So much for the Euro rally.
After rallying against the U.S. dollar on February 16, today (February 18) the Euro is back to its old ways. As of noon in London the dollar had gained 0.4% against the Euro, sending that currency to its lowest level since May 2009.
Comments from German Chancellor Angela Merkel and other German politicians on the one side and Greek prime minister George Papandreou on the other reminded currency and bond traders that there is still no plan for how to end the Euro crisis set off by an out of control Greek budget.
Merkel poured oil on the fire by saying that Greece had falsified its budgetary and economic statistics for years. And that big investment banks such as Goldman Sachs and JPMorgan Chase had helped the country hide growing deficits.
Absolutely true. But certainly not helpful in ending the crisis.
For its part Papandreou’s Socialist party government is now pushing for a special parliamentary investigation into public finances and accounting under conservative New Party governments between 2004 and 2009.
The clear danger in both Germany and Greece is that politicians seem to be playing to their domestic audiences rather working to end the crisis. In Germany, where many still mourn the good old days of the Deutschmark before the European Monetary Union replaced that currency with the Euro, any move that smacks of a bailout for Greece is deeply, deeply unpopular. In Greece the government faces strong opposition from its political opponents and labor unions to the budget cuts it has already proposed. The European Union has already made it clear that it wants to see even deeper cuts.
Currency and bond traders are left, then, with a situation where no politician wants to spell out the detail of a plan that would actually end the crisis. And without those details no plan is even vaguely credible.
No surprise then that the dollar, still the safe haven currency in any crisis because dollar markets are so liquid (and hence easy to enter and exit without causing a big swing in prices), is up today against the currencies of 14 of 16 major U.S. trading partners. The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, was up 0.3% as of noon in London.
pigeon, we had the same experience in Spain last summer. Lots and lots of partially finished houses and apartment buildings with no work going on that I could see. Quite a contrast to here in Manhatan where building is still going on like crazy.
valdier, BRF is now on the watch list drop list because I bought it for the Jubak’s Picks portfolio. When a stock I’m watching turns into a buy and I put it in a portfolio I take it off the watch list. I hope that answers your question.
I am new to investing. I noticed that BRF is now on your drop list. Can you please tell me what that means? Thanks
i live here in little oul ireland as regards the 400k
per person i hope thats not the number! But then again i can see where all the money is gone thousands of empty housing units hotels that we did not need vast tracts of land in the city areas that were bought for ridiculous sums of moneyThe banks gave out money like it was confetti the good old days ….not.
True, confidence is important as the Greek situation shows us. But I’d think that it matters really only with government debt, not with debts of individuals that are also included in the external debt. If a government owns most of its debt to foreigners, it means that the country doesn’t have enough wealth to back its fiscal state. If a consumer decides to take a loan from an international big bank instead of a domestic bank (e.g. to get better terms/rates), then why would this reduce confidence towards the individual? (It might say something about the banks though.)
Therefore in my view a more interesting measure would be the net government debt owed to foreigners versus the GDP. That compares the money that foreigners want some guarantee on to the taxation basis of the government.
On the other hand, these debt ratios are really silly as long as you don’t calculate them in net terms (taking foreign reserves and such into account). For example the Wikipedia link says that Norway’s public debt to GDP is 52 %, but this is a gross measure. If you deduct the massive pile of money they have in their oil fund (take the net measure), you end up with something like negative 30 % or so!
So as long as the external debt measure doesn’t include the amount of debt foreign entities owe to domestic ones, it doesn’t really tell you much. E.g. people around the world probably owe a lot more to Luxembourg than the other way around.
(Whoa, that was long, sorry about that)
Vuakko, an article by Reinhart and Rogoff called Growth in a Time of Debt that I’ve used a number of times recently argues that historically for an emerging market country who owns the debt matters because external debtors can cause a crisis of confidence–essentially a run on the coiuntry–that will exhaust reserves and crash the local financial system. That said I think a gross reading of external debt/GDP that doesn’t look at who holds the external debt or who borrowed doesn’t get you but part of the way to where you want to go. Need to look at some qualitative measure for how likely it is that the lenders will call their loans. The ECB, for example, could defuse the Greek crisis by finding a mechanism so that it could continue to take Greek sovereign debt as collateral even if the country went to junk status. Then Greek banks would remain able to fund themselves. And then there’s the possibility of a moratorium since so much Greek debt is held by banks inside the euro zone.There are lots of ways to finesse this but first politicians in Germany and elsewhere want to show voters that it is a real crisis in the system (the Paulson technique) and that they’ve put serious hurt on the Greeks.
I don’t understand the point of the CNBC slideshow. Why does it matter where you own the money (if the currency is the same). It doesn’t really tell anything about the financial state of the countries. Public debt to GDP as in
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
makes much more sense. For example, why do Luxembourg and Monaco, countries with more millionaires than anywhere else in the world, have external debt to GDP ratios of 5000 % and 2000 % ? Maybe because it’s a lousy measure?
Sure, the measure does tell you useful things. The real problem is that 99 % of people have no idea of what it means and grossly misinterpret it.