Meltdown Europe

Discussion in 'Economics' started by Brendan R, Oct 26, 2008.

  1. Europe has entered the meltdown phase.

    The following problems are surfacing:

    - lack of intelligent leadership - a whole continent turning to socialism at a time when the benefits of capitalism should be promoted. M. Sarkozy is playing a dangerous game. The last thing you want is socialism and a new order. The little man has a big ego to please.

    - Economic nationalism - the "stronger" countries are displaying a lack of commitment to the European cause by promoting their interest first. Again M. Sarkozy is embarassing evryone with the creation of a SWF "a la Francaise".

    - Trouble at the borders - Hungary, Turkey could default soon. Russia is in trouble...

    - Trouble within - Italy is a total mess, Spain has a banking system soon to be bankrupted following unabated lending to the housing sector

    All these reasons will contribute to Europe's meltdown and the disappearance of the Euro.

    Sarkozy's failure to rally the Chinese this weekend to put pressure on the US for the establishment of a new world order is the beginning of the end.

    Europe and the little man with a big ego stand the most to lose in the current financial crisis.

    Three currencies will emerge, the USD, the JPY and the Yuan.

    Goodbye Europe (FYI, I'm half French half Italian)
  2. LOL yea, this has to be one of the biggest urban legends.
  3. gold reserves sold by Gordon Brown at the lows, yeah baby

    the man with the best timing in town
  4. "What shall be the new fiat reserve currency to replace the dollar for the next K-Wave cycle? The Euro! Euroland central banks have gold; but, in reality the euro, as presently constituted, is just another fiat currency like the dollar. The ECB 'talks the gold talk' in its advertisements promoting the euro currency. However, the ECB and the euro do NOT 'walk the gold walk'. Neither domestic European euros; nor foreign euros, are redeemable for the token gold reserves of the ECB; or, for the substantial gold reserves of the national member central banks. The chief 'asset' of the euro is its extreme youth and the absence of many years of accumulated euro denominated debts around the world. However, it is highly questionable as to whether euro creation, within a fractional reserve banking system, can in the long run be controlled by the ECB. I personally think that such a notion of possible restraint of euro creation within a fractional reserve banking system is delusional. So, an uncontrollable fractional reserve banking system is a fatal flaw for the euro. There is semantically deceptively implied gold backing for the euro within euro advertisements. But, the euro, as presently constituted, has no meaningful gold backing."
  5. from the Telegraph... very good article

    Europe on the brink of currency crisis meltdown

    The crisis in Hungary recalls the heady days of the UK’s expulsion from the ERM.

    By Ambrose Evans-Pritchard
    Last Updated: 10:52AM GMT 26 Oct 2008

    The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

    Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

    “This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

    Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

    The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.

    They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.

    Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). The Germans have lost $22bn.

    Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America.

    Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.

    Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.

    Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.

    Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc.

    The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns.

    The IMF’s experts drafted a report two years ago – Asia 1996 and Eastern Europe 2006 – Déjà vu all over again? – warning that the region exhibited the most dangerous excesses in the world.

    Inexplicably, the text was never published, though underground copies circulated. Little was done to cool credit growth, or to halt the fatal reliance on foreign capital. Last week, the silent authors had their moment of vindication as Eastern Europe went haywire.

    Hungary stunned the markets by raising rates 3pc to 11.5pc in a last-ditch attempt to defend the forint’s currency peg in the ERM.

    It is just blood in the water for hedge funds sharks, eyeing a long line of currency kills. “The economy is not strong enough to take it, so you know it is unsustainable,” said Simon Derrick, currency strategist at the Bank of New York Mellon.

    Romania raised its overnight lending to 900pc to stem capital flight, recalling the near-crazed gestures by Scandinavia’s central banks in the final days of the 1992 ERM crisis – political moves that turned the Nordic banking crisis into a disaster.

    Russia too is in the eye of the storm, despite its energy wealth – or because of it. The cost of insuring Russian sovereign debt through credit default swaps (CDS) surged to 1,200 basis points last week, higher than Iceland’s debt before Götterdammerung struck Reykjavik.

    The markets no longer believe that the spending structure of the Russian state is viable as oil threatens to plunge below $60 a barrel. The foreign debt of the oligarchs ($530bn) has surpassed the country’s foreign reserves. Some $47bn has to be repaid over the next two months.

    Traders are paying close attention as contagion moves from the periphery of the eurozone into the core. They are tracking the yield spreads between Italian and German 10-year bonds, the stress barometer of monetary union.

    The spreads reached a post-EMU high of 93 last week. Nobody knows where the snapping point is, but anything above 100 would be viewed as a red alarm. The market took careful note on Friday that Portugal’s biggest banks, Millenium, BPI, and Banco Espirito Santo are preparing to take up the state’s emergency credit guarantees.

    Hans Redeker, currency chief at BNP Paribas, says there is an imminent danger that East Europe’s currency pegs will be smashed unless the EU authorities wake up to the full gravity of the threat, and that in turn will trigger a dangerous crisis for EMU itself.

    “The system is paralysed, and it is starting to look like Black Wednesday in 1992. I’m afraid this is going to have a very deflationary effect on the economy of Western Europe. It is almost guaranteed that euroland money supply is about to implode,” he said.

    A grain of comfort for British readers: UK banks have almost no exposure to the ex-Communist bloc, except in Poland – one of the less vulnerable states.

    The threat to Britain lies in emerging Asia, where banks have lent $329bn, almost as much as the Americans and Japanese combined. Whether you realise it or not, your pension fund is sunk in Vietnamese bonds and loans to Indian steel magnates. Didn’t they tell you?
  6. U.S. has plundered world wealth with dollar

    BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.

    The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.

    A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

    The People's Daily is the official newspaper of China's ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.

    Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington's economic policies and global financial dominance in the wake of the credit crisis.

    "The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

    Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.

    "The U.S. dollar is losing people's confidence. The world, acting democratically and lawfully through a global financial organization, urgently needs to change the international monetary system based on U.S. global economic leadership and U.S. dollar dominance," he wrote.

    Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.

    A two-day Asia-Europe Meeting (ASEM) of 27 EU member states and 16 Asian countries was set to open on Friday. Though few analysts expect much in the way of concrete agreements, Shi said it could prove momentous.

    "How can Europe and Asia grasp each other's hands and together confront the once-in-a-century global financial crisis sparked by the U.S.; how can they construct a new equitable and safe international financial order?" he said.
  7. the author of the article was promised uninterrupted sex with carla bruni at the elysee palace with sarkozy recording
  8. lol

    But seriously. Americans ease on their shopping spree for a few months and people in China start getting layed of by the millions.


    We are all in the same boat just where they wanted us to be.
  9. rte66r


    the chinese can talk because they're comfortably sitting on 1.5+ trillion US in cash reserves. Why don't they put their money where their mouths are and start short selling the USD.

    Hmm lets see, could it have to do with not creating their own falling knife LOL.

    Everybody knows, in an instant they can make the USD plummet, or the EURO.

    If you want to make money on FOREX, watch them as THEY now defact can swing any currency in any direction
  10. I doubt that anyone in Canada who has any money or common sense would want to buy into the Amero. Why would Canadians want to combine currencies with the US that has trillions of dollars of debt all over the world?

    Canada is already in negotiations for a major trade partnership with Europe. I think there'd be a far bigger chance that Canada would switch to the Euro:
    #10     Oct 26, 2008