9 ms·

The euro zone: Is this really the end?

81 points by mixmax 15y ago

knowsnothing613 15y ago
if the EZ fails, there will be a liquidity crisis, and IPO runways will have to be extended, so all seed to mid-stage startups will go bust over the next 8 months, as their cash dwindles, and they can't get financing. Expect massive layoffs in the web 2.0 space, if it happens. Cash is king. Conserve it.
- kposehn 15y ago
  "if the EZ fails" - Ok, if it fails... "there will be a liquidity crisis" - Ok, yes "IPO runways will have to be extended" - Probably "all seed to mid-stage startups will go bust over the next 8 months" - Wait, what? How did you arrive at this conclusion? By what do you infer this? Yes, liquidity may get crunched and runways may go long, but you've taken one set of results and taken it way past the likely outcome. I do understand the thinking that cash may dwindle, but you're assuming far too much here.
  - knowsnothing613 15y ago
    seed funding usually provides an 18 month runway before more financing is needed. Mid stage runways are for a 2-5 years. You had a seed/angel funding bubble in 2010, so those companies are likely close to the end of their runways now, so they will need a cash influx. If there is a liquidity crisis, it'll be highly unlikely for them to get funding. Also, they is still alot of inventory (mid stage web startups) from the 2007 funding bubble to work through. Mid stage companies, funded in 2007, and had a 2-5 year runway, were waiting on the recent IPOs (Groupon, LinkedIn, Pandora, Zynga, ..) to raise appetite for their stock, but Groupon & LinkedIn, and Pandora IPOs are busts. So the capital markets will likely be closed off to them, and their will have to turn to the secondary markets. But once again, if there is a liquidity crisis, they will not get funding, and they will face a cash squeeze over the next 9-12months, depending on their burn rate. So you have two web bubbles that will collapse, if the EZ fails. The 2007 funding bubble (digg, etc), and the 2010 angel funding bubble.
    - drumdance 15y ago
      It's possible, but difficult to predict. Back in 2008 Sequoia famously predicted startup capital would dry up, but it didn't come to pass. (http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times-presentation-get-your-copy-here http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times...) Of course, the rise of super angels probably played a large role in that.
mixmax 15y ago
This crisis is becoming increasingly worrisome. and things are now deteriorating rapidly in the Eurozone. It appears that the pace has quickened considerably, with bad news almost every day. Yesterday Belgium was downgraded by Standard and Poors, the day before Germany was unable to sell all of the bonds it offered on sale, the day before that Italy had to pay an unsustainable 7% on new bonds. Unfortunately I have trouble seeing a short-term solution, though I hope there is one as the alternative is really really scary.
- holri 15y ago
  It was also very common in the past that Germany could not sell all bonds offerd. The rate of return for German Bonds is very low now, no wonder that the demand is also low. It is just how markets work. The fact that this makes it to the headlines is alarming not the fact itself.
jscore 15y ago
I want the Schengen zone to end so I'm not limited by 3 months in all of Europe but instead on a country by country basis.
- harryf 15y ago
  For Europeans the Schengen zone has made travel within the Union far simpler. They should revert this because it ruins your gap year?
- soult 15y ago
  The Schengen zone has nothing to do with the Euro. We had "open" borders before the Euro and non-Euro states (UK, Sweden, ...) are part of the Schengen zone. Even Switzerland is part of the Schengen zone. EDIT: The UK is only partially a member of the Schengen zone.
  - learc83 15y ago
    I thought the UK wasn't part of the Schengen zone.
    - soult 15y ago
      Thanks for the tip. You are of course right, according to Wikipedia the UK is only partially part of the Schengen zone. I must have confused it with Denmark which is not part of the Euro zone, but part of the Schengen zone.
  - umarmung 15y ago
    Wrong. The UK and Ireland have never been part of the Schengen Area and have specific exemptions just for them in the Schengen Agreement. Also, EU Directive 2004/38/EC is not the same as Schengen and unlike Schengen is virtually unimplemented in full in any country, especially in the UK. Border control is a very politically contentious topic in the UK. So, changes and implementations that attempt to erode borders generally fail, whether upfront or in practice (even if it is illegal according to EU laws such as the directive above).
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- knowsnothing613 15y ago
  wtf. If you live in Europe, you should be selling Euros and buying property in London/Germany/USA, and prepare for the collapse of fiat currencies. if the ECB prints to bailout the PIIGs, it'll cause hyperinflation, and the disparity between the 99% and 1% will widen. Already the drums of war are beating for Syria (a proxy for Iranian war, and control of the oilfieds around the Strait of Hormuz) to distract the masses from the inevitability of economic collapse, whether it be in the short, or medium run. #occupyWallStreet is the shapes of things to come.
  - desireco42 15y ago
    This is really smart advice :) buying property in London.
rewiter2011 15y ago
Reset the thing finally, thank you Tyler!
latch 15y ago
I don't understand why people aren't doing bank runs. Is it really because, as the article states, people believe leaders will solve the problem? For an individual, that seems like an unreasonable/unecessary risk to take.
- jerf 15y ago
  The result of a bank run would be a fistful of Euros. I don't see much point in running a bank, as the way they're going to take the value away from you is to inflate away what you've got, be it Euro or $LOCAL_CURRENCY. They can do that with it in the bank or it in your hands. (Progress!)
  - flourpower 15y ago
    But then why not just change your euros into dollars?
    - latch 15y ago
      Yes, exactly what I'm getting at. That's the point of my parent...people should do it now BEFORE mass-inflation so that they can convert it to a more stable currency (USD/GBP/CAD). I agree that once everyone starts doing it there isn't a point, but now...geezz..I don't see what you have to lose.
      - flourpower 15y ago
        I agree with your advice - I just don't think most people follow financial news that closely. However, the euro is down about 8% since June, so it's safe to say there's been a fair bit of selling.
