Tag Archives: PIIGS

Deutsche Bank Agrees – Barnaby Was Right

24 Apr

Will Goose, Henry, Stevens, and Co. now step up and apologise to Barnaby for mocking his warning about US debt levels?

US finances are in almost as troubled a state as the worst-hit members of the euro zone, economists say, underscoring the pressing need for Washington to reach agreement on how to reduce the deficit.

A gauge of “sovereign risk” from economists at Deutsche Bank placed the United States just behind Greece, Ireland and Portugal among 14 advanced economies.

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Gottliebsen: In The Eye Of GFC Storm

30 Jun

Highly respected business commentator Robert Gottliebsen appears to agree today with what Barnaby Joyce has been saying since October last year – that the GFC is far from over.

From Business Spectator:

Despite a late US Dow index rally, last night was among the more serious sharemarket falls we have experienced since global financial crisis plunged markets in 2009.

We are well above the dismally low levels witnessed on equities markets during the crisis, but last night you could see fear in almost every corner of the world. The forces that are behind each of the fears are probably manageable, but when they occur together, as what happened last night, they triggered waves of selling, including a savaging of the Australian dollar.

And of course Gillard’s mining tax dithering is rekindling global doubts about the sovereign risk of this country which threatens to put Australia and our high house prices in the eye of the storm.

And for most Australians, the global wave of selling will be reflected in our share prices levels at June 30, which means that the value of superannuation funds will be hit on balance day. Many retirees will have their income reduced for the year ahead…

Clearly China is slowing much more rapidly than expected, and as a result the bad property loans that are in its banking portfolios will weigh down future growth.

In the past China has always managed these issues and I think it will do it again, but the markets fear there will be much more pain than had been anticipated.

Meanwhile, in Europe the big banks have been playing the stupid game of borrowing from depositors and then investing in the sovereign debts of European countries that can’t pay.

Tomorrow the banks are supposed to repay €442 billion in emergency loans but they almost certainly will have to be bailed out again. Fears of bank collapses are rife. On top of this dire outlook, Europe’s austerity measures will bring on recessions in countries ranging from Greece to the UK which will make it even harder for the banks. And the strikes in Greece will be repeated in many countries, which could make the spending cuts impossible to deliver.

In the US they are helped because in a crisis money flows to the world currency, so the US dollar rises. Nevertheless, there are still chronic housing problems so consumer confidence is depressed and the US economy is still living on the old stimulus packages. Accordingly Wall Street’s earnings estimates look too optimistic.

Barnaby is right.

Complete And Definitive Guide To The Sovereign Debt Crisis

30 Jun

Professor Niall Ferguson, of the acclaimed book and ABC documentary series The Ascent of Money, has recently published a brilliant guide to the global sovereign debt crisis.  Click here to read it.

Back in February, Professor Ferguson had this to say in the Financial Times:

… it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate…

Europe Faces Gravest Challenge Since WWII

17 May

From AAP (via The Australian):

Warnings that Europe faces its gravest challenge since World War II and that the “contagion” from troubled states such as Greece could quickly spread have heightened anxiety in global markets after a steep plunge on Friday reversed much of the week’s gains.

The optimism that followed last week’s E750 billion ($1.05 trillion) European bailout evaporated late on Friday, with markets across the continent plunging and Wall Street closing sharply lower.

The euro tripped to its lowest level against the US dollar in 18 months on Friday on fears of years of weak economic growth in the 16-nation European bloc. The euro is at a record low against the Australian dollar, buying just $1.3974, down from more than $2 early last year.

The euro was not helped by comments by US President Barack Obama’s top economic adviser Paul Volcker, who spoke on Friday of the potential “disintegration” of the 16 nations that share the euro currency. And Paris has had to deny reports that President Nicolas Sarkozy threatened to pull France out of the euro to force German Chancellor Angela Merkel to bail out Greece.

European Central Bank president Jean-Claude Trichet at the weekend called for more action by euro-zone governments to improve fiscal governance.

“We are now experiencing extreme tensions,” he said in an interview with Germany’s Der Spiegel magazine. “In the market, there is always a danger of contagion — like the contagion we saw among the private institutions in 2008.”

And from Business Spectator:

Yesterday, Angela Merkel, German chancellor, warned that the $1 trillion rescue package had only bought Europe time, and that further steps were needed to address the differences in competitiveness and budget deficits between the member countries.

In a speech to the annual German trade union conference, Merkel emphasised that speculation against the euro was only possible because of the huge differences in economic strength and the levels of debt between individual eurozone members.

Meanwhile, the head of the European Central Bank, Jean-Claude Trichet, emphasised that it was urgent that eurozone countries rectify their budget deficits.

In an interview with the German magazine, Der Spiegel, Trichet said that the world was now facing “the most difficult situation since the Second World War – perhaps even since the First World War. We have experienced – and are experiencing – truly dramatic times.”

He said that after the events of 2007-8, “private institutions and markets were about to collapse completely”. That triggered governments to step in with very bold and comprehensive financial support.

