is john galt stunned:in a deflating economy, if you do not inflate your currency, keep it to strong, the scarcity of money actually fuels the economic downturn and debases your currency:Roubini:In A Few Days Time There Might Not Be A Eurozone
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your currency, keep it to strong, the scarcity of money actually fuels
the economic downturn and debases your currency:Roubini:In A Few Days
Time There Might Not Be A Eurozone
the dollar is soaring, the euro is plummeting, yet interest rates in
america are almost zero, and in the eurozone the money supply is
targeted for maximum value.
yet, according to free market fundamentalist cranks, you need to
slash spending, slash social spending, raise interest rates high to
keep the value of your currency high, slash wages(wages are a real
problem in the PIIGS), no stimulus spending, even go on the gold
standard. yet, all evidence points to the folly of following such
crank fundamentalist advise.
the euro is actually being debased by not inflating it. the eurozone
is a engine, it simply lacks enough oil(lubricant)for the engine to
function properly.
Roubini: "In A Few Days Time, There Might Not Be A Eurozone For Us To
Discuss"
Posted Apr 28, 2010 09:59am EDT by Joe Weisenthal
Related: ^FTSE, ^GDAXI, EURUSD=X, UDN, UUP, ^DJI, ^GSPC
Provided by The Business Insider, April 28, 2010:
When it comes to the PIIGS, Dr. Doom is in full-on doom mode.
Felix Salmon has some good notes on a PIIGS panel from the Milken
Global Conference, which included Nouriel Roubini, who is in his
wheelhouse when talking about sovereign debt crises.
Nouriel, of course, takes that kind of thinking to its logical
conclusion, and kicked off the panel by announcing that it was just in
time: “in a few days,” he said, “there might not be a eurozone for us
to discuss.” There's no way that Greece can implement the 10% spending
cut it needs to do in order to stop its debt spiralling out of control
at current interest rates — and even if it did, the economic effects
would be disastrous.
Nouriel's base case, then, is Argentina 2001: after all, Greece has a
much higher debt-to-GDP ratio, much higher deficit-to-GDP ratio, and
much higher current-account deficit than Argentina had back then. And
if that's the base case, there's no way that Greek debt should be
trading anywhere near its current levels.
And guess what: Spain is worse than Greece, says Roubini. Ugh.
Werner
> is john galt stunned:in a deflating economy, if you do not inflate
> your currency, keep it to strong, the scarcity of money actually fuels
> the economic downturn and debases your currency:Roubini:In A Few Days
> Time There Might Not Be A Eurozone
>
Well, in that case Zimbabwe's currency must be an exception to your
brilliant thinking because its economy is a wreck despite inflating.
Can You Hear Us Now
> is john galt stunned:in a deflating economy, if you do not inflate
> your currency, keep it to strong, the scarcity of money actually fuels
> the economic downturn and debases your currency:Roubini:In A Few Days
> Time There Might Not Be A Eurozone
>
>
>
> the dollar is soaring, the euro is plummeting, yet interest rates in
> america are almost zero, and in the eurozone the money supply is
> targeted for maximum value.
> yet, according to free market fundamentalist cranks, you need to
> slash spending, slash social spending, raise interest rates high to
> keep the value of your currency high, slash wages(wages are a real
> problem in the PIIGS), no stimulus spending, even go on the gold
> standard. yet, all evidence points to the folly of following such
> crank fundamentalist advise.
> the euro is actually being debased by not inflating it. the eurozone
> is a engine, it simply lacks enough oil(lubricant)for the engine to
> function properly.
Using your plan we could all be millionaires by simply printing money
and dropping it from helicopters....
John Galt
econs said it would, we'd all be rich by now.
JG
Nickname unavailable
woosh, its the sound all three of you heard as it flew over your
heads. all three of you refuted nothing. all three of you responded
with conservative talking points.
Nickname unavailable
i know this will soar way over the heads of a john galt type, but who
is going to buy your goods and services in a world wide recession/
depression, if you have a over valued scarce currency?the euro is way
over priced and to scarce
http://www.suddendebt.blogspot.com/
FRIDAY, APRIL 30, 2010
On Greek CDS
Under the efficient market theory the following trade should not be
possible, yet you can put it on right now:
• Buy 5-year Greek Government bonds (rated BB+) to yield 11.2% and,
• Buy a 5-year CDS on the same Greek Government bonds at 620 bp (6.2%
per year) from, say, Deutsche Bank (rated A+).
The net result is you make 500 bp (5%) net profit per year (11.2% -
6.2%) for up to five years and, at the same time, lower your credit
risk very substantially, since Deutche Bank is rated six whole notches
higher than the sovereign risk of Greece. If Greece defaults you
just deliver the bonds to Deutsche, get 100 cents on the euro and walk
away.
