Obama: Solving Euro Crisis of ‘Huge Importance’

PeteEU said:

Well the critics are morons on so many levels and their views are most likely based on partisan political ideology than reality.. wonder if it is the same morons.. err critics that claimed that the EU had to be bailed out with 6 trillion Euros... any ways... Banks and the financial industry run on liquidity, and when liquidity is drained from the market then yes banks get into solvency problems because they can not meet their day to day liquidity needs. So what the fed and the rest of the industrialised worlds banks did today might be a temporary solution some what, but it had the desired effect and hopefully the market will start to question validity of the "critics" who are ruling the world markets now.

The only downside might be that the need for the ECB to actually print money will be dampened a tad, which will play into the hands of the Germans who dont want the ECB to print money.... but then again it might give the Eurozone the time politically to get their ducks in place so to say.

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Spreads on inter bank loans denominated in Euros are becoming alarmingly high once again, the swap lines are being implemented so that central banks can offer liquidity in foreign currencies and also reduce the cost of such transactions. The risk premium paid while using Euro's (see Euribor EONIA spread) shows that the ECB has not only failed to keep the markets liquid in comparison to other central banks, but there is considerably more default risk associated with banks holding the currency. If, for instance the fed, or any other central bank has to use the swap lines, not for domestic currency, but for the Euro, they will have to distinguish between a liquidity problem and a solvency problem. A central bank cannot solve the problem of a debt that will not be repaid. The Euro-zone has a balance of payments problem, some countries have large external debts within the Euro, but due to the monetary union the currency cannot make the necessary adjustments, and with the ECB unwilling to back up these sovereigns it threatens to leave these countries and the banks that hold their debts bankrupt. That is reality. The recent action by central banks can only solve liquidity problems, it is only a way to soften/slow down the process and protect solvent institutions, but the underlying dynamics are unchanged.

PeteEU: I want you to read this later from start to finish and give me your honest opinion on it. THIS is why I say debt matters and that the Eurozone is in a lot worse shape than the markets have already priced in. I can't articulate the problem half as well as the author can so I'm just going to use his words as my response on Greece and Italy plus the EFSF and IMF. As far as I'm concerned Greece is cooked and done and Italy isn't looking to hot. Goldman Sachs economists just revised GDP estimates for Q1 2012 tfrom 0.1% to -0.8%. Just read the letter and tell me if you still think the debt crisis is made up and that debt doesn't really matter.

Scribd

ECB President issued some strong words today about further fiscal consolidation within the EU. He noted that the most important aspect for the ECB would be a “new fiscal compact” that would “start restoring credibility.” He stated that “There cannot be a single currency without economic convergence”. Everyone knows what is needed: fiscal rules that can be enforced and a common economic policy for the region. There were also news reports that a deal would be reached with the IMF to expand its lending to “nearly” distressed EU countries.

FTA: "A European proposal to channel central bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($270 billion) to fight the debt crisis, two people familiar with the negotiations said."

Euro Central Banks May Provide $270B Through IMF - Bloomberg

Can someone explain to me how the ECB loaning to the IMF to provide 200 billion euros in aid is not printing Euros? It almost seems like a shell game at this point.

One thing is for sure we're not going to print them any of our money, till they learn to print their own

grip said:

One thing is for sure we're not going to print them any of our money, till they learn to print their own

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Too late. We just did on Wednesday.

apdst said:

The only criminals--if you must call them that--are the ones in the government that created the mess.

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Well, to be fair, government simply changed the laws in such a way that these fortune 500 companies could act as the criminals they are, and with the revolving doors between government and corporations, I suppose government had a role to play.

But, the most extensive criminality comes from the biggest banks, the ones deemed "too big to fail".

If you agree with me, why do you keep saying thta austerity won't work?

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Because what is being pushed is NOT austerity by the definition you provided, but much closer to fleecing people that have paid into a system their entire lives and are being cut off before they had a chance to benefit from the money they put in.

It's like you make a large purchase through a layaway plan, and pay for the thing for 40 months, then right as youre nearing the final payment then austerity measures that get put in, and they tell you that you still have another 5 months to pay before you can get your purchase... AND that the monthly price is gone up, and that's because the company handling your layaway plan went bankrupt. That's effectively a theft.

