EU moves closer to total integration

[Fern]

Does anybody else see this as European countries cutting their budget during a recession? Should give the Progressives here a heart attack cuz they seem to think that's the worst possible thing, ever, in the history of the world, and Paul Krugman says so.

Fern

 

[fskimospy]

Why do you think the interest rates are going up? Because of the inherent risk of countries being unable to pay their bills.

Why can't they pay their bills? Because they took on too much debt and the lenders are starting to realize that countries aren't growing at a rate that would let them pay off their already existing debt.

The interest rates are going up due to a self fulfilling bond panic. Countries pass small bailout packages, it does nothing. Countries impose austerity, it does nothing. Why? Because they aren't addressing the problem. When the ECB steps in and offers to act as a lender of last resort, you will see these bond problems disappear overnight. Countries with higher debt to GDP ratios and equivalent growth pay much, much lower rates.

Japan has had terribly low growth rates for the last 15 years along with vastly higher debt to GDP ratios. Why is there no run on their bonds?

 

[Fern]

The USA and Europe are in very similar boats (both have shrinking middle-classes and consequently first-world public services that are no longer being paid for) but the USA benefits from having genuine direct democracy at the federal level. If Americans are pissed at least they can choose the president. Europeans don't really have control over the continental government.

Yeah, I'm expecting some proud country like Greece, Italy or Spain to have a firery nationalistic type politician come along and get them all fired up and tell the EU to go pound sand.

I don't see good things ahead.

Fern

 

[fskimospy]

Does anybody else see this as European countries cutting their budget during a recession? Should give the Progressives here a heart attack cuz they seem to think that's the worst possible thing, ever, in the history of the world, and Paul Krugman says so.

Fern

Yes, this is a retarded idea for many reasons, cutting spending during a recession being only one of them.

 

[OlafSicky]

Without getting to the level of a conspiracy theory, it is interesting that the various leaders are using this ongoing crisis (honestly it feels like it's been going on forever) to implement what amounts to more conservative fiscal leadership of Europe. Part of me shares eskimospy's sentiment that interest rates are being driven up for odd reasons.

I'm not a conspiracy theorist but after today it occurred to me that if someone wanted to create a superstate and get countries to give up sovereignty willingly this type of crises would be perfect. Looking at what happened and what is happening this is looking more likely. This whole crises looks like someone planned it and is dragging it out. It's all about Europe 🙂

 

[Fern]

The interest rates are going up due to a self fulfilling bond panic. Countries pass small bailout packages, it does nothing. Countries impose austerity, it does nothing. Why? Because they aren't addressing the problem. When the ECB steps in and offers to act as a lender of last resort, you will see these bond problems disappear overnight. Countries with higher debt to GDP ratios and equivalent growth pay much, much lower rates.

Japan has had terribly low growth rates for the last 15 years along with vastly higher debt to GDP ratios. Why is there no run on their bonds?

What's being discussed as regards the ECB? Is it essentially them printing more euro's?

If so, isn't that inflationary?

If it's inflationary I believe that would drive bond rates higher to compensate.

I.e., I'm not understanding either (1) what they're supposed to do, or (2) how printing more money would be an answer to the already too high bond rates.

Fern

 

[Fern]

I'm not a conspiracy theorist but after today it occurred to me that if someone wanted to create a superstate and get countries to give up sovereignty willingly this type of crises would be perfect. Looking at what happened and what is happening this is looking more likely. This whole crises looks like someone planned it and is dragging it out. It's all about Europe 🙂

Kind of looks to me like Germany finally conquored Europe.

Fern

 

[Infohawk]

Does anybody else see this as European countries cutting their budget during a recession? Should give the Progressives here a heart attack cuz they seem to think that's the worst possible thing, ever, in the history of the world, and Paul Krugman says so.

Fern

I see this as the current national leaders trying to do just that (good idea or not) and trying to be able to blame the EU for it so their citizens don't behead them.

Yeah, I'm expecting some proud country like Greece, Italy or Spain to have a firery nationalistic type politician come along and get them all fired up and tell the EU to go pound sand.

I don't see good things ahead.

Fern

It could also be a socialist though. I don't foresee war so much as a step back for European integration. But maybe that's not the end of the world. Greece has a population of 11 million people for heaven's sake. How big of a deal would it really have been to let them have their own currency and default? Perhaps it would have been better than this never-ending mess?

