Perspectives on the global economic meltdown (Jan 26 2010)

Sanjay M · Post by **Sanjay M** » 29 Apr 2010 17:30

Hedge fund manager suggests 2nd European currency for the southern deadbeats:

http://www.businessweek.com/news/2010-0 ... -says.html

Can Europe stay united under a caste system?

What if low-caste Greeks decide they need pojitiv dishcriminayshun?

Ameet · Post by **Ameet** » 29 Apr 2010 22:42

Roubini Says Rising Sovereign Debt Leads to Defaults

http://www.bloomberg.com/apps/news?pid= ... y79k&pos=4

“The bond vigilantes are walking out on Greece, Spain, Portugal, the U.K. and Iceland,” Roubini, 52, said yesterday during a panel discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California. “Unfortunately in the U.S., the bond-market vigilantes are not walking out.”

“Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems.”

Ameet · Post by **Ameet** » 29 Apr 2010 22:44

More Than a Million in U.S. May Lose Jobless Benefits

http://www.bloomberg.com/apps/news?pid= ... 3RaQ&pos=7

Since the U.S. recession began in December 2007, Congress has extended the length of unemployment benefits for the jobless three times. Now, the lawmakers may have reached their limit.

They are quietly drawing the line at 99 weeks of aid, a mark that hundreds of thousands of Americans have already reached. In coming months, the number of those who will receive their final government check is projected to top 1 million.

svinayak · Post by **svinayak** » 29 Apr 2010 22:50

As Greece falters, fears stretch around world

By TOMOKO A. HOSAKA and MARTIN CRUTSINGER, Associated Press Writers – Thu Apr 29, 8:28 am ET
TOKYO – The debt troubles in Greece are intensifying and, even more dangerous, spreading fear across Europe and beyond.
That is triggering talk of a potential global contagion, similar to what happened after the investment bank Lehman Brothers collapsed in 2008, setting off the worst financial crisis in the United States since the 1930s and contributing to a deep global recession.
"Greece as an economy is tiny but the danger is contagion and market panic," said David Wyss, chief economist at Standard & Poor's in New York.
"If people get scared that Greece could default, they are going to be scared that Portugal will default and then other countries. Once people panic, they panic about everything. We saw that in the wake of the Lehman Brothers failure."

James B · Post by **James B** » 29 Apr 2010 22:54

Satya_anveshi wrote:
Anujan wrote:After Greece and Portugal, Spain is going down the Pakistan
Moi needs to travel to some of these countries very soon - kind of in a fix. Could escape during past weeks thanks to Icelandic Valcano but I am afraid to get caught in the street fights. Hate to have blood on my hands.

Been recently to Spain and Portugal, it is not as bad as you seem to think on the street. They are still TFTA eiropean countries onlee.

Not sure about Greece though.

Sanjay M · Post by **Sanjay M** » 30 Apr 2010 03:58

When PIIGs Fly

http://blogs.hindustantimes.com/foreign ... ut-europe/

Can Southern Europeans reform themselves?

Hari Seldon · Post by **Hari Seldon** » 30 Apr 2010 04:30

ramana wrote:Hari,
Time to start a blog. you have enough content and thoughts to power one . If you need you can team up with some members to maintain it.

SS is starting a Eye On Pak blog soon with help.

Ramana garu,

Would hate to (again!) promise what I may not be able to deliver. However, it is certainly worth an effort. With SS garu also starting a blog, wondering if what you have in mind is some sorta network of BRF-allied blogs? Interesting thought that. Hope it wasn't influenced by sri mava's blawg out there.

Am on tour next 3 weeks, posting will perforce be light. Shall get down to work in right earnest right after. Chances are the next 3 weeks may prove eventful if 1 or more PIIGS defaults escalates into a global crisis --> EU banks have billions of euros of exposure to Greece and a trillion+ in the PIIGS --> EU banks have been even worse than their khan counterparts in recognising their doomed assets --> Another systemic banking crisis in oirostan will erupt worse than a supervolcano, I fear coz of swap agreements with khan banking biggies (recall that a good part of the AIG and RMBS purchases driven by the Fed were actually tacit bailouts of euro and asian (central) banks that had HUGE exposures in that sector). We're again staring at a potential depression level event on a global scale. *shudder*.

