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The run on banks in Greece in progress; Euro collapse coming?

Discussion in 'Sports and News' started by The Big Ragu, Jun 13, 2012.

  1. The Big Ragu

    The Big Ragu Moderator Staff Member

    By the way, Dr. Doom, Nouriel Roubini is weighing in again: http://www.cnbc.com/id/48116835

    He has been saying for some time that there is no way out and that they should just let the bust happen and work their way out of it from there.
     
  2. The Big Ragu

    The Big Ragu Moderator Staff Member

    http://www.bbc.co.uk/news/business-18767056

    If they don't pull off some BS way to reassure the markets, and Spanish rates keep hovering at 7 percent, Spain can't survive without defaulting. It will be interesting to see what kind of half measure they come up with.

    The commentary at the side says something similar to what I said a few posts back:

    I'm wondering what the incentive is for Finland to climb aboard a sinking ship? I can't think of one. Even if the collapse of the Euro is not desirable for any of the member nations, keeping it around by assuming massive amounts of debt that others ran up, is not something they are going to do. It's why I can't imagine we will continue to get anything except half measures, at best, and eventually just everyone throwing their hands up in the air.
     
  3. TrooperBari

    TrooperBari Well-Known Member

    Not to be completely self-serving or anything, but if someone could come up with a way to do something about the yen's unnatural strength in the next six months or so, they'd have a permanent spot on my Christmas card list.
     
  4. Captain_Hindsight

    Captain_Hindsight New Member

    Maybe joining the currencies of all these separate nations was not such a good idea. Oh, and Krugman has been right the entire time - sorry Ragu :(

    Here is the answer to your desperate hopes that Estonia and Latvia may prop up your ideology:
    http://krugman.blogs.nytimes.com/2012/07/03/peaks-troughs-and-crisis/
     
  5. The Big Ragu

    The Big Ragu Moderator Staff Member

    What exactly has Krugman been right about the entire time? I can't really respond without you being specific.

    The thing you linked to is about a pissing match Krugman got himself into with the Council on Foreign Relations about Iceland, not what I linked to regarding his case that Estonia has not seen a remarkable recovery (he called it an incomplete recovery, and based it on a deliberately dishonest starting point for the graph he used, when in fact, when you look at Estonia's long-term growth, it has been remarkable, and the downturn in 2008 was a blip in what has been dramatic growth over the last decade and a half).

    I didn't comment on his Iceland pissing match on here, and I probably wouldn't have. Iceland is not analogous to what is going on in Europe right now. It is impossible to compare the two situations, unless you have a political agenda, as Krugman (admittedly) does. It's also why he cherry picks his starting points--the complaint the CFR had. He wants to create an even more absolute case for what he is trying to say based on picking ideal points in time to start with.

    When you look at the argument, they are both right and they are both wrong. He compared what has happened in Iceland to what has happened in a couple of baltic states. To most people, it would be apples and oranges, but for Paul Krugman it is a way to muddle two things and make a dishonest political argument.

    The CFR is correct that those baltic countries --Latvia, Lithuania (and he threw in Estonia for good measure) -- has had more dramatic growth in GDP than Iceland has had since its devaluation. Mind you, this flies in the face of Krugman's other blog posts that used a cherry-picked starting point that tried to argue that Estonia has not seen dramatic growth since cutting back on its spending. It would seem now he wants to have it both ways, because for the purposes of this thing about Iceland, he is now claiming that Estonia has seen considerable growth since 2005. In the other blog post, he lopped off that growth, picked an ideal starting point and called it an "incomplete recovery." That is pretty dishonest.

    But even with that, he is correct about Iceland. It had a much less severe downturn than any of the Baltic countries he decided to compare it to (his comparison -- no one else is making it because they are not analogous), so it couldn't possibly have had as dramatic a recovery. When the bottom drops out completely, there is more territory to climb to make your way back.

    It was a stupid point in the first place. And an even more stupid argument. Iceland is not part of the Euro. It doesn't face the same challenges. It isn't analogous.
     
  6. The Big Ragu

    The Big Ragu Moderator Staff Member

    I have busy with European news this morning, while lurking on here.

    I thought about John's post a little more than a month ago, and what I posted.

    The Euro/USD when he posted was sitting at around 1.26/1.27. Friday it hit a new low at 1.21/1.22.

    Yields on Spanish 10 years are closing in on 7.3 percent. Moody's downgraded their bonds to one notch above junk. And Spain is in better shape than Italy, which isn't getting the same focus (Spain has had demonstrations, which make for good video), because Spain's debt to GDP ratio is much better than Italy's. Which is why Italy might precipitate the end, before Spain can.

    They are both out of money. Nothing good is going to happen. It's a matter of how much time they can hold off the inevitable.

    You might get very small rallies in the Euro in the immediate future, based on headline roulette. Although, more and more, the hopeful news they engineer that is designed to rally confidence is getting ignored by the currency and debt markets. Everyone knows a collapse is coming. It's a matter of how long before it happens.

