Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Euro Crash, ECB Losing Credibility as it Prints Money When It Said It Wouldn't

Currencies / Euro May 14, 2010 - 03:06 AM GMT

By: Charles_Maley


Best Financial Markets Analysis ArticleIf you really think about it, the Euro is as much of an experiment as it is a currency. As I mentioned in my previous post, the Euro idea was that 16 different countries could join hands under one united monetary policy. The trick is to accomplish this under separate cultures, political structures, and economic climates. How’s that working out?

Anyone who looks at this situation like a human being and not an academic analyst realizes it’s a tough task.

The three amigos, Angela Merkel (Chancellor of Germany), Nicolas Sarkozy (President of France), and Jean-Claude Trichet (head of the European Central Bank) have engineered a $962 billion rescue package. Impressive as it sounds however, the rescue package still has major flies in the ointment, and essentially buys nothing more than time.

Europe is effectively borrowing huge sums from itself. The “PIGS” do not just have a debt problem; they have an economic growth problem, which means they must get more productive and export more. Spain and Portugal are still hemorrhaging and the 20% unemployment will sure put a cramp in any growth. This means a lower Euro if the economy wants to survive.

And why is no one talking about France? Italy owes France $511 Billion (20% of their GDP) on top of Ireland at $60 billion, Greece at $75 billion, Spain at $220 billion and Portugal at $45 billion. That’s a total of $911 billion (over 35% of their GDP) owed to them by questionable countries.

If things continue to deteriorate in Italy and Spain how can’t France suffer. Also, who does France owe and how much? It seems endless.

Ludwig Von Mises, the father of Austrian economics said “There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

To add to the problem the ECB is losing credibility. Last week they said debt monetization (buying bonds) was not even under discussion. Then they did exactly that a few days later. If you change horses in mid stream investors might just get the impression that you’re not to be trusted. They may trust you even less when they realize the solution will be funneled through a “special purpose vehicle”, which is a way concealing questionable accounting by removing debt from the balance sheet and moving it elsewhere.

What is this, three-card monte?

Move it where you like, it’s still there, under one of those cards. Citicorp and Enron attempted to solve their problems through “special purpose vehicles” and look how well that worked out.

Now, finally I would like to take a moment to clear up all this confusion of exactly who owes who what.

Here is a breakdown of the “PIG” debt structure as of December 31st, and expressed in Dollar terms.

Ireland, Spain, Portugal and Greece all owe Italy. Hold on though, because Italy owes all of them money too, plus Italy owes France, Germany and Great Brittan. I owe you, but you owe me less, but he owes me more than you. If I get him to pay me some, I can pay you some, if you can get the other guy to pay you some, so you can pay me some.

It reminds me of the great Abbott and Costello comedy skit “Who’s on First?”  (Click here to view video)

Enjoy this article? Like to receive more like it each day? Simply click here and enter your email address in the box below to join them.  Email addresses are only used for mailing articles, and you may unsubscribe any time by clicking the link provided in the footer of each email.

Charles Maley Charles has been in the financial arena since 1980. Charles is a Partner of Angus Jackson Partners, Inc. where he is currently building a track record trading the concepts that has taken thirty years to learn. He uses multiple trading systems to trade over 65 markets with multiple risk management strategies. More importantly he manages the programs in the “Real World”, adjusting for the surprises of inevitable change and random events. Charles keeps a Blog on the concepts, observations, and intuitions that can help all traders become better traders.

© 2010 Copyright Charles Maley - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in