European Crisis

[The Rabbi]

What will the European crisis mean for the US? It looks like Italy and Spain are going the way of Greece, which is essentially bankrupt. I doubt the Germans will be able to bail out the whole continent. Personally I think the Euro is toast, and the union teetering.
But I suspect many US banks hold sovereign paper. Given the hits they took on mortgage backed securities, can they survive another hit to their assets?

 

[expat_panama]

What will the European crisis mean for the US?...

It's easier to believe what's happened before will happen again than to expect the unprecedented. Doom'n'gloomers are not only morons, they're wrong and things will be better even if we have to wait a couple decades.

...Given the hits they took on mortgage backed securities, can they survive another hit to their assets?

Of course they'll 'survive'. It's amazing how much pain people and societies can live with, but in this case how much pain are we really talking about --more riots in Greece? They riot when governments cut back and they riot when governments don't.

 

[waltky]

Now Italy `bout to go belly up, Granny says look for the EU to fall apart...

Italy Plunge Brings Debt Crisis to EU's Biggest Borrower
July 12, 2011, The plunge in Italian markets overshadowed policy makers’ efforts to fix Greek finances as the euro-region’s debt crisis infected Europe’s largest borrower.

Italian bonds fell for a seventh day and the nation’s borrowing costs jumped by more than half at an auction of 6.75 billion euros ($9.4 billion) of bills today. Stocks pared declines after falling to a two-year low. Warnings by Moody’s Investors Service and Standard & Poor’s over Italy’s ability to trim debt, coupled with infighting in Silvio Berlusconi’s government over a budget-cutting plan, fueled the sell-off. “Italy coming under severe market pressure, being the third-largest economy and a founding member of the EU, signals that the sovereign and banking crisis has reached a deeply systemic phase,” Vladimir Pillonca, an economist at Societe Generale SA in London, wrote in a note to investors today.

The rout in Italy underscored Europe’s inability to contain the crisis that began in Greece in October 2009 and led to bailouts in Ireland and Portugal. Finance ministers last night failed to agree on how to share with creditors the cost of a second bailout for Greece to be financed primarily by its European Union allies, including Italy. The policy makers pledged to complete “soon” the Greek aid blueprint, without giving more details. The meeting in Brussels didn’t discuss Italy, though the ministers were aware the country is now the “focus” of financial markets, Luxembourg’s Jean-Claude Juncker said at a press conference late yesterday.

Acknowledging Contagion

“Europe needs to recognize it’s no longer a crisis of small sovereigns in the euro area,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Plc said in an interview yesterday with Maryam Nemazee on Bloomberg Television’s “The Pulse” “It is becoming a euro-area wide crisis and European policy makers have struggled to accept that for some time.” The yield on 10-year Italian bonds rose 7 basis points to 5.76 percent, after reaching 5.96 percent earlier, the highest since 1997. The yield premium investors demand to hold the debt over German bunds to a euro-era reached a euro-era record 348 basis points, before narrowing to 311.

Bill Auction

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Europe banks hit as Italy stokes contagion fears
Tue Jul 12, 2011 - European banks were battered by mounting fears Greece is heading for a disorderly default and the debt crisis could spread to Italy, sending shares skidding more than 3 percent Tuesday to a two-year low.

Early losses were pared after Italy successfully sold short-term bonds and the panic eased. But bank stocks were still on the defensive and down over 10 percent in the last seven trading days as politicians have failed to find a fix for Greece and as investors fear this week's health check on 91 banks could show up more holes in the industry. Euro zone finance ministers Tuesday said a flexible rescue fund to help Greece could buy back its debt, but they set no deadline to act and failed to calm investor nerves. They also declined to rule out the possibility of a selective default by Greece to make its debt mountain more sustainable.

"Things are clearly going from bad to worse. It took too long to stabilize Greece and now the contagion is spreading. There is certainly a fundamental element in the worries about Italy. The debt load is high and growth is lackluster," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels. By 0923 GMT the STOXX Europe 600 bank index .SX7P was down 1.1 percent at 172.6, after falling as low as 168.02, its lowest level since May 2009.

Italian bank Unicredit (CRDI.MI) fell over 7 percent and Intesa Sanpaolo (ISP.MI) lost 4 percent, before turning higher aided by a short-selling ban by Italy's regulator and news Italy had sold its targeted 6.75 billion euros of 12-month bills in a bond auction. By 0955 GMT Unicredit and Intesa were each up 2 percent. Unicredit shares are still down by a fifth since July 1 as borrowing costs for Italy have soared on fears about the scale of the country's debt.

