Well, as I said my specific numbers don't matter and we should all assign whatever terminal values and probabilities we feel are appropriate. However, I am interested in discussing this. Even in 2007 Italy's (as well as others') govt debt to GDP was an unpleasant number. I am also not sure what you mean by "selling by the weak members". So let me just ask you this... In this current envitronment, given what we know about the German economy, what would you say is the fair value for DEMUSD?
You should do this scenario exercise for yourself, using your own outcomes, terminal vaue and probabilities. As to when, I don't have the slightest.
You need to think out of the box Marty. If you look at my book p49 till end there are alternative aggregate demand controls. If you no longer need to use interest to control aggregate demand you can use another banking system or bond system to provide a return that does not use interest rates. That is my solution. Way ahead of you.
Correct. Poland's unfunded liabilites were calculated at 1550% of GDP, the 2nd worst country in this rank was Greece with 800%. USA 500%. i can't find the link to that NYT article now... Surrounding countries are in terrible shape: Ukraine, Belarus, Lithuania, Hungary, Slovakia. The only exception is Germany.
If you recall this is exactly what I predicted months ago. If you read my book there is a table explaining it. In addition to that there are solution at the back. Read my book.
To throw another solution into the mix. The current Soveriegn Debit crisis is down to a two factor banking or bond model unable to reflect risk effectively. If you find alternatives then you can solve the problem.
I am not a policymaker. Why would I be interested in a solution or in resolving the situation? That's not part of the job description.
All the old Warsaw pact countries will show up having extremely high "unfunded liabilities", due to the current structure of their pension systems. However, pension reform in these countries is proceeding fast and it's likely that the numbers you see aren't the numbers you're gonna get.
The debt to GDP might been kinda high but by looking at the spreads over bunds and CDS it seems clear everyone thought the party was going to last forever. By selling by the weak members I mean that people will have to sell their â¬s that they have in hand and in EU banks for the new currency, this should exert downward pressure on the fx rate(though their money on the national banks might be converted automatically), there will be also a decline in the need for â¬s since the country will no longer do business/trade/turism in that currency(If you take out NY, I'm pretty sure there will be less demand for USDs, etc) As for the fair value to DEMUSD I'm not sure but I also know how markets think, if one guy goes out everyone will that think there will be a domino effect and they will extrapolate the effects I mentioned above, which might lead to panic selling of EURUSD. So I'm not sure the fair value will be reached anytime soon