How big is Europe's crisis?

The simple truth of the matter Robert, is that if they asked for their money back now they won't get it. This might prove harder for them than for anyone else.

The fact is we are all going to have to deal with this in the controlled manner you suggest for fear of making the situation worse.

The biggest fear is fear itself and the bond holders are going to have to take a deep breath, a very deep breath.

Robert

'Same Old, Same Old...'

Those with money will make more money, those without it become poorer and poorer......

I am no bleeding heart liberal or indeed leftie wanting to give everything away to the masses but it is becoming More and more clear that our monetary system is failing and we as a society need to take a long hard look at alternatives and quickly....... Greed and selfishness is and has been destroying our society for a while now and if we are to leave a world worth anything then we need to 'park' that mentality......

Your article highlights the 'fickle' nature of the money men and their herd mentalies...... if one 'bolts' (loses confidence) then they all do and one of the "PIGS" is left for the slaughter......

We all live in a really stupid world and i for one am a little tired of it now !!!!

One final thought is that maybe we need a Global disaster to 'wake Us All Up'....

Regards
Ganretti

If they ask for their money back right now they probably won't get it, but if they wait, then they probably will - with interest. What would you do?

The Eurozone is inherently unstable and is the exact opposite of what is required for steady economic growth in Europe.

Looks like we have uncertainty- not good for markets - a fall in asset prices looks more likely by the day.

Ship. Sinking. I'm packed and ready to go... but where? Any suggestions?

No worries!

The announcement of a Royal Wedding to come will soothe the people.

GC

This comment was removed because the moderators found it broke the house rules. Explain.

A controlled process of loss measurement and adjustment might work, but is it even possible. In an essentially zero-sum environment it is surely doubtful that any consensus could be reached. The US government (Goldman Sachs) wants a return to the 'originate & distribute' model that brought on the first wave of the crisis. The policy of continual QE would surely undermine any attempt at orderley deleveraging. Messy it is, and even messier its all going to get.

So ITV's revenues are up? This is an economic indicator?
All that shows is that companies are trying to "market" their way out of the recession - always a 'false dawn' as there is research out there, rarely publicised, which shows TV advertising (and direct mail/leafleting) are equally ineffective in persuading customers to switch their purchasing habits - the independently assessed rates are that less than 3% will make a one-off purchase out of curiosity or because there is a cost incentive, less than 1% will switch their buying habits for more than one purchase.
Money down the drain (or into ITV and the ad agencies pockets) !!!

It is difficult to get your head around the most important lesson of the recent crisis that money is merely an agent of exchange. It has no real value now because it is not backed by any assets such as gold reserves. It is a promise made by politicians. Therefore in a debt crisis many investors holding sovereign bonds start to wonder about security particularly when governments print extra billions of currency. At the end of the day it is the vaunting ambition of politicians and their very need to please their electorates that has brought us to this crisis of the developed world. Property bubbles have blossomed and collapsed and states have been borrowing too much to please their citizens. As these very politicians are set against throwing some countries out of the Euro Zone, now might be a good time for Greece to sell off some of their islands and Ireland and Portugal should consider selling some of their assets too. Opting out of the Euro is aparently a step too far.
Failure to address this seriously will result in a flight of money into real assets. Just look at the current boom in the stock market and corporate bonds, caused undoubtably by Quatative easing and incredibly low interest rates.
A really extreme solution may be to start another major war.....

I have always said from day 1, the euro will never work, we was better of with our own currency. The problem is we have people in hig places who think they know what they are doing, when in fact all they are doing is making the countries useless.

But what can I do I dont have the power to tell these people, & the people who do are scared of loosing there highly paid positions

So in summary we need a decade of 4 % inflation with interest rates of 0.5% , to enable the banks to maintain margins of 4% and slowly depreciate the debt to a more manageable sum.

Or we could apply more QE to quicken the pace of the devaluation ???

At least in Europe / UK there is an acceptance that there is a problem that can't wait and needs tackling ASAP. This can't be said of the USA who continue to expand their debt mountain...

Another week....another EU crisis meeting in Brussels.

"To simplify where we stand, the global financial system has recapitalised sufficiently over the past couple of years to absorb the losses of a controlled workout of the excessive debts in the eurozone's weaker economies.."

Really Robert? Who told you that?

All the same problems from 2008 exist, and some more. Debt can't be wished away. It can be transfered onto nation's balance sheets, but it won't go away.

I guess the race is on for who defaults first, Ireland, Portugal or California.

Meanwhile, China's food inlation is running at 60%.

This is what happens when you kick the can down the road.

'The Providers' are the banksters who have created money out of thin air through fractional reserve banking.
These huge sums of money exist on computer screens and nowhere else. They have made enough money out of scaremongering of which Robert Peston is playing his dutiful part.
Simple solution to all this nonsense is to tell the banking elite that we aren't going to pay them. This would elevate the debt for over 99% of the population of this world who are not in their exclusive club. It is really that simple but unfortunately the politicians are in the pockets of these corrupt people.

I agree with the
2. At 12:19pm on 16 Nov 2010, Ganretti wrote:

Very few people are it appears willing to fully recognise the real problems of today, but prefer to try and fix and fix again and then fix some more. It's a bit like the medical system, cure the symptons and not the cause of the problem.

This world is run by the un-intelligent, it has to be otherwise they would have the intelligence to remedy the problems.

Jacques @ 8

I'm not a big fan of moderation but your last sentence is ill-judged.

Lots of different countries might be angry with lots of other different countries about cause and effect of the global financial situation, but your comment is unnecessary.

What is silly are actions that make default more likely but as Even Davis revealed in "Today" that is precisely what the Irish (and Greek) governments are doing and what the UK government is doing at a slower pace. The Irish budget next month may give a clue as to what happens next.

BIG

Remember the old City saying: If you owe your bank £10,000, you've got a problem; if you owe them a million, THEY've got the problem.

Property and assets in the PIGS will become very cheap going forward and the question is ... who will be the buyers?

Indian and Chinese concerns ... Russian/Japanese/ Middle Eastern concerns maybe ... tax haven vultures?

A new twist to the crisis will emerge in the next year/few years? As the banks sell out and 'wheel and deal' behind the scenes.

Robert there is no financial credibility and as many on here have warned for some time its a house of cards because of the underlying ponzi scheme on which it is based.