Anyway, events are moving fast. Faster than even I dared think. It won't end well, chances are. Even we in Des will be negatively affected.

Let's see - end May it is. The Perspectives blog shall take to the cyberskies, if all goes well.

Jai ho.

Hari Seldon · Post by **Hari Seldon** » 30 Apr 2010 04:43

Continued.

TAE tweets on the evolving EUQ situ.

UK banks sitting on £100bn exposure to Greece, Spain and Portugal http://bit.ly/a1h6Ur (How the dominoes will fall...)

@philrandal Well nominally the British deficit will be much larger then Greece's. Also Greece had no huge QE like the UK.

UK Bank Of England Governor Mervyn King: Election winner will be out of power for a generation http://bit.ly/cEwa1h

OMG, the heart flails, almost fails, at the thought of the honest-to-earth brit banks and khanomy in such trouble

@nika7k Maybe this article can answer your question, Greek cuts could get ugly (Unions really, really angry!) http://bit.ly/cPj8P9

Papandreou Makes Austerity Pitch as Unions Slam ‘Unjust’ Cuts http://bit.ly/9XObUo (The fight is on in Greece, soon spreading all over!)

Yup. All the best papandriu.

Credit Agricole, SocGen Face Greek Risks as Debt Crisis Deepens http://bit.ly/9BEQnm (French banks are most exposed to Greek debt directly)

What, the flawless french too?!

BTW, anyone mentioned what the exposure level of german banks is? Not a prtty sight, lemme assure you. Estimates range from $150 bn to gawd knows where.

Chart of the day: Greece debt in world banks http://bit.ly/9LdpSV (This is an incomplete picture, derivative exposure missing!)

Greek debt crisis spreading 'like Ebola' and Europe must act now, OECD warns http://bit.ly/9s7yAf (Strong words there from the OECD!!)

Meanwhile, back in the land of the free and the home of the squid...

California Declares War on State Bond Short-Sellers http://bit.ly/d4AdTy (CA should clean up it's huge fiscal mess first IMO)

Barofsky Says Criminal Charges Possible in Alleged AIG Coverup http://bit.ly/alT8pC (Will Geithner be in the crossfire?)

Goldman set to settle SEC fraud case soon http://bit.ly/djLLbH ? Wow, how lucky...they get to 'settle', no jail time, break up but 'settle'

12pc of all mortgage defaults in February were “strategic,” up from about 4pc in the middle of 2007 http://bit.ly/do40K7

Chart: 49 Out Of 50 State Economies Are Still Underwater http://bit.ly/dtwl3X (i.e. showing LESS economic activity than a year ago!!)

In 2009 alone, corporations filed more than 11,000 Chapter 11 bankruptcy proceedings. Cities facing same option http://bit.ly/91FCVh

Uh, depressing reading ('cept for the UKstani travails). Should stop here.

Sanjay M · Post by **Sanjay M** » 30 Apr 2010 05:09

Atlanticists pining for their Chinese Far Emperor again:

http://www.nytimes.com/2010/04/30/business/30yuan.html

svinayak · Post by **svinayak** » 30 Apr 2010 05:57

Hari Seldon mentioned it and I am posting it.

Selected excerpts from the links below. Worth reading to understand what's going on behind the closed doors in DC and Wall St!

It is just DEBT monster now is on the back of Sovereign Govts ( instead of private banks/Economy)who are holding the same Toxic assets (MBS) bought from Zombie Banks, which are STILL losing value although not on radar b/c of suspension of M to M accounting. Who is going to buy them or what's their value NOW is a big MYSTERY. No one wants to talk about this since the 'good times' are rolling! Greece is just the tip of Iceberg!

------------
29 April 2010

The Economic Policy Error Behind the Stock Market Rally and the Next Phase of the Financial Crisis

"Failure number one of course is that the banks that they chose to support are not responsible commercial banks engaged

primarily in lending to small business and localized activity. Those banks are the local and regional banks that are failing in

record numbers. The banks they chose to save are those who have heavily contributed to the campaign coffers and job prospects of Washington politicians. Goldman Sachs, for example, is a glorified hedge fund dedicated to speculation and enormous amounts of leverage. One only has to look at the source of their profits to understand what it is that they do with their capital and energy. And it is largely from 'trading........

