Eurozone Sovereign Debt Crisis part 2 - Ireland

[Jason]

So what you are really saying is that the eu should be extended to allow in commonwealth countries and the US? To form a world government? Certainly having just one world currency would be an emormous benefit to everyone.

No, I'm saying that nation states should co-operate more - and I think a consequence of the euro crisis is that co-operation is being encouraged.

The euro's crisis is existential. This much is not in contest - a EuroZone nation has this week said it may leave, while almost all analysts feel that the number of nations will leave the euro. There are sober commentators predicting a negligible chance of the euro surviving ten years. The EU cannot survive the end of the euro - legally it falls to bits without the euro, and no-one is suggesting nations would sign up to another treaty pledging some for of ECU leading to euro2. IMO we're looking at a failure of both euro and EU. Leaving aside the rights and wrongs of this, with the EU gone we will be left with the nation states, and these have to co-operate.

If we do come to look at some sort of Commonwealth+ or Anglosphere as a grouping which grows as the EU declines I suppose there is a valid question as to which European nations can or would want to be part of such a grouping. I think there could be some. Maybe the question is not whether Commonwealth nations might join the EU but whether France would join the Commonwealth! (France has of course been invited).

 

[Perados]

No, I'm saying that nation states should co-operate more - and I think a consequence of the euro crisis is that co-operation is being encouraged.

The euro's crisis is existential. This much is not in contest - a EuroZone nation has this week said it may leave, while almost all analysts feel that the number of nations will leave the euro. There are sober commentators predicting a negligible chance of the euro surviving ten years. The EU cannot survive the end of the euro - legally it falls to bits without the euro, and no-one is suggesting nations would sign up to another treaty pledging some for of ECU leading to euro2. IMO we're looking at a failure of both euro and EU. Leaving aside the rights and wrongs of this, with the EU gone we will be left with the nation states, and these have to co-operate.

If we do come to look at some sort of Commonwealth+ or Anglosphere as a grouping which grows as the EU declines I suppose there is a valid question as to which European nations can or would want to be part of such a grouping. I think there could be some. Maybe the question is not whether Commonwealth nations might join the EU but whether France would join the Commonwealth! (France has of course been invited).

nations should co operate... nothing else is the EU for

and i dont think that the USA or japan would join the commonwealth... for the usa its already hard to co operate with mexico and canada in the nafta

and japan wouldnt join cause they already made their desittion to trade and co operate more wih china and south corea


and you think france could join?
after an euro collaps the french banksystem will collaps also... you dont want than THIS france will join
and an expanded commonwealth without germany??? im disapionted i would say elizabeth of sachsen coburg gotha would say we can join

 

[eurotop40]

nations should co operate... nothing else is the EU for

and i dont think that the USA or japan would join the commonwealth... for the usa its already hard to co operate with mexico and canada in the nafta

and japan wouldnt join cause they already made their desittion to trade and co operate more wih china and south corea


and you think france could join?
after an euro collaps the french banksystem will collaps also... you dont want than THIS france will join
and an expanded commonwealth without germany??? im disapionted i would say elizabeth of sachsen coburg gotha would say we can join

You don't understand Per, the nation states should co-operate under the benign supervision of HM the Queen who is depositary of the faith and of the truth so that the whole world is modeled according to the intrinsic superiority of the Homo Britannicus.

Btw, speaking about superiority of the Homo Britannicus watch this:
Penis Hygiene - Sexperience
and read underneath the video window.

 

[dandelion]

The only time the queen gets to speak her mind is when she addresses the commonwealth, where she isnt working on autopilot as spokesman for the British PM.

 

[Perados]

The only time the queen gets to speak her mind is when she addresses the commonwealth, where she isnt working on autopilot as spokesman for the British PM.

Yes but to the commonwealth of realms not of nations...
The whole CoR akts like one "ordinary state" inside the CoN. Together with the other nations (for this nations the queen isnt the head of state) they create the commonwealth of nations

 

[Jason]

Meanwhile in EuroLand today, shares in Italy's biggest bank UniCredit have been suspended.

