by ilene - September 28th, 2010 2:19 am
The following is Part I to David DeGraw’s new book, “The Road Through 2012: Revolution or World War III.” This is the second installment to a new seven-part series that we will be posting throughout the next few weeks. You can read the introduction to the book here. To be notified via email of new postings from this series, subscribe here.
Editor’s Note: The following is Part I to David DeGraw’s new book, “The Road Through 2012: Revolution or World War III.” This is the second installment to a new seven-part series that we will be posting throughout the next few weeks. You can read the introduction to the book here. To be notified via email of new postings from this series, subscribe here.
When we analyze our current crisis, focusing on the past few years of economic activity blinds us to the history and context that are vital to understanding the root cause. What we have been experiencing is not the result of an unforeseen economic crash that appeared out of the blue with the collapse of the housing market. It was certainly not brought on by people who bought homes they couldn’t afford. To frame this crisis around a debate on economic theory misses the point entirely. To even blame it on greedy bankers,…
France Worries About AAA Rating; UK Economists Urge Greece to Abandon Euro; Spanish Prime Minister Losing Support; Japan’s Industrial Output Weakens
by ilene - May 31st, 2010 6:07 pm
France Worries About AAA Rating; UK Economists Urge Greece to Abandon Euro; Spanish Prime Minister Losing Support; Japan’s Industrial Output Weakens
Courtesy of Mish
Inquiring minds might be interested in an international roundup for Memorial Day. Let’s take a look at top stories about France, Germany, Greece, the EU, Spain, and Japan.
French Finance Minister Says "Keeping AAA Rating a Stretch"
As Eurozone trade unions prepare to battle over various austerity programs, the French budget minister warns on credit rating.
France admitted on Sunday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may resort to raising taxes to help bring down its deficit.
Euro zone trade unions are preparing for possible confrontations in the coming week if governments impose austerity measures or labor reforms unilaterally. But ministers made clear they were ready to take unpopular steps to prevent the Greek debt crisis spreading to their economies, although doubts are growing about whether the Spanish government in particular has enough support to get its way.
Budget Minister Francois Baroin indicated on Sunday that France should not take for granted its AAA rating, which allows Paris to borrow relatively cheaply on international markets and finance its big budget deficit.
"The objective of keeping the AAA rating is an objective that is a stretch, and it is an objective that, in fact, partly informs the economic policies we want to have," Baroin said. "We must maintain our AAA rating, reduce our debt to avoid being too dependent on the markets, and we must do this for the long term," he told Canal+ TV in an interview.
France has forecast its deficit will hit 8 percent of gross domestic product this year, but aims to bring it down to within the European Union’s 3 percent limit by 2013.
UK Economists Advise Greece to Abandon the Euro
The Times Online reports Greece urged to give up euro
THE Greek government has been advised by British economists to leave the euro and default on its €300 billion (£255 billion) debt to save its economy.
The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency.
by ilene - May 25th, 2010 7:15 pm
Courtesy of Gordon T. Long
The European Crisis is proving to be more of an unraveling than a contagion.
I have long written that the European Monetary Union (EMU) constitution and Euro currency should be viewed in the context of a risky bet versus a sound regional monetary strategy. The odds of the EMU’s survival are presently reflected in a plunging Euro, despite a historic and unprecedented intervention. This indicates that the EMU’s existence in its current form is now a bad bet.
The good news is that this is becoming obvious and it suggests that the serious governance flaws of the 17 year Euro Experiment may finally be addressed. It took a crisis to see its first test which has been the generally accepted view of when the euro experiment would prove its viability. The established momentum of the EU since its inception and its broad acceptance prove that its survival is presently a matter of European preference with most Eurozone members feeling it an absolute necessity. We would therefore expect to see the EU constitution reformed. What should concern investors the most however is how the mechanics of what will be a ‘forced reform’ unfold. The highly visible process will have profound implications to the stability of global financial markets and to a very tenuous global economic recovery.
