If anything has been learned from the past decade's ramping up and unwinding of the Collateralized Debt Obligations (and related matters), it's that today's politicians and technocrats have taken leave of the notion of moral hazard, as if they could repeal it. Until moral hazard comes back into vogue, I fear the sky is the limit for the bad things that can happen because the game will always be to act in your short term interest before the next guy does.
Very true. Reminds me of this email I got recently from my brokerage:
While the Fed is lending money at almost zero interest rates, why not take advantage of it through <brokerage name>? <Your broker> will lend up to $566,000 at 1.25% for every $100,000 in a Portfolio Margin4 Securities Trading account. As of 4/5/2010, more than 500 stocks had a dividend yield of 5% or more.
Anecdotal evidence (i.e. a friend who knows someone in Greece) is that Greeks are lining up at banks to withdraw all their funds, i.e. a classic bank run is now in progress.
Ultimately, the "euro" experiment is doomed to failure. You can't have a unified currency and monetary policy, while individual countries have massively different domestic spending policies.
Being unable to devalue the currency (print money to pay debt), is --I think-- a good thing. It is harder for politicians to postpone the pain, they have to cut spending and do what's needed for the country/state/province to recover fiscally.
If somebody weights 200kg: The right solution is to lose weight and eat your vegetables; not to "devalue" the Kilogram.
> You can't have a unified currency and monetary policy, while individual countries have massively different domestic spending policies.
This is factually incorrect, because for over 1000 years European currencies were backed by silver or gold and were thus the same, despite the fact that European polities had vastly different spending priorities and indeed levels of development.
What odds would you offer on common monetary policy in the EU falling apart first vs common monetary policy in the US and China falling apart first? (China and other countries are copying US policy, by pegging the exchange rate. They should fail soon, too, by the same logic.)
The real economics at work here are the economies of scale that comes with being the reserve currency of the world. Whoever owns the reserve currency holds the keys to the global economy - they're not backing anytime soon. Some say it could be 2022 when the Euro > Dollar.
More of a temporary setback and more centralized decisions and restrictions in the future. I really can't see anything not normal happening for a new currency/"government in the making" on the block.
You may see this as a "normal" transition period but that doesn't mean EMU will survive intact. Sovereign debt crises (plural) and bank solvency are huge problems for several EMU states.
If one EMU state defaults on sovereign debt, there will be a chain reaction in the banking system and the debt markets. Several states are at risk of defaulting.
Meanwhile, in reality, it was about time for the euro to come down against the dollar. Macroeconomically too, of course, but on a personal level a ~10% effective gross wage increase (or reversal of decrease to be precise) is quite alright with me.
[+] [-] jackfoxy|16 years ago|reply
[+] [-] wtn|16 years ago|reply
While the Fed is lending money at almost zero interest rates, why not take advantage of it through <brokerage name>? <Your broker> will lend up to $566,000 at 1.25% for every $100,000 in a Portfolio Margin4 Securities Trading account. As of 4/5/2010, more than 500 stocks had a dividend yield of 5% or more.
[+] [-] patrickgzill|16 years ago|reply
[+] [-] roboneal|16 years ago|reply
[+] [-] henryprecheur|16 years ago|reply
If somebody weights 200kg: The right solution is to lose weight and eat your vegetables; not to "devalue" the Kilogram.
[+] [-] hugh3|16 years ago|reply
1. Admit they were wrong and dismantle the Euro, or
2. Use it as an excuse to centralise more power in Brussels, "harmonising" the spending policies of the various member nations
Which do you think they'll pick?
[+] [-] cabalamat|16 years ago|reply
This is factually incorrect, because for over 1000 years European currencies were backed by silver or gold and were thus the same, despite the fact that European polities had vastly different spending priorities and indeed levels of development.
[+] [-] eru|16 years ago|reply
What odds would you offer on common monetary policy in the EU falling apart first vs common monetary policy in the US and China falling apart first? (China and other countries are copying US policy, by pegging the exchange rate. They should fail soon, too, by the same logic.)
[+] [-] nickpinkston|16 years ago|reply
PDF: http://www.ssc.wisc.edu/econ/archive/wp2006-01.pdf
[+] [-] sailormoon|16 years ago|reply
Actually, I wrote that with the intention of disagreement, but now I think about it ...
[+] [-] Keyframe|16 years ago|reply
[+] [-] wtn|16 years ago|reply
If one EMU state defaults on sovereign debt, there will be a chain reaction in the banking system and the debt markets. Several states are at risk of defaulting.
The politics remain highly unpredictable.
[+] [-] steveplace|16 years ago|reply
[+] [-] eru|16 years ago|reply
[+] [-] rue|16 years ago|reply
Meanwhile, in reality, it was about time for the euro to come down against the dollar. Macroeconomically too, of course, but on a personal level a ~10% effective gross wage increase (or reversal of decrease to be precise) is quite alright with me.