There is much to hope for, but still some serious dangers lurking.

 

Mick

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A great example of today's solution being tomorrow's problem...from David Rosenberg via zerohedge, talking about the money to be given to Spain for their banking mess:

 

When you realize that of the potential $100 billion to spend, 22% of that has to be provided by Italy and their lending to Spain is at 3% but Italy has to borrow at 6%. They have to lend to Spain $22bn at 3% - it is just madness. Everybody is getting worried again. The solution that they seem to have come up with seems to be worse than the problem in the first place.

 

http://www.zerohedge.com/news/rosenberg-de...ropean-insanity

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(Reuters) - Germany's constitutional court said on Tuesday that Angela Merkel's government had not consulted parliament sufficiently about the configuration of Europe's permanent bailout scheme, the European Stability Mechanism (ESM).

 

The ESM is supposed to come into effect in July but has not yet been ratified by many euro zone member states' parliaments, including Germany's Bundestag.

 

After the ruling, which responded to a complaint from the opposition Greens, the euro fell to a session low versus the dollar.

 

Oh dear.

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<H1 class=cnbc_blghdln>Europe Will Emerge Stronger Than Ever: Mark Mobius

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“During the sub-prime crisis everyone was in a panic, everybody got out of all markets and rushed into U.S. Treasurys. They learned a bitter lesson because within 12 months, (many) markets were up 60, 70, 80, 90 to 100 percent.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

http://www.cnbc.com/id/47870358

 

 

 

</H1>

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