The background is that UniCredit tried to raise money it needs by a rights issue, on terms so good that investors should have been fighting for a piece of the action. Instead just 24% of the shares offered were taken and as the share price started to plunge it was suspended.

UniCredit needs E7.5bn which the markets will not offer it. It seems the Italian government must pay up, though there is talk of having a go at again offering shares to the markets (maybe "buy one, get two free" would be an appropriate slogan!) The problem is that the failed rights issue has demonstrated the lack of confidence that investors have, so even with these new funds in place there is no certainty that the bank will stabilise.

The failure of UniCredit demonstrates the difficulty all Italian banks will face in the next few weeks. Basically they need Italian government money. If they don't get this - and it is hard to see how they can as Italy would have to back such funds with a lot more austerity - then we're into systemic bank failure.

This is the problem from the failure of politicians to manage the unravelling of the euro. The mantra "the euro will not fail" might sound good, but it is the ostritch solution. Politicians should be managing the process. If they don't the markets will. Politicians and the ECB are doing their best to prop up sovereign debt, so the problem will manifest through non-sovereign debt issues.

The EuroZone has 400-500 dodgy banks including several dozen very large ones. The insanity of the euro without a fiscal union is that there is no way of solving this problem.

 

[dandelion]

More correct to say the world has 1000 or 2000 dodgy banks which have unwisely lent to several dozen countries whose income does not match their expenditure. You may be correct that there is no way to solve this problem. Wonder how long it will be before the US is in default.

 

[Drifterwood]

well, yes. However, one of the features of the recession to date has been basement level interest rates which actually improved finances for a big proportion of households. If I know this, I cant but think it is written in letters of fire on the desk of the governor of the bank of England. Why do you think this is going to change?


You mean an actual profit, or a numerical profit? I imagine we are in for significant inflation (over 25 years even 5% inflation mounts up quite a bit, in fact comes out as money having 1/3 its value) which will majorly erode those debts and even create notional profits. Or do you anticipate an actual house price crash rather than the half hearted slump thus far?

I would be interested in Jason's view on this problem facing the Uk economy. It has seemed to me for some time this is the heart of the modern crisis. We have 'growth' based upon debt and thus we now have excessive debt. The only solution is to get rid of the debt, which must entail abandoning what has become the accepted level of debt fuelled future growth (never to return), plus the shorter term pain of repaying the existing debt.

I think central banks realise that if they were to charge market rates for money, then a huge number of people and businesses would go bust, and then the Banks.

I was using quite a simple model in which I discounted the inflationary effect for the real house value against the real value of the debt. Of course, the more equity you have the worse for that portion of your wealth and real value.

Given that values have gone down in the last fiver years now, coupled with the nature of mortgages being paid from taxed income and typically costing double the headline amount over 20 years, people will be lucky to get the value they have put in and paid for over the next 20 years. This also means that the real leverage value will also disappear. In effect, the debt bubble was created because lenders and borrowers treated the paper escalation in equity as real.

I would also be interested in Jason's view on all these local economic woes.

 

[dandelion]

Of course, the more equity you have the worse for that portion of your wealth and real value.

To take an extreme case of high inflation for several years, which may yet happen: The value of the debt would fall towards zero being numerically fixed, but the value of the equity would grow in numerical terms and in real terms compared to the debt. Your cash savings would become worthless, but your share of the property would keep some value. Property does have a real tangible value as a commodity.

I dont know exactly what the score is but we have had something like 10-20% inflation since this crisis started, which ought therefore to have disposed of 10-20% of real debt. Not much help if incomes are also frozen and slipping at the same rate in real terms, but I dont think they are. Meanwhile the BofE has also printed enough cash to pay another 10-20% of national debt. A nice chunk disposed of.