"So now we have another asset bubble in the making, a new Ponzischeme in the US equity market fomented by the Wall Street Banks packed with public funds, seeking to drive prices higher, for the apparent reason of obtaining confidence from the public, but with the effect of selling assets at inflated prices to public institutions yet again, with the inevitable collapse to follow when the reality of their value is discovered. And so the credit crisis will morph into a currency and sovereign debt crisis.....

http://jessescrossroadscafe.blogspot.co ... ashes.html

===================

"There Wouldn’t Be a Crisis Among Nations If Banks’ Toxic Gambling Debts Hadn’t Been Assumed by the World’s Central Banks

But nations had no choice but to bail out their banks, did they? Well, actually, they did.

The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She
said that Bernanke is fighting the last war, and is taking the wrong approach (as are other central bankers).Nobel economist Paul Krugman and leading economist James Galbraith agree. They say that the government’s attempts to prop up the price of toxic assets no one wants is not helpful.BIS slammed the easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, “thuse of gimmicks and palliatives”, and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”....................

http://www.nakedcapitalism.com/2010/04/ ... oding.html?

------------

Equity rally not driven by the usual investors

By Leigh Skene

Published: April 28 2010 15:45 | Last updated: April 28 2010 15:45

.The outperformance of risk assets over the past year suggests investors appear to believe that all credit problems have been
solved – but nothing could be further from the truth, says Leigh Skene at Lombard Street Research.
“Rising stock markets and narrowing credit spreads depend on buyers being more anxious to buy than the sellers are to sell,”
he says. “So who are the enthusiastic buyers of risk assets?”Surprisingly, says Mr Skene, surveys show that the usual
investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities. And he
says the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment
banks are the anxious buyers.“Their buying would appear to be for one of two reasons. Firstly
because they think the authorities will prevail in their (so far unsuccessful) efforts to inflate their way out of debt
liquidation; or secondly because they are too big to fail and so can afford to take a huge gamble that enough buying will convince others to rush in and buy their inventory of risk assets at even higher prices.“Huge economic slack in most developed nations and falling money supplies in the two biggest currency areas indicate that government efforts to inflate will continue to be unsuccessful – so reason number one is bearish for risk assets; number two is catastrophic'"...............

http://www.ft.com/cms/s/0/75481e32-52cd ... ab49a.html

Hari Seldon · Post by **Hari Seldon** » 30 Apr 2010 11:19

Party time in wall st (well, the equity 'markets' are certainly seem to be saying so, no?)

JPMorgan Has Biggest Exposure to Debt Risks in Europe

How big, you ask? Well, all of 28% of Tier I capital. And for Morgan Stanley, its even rosier. Its a whopping 69% of Tier 1 capital. That's how big.

April 29 (Bloomberg) -- JPMorgan Chase & Co., the second- biggest U.S. bank by assets, has a larger exposure than any of its peers to Portugal, Italy, Ireland, Greece and Spain, according to Wells Fargo & Co.

JPMorgan’s exposure to the five so-called PIIGS countries is $36.3 billion, equating to 28 percent of the firm’s Tier-1 capital, a measure of financial strength, Wells Fargo analysts including Matthew Burnell wrote today. Morgan Stanley holds $32.4 billion of debt in the region, which equates to 69 percent of its Tier 1 capital, Burnell wrote.

U.S. banks held a total of $236.8 billion of exposure to the five nations, including $18.1 billion to Greece, Wells Fargo said. European banks have claims totaling $193.1 billion on Greece, according to the Bank for International Settlements, with another $832.2 billion of claims on Spain.

More bailouts on the money. Jai ho. Gold prices in Europe have surged to their highest levels ever. Funny how that works, eh?

Hari Seldon · Post by **Hari Seldon** » 30 Apr 2010 11:27

BTW, if you like me have been confounded by the inexplicable party-hat-donning table top dancing in Wall street's equity maarkits, Ilargi over at TAE presents one plausible explanation.