      - Atropos 15y ago
        If you believe that currency market are somewhat efficient, the chances of a catastrophe happening are already priced in. For example, the Eur vs. Swiss Francs historically hovered around the 1,50 mark for a long time; now it's at 1,23. The swiss franc is considered clearly overvalued and there is speculation that their national bank wants to push it back up to 1,30. Anyway if the Euro problems get solved, you would probably lose at least 10-15% of your assets. Of course maybe such an "insurance" is worth it, but it is by no means an easy decision.
avar 15y ago
Whenever I read one of these articles I'm struck by how disconnected the vast financial abstractions we've constructed are from reality. Essentially they just discuss problems with the shared illusion (debt, bonds etc.), but not problems with what those abstractions actually mean. What's going to happen in a few weeks to cause everything to come crashing down? We'll still have the same people working, the same infrastructure / factories etc. I'm not saying the issues aren't real. Just that they're always discussed through so many layers of jargon to essentially be meaningless to someone who doesn't work in finance.
- flourpower 15y ago
  I think that in this case the reporter doesn't understand what's going on behind the abstraction. One thing that might happen is that some country's equivalent of our treasury dept will realize that they're not going to be able to make the next set of payments on their bonds.
- harryf 15y ago
  An fun exercise is to ask random people you know why changes in interest rates are so important and so diligently reported by the press. My own experience is most people have no idea.
  - twoodfin 15y ago
    I think most people understand that lower interest rates mean it's easier to afford a larger mortgage or car loan. That being said, the beauty of free markets is that individual agents don't have to understand macro (or even micro) economics to make good decisions: Prices provide all the information they need. Interest rates, materials cost, labor cost, dealer margin... who cares? All that matters is whether I think it's worthwhile to make a $300/month payment for this car. That's why relatively stable prices are important. Uncertain future prices make the cost/benefit trade-off of economic decisions too complex for the average person to make rational choices.
    - drumdance 15y ago
tlear 15y ago
Yes it is the end, the scam is over and it is time to pay. It was clear for couple years now. PIIGS are about to go and with them the rest of this over bloated, over regulated pyramid.
linuxhansl 15y ago
It's interesting to me that this is not caused by European countries being in bad shape (most have a lower debt to GDP ratio than the US, although there are of course other indicators). The problem is the perception of a problem and that leads to higher bond yields and that is what leads to this real problem. I'm not a conspiracy theorist, but it seems the timing of the downgrades of Greece, Portual, and Spain by US rating agency was quite perfect to cause exactly this effect. It seems at least "dubious".
- learc83 15y ago
  A US ratings agency also downgraded the US. Also, the US can inflate its way out of debt, the individual European countries can't because they don't have control over their currency.
- tsotha 15y ago
  >The problem is the perception of a problem and that leads to higher bond yields and that is what leads to this real problem. No, there is a real problem, which is the eurozone is a monetary union without a fiscal union. It's fundamentally unstable, something that can only work in good economic times. One of two things is going to have to happen to align fiscal and monetary boundaries - either national currencies will be reintroduced or fiscal policy will have to be aligned for the entire eurozone.
  - linuxhansl 15y ago
    How exactly is this causing the problem? The problem is the cost of financing debt. That cost is high because the risk of the investment is (perceived) high.
    - tsotha 15y ago
      >That cost is high because the risk of the investment is (perceived) high. Eh, that's semantics. The risk is high. None of these countries can afford the slightest rise in interest rates, whether that rise is associated with a loss of confidence or because there are better places to put money. That's what the Maastricht treaty was supposed to prevent. But that was a pipe dream because there's no way for the union to keep the spendthrifts in line.
sandee 15y ago
"The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral." This line of thinking is been pushed a lot. Its a one sided view. Why is it so difficult to understand the German point of view, or at least put it across to readers ? Germany insists that covering up the problems by printing money is just treating the symptoms not the root cause. The root cause is the bad monetary policies at some of member nations. They correctly understand than politicians guarantee of fixing the bad monetary issues (once printing is done) is wishful thinking. What they want is either go through painful process of austerity in these nation or tighter political/financial integration where member nations have say on finance budgeting in countries (in which case there could be common bonds). I am neither a US or EU resident. I am not a finance guy. But the approach taken by Germany seems very sensible to me. What i see over and over again is the US/UK media and economist pushing for the solution that they have taken in their countries (monetary easing), to solve EU problems. Is there a agenda in this or whether its just that they want to make their policies appear right is open question. I for one think that if Germany gets through this crisis (without blind printing) it will open the new era of EU dominance in the world. EU would come out as the most financially prudent currency and society (a more integrated union, almost like a country). In such a case the high debt, bad finance strategies of US/UK appear foolish. Keep going Germany ! Long live EU
- umarmung 15y ago
  Exactly. Printing is also a fiscal policy that happens to be implemented by central banks. Without a fiscal backing for unlimited asset purchases or printing money, no central bank is able to act. A central bank implements monetary policy transmission by controlling liquidity. They cannot provide funds to insolvent institutions or be exposed to risk of default/credit risk without backing. To put it in Mervyn