The Euro about to have a "Warp core breach"

[Mega]

http://www.telegraph.co.uk/finance/c...escalates.html

Mike

[Mega]

Re: The Euro about to have a "Warp Core brech"

Mean while @ the ECB:-
http://www.youtube.com/watch?v=mou1b...eature=related
Mike

[GRG55]

Re: The Euro about to have a "Warp Core brech"

http://www.telegraph.co.uk/finance/c...escalates.html

Mike

Well Ambrose, as we all know, is a founding life-member of the Eurosceptics club...so this is hardly surprising.

But I did go back to EJ's 2007 interview with Louis-Vincent Gave, and for all the flack that GaveKal often receives [I still haven't bought into their "platform company" thesis], there's some interesting bits in it [highlights mine]:

...LVG: Instead of allowing their [Asian] currencies to appreciate, they maintained currency pegs. These were a subsidy to local producers and to western consumers and governments. Cheap Asian goods flowed into the US. The Asia central banks bought bonds, contributing to money supply growth in the US and Europe. This translated into higher consumption in the US but most of that surplus in Europe was captured by governments. The results are big household debts in US and big government debt in Europe.

EJ: So that's topping out. Now what?

LVG: There have been many consumer recessions in the past. It will be hard for governments to reduce balance sheets as the subsidy recedes at the same time a demand recession is starting. That's the opposite of what a government wants to do. When Asian governments pull their subsidy, EU members will not be able to print money to pay off their debts the way the Fed can. Inflation is not an option.

EJ: We had a "duh" moment back when we interviewed Jamie Galbraith, who is in Shanghai, about the likely structure of the next monetary system that replaces the current US-centric system. He said that a multilateral dollar-euro-yen system is possible, but that lack of a euro bond market makes that impossible today. In other words, there are Italian bonds denominated in euros, German bonds in euros, etc., but not euro bond that a EU "treasury" can monetize to stop deflation. In one of our few divergences of opinion with our friends over at "America's Bubble Economy," we at iTulip are not long term euro bulls as the currency is fraught with political risk. We don't have a model for how it might react under stress, which it hasn't experienced yet. Sounds like you're saying the crisis will be asset price and general deflation.

LVG: Absolutely. The way governments goes broke is when they are not be able to print new debt, like Argentina. The currency shifts can be rapid and extreme. The most vulnerable are counties like Italy, Portulgal, and Greece. Suddenly the underlying default and inflation risk will appear. Bond yields will be raised to entice foreign borrowers to buy bonds. The high rates will slowing economy, creating a vicious cycle.

EJ: We've seen a process like that in the USA's future. We call it Ka-Poom Theory. The day of reckoning was delayed by the housing bubble and Asia hoarding of US treasury bonds.

LVG: But those days are over. They were a response to the 1997-1998 Asia currency crisis.

EJ: See any countries breaking away from the euro?

LVG: Yes, that's likely.

EJ: What will investors and central banks run to? We'd like to think it'd be good old dollars.

LVG: Depends. Move to swiss Frank (sic) if French. If Italy, then dollars. Depends on the depth of the political relationship. One by one the subsidy will be pulled by Asia and currencies allowed to appreciate.

EJ: I'm going to stop here for a second to ask, I thought you guys were bullish? You aren't sounding so bullish to me. I'm supposed to be the bear on this call. You're stealing my role!

LVG: (Laughs) We are bullish! But not on the US or Europe. Our theory is that there's always a bull market somewhere.

EJ: And that somewhere coming soon is Asia.

LVG: Right. China has to to manage inflation now at 6.5% and asset price inflation. The Fed cutting rates last week was as forcing function for a shift. The need to regain control. Remember, as Friedman said you can control rates, the money supply, and your currency, but only two out of three. You can't control three out of three. What China will control is its rates and its currency. ...

[Raz]

Re: The Euro about to have a "Warp Core brech"

Mucho thanks for posting this, GRG55. I wasn't a member in 2007 and don't recall having read this interview.

Mr. Gave makes some very interesting points. I consider him to be quite a sharp knife because one of my favorite investment strategists reads him regularly and considers his insights to be most helpful.

PS. I intend to post an article about Iraqi oil production potential and hope to receive your "insiders" comment.

[jpatter666]

Re: The Euro about to have a "Warp Core brech"

Interesting -- thanks for finding that!

[ASH]

Re: The Euro about to have a "Warp Core brech"

http://www.telegraph.co.uk/finance/c...escalates.html

Mike

The 'weaker Euro' argument, I think, is that kicking Greece out would represent political devolution and raise questions about the overall stability of the EU and the EMU. On the other hand, if the net effect is to reduce the number of fiscally unsound EMU members, that would seem to be a positive for the Euro on a strictly quantitative basis. Everyone would like to be holding Deutsche Marks anyway, right? So the more of the PIIGS that get booted, the closer the Euro is to the Deutsche Mark? Or does political stability of the EU and EMU trump all?