The western economies have been in denial with their heads firmly up their backsides hoping for a fairy to wave a magic wand .....its not going to happen.

The problem as i see it is so huge that i couldn't even offer to provide a solution but one thing for sure the printing of money at a phenomenal rate is only in my eyes delaying the inevitable and further lining the pockets of people who it shouldnt.
While you rightly point out Greece Ireland and Portugal are firmly in the spotlight at present i see nothing much better in the economies of Spain Italy and France ,the UK is not far behind either.

As was said yesterday in the blog, until we can workout where the bottom is there can be no recovery.I feel like Private James Frazer in dads army saying " were doomed" but i really do see things in a different light a few years on from the initial bank failures ,the scale of the problem is just mind boggling.

"To simplify where we stand, the global financial system has recapitalised sufficiently over the past couple of years to absorb the losses of a controlled workout of the excessive debts in the eurozone's weaker economies - but there would be a serious risk of a new credit crunch, and global recession, if the providers of that $1.5 trillion of credit to Ireland, Portugal and Greece were to lose confidence that there will be a controlled workout and were to ask for their money back now."

I don't see how this works without an 'orderly' withdrawal of the Euro currency at the same time. Surely either fiscal sovereignty has to go for individual countries for the euro to survice.

The Euro is what happens when you let politics run ahead of economics.

Greece should never have been part of the Euro.

Portugal (sorry) is too small to care about.

Ireland would have done better to join sterling than the Euro.

The other issue is that the problems are not the same in each country. Greece is a country failed by its politicians with public spending completely out of control. Ireland is a country failed by its banks (although as I am sure Irish posters will shortly point out, the politicians were heavily involved too). Spain has suffered from betting the entire economy on property and Portugal I know nothing about.

Because the problems are different the solutions will be different.

Ireland basically needs to wind down its banks in an orderly manner, guarantee deposits and then let other banks take over the banking of Ireland's people and companies. Sure this means a lot of commerical lenders and bondholders will take a haircut - tough, that is what happens when you make a bad lending decision. Working out the bad loans may take a decade or so but they need (as Ireland has been doing) to be stripped out of the normal banking system.

Greece is a basket case. The lifestyle that the govt believed the Greek population demanded (which is of course entirely different from what lifestyle the Greek population was willing to accept) is utterly unachievable. The Greeks are in for 20 years of hard graft to completely cull their public sector, make it more business friendly. I simply cannot see this happening inside the Euro. Trying to do that and honour their existing debts seems to me to be impossible and requires the govt to default of large amounts of debt.

Spain is interesting. They have made a real mess of the rule of law (alledged local corruption seems to be a major problem), their labour laws have acted as a massive break on creating jobs but...there are large pockets of very serious business skills there, and the relationship with latin america makes for large opportunities. I think they made two long term mistakes: betting their shirt on property and putting in place a north European style social economy before they could really afford it. Sure being in the Euro did not help but I am not convinced that this has been a massive problem for them. If I am right then the long term solution has to be tear up vast tracts of legislation and set business free. This will almost certainly bring down public spending because legislation inevitably costs and inevitably needs civil servants to police it. Remove the legislation and costs fall and civil servants become redundant. Sure they have a temporary funding crisis but if ECB liquidity can see them through then the problem will be worked out over time - although I am sure a large amount of Spainish property loans will be bad.

I do a lot of corporate rescue work. If I were to characterise Greece, Spain and Ireland as companies then Ireland broadly needs a balance sheet fix (too much debt not enough equity), Spain is mostly an operational restructure (which means change the way the business produces things) and Greece is completely unviable and should be simply wound up

https://bbc.kongjiang.org/www.bbc.co.uk/news/business-11764588
Someone please tell me why this is a surprise? Commodity prices have been rising for the last year. It would be a surprise if inflation had not gone up!

euro on the verge of collapse, and what's the BBC talking about? nothing, they're too busy fawning over the first sniff of a royal wedding.

With such a high grade of propaganda, the proles won't notice.

Shame on the BBC, you're letting the british people down. we want news, you give us the digital equivalent of toilet paper.

An Irish default in either soveriegn debt or its banks will have a massive impact on the UK because our banks hold large amounts of Irish debt - public and private - and we are liable for billions of support aid to Eire under the EU scheme, whic is not the same as the EuroLand ECB one.

If the ConDems provoke a property meltdown in the UK too it will take our banks down as well.

What then?

I presume there will have to be SOME form of banking restored here - and this will either be overseas banks moving in, or the government taking over the banks from the liquidators and putting something back in their place.

Sterling plummets - our interest rates to borrow from abroad go through the roof - probably runaway inflation too - this is one hell of a risk Osborne is taking right now - still he did describe Ireland's economic policy thus : "Ireland stands as a shining example of the art of the possible in long-term economic policymaking." (C) Times Newspapers.

That was in 2006, when Eire was allowing its economy to wildly overheat and inflate the property bubble which has just burst.

Then the Conservatives and their libertarian mentors praised Eire for its savage austerity programme once the bubble had burst, claiming it was the solution to the debt problem and proceeded to devise their own UK version which was given substance by the Spending Review.

I'd think long and hard about changing your personal finances right away - sell the town house, get out of equities, move to the country, buy land, invest in self-sufficiency in food and energy, don't leave any money in the bank - get a gun - or two.

Robert, if only it was just about debt (bad enough though that is)it's about the ongoing massive divergence between some Euro economies, essentially the PIIGS and the rest. Even if the short to medium term debt issue could be fixed there will still be ongoing divergence which means either at best stagnation or even contraction of economic activity in the PIIGS or a further financial and social crisis.

Sooner or later Brussels is going to have to recognise that a common currency zone for fundamentally divergent economies just isnt viable. You can introduce all the financial rules and straitjackets for a countries political leaders to follow, that doesn't change the beliefs, values and behavious of the particular local populace nor guarantee the electoral survival of those politicians. The sooner Brussels and Euro politicians accept this the better ( and ultimately cheaper) for all concerned. This doesn't necessarily mean the disappearance of the Euro but does mean recognising that in reality there is already a two speed Europe and that pretending there isn't was a significant contributor to where we are now.

There is probably enough idle money sitting around in bank accounts of the truly wealthy to solve the whole problem, But I suppose the money will continue to sit there and be counted from time to time without doing any good at all.

