On the plane here I remembered another reason why not using your monetary policies to spur growth in the economy; if you refuse to do that long enough, the risk gets taken out of it. If you want two examples of the benefits; look at Germany and Holland or Switzerland for that matter.
It's actually rather amazing that Holland's rating wouldn't even be affected by putting its credit-worthiness on the line in the EFSF. Even I was surprised by that.
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Perhaps we should have joined the Euro after all? Then the Germans could pay for our welfare bill too.
I suppose the Swiss are not so happy with their safe haven status for Europe. Maybe they can solve their problems by scapping their currency alltogether and simply use euros. Before having their own currency rips the economy to shreds.
P.S. See Rand this is what happens in a real safe haven yields go down and the currency goes up.
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"in a real safe haven yields go down ..." - British yields are now at their lowest ever level since Reuters began recording them. Source: Reuters
------------------------
Great to see Merkel and Sarkozy have been busy playing politics and not trying to solve the problem: http://www.reuters.com/article/2011/...77G08820110817
They come up with (the ridiculous) idea of implementing the Tobin Tax, at first presumably across the eurozone, and the German industry etc react with absolute horror as it would just drive trade to London.
So then they say oh no, this would be EU-wide. No it won't. There is no way Cameron should or would agree to a Tobin Tax, so Merkel must know that'd be vetoed by the UK. No doubt then pinning blame on "British intransience".
If they want a eurozone Tobin Tax that can be implemented, but would be devastating for the eurozone economies as it'd just drive everyone to London.
No wonder the markets dived following Merkel and Sarkoxy's speech, they've got no solutions at all. The solution to this crisis that would end it is Eurobonds, which will cost Germany tens of billions but oh well, they decided to abandon the Bundesbank. Aren't they glad they did now?
Wow, you're really all over the place with this. No time to react seriously to this ping pong game.Originally Posted by RandBlade
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Didn't a "big European bank" go hat-in-hand to the ECB for mo' money? And Germany's growth unexpectedly slowed? Not such great signs across the pond.
How am I all over the place? I'm consistent (and in line with reality), you're just consistently a broken record.
Hazir's programing:
10 Input News
20 Print "Bad for London"
30 Go To 20
UK yields are now at the lowest they've been since the Victorian era in the 19th Century. Care to explain again about how "in a real safe haven yields go down"?
I suppose you still reckon we'd be better off behind the European Firewall like Portugal, Ireland, Italy, Greece, Spain and France?
Ok, one more time for stupid; in a situation where the currency goes down, lower yields are not a sign of strength, they are a sign that people who have pounds can't find anywhere to invest their money. If they go into equity they stand to loose in absolute figures, if they sink their money in bonds they know that they will get their pounds one on one back, especially with a central bank that seems to like the sound of the money presses.
In a real safe haven, the yields go down as the currency goes up. That is not the case in the UK.
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Oh right, like you mean how sterling's been going up against the euro in the last month or two? Since the start of talking about safe haven UK?
Even dead cats bounce.
Congratulations America
Not in my, admittedly limited experience with dropping dead cats. They just kinda thud... and stay where they land. I find it hard to believe there could be such disparity in the behavior of dead cats across continents, so it must be something we're doing differently. Perhaps if you were to walk us through one of your exercises in dead, bouncing kitties, we could discover what the difference is...
"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
-- Thomas Jefferson: American Founding Father, clairvoyant and seditious traitor.
Elastic impact surface?
Last night as I lay in bed, looking up at the stars, I thought, “Where the hell is my ceiling?"
I hate you for this.
Congratulations America
Perhaps Hazir would like to explain to the class, given that the ECB have acted and there is no reason at all to be concerned now about Italian/Spanish debt, why the markets are falling due to concerns about Italian/Spanish debt?
The discussion on Euro breakup seems to be less of an intellectual exercise in the face is what seems to be a slow-motion banking crisis in the "core" countries of the EU.
http://www.businessinsider.com/ubs-o...breakup-2011-9
http://www.scribd.com/doc/64020390/xrm45126
It would be easier for us to have Euros indeed, but that is politically impossible. But now we have a set a minimum of 1.20CHF > 1 Euro, and that seems to work for now.
"Wer Visionen hat, sollte zum Arzt gehen." - Helmut Schmidt
NOVEMBER 8, 2011
Italy Nears Tipping Point as Its Bond Yields Spike
By TOM LAURICELLA, MATT WIRZ and STEPHEN L. BERNARD
With Italian bond yields surging higher, analysts said Italy is at the brink of being unable to afford to borrow in the public markets.
