Thursday, 21 July 2011

08:24 – Watching the antics of the German and French leaders in the hours before the euro crisis summit, I was reminded of Butch Cassidy and the Sundance Kid, when Butch and Sundance were working as payroll guards:

Butch Cassidy: I think they’re in the trees up ahead.
Sundance Kid: In the bushes on the left.
Butch Cassidy: I’m telling you they’re in the trees up ahead.
Sundance Kid: You take the trees, I’ll take the bushes.
Percy Garris: Will you two beginners cut it out.
Butch Cassidy: Well, we’re just trying to spot an ambush, Mr. Garris.
Percy Garris: Morons. I’ve got morons on my team. Nobody is going to rob us going down the mountain. We have got no money going down the mountain. When we have got the money, on the way back, then you can sweat. .

But, after seven hours of discussion, Merkel and Sarkozny apparently got some sort of agreement hashed out. Once again, one of the scenes from the movie sums it up.

Merkel: Alright. I’ll jump first.
Sarkozy: No.
Merkel: Then you jump first.
Sarkozy: No, I said.
Merkel: What’s the matter with you?
Sarkozy: I can’t swim.
Merkel: Are you crazy? The fall will probably kill you.

The early news from the conference isn’t good. Apparently, the bank tax is off the table, not that it would have done much good anyway. It seems that Eurobonds are the last option left, and I can’t see Germany, Austria, Holland, and Finland agreeing to those. The other option is boosting the EU bailout fund and allowing it to purchase junk bonds from the troubled Eurozone nations, but that’s not doable in the short term.

More lab work today.

13:32 – Oh, my. Things have already started to unravel. The main goal of the crisis summit wasn’t to save Greece. Greece is unsavable, and everyone was perfectly aware of that. The real goal was to stop the spread of “contagion” to Spain and Italy. It’s too late for that. Spain and Italy are already infected, and nothing done at the summit can change that. Spain today auctioned €1.8 billion in 10-year debt, a set-piece low face-value auction intended to demonstrate the beneficial effects of the summit. It instead demonstrated the opposite. The average yield was very close to 6%, a yield that most economists consider to be in the extremely dangerous range. Although estimates differ slightly, most would agree that 6% to 6.5% is disastrous and 7% undoubtedly fatal.

13 thoughts on “Thursday, 21 July 2011”

  1. They’re not going to have any money going back up the mountain, either.

    Neither will the US, where the dialogue would be

    “You jump first”
    “No, you do”
    “I can’t swim!”
    “Neither can I!”

  2. Ah, well.

    Reading the reports from the summit, I’m reassured that the EU authorities have solved the problem, and that everything will be fine. I figured tomorrow would be Black Friday for the Eurozone, but obviously I must have been wrong.

    A key part of their solution is that the EU authorities have decided to pretty much ignore the ratings agencies. Why didn’t I think about that? Obviously, if you ignore them they’ll just go away. And, if the EU authorities are ignoring them, why would investors pay any attention to the ratings agencies?

    Incidentally, I see that one US source (BoA, IIRC) is recommending that Euro holders dump them for Japanese yen and Canadian loonies. I agree with the latter, but I’m not so sure about the former.

  3. Well, listening to the ratings agencies didn’t help much either, they all said “keep buying suspect mortgages!”, though sticking your head in the sand certainly isn’t the answer.

    Neither is putting all your eggs in one basket, like a common currency. Dominoes still follow the Law of Gravity. When one drops, they all do.

  4. What I really just do not understand is: why not let Greece go bankrupt? Who really cares, other than the Greeks? It doesn’t matter that the Euro is a shared currency – it’s Greek bonds that are worthless, not German bonds or French bonds, or whatever. Want to force an austerity program on Greece? When they can’t borrow money, they will automatically have an austerity program. I really don’t get it.

    Anyone care to enlighten this poor, confused engineer?

  5. If (when) Greece goes bankrupt, the domino effect takes down Ireland, Portugal, Spain, and Italy, all of whose banks have varying but usually large exposure to Greek debt, which they’d have to write off on their balance sheets, which in turn forces them into bankruptcy, which in turn requires further bailouts. If (when) Spain and Italy topple, that in turn topples (at least) Belgium, and probably France as well.

    Even the stronger northern countries (Germany, Austria, Holland, and Finland) then suffer because their banks have to write off not just Greek debt, but debt from all the countries that toppled like a row of dominos. The ECB was particularly insistent about doing everything possible to avoid a Greek default because the ECB holds a lot of Greek debt. When Greece defaults, that debt has to be written off, which in turn bankrupts the European Central Bank.

    Basically, the entire EU is bankrupt at this point, and the crisis summit was about how best to use smoke and mirrors to keep that concealed for a while longer.

  6. From what I see, we’re all going down, how far down is up to our leaders. They seem intent in making sure its rock bottom. Canada and the US just might be able to stall off default enough to get our economy going again, but we need to really analyze just who our strategic trading partners are. Right now, Canadian businesses are dropping the US and going with China. A short term gain, with long term pain attached, IMHO.

  7. Maybe the Chinese will bail them (with US debt instruments) in exchange for

    military alliance/cooperation
    trading inducements
    political favors

  8. Everyone knows the crisis will be in a holding pattern until next year. The EU will collapse along with everything else on 12/21/2012. 🙂

  9. Obama and his minions all want the people to be poor, to beg the government for money and survival. That way a congress person can come riding into town on his white horse bearing shiney beads and bauble proclaiming that he is the savior of the town. A population that is dirt poor is a submissive population and that is what the government wants.

    Ever wonder about the bird flu, swine flu, beaver flu, whatever. Every year it is the same scenario. Predictions of massive population deaths unless everyone gets their handout from the government of free flu vaccine. Again the government saves the day and the people are grateful and think the government can do no wrong. As for me I just avoided the injection, washed my hands a lot, and took care to avoid sniffling little brats whose mothers are on welfare and run to the emergency room at taxpayers expense because they are deadbeats and no private doctor will take them.

    And I am in a really bad mood today because of the idiots in congress and the whitehouse that are acting like spoiled children. If I did my job that badly I would be fired, and deservedly so.

  10. Well, as I’ve said repeatedly, there’s no chance that the US (or Canada) will default. Either of us, as a last resort, can print enough of our respective dollars to make good any debt denominated in our native currencies.

    The idea of China (and Saudi Arabia) bailing out the Eurozone is not far-fetched. Watching market activity, I’ve been wondering if that’s exactly what’s going to happen. Of course, the US doesn’t want to see the Eurozone become, literally, a wholly-owned subsidiary of China and/or Saudi Arabia, which is why I think the IMF will do what’s necessary to delay that. Unfortunately, that means the US–and, to a lesser degree, the UK, Canada, and Australia–bailing out the Eurozone. I still say it’s a rat hole. All things considered, I’d rather that China and/or SA pour their resources into the Eurozone than the US.

    It’s going to be interesting in the short-, medium-, and long-term. One thing is pretty certain: Europe as we know it is going to change dramatically. If I were the UK, I’d be working on getting my island moved a lot closer to the US. Where are plate tectonics when you need them?

  11. The tectonics are there, it is finding the steering wheel that may prove difficult. They could, as a last resort, finish the immigration they started oh so long ago. Lots of room in Western Canada and US (outside of CA), and they almost speak the language. 🙂

  12. If I did my job that badly I would be fired, and deservedly so.

    I assume by now everyone has come across this article? It points out that federal employees are more likely to die on the job than to be fired…

  13. I hadn’t seen that article, though it surprises me not. I would accept killing as a means of getting rid of them, though.

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