I see the long standing philosophical difference between Germany and France to be at the core of this potentially very public resolution. During the recent behind closed door emergency bailout negotiations, these differences are reported to have come to the fore. Additionally, Frau Merkel and Monsieur Sarkozy are very different personalities. Will Frau Merkel show German Steel or as the German tabloid Bild proclaimed on news of the Euro bailout, become ‘schmucks’? Will Sarkozy the ever populist media hound prove to be a true diplomat or display what Germans perceive as insulting French arrogance? Unfortunately, the world must wait and watch while financial markets will no doubt fluctuate wildly on the uncertainty of the outcome.
What financial markets are oblivious to is just how crafty these two politicians are. There is more going on regarding a European strategy than the media once again fails to recognize and which I will speculate on later.
For the full unabridged version of this article with slide presentation see: Tipping Points – Commentary
by ilene - May 20th, 2010 8:02 pm
Europe remains in chaos, after another day of heavy losses. What was once a crisis of the PIIGS is now felt by Germany and France as both come to grips with the meltdown in the eurozone.
Tomorrow, Germany votes to approve or deny the bailout of Greece. On that vote could hinge the future of the eurozone. It is likely it will pass.
But other problems remain. The risk of contagion from the continent’s debt crisis could soon cripple inter-bank lending, if it hasn’t already.
After announcing a bailout weeks ago, tomorrow is follow through day for the eurozone. Will they need to burn the midnight oil in Brussels yet again on Sunday?
Check out why, even if Germany saves Greece tomorrow, Spain is the real problem lurking in the eurozone >
by ilene - May 20th, 2010 4:08 pm
Courtesy of Mish
The wave of social unrest is spreading. A new round of protests has hit Spain with a public sector strike set for June 8. In Slovenia, students are protesting new rules that limit their work hours and pay.
"Luka Gubo" an economist from Slovenia writes:
First I must say that I love your blog. Great job!
I just wanted you to know that Slovenian students are protesting too.
The main reason for organizing protests is changes in law regarding student jobs. Current tax law makes average workers uncompetitive because businesses pay about 15% income tax for students and more then 35% income tax for average worker (average net income is 930€).
Bear in mind that the average time for a student to complete his higher education here is 6 years and that more then 20% of "students" do not to school at all. Instead, they just enjoy student benefits like lower income taxes, food stamps, etc.
I think that everyone would agree a new law is needed in Slovenia. However, the new will limit the maximum hours worked by students to one third of full work time, and put a limit on maximum hourly wage at 8€ per hour.
That one *ing great free-market solution, wouldn’t you agree?
Here is the Slovenian parliament building after 2 hours:
The protests went smooth for a while, but it did not last long. You can find a series of 39 images at http://www.finance.si/galerije/2139/3/
Greece, Spain hit by strikes over cuts
CNN Reports Greece, Spain hit by strikes over cuts
Public sector union ADEDY and private sector union GSEE called the strikes against the government’s austerity measures, in particular the pension reforms announced last week. The reforms include raising the retirement age, which varies in different professions.
It is the first major strike since May 5, when violent protests against the austerity measures resulted in the deaths of three people in the capital, Athens.
Spanish government workers were set to protest at 6 p.m. (noon ET) outside the Ministry of the Treasury in Madrid and outside the central government offices in their respective towns. Spanish government workers were set to protest at 6
by ilene - May 17th, 2010 3:21 am
“For want of a nail . . . the kingdom was lost.” Will Greece’s debt crisis lead to a Greek debt default and the collapse of the euro and an ensuing collapse of the 27-member European Union (or EU), and trigger the next round of crashes that will be described by economic historians decades from now as “the Great Depression II”? The assassination of Archduke Franz Ferdinand of Austria and his wife in Sarajevo, Serbia brought the tensions between Austria-Hungary and Serbia to a head. In turn, it is said this triggered a chain of international events that embroiled Russia and the major European powers; and World War I broke out in Europe. Will Greece’s debt crisis set a series of events in motion that sends the world into a downward economic spiral of unfathomable proportions?