 

[Infohawk]

I'm not a conspiracy theorist but after today it occurred to me that if someone wanted to create a superstate and get countries to give up sovereignty willingly this type of crises would be perfect. Looking at what happened and what is happening this is looking more likely. This whole crises looks like someone planned it and is dragging it out. It's all about Europe 🙂

Yeah... and more important than whether it's true or not is that a lot of Europeans are going to be thinking this, which is obviously not good...

 

[PingviN]

It could also be a socialist though. I don't foresee war so much as a step back for European integration. But maybe that's not the end of the world. Greece has a population of 11 million people for heaven's sake. How big of a deal would it really have been to let them have their own currency and default? Perhaps it would have been better than this never-ending mess?

We (in the EU) don't give two shits about the Greeks, we care about the French and German banking system. It's not guaranteed they would remain stable if Greece was to default uncontrolled and the world definitely not want that to happen.

 

[fskimospy]

What's being discussed as regards the ECB? Is it essentially them printing more euro's?

If so, isn't that inflationary?

If it's inflationary I believe that would drive bond rates higher to compensate.

I.e., I'm not understanding how this ECB action would be an answer to already too high bond rates.

Fern

It would be exactly them printing more euros, and it would quite likely be inflationary. It would also almost certainly result in a massive decline in bond prices. Bond prices are high right now because of what investors perceive to be a high risk of default, ECB action removes such a possibility.

What is going on right now is basically a bank panic on a state level. While perhaps fears of inflation would make prices higher than they might be otherwise, the removal of the default panic would be a FAR larger influence on interest rates than modest eurozone inflation going forward.

 

[OlafSicky]

Yeah... and more important than whether it's true or not is that a lot of Europeans are going to be thinking this, which is obviously not good...

If you dig in to it, EU history started in 1945 after WWII and who is the major “winner” sorry player now. :whiste:


http://en.wikipedia.org/wiki/History_of_the_European_Union

 

[0roo0roo]

Does anybody else see this as European countries cutting their budget during a recession? Should give the Progressives here a heart attack cuz they seem to think that's the worst possible thing, ever, in the history of the world, and Paul Krugman says so.

Fern

Only because they have no choice, no control over their own currencies...and because they are broke to a degree that makes the us look healthy by comparison..which is pretty damn bad. Countries like ireland and greece are literally living on continuous bailout.

Eu is a joke, they took this last meeting on friday to consolidate their powers, and push forth their preexisting agenda of eu power grab instead of dealing with the fundamental issue of debt. They just shoved that right under the table while they played politics as usual.

And yes, its pretty undemocratic, was for a long time, and they just made it worse. But they had all those countries cornered, imprisoned really, there was no escape, no real mechanism for leaving without creating an instant economic disaster for yourself, so they all choose to push the disaster down the road instead.

 

[mshan]

"Japan has had terribly low growth rates for the last 15 years along with vastly higher debt to GDP ratios. Why is there no run on their bonds?"

"Unlike typhoons, which come and go, the Japanese quagmire has been getting deeper and ever more perilous, but all predictions of a financial cataclysm have been premature. So far.

In fact, every time I return to Tokyo, I am amazed by how much the city has changed. Clusters of high-rise buildings have replaced run-down city blocks. They come with new streets and immaculate metro stations. Train lines have been added, others have been extended. When a crack appears in a street, they repave the street, and they do it in a labor-intensive way with too many workers watching respectfully what the few are doing. The workers aren't low-wage immigrants but Japanese in intriguing uniforms. The healthcare system is universal. Pensions for those who retired some years ago are adequate.... But there is one issue.

Debt. Gigantic amounts. Gross national debt has reached 230% of GDP, by far the highest in the developed world. By comparison, tottering Greece just breeched 150% and the U.S. 100%. Japan's catastrophic level of indebtedness has been made possible by factors that are unique to Japan, but some of them have begun to reverse, and the endgame has started..."

http://www.testosteronepit.com/home/2011/9/21/how-long-can-japan-play-the-endgame.html

Kyle Bass said the Japanese are the most xenophobic people in the world, when they need to welcome immigration from Chinese, South Koreans, and Brazilians who want to work in country. He also said Japanese would lose about 1/3 of their savings as Eurozone debacle places itself out to conclusion (not sure of mechanism of this): http://www.youtube.com/watch?v=5V3kpKzd-Yw



As for the topic at hand, I would agree with Fern that it will take a day or two for detailed, thoughtful analyses to show up on internet so we all can generate a more informed opinion on whether we think what happeend is actually good or bad.