Less than two weeks after European leaders unveiled an agreement that was designed to bolster confidence in the region, the yield on Italy's 10-year debt drew close to the 7% mark, a line in the sand of both practical and psychological importance to the market.
Psychologically, 7% has become a beacon due to the fact that Greece, Portugal and Ireland each sought bailouts soon after their debt reached these levels. While analysts said it is too simplistic to say that Italy will be forced to ask for support if its 10-year debt yields 7%, they said the recent selloff is taking the country to the tipping point.
"I don't know if 7% is the upper limit, or if it's 6.9% or 7.25%, but I do know [Italy] can't go on for very long having these kinds of bond yields," said Gabriel Stein, director at Lombard Street Research in London.
In a practical sense, yields at these levels could force traders to post more collateral when borrowing against Italian bonds, because they are perceived as more risky. That potentially makes Italian bonds less attractive for banks, which historically have been among the biggest buyers of European government debt. This creates a vicious circle, in which higher yields lead to more selling, which in turn scares off buyers.
And with €1.9 trillion in debt ($2.62 trillion) and €200 billion of debt coming due next year, Italy can ill afford to see rates remain at these high levels.
Analysts said European officials will be hard-pressed to reverse the selling without a concrete plan to support Italy. Such a plan would need to be in the magnitude of the European Central Bank committing unlimited resources to guaranteeing member countries' debt, they said.
Yields on Italian debt have been rising steadily, with prices falling, for weeks, but Monday's selloff was particularly steep, according to Tradeweb data. The yield on the 10-year note jumped to 6.56% from 6.31% on Friday. That is up from 5.91% two weeks ago and 5.5% at the end of September. Bond yields move inversely to prices.
The picture is even worse for Italy judged by the Italian bond due in March 2022. The yield on that issue hit 6.88% Monday, up from 5.29% when it was sold at the end of August.
"At 7%, these really are extremely stressed levels," said Moyeen Islam a director for fixed-income strategy at Barclays Capital in London.
Sohail Malik, lead portfolio manager for special situations credit at European Credit Management, estimated Italy is paying about 3.42% on bonds coming due next year. Mr. Malik estimated that if that debt was all rolled over into new 10-year debt at 7%, it would create an extra €43 billion of interest costs over the life of the debt.
"Imagine doing that for two to three years of maturities at the same level," Mr. Malik said. "Unsustainable."
Market participants said the selling pressure came from long-term investors, such as pension funds, banks and insurers. They said Italian investors, who traditionally have been big buyers of Italian government debt, have stepped back from the market, contributing to the vacuum in which prices have fallen.
"The pace of the move tells you that there are no buyers," said Mark Schofield, global head of rate strategy at Citigroup in London.
Monday's surge in bond yields widened the gap between Italian and German 10-year bond yields to a euro-zone era record of 4.75 percentage points, up from 4.48 percentage points Friday.
In some ways, the widening of that spread has caused a vicious selling cycle thanks to rules that govern the use of government debt as collateral for borrowing money, otherwise known as repurchase, or repo, agreements.
Analysts point to the rules set by LCH.Clearnet Group Ltd., the main clearinghouse for repurchase agreements. LCH.Clearnet requires higher collateral for repo trades involving government bonds that yield 4.5% more than a basket of triple-A-rated European sovereign bonds for five consecutive days. Market watchers said Italy is on the cusp of falling into that riskier bucket.
LCH.Clearnet didn't respond to requests for comment.
Should the collateral requirements be triggered, it would make Italian debt less attractive for banks and investors who use their holdings as a cheap way to borrow money. Some market watchers said there has been selling of Italian debt in anticipation of the stricter guidelines.
The bigger issue, analysts said, is the damage to Italy's finances. Italy's debts are larger than the country's gross domestic product, and with an economy that is barely expanding, analysts said it could be impossible for Italy to make its way out of debt on its own.
"The fact that rates are close to 6.5% or 7% makes it very difficult for Italy to repay its debt in the long run," said Pavan Wadhwa, head of global interest rate strategy at J.P. Morgan.
http://online.wsj.com/article/SB1000...346484788.html
Looks like either Berlusconi goes or Italy goes.
Hope is the denial of reality
How would it be easier or even remotely better for Switzerland to be using EUR then our own currency?