You may recall Robert that one of the arguments about the Euro back in the late 90's was the fact that it required all the economies to operate alike and that it simply was unworkable. The northern Half of Europe is industrial and the southern half is largely agricultural. Now add to that the costs of uniting Germany which are coming home to roost. Eastern Europe is getting so much structural aid and this is were the problems truly lie.

This pits the free marketeers against the federalists and the pure market economics are getting mixed up in foreign policy and politics. Ireland was a case in point- regarded as a tiger ecconomy based on structural loans from the EU in the late 90's it was pointed out that unless the Irish could underpin it with expansion in the business sector it would fall flat. Well we saw the increase in house and land increases but not much else.

It also stands to reason with the pacific rim expanding that the economic boom will not happen in europe, which is why America is pitching in China and India

Robert,

I am puzzled. How does the increase in profits by retailers help the economy? How much of what they sell are made and produced in the UK?
How much UK taxes do these profitable businesses and Rothchild pay?

Is selling even more coal to China a good idea for the global environment, even thoug it will bring in massive profits for a few?

25 Justin

Great stuff. Why don't we just phoenix the whole Eurozone!

100% haircuts all round.

The big companies might all be making profits, cutting cost and staff to do so and paying the suppliers on longer and longer time scales. small and medium companies have no such slack in the system to do any of what is being preached by the few big companies with publicly machines saying how good they are.

Overall they are building profits on sand in my view. Consumer confidence? Recovery? Banks lending?
But back in the real world shops closing down because rents are going up
Jobs going to cut costs
And try to get a loan from a bank
But a royal wedding to cheer us all up, so thats alright then.. All is good

Robert: It is pretty evident what is causing the "global debt crisis." It is politicians seeking career self serving "jobs" with little regard for the good of the tax payers who are paying the bills. How can this be? In the USA 47% of the populace pays no federal income tax. BUT THEY CAN VOTE! The original US Constitution had property owners being the tax payers--and property owners being the only eligible voters. Thus tax payers controlled the politicians and the spending of tax revenues. In the USA, the personal income tax amendment and the Civil Rights "One Man One Vote" amendments were manipulated by politicians who saw the "way" to instant personal careers and financial gain. The US politicians now can say to the huge population of non tax payers, "Vote for me and I will GIVE you more." The non tax payers are glad to do so, they never pay a cent for all the political largess. I am pretty sure, this "career political largess" is at the root of most of the global economies that are in financial trouble. If tax payers controlled the electoral process this would not have happened. Pure democracies have never been viable due to the human greed factor.

The solution is easy. Get the tax payers back in control of the electoral process. In the US, rather than cause a political disenfranchisement furor, let all legal citizens contiue to have a vote, BUT have the IRS send out certifications to taxpayers that gives them the right to cast an additional vote. Congressional attention would immediately change from "giving to the non tax payer" to listening to the tax payers. In short, the global economies in the current political and financial mess would have a way out of the box we now are in without civil wars. If you need to be reminded as to what happens in "pure democracies" replay the film "Dr. Zhivago" and note what happens to Geraldine Chaplin's father's house in a pure democracy!

Dupineman, USA

The plain fact of the matter is, the way we live on this planet is unsustainable and the financial problems are but a facet of this.

To survive we must change our attitude, profoundly. It is of fundamental importance that we recognise and acknowledge our own responsibilities in this state of affairs and how we have contributed to it. The question is, what will it take to contribute to a new world community where there is caring and respect for everyone and everything?

It WILL be painful, but it could be highly profitable, in the widest terms.

Do we wait, hoping the problem will go away, or do WE take action NOW ?????? Not government, not the church, but US, as ONE COMMUNITY !!

This blog just about sums up the spiv culture that is all that remains of the UK.

Why should a Swiss based venturer buying coal assets in Indonesia for on sale to China have anything to do with the UK and why should this be percieved as counter news to the problems facing Europe?

The only reason why this entity is going to be listed in London is because you can do things in London that are illegal elsewhere. (Ask where all of AIG´s most toxic deals were put together).

So an already rich individual is going to get richer by investing in commodities. What a genius. Imagine the intellect needed to work out that the endless creation of funny money is going to drive up commodity prices as a presage for full blown hyper inflation.

To simplify where we stand, the global financial system has recapitalised sufficiently over the past couple of years to absorb the losses of a controlled workout of the excessive debts in the eurozone's weaker economies - but there would be a serious risk of a new credit crunch, and global recession, if the providers of that $1.5 trillion of credit to Ireland, Portugal and Greece were to lose confidence that there will be a controlled workout and were to ask for their money back now.
.........
Robert, I dont believe for a minute that "the global financial system has recapitalised sufficiently over the past couple of years to absorb the losses of a controlled workout of the excessive debts in the eurozone's weaker economies". The bailouts 2 years ago simply robbed peter to pay paul. The banking system is on the edge of collapse. At least you seem to acknowledge this at last. The solutions required are way beyond what is "normal". The debt has to be reduced to a level to enable countries to function. Public spending cut backs cant and wont work, the debt is just too high. We have been led to this crisis through fractional reserve banking and only monetary reform can avoid a rerun in the future. Its not as if this problem wasn't expected!
“Any intelligent novice, first introduced to the workings of the money system, must find the pyramiding of money on the fractional-reserve base incredible. A few of the nation’s foremost economists, led by Henry C Simons and Irvine Fisher, were of the same mind at the depth of the depression when they urgently advocated abolishing the system. The idea was simply to require 100 % reserves for all checking account deposits, so that all true money was government money. Instituting that system would have been little more than a bookkeeping entry, but after it was done all the evils of the fractional-reserve system would disappear. The idea was called the only fundamental creative idea to come out of the depression. But the idea passed into limbo. The best economic minds were in favour of it, but the commercial bankers could be counted on to resist to the bitter end the loss of their money machine, and the people and the legislators probably did not understand what it was all about. Little was heard of the idea in later decades except occasional, and rather inaudible, reminders by a few economists. This complacency would no doubt persist until still another series of disasters came to pass with the substantial aid and comfort of the fractional-reserve system.” P.150 (The Dying of Money Jens O Parsson 1974)
If the governments cant get there act together, the masses will force there hand, but the results are likely to be unpredictable as a result. I sense the growing anger. We must never forget the true purpose of money, we should be in control of it, not it in control of us.