Given that values have gone down in the last fiver years now, coupled with the nature of mortgages being paid from taxed income and typically costing double the headline amount over 20 years, people will be lucky to get the value they have put in and paid for over the next 20 years.

If there is a large real term fall in values, which is what ought to happen for the general national good, then I guess so. But this is still based on looking at house purchase as an investment. Granted, it has always been one in my lifetime, but I was stopped short many years ago by someone who pointed out that it should not be any more an investment than buying a car. It is just a material item with a finite lifetime which decays and requires constant repair. This ought to be the time we call a halt to the property market as an investment. Housing is a cost, like buying food.

 

[Jason]

I would also be interested in Jason's view on all these local economic woes.

I like the Irish expression "if you want to get there, don't start from here". It is easy to set out the problem. It is harder - but still quite possible - to set out the mistakes that were made to get into this position. But it is very hard - and impractical - to find a short or medium term solution. I think the best we can do is minimise the problem. We need better occupation rates on property, brown field building to go ahead, stronger controls on migration, particularly from the EU.

******

meanwhile the markets are expressing the view that the problem with Italy's UniCredit is solvency, not liquidity. Italian ten year bonds are firmly above 10%. This is a situation which cannot continue for long.

It will be interesting to hear how France's big bond auction goes (later today). In a sense this will be a barometer for the health of the euro.

 

[dandelion]

well low occupancy rates seems suddenly to have become a fashionable excuse. Last I saw an analysyis it said brown field sites was a nonsense, and really only amounted to natural turnover which was always happening. right now, nothing is being built because all the old economic assumptions for profitable housebuilding dont work.

This is a situation which cannot continue for long.

It already has. Is it 5 years now? Slow, steady worsening over this period and no obvious reason for this to turn about now.

 

[Jason]

@Dandelion, I'm not claiming to have solutions to the UK housing issues - indeed I think the reality is that there are no easy solutions. But if the problem were mine to deal with I would be doing the little bit that could be done in tackling brownfield sites and low occupancy rates.

The Italian problem cannot continue for long because ten year bonds are yielding above 10%. This is the time fuse. The interventions by the Italian state and the ECB are unprecedented and have kept Italy solvent into the New Year. But they are not solutions and cannot be continued. This afternoon Italian unelected PM Monti has made an unplanned trip to Brussels and his office will not say why. This looks like an Italian crisis breaking right now.

The French bond auction was fine - a small increase in yields plus an increase in CDS, but nothing too problematic. Yet the euro has still fallen. There are mixed messages. Some chatter is that while official rhetoric is that a break-up of the euro is unthinkable, basic economics says it has to happen soon, and it could be Italy that leads the way. Right now Italy could make some form of southern euro at say 80% of the euro work. It is back to the question of whether our politicians will manage the process or let the markets take them down. Technocrat Monti probably has a better grasp of the realities than any other EZ politician.

 

[dandelion]

@Dandelion, I'm not claiming to have solutions to the UK housing issues - indeed I think the reality is that there are no easy solutions. But if the problem were mine to deal with I would be doing the little bit that could be done in tackling brownfield sites and low occupancy rates.

Well I dont disagree with that, indeed maybe we might be agreeing this ought to be dealt with but isnt going to provide a solution to the overall problem. I went to Denmark a few years ago and was startled to discover they had rules about whether particular properties were designated for full time occupation or were allowed to be part time holiday homes. At the time I was surprised that the state had rules about such things, but maybe we should be forbidding homes to be used as holiday homes in certain places too. Probably we have different priorities to them, but I do think the time has come to impose extra costs on properties which are bought as investments or holiday homes.

The Italian problem cannot continue for long because ten year bonds are yielding above 10%.