Alessandro Frigerio, fund manager at Milan's RMJ Sgr, said the recovery was helped after Economy Minister Giulio Tremonti said he would wrap up an austerity package. "Finding a solution is tough, but the markets are saying in a tough situation you have to take the devil by the horns... Right now we're in a phase that is not manageable anymore because Italy right now, when it goes to the market, has to pay 6 percent (in 10-year bonds) and that's a very, very difficult level," Frigerio said.

Andrew Lim, analyst at Espirito Santo in London, added. "Italy and Spain have been thrown into the mix and they are far bigger in magnitude than Greece, Ireland and Portugal. This could be a true systemic crisis. This is a very real threat and the panic feeds on itself." As borrowing costs rise, the repayment of debt becomes more costly to maintain and could lead to an economic slowdown and more losses for banks.

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[Toro]

From a practical standpoint, it doesn't mean much but because the world is interconnected, liquidity problems bleed into America, which causes sell-offs here. Problems in Italy really have little to do with America since most Italian government debt is held by Italian banks. Italy is different than the other European countries. They have high levels of debt, low growth and productivity, but the deficit isn't high (relatively) and there was no housing bubble in Italy which infected Italian banks. The politics are a joke.

 

[The Rabbi]

What will the European crisis mean for the US?...

It's easier to believe what's happened before will happen again than to expect the unprecedented. Doom'n'gloomers are not only morons, they're wrong and things will be better even if we have to wait a couple decades.

...Given the hits they took on mortgage backed securities, can they survive another hit to their assets?

Of course they'll 'survive'. It's amazing how much pain people and societies can live with, but in this case how much pain are we really talking about --more riots in Greece? They riot when governments cut back and they riot when governments don't.

Things will almost certtainly be better in a couple of decades. I'm concerned about the next 24 months. Major government defaults are big problems. It is unprecedented because the interconnectedness of the world is unprecedented.

 

[expat_panama]

...the interconnectedness of the world is unprecedented.

Exactly, and the world's interconnections have been unprecedented since the days of the Roman Empire.

The current increase in inter-connectivity is not as big as previous ones and most 2-year time frames have seen improvements --including the one we've just had. OK, the 2008-2010 block was bad but it included a huge anti-wealth hate fest. So everyone got what they wanted (less wealth) and now we can go back to preferring wealth.

 

[Toro]

I disagree. I think we've never been as connected as before. When you can move billions of dollars in milliseconds, and you have a myriad of derivatives in a financial system that is unfathomably complex and highly dependent on wholesale funding, it does not take much to unwind a tightly wound system.

 

[Trajan]

From a practical standpoint, it doesn't mean much but because the world is interconnected, liquidity problems bleed into America, which causes sell-offs here. Problems in Italy really have little to do with America since most Italian government debt is held by Italian banks. Italy is different than the other European countries. They have high levels of debt, low growth and productivity, but the deficit isn't high (relatively) and there was no housing bubble in Italy which infected Italian banks. The politics are a joke.

they need a Caesar

one along the lines of Aurelian who restored and revamped the mints and financial aspects of the empire.

 

[Baruch Menachem]

Rabbi's point is a good one. Germany is the one stuck with the bill for this, and they can't even afford the income transfers in country from west to east.

 

[Moonglow]

the US holds 12 trillion in gold alone.
Italy, Spain and Greece are traditionally poor nations, they started out behind, I dobt the US will get o their status anytime soon. but you shaudenfreudians have your fun screaming about how the sky is falling. I'll go on living my life one struggle at a time. Getting high after the struggle and laughing at you anxiety wretched humans.

Notice how Portugal, another traditionally poor nation decrimminlaized drugs and has yet to fall into the ocean.

 

[expat_panama]

...we've never been as connected as before...

--and it's been that way since the dawn of mankind.

Throughout human history we've had fairly steady trend of population growth, tech advances, wealth creation, and ever increasing speed and distance of travel/communication open to increasing portions of the population. So of course the situation facing today's generation is unique and far beyond those of the past. It's what all generations have had to deal with.

 

[Toro]

...we've never been as connected as before...

--and it's been that way since the dawn of mankind.

Throughout human history we've had fairly steady trend of population growth, tech advances, wealth creation, and ever increasing speed and distance of travel/communication open to increasing portions of the population. So of course the situation facing today's generation is unique and far beyond those of the past. It's what all generations have had to deal with.