As the European situation looks more dire and confusing by the day, and a sinister web of accusations and legal challenges spreads from Goldman Sachs through the rest of Wall Street, what do the stock markets do? Of course they’re dancing on their tables, party hats and all. So to speak. By now it may be time to really start wondering who’s buying all those shares. Anyone not involved in manipulation should perhaps have their heads examined. Leigh Skene at Lombard Street Research thinks it’s the very Wall Street investment banks which face increasing scrutiny that purchase the shares and keep the sputtering machinery afloat. He may well be right. Does that mean they’re buying stocks with your TARP funds? That, too, may well be right.

Leigh Skene in FT expands on the theme much more convincingly, though:

The outperformance of risk assets over the past year suggests investors appear to believe that all credit problems have been solved – but nothing could be further from the truth, says Leigh Skene at Lombard Street Research. "Rising stock markets and narrowing credit spreads depend on buyers being more anxious to buy than the sellers are to sell," he says. "So who are the enthusiastic buyers of risk assets?"

Surprisingly, says Mr Skene, surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities. And he says the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment banks are the anxious buyers.

"Their buying would appear to be for one of two reasons. Firstly because they think the authorities will prevail in their (so far unsuccessful) efforts to inflate their way out of debt liquidation; or secondly because they are too big to fail and so can afford to take a huge gamble that enough buying will convince others to rush in and buy their inventory of risk assets at even higher prices. "Huge economic slack in most developed nations and falling money supplies in the two biggest currency areas indicate that government efforts to inflate will continue to be unsuccessful – so reason number one is bearish for risk assets; number two is catastrophic."

There you have it only.

Neshant · Post by **Neshant** » 30 Apr 2010 13:32

Hari Seldon wrote: Surprisingly, says Mr Skene, surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities. And he says the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment banks are the anxious buyers.

"Their buying would appear to be for one of two reasons. Firstly because they think the authorities will prevail in their (so far unsuccessful) efforts to inflate their way out of debt liquidation; or secondly because they are too big to fail and so can afford to take a huge gamble that enough buying will convince others to rush in and buy their inventory of risk assets at even higher prices. "Huge economic slack in most developed nations and falling money supplies in the two biggest currency areas indicate that government efforts to inflate will continue to be unsuccessful – so reason number one is bearish for risk assets; number two is catastrophic."

That's what I'm thinking too. A whole lot of rigging is going on in the stock market.

Sadly the central banking crooks are trying every trick in the book to inflate by hook or crook to benefit the banks who have bought heavily into equities. If they succeed, the losers will be the people who have worked to save their fiat and not lived beyond their means.

Its croney capitalism at its best.

Neshant · Post by **Neshant** » 30 Apr 2010 13:33

wait for the stupid advertisement to play and then the real video begins.

Reaganism/Thatcherism and Kapitalism
http://www.youtube.com/watch?v=9qVIHxZbfFw

Neshant · Post by **Neshant** » 30 Apr 2010 13:35

What's it worth?
http://www.youtube.com/watch?v=tfJbhRuKly8

Neshant · Post by **Neshant** » 30 Apr 2010 13:37

The End of the Euro as we know it
http://www.youtube.com/watch?v=rbXwe0HZFH0

Ameet · Post by **Ameet** » 01 May 2010 00:57

Spain suffers 20% unemployment

http://money.cnn.com/2010/04/30/news/in ... /index.htm

Ireland at 13.2%
Greece 10.2%
Portugal 10.5%
Slovakia 14.1%

ramana · Post by **ramana** » 01 May 2010 03:08

I dont understand. When crooks/fraudsters like Goldman Sachs are criminally indicted the market tanks. Shouldn't removing fraudsters increase confidence in the markets and hence be a win-win for the market?

SwamyG · Post by **SwamyG** » 01 May 2010 03:51

^^^^
They fear chaos. Humans desire order.

Neshant · Post by **Neshant** » 01 May 2010 07:11

its like the movie Alien (1979).

Any attempt at hasty removal of the parasite results in the parasite killing the host.

