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more on the euro realities - redwood

“The Exchange Rate Mechanism was a dry run for the euro. It was demolished by the markets, because the various countries still had economies that diverged a lot. This should have been a warning. Instead, the euro enthusiasts decided to push ahead, allowing entry to all who wanted to join, whatever their debts, whatever their running deficits, whatever their past performance on bond rates, inflation rates and economic growth. This led us to the current disaster.
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“We should remind the Germans in particular how long it takes to get a currency union to work, and how much money it costs. They have recent experience of uniting the Ostmark with the Deutsche mark. East Germany was relatively small, and was linked to West Germany by ties of history, culture and nationhood. Despite this, it took far longer than a decade, and far more money than West German taxpayers were told at the outset, to create some stability and fairness between the two parts of the union.

“How much more difficult is it going to be to achieve such a state of affairs between the very different members of euroland? There need to be much larger transfers of taxpayer revenue from the richer to the poorer parts of the union. The poorer parts have to accept much more budgetary control and spending surveillance. Athens needs to have the type of relationship with Berlin that Liverpool or Glasgow has with London.”

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is the ecb being forced into rational action at last?

Discussion underway to expand money supply by buying up Italian shoddy debt.

but how long will the productive countries be prepared to fund Italian incompetence?

Well, England funds Scotland, Wales and Northern Ireland.

Basqueland and Catalonia fund Spain.

Padania (North Italy) funds the lotus eaters and the criminals of the south.

One problem is the ECB has no legitimacy.

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ambrose is back - some background notes on uk and european debts

Note: by the way, most seem to have missed David Cameron’s reference to the excessive power of the BBC, during the Murdoch select committee circus.

“For those readers holding devalued sterling, all I can say is that this reflects the terrible damage done over the course of a decade by Gordon Brown:

“His credit bubble: 120pc mortgages, and other lunacies.

“His fiscal bubble: a deficit of 3pc of GDP at the top of the cycle when Spain for example was in 2pc surplus, mostly wasted on unreformed public services.” [Quoted from blogs.telegraph.co.uk]

“Portugal’s new premier Pedro Passos Coelho — a free marketeer — began to growl over the weekend. “We want to take part in an ambitious European project and make our contribution so Europe can confront its problems in the most ambitious way, but as prime minister I will not stand by and wait for Europe to govern Portugal,” he told the party faithful.”
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“So, it has begun: last week Greece’s premier George Papandreou launched two angry broadsides against EU magnates. How could he do otherwise after Eurogroup chair Jean-Claude Juncker told a German newspaper that Greece’s sovereignty would be “massively limited”?

“ “Massively limited?”

“Mr Juncker should be clamped in irons if he dares set foot on Greek soil.” [Quoted from blogs.telegraph.co.uk]

ambrose is also calling it by its correct name: default

so-called independent ecb ignored....again.

“France and its allies abandoned their long struggle to prevent a Greek default, opening the way for the first sovereign insolvency in Western Europe since the Second World War. Objections from the European Central Bank were swept aside. Germany has obtained its fig leaf concession: burden-sharing for bankers.”

More Enron accounting.

“The wording lets the EFSF intervene pre-emptively to cap Spanish and Italian bond yields, whatever the cost of moral hazard. These countries can therefore piggy-back on the AAA credit rating of the EMU core. This was the crucial measure needed to calm nerves after 10-year Italian and Spanish yields punched through the systemic danger line of 6pc last week.”

Ignore the law.

“The terms overstep a resolution passed by the Bundestag limiting how far she could go in committing Germany to any form of transfer union or pooling of debts. The use of the EFSF as a fiscal fund without treaty authority further complicates a ruling by the German constitutional court on the legality of the bail-outs expected in September.”

Italy is put up for sale, Saudi Arabia bids 100 billion €, but China then offered 120 billion €. Will there be more bidders?

Buffet and Gates said to be showing interest.

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market reaction to latest ecb posturing - if the medicine isn’t killing you...

“Italy has seen a sharp rise in its 10-year cost of borrowing over the last week, rising from 4.85% to 5.3% - suggesting markets now view the country as almost as risky as recession-hit Spain, which must pay 5.65%” [Quoted from bbc.co.uk]

“Spanish 10-year yields rose five basis points to 5.67 percent. Yields on similar-maturity Irish bonds increased 14 basis points to 12.87 percent. Greek 10-year yields increased 17 basis points to 16.86 percent, and the nation's two-year note yields touched a record-high 30.40 percent.” [Quoted from sfgate.com]

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the millionaire and the poundaire

From a correspondent:: “ Rich people don't spend as much on average as lots of people on poor wages. One million people with a pound will spend far more of it thanone millionaire. It is spending that creates jobs. The rich hoard their money in assets. Very little of their money gets transfered to the next level down.

This is a foolish comment.

The ‘millionaire’ spends his money on a factory, which then produces goods for the poundaire. Without the production, your poundaire would have nothing on which to spend his pound.

A factory is investment. The poundaire spends his pocket money on consumption.

The millionaire spends his money on investment. His son often spends the factory in Las Vegas, on fast cars and diamond rings. He becomes a consumer and, in due course, he becomes a poundaire.

A poundaire gets ‘rich’ by forgoing consumption, by saving, by investing in a factory or a rooming house.

A poundaire is a sheep.
A millionaire is a farmer.

The money means different things to a poundaire and to a millionaire.

A millionaire and a poundaire both eat three meals a day ...

... or they get fat.

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