Stock market's initial reaction was underwhelming (looking for a bazooka and got a squirt gun), but in the grand scheme of things constructive nonetheless (two steps forward, one step back, two steps forward, two steps back). I think what they did yesterday relieved some very serious immediate liquidity stresses lurking below surface and not reported in main stream media to prevent panic.

There was some mention late in day by Michelle Cabrusso Cabrerra that IMF may have found another $270 billion for eventual bailout funds, so maybe that is why stock market started to rally strong into close (?)

Pieces of the puzzle seem to definitely be falling into place, but the crucial pieces are still missing (how to you actually fund this immediate bailout mechanism so you say can cover Italy's $400 billion Euro debt and Spain's $200 billion Euro debt that needs to be rolled over next year if they lose total access to private markets, and how, ultimately, do you recapitalize these banks)

 

[Infohawk]

Kyle Bass said the Japanese are the most xenophobic people in the world, when they need to welcome immigration from Chinese, South Koreans, and Brazilians who want to work in country. He also said Japanese would lose about 1/3 of their savings as Eurozone debacle places itself out to conclusion (not sure of mechanism of this): http://www.youtube.com/watch?v=5V3kpKzd-Yw)

What a weird post... It describes an organized and rich Japan, despite its debt. But then somehow the answer is to import poor third-worlders? Why? Youth unemployment is already high in Japan. Why would you give them more competition from people who are only going to cause tension in xenophobic Japan?

 

[the DRIZZLE]

The interest rates are going up due to a self fulfilling bond panic. Countries pass small bailout packages, it does nothing. Countries impose austerity, it does nothing. Why? Because they aren't addressing the problem. When the ECB steps in and offers to act as a lender of last resort, you will see these bond problems disappear overnight.

Yes with a but. The idea of being a lender of last resort is that you say "I will buy all the bonds if I have to in order to keep rates down". Generally this calms markets as you said. The catch is that you may in fact have to buy all the bonds in circulation.

 

[mshan]

I have heard this commentary on radio by Charles Osgood or someone else about how a young third world mom with a child might end up being precious commodity in future.

I didn't understand what the commentator was trying to say at time, but I believe it means you need influx of new influx of younger and new taxpayers to offset aging population that is budging in Japan, Europe, and US (guess you could in some distorted way say that is what is needed to maintain current Ponzi schemes in terms of taxes, social security, medicare, whatever other example you may want to use).

Florida has had low taxes for so long because of net influx of new residents in state for nearly a century. Now that has stopped and reversed and it is contributing to their poor fiscal state (in addition to horrible housing crash in the state, of course).

Kyle Bass's comments on benefits of immigration start around 34 minute mark here: http://www.youtube.com/watch?v=5V3kpKzd-Yw (his Japan xenophobic specific comments start around 38 minute mark)

 

[Infohawk]

I have heard this commentary on tv by Charles Kuralt or someone else about how a young third world mom with a child might end up being precious commodity in future.

I didn't understand what the commentator was trying to say at time, but I believe it means you need influx of new influx of younger and new taxpayers to offset aging population that is budging in Japan, Europe, and US (guess you could in some distorted way say that is what is needed to maintain current Ponzi schemes in terms of taxes, social security, medicare, whatever other example you may want to use).

If they were so precious, third-world countries would be utopias. In fact, they're the opposite. The reality is that they generate low wages that are never going to be able to pay for first-world social services. In fact they likely consume more services (education and health care for the child) than they provide. Again, Japan doesn't have a shortage of young people. They have a shortage of jobs that have actually moved to China and Brazil.

 

[mshan]

Just watch the Kyle Bass video, starting around 34 minute mark, and decide for yourself.

He said Japan has decline in absolute population and bulge in proportion of population is aging. Social safety net Ponzi schemes need more people paying in than taking out for them not to collapse.

He says that you need to monitor immigration on low end (his term, not mine), but encourage immigration of entrepreneurs with higher education and capital to start up new businesses in U. S. (instead of say India), which provides some context for political talking points about giving visas or citizenship to immigrants who can start businesses here or buy a $500000 house in U. S.