As we know, the true cost of a loan depends on what you buy with that loan and inflation. Borrow a billion, build a toll road which returns 20% on the investment and you will cover the 10% interest. 5% inflation will erode away 40% of the capital sum in 10 years. Then, given the state is borrowing steadily over 10 years, even 1 year at a high rate will average out to a reasonable level if interest can be brought down again within a year or two. When Britain left the ERM, or at least just before, interest rates were set stunningly high...for a few hours. It was meaningless. The high interest rate now is pretty artificial based on unwilling lenders coerced into lending and banks being subsidised by the ecb. There are really only two stable positions, either lending at modest affordable rates or total refusal to lend. What we see now is a squabble between these two. The problem is that both stable situations are untenable.

The interventions by the Italian state and the ECB are unprecedented and have kept Italy solvent into the New Year. But they are not solutions and cannot be continued.

oh i think they can. Thats why some lending is still going on. If the banks truly believed the game was up no one would lend anything. The banks know the game is absolutely not over yet.

This afternoon Italian unelected PM Monti has made an unplanned trip to Brussels and his office will not say why.

Probably taking his mates some late xmas presents.

Yet the euro has still fallen.

Which you have told us repeatedly over the years is exactly what was needed. Todays news also had some obsessives trying to make trouble for dianne abbott about some careless comment she had made, and lamely repeating Obamas announcement of massive defence cuts where he says this is absolutely not the US deciding to have a smaller role around the world. News media these days have a horrible tendency to repeat uncritically what is said. So if the US president says despite massive cuts they can still do everything as before, it must be true. A 'fall' in anything must be bad. (indeed, people keep saying the fall in house prices is bad!)

 

[Jason]

The euro needs to fall a lot and a long slide would be excellent news. But this is a sudden downward movement because people are getting jumpy. Yes Italian bonds are no problem if the Italian state can grow at 10%+ for the next decade. But no-one really believes this.

Ah yes the racist comments from Abbott. If a white MP of any party made such comments about black people s/he would be sacked instantly. The quiet response of press and nation is surprising - we haven't had this story dominating the news headlines. Double standards? But not a euro story.

 

[dandelion]

Really? well, I have yet to hear the exact details of the abbott story. She made a comment on twitter about white people which has been considered racist. She then stated it had been taken out of context. She was interviewed and started to explain, but then received a phone call mid interview from her party leader and refused further comment, simply apologising. So clearly she was got at, whatever she intended to say. The explanation she did make said she was referring to 19th century values. I cant say whether I would have considered her comment made sense in context or not, since I havnt seen it. I havnt seen the context reported in several reports of this stories I have looked at now, so I cant tell. All the stories say is that surely she could not make a silly mistake like that, but without saying what actually did happen. The news isnt telling me what did happen, just that someone has considered what happened shocking. I am hearing the views of those persons who felt moved to claim publicly they were shocked, not the facts of what did happen.

So who can assess the reality of news stories which dont even explain the central facts?

example
Q did you kill him?
A No
Where you there?
A yes

News report, " man asked about murder: Q Did you kill him.... A yes"
Journalists wouldnt do that, would they?

 

[MarkLondon]

<snip>
Ah yes the racist comments from Abbott. If a white MP of any party made such comments about black people s/he would be sacked instantly. The quiet response of press and nation is surprising - we haven't had this story dominating the news headlines. Double standards? But not a euro story.

That's an outright lie. The story is dominating the press and TV news coverage in the UK right now. Main headlines. Outraged tory MPs are demanding her resignation from the shadow cabinet and that's getting full coverage. (Black woman MP says something derogatory about whities).

In the shallow reporting her 140 word or less tweet is getting no context. It was a response to another black comentator who suggested that not all immigrant communities are the same. Whether he meant other non-white groups or just people of african descent I am unable to determine from the news coverage at the moment. There is a difference between people from the Caribbean nations of the commonwealth and those who came here directly from (mostly north) African nations. Gang conflict between Jamaican and Somali youths, which has been going on for years is just one example.

You undermine your stance as a sensible commentator on financial matters by resorting to this right-wing political nonsense.

