ISLM is probably one of the more important theories the guys are getting at:
http://en.wikipedia.org/wiki/IS/LM
the rest is covered here:
http://en.wikipedia.org/wiki/LTRO#EU_emergency_measures
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Euro downgrade: beginning of the end?
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Posted 4 months ago #
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The WW3 comment was a semi-joke. Although it seems like a remote possibility at the minute, financial crises always play into the hands of the nutters (see Hungary et al).
The Ed Balls speech is quite illuminating: it shows the political imperative to sound like a deficit hawk when you know that is not the best idea from a macro point of view. For what it's worth, I also feel like some of the targets of the cuts are very valid targets, particularly higher education, the NHS and some benefits. The way the cuts have been handled so far seems very amateurish though, and leads me to think that nobody in government has much of an idea.
For my money the Euro breakup (to some degree) is already a dead cert. The interesting question is when and how, and what will be the major consequences. The big players are up for re-election soon and nobody can have any chance of campaigning while being the person who killed the euro. However, the longer the can is kicked down the road the worse things get (see the slow-mo bank runs in Greece and Portugal for evidence of this). For me the really critical moment will be (perhaps in the next year) when we have a major restructuring of the Euro and there will be (~6pm Friday evening) an EU/ECB announcement of capital controls across the eurozone. From that point all bets are off.
Maybe I'm just cynical, but I really don't see that any politician(s) have the power to stop us getting to that stage. Once capital controls are introduced on a wide-scale basis then the crisis goes from empty shops and high unemployment which can be ignored or downplayed by at least some of the population, to a very real immediate crisis which affects even the very richest.
Posted 4 months ago # -
It's good to see the EU bureaucracy still doesn't get it:
The EU's top economic official has criticised a decision by Standard and Poor's to downgrade the credit ratings of nine eurozone countries.
Economic affairs commissioner Olli Rehn said the move was "inconsistent" as the eurozone was taking "decisive action" to end the debt crisis.
Posted 4 months ago # -
Sorry, things were getting a little dense there. A few definitions and the like:
LTRO - long term refinancing operation (ECB providing short term cash to banks to counteract the current credit crunch that european banks are experiencing).
EFSF - european financial stability facility
ESM - european stability mechanism
(also EFSM - european financial stability mechanism)
These are investment vehicles by which the EU borrows money on the financial markets to lend to lend to countries (PIIGS etc) which cannot finance themselves directly on the bond markets (as their yields or effective interest rates are too high). This borrowing is guaranteed by EU member states, particularly Germany, but also France, UK etc.T1C - tier 1 capital: the amount of 'really good' assets (US government bonds, cash, gold etc) that a financial institution holds in case other 'assets' bought with borrowed money (or leverage) decrease in value. This is often described as a fraction of the total balance sheet of the institution and can describe the total leverage ratio of the institution. A good example is getting a mortgage with a 25% deposit. This would give you a tier 1 capital ratio of 25%, or a leverage of 4:1. For you to become insolvent (negative equity) your assets (house) needs to lose more than 25% of their value. For reference some really big and structurally important euro banks like Soc Gen now have a leverage of about 60:1, twice that of Lehman or Bear Stearns.
IS/LM - see post above
Posted 4 months ago # -
Ah, the elections and politics. So Merkel and Sarkozy need domestic political support that requires them to take diametrically opposed positions on the € solution. Fascinating but ultimately depressing because political immediacy overtakes economic reality. It was ever thus!
But when/if capital controls announced OMG....I was discussing this after a tennis match this morning with reference to Argentina and how the government treated anyone with a guy who lived and worked there. Will Greece do the same?
And so know we know why the Greeks are buying up London property at the moment. Maybe one will buy Bolton?
Posted 4 months ago # -
Why can't Euro be restricted to two countries only i.e. Germany & France, if they are so keen about that? The rest are just burden or at least will take another 50 years to catch up while some will not be able to catch up because their days are over. i.e. the Greeks ... olive oil anyone?
I rather like the old currencies from different countries so would like to see the back of Euro once and for all.
Nope, I don't like the "Big Euro Society" thing and no I am not your father.
Posted 4 months ago # -
Rather calm in € land today - seems somewhat surprising. Only a few rumblings from the IMF. And then the EFSF downgrade just to make everyone sleep well tonight.
Posted 4 months ago # -
I'm curious to find out how American Government bonds are considered a good risk. This is the same America that had less cash in hand recently than Apple have on deposit?
Posted 4 months ago # -
Thanks choron, as I said, interesting to follow all this...
Posted 4 months ago # -
Well it was interesting news that they are going to 'trade' the remimbi (RMB) and it's headed to the city, once that starts all the foreign currency wallers who had baled on the USD as a reserve currency will have something els to play with so their cash is safe and the Euro can go to hell in a hand cart as they short the f.uck out of it.
End game? Two tier Euro north and south with maybe France chucked in the South version so it doesn't totally go tits up.
Posted 4 months ago #
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