Breaking up the Euro?

November 9, 2011 by · Leave a Comment
Filed under: Opinion 

Watching Bloomberg TV today and it looks like they are seriously considering breaking the European Union (EU) up via the monetary zone.  This news was received with a very negative reaction from market sending down all indexes over 3% in a single trading session.

What I think this was a wake-up call that the financial crisis has never left us and all we did was create more debt (stimulus) to try and start a recovery.  The problem is the same problem from the beginning.  It is a debt problem, as in too much debt then what could be sustainably taken and still meet their debt service obligation and grow.

Now that we are talking about breaking up the Euro means that we are now realizing the only thing we can do to solve a debt problem of this scale is DEFAULT.   You can never solve a real debt crisis with creating more debt.   You have to default or restructure with serious cuts in the principle owed and this will harm the lenders and that means many banks are just as insolvent as they were in 2007.   We need to face this fact and take the pain.

The whole reason I started this blog was to bring focus to the growing foreclosure problem and these macroeconomic problems we are dealing with.  I am not saying this because I want to be a pessimist, I am saying this because it is the truth and the “real” path to a recovery in this country.  After this we have to tackle the U.S. unemployment problem and that will solve the housing problem.  Sorry to say that the solution to that does involve a measure of protectionism in America and that will  be a good thing.   People can not be allowed to dump on our markets while sending jobs to countries you are paying $1 a day in wages and have no real environmental protections.

That is the bottom-line and these so-called experts need to get a grasp on this and acknowledge the problem.  Free-trade dogma has run its course and we now see what happens when you take it to this extreme.  I am not saying we go back to the 1930’s on the protection front, but we do need to protect American jobs because we do have the most valuable market in the world to sell in and because of that, it is a privilege to sell goods here just like we are treated when we go in their markets (ie China).

We need to focus on all countries building their own domestics markets and help them create jobs locally to serve their own market first and foremost, then you do your trading between partners.   We need jobs period, if you do not have jobs then you put people on public assistance and over time that will drag down your economy.    Just think about the latest figure that 51% of eligible Americans are now on some sort of public assistance.  This could be the tipping point of no-return without major structural changes.  I believe it is.

Britain at risk of worse deficit crisis than Greece in the EU

February 19, 2010 by · Leave a Comment
Filed under: Currency News 

The Euro has been taking a beating after the news of Greece did not seem to calm investors and now these numbers from the UK showing there deficit is going to be even larger than projected this year.  With this waning confidence in all other currencies and strength in the U.S. dollar, it is looking more and more likely that we are not seeing a recovery and instead this bear market rally is over and now it might be time to retest lows set in March last year.  Very interesting times.

In surprise news which sent the pound sliding on Thursday, official figures showed that the Government borrowed £4.3 billion last month.

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Jobless Rate Climbs to 9.2% in European Union (EU)

June 2, 2009 by · Leave a Comment
Filed under: Global News 

The common theme I hear is the “less bad is good” theme.  It figures that because the economic statistics are not as bad as they were, that must mean good times are ahead.  I am not so sure about that, we could either be in a lull or maybe we will be here for quite some time while this global recession lags on making the recovery more protracted.  

In this article it is reported that Spain is at 18% unemployment, that is the formula for mass civil unrest.   The longer people do not have a job the more desperate they become or it forces the government to continue to provide for these people which also has side effects like running large deficits.  I am not sure where this is going but I do think the worst may still be ahead of us before we actually do get better.

News (NY Times):

The unemployment rate in the European Union pushed higher in April, the E.U. statistics office said Tuesday, indicating that nascent signs of economic recovery had yet to be felt in the Continent’s labor market.

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European Union(EU) calls for clear plan on valuing credit derivatives

October 18, 2008 by · Leave a Comment
Filed under: Global News 

Me and many other notable analysts and economist have been saying that this is the number one crisis we have to deal with in this financial catastrophe.   This is the core reason banks are not lending to each other.  Many global banks and insurance companies were big players in this market.  It has also grown to a staggering $600 trillion dollars which is 6 times the value of all equities and bonds on the plant ($100 trillion).  Banks are very afraid that their counter-party will not have the ability to pay so in a situation where a person thought they had protection is actually now taking full risk.  

I am not sure a clearinghouse is going to solve anything, in my opinion we have well past an amount of derivatives which would be manageable and at this point we should let these institutions fail to cleanse the market, set correct precedence and restore trust by doing what should happen when companies make choices that puts the company at risk and fails.  Let them fail.  Until I see some fundamental change I will not be taking on any debt or extra-ordinary risks.   

IHT News Piece:

 

European Union regulators called Friday for a clear plan on valuing some of the shadowy high-risk credit derivative investments — estimated at around US$600 trillion (€444 trillion) — that are now a key issue in easing the global financial crisis.

Billions of euros (dollars) have been wiped off banks’ balance sheets in recent months on fears that some complex investments may be based on assets that are nearly worthless — such as housing loans that may not be paid back when a recession puts people out of work.

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