Watching that whole video is worthwhile because it helps provide some context for what otherwise might seem like radical talking points by both Republicans and Democrats.

Here are some bullet points I added to another thread while I watched that video previously:

Bullet Points:

- solvency of Greece (interest payments over 10% of central government revenue = insolvency)
- origins of IMF and White being Russian spy who gave U. S. printing plates to Russians
- U. S. losing veto power in IMF
- Barney Frank comment about funding IMF
- we need to reduce spending by 5% and increase revenue around 2.5%
- long-term housing market projection (around 27 minute mark)
- GFEs didn't charge enough points for risk taken (after 28 minute mark)
- what does actual Greek default look like (don't know if Greece already received tranche of bailout funds to cover payments from Dec. 19 - Dec. 30 mentioned in video clip; Japanese are going to lose 1/3 of their savings) (30 minute mark)
- his Japan scenario, including how U. S. benefits from both legal and illegal immigration (~ 34 minute mark)

"Unlike Italy where foreign bondholders would pay for a default, Japan can't allow itself to default. A steep price will nevertheless be exacted from the Japanese people. It will come in form of higher taxes on income and consumption (in the works), higher costs (happening), and lower wages (continuing). Entitlements will be whittled down. Some will disappear. Meanwhile, companies will be subsidized or get bailed out (happening). But these measures will only kick the can down the road—though kicking a can on the road is precisely what you don't do in Japan." http://www.testosteronepit.com/home/2011/9/21/how-long-can-japan-play-the-endgame.html

- owning physical gold (42 minute mark)
- social unrest / Occupy Wall Street comments (around 44:50 mark)
- killing the dollar (around 47:40 point)

"The cost would be inflation and devaluation. As in the US, inflation would fluctuate between 2-5% a year, or 30-50% every decade. As in the US over the last twelve years, it would entail the gradual impoverishment of the middle class whose wages would rise more slowly than inflation. So that governments could fund their deficits with free money, the ECB, just like the Fed, would force yields below the rate of inflation. This form of financial repression would devastate fixed-income investors, pension funds, and savers. By taking control of the credit markets through printing money, the ECB would shield Eurozone governments from the harsh discipline that markets can impose. Unrestrained, deficits would skyrocket." http://www.testosteronepit.com/home/2011/11/21/euro-schizophrenia-in-germany.html

- more Freddie / Fannie / GSE comments - raise basis points from 20 to 70 to pay back government (around 52 minute mark)
- we should try Switzerland private bank model LOL! 🙂 (if you are an officer or director of private bank in Switzerland, you have personal liability for assets of banks, so once cap structure of bank is exhausted, you are on hook) start around 59 minute mark

My comments here are based upon my take of what I think Kyle Bass said; watch the video yourself and, as always, decide for yourself.

 

[0roo0roo]

What a weird post... It describes an organized and rich Japan, despite its debt. But then somehow the answer is to import poor third-worlders? Why? Youth unemployment is already high in Japan. Why would you give them more competition from people who are only going to cause tension in xenophobic Japan?

As he said, watch the video.

What choice do they have, if they don't increase in population, their burden becomes worse and worse with fewer to carry it, just a numbers game.

And on the flip side, if what you are saying is right about unemployment, decreasing birthrate should have meant full employment? There are just not enough workers to fill the jobs? Doesn't quite work...

his greece video which is shorter
http://www.youtube.com/watch?v=rsCGI7s1SBg

if i remember correctly his 2010 talk had more working slides..which are interesting to see, esp on japan
http://www.youtube.com/watch?v=WWgtzwqWh60&feature=related
2011 had problems with that...

 

[Infohawk]

And on the flip side, if what you are saying is right about unemployment, decreasing birthrate should have meant full employment? There are just not enough workers to fill the jobs? Doesn't quite work...

No, that wasn't my flip side. Did you read the part where I said jobs are going to third-world countries? Importing more third-worlders will make the problems worse, not better.

Anyway, the proof is in the pudding. Japan is up there as one the richest and safest countries in the world with no real meaningful immigration. The debt at the end of the day is a number on paper and nobody has answered eskimospy's challenge of "so what?" Meanwhile, the US is taking all of central America and still has high unemployment but not enough money to pay for all the social services they and the existing natives require.

