Europe…….. sigh


Latitude has been doing a great job of keeping us updated on the volatile European situation.  I’ll try to boil it done to some sort of coherency, though, there’s not much of that going on over there.

As most of us know, Greece has been in dire financial straits for quite some time.  They are part of the Eurozone.  Greece’s trouble became critical when the recession hit.  The countries of the Eurozone have been propping Greece up with injections of capital to keep the country from financial collapse.  But, the payments came with the condition that they curb their spending.  You see, Greece had so much deficit spending for so long, that they finally were unable to make the interest payments on their debt. 

Greece recently had elections which basically removed the people who had signed onto the agreements of curbing their spending.  The Eurozone(Germany) has stated no cuts, no payments to Greece.  And whose to blame them.  The Greeks want to do nothing and have the Germans work for Germany and Greece.  It’s a great gig if you’re a Greek.  Not so much if you’re a German. 

So, now there is a high likelihood that either Greece or Germany will pull out of the Eurozone.  Either action will have devastating effects on the Euro, and it has global implications.  Greece, whether in the Eurozone or not has not demonstrated that they will do what is necessary to keep their country solvent.  Many banks are carrying Greek notes as well as Italian and Spanish debt.  People are now clamoring to remove their money from these banks because if Greece defaults then these banks may not have the capital to pay their own debts. 

And this brings me to something I’ve tried to shed some light on but I seem to be getting very little traction.  There were two very important lessons the recession should have taught us but didn’t.  First, we should have learned that banks carrying toxic notes is a horrible thing to count as a asset at face value.  The rate of interest makes no difference if they aren’t going to make the payments anyway.  This is a stupid form of banking.  (the riskier the debt, the higher the interest rate)  It creates a mirage of income and assets which are not there.  Banks buy these useless notes and count them as assets.  The banks here and in Europe have done nothing to fix this problem of worthless assets.  And, they’re still borrowing against them.  It’s like me writing a check and telling you not to cash it because I don’t have any money in the account and you keep it pretending that the check has a value.  We didn’t do anything to fix this!!!!

The second problem which was entirely ignored and not even articulated is the problem of our global economy, our interconnectability.  We can argue the causes of the recession, but what isn’t disputable is that how one nation’s difficulties effect everyone else’.  How is it that a piss-ant nation such as Greece whose economy isn’t what many states in the U.S. have, effects global finance?  We all stand a substantial risk of falling back into a double-dip recession because we’ve done absolutely nothing to buffer ourselves from this inanity. 

Here’s how I see this playing out.  Greece will default.  They have refused to act like an adult and any adults left are leaving the country.  The Eurozone will have to cut them loose.  Italy and Spain will follow suit.  But, that won’t be enough to prevent Germany from bolting from the Eurozone because France elected a socialist and they will not cooperate with Germany and do the necessary things to fix the impending crisis from Greece defaulting.  The Euro will collapse.  This will ripple to the U.S. and around the rest of the world and back down we go.  We’ll have a double dip recession, but, it won’t be as bad as Europe’s. 

There is an alternate scenario.  And as bad as the one above sounds, this one is worse.  So far, acts of violence have been pretty much confined to Greece and Italy in regard to these economic issues.  In spite of what people tell you about causes of war, they are almost always because of economics. 

Most people in the U.S. don’t have a very good grip on historical implications of Europe.  I’m hesitant to bring this up because I don’t wish people to get the wrong impression.  But, I don’t write so people won’t get offended.  I write to get people to think.  A unified Germany (even younger than the U.S.)  must not be isolated.   The U.S. and the U.K. should immediately reach out to Germany and assist them in their transition from the Eurozone.  The rest should be left to either sink or swim.  Too many of them would serve as lead weights in a swimming pool.  If you’re wondering why I state this, you should read some history starting with the Holy Roman Empire and work your way through with your focus on the German states.  Pay particular close attention to Fredrick the Great and afterward. 

Spheres on a plane await.  I’ll bbl.

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25 Responses to Europe…….. sigh

  1. Latitude says:

    great post….agree 100% on all of it……with even more
    Here’s where it’s going to hit us….and hard
    US banks are also holding their toxic assets….but US banks are holding even more than that!
    The housing crisis…..Wallstreet is run on almost 100% bank money right now…..and that bank money is nothing more than paper….
    Banks are holding mortages/foreclosures and still showing them as good money….it’s to the tune of around $3 trillion…..that’s the play money banks are propping up Wallstreet with right now…

    ….our banks do not have no where near $3 trillion in assets

    We’re going to go down with them…and go down hard…..Obama does not have any more money to give them….and printing more will just make it even worse

    What they should have done is let these mortages, car companies, banks fail…..
    Smaller banks would have taken over, other car companies would be doing great, and every contractor/landscaper/roofer/tile/painter/etc in this country would be hiring………

  2. DaveG says:

    As usual a great post.
    I agree Europe is toast, which means a tough road ahead for the US and worlds economy. On the good side CAGW is in it’s last gasp with a floury of desperate doom and gloom articles especially in my Warming rag the Vancouver Sun and on the public socialist broadcaster here in Canada the CBC,. But it’s all for naught. It’s game over and that can only be a good thing in the long run. Why? because the US and Canada have plenty of cheap abundant energy Coal, Nat gas and enough oil for 2000 years (Oil Sands), This will be the engine of rebuilding small, medium businesses and medium/heavy Industry. The EU has screwed itself with green energy, this on top of the financial stupidity it’s going to be a long, long double dip fiasco. The fly in the ointment for the US is as Latitude stated – and if Obuma and the Socilist-crats stay in power. I don’t think so, but fraud at the voting box is still Obumas not so secret weapon.
    God help us all, it’s going to be a squeaker!