You can't be serious! That housing bubble the government created doesn't have anything to do with it? What about the billions that the Eruos owe those fat cat pensions, that they can't afford, because there is more money going out and less money coming in, with the gap getting wider and wider every year? Ya think maybe a 30 hour work week might have been a bad idea??

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The housing bubble was facilitated by the government, but it was bankers that made the bad loans... And then stepped it up by allowing hundreds of times worth of investments derivative of those bad loans, and when those investments fell apart they go to government and ask for tax money to cover those bad loans.

The problems otherwise were the results of fraud, very little to do with the 30 hour work week.

All the more reason to spend less and run the household on what you've actaully have coming in, or--I know this is going to sound really freaky-deaky to some folks--figure out a way to make more money, without raising taxes.

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Ya, two simple solutions to that situation :
First, implement regulations, deregulation being a major cause of the crisis.
Second, lower taxes so more can afford to pay those taxes, and so increasing overall revenue.

Actaully, it doesn't, but whatever

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Oh, so you don't pay on a loan for a few months and they don't start adding interest to the accrued interest??

Uh, right, but I don't see how it's contrary to anything I've said.

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Contrary to the point that government was doing the most wrong...

Another great case for drastic austerity measures.

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Elaborate ?

If anything, this is a case for "austerity" on the fortune 500...

The IMF doesn't create the situation; politicians with all kinds of government handouts create the situation.

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Frankly, this point shows your ignorance of IMF policies... And how it impacts governments they work "with".

The housing bubble was facilitated by the government, but it was bankers that made the bad loans... And then stepped it up by allowing hundreds of times worth of investments derivative of those bad loans, and when those investments fell apart they go to government and ask for tax money to cover those bad loans.

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That's the whole thing in a nutshell. The economies of the US and Europe were ramped up beyond sustainability by home purchases that ultimately started to default. When the job creation and income of workers resulting from the housing bubble were eliminated countries and states whose budgets were expanded from the extra taxed income over the years became depleted throwing them into debt and over budget. And the derivatives which were way over valued and insured fell through, causing trillions of dollars on paper to become toxic debt.

AdamT said:

Yep, I guess that's what they said after WWII.

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You see a whole lot of similarity between that generation and this generation? Really? Like I said...you know anyone who ever has kids or grandkids...you make sure to tell them how proud you are of the debt you saddled them with because you and people like you mindlessly support this inane spending. But **** them...right? What do you care Pete...let THEM deal with it.

VanceMack said:

You see a whole lot of similarity between that generation and this generation? Really? Like I said...you know anyone who ever has kids or grandkids...you make sure to tell them how proud you are of the debt you saddled them with because you and people like you mindlessly support this inane spending. But **** them...right? What do you care Pete...let THEM deal with it.

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What I'll tell them is that you and people like you mindlessly supported tax cuts when we could have paid down debt, and an idiotic war that cost them $3 trillion. I'll also apologize for you and people like you who idiotically refused to deal with environmental issues that screwed up their future.

Europe is screwed and they alone should pay for their screwups.

Every couple of decades they come up with crazy ideas that leads to nothing but trouble and this is just the latest.

The US, like Canada, should just let them go. There are many other places in the world to invest and deal with other than the Europeans.

Grant said:

Europe is screwed and they alone should pay for their screwups.

Every couple of decades they come up with crazy ideas that leads to nothing but trouble and this is just the latest.

The US, like Canada, should just let them go. There are many other places in the world to invest and deal with other than the Europeans.

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That would be great if it was possible, but it just isn't. The EU is the biggest economy in the world. Whether or not we invest in them directly, their problems are our problems and v.v.

AdamT said:

That would be great if it was possible, but it just isn't. The EU is the biggest economy in the world. Whether or not we invest in them directly, their problems are our problems and v.v.

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It´s hardly the biggest economy in the world if it´s doomed to fail.

Investing in Europe is like investing in Angola, the US or Bangladesh. Investors want some security for their money in economies led by responsible people. Few serious people would invest their own money in Europe so why should taxpayer dollars be risked? You don´t see responsible countries throwing money at European problems.

Europe is not going to change unless it is forced to. Those economic illiterates are always being taught the same lesson, over and over again.