“Money is a monumental nothingness. Creating money cannot create real value, and destroying money cannot destroy real value. Real wealth does not rise if the money world booms, nor does it diminish if the money world falls apart…..All that money manipulation can do is alter the direction of real values and to alter the distribution of real values among the members of the economy” (The Dying of Money Jens O Parsson 1974)

#11 DemoDave 'It is difficult to get your head around the most important lesson of the recent crisis that money is merely an agent of exchange.'

Quite right, the difficulty now is we have let the spivs treat money as though it had a life of its own and turned it and its derivatives into 'products' There isn't enough real value in the universe to cover the artificial money that has been created to feed the bankers. So the best thing to do is just cancel all this so called debt and start again. In effect this is what is going to happen anyway in the next few years. So we can either do it in a thought out, well organised and gentler way or we can crash and burn. No prizes for guessing which one you are going to get whether you like it or not.

#36 mbrookman 'The plain fact of the matter is, the way we live on this planet is unsustainable and the financial problems are but a facet of this.'

Right again, I used to be the only one on this blog pointing out this simple truth but I think there is a bit of a ground swell starting. Phew, maybe we can do something to arrange a softer landing. All we need to do is convince the politicians of the facts and scotch this silly notion of continuous growth (peddled by discredited economists ie most) and we and more importantly our children stand a bit of a chance.

I have just reread that last sentence. Oh well, never mind, see you on the barricades.

33. At 1:53pm on 16 Nov 2010, Elduderino01 wrote:
25 Justin

Great stuff. Why don't we just phoenix the whole Eurozone!

100% haircuts all round.

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

Germany's not bust so cannot pheonix that
Latvia/Lithunian/Estonia would not accept being bought by the Russians
Denmark - most people thought that was part of Germany in any case.
France would not stoop to anglo saxon ways.
Italy would not be able to organise a pheonix.
Spain would serve a pheonix as lunch.

What is the relevance of this $1.5 trillion number? Dontcha know that standing behind this is about a further $48 trillion of interlinked assets which also happen to be the continents liabilities.

Why not explain how this larger, and more relevant, number is going to be subject to a "controlled workout"?

#40 Justin150

"Denmark - most people thought that was part of Germany in any case."

You are right.
But Denmark has its own currency. Krone.

39. At 2:27pm on 16 Nov 2010, peter_t_clarke wrote:
just cancel all this so called debt and start again

A nice idea, but whose debt? Everyones or just the Sovereign debt? Again this would lead to an awful amount of inequality as those who have been reckless and stretched themselves too far - individuals, companies and countries - would effectively be the net "winners".

Unless I have misunderstood the thoughts of your thread

40. Justin

Excellent summary!

Muddling through it is then.

pffff....

"How big is Europe crisis"? according to Robert Peston.

Sorry Robert, as hard as I try to understand your cryptic blogs - I am now confident that your blogs may be well-informed, but are not written to be understood by likes of silly old me.

Nevertheless, there are basic and important principles involved for shallow and ordinary folk like me:

1) pensions - paid in, but contributions may disappear.
2) investments - savings accounts, even ISAs are shabby returns.
3) jobs - well, who knows.
4) No protection of any investment by ordinary folk of their time, training, experience, loyalty or dedication?

The so-called Europe crisis is more to do with the elite and Bond managers running Europe and less to do with those who pay taxes to support them?

But what do ordinary people know? They know they are being taken for a ride that only the few benefit from. Ordinary people elect those who promise so much; yet when in power these 'representatives' are curiously, and increasingly impotent? Hmm.

How big is Europe's crisis?
Big enough to crash the EU ... and the set us (the UK) 'free' - I very much hope!

Come on you spivs/speculators and turbo-charged financial parasites ...

Crash it ... Make yourselves useful for once in your lives!

There are an astronomical number of reasons for this meltdown. I find it difficult to find a better fundamental reason than "over population". The effect of which is explained well by:

#36 mbrookman

Anyway, more pressingly, does anyone else think 'Queen Kate' sounds wrong?

What I find so frustrating is the majority of people on this blog, realise that it is game over for the banking system and monetary system as we know it. We are able to think from the practical view point of a layman, and are not trapped by the narrow thinking of neo-classical economics. The monetary system is a massive artificial construct of our own making. If it is broken we need to replace it with something that works better. The current system has allowed debt to build up to level that can never be paid back, ever. But the debt is simply numbers on computer screens! Why are we persisting to prop up this broken system. It is utter madness. The only reason I can see is to keep sweet a bunch of very wealthy bankers. But they were the means by which this crisis was delivered in the first place! Real wealth is the crops that grow in the ground, our natural resources, and products we make. None of that will be destroyed if the monetary system is replaced. In fact right now the only thing that is a reliable source of wealth are the commodities, which is why investors are pumping their money into them, because they know that our monetary system is on the point of collapse, so they are trying to get rid of their money fast. The solutions are stark. We take a planned approach or we let the system collapse. I have made my views clear. We need to introduce monetary reform. This will allow the debts to be "paid off" and the responsibility for money creation will be removed from the banks, and a new interest free money supply can be created by the state, so at last the debt can never exceed the money supply required to service it. I honestly cant see a better means of, permanantly, overcoming the shortcomings of the monetary system without causing total chaos in the process, whether it be mass default or otherwise.

Furthermore, political change is not required across Europe.

What ordinary people want is political integrity from those who are paid for by ordinary people. Simplistic, naive, optomistic perhaps?

If European elected leaders and politicians feel unable to face up to Bond managers - then why not be more honest and replace all the elected/non-elected parasites with CEOs of all the banking community who are holding most countries to ransom? That would be very honest indeed?

There is an interesting difference between the EU (and many UK commentators), whose answer to any question is that more money is always needed, and the solution favoured by the Irish government (and the UK Government) which is to, at least try, to cut its cloth accordingly and not take on more debt.

The EU was always a fudged solution to a problem of its own making, namely that all parts of an economy and culture as varied as the EU were not going to move at the same pace. Surely more debt for the Irish will harm their own future prosperity, in much the same way as the UK economy. Hopefully they will weather the storm and work in their own interests, it is difficult enough for them to keep things on track without having to worry about Portugal and Italy as well.