Hari Seldon · Post by **Hari Seldon** » 01 May 2010 10:08

ramana wrote:I dont understand. When crooks/fraudsters like Goldman Sachs are criminally indicted the market tanks. Shouldn't removing fraudsters increase confidence in the markets and hence be a win-win for the market?

IMO, it goes back to the wise saying about cockroaches. If you've seen one, be sure there's more where that came from. And the more one comes to know about manipulative mkt madness by the big banks in the khanate, the more one realizes how much one doesn't know about what else was going on. So the biggest and the brainiest and the best of 'em i-banks stuck its own clients with billions in losses on securities it sold them as gold-like. What does that tell every other client - whether individual, institution or govt -of goldman and other wannabe goldman types on Wall st?

The markets are jittery but still levitating at least partly because there are no more mkt participants left in the real sense, just high freq trading algorithms run by the big banks again prowling the once thriving mkt. Sad, only.

Meanwhile, TAE tweet on GS:

A good day for Goldman, first a criminal probe has been launched on them and now S&P downgrades Goldman Sachs to a sell

The Feds vs. Goldman, The govt's case against GS barely begins to target the depths of Wall Street's criminal sleaze http://bit.ly/bGZepQ

Well, well the may yet be justice in the world. Its way past time sovereigns assert their true (broad+deep) powers over these jhonny-come-again-latelys, the big banks and put them in their place - nationalized, broken up, regula-tied-up and domesticated.

More TAE tweets:
https://twitter.com/AutomaticEarth

Warning Signal on U.K. Debt? Value of Default Protection Has Doubled in 2010 and Is Outpacing Spain, Italy http://bit.ly/aZO3QP

Wow. So you're saying there could really, actually be justice in the world??

High-Frequency Trading Faces EU Market Abuse Probe, http://bit.ly/dvRBrY (HFT=Really, really fast computer trading in milliseconds)

This hft monster moi mentioned above also.

Papandreou Says Greek ‘Survival’ at Stake in Talks http://bit.ly/cmEaIU (Protests still going on in Greece, next stop Portugal, Spain etc)

the original 'Dr Doom', Nouriel Roubini (incidentally, that name sounds greek to me, only) avers that the euro demise could well be literally days away, not abstract6 months or yrs. We'll see. Somehow, I'm taking a sanguine view on this and think that germany will come to the rescue, despite itself, to save the eurostan project.

More general TAE gyan from Stoneleigh, a power systems specialist who sees entropy speeding up all over the ekhanomic power system....

"As deflation causes a wave of debt default it ruins creditors as well as debtors. That causes a much deeper collapse." Stoneleigh.

"Beware of seemingly attractive yields,as yield equals risk","Yield doesn't help much if your capital is evaporating in the meantime"S'leigh

Read it all.

ramana · Post by **ramana** » 01 May 2010 10:31

They need Godfather when there is so much fraud.

Sanjay M · Post by **Sanjay M** » 01 May 2010 11:07

The problem here is that the bimaru states (Greece, Portugal, Spain, Italy, Ireland) want someone else to absorb their social welfare state liabilities, and the moment there is any resistance to that, then they start growling "damn fascists! those people owe us for their historic wrongs!"

Germany is essentially in a hostage situation. The bimarus will never give up their comfortable, lazy lifestyles, and have made a mockery of the concept of borrowing. As long as they face no penalty and bailouts are forthcoming, then they will never mend their ways. They want to live the good life for free, and want someone else to foot the bill.

The ants have to separate themselves from the grasshoppers. The Germans and Greeks don't have enough commonalities to form a common market, and it was only foolish dreaming that came to make it look that way.

Let the fiscally responsible states like Germany and France ditch the Euro and reach out to the Russians for a mutual stability pact, and meanwhile the bimarus can collapse from their own illnesses.

Hari Seldon · Post by **Hari Seldon** » 01 May 2010 11:54

The ants have to separate themselves from the grasshoppers. The Germans and Greeks don't have enough commonalities to form a common market, and it was only foolish dreaming that came to make it look that way.

Let the fiscally responsible states like Germany and France ditch the Euro and reach out to the Russians for a mutual stability pact, and meanwhile the bimarus can collapse from their own illnesses.

