Day: November 25, 2011

Friday, 25 November 2011

09:44 – I got 28 sets of the hazardous chemical subassemblies made up yesterday, with about 90 minutes’ work. It was a nice break from writing. Barbara won’t be home until Sunday afternoon, so the remaining work involved in building those 28 kits will have to wait for the following weekend, but we will be ready to start shipping chemistry kits again the week of 4 December.

On the heels of Germany’s disastrous bond auction Wednesday, Italy held an even more disastrous bond auction yesterday, with yields averaging more than 7.2%. It’s now obvious even to the biggest euro proponents that investors–individuals, banks, and foreign governments–are no longer willing to risk their money in euro-denominated instruments. Death of a currency as eurogeddon approaches. If you have any assets in euro-denominated instruments or funds, get out now, today, while you still can. The collapse, when it comes, won’t be gradual. And it will come, sooner rather than later.

13:38 – It really is time for any sane person to get as far away from the euro as possible as quickly as possible. At this point, we’re talking about the euro becoming a smoking pile of rubble within weeks, if not sooner. Don’t be lulled by the idea that Germany might save the euro. In the first place, it won’t because it’s not willing to take on responsibility for the debts of the other eurozone countries. In the second place, even if it were willing to do so, it can’t. Even if Germany were willing to beggar itself to save the euro, it doesn’t have sufficient assets to do so. Nor will Germany form a currency union with Finland, Austria, and the Netherlands. Germany will ultimately have no choice but to revert to the D-mark. All of them, including Merkel, know this, and you can bet that Germany has been frantically printing new D-marks in huge quantities for the last several weeks, if not months.

Euro armageddon: David Cameron fills the sandbags.

15:03 – And I see that S&P just downgraded Belgium from AA+ to AA, which is preposterous. Not that S&P cut Belgium’s rating, but that it left it ridiculously high. The ratings agencies obviously didn’t learn their lesson after the Lehman crisis, during which they were still rating junk derivatives AAA literally days before they crashed. The same is true now for sovereign credit ratings. A credit rating is supposed to reflect the likelihood of a country defaulting on at least some of its debts. On that basis, only the US really deserves the top credit rating, because it will never default. It may inflate the hell out of the dollar, which amounts to the same thing, but it will pay off its debts in dollars, regardless of what those dollars are then actually worth. So, if you assume that the US deserves the highest credit rating among all the world’s countries, although that rating is in fact crap, where should the major EU countries be rated? Well, let me fix that for them, using the descriptions from Wikipedia:

UK: BBB (An obligor has ADEQUATE capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.)

Germany, Finland, the Netherlands: BB (An obligor is LESS VULNERABLE in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitments.)

France, Belgium, Austria: B (An obligor is MORE VULNERABLE than the obligors rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments.)

Italy, Spain: CC (An obligor is CURRENTLY HIGHLY-VULNERABLE.)

I’m not sure why the three major agencies haven’t assigned these ratings to these countries, because that would reflect reality. It may be that the agencies, as usual, are behind the curve, or it may be that they are coming under immense pressure from the countries in question. Well, there’s no doubt they’re under intense pressure from the EU governments and the EU itself, but I’m not sure that fully explains their failure to assign accurate ratings. Note that, of this group, only the UK with its BBB rating can still be considered “investment grade”, and it’s teetering on the edge. Germany and all of the other nations rated BB or lower are actually “junk grade”. And, as we all know, changing a bond’s rating to junk causes all sorts of unpleasant things to happen, not least of which are mass sell-offs by banks and investment companies that are not allowed to carry junk bonds on their books.

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