43. At 2:37pm on 16 Nov 2010, yam yzf wrote:
39. At 2:27pm on 16 Nov 2010, peter_t_clarke wrote:
just cancel all this so called debt and start again

A nice idea, but whose debt? Everyones or just the Sovereign debt? Again this would lead to an awful amount of inequality as those who have been reckless and stretched themselves too far - individuals, companies and countries - would effectively be the net "winners".

Unless I have misunderstood the thoughts of your thread

...............

There will always be winners and loosers. At the end of the Weimar inflation, those with savings and paper wealth lost everything. Those with no savings were not really effected. Those with commodities or physical capital (eg equipment) also were okay, because they retained their value regardless. And interesting the government benefited as the debt was wiped out. As usual you blame the takers of credit rather than the lenders. Currently the populous are having to pay for the mistakes of the excessive debt that was created during the boom regardless of whose fault it was. There can be no recovery until the debt, both private and public, is reduced to a level that not only is affordable, but allows sufficient flexibility to allow people to live above just a subsistence level.

£The issue here is not the size of the bank debt rather that the Irish government either by design or incompetence have hitched the Irish national financil position to that of the commercial banks they bailed out. This was done by failing to break the link between state debt and bank commercial debt.

The key here is for the Irish Government to end the banking guarantee to their national banks. Rather than open ended this needs to be limited to a maximum of €100,000. This would then force the bond holders of the banks to take a good haircut on their bonds and so pull the businesses back into shape.

The Irish government needs to take action to break the link. If it lacks the courage then it will fail. This is not an end to the Euro moment.

1 question.... So if the euro is so dead, why has its value on the markets risen today vs the pound, and is today at 1.17 to the pound still aprox 8%
more valuable than it was in september 2010 (at 1.24vs the pound)
all the scaremongering sounds like vested interests sticking the knife in to try and gain profits at everyone elses expense!

At macro level some of the big PLC's,many of whom enjoy dominant market positions are doing OK, in some cases very well. At micro level small businesses cannot get credit, despite the official statements that the banks are open for lending, but there is no demand - this is total poppycock.
The EU is a terminal decline that will result IMHO in the failure of the Euro - the debts are such that they are a drag on the whole of the EU, and I think it is going to get very messy, forget double dip I think the GDP graph will probably look like a roller coaster for the coming years, with big dips into negative growth.

It's all very simple. It's all just one big PONZI scheme. Do a deal with the USA to get Madoff out of jail and come to Europe and sort it all out. He could hardly do worse than the bunch of muppets that we currently have.

My own ‘Last Post’ (hopefully not too 'off topic'):

The following is a quote from the foreword to “Common Cause: the case for working with our cultural values” by Tom Crompton of the WWF, published 2010. Essentially, this quote encapsulates the reasons underlying my own desperate desire for change in the ways we currently approach the management of our political and economic systems, their aims, structures and outcomes. As far as I’m concerned, either we change the ways we relate to each other (in the broad sense) or we choose the status quo, a path that ultimately leads to imprisonment by a history of our own making that is destined to repeat itself.

“The values that must be strengthened – values that are commonly held and which can be brought to the fore – include: empathy towards those who are facing the effects of humanitarian and environmental crises, concern for future generations, and recognition that human prosperity resides in relationships – both with one another and with the natural world. Undoubtedly these are values that have been weakened – and often even derided – in modern culture. They are not, for example, values that are fostered by treating people as if they are, above all else, consumers. But they are values that have an ancient and noble history within Western thinking, and they still fundamentally inform much public debate. They are there to be activated and strengthened. We believe that everyone – individual citizens, civil society organisations, government and business – can play an active role in strengthening them. Indeed, they are values that must be championed if we are to uncover the collective will to deal with today’s profound global challenges.”

Although “Common Cause” has a theoretical and academic feel to it, and also has a strong environmental focus, I believe that many of the ideas presented are applicable to other areas of current concern, particularly the way we ‘do’ politics and business. Much of it directly reflects or relates to the writings and sentiments of the many well informed, concerned and regular contributors to these interesting and sometimes amusing blogs. Maybe some or many of you have already read it. If not, you can read a review of it here and make your own minds up as to whether to bother with the full 100 pages:

https://www.stwr.org/economic-sharing-alternatives/common-cause-the-case-for-working-with-our-cultural-values.html

52. At 3:07pm on 16 Nov 2010, Averagejoe wrote:
As usual you blame the takers of credit rather than the lenders.

Wasn't blaming anyone, I was asking how this was fair such that people who had been careful are the losers and people who were reckless are the winners. Suppose I was to think this would happen, it would make sense to go out and borrow as much money as possible to buy as many tangible goods as possible. When the debt is all written off, I am laughing. How would that be different to the current situation other than different people would benefit?

There can be no recovery until the debt, both private and public, is reduced to a level that not only is affordable, but allows sufficient flexibility to allow people to live above just a subsistence level.

I agree, but for that the people must accept responsibility and not look to blame just the lenders

I'd probably feel more optimistic if I believed that the whole sorry mess was out in the open.

My problem is:-

I don't trust politicians.
I don't trust bankers.
I don't trust the judgements of economists.
I certainly don't trust the financial statements issued by accountants.

Robert? - he's different...

Good job I'm not an economist as it is all double dutch to me.
What happens if they won't pay? Does someone come in and repossess the country? I know some countries will not trade with them but I am sure others will barter with them.
Where does the Eurozone bailout money appear from?
If wealth is created by growth what happens when you can't grow anymore e.g. no resources, too many people etc etc.

It's all just too non-tactile for an idiot like me to comprhend.

May I try to introduce some sanity here...

To be competitive we (the UK) needs to have a cost base that is competitive.

Competitive house prices are a vital part of the make up of our economy. So all of the siren voices raised against the Euro should/must remember that as events transpire we in the UK HAVE to remain competitive if we are to prosper.

To ensure that we remain competitive our wages must be competitive. And so the main use of our wages have to be competitive too - that is paying for housing be it mortgages, or rents.

So if any of our competitors suffer an economic reverse we also must suffer similarly or we will collapse and fail to be competitive.

The present Irish problem is partly due to the terrible overpricing of Irish property - that has in the main be unwound and is in (or rather off of) the books of the banks. The UK house prices are still in consequence some 50% over priced for us to remain competitive, let alone any further loss that may result from the current problems.