Well, let's say 'goodness' or 'badness' is all relative only. In today's globalized interconnected world, for 1 pious country (say, Germany) to run a surplus, someone else (say, PIIGS) need to run deficits only. Either that or let everybody be at zero - with imports exactly cancelling out exports and so on.

The 30s if anything show precisely that it is actually the surplus nations (US back then) that suffer equally if not more from a trade meltdown, saddled as they are with excess capacity, dwindling markets, rising unemployment and threatened social stability.

Anyway, too many moving parts here. We'll have to wait and see how this unfolds. Germany needs the EU as much as the PIIGS do - to keep a captive export mkt which employs its industry and people, IMHO.

Neshant · Post by **Neshant** » 01 May 2010 13:14

the original 'Dr Doom', Nouriel Roubini (incidentally, that name sounds greek to me, only)

Iranian Jew.

The guy is a flip flopper though. Just a few months ago, I could swear he was talking a U shaped recovery.

I think these guys are taking shots in the dark with their predictions. If one shot finds a target, they claim responsibility. IMO he gets credit for calling the housing bubble but that's about it.

Carl_T · Post by **Carl_T** » 01 May 2010 13:31

They are all taking shots in the dark! People have been calling for a major correction in the equity markets since August. IMO best thing to do is to see how the different markets absorb the news, anyone know if the spreads for Spanish bonds have widened?

Curing this problem is going to take some time, the Fed just needs to ensure there's liquidity in the market in order to keep lending activity stable and it will all be good...God bless TARP.

Hari Seldon · Post by **Hari Seldon** » 01 May 2010 14:08

Switzerland, Surrounded Again (John Taylor)

Gripping read. Here's the money para...

World War II was fought over the control of people, whether they lived or died, their philosophical beliefs, and their land. In the end, the Swiss were willing to give up almost everything to not succumb to the National Socialists. Today, the Swiss are in a less stark, but surprisingly similar spot. They are surrounded by another all-encompassing concept: the euro. At first glance this might seem comical, but the German government stands ready to pay very large sums of money to any thief who can produce a list of German account holders at Swiss banks and the Italians are photographing the license plates of all cars crossing into Switzerland to check them against their tax records. Government agents and spies are involved as well. As far as we know there are no deaths in this war, but there are many financial losses, jail terms, and bankruptcies. In the past, the victims were wealthy men and corporations, and the battles had significant moral overtones, but the recent movement toward euro disintegration expands the battlefield, increases the risks astronomically, and will victimize all of western continental Europe, including Switzerland , from the lowliest clerk to the mightiest corporation.

Again, recommended read only....

Neshant · Post by **Neshant** » 01 May 2010 15:01

Carl_T wrote: Curing this problem is going to take some time, the Fed just needs to ensure there's liquidity in the market in order to keep lending activity stable and it will all be good...God bless TARP.

printing money is nothing more than robbery of the productive elements of society to the benefit of the lazy class which produces nothing - namely insolvent banks and other useless financial companies.

under the federal reserve system, losses of their share holder banks will always be offloaded onto the backs of the taxpayer.

The most pressing problem the federal reserve has these days is how to prevent this con game from being exposed.

Sanjay M · Post by **Sanjay M** » 02 May 2010 00:15

Krugman resolutely defends his kampf, insisting that the reason for the Greek crisis is due to fiscal constraints:

http://www.nytimes.com/2010/04/30/opini ... ugman.html

Sanjay M · Post by **Sanjay M** » 02 May 2010 01:18

Due to intertwined economic interests, Germans have little choice but to bail out Greece:

http://www.nytimes.com/2010/05/02/weeki ... wartz.html

which then begs the question - how come the unionization and welfare systems in both countries are poles apart, rather than intertwined? There has to be some reason for the disparity in fiscal responsibility, which intertwining doesn't seem to explain.

Anujan · Post by **Anujan** » 02 May 2010 03:46

Sanjay M wrote:Krugman resolutely defends his kampf, insisting that the reason for the Greek crisis is due to fiscal constraints:
http://www.nytimes.com/2010/04/30/opini ... ugman.html

Krugman has a point there.

