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Thursday, 14 August 2014

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I fear you are much mistaken vis-a-vis Snr Renzi. Only recently he was praising the "achievements" of the EU - whatever they are, and encouraging us to have "more Europe"

Don't get me wrong, I'd love him to do it, but watch the ensuing coup by the EU if he tries it.

"Regular readers will know that for some time I have predicted ..."

Well. You'll David (I'm sure) be forgiving this "Regular Reader" for, er, regularly reading woncha?

As I recall David, it wasn't you first predicted "The Eyetaylians doing this or that"

Nope. (But I suppose you might offer some variation of Well, the Apple doesn't fall far from the tree because as I recall, the initial prediction came from none other than SoD!

I think your sunny side is in control again! The northern Italians might like to leave the Euro, but only if they can hand off the rest of Italy to the EU. Most Italians, like the Greeks and so on, will want to cling to the EU. Given the local politicians, they might be right.

'Raps' and BOE, you may be right but A E-P says, in effect, that reality will have to be faced by Snr. Renzi:

"Mr Renzi is on his own. He faces an ECB that has fundamentally violated its contract with Italy, letting EMU-wide inflation fall to 0.4pc knowing that this causes the Italian crisis to metastasise. He faces an incoming Commission vowing to enforce the same disastrous policies that have already proved ruinous."

JK, if you wish to continue in your appointment as Chief Archivist to this distinguished blog you would do well to develop a partial memory!

The last time I was in Herman country the goods had the euro and Reichmark price on them.
Dem krauts hav vays of keeping options open just like the SNP.

As in Spain, many businesses state the bill or invoice in Euros and Pesetas.

David- "Perhaps, just perhaps, I might be proved right about something". Well, no that's not possible....after all, you are married. I remember reading that Portugal was going to take the euro down, then Spain and definitely Greece. France swished up to the plate but probably not them.

Looks like it might be neck and neck

http://www.telegraph.co.uk/finance/financialcrisis/11035598/Why-Francois-Hollandes-France-has-become-the-eurozones-weak-link.html

SoD

Or maybe the Jerries?

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100027930/germany-is-itself-a-victim-of-emus-austerity-fanatics/

SoD

OK then. We're all agreed that Germany, France, Italy,, Greece, Portugal or Spain will break the Euro? Have I missed anyone out? I don't think I'll be buying or selling any Euros - not that I 've got any pounds.............

Here's what a common currency does to the GDP of its member states long term: -

http://en.wikipedia.org/wiki/List_of_U.S._states_by_GDP

Not exactly the "convergence" that we were told a common currency brings to member states, is it?

To see what a common currency does to the GDP per capita of its member states long term, see the US rankings (the right hand number in the second column): -

http://en.wikipedia.org/wiki/Comparison_between_U.S._states_and_countries_by_GDP_(nominal)_per_capita

A spread of $24k - $124k. Convergence?

That's what the Eurozone periphery has got to look forward to.

So why isn't even the core booming at the moment? Because the ECB won't release the money spigot in the same way the UK and US have, and lift everyone off the rocks.

But it shows how a common currency is the best tool of empire building known to man. Just make sure you join the single currency with it more undervalued compared to your old currency than any of the other states who are joining and their old currencies, and you will be come the core. The rest will wither to become vassals of the core. (Also make sure you don't put the Jerries in charge of the currency; their Weimar neurosis and massacre of the only 6 million people who knew anything about money doesn't make them good candidates to make them the bank manager).

SoD

The euro is doomed as a currency and is only kept going on its sick bed by the leaders shutting their eyes, sticking their fingers in their ears and shouting loudly "La-la-la-la-la". There is only one thing that will save it and that is, in effect, the creation of a new country, the United States of Europe, with a central government with tax-raising powers and a central bank. Anything is possible but I wouldn't hold your breath!

You better hope that happens - because the alternative is cataclysmic.

To see the Euro and EU disintegrate, and all those old wounds re-opened, with a background of recrimination, rabid nationalism, economic depression, and a vengeful Russian bear pawing at the borders trying to get in.

