Eurozone Debt

[hancocs]

That was a good article, She may be radical but she may be dead on to.

[offdalip]

yeah, she has brass ovaries, and carries a pink  a r 1 5.

I think alot of people are missing it.

It is NOT just M2 money expansion and credit expansion ( or the lack thereof ) that indicate inflation or deflation.

It is also the Velocity of money ( speed of the economy ).

Great, those are all baked into the equation.
What is not taken into account in any equation is the intangible.
Full faith in the currency. When the people no longer trust the currency it fails.
Mike, if interest rates are forced up by the bond markets from 0% to the historical
norm of 4-5% and we have to pay $700 BB in additional interest payments alone just
to service our debt , then watch the costs of everything denominated in dollars skyrocket.
It will happen immediately..........

[darwinslair]

Being that my family has existed on the financial fringe of disaster since our last daughter was born, it is with more than mild curiosity that I watch the gyrations of markets and news.

<wry grin> Oh well.  Hoping things hold together until tax return time.  I keep looking at my paychecks and the totals on tax withholding.  Due to where we are and have been regarding income I know we get it back (and I feel guilty about that too) but if the systems behind the curtain hold together for just a few more months at least I can meet my current financial obligations.

Here is to hoping real total collapse doesnt happen for a bit yet.

Tom

[Atash Hagmahani]

The charts will continue to show a rising money supply until bad loans are realized.

We're substantially in agreement, and I would only cast some reasonable doubt on that word "until". Does it assume that all the players are more honest than they actually are? What about bailouts, clandestine monetization, and market manipulation?

It is also the Velocity of money ( speed of the economy ).

Good point. I suspect that "falling velocity" only means what I have already said: money is flowing through cancerous government and finance, but not through the real economy. I did a google search to see if someone had a credible measure for whether it was rising or falling. I found unquantified divergent opinions. Then I went looking for the "official" word, and found this:

http://research.stlouisfed.org/publications/mt/page12.pdf

The Fed thinks it's falling. Let's assume that is true for the sake of discussion. Is this not a dangerous situation?

Just like prices have a lower bound, so does monetary velocity. If money isn't flowing, the economy is dead.

By the chaotic nature of economic systems, I don't think it can stabilize; it's either rising or falling. Once it starts rising, what happens to all that new money in the system, especially if and when the banks start making loans again and you get the money multiplier effect?

Just to re-iterate: prices for most goods and services are rising, not falling. Bus fare is now $2.50. When I was 16 it was 50 cents. That's a 500% increase. Look at stamp prices. Look at housing prices long term. Look at food prices. Look at energy prices. Big ticket items like college educations and cars. They're all rising, not falling, despite the falling velocity.

Productivity is largely a function of built-up capital infrastructure. We feed that capital infrastructure petroleum-based fuel. That fuel is running out. By the way, by a generalization of Parkinson's law, we are dependent on all the existing productivity we have, and can no longer "feed". The whole economic growth model goes into reverse. This situation is not a purely monetary phenomenon.

Become more fuel efficient--and less dependent on price stability.

[hancocs]

S&P pressures eurozone
BRUSSELS - Standard & Poor's threatened
Monday to downgrade the credit rating of 15
eurozone countries, piling pressure on the
currency union's leaders to take radical steps
to resolve their debt crisis at a summit later
this week.
The decision to put 15 eurozone countries -
including AAA-rating nations such as
Germany and Luxembourg - on watch for a
possible cut in their credit worthiness also
threatens to throw the eurozone's bailout
mechanism into disarray, since the rescue
fund relies on those countries' stellar rating to
cheaply raise money on the markets.
"Today's CreditWatch placements are
prompted by our belief that systemic stresses
in the eurozone have risen in recent weeks to
the extent that they now put downward
pressure on the credit standing of the
eurozone as a whole," S&P said in a
statement shortly after markets closed in the
United States.
The only two euro nations not put on credit
watch were Cyprus, which was already under
review, and Greece, which already holds the
world's worst rating.
The announcement came only hours after
French President Nicolas Sarkozy and
German Chancellor Angela Merkel revealed
sweeping plans to change the European
Union treaties in an effort to keep tighter
checks on overspending nations. The proposal
is set to form the basis of discussions at a
summit of EU leaders on Thursday and Friday
that is expected to provide a blueprint for an
exit from the crisis.
While the Franco-German plan would tie
the 17-eurozone nations closer together, a
tighter union would likely also result in
heavier financial burdens for the region's
stronger economies, which have already put
up billions of euros to rescue Greece, Ireland
and Portugal.
Analysts also noted that the proposals did
not foresee a clear roadmap on how to get the
eurozone economies growing again and to
reduce funding costs for struggling nations in
the long-term.
S&P said a rising risk of another recession
in the currency union was one of the reasons
behind its decision.

[offdalip]

the fiscal union germany and france are putting forth is only one part of three that needs to happen to save the euro.

The ECB would also need to buy euro bank debt ( print money )
AND
The EU would need to sell EuroBonds

Without those two other additional parts , the proposed plan still doesn't work

[hancocs]

Lack of ECB bond-buying
plan sends stocks lower
NEW YORK - Financial markets slumped
Thursday after the head of Europe's central
bank dashed hopes that the bank was
preparing to help extinguish the region's debt
crisis.
The Dow Jones industrial average dropped
nearly 200 points on a day when investors
around the world reacted to every word
spoken and rumor spread at a summit of
European Union leaders.
The Dow fell 198.67 points, or 1.6 percent,
to close at 11,997.70. The drop was the worst
since Nov. 23 and ended a three-day run of
modest gains. The last time the Dow closed
below 12,000 was Nov. 29.
The Standard & Poor's 500 index fell 26.66,
or 2.1 percent, to 1,234.35. The Nasdaq lost
52.83, or 2 percent, to 2,596.38.
The markets could be headed for another
wild ride on Friday as European officials try
to strike a deal to mandate greater oversight
of government budgets.
"People are very nervous that Europe will
yet again fail to adequately address the
sovereign debt crisis," said David Kelly, chief
market strategist for JP Morgan Funds.
Investors overlooked good news on the U.S.
economy Thursday, Kelly said. Claims for
unemployment benefits dropped, and
wholesale companies increased their
inventories in expectation of stronger sales.
Stock in the U.S. fell early Thursday after
Mario Draghi, President of the European
Central Bank, said there was no plan for
large-scale purchases of European
government bonds, as many in the markets
had expected.