The problem was that markets were now questioning whether some governments could afford to repay their debts.

Click here for 9 simple charts that show why a collapse of the Eurozone is inevitable.

9 Charts Show Why Eurozone Collapse Is Inevitable

10 May

Here are some simple charts that demonstrate why anything and everything that the EU, ECB and/or the IMF can do now, is simply to delay the inevitable disintegration of the Eurozone.

From Der Spiegel: (click on images to enlarge)

And finally, one more chart showing how interconnected (thus vulnerable) the Eurozone countries are, due to the enormous sums of money owed by member countries just to each other: (click on image to enlarge)

Eurozone Faces Bankruptcy, Disintegration

10 May

Could the Eurozone go bankrupt? One of Germany’s leading newspapers believes so.

From an excellent major article in Der Spiegel:

Huge National Debts Could Push Eurozone Into Bankruptcy

Greece is only the beginning. The world’s leading economies have long lived beyond their means, and the financial crisis caused government debt to swell dramatically. Now the bill is coming due, but not all countries will be able to pay it.

The euro zone is pinning its hopes on (IMF negotiator) Thomsen and his team. His goal is to achieve what Europe’s politicians are not confident they can do on their own, namely to bring discipline to a country that, through manipulation and financial inefficiency, has plunged the European single currency into its worst-ever crisis.

If the emergency surgery isn’t successful, there will be much more at stake than the fate of the euro. Indeed, Europe could begin to erode politically as a result. The historic project of a united continent, promoted by an entire generation of politicians, could suffer irreparable damage, and European integration would suffer a serious setback — perhaps even permanently.

And the global financial world would be faced with a new Lehman Brothers, the American investment bank that collapsed in September 2008, taking the global economy to the brink of the abyss. It was only through massive government bailout packages that a collapse of the entire financial system was averted at the time.

A similar scenario could unfold once again, except that this time it would be happening at a higher level, on the meta-level of exorbitant government debt. This fear has had Europe’s politicians worried for weeks, but their crisis management efforts have failed. For months, they have been unable to contain the Greek crisis.

There are, in fact, striking similarities to the Lehman bankruptcy. This isn’t exactly surprising. The financial crisis isn’t over by a long shot, but has only entered a new phase. Today, the world is no longer threatened by the debts of banks but by the debts of governments, including debts which were run up rescuing banks just a year ago.

The banking crisis has turned into a crisis of entire nations, and the subprime mortgage bubble into a government debt bubble. This is why precisely the same questions are being asked today, now that entire countries are at risk of collapse, as were being asked in the fall of 2008 when the banks were on the brink: How can the calamity be prevented without laying the ground for an even bigger disaster? Can a crisis based on debt be solved with even more debt? And who will actually rescue the rescuers in the end, the ones who overreached?

So, the GFC is ‘over’, is it Ken?

Cracks Multiply In Europe

7 May

From Business Spectator:

Global share markets plunged overnight as panicked investors worried that the eurozone could fragment as a result of the escalating European financial crisis.

The European banking system is under huge strain* as banks are increasingly reluctant to lend to each other. The European banks are worried about how much other banks have lent to the weaker eurozone countries – the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) – and the catastrophic losses that could ensue if any of these countries defaulted on their debt.

At the same time, there’s been a flight of capital out of the eurozone as investors have worried the common currency might crumble as a result of the problems in the vulnerable economies of the PIIGS (Portugal, Ireland, Italy, Greece and Spain).

The huge question mark over the eurozone’s survival is causing the euro to plummet. Increasingly, market analysts are predicting that the currency, which broke through the $US1.30 earlier this week for the first tine since April 2009, is set to hit parity with the US dollar.

There is an increasing consensus that the $US145 billion European Union-IMF rescue package for Greece is not sufficient to solve Greece’s basic problem – that it is simply unable to service its colossal debts. There are also questions as to whether Greece will be able to implement the punitive austerity measures it is being forced to adopt in exchange for the bailout.

At the same time, there are increasing signs that even if it bails out Greece, Germany will not be prepared to write the huge cheques required to help other vulnerable PIIGS.

German taxpayers are already outraged at having to pick up a large chunk of the cost of the Greek bail-out, and Germany’s largest opposition party, the centre-left SPD, has said that it will not vote in favour of the bill.

Predictions that the cascading PIIGS debt crisis will cause the eurozone to collapse are becoming more widespread.

* That the European banking system is “under huge strain” and is beginning to freeze up (again) has profound implications for our economy. Why?

As explained in this post a few days ago, even the heads of our major banks quietly admit that our banking system has an “achilles heel” – it is desperately dependent on the international wholesale capital markets for funding.  If/when the banking system abroad seizes up again, our banks will be in deep trouble.

Watch out for the emergency reinstalment of the government’s Bank Guarantee, hoping to again prop up international confidence in our banks so that they can continue to attract funding in a second credit crunch.

Watch out also for higher interest rates charged by the banks – irrespective of the RBA cash rate – due to their having to pay ever higher interest rates in order to get that international funding in the first place.

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