In other words what happens to Eire today happens to us tomorrow and there is absolutely nothing the 'let it slip' fiddlers of Threadneedle Street can do to stop it - in fact what they are doing is making it worse - but that is, as they say, another story!

We must support the Euro now for if we do not the price we will pay will be far far worse. We should make it clear that we intend to join - for by doing so the cost to us will be far lower than if we stand by and do nothing.

As some Euro member countries broke growth and stability best practices, why are the rest of the eurozone (ie Germany) not expelling the miscreants for fiscal misconduct?

Those who are expelled can float their currencies- most likely at very competetive rates- and trade themselves out of this mess.
Why should those countries who have managed their finances responsibly bail out, or worse, suffer collapse themselves if the worst happens?

Might cause panic and outrage but equally could be seen as a pragmatic solution for all.

#28

Sterling plummets - our interest rates to borrow from abroad go through the roof - probably runaway inflation too -

-----------------------------------------------------------------------
Inflation figures released today show an increase, VAT to rise in January, yet Merv still thinks inflation will be down to 2% by 2012????

The Euro is in crisis, Ireland is on the brink, it wants to introduce further massive cuts yet it's economy is on the verge of collapse.

A few weeks ago I met with with a senior member of the Garda, he was seriusly worried about a breakdown of law and order in Ireland. The people there are hoarding "stuff" and anyone with money is hiding it from the tax man.They know the brown stuff is about to hit the fan. DC says we will suppport the Irish,fair enough, but who will be left to stand behind us. Even the Germans aren't that rich.
The complexity of international-interlinked financial instruments is a serious weakness and risk to recovery.The last crisis was covered up by goverment intervention, this time the govt's and banks are interlinked, withnothing left to back them up. It won't be pretty.......

@ 18. At 12:55pm on 16 Nov 2010, TheGingerF wrote:

> your last sentence is ill-judged.

Yes, my sentence was ill-judged. So can we safely assume there can not be any bloody consequences to the banking problems in Ireland now? I think it's too soon to tell, eh?

I presume this EU/euro story will drag on for days and days, Lord knows how these bureaucrats love to meet and 'talk'. I guess European 'leaders' in the worst affected countries will go on talking and trying to find an 'internal(EU)' way out till the cows come home rather than have the bottle to get on air and say, as they do on Dragons Den..

I'M OUT

I don't imagine for two seconds that any banker or politician anywhere gives a monkeys about the effect this is having at 'street level', paralysing comercial uncertainty in every country as far as I can see from the reaction from our clients all over the world.

None of them have a 'Plan B', see, however useless 'Plan A' was..

I do wish this would end with a bang.

GC

No. 61 John_From_Hendon:

I'm sorry, I completely disagree with you!

The Euro is throttling it's members. How can you possibly reconcile the economic structure of Germany with that of Portugal, Greece, and Spain? It defies all logic.

The Euro just will not survive - nor should it.

I'm amazed at how many commenters here consider themselves experts in the economy of Spain. If the country had bet its entire economy on property, as some have suggested, it would have never ever grown to be the world's 8th, 9th or 10th largest economy. Spanish companies like Telefonica, Albertis, Abengoa, Respsol, Banco de Santander, BBVA, Acciona, Inditex, Mango or Ferrovial show how diversified the country economy really is. If Spain (not to mention Italy, France or the UK) reaches the point where it needs a bailout, then the whole EU is doomed (notice I said EU and just the Eurozone).

The Irish are being encouraged to take the money from the ECB now,as a last throw of the dice to try and restore/maintain credibility in the money markets.Even if they do, stability will only remain for a short period. Germany will not stand behind the rest of the EU for much longer. Germany will leave the Euro to protect themselves,ther will be a long period of economic decline, surprise surprise...

Wheres WOTW gone, not been sacked has he.

Perhaps the EU has recruited him as Chief economic adviser, at least that way we would have a solution one way or the other???

So no surprise, the woes of the Eurozone have not gone away. Some people may be surprised, but those who can look at the figures are not. Rather like the return to "health" of the UK economy, it will prove a false dawn.

The problems of massive debt have simply not been solved, because the debts have not been repaid. Until the pain has been gone through there will be a roller coaster of false recovery then double, treble, quadruple dips. I shall be watching and investing accordingly, maybe buying Irish debt now at 8.5% knowing for sure Ireland will be rescued, then selling it again and waiting for Portugal. I trust the governments NOT to tackle the problems and that predictability is an opportunity. I trust them to print some money that I can get a share of.

The results of bailing out the banks is large national debt, the surreal part is that since the governments own large portions of the banks how is it that they have these large debts. Like buying back your TV from the guy who stold it.
Until real controls are placed on the banks things will not get much better.
For over a decade, the income and relative wealth of the middle class dropped while the wealthy increased in a large way. The middle class then lost about 30% of their personal wealth due to bankers gambling and collusions and facilitated by the politicians.
The continued protection of ill gotten wealth at the expense of the middle class will only create further poltical turmoil and is not likely to be resolved in the current political climate.
I am not sure what people don't understand about the corrupt political environment and that it doesn't matter who is elected as long as the banks control the money.
Global economy requires global banking and in that context there are little or no controls.
The bankers have been enboldened by the lack of accountability for past misdeeds. Write your bank a letter and repudiate 30% of your current loan and see how they respond. Different rules for different classes.

So, abandoning Wage Inflation just isn't working out then........

If the Financiers break the Euro, do they have a plan to replace it ?

Or do they just plan to make a fast Buck ? (Other currencies are available).

No. 68 creditunionhero:

I agree. That's exactly what I believed 6 months ago.

Why should they stick with it?

Whether you like it or not, when the chips are down it's everyone for themselves. That (sadly) is life!

58. At 3:22pm on 16 Nov 2010, yam yzf wrote:
52. At 3:07pm on 16 Nov 2010, Averagejoe wrote:
As usual you blame the takers of credit rather than the lenders.

Wasn't blaming anyone, I was asking how this was fair such that people who had been careful are the losers and people who were reckless are the winners. Suppose I was to think this would happen, it would make sense to go out and borrow as much money as possible to buy as many tangible goods as possible. When the debt is all written off, I am laughing. How would that be different to the current situation other than different people would benefit?
.......