Grant said:

It´s hardly the biggest economy in the world if it´s doomed to fail.

Investing in Europe is like investing in Angola, the US or Bangladesh. Investors want some security for their money in economies led by responsible people. Few serious people would invest their own money in Europe so why should taxpayer dollars be risked? You don´t see responsible countries throwing money at European problems.

Europe is not going to change unless it is forced to. Those economic illiterates are always being taught the same lesson, over and over again.

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It is the biggest economy in the world -- full stop.

Like I said, it doesn't matter if we invest in Europe. They are still a huge economy that impacts every other economy. We have trillions of dollars of trade with the EU every year.

AdamT said:

It is the biggest economy in the world -- full stop.

Like I said, it doesn't matter if we invest in Europe. They are still a huge economy that impacts every other economy. We have trillions of dollars of trade with the EU every year.

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Dont feed the troll....

grip said:

That's the whole thing in a nutshell. The economies of the US and Europe were ramped up beyond sustainability by home purchases that ultimately started to default. When the job creation and income of workers resulting from the housing bubble were eliminated countries and states whose budgets were expanded from the extra taxed income over the years became depleted throwing them into debt and over budget. And the derivatives which were way over valued and insured fell through, causing trillions of dollars on paper to become toxic debt.

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That is only true for a few european economies. The Irish, UK, Spain had the home price bubble. Others had government spending issues, (Greece for example). Others like Germany finally absorbed the costs of integrating East Germany and was on a good economic path.

The Germans are in trouble because they lent to the other economies, a collapse in Europe will lead to a collapse in the US and in Canada. All the banks are tied together through various loans, CDS's and other derivatives

AdamT said:

It is the biggest economy in the world -- full stop.

Like I said, it doesn't matter if we invest in Europe. They are still a huge economy that impacts every other economy. We have trillions of dollars of trade with the EU every year.

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It is failing. Perhaps it is the biggest but what does that mean? That is the strongest? The most reliable? Of course not. As we saw with Russia during the Cold War, biggest does not mean much at all.

In fact the more successful economies are often found countries with lower populations. If you feel that investing in Europe is a good idea then you can do it as a private citizen but I´m very pleased that Canada said No to Europe.

Harper says no Canadian money for European bailout - World - CBC News

Keep in mind that the Europeans felt that junk mortgages were a good investment.

Lord Tammerlain said:

That is only true for a few european economies. The Irish, UK, Spain had the home price bubble. Others had government spending issues, (Greece for example). Others like Germany finally absorbed the costs of integrating East Germany and was on a good economic path.

The Germans are in trouble because they lent to the other economies, a collapse in Europe will lead to a collapse in the US and in Canada. All the banks are tied together through various loans, CDS's and other derivatives

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Europe has collapsed in the pàst, several times in fact, but that hardly effected North America at all. Canadians in particular will do all right. There are many other successful countries in the world and Canada has trade agreements with most of them, in Latin America particularly.

Yes, the ¨Germans are in trouble because they lent to other economies¨so why should we follow their example?

Grant said:

Europe has collapsed in the pàst, several times in fact, but that hardly effected North America at all. Canadians in particular will do all right. There are many other successful countries in the world and Canada has trade agreements with most of them, in Latin America particularly,

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It is not the trade that matters it is the financial interdependance that does. Canadian and US banks have direct and indirect ties to europe, just as European banks have direct and indirect ties to US and Canada. Should a couple of European countries default, the effect will not be limited to Europe, just as the fallout of Leahman Brothers effected European banks. AIG went belly up in part to CDS's owed to some major European banks. US banks have the same sort of exposure to European debt.


As for Canada, what happens in China and India are going to be the key. Without their demand for raw materials the Canadian economy would be far worse, and Chjina is going to undergo a couple of rough years very soon. Latin America to Canada is meaningless. We dont export manufactured goods to them, nor much food. They are a more important market to the US, and supply materials to India and China, ie more of a competitor to Canada then a customer

AdamT said:

It is the biggest economy in the world -- full stop.

Like I said, it doesn't matter if we invest in Europe. They are still a huge economy that impacts every other economy. We have trillions of dollars of trade with the EU every year.

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Trillions in trade with the EU....really?