We certainly have much more freedom with our own currency, Swiss Central bank has effectively pegged EUR/CHF exchange rate to 1.2 and moved it to 1.25 today by simply issuing a statement with hardly any actual foreign exchange intervention by the Central Bank. But nobody is forcing us to keep it there and if and when EU and EURO come crushing down we don't have to follow them step in step even thou clearly our economy will suffer, but so will virtually all countries.
Not to mention that safe haven status means we have a flight of capital not just to Swiss Frank but to Swiss Financial Institutions. And while as Earth will be quick to say the Swiss Economy is not banking sector alone, banking sector is a disproportionately large sector of the Swiss Economy and it will certainly help offset the potential crisis if the safe heaven insures that this sector has a competitive advantage over the rest of the world.
And how do you think Swiss banks will survive? You willing to pony up the many many billions that takes? Iceland had an overlarge banking sector too.
Congratulations America
And he's gone.
The light that once I thought compassion still casting shadows in your action
The words you shared were cold transactions that bring me to curse what you've done
When you're up there absorbed in greatness with such success you've grown complacent
I hope you scorch your many faces when you fly too close to the sun
Ok Explain how it would be better for Switzerland to be part of the EU and EURO. Why exactly would the Swiss banks be more likely to collapse due to Switzerland being a safe heavan, if anything that insures they will be the last to collapse as funds flee to safety of Switzerland pumping liquidity in to Swiss financial institutions. Furthermore a strong swiss frank as refuge currency allows the swiss central bank to help keep system risk banks afloat if necessary.
I didn't say that Switzerland should be part of the EU or use its currency (although that would make sense for Switzerland). What I said is that Swiss banks are just as exposed to the EU financial crisis as any part of the EU and the fact that Swiss banks are too big to save for Switzerland makes them even less of a safe haven.
If the euro goes, there is only one safe haven as far as fiat currencies are concerned and that safe haven is the US dollar. Switzerland will be enjoying the pleasure of undercapitalised banks and an overvalued currency snubbing out the real economy (which will have to deal like the rest of the world with no loans being avalable.
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If the Swiss banks would collapse than we would all have a problem, it would be a whole different scale than Ireland and Iceland were. I can hardly see any scenario that would include the collapse of the UBS and CS without a major crisis of the international financial system similar to the one after Lehman Brothers.
"Wer Visionen hat, sollte zum Arzt gehen." - Helmut Schmidt
Ok your idea is that a Swiss Economy will be faced with two problems a)Being unable to keep Swiss banks afloat, who by the way don’t need to be kept afloat because of all the liquidity they are getting from customers because despite the imaginary world in the real world Swiss banks and Swiss currency is viewed and has always been viewed as a safe heaven. and b) The economy being crippled due to overvalued Swiss Frank
A and B are impossible together, Switzerland by not being in the EU or EURO can and will simply print money thus devaluing the currency to the needed level and at the same time acquiring funds needed to keep afloat the banks that do not show any signs of needing to be kept afloat (Even UBS is going to finish the year in the profit column despite the trader fraud disaster).
Lehman Borthers would be fondly remembered as a minor incident should UBS or Credit Suisse Collpased.
True, it's a stopgap measure to enable the EMU to get the EFSF in place, which will need ratification by 17 countries. You also noticed how the ECB forced the Italian government's hand over the weekend? Or the other EMU members' for that matter?
In about a month we'll have a fiscal union for all intents and purposes, it will take some time before the Germans will be accepting that name, but that doesn't change the fact that we have one.
I find it deplorable that we needed the ECB to step in, but the alternative would be no ECB, and given the choices I don't care too much about principleInteresting news given that since August its "impossible" to bet against individual EMU members now, that there is a firm "firewall" in place, that anyone shorting Italy is "burnt". That this will all be history and there'll be a full European Fiscal Union by September (two months ago). Looks 3 months later, like its worse than ever. I must be such an idiot to be taking stock in the over 7% yields Italy has, afterall a yield is meaningless.
True, but don't forget I was responding to the idea that Swiss banks or Switzerland are somehow immune to the current financial crisis. My point was that it isn't and as the EU will go, Switzerland will go.
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Its only a fool who would claim anyone is immune. But some nations are more and some are less likely. The Swiss are one of the least likely to fail and are protected by their non-Eurozone sovereign status ... if the crisis gets catastrophic enough to claim the Swiss scalps then none of us would have reason to feel safe or be happy.
That is one way of looking at it. The other is that governments that have proven incapable of reforming are pushed in front of the bus by a very effective campaign of not helping those who don't help themselves.
So far the crisis is costing the paymasters of the EMU very little and the prolafigate member states a lot.
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