Yes, that's all very true. But the more complex and inflexible the network, the more vulnerable it is to weaknesses. And we are multitudes more complex than even a decade ago, with hundreds of trillions of dollars in derivatives outstanding, and no one having any idea what would happen if a part of that system collapsed. We certainly didn't know when Lehman collapsed.

 

[Neubarth]

Rabbi's point is a good one. Germany is the one stuck with the bill for this, and they can't even afford the income transfers in country from west to east.

I have written to the woman Iron Chancellor for a year now, and advised that Germany pull out of the Euro. The Mediterranean based Euro states along with their average low IQ in their populace think that they can soak the prosperous Germanic States for the southern social welfare system. That is the reason why low IQ countries like Greece immediately set up all those fantastic retirement programs with frills for their populations. Germany needs to repudiate their largesse and move on in a Germanic Economic Union. Supporting liberal social welfare programs for the stupid countries should not be the German burden.

 

[william the wie]

...we've never been as connected as before...

--and it's been that way since the dawn of mankind.

Throughout human history we've had fairly steady trend of population growth, tech advances, wealth creation, and ever increasing speed and distance of travel/communication open to increasing portions of the population. So of course the situation facing today's generation is unique and far beyond those of the past. It's what all generations have had to deal with.

Yes, that's all very true. But the more complex and inflexible the network, the more vulnerable it is to weaknesses. And we are multitudes more complex than even a decade ago, with hundreds of trillions of dollars in derivatives outstanding, and no one having any idea what would happen if a part of that system collapsed. We certainly didn't know when Lehman collapsed.

The key factor is that this is happening in the middle of a demographic shift toward depopulation in the developed world. This too is a cycle but it is a very long cycle of approximately 400 years. Also it won't really hit full force until the secular population peak that is expected to hit in 2050 when the third world catches up and population declines worldwide kick in. Because of the traditionally high cost of trans-oceanic migration the US but not Canada has somehow managed to avoid most of the bad effects of this transition. So yeah this is big and going to get bigger for 40-50 years.

 

[ekrem]

Rabbi's point is a good one. Germany is the one stuck with the bill for this, and they can't even afford the income transfers in country from west to east.

Alone the European Central Bank owes over 320 Billion € to the German Central Bank.
There is no problem in Germany transferring money from West to East-Germany.
East Germany's infrastructure has become world-class, even better then in some parts of West-Germany.

 

[waltky]

Granny says dem Europeans need to live within their means - dat socialism crap don't work...

IMF: Debt threatens to engulf Europe
July 19, 2011: The IMF, run by Christine Lagarde, urges European leaders to quickly and decisively address the debt crisis.

The debt crisis engulfing Europe poses a significant risk to the global economy and the European Union must take decisive action to stop the spread of contagion, the International Monetary Fund said Tuesday. In a review of euro zone financial policies, the IMF said the economic recovery is "solid" in most EU nations. But the fund warned that unresolved fiscal problems in Greece, Ireland and Portugal could "spill over" into other nations and threaten the global economy. "There was shared concern that the sovereign tensions could spill over into the core economies via the financial system with large adverse regional and global implications," the report states.

The report comes ahead of a key meeting in Brussels on Thursday. European leaders are set to hammer out the terms of a second bailout for Greece and discuss the intensifying debt crisis as it threatens to spread to Italy and Spain. "The crisis in the periphery is not fully addressed yet," said Luc Everaert, a division chief in the IMF's European Department. "And the directors think this should be done very urgently." European leaders "should not delay clarifying" the various proposals being discussed to address the crisis, said Everaert. The role that private sector investors will play, he said, "is a large uncertainty that has to be resolved." Indeed, a key sticking point in the negotiations over Greece is whether banks would be forced to take losses as part of further bailouts of the debt-saddled nation.

In addition, the European Financial Stability Fund, the sovereign rescue program set up last year, should be expanded and modified so that it can be used as a more effective "backstop" for sovereign debt and banking problems, the IMF said. The fund -- administered by the EU, ECB and IMF -- is being scaled up to 500 billion euros, which should be "sufficient to address contagion," said Everaert. But authorities should be willing to increase the size if conditions in the euro zone deteriorate, he added. To strengthen the financial system, the IMF called for "immediate measures" to ensure that European banks are sufficiently capitalized.

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