 

[Drifterwood]

Dandy, a friend of mine bought a house in Hampshire five years ago for £760K. According to Zoopla, it is now worth £700K. If you factor back the inflation over this period, it is actually worth as little as £540K in terms of the £ he then paid.

Given that his earnings have not gone up over this period, but the cost of everything else apart from his mortgage has, the deflationary effect on his mortgage is of little consolation. He needs massive increases in the market value over the next twenty years to get back what he has paid in terms of the value of his equity at the time of purchase and the cost of the interest.

The London situation should not be making the locals happy. Before the crash the £ was trading at $2, soon afterwards it went to $1.4 and is now $1.56 or thereabouts. So when property initially dropped by 20% and our currency by 33%, property in real terms was half price for foreign investors, which is why they bought. Of course it was half price for them, but now it has gone back to full price for the locals. Locals are not competing on a level playing field with foreign investors. I am not sure why this makes them happy and as ThickJohnny pointed out, the effect in non foreign investment areas is illusory.

 

[Perados]

You undermine your stance as a sensible commentator on financial matters by resorting to this right-wing political nonsense.

No he didnt...

If you followed this thread long enough, you should have noticed that jason only post news that fit his "theories", he also ignores news that are against his theories and if some news doesnt fit 100%, he is more then just willing to change the fakts the way that they fit his theories...

No, he can post what ever he want... He allready lost all his reputation


And you british have a problem about some one who maybe says something racistic...
In germany we have a problem with our president, cause it isnt cleare how he financed his house and he called a newspaper not to print this story... Very stupid story

 

[ColonialBoy]

So what? It is only virtual reality. Have you every been to Pakistan?

No but here's Australia's 24th Prime Minister, Robert James Lee Hawke AC GLC, practising detente at the India-Australia match a few hours ago.

Bob Hawke skulls a beer at the SCG Australia vs India Jan 4 2012- 1 for the country - YouTube

He holds the record for the highest approval rating for any Australian Prime Minister.

 

[dandelion]

Dandy, a friend of mine bought a house in Hampshire five years ago for £760K. According to Zoopla, it is now worth £700K. If you factor back the inflation over this period, it is actually worth as little as £540K in terms of the £ he then paid.

Given that his earnings have not gone up over this period, but the cost of everything else apart from his mortgage has, the deflationary effect on his mortgage is of little consolation. He needs massive increases in the market value over the next twenty years to get back what he has paid in terms of the value of his equity at the time of purchase and the cost of the interest.

Without checking the numbers, over the last 50 years house prices have doubled and redoubled, and proved a guaranteed hedge against inflation. The public shows every sign of still believing this will resume shortly, it has in the past after various falls. I dont know what your friend thinks, but some people I have spoken to remain eternally optimistic. The shortage of houses for sale, I am sure, isnt simply because owners have negative equity and cannot sell, but because they believe in a few years they will get a much better price. I know someone with a house to sell because of a death, who would be happy to rent it until the market improves. The market has done nothing but deteriorate for nearly 2 years already it has been waiting.

I think the escalating price trend is no longer sustainable because it has hit the limit of the total amount of money available to spend on houses. There is a falling level of owner occupiers, which I guess shows that already they are being priced out of the market and it is heading towards investment owners. Presumably this is what is now holding up the market, but at the same time it may be the last nail in the coffin of home ownership as a 'good thing'. It boomed on the idea of being a sure fire way to make money, but if now the only people making money are investors, the public might finally come round to the idea that eternally rising house prices is BAD.

Your friend illustrates the point that had he bought a very expensive car he might reasonably have expected that now it would have lost a lot of its value. But buying a house, he did not. The only way the public will move to an expectation that property is a cost not an investment is if this actually happens. As yet it hasnt, all we have is one of those market dips which come along from time to time. It remains to be demonstrated that this is a new reality. The shortage of housing in the UK means there is no free market in property, so the price will remain what people can afford to pay unless steps are taken to change this. I think rationing must be introduced, because the effect on the economy of everyone spending all their available cash on houses is just bad.