For years, I have wrestled with the question of whether the Europe would collapse economically, politically, socially and militarily. Sounds absurd, you say? The countries are too interwoven and mutually dependent now for that to happen, and at the very least they will muddle along, making the worst of the best situations, and achieving the lowest common denominator? The United States of Europe, they are not and never will be, but they have achieved a degree of cohesiveness that I never thought was likely years ago.
I believed jealousies and rivalries and, yes, the hatreds of the past would linger barely beneath the surface, coming unglued at the most inopportune times when it really mattered the most. When the chips were down, I felt the EU would splinter and fall apart; and that its participants and the world would write it off as a noble experiment that failed, much like the League of Nations. After all, its successor—the United Nations—is considered to be a colossal joke by Americans, many of whom would love to see it shipped to Europe, and its building on the East River in Manhattan bulldozed and turned into a park, or made into co-ops or condominiums.
The bitter hatreds of the past seem to have subsided in Europe though, and it has become a cultural melting pot, more and more. Airbus was the first tangible sign of economic integration that I never thought would…
by ilene - May 14th, 2010 3:56 pm
Here’s the latest from the trench warfare happening ‘Over There’, by which I mean the Euro Zone…
*Rumors abound today about a forthcoming ratings downgrade of France. Just rumors, but enough to spook every risk asset in sight.
*The Euro has sunk to 1.24 to the US dollar, meanwhile the dollar sinks against gold. The only thing not sinking is the oil containment equipment in the Gulf of Mexico.
*People are talking about Euro/Dollar parity. This is a frightening prospect for US exporters and the stock market is pricing that in as we speak (Dow down almost 200 as of lunchtime).
*Gold is entering that spastic phase where everything even tangentially related to it goes parabolic. Look at the action in the miners, in the precious metals ETFs and ETNs. You can smell it.
*I’m no expert on the latest Euro austerity plan, but I know people. This thing ain’t happening, at least not in its current form. Drug addicts don’t quit addicitions cold turkey, they need methadone and a church basement in which to smoke cigarettes, drink coffee and tell their tales of woe.
*The Shanghai stock market also isn’t doing anybody any favors, having just this week entered bear market territory (off 20% from the recent high).
*There’s also some talk of Flash Crash II. Just the fact that people are talking this way tells you that the buyers are in no rush to step in and be heroes at this point.
Be careful out there. And yes, The Debt Baguette is mine but you can use it.
by ilene - May 9th, 2010 1:32 pm
Since when is a financial crisis a "natural disaster." ?? ("Euro-zone leaders are attempting to get round objections from countries such as Britain by invoking Article 122 of the Lisbon Treaty, intended to enable a collective response to natural disasters.") - Ilene
Courtesy of Mish
Smack in the midst of an election that will likely cost Prime Minister Gordan Brown his job, British taxpayers ordered to bail out euro.
All 27 EU finance ministers have been summoned to Brussels on Sunday to sign up to a “European stabilisation mechanism." Britain will be unable to veto this as it will be put through under the “qualified majority voting” system.
The deal, effectively to shore up the euro, was denounced as a “stitch-up” last night after it emerged Nicolas Sarkozy, the French President and Angela Merkel, the German Chancellor, had devised it behind closed doors and were attempting to push it through at a time when there is no clear government in Britain.
“When the markets reopen Monday we will have in place a mechanism to defend the euro,” said President Sarkozy yesterday. “This is a full-scale mobilisation.”
Euro-zone leaders are attempting to get round objections from countries such as Britain by invoking Article 122 of the Lisbon Treaty, intended to enable a collective response to natural disasters. This does not need unanimous agreement.