The basic structural problem with the Euro is that, on the one hand, flexibility is removed by moving to a single currency. That removes flexibility of natural rise and fall of the exchange rate. On the other hand, monetary policy is country specific and neither will the neighbors step in to bail out! This is a structural problem.

What I am trying to say is, imagine that there is no Euro. If Greece runs huge deficits, they would have some way of remedying it by devaluing their currency -- making exports cheap, imports costly, and inflation high to reduce the wages of their workforce in real terms. Now Greece has the euro. So it should actually cut wages and spending creating social unrest (I think this was the real reason why inflation was "invented" -- people dont mind as much if the number on their salary sheet goes up but prices go up greatly. They will start hartals if the number on their salary sheet goes down, but prices also go down greatly).

The only way out is for others to step in and bail Greece out. But other countries would refuse -- because they have no control or guarantee that the bad behavior by Greece will not be repeated! This is a structural issue & lesson to those among us who want a common south Asian currency.

Unified monetary & fiscal policy is needed before unified currency.

SwamyG · Post by **SwamyG** » 02 May 2010 07:15

Well, let's say 'goodness' or 'badness' is all relative only. In today's globalized interconnected world, for 1 pious country (say, Germany) to run a surplus, someone else (say, PIIGS) need to run deficits only. Either that or let everybody be at zero - with imports exactly cancelling out exports and so on.

Well said Hari gaaru. In order for the rich to exist, countless have to remain poor. Exports form a high percentage of the Germany's GDP. Though the PIGS are not the highest trading partners; but they are the actual buffer states to the developed Western European countries.

ldev · Post by **ldev** » 02 May 2010 08:57

Unified monetary & fiscal policy is needed before unified currency.

They have a unified monetary policy i.e. they have a common currency the Euro. But they do not have a a unified fiscal policy i.e. taxation and budgetting. If you have both a unified monetary and fiscal policy then you have for all practical purposes a political union in all but name..... because what are national politicians going to rule over after such a union happens?

Carl_T · Post by **Carl_T** » 02 May 2010 11:08

Neshant wrote:
Carl_T wrote: Curing this problem is going to take some time, the Fed just needs to ensure there's liquidity in the market in order to keep lending activity stable and it will all be good...God bless TARP.
printing money is nothing more than robbery of the productive elements of society to the benefit of the lazy class which produces nothing - namely insolvent banks and other useless financial companies.

under the federal reserve system, losses of their share holder banks will always be offloaded onto the backs of the taxpayer.

The most pressing problem the federal reserve has these days is how to prevent this con game from being exposed.

I disagree, I think the Fed has done quite well, propping up the banks was the right decision IMO. The goal at that time was to ensure financial stability and avoid a deflationary scenario.

Singha · Post by **Singha** » 02 May 2010 11:38

TOI: Swaminathan S Aiyar suggests India should protest the IMF part of the greek bailout because IMF is supposed to intervene
for developing countries and for balance of payments problem only per its charter, not in greek type debt crisis.
also IMF loans are being given at 3.5% while the brother Euros have loaned at 5%.

so effectively developing country and non-Euro donors to IMF (like India) are getting their money wasted to bail out
a much richer country per capita like greece and not even getting the interest the brother euros get from their munna.

Aiyar says this happened because Euros hold bulk of IMF control (while sher khan owns the WB and Japan the ADB)

Neshant · Post by **Neshant** » 02 May 2010 12:13

here's his article..

perhaps the plan is to enable Greece to default on the IMF loans thereby transferring the loss to Asian contributors while still paying off its EU loans!

-----------

Greek Loan Would Violate IMF Charter
http://www.cato.org/pub_display.php?pub_id=11722

Singha · Post by **Singha** » 02 May 2010 12:58

does anyone know how much WB and IMF loans outstanding we have and how much we take per annum lately?

Virupaksha · Post by **Virupaksha** » 02 May 2010 13:21

Singha wrote:does anyone know how much WB and IMF loans outstanding we have and how much we take per annum lately?

to IMF we are a contributor. so no loans

From WB seems like around 7 billions in 2010 alone. so total for all years should be around 15-20 billions.

http://www.worldbank.org.in/WBSITE/EXTE ... 84,00.html

Singha · Post by **Singha** » 02 May 2010 14:08

excerpt from NYT. greece seems to be west bengal + delhi union govt ministries on a national scale.

