Posted on 08/13/2012 2:13:21 PM PDT by bruinbirdman
Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar's structure isn't in doubt.
There is increasing anxiety, particularly because politicians have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany's Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.
There's a growing sense of resentment in both lending and borrowing countries -- and in the nations that could soon join their ranks. German politicians such as Bavarian Finance Minister Markus Söder of the conservative Christian Social Union (CSU) are openly calling for Greece to be thrown out of the euro zone. Meanwhile the the leader of Germany's opposition center-left Social Democrats (SPD), Sigmar Gabriel, is urging the euro countries to share liability for the debts.
On the financial markets, the political wrangling over the right way to resolve the crisis has accomplished primarily one thing: it has fueled fears of a collapse of the euro.
Cross-Border Bank Lending Down
Banks are particularly worried. "Banks and companies are starting to finance their operations locally," says Thomas Mayer who until recently was the chief economist at Deutsche Bank, which, along with other financial institutions, has been reducing its risks in crisis-ridden countries for months now. The flow of money across borders has dried up because the banks are afraid of suffering losses.
According to the ECB, cross-border lending among euro-zone banks is steadily declining, especially since the
(Excerpt) Read more at spiegel.de ...
Banks are particularly worried. “Banks and companies are starting to finance their operations locally,” says Thomas Mayer who until recently was the chief economist at Deutsche Bank, which, along with other financial institutions, has been reducing its risks in crisis-ridden countries for months now. The flow of money across borders has dried up because the banks are afraid of suffering losses.
Or does this mean that they’ve run out of “Other people’s money”?
Somebody somewhere in Germany has started keeping score....
The people at the Fed are lucky that the Euro is collapsing. That is the only reason that they can get away with keeping interest raters so low. But like everything else, there will be a day of reckoning.
≤}B^)
lol!
Why it won't be allowed to happen (iow, why the oil sheiks will step in).OPEC Has Already Turned to the Euro...The source for the euro exchange rate is the Federal Reserve, and I have calculated the euro's average exchange rate to the dollar for each year based on daily data.
GoldMoney Alert
February 18, 2004
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US Imports of Crude oil
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|||||
|
(1)
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(2)
|
(3)
|
(4)
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(5)
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(6)
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|
Year
|
Quantity (thousands of barrels)
|
Value (thousands of US dollars)
|
Unit price (US dollars)
|
Average daily US$ per € exchange rate
|
Unit price (euros)
|
|
2001 |
3,471,066
|
74,292,894
|
21.40
|
0.8952
|
23.91
|
|
2002
|
3,418,021
|
77,283,329
|
22.61
|
0.9454
|
23.92
|
|
2003
|
3,673,596
|
99,094,675
|
26.97
|
1.1321
|
23.82
|
We can see from column (4) in the above table that in 2001, each barrel of imported crude oil cost $21.40 on average for that year. But by 2003 the average price of a barrel of crude oil had risen 26.0% to $26.97 per barrel. However, the important point is shown in column (6). Note that the price of crude oil in terms of euros is essentially unchanged throughout this 3-year period.
As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.
Thanks bruinbirdman.
This reminds me of the Aesop fable of The Boy and the Filberts (nuts). A boy reached into a jar and grabbed as many filberts as his hand could hold. But his hand was so full that he could not withdraw it from the jar. Unwilling to let go of some of the filberts so he could withdraw his hand with *some* nuts, in frustration he broke down and started to cry.
In this case, the European leaders are so bound and determined to not even temporarily let go of a failing country, so that its economy can be fixed, that they are threatening to destroy their European economy. And, they are crying in frustration over the unfairness of things.
A reasonable way of dealing with this problem would be to split the very small economy of Greece off from Europe, temporarily, and restore the Drachma as strictly an internal currency of Greece. Outside of Greece the Drachma would be worthless, but all business in Greece would have to be done via the Drachma.
The way to resolve the two currencies is to create a third currency controlled by the ECB, used only by banks and governments, as a buffer currency. This would allow the ECB to purchase anything the Greeks produced for export at somewhat inflated prices, and sell the Greeks what the rest of Europe had in surplus along with essential things, like pharmaceuticals, not produced in Greece, at somewhat a discount.
Nobody would loan the Greek government a dime, so if they spent a Drachma more than their tax revenues, it would become instant inflation. So they would about have to have a balanced budget, by hook or by crook.
But if they could just tread water for a few years, their economy would stabilize and improve, and eventually the Drachma would achieve parity with the Euro.
Realistically, however, the European leaders are too greedy and bound and determined to keep reinforcing defeat that they will never let Greece go until the rest of Europe is falling apart as well.
Natural selection, I suppose.
I can hardly wait for my next Porsche 991 to go on sale for $36,000 USD!
Euro actually opened at $1.20 in 2000. This graphic picks it up after it had fallen 30%.
The ChiComs became disallusioned with the greenback in 2007 as the real estate bubble burts. They thought they would switch some revenue to the euro. Of course, the euro proceeded to tank on the news.
In any event, this article focuses on capital flight. The euro may remain but not until untold financial and probably civil damage is wreaked.
yitbos
The problem is not just Grease.
The problem is the insolvency of most financial institutions and governments in Europe.
Asking for a bailout from ECB is admission of insolvency!! They're all broke.
So far, Iceland, and Grease have their fiscal budgets under ECB control. Italy has a European Commission appointed prime minister.
The Eurotopian Zone is just shuffling limited euros around trying get the sovereign debts back to the countries who issued them before the whole thing collapses.
Granted, if and when Grease leaves, that is all she wrote. Look for ECB/Deutschland to bail out Grease for a few more months.
yitbos
BINGO
Eventually Greece will decide to leave...minutes before it is kicked out. The ensuing chaos will serve as a warning to other countries as to what can happen to them if they do not “play ball”. IMHO this may take one to two years to occur. In the meantime Euroland will continue to kick the can down the road until there is greater stability.
It’s an eight-year-old article; there’s been no update, because the premise was and is correct. This policy is mostly due to political considerations, and keeps crude price stable in Euros. It reminds me of the currency “snakes” in Europe that were the antecedents of the EU’s currency union. The sheikhs do a lot of shopping and influence-peddling in the EU.
The US is now producing more oil than it has in decades, but is also exporting more than perhaps it ever has, because the US market for it has slid, while the price on the world market makes higher-cost production profitable.
Meanwhile China has to devalue its own currency to avoid destruction of their US investments, but also has to import its oil and pay more and more for it, and has to use foreign exchange on hand, which is usually US$. Selling into the US market can only continue while the US debt is being purchased, hence the federal deficits are being financed by the trade deficit (or rather, vice versa). China’s goals are to rapidly build manufacturing capacity in Africa (probably as near as possible to rare-earth mines) for electronics to sell into its home markets. And like Japan before it, China’s our prison bitch, rather than the other way around.
Anyone know how to photoshop?
Oops. Make that Ireland not Iceland. Can't forget PIIGS, Portugal, Ireland, Italy, Grease, Spain. Just a few of the bust Eurotopians.
yitbos
[old joke alert] if Russia attacked Turkey from the rear, do you think Greece would help?
Thanx. Took another look.
Perhaps the "sheiks will step in" part is already taking place if they price oil in euros. That just means more tax revenue for EU. However, IMO, they are not big enough to subsidize the entire euro zone.
The Fed already carried them for more than a year. The ECB has already gone hat in hand to the world trying to sell EuroBonds. Not even the ChiComs would help ("If Europe won't buy their own bonds, why would we?").
yitbos
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