Hitler and the euro

Whatevs. United States of Europe are on the horizon. Official language will be German, and wearing white socks underneath sandals will be mandatory, while on vacation.

why cant u guys do my economics exam

BarrileteCosmico wrote:Lol that video has so many mistakes... either way, I don't see why anyone would care (market included) about S&P. If the 2009 recession showed anything is that they have no clue and serious conflicts of interests. If investors want an assessment of risk they need to look no further than government bond yields...

Also: Germany is big winner of the sovereign debt crisis, or was until a few months ago. Their bond yields decreased because of the rush to quality for much of the past 2 years, and it's their banks the ones that made a series of bad loans to the periphery countries. Not to mention that Germany has benefited from the eurozone tremendously. They broke the eurozone rules and standards many more times than other periphery countries and yet believe they have moral superiority.

The bottom line: they will come up with some grand plan to implement, the periphery will promise to uphold these, and the ECB will step in to guarantee their bonds (essentially monetizing the debt, but they have little choice).

Ok first off I will answer why the market would take the S&P ratings seriously for these sovereign bonds. First for many funds and capital reserves allocated by banks it is specified that it must contain "US treasuries or AAA bonds", you have to remember that there are non-euro AAA alternatives which enjoy the same amount of liquidity as do these euro bonds (Swiss, Australian and others). These would result in negative cycle.

Germany is the big winner in the eurozone, I dont think there is any disagreement about that. Having said that, a disintegration of the eurozone would result in massive losses for germany as their currency would shoot up and they would not be able to sell to other european countries as easily.

Th question is not if they want to have a grand plan or not but rather can they do it fast enough? The liquidity crunches, fiscal austerity and lack of action could cause the periphery to suffer economically and default their payments to the core (private and public) thus contagion would in fact spread. There are many many ways of this happening, in addition with the growing fears in the eurozone about the financial sectors needs (and lack of dollar funding) there might be at one point bank runs. There are also events which could cause the periphery to suffer from massive capital flight into the core, thus causing long term collapses in these economies. All these would disable the periphery from buying german goods. There are many ways contagion could spread.

kiranr wrote:

BarrileteCosmico wrote:Kiranr the ECB doesn't have a warchest, it can print money. As much as it wants. But it doesn't want to, because spending money would be inflationary and the ECB is traditionally hawkish (wrongly, I might add). Besides, they wouldn't buy bonds, they would only guarantee that Italy & Spain won't default, bring back confidence into the markets and thus investors would demand lower rates making it possible for these countries to reform and get rid of their illiquid status. It would be monetizing the debt because it would ensure that the government would borrow at a lower cost, but unlike traditional monetizing it wouldn't actually do any purchases.

Apparently printing money is not a part of its mandate. It is supposedly against the law and they are can only set the monetary policy. Atleast that is the sense i got from following the events over the past 2 months.

And about guaranteeing it, it could be possible, maybe the fiscal union is the cue ECB is waiting for. But it has to step in and announce it. It has categorically stated that even after the fiscal union that is being discussed is implemented, it will not buy the Italian and Spanish bonds which is pretty much equivalent to guaranteeing it IMO as it is against the law and Germany are not going to allow it in either case.

That is why a stability mechanism is being discussed which will serve as the guarantee for bonds of Eurozone countries. However, that fund is quite less. They have decided to put only 500 billion euros in it, and that seems quite inadequate.

Basically, the ECB has to step in and say it will monetize the debt or EU has to generate a huge war chest which will serve as a back-up or guarantee, neither of which looks like happening right now.

ECB unlike the fed has only one mandate which is price stability, it also is not able to help with government debts in a more direct way than bon purchases (which Im pretty sure draghi has said he wont do) mainly because as I pointed out in the other thread that it would result in a redistribution of wealth and funding of the state at the expense of people.

Europe is fiiiiiixxxeeeedddd!!!!

Come on people... What are you all worrying about?

Soon a war will break and everything will be normal again.

We've seen this before. Don't be silly, we know what's gonna happen.

It scares the sh!t out of me, and it should scare the sh!t out of you. That's how it works.

In the end, the rich are richer and the poor (those that survive the war) are poorer.