Lord Tammerlain said:

It is not the trade that matters it is the financial interdependance that does. Canadian and US banks have direct and indirect ties to europe, just as European banks have direct and indirect ties to US and Canada. Should a couple of European countries default, the effect will not be limited to Europe, just as the fallout of Leahman Brothers effected European banks. AIG went belly up in part to CDS's owed to some major European banks. US banks have the same sort of exposure to European debt.


As for Canada, what happens in China and India are going to be the key. Without their demand for raw materials the Canadian economy would be far worse, and Chjina is going to undergo a couple of rough years very soon. Latin America to Canada is meaningless. We dont export manufactured goods to them, nor much food. They are a more important market to the US, and supply materials to India and China, ie more of a competitor to Canada then a customer

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It´s not necessary to get side tracked into international trade debate but the fact is that I wholeheartedly agree with the position of the Canadian Prime Minister and that giving any money to Europe is money down the tubes. Let them do a complete reform and then after that is done, but only after, another Marshall Plan might go into effect.

But I doubt that Europe will be a serious factor in the economic wealth of any country. We can easily work around them.

Grant said:

It´s not necessary to get side tracked into international trade debate but the fact is that I wholeheartedly agree with the position of the Canadian Prime Minister and that giving any money to Europe is money down the tubes. Let them do a complete reform and then after that is done, but only after, another Marshall Plan might go into effect.

But I doubt that Europe will be a serious factor in the economic wealth of any country. We can easily work around them.

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What do you think would happen if a European country defaults and a European bank has billions of CDS that pay out when the default occurs, if those CDS's were issued by a few major Canadian banks??

When LB went bankrupt the CDS's issued by AIG drove it to bankrupcty. A $100 billion dollar bailout by the US government was the end result. Canada does not have that type of money to backstop our banking system.

That would mean a large amount of wealth being destroyed

Lord Tammerlain said:

What do you think would happen if a European country defaults and a European bank has billions of CDS that pay out when the default occurs, if those CDS's were issued by a few major Canadian banks??

When LB went bankrupt the CDS's issued by AIG drove it to bankrupcty. A $100 billion dollar bailout by the US government was the end result. Canada does not have that type of money to backstop our banking system.

That would mean a large amount of wealth being destroyed

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Yes, money will be lost but money will also be lost with bailouts. As has been said often enough, it doesn't make any sense to throw good money after bad. Americans and Canadians can give them trillions and it wonñt make any difference, just as the trillions in debt the US now has does no one any good.

Canada is doing all right, its debt is manageable and our trade agreements are growing and being strengthened. We have a lot of natural resources that the world is willing to buy and we have a solid and growing middle class. Europe is nothing but trouble, and we don't really need it. Let them get out of the mess they made on their own and maybe, this time, they will learn something.

I agree with Tammerlain that we're too tied up with Europe through banking, bonds, CDS's, currency, oil and trade. Though the ECB through the IMF could probably help with a $250 billion bailout package. The WTO, NAFTA and other free trade treaties have tied international corporate and sovereign wealth into a hairball. The derivatives market alone is valued at $1000 trillion, which is what I call imaginary wealth. It's all over inflated by the voodoo of complex and exotic financial products. Europe is not necessarily the real problem, unless they allow it to become the next market catalyst like Lehman, they won't. It's the fact that all the monetary wealth of the world is owed to the investors who have quietly purchased us through our personal and sovereign debt over the past 2 decades. The real problem is whether the investors loose faith in the markets and cause another run, especially in bonds and don't collapse the dollar. Unfortunately the CDO bubble never did pop completely.

Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP - DailyFinance

Rhapsody1447 said:

Obama: Solving Euro Crisis of

Obama: Solving Euro Crisis of ‘Huge Importance’


Is this political suicide or just a pragmatic response? Can the US afford to get involved in the Eurozone disaster with a 100% Debt/GDP Ratio and annual deficits of 11% of GDP? Is Obama willing the save the Euro project he holds so dear at the expense of America's fiscal health? I'm looking forward to hear more details about this as it just broke but the headlines are already scaring me enough. I can't imagine Obama is willing to entangle himself in this mess so close to an election.

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that's all politico-speak for "we're gonna bail out Europe with our tax dollars".