[jpatter666]

Re: The Euro about to have a "Warp Core brech"

The 'weaker Euro' argument, I think, is that kicking Greece out would represent political devolution and raise questions about the overall stability of the EU and the EMU. On the other hand, if the net effect is to reduce the number of fiscally unsound EMU members, that would seem to be a positive for the Euro on a strictly quantitative basis. Everyone would like to be holding Deutsche Marks anyway, right? So the more of the PIIGS that get booted, the closer the Euro is to the Deutsche Mark? Or does political stability of the EU and EMU trump all?

I think the salient point is that the markets hate uncertainty. If Greece, whence Italy, Spain, Portugal, Ireland? Might the Euro unravel or not? What impact on Eastern Europe? Etc, etc.....

[gnk]

Re: The Euro about to have a "Warp Core brech"

The 'weaker Euro' argument, I think, is that kicking Greece out would represent political devolution and raise questions about the overall stability of the EU and the EMU. On the other hand, if the net effect is to reduce the number of fiscally unsound EMU members, that would seem to be a positive for the Euro on a strictly quantitative basis. Everyone would like to be holding Deutsche Marks anyway, right? So the more of the PIIGS that get booted, the closer the Euro is to the Deutsche Mark? Or does political stability of the EU and EMU trump all?

Germany's GDP dropped 5% last year. Why is that? Because the periphery were some of its biggest consumers. I believe the EU periphery nations' relationship with Germany is not unlike Chimerica.

The massive subsidies that were sent to these periphery countries in the past was in effect, a way of creating demand for Germany's products. That's a problem with globalization. Consumption and production to a large extent becomes highly localized and ultimately these lopsided trading realtionships between countries topples to the detriment of all.

Germany created these markets by financing them on the way up - and a weak EURO helped Germany's exports yet created bubbles that ultimately popped in the periphery.

So who is Germany going to sell to now?

[medved]

Re: The Euro about to have a "Warp Core brech"

Germany's GDP dropped 5% last year. Why is that? Because the periphery were some of its biggest consumers. I believe the EU periphery nations' relationship with Germany is not unlike Chimerica.

The massive subsidies that were sent to these periphery countries in the past was in effect, a way of creating demand for Germany's products. That's a problem with globalization. Consumption and production to a large extent becomes highly localized and ultimately these lopsided trading realtionships between countries topples to the detriment of all.

Germany created these markets by financing them on the way up - and a weak EURO helped Germany's exports yet created bubbles that ultimately popped in the periphery.

So who is Germany going to sell to now?

Short term, difficult to say. Long term, Germany is the Western country that has the best position in the trade with Eastern Europe and Russia. East Europe has enough of educated (and uneducated) workforce to run any kind of production, from shoes and microchips to satellites. The major problem, of course (at least in Russia) is poor infrastructure and bureaucracy. On the positive side, Germany has a long practical experience in dealing with these countries (unlike US).

Today Germany is not strong enough to revive its militarist stupidity of historical proportions. For centuries they tried to defeat Eastern Europe rather than to cooperate with it. In the 18th-19th century Germans traditionally dominated many industries in Russia and other EE countries, and not just only industry but also culture.

I remember one of Marx’s articles where he wrote that Czechoslovakia is becoming a part of Germany, and the leading Czech nationalist is, actually some crazy German. However, German capitalists were not the ones making big decisions, the military were. I hope, they learned something over the last 200 years. If they did, and cooperation with the Eastern Europe develops, they will have plenty of markets for their business skills and technology in exchange for inexpensive labor and natural resources.

[rabot10]

Re: The Euro about to have a "Warp core breach"

"created these markets by financing them "

Just look too the banks for the answers

[D-Mack]

Re: The Euro about to have a "Warp core breach"

the article has been pulled.


I found a copy here. Does anybody know the document he is speaking of? ah found it
http://www.ecb.int/pub/pdf/scplps/ecblwp10.pdf

Fears of a euro break-up have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union.

“Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario,” said the document, entitled Withdrawal and expulsion from the EU and EMU: some reflections.

The author makes a string of vaulting, Jesuitical, and mischievous claims, as EU lawyers often do. Half a century of ever-closer union has created a “new legal order” that transcends a “largely obsolete concept of sovereignty” and imposes a “permanent limitation” on the states’ rights.

Those who suspect that European Court has the power pretensions of the Medieval Papacy will find plenty to validate their fears in this astonishing text.


http://goldismoney.info/forums/showthread.php?t=441192

The newest Ambrose article is now from Jan 10th
http://www.telegraph.co.uk/finance/c...ans_pritchard/