The savers did suffer in 1920s Germany and the debtors benefited. Not fair I agree. But if the ship is sinking there is little to be gained from blaming who was responsible for hitting the ice berg. You just need to find a new ship. A good suggestion. At some point in the future, borrowing a huge some of money and buying a bunch of commodities might well prove a wise investment. Risky of course, but then high returns usually are.


There can be no recovery until the debt, both private and public, is reduced to a level that not only is affordable, but allows sufficient flexibility to allow people to live above just a subsistence level.

I agree, but for that the people must accept responsibility and not look to blame just the lenders
................I

This is down to the who's the professional and who's the amateur argument you have with WOTW, lets not go there.

Come back WOTW - all is forgiven!

63. At 3:39pm on 16 Nov 2010, creditunionhero wrote:
#28


A few weeks ago I met with with a senior member of the Garda, he was seriusly worried about a breakdown of law and order in Ireland. The people there are hoarding "stuff" and anyone with money is hiding it from the tax man.They know the brown stuff is about to hit the fan. DC says we will suppport the Irish,fair enough, but who will be left to stand behind us. Even the Germans aren't that rich.
The complexity of international-interlinked financial instruments is a serious weakness and risk to recovery.The last crisis was covered up by goverment intervention, this time the govt's and banks are interlinked, withnothing left to back them up. It won't be pretty.......

>>>>>>>>>>>>
Interesting to hear people are hoarding. I have recommended a number of friends to buy gold sovereigns, rather than stick with their ISAs or lowly interest savings accounts, as a safety net should the banking system fail. Must look at credit uniions again though! The international linkages of debt is the unknown factor that will cause the most damage. No one knows exactly how much the debt is interlinked, and what level of default it would take to bring them down. But it could cause the banks to fall like dominos. The numbers are so huge, I cant see how systematic failure wont occur, and if it doesn't it will be a fluke!

Has anyone ever heard ANY of these leaders, finance minister and/or their cronies apologize to the ordinary peole for this shambles?

These people are very well paid and quick to take the credit when they can persuade us that something is going well; when we have financial meltdown it's a different story.

Yes, this is a collective failure, but individuals are in the frame, too .... what were presumably-intelligent people thinking when they ran up such large debts? Was this mass-hysteria?

And they want to fix it by borrowing ever larger sums .....

75. At 4:03pm on 16 Nov 2010, Vercingetorix wrote:
Come back WOTW - all is forgiven!
------------------------------------------
WOTW posted that he was going to the States for a couple of weeks. I expect he has gone to meet Ben and his Fed gang.

Robert,

Recessions and crises produce odd, sometimes (at first glance) inexplicable results - such as the ITV advertising revenue rise and the Rothschild acquisition - but they both make perfect sense in the context of an economy teetering on the edge of further demand side contraction. For example, what advertiser would wait until the predicted slowing of consumer spending in Q1 next year (post the VAT increase too) to bring on a new ad campaign? And what company wouldn't, with spare cash or the ability of generate it, try to buy new capacity in a (continuing) recession?

The fact is that we have all the signs of double dip for the UK and much of the broader G20 alongside a sovereign debt crisis the like of which we have, simply, never seen before. They are connected only through the hand-fisted lunancy of bank debt positions in 2006-2008, but are now both contributing to a problem we never expected to experience, that of country insolvency mixed with recessionary conditions which make it impossible to address that insolvency by growth.

And in the middle of this quagmire of problems stand governments - almost all of them - planning for mass unemployment and regarding reflation as an evil because inflation might rise a tad at a time when any rise is almost wholly due to energy and commodity supply price effects in particular markets.

Robert, isn't it simply the fact that Markets respond unfavourably to ANY instability, and the greatest instability of all is the Euro(zone) itself? This cobbled together club of wholly unsuitable friends is destined not to work. How can you manage the completely different needs of economies such as Germany and Portugal? Its like going into your local French resteraunt and ordering Pizza! The instability at the heart of european economics right now is the euro itself. God bless Gordon Brown for standing firm against our entry.As for Ireland, well, I wouldn't be surprised to see them fully nationalise all the Irish Banks and then demand that they lend them enough money to get out of their mess !!!!
ps - Robert, please stop crossing picket lines and act honourably, like your fellow Newsnight presenters !

Robert ,its worse than you think for the irish.They are playing the all blacks on saturday!!!

Thanks for the update on Ireland and Portugal Robert. There are quite a few problems arising from their distress. I have read on the notayesmanseconomics blog about their issues which seem to have quite distinct causes.

However I was disturbed to read his report today about the Irish Central Bank and the unexplained 20 billion on its balance sheet. If it does tha a few times it might amount to real money.....

60. At 3:32pm on 16 Nov 2010, who2believe? wrote:
Where does the Eurozone bailout money appear from?

Simple. The ECB is the lender of last resort. In theory this is all a bit like Northern Rock, washing dirty linen in public. The ECB just needs to guarantee the whole shebang.
The problem, apart from the obvious 2 speed Europe, is the bloody politicians. Well you German, Finnish and Austrian folk, its too late to take your ball back. Cough up.

Prediction: Any minute now the bailout will be announced.

"How big is the Europe crisis". Here we go again. Stand by my posts on this Peston blog. Furthermore:

Currencies, originally, - were ultimately invented to assist tax collectors or circumvent bartering during tmes when populations were constantly over-run and on the move caused by invaders or coutries who were outposts of ancient conquerors?

Originally, ALL currency was made of precious metal. This was useful during conflict and peace for all human communities - the only change is that a country's wealth today is on a computer screen with a commodity or currency program that is valid only to investment/bond/banks that take £$billions in commission out of thin air.

What's my point? My point is that we can all safely assume that the Europe Crisis; or any currency crisis is as vapid and unreal as the mad hatters that take commission and live their high life due to figures on a fake statement. So, governments must face up to, and face down these parasites who live on fake money, yet demand real money from us? aaaargh.

I noticed a reference to "fractional-reserve banking" in this thread so I popped of to WikiP to learn more. Please read this and have a glass of something strong to hand.

I can only describe it as legalised money laundering, every time borrowed money passes through a bank it seems to become new, clean and fresh and can be counted again without any reference to it's original 'owner'.

Having a science background I'm steeped in the concepts of conservation (energy , momemtum etc..) There is no way you are allowed to count the same thing twice just because it is somewhere else.