All of this is off-topic though so I will try to let others have the final word. More on topic is answering the question of why Europe's debt is leading to high interest rates, but not Japan.

 

[mshan]

Great insights for this thread starting at 13 minute mark: http://www.youtube.com/watch?v=rsCGI7s1SBg

As he says, simply put, how many of your relatives would you go joint and severly liable with? (Germany and profligate southern Eurozone members)

I think that comment might provide proper context for what Merkel and Germany might ultimately be trying to achieve (?)

 

[mshan]

"More on topic is answering the question of why Europe's debt is leading to high interest rates, but not Japan."

This is only a somewhat informed guess, but I would surmise that differentiation of borrowing costs in Europe reflects simple fact that PIIGS debt is no longer considered equivalent to that of Germany.

As to why the endgame in Japan has not yet commenced, seems like float of bonds not held domestically by Japanese is low and Japan's central bank can, at least for now, out-print any speculator that is trying to short the Japanese bond market (speculators may ultimately be proven right, but they don't have staying power to out wait the Japanese central bank, at least right now).

Seems to me that French now they are in deep, deep caca, and irrespective of whomever becomes next French president, they all want the ECB to print, print, print.

Merkel and her ruling coalition have to worry about losing power in upcoming elections (9 year old conceptualization on page 2 here: http://blogs.reuters.com/felix-salmon/files/2011/09/09-06-11-EOTM-European-Minifigure-Union.pdf), so are really trying to walk a tightrope that could conceivable lead to a financial accident in Europe that temporarily takes down stock markets around the world and possibly puts Europe into depression and the rest of the world into recession. What happened at that recent EU summit has seemed to reduce immediate concerns about that happening now, but slight tail risk is probably still there.

 

[fskimospy]

This is only a somewhat informed guess, but I would surmise that differentiation of borrowing costs in Europe reflects simple fact that PIIGS debt is no longer considered equivalent to that of Germany.

As to why the endgame in Japan has not yet commenced, seems like float of bonds not held domestically by Japanese is low and Japan's central bank can, at least for now, out-print any speculator that is trying to short the Japanese bond market (speculators may ultimately be proven right, but they don't have staying power to out wait the Japanese central bank, at least right now).

So you are agreeing with me then? The presence of the Japanese central bank is preventing a run on their bonds, thus the existence of a similar lender of last resort would result in a similar situation for European countries.

 

[mshan]

Please read this whole article: http://www.testosteronepit.com/home/2011/9/21/how-long-can-japan-play-the-endgame.html

It says Japanese can't afford for Japan to default because so much of that debt is held domestically, but if Italy defaults, it will be foreigners who take the hit.

You may indeed be ultimately proven right regarding the Japanese endgame, but it sounds like if you put on that bet now, Japan can stay solvent longer than you can stay liquid (as MF Global just proved - Corzine's bets on European sovereign debt may ultimately be proven right, but his liquidity dried up and his company won't be around to profit from that endgame):

"If 97 percent of your capital is borrowed, you can’t afford to make a trade that may be correct eventually, because in the meantime creditors will put you out of business." (this quote is referring to LTCM, not MF Global)

"Corzine’s bet may still prove correct; “these countries” -- Italy and Spain, for instance -- may emerge from the current crisis solvent. But if they do, MF Global will not be around to reap the gains. Because the firm was so highly leveraged, and because it was dependent on short-term financing, its liquidity dried up and it failed. This seems to be the lesson that Wall Street never learns." addendum: http://www.cnbc.com/id/45610428

"Time and again, otherwise canny investors fall for the salve that in a liquid market, they can always get out, therefore what’s the problem? At Lehman, in the mid 2000s, executives took comfort in the notion that that the bank was in the “moving business” not the “storage business.” Then, the mortgage market froze, and everyone was in the storage business.

Liquidity is a backward-looking yardstick. If anything, it’s an indicator of potential risk, because in “liquid” markets traders forego trying to determine an asset’s underlying worth - - they trust, instead, on their supposed ability to exit."

http://www.bloomberg.com/news/2011-...ns-of-long-term-capital-roger-lowenstein.html

Please also remember that the only bond futures markets in Europe are Germany and Italy, so it may be possible for those trying to foment an immediate crisis in Europe to artificially distort bond yields in those countries (?) http://video.cnbc.com/gallery/?video=3000054854 (1:20 mark)