Greek officials said Greece would slash public sector spending by 8 billion euros in the 14 months after the plan was adopted. They said Greece had also pledged to raise its value-added tax to 25 percent , to freeze civil servants’ wages and to eliminate public sector bonuses amounting to two months’ pay. The government would pass legislation increasing the monthly annual quota of workers companies can fire from two per cent to four per cent. It also intended to increase taxes on fuel, tobacco and alcohol.

Crucially, Greek officials said the plan included potentially politically explosive measures that would make it easier to lay off thousands of public sector workers, whose generous salaries and benefits have been a key cause of Greek’s debt problem. Until now, the government has not been able to lay off civil servants, whose employment rights are in effect constitutionally guaranteed.
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Yet economists warn it could take years for the cost-cutting measures to lift incomes. According to a report to appear in the Monday edition of the German magazine Der Spiegel, the I.MF. believes it will take ten years for Greece to overcome its financial crisis, Reuters reported.

And while economists say the bail-out package will reassure markets in the short-term, some fear that a credit crunch could persist, undermining already depressed consumer spending and depriving businesses of much-needed funding. That threat was underlined Friday when Moody’s Investors Service cut the credit ratings of nine Greek banks.

Platon Monokroussos, head of financial markets research at Eurobank EFG, one of Greece’s biggest banks, predicted that the austerity measures would keep the country in recession until at least late 2011. He forecast at least two years in which the economy would contract by 3 percent or more, before the liberalizing measures in the austerity package provided a lift.

While EU and Greek leaders have insisted that Greek debt restructuring is not an option, some economists argued that a debt restructuring, in which private creditors would take a hit by not receiving back all of their money in the agreed time, should not be written off as an option in the future. It would reduce the overall debt burden on Greece’s economy, but would also create the heavy risk of pushing spooked investors to deny Greece access to credit markets.

If Greece fails to implement its cost-cutting measures and European governments and the public grow wary of propping up the country, some economists predict that the possibility of a restructuring could once again emerge.

But Yiannis Stournaras, a leading economist and former economic adviser to the ruling Socialist party, argued that the close monitoring by the I.M.F. — and intense scrutiny by the EU — would prevent the Greek government from deviating from the path of reform. A restructuring, he argued, would “return the country to an economic ice age.”

“The IMF will be here every few months and will be keeping a close eye on Greece’s every move,” he said. Alluding to a mythological battle in which Greek soldiers attacked the enemy after hiding in a giant hollow wooden horse, he added: “People haven’t trusted the Greeks since the time of the Trojan War so this is nothing new.”

Hari Seldon · Post by **Hari Seldon** » 02 May 2010 16:54

Quantifying The IMF's Ability To Bail Out The World (TIFWIW disclaimer)

The excitable Tyler Durden at the delightful zero hedge in overdrive, seems like:

Today is D-Day for Europe, and soon, the world. Shortly, the IMF will take its historic place as the cash cop of last resort, a post traditionally reserved for the Federal Reserve, which incidentally was rumored to have activated its FX currency swaps with European banks last week (whether or not that is true will be disclosed by next week's H.4.1). This action will open a floodgate of consequences, as every semi-bankrupt country forces itself into a spending frenzy to guarantee that it is truly bankruptcy, no ifs about it, and qualifies for IMF (and thus 20% US) aid. And at that point the politics of a US-funded world bailout really will come to the fore. Because while the Fed bailing out America is one thing due to the Fed's untouchable and unsupervisable status, the IMF, as a corporation, does not share the same "above the law" privileges.
...
And in an election year, with Americans slowly realizing that the fate of the world is truly in their hands,{as always , am sure} and their tax money is being involuntarily taken away from them as we speak yet again, ahead of midterm elections, all bets are off. {Baloney. kuch nahi hoga, IMVHO} For those interested in the actual mechanics of the IMF rescue mechanisms available, as well as some of the political implications likely to follow, here is an overview via Bank Of Countrywide Lynch.

jai ho.