I can see the need for a bank to lend out a proportion of it's deposits but for pitys sake accurately record it as such.

No wonder we are paddle-less when all of the bankers, accountants and economists in the money industry can't even follow the basic rules of algebra.

No. 78 Kit Green:

Poor old Tim and Ben - aren't they in for a good time!

If ever there was a time to short the dollar - it has to be now.

Britain should join the Euro. The majority of European banks should be nationalized, and banks should be unable to make profits. This should go some way towards stopping the complete collapse of Capitalism, which is inevitable if borrowers borrow from themselves.

Where do all these numbers come from?

Can I remind everyone that the reason we are in this mess is that the Directors of banks lost control of their balance sheets, they systematically overvalued their assets and understated their liabilities.

The internal audit functions did not spot this, the Audit Committees did not spot this and neither did the shareholders.

The external auditors, as far as I know, issued clean audit certificates to entities that were effectively insolvent and rating agencies issued triple a ratings for rubbish.

Nothing has changed! The Companies Acts have not been amended, Financial Reporting Standards remain years behind the complexity of the financial instruments being developed and traded.

The same people are still in place producing the numbers that everyone is discussing.

Lets be clear about this we have to start with the integrity of the accounting statements produced by financial institutions and until we get this right everything else is hot air.

How can these macro economic discussions take place when when there is no reliable data upon which to base decesion making?

As a fully paid up elderly gentleman I find everyone's bewilderment about what to do quite extraordinary.
What's wrong with the old virtues of industry and thrift? Um, and temperance.
They lead to both innovation and contentment.
Or is that just not glossy enough?

David Butland
17th Century
Bridlington

No. 86 Kmac:

Relax. Surely you remember your notes on 'Schrodinger's Cat?'

It's only there if you look for it!

Make no mistake, these bankers are clever people.

I know nothing about international finance but I do know human nature....and it tells me that countries will stand together only until they see an opportunity to grab as much as they can and save their own skin even if it means the ruin of others.
Promises, agreements and honour mean nothing were money is concerned because they all believe in 'Do unto others before they do it to you.'

What does not help are articles in at least one UK newspaper today along the lines of 'how much of your savings back will you get if Irish banks collapse?' which has a Northern Rock quality to it. I think the media bears some responsibilty for both stoking the causes of the collapse [" your property is going up £10 per second etc etc"] and the crash itself by scaremongering causing runs on banks. A few less sensationalist headlines and a few more balanced articles and warnings over the years might not have been a bad idea. I am not saying it is all the fault of journalists ,it's just you guys often make things worse,not better.

What is worrying about this is that we, in the UK, will have to make a contribution to any bailout of Eurozone PIGs nations' debt problems. So having paid for the failure of our own banks, and virtually written off the money owed to us from the failire of the Icelandic and Greek ones, we will now happily shell out to support the ruin caused by Irish bankers, and throw more of our own people on the scrapheap to pay for it no doubt. Oh, and then there are the second round effects, like the exposure of RBS to Irish debt, which will almost certainly mean more taxpayer bailiyut cash for them. Another million on the dole should solve that one...

At what point did sanity desert the politicians and policy advisers who are 'managing' this crisis?

... Europe must "resist alarmism"...

yeah, told you. These guys are in for the 'long haul'.

Irrespective of the impact on ordinary folk that the Eurochaos is causing the EU Technoprats are going to cling onto every last vestige.

Why? For the greater good? You must be jossing. Because without the EU they are going to be, well, unemployed...

Do they mean me BTW, alarmist? Hope not because I just want that lot back under the carpet they crawled out from under in the first place. Always thought they were better than the rest of us, bit like the gang who drew up the Versailles Treaty.



Ho hum,

GC

86. At 4:38pm on 16 Nov 2010, KMac wrote:
There is no way you are allowed to count the same thing twice just because it is somewhere else.
--------------------------------------------------

Even in quantum theory it is only there once, even if it appears otherwise.

86. At 4:38pm on 16 Nov 2010, KMac wrote:

> I can see the need for a bank to lend out a proportion of it's
> deposits but for pitys sake accurately record it as such.

The computers keep track of it all accurately enough, in record keeping systems. These are just tables to show the origin and destination of each transaction, the amount involved, and the time of the event. They are just modern "tally sticks" - trivial compared to other computer programs.

There is no slight of hand - money coming in from deposits is quickly lent out at a higher rate of interest, the bank keeps the spread. A small amount is kept in reserve to stave off "runs". It is the simplest business in the world; anybody can do it, and many gangsters do (they call it "loan-sharking").

That's all you need to know to run a bank. That's why unqualified managers like Sir Greedie rise to the top of such institutions. The trouble is that they push too hard, keep too little in reserve, make bad investments and depend on insecure sources of funding to maintain continuity.

In the end, they go pop. The funds dry up, making a recession happen, and the deficit balloons. That's when the taxpayer has to bail them out. Basically, they are a bunch of chancers.

It's funny that, despite all this shenanigans, the bankers as individuals always get the keep their stash. That's the bit we're going to change now. They'll get no bonuses until they have made good all the damage they have done. It's going to take a while for that to sink in, but is has to cease on this iteration.

On top of all this truely scary scenario.What happens when we all stop spending because we cannot afford it?The Banks seem to forget the effect all this economic nightmare stuff is having on the E.U.public.Wont be long before people start panicking and withdrawing their meagre savings from the Banks and sitting on it.Our E.U cousins in particular Spain,Portugal,Italy and France like nothing more than to actually feel the cash in their hands in times of trouble.

Not sure that the increasing wealth of a handful of big businesses says anything about the safety of the rest of us.

I have no doubt that if every bank collapsed and we untermensch were starving in our millions there would still be the same old people driving about in (now armoured) rolls royces.

97. At 5:21pm on 16 Nov 2010, Jacques Cartier wrote:
"It's funny that, despite all this shenanigans, the bankers as individuals always get the keep their stash. That's the bit we're going to change now. They'll get no bonuses until they have made good all the damage they have done. It's going to take a while for that to sink in, but is has to cease on this iteration."

You won't have long to wait Jacques. The next bonus bonanza is early next year. They are already discussing how much they can get away with. Its interesting that they seem to be referencing this to public opinion rather than being concerned about any political or legal constraint.
I'm afraid I don't share your optimism.