The World Economy

[eric42434224]

What's fucking Europe today?

More like Who.

https://news.yahoo.com/greeces-papandreou-toughs-referendum-pledge-013852717.html

[Riceball]

I'll repost this here so it doesn't get lost. But Eric has it in three words.

Well, you know how the EU worked out the 5th iteration of their "final plan" to fix the debt crisis? Greece's PM decided that, for the first time, he would like to put it to a referendum...which he hasn't done for the other four packages.

Seriously dude, you've just been given the fiscal equivilant of a golden handshake, and you want to let your pissed off, unemployed citizens decide whether its in their best interests? Dick move lol. In response to this, his party has basically fractured and he now holds just a two-seat majority in parliament, with the opposition parties vowing to scrap the deal if they get in power.

I hark back to this point I made a month or so ago:

...at times like these you need real leaders...

Its quite bizzare really. Everything I'm reading is kind of saying WTF is this dude doing? Just bizzare.

And the impact of this deal falling through will be another "Lehman moment" as its being colloquially called now. It will trigger a disorderly default on Greek debt and will likely push Italy and Spain over the edge too - in which case the newly beefed up European Financial Stability Fund won't be enough to back stop the shitstorm that will happen.

So yeah, things aren't great. Although as we have seen far too many times in this debacle, things can turn on a 5c piece...

On a somewhat related note, interesting read on the banking sector, political class and decision making. Very insightful (this authour is great):

https://www.businessspectator.com.au/bs.nsf/Article/European-Union-Greece-debt-crisis-referendum-banks-pd20111102-N7RAJ?OpenDocument&src=sph

[Rathma]

Eh, Greece's debt is too big to ever repay. It will default eventually, might as well get it over with and leave the Eurozone.

[rumborak]

Nobody really cares about Greece. The problem is that a defaulting Greece will push Italy over the edge, and then everybody is fucked. Because nobody can pay enough money to stabilize Italy.

rumborak

[Super Dude]

What would happen to Germany?

[rumborak]

Good question! Germany lives off its export, and a tanking European economy will drag it down with it. It would certainly bring about a second global recession.
So, I can not fathom what the point of Papandreou is to play with fire like that.

rumborak

[emindead]

A Greek and an Italian walk into a bar. The German pays the bill.

[rumborak]

Was just reading an article about, no matter what politics decides, the markets are already distinguishing between "hard Euro" countries (Germany and the Scandinavian countries) and "weak Euro" countries (essentially all countries with Romance languages), and they're also not even considering Greece to be in the Eurozone anymore for their planning purposes.

rumborak

[Rathma]

So basically Greece has very little incentive to commit to its debt and stick with the Euro.

[Riceball]

Was just reading an article about, no matter what politics decides, the markets are already distinguishing between "hard Euro" countries (Germany and the Scandinavian countries) and "weak Euro" countries (essentially all countries with Romance languages), and they're also not even considering Greece to be in the Eurozone anymore for their planning purposes.

rumborak

Was it this one?

https://www.businessspectator.com.au/bs.nsf/Article/European-Union-Greece-debt-crisis-referendum-banks-pd20111102-N7RAJ?OpenDocument&src=sph

I think they say pretty much the same thing.

But yeah, Greece is one of, if not the, most insignificant member of the Euro area and so who in an economic sense Germany and France don't really care what happens to them. Like has been said, a default in Greece sends a schism through financial markets, which would push other countries that are close to the brink over it, and thats when the party would begin.

The plan that was agreed to is a default, noones calling it that though. Its just that its an orderly default, in that banks and creditors know what they are losing and can plan accordingly. If this was to go down the disorderly path...well yeah see above. The market rules, unfortunately, and its largely the fault of governments a) not standing up to them and b) giving them an implicit guarentee that they will back them up.

[Riceball]

Word on the street is banks are starting to turn off the interbank lending tap.

Germany couldn't sell all of its bonds to investors for the first time, ummm, pretty much ever during the week.

UKs banking prudential authority has told its banks to build up their capital buffers post haste.

S&P has told Japan to get its shit together otherwise they will be downgraded (which is bad when you are leveraged the equivilant of 225% of your economy).

Things aren't looking great at all folks, probably beyond repair and we are going to need another 'Lehman moment' to shake things out.

[Riceball]

Lets do the rounds again people. Two new, important, economic tidbits were out today:

China Flash PMI (the unofficial one) came in below 50 - indicating a contraction in output.
Japan manufacturer sentiment moves into negative territory, despite them being as busy as they've been in a while with domestic production. Tells me that they are seeing a fall off in global demand.

I'm sticking to a rating of 1/5 for prospects for now.

[Super Dude]

Christ. Why is everything just completely falling apart?

(More of a rhetorical question than anything)

[Riceball]

Dataflow tonight has been interesting: US manufacturing & initial jobless claims suprise on upside (former by a fair bit apparently), but UK retail sales were much worse than expected. One whack of QE working, the other not...hmmmmmmmm

[Riceball]

Soooooo Euro crisis has been pretty quiet of late, yes? Pick one of the three, they all say a similar thing:

https://www.bloomberg.com/news/2012-04-10/treasuries-remain-higher-after-32-billion-3-year-sale.html
https://www.bloomberg.com/news/2012-04-10/japan-australian-stock-futures-fall-on-spain-bond-yields.html
https://www.bloomberg.com/news/2012-04-10/u-s-stock-index-futures-gain-as-alcoa-kicks-off-reports.html

Get ready for a new round of turbulance...

[Rathma]

I've been hearing that Japan may be the next place to blow and that could be it for the global economy... at least how we know it now.

[Riceball]

I wouldn't worry about Japan. They've got world-leading industries, high levels of productivity and the capacity to control their own money supply/monetary policy, plus they've got a shittonne of forex reserves - they'll be fine. From memory, despite the highest debt to GDP ratio in the world, they are still a net creditor to global markets.

Europe on the other hand, or at least the parts under pressure, have none of these things (they don't make anything, they have poor productivity, have no control over monetary policy and run massive current account deficits).

And so their governments are at the mercy of the markets - while Japan can (and has done a few times recently with its currency) flip the bird to the markets.

[Super Dude]

Further proof that developed countries really should not stop "making things." Seriously, is anyone else noticing a trend here?

[Scheavo]

Further proof that developed countries really should not stop "making things." Seriously, is anyone else noticing a trend here?

You'd think it be obvious.

[Riceball]

So I haven't bumped this in a while (mostly because I've been busy writing and researching the clusterfuck that is the global economy). For those who want a really great summary of the Euro crisis and its historical/systemic roots, there was a program on the ABC (Australia's public broadcaster) last night that I think you should be able to watch. Its 45 minutes long, but do yourselves a favour and check it out:

https://www.abc.net.au/iview/#/view/956130

[Super Dude]

Whew, okay. Whenever I see this thread has been updated I get a vague feeling of dread about the state of the world.

And I might be biased, but I think Japan has handled its economy more than admirably, and people really are misreading the Lost Decade, even the Japanese themselves.

[Riceball]

Haha well...things are going to get very dicey in Europe (again) in the next seven days. This is how savage markets are these days: Spain gets 100 billion Euros to sort its banking system out with no conditions attached (unlike Greece, Portugal and Ireland that had to jump through hoops to get their cash), and their bond yields rise to a Euro-era record! No doubt its related to risk pricing for the Greek election on the weekend, but still, it just boggles the mind.

I hope you guys in the US are getting decent coverage of the Europe situation, because its pretty important for the medium-term outlook.