It'd be almost like all the calamities of the last 2,500 years happening at once.

But it would keep the Ukippers happy, I suppose, believing, as they do, that somehow we will defy 2,500 years of experience and not get involved.

SoD

We can also look at Japan whose dead in the water economy has been so for two decades. The much celebrated "Abe-nomics" is not working to kick start the economy. The over printing of US dollars has given the appearance of recovery, but it is only an L shaped recovery. The side costs of this recovery are not pretty. If the ECB opens the spigot and prints even more euros, then that will only mimic a recovery. The Yen, dollar and euro all have one thing in common: they are fiat currencies. Every nation has one common weakness--its currency.

Abenomics is an interesting experiment, I wouldn't write it off just yet.

A lot of "white noise" to obscure the overall fiscal and financial strategy - massive VAT increases and an unreformed supply side ... : -

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10893607/Japan-to-keep-printing-money-for-years-to-come-so-learn-to-enjoy-it.html

... plus Abenomics has a way to go yet. The next phase is well summarized from the last few paragraphs of that article: -

"The BoJ will have to mop up the entire issuance of public debt for years to come, covering the budget deficit with printed money. Officials admit privately that this is the purpose. Mr Kuroda will not stop when the 2pc inflation target is reached. ...

Mr Abe has never disguised his aim, "... It is impossible to get rid of ingrained deflationary psychology unless you clear it out all at once," he said.

The US Treasury and the Federal Reserve played the same dirty pool in the late 1940s, whittling away war-time debt by stoking inflation while keeping debt-holders captive by repression. Such a policy amounts to a haircut for creditors, often the elderly. It is harsh. Yet Japan is picking the lesser of poisons. The pre-Abe paralysis was leading ineluctably to bankruptcy.

Pessimists ask what happens five years hence when the Bank of Japan has accumulated half the government's debt stock, with a balance sheet beyond 100pc of GDP, technically insolvent itself.

Optimists answer that nothing will happen. The BoJ's liabilities are an electronic accounting fiction. The debt can be switched into zero-coupon bonds in perpetuity, or the certificates can be burned on a ritual pyre beneath the cherry blossoms. Japan will have slashed its debt to manageable levels by legerdemain. Too good believe? We will find out."

There are only two ways to pay your debts off: Pay them off, or, inflate them away.

So if you can't pay them off - and Japan and the Eurozone can't pay them off - then you're going to have to inflate them away.

Painful robbing all the old folks (and the Germans in the case of the Eurozone), but they were the ones that benefitted from the false boom that accumulated the debt (and their savings) in the first place. So kinda fair, really.

SoD

Can anyone spare a bob or two for a poor old-age pensioner down to his last case of Chateaux Lafitte . . . ?

Lawrence....I guess we will see about Abe-nomics. The Telegraph piece is very clear about what a central government and central bank can do with a fiat currency. If the absorbed debt can just disappear with an electronic key stroke, that will appeal to many who will simply want to start all over again like nothing had ever happened. Same goes for our Federal Reserve too I guess. Personally I'm betting that Abe-nomics will be a net failure in the long run.
I approach finance from the Steve Forbes school of "sound money". If bankers and most importantly business borrowers never know the true cost of credit, then their future planning will be limited. Better for corporations to continue with increased dividend payments and buy backs of their own shares. With unsound money, aka fiat currency now known to be what it truly is, then why risk exposure when their is no way to determine asset value. To depart the island of Japan for a moment and use our Fed numbers and current debt, I know there is no way in hell our debt will ever be paid off--same for Japan and the EU as was mentioned. What we can do here, not painlessly of course, is to stop adding to the debt which is the first step to paying it down to a more manageable level. That we used to do by issuing Treasuries which were paid off in time and thus our debt would either stay the same or, decrease a bit. Anyway around, there are of course, no painless answers for any of us.

David, I trust that is a very large case? Should have put your fortune in real assets instead of drinkable ones. For me, I have a bit of cheap Scotch, for medicinal reasons of course. Most everything else I spent many years building up real assets that now produce several income streams...not the drinkable type:)

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