  3. DaveG says:

    Canadian Prime Minister Stephen Harper has successfully ridden the climate change juggernaut to its inevitable end. By not directly confronting an inherited policy that he found distasteful, he has been able to manage it to a conclusion that has alienated fewer and satisfied more Canadians. In the years to come, as the international climate change file gradually fades into obscurity, similar to many other such utopian initiatives, he can look back with satisfaction at a job well done. — Michael Hart, Carleton University, Ottawa Citizen, 16 May 2012

    • suyts says:

      The problem is that they don’t go away. They don’t die. The malignancy remains with us. It is beyond time to rid us of this cancer. They’ve lost on the economic discussion, so now they want to pretend that somehow the advancement of the human condition is bad for nature. It’s as if these idiots believe humanity should not advance.

  4. Latitude says:

    Here’s something you don’t see on the news…..
    Companies like Met Life are writing reverse mortgages as fast as they can….
    ….that’s exactly what got us into the housing crisis in the first place

    Those are all toxic….and those reverse mortgage lenders are bundling and selling them exactly the same way they did before

    This is not over for a long shot

  5. DirkH says:

    Greek political leader sees a cutoff of further lending as “unilateral action” by the creditors. In other words, he sees it as his Marx-given right to get free money forever.

  6. DirkH says:

    BTW, the French main stock index, CAC 40, is collapsing nicely. The German DAX is down 10% from the high in March, but the CAC 40 is 20% down – AND they have a solcialist president now who wants to push through 75% income tax.

    That will be a nice collapse to watch. O lala.

  7. Latitude says:

    Greek politics, Spain banks test eurozone survival

    On Friday, Spain’s central bank announced that the level of bad loans on the books of Spanish banks — burdened by a rising tide of bad loans, recession and the highest unemployment rate in the 17-nation eurozone — is at an 18-year high, boosting concerns about the financial sector in the zone’s fourth-largest economy after Greece, France and Italy.

    European countries are straining under high borrowing rates. The rates have risen as investors are nervous about governments’ debt loads relative to the strength of the economies. Under pressure from Germany, Europe’s strongest economy, governments have laid off workers, cut pay for others, reduced spending on social programs and imposed higher taxes and fees to boost revenue.

    Yet as economies have shrunk, countries’ debt levels have worsened. In Spain, where one out of every four citizens is jobless and the rate hits one out of every two people under 25, the interest rate on 10-year government bonds stood at a worrying high of 6.2 percent Friday, not far from the 7 percent mark that is considered unsustainable in the longer term and forced Greece, Ireland and Portugal to ask for bailouts.

    • suyts says:

      What they did wrong was that they raised taxes. If they had just read this blog, they would have known that raising taxes doesn’t necessarily raise government revenues. This is why I say let these people sink or swim. They’re too stupid for proper functioning. They are lead weights for anyone trying to help them.

  8. Latitude says:

    Moody’s downgrades 16 Spanish banks

    Ratings agency Moody’s has cut the ratings of 16 Spanish banks by between one and three notches.

    The agency cited “renewed recession, the ongoing real-estate crisis and persistent high levels of unemployment”.

    It also blamed the reduced creditworthiness of the government.

  9. Latitude says:

    Italy Teeters on the Edge

    Although all eyes may be on Greece, as the European Union and its oversight of national economies seems to disintegrate, it is less the impact upon this relatively small peninsular nation that threatens real collapse in the European Union as the impact upon the other peninsular nations. Iberia has two of the five “PIIGS” — Portugal and Spain — but the biggest nation and the newest edition to the list of wobbling fiscal systems is Italy, the fourth largest economy in Europe and the seventh largest economy in the world. The Italian economy is as large as those of Greece, Spain, Portugal, and Ireland all combined.

    The Italian economy is also right on the edge. The latest data shows that the Italian economy shrank during the first quarter of 2012 by .8 percent, which means that the recession which has hold of Italy is growing deeper. That means the GDP is a full 6 percent smaller than in 2008. It also means that Italy, along among the major economies of the world, actually has a smaller per capita GDP than in 2000. The French economy, in the same period, posted zero economic growth.

    • suyts says:

      I hope they wait for me to move my 401k money out of the markets. I kept thinking they’d do something which would cause the markets to jump up one more time, but I’m thinking now, it might not happen. Dammit!!!!

  10. Latitude says:

    French banks fear Hollande’s savings raid

    May 18 (Reuters) – French President Francois Hollande’s plan to use savers’ deposits to boost state investment power could suck billions of euros out of banks, depriving them of a major source of funding as they struggle through the euro zone debt crisis

  11. DirkH says:

    I’m thinking about buying loonies certificates with my Euros (sold my stocks to sit out the usual summer massacre.).

    • suyts says:

      Bonds are the way to go at the moment. Silver has some growth to do,yet.

      • DirkH says:

        Thought about that, but the only bonds I would voluntarily buy are German but they’re way up already. I just want to get out of Euro cash for the moment, and get back into stocks when the massacre is over.

      • suyts says:

        Exactly. There will be some bloodletting. But, once it is over, jump back in and make a mint. And keep doing this until people figure out what is going on.

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