Execution of the actual trade may result in somewhat different numbers
since bid-offer spreads are very wide right now, but the arbitrage
window is, nonetheless, enormous.
What gives?
Note: German Government 5-year bonds (schatz) yield 2% and those
issued by Deutsche yield 3%.
POSTED BY HELLASIOUS AT FRIDAY, APRIL 30, 2010 9 COMMENTS LINKS TO
THIS POST
THURSDAY, APRIL 29, 2010
Petunias In The Park
“In many local communities, fountains are not switched on and flowers
are not planted in the public parks because of a lack of money,” said
Andreas Blätte, a political science professor at the University of
Duisburg-Essen in the state of North Rhine-Westphalia, explaining why
so many Germans oppose lending money to Greece.
Hold the presses. Germans can't afford petunias in the park and,
thus, are willing to chuck European solidarity and integration into
the compost heap of history.
Revealed At Last: The Missing Link To European Monetary Integration
Helloooooo? Wake up Germany, this is the most important test ever of
the euro as a major global reserve currency and, therefore, the EU's
prospects for becoming a real player in the balance of power game.
Unless, of course, the vision is to shrink the eurozone to an uber-
alles core of Germany, Holland and Austria by ejecting the "weak"
South and other such untermenschen from the club. If this is the plan
and your euro becomes so strong vs. their drachmas, lire or pesetas...
who's going to buy your products? Surely not the Chinese, so we'll
see then what productivity is all about, eh?
Figure it out: Alles cannot be in ordnung all the time within a Union
of so many different and disparate members. The skills necessary for
the Union's leaders are flexibility, diplomacy, a willingness to cut
deals in back rooms and (gulp) a certain amount of charm. Come to
think of it, maybe you should leave the job to the Italians.
POSTED BY HELLASIOUS AT THURSDAY, APRIL 29, 2010 24 COMMENTS LINKS TO
THIS POST
WEDNESDAY, APRIL 28, 2010
Is A Greek Default Inevitable?
No, it isn't. But it may very well be desirable for all concerned, up
to a point.
There are two extreme possibilities in resolving the Greek debt
crisis:
• Plan A: Massive default with near zero recovery for creditors and
exit from the eurozone.
• Plan C: Massive Greek fiscal adjustment with murderous wage,
pension and public service cuts, plus tax hikes.
Plan A puts the entire workout cost on the shoulders of lenders.
Most of them are foreign banks that have posted their holdings as
collateral with the ECB, and various public pension funds. This makes
Case A politically and strategically untenable, as lenders would then
try to seize Greek financial and physical assets wherever and
whenever they find them, freeze trade and generally bring unbearable
pressure to bear. ECB's balance sheet would take a huge blow and the
euro could fall apart.
Plan C places the entire burden on the Greek economy. This may seem
fair at first. After all, it was Greeks who borrowed with abandon
and squandered the money on overpriced houses, Olympic Games and a
hugely bloated public sector. Not to mention a thoroughly corrupt
cleptocratic political system that is constantly in bed with a private
sector that no longer produces much of anything at globally
competitive prices.
And yet.. it was foreign lenders who made all this possible, even
though they knew - or should definitely have known - what was going on
in Greece. For example, it was foreign banks that kept buying Greek
bonds at a ridiculously tiny spread of 30 bp (0.30%) over German bunds
for years because they could post them as "cheap" collateral at the
ECB. What happened to their fiduciary responsibility? It went out
the window - the same window that allowed for the manufacture of
poisonous AAA synthetic CDOs from CCC subprime mortgages. It is
ludicrous that such irresponsible practices should be rewarded post
facto and their practitioners be made whole.
Therefore, I call for implementing Plan B, a solution obviously in-
between A and C.
• Plan B: Share the blame and the cost, but not necessarily 50-50.
My proposal (though obviously not my opening gambit at the inevitable
bargaining table) would be to pay creditors a net present value of
65-70 cents on the euro through a combination of maturity extentions,
lower coupons and outright principal reductions. At the same time, I
would demand the Greek government to implement at long last serious
tax, pensions and public sector reforms in order to immediately (i.e.
2011) produce primary budget surpluses.
As part of the bargain I would also like to see all EU or eurozone
countries exercise their right of eminent domain over their sovereign
bond credit default swap contracts (CDS). To wit, I would require all
such contracts agreed under EU laws, or between parties domiciled in
the EU, or their subsidiaries wherever domiciled, to be settled in
case of default or other credit event, only by tendering the relevant
bonds. This would include all present and future CDS contracts.
In other words, all should share in the pain because all share the
blame of creating and sustaining the debt bubble.