    If I had Euros sitting in a drawer, I'd go to the nearest bank and trade them in for dollars (assuming you're not comfortable, or don't know how, to find alternative assets to convert them to). Any Euro rally would be a good reason to do it. I hate the dollar, but the Euro is not going to survive. And at least in the short term, the more the Euro devalues, the more the dollar will appreciate. Just be aware that you are buying way overpriced dollars, which are only appreciating right now because people have to take their money and put it somewhere. Eventually the focus is going to turn to the fact that the U.S. has its own debt problems, lack of political will to deal with them, and monetary policy that is debasing the dollar. Then, I'd have a plan to protect the value of my money. Just having dollars sitting in a mattress is going to amount to a negative rate of return.
     
  7. amraeder

    amraeder Well-Known Member

    Ragu, if you have the time and inclination, what are the 10-year yields on the other PIIGS countries, just out of curiosity?

    I ask because you said Italy was in worse shape, so I was curious about their yield, then got curious about the other ones. I'd look it up myself right now, but I'm about to embark on a day of running around. If you don't have the time, I'll look it up tonight and post it here.

    As far as what I'd do with the Euros, it'd depend on how many I have. I still can't imagine the whole thing tumbling to the ground -- I have to imagine they'll step in and do SOMETHING at the last minute, if it gets that desperate -- but I do agree that high inflation seems to be in the near future. (A small amount of Euros, I'd probably be lazy. Any serious amount, I'd play it safe and change it back.)
     
  8. The Big Ragu

    The Big Ragu Moderator Staff Member

    10-year bonds. ...

    Spain is sitting at 7.3 percent. Too much is brewing and the debt markets are treating them harshly. Spain is very decentralized and its regions are responsible for tax collection and a lot of the spending. One of the regions, Valencia, just turned to the Federal government for help, because it can't meet its obligations.The Spanish government, obviously, doesn't have the resources to help -- at least without issuing more debt. They can't do that. They are announcing all these measures to reduce their debt right now, as they beg everyone else for money to stave off default. So the debt markets are reacting, by driving up yields, in anticipation of what that kind of untenable problem is going to lead to. And the self-fulfilling prophecy is that the higher yields are going to precipitate a collapse sooner.

    In any case, 7.3 percent has to be at least fairly close to the line where they can't make their interest payments for very long. I think the 7 percent number that keeps getting repeated in news stories is a matter of people repeating a number from news story to news story without having a clue if it really is a meaningful number. I say that even though I have used the number myself. There was a good blog entry at Forbes' site the other day (although I can't remember who it was, or where I read it) that made that point. 7 percent is probably more meaningful for Italy, because Italy's debt to GDP ratio is higher than Spain's. Italy's ratio is about 120 percent. Spain is more like 80 percent. You'd assume Spain would be able to withstand slightly higher rates than Italy, given that difference.

    Italy's yield is just below 6.2 percent right now.

    Looking at Greece isn't very meaningful, because they have already defaulted (whether you call it a default or not), but their yield is 26 percent -- if you could find anyone willing to buy.

    Same deal with Portugal. Their yield is 10.5 percent.

    So those are the PIIGs.

    To put those yields into context, and understand the relative risk of default (and outright collapse) that the debt markets are pricing in, you really have to look at the perceived "safe havens." That is why people usually compare the spreads on those yields to the yield on the German 10 year.

    The yield on the German 10 year is 1.17 percent. That yield has been coming down, as the yields for those PIIGs bonds has been rising. So the spreads are widening. Which means that people trying to protect their money, are pricing in a greater chance of default as we move along. And it's not an insignificant premium. Those spreads are huge. On Friday, the additional yield investors were demanding to hold Italian 10 year bonds over German bunds went over 5 percentage points (500 basis points).

    As for your belief they'll step in and do something. ... well there is no "they," and there is no "something." That is the problem. You can't just paper over the amount of debt they are drowning in. Not anymore, because they have reached their limits. And there is no white knight out there that can assume all of that debt (or would have any incentive to, even if there was) and save the day.
     
  9. waterytart

    waterytart Active Member

    I have francs, marks and lira, probably no more than $10 of each, in a drawer somewhere. The euros will just be part of that assortment. A nice visual aid to help explain currency perils to our daughter.
     
  10. deskslave

    deskslave Active Member

    So Spain and Italy are out of money. Shame there's no spare money being squirreled away anywhere in the world.

    http://www.guardian.co.uk/business/2012/jul/21/global-elite-tax-offshore-economy
     
  11. Football_Bat

    Football_Bat Well-Known Member

    So the idea is to keep your money in dollars until the Euro collapse is complete, then start moving it into forex at the bottom because the dollar's collapse is certain to follow? If it's that simple, someone could make a fortune.
     
  12. The Big Ragu

    The Big Ragu Moderator Staff Member

    How does one move their money "into forex"?

    Forex is a foreign exchange market. What you said is meaningless.
     
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