By doing so, Mr Sarkozy has ensured a speedy confrontation with a new British prime minister and other leaders of non-euro currency countries. All 27 EU finance ministers must be present, but because decision will be taken by qualified majority vote, the 16 euro zone leaders can ensure its passage.
British exposure to liabilities created by a bail-out under the scheme would amount to around 10 per cent of the total loan. If a country failed to repay, the cost to Britain would be ¤10 billion (£8.6 billion) for every ¤100 billion on which it defaulted.
The scheme will present an immediate dilemma for an incoming Conservative government. A bail-out would increase British liabilities and debt at a time when Mr Cameron would be seeking to restrain spending.
Refusal to lend the money would plunge a Tory prime minister, overseeing a coalition or minority government, into a damaging conflict with the EU.
British officials are concerned that the EU is preparing
by Phil Davis - May 6th, 2010 8:28 am
"If you don’t know where you are going, any road will take you there." – The Cheshire Cat
I like to sit with my daughters (8 & 10) on the couch and look at news pictures on my laptop – it’s a good way of getting them involved with the day’s events, teaching them about my job and teaching them about the world (albeit from my twisted perspective). The USA Today is exellent for this as is Reuters and the NY Times. As CSNY said:
Teach your children well and feed them on your dreams…
Can’t you see, you must be free to teach your children what you believe in, to make a world – that we can live in?
Since they are kids, I often simplify what’s happening so we have a general classification of "protesters" to explain why the army or police are attacking people with no guns. Yesterday, my 8-year old had a "eureka" moment when she said to me "Why is everyone around the World protesting – it is because of the bad economy?" Well, she pretty much nailed it, didn’t she? As I’ve been warning for years, the poor (all of the bottom 90% at this point) have been pushed to the edge and they are now starting to push back – so much so that it’s obvious to an 8-year old that we are on the verge of a global revolution…
That led to a little photo project we did together, where I also got to teach my daughters one of my favorite songs: "We Won’t Get Fooled Again!" As the great and powerful Bush the 2nd once said: "Fool me once, shame on, shame on you. Fool me ya can’t get fooled again." That pretty much sums up my attitude on the markets right now – we cashed out at the top and, until we see some pretty DEFINITIVE proof that it was not a top, we’ll be sticking to mainly cash, thank you very much! While Alice’s Red Queen may have said "Sometimes I’ve believed as many as six impossible things before breakfast," we’re having a little trouble swallowing what’s being dished out by our government and the MSM. Richard Davis’s article on the lagging GDP is one example, as are many of the fine articles in our Phil’s Favorites section.
by ilene - May 6th, 2010 5:34 am
Courtesy of Tyler Durden
Yesterday we pointed out that France was a global top three derisker in sovereign CDS as traders have shifted their worries from the periphery to the core. We have long discussed that the reason for this is that France, not Germany, has the greatest exposure to Greece and the PIIGS. Below is an RT clip in which Hugh Hendry confirms just this: according to the Ecclectica head man, a mark to realistic market of Greek debt would wipe out E35 billion in French bank capital, "and it is questionable whether the French banking system would take such a hit." Hendry’s solution, as has been the case from the solution, is for Greece to leave the euro, and points out that due to FX inflexibility, there will be no tourists in Greece this year as everything becomes painfully expensive, not in Drachmas but in Euros.
We would add that the burning parliament is probably not that much of a tourist draw either. In typical fashion, Hugh dismembers Angela Merkel’s hypocrisy: "When the truth becomes unpalatable, what is the truth. Angela Merkel, when we say she is being generous, there is nothing generous about spending taxpayers’ money in another country, that is not generosity, that is merely trying to salvage a bankrupt set of political ideology. So to blame the messenger when it’s the truth that hurts, I find that inexcusable." Just as Hugh’s huge bet against the euro has proven to be a terrific success, we are confident that he will be correct about the end of the EMU quite soon as well. And as the moderator adds "Shame on you, Europe, for needing the IMF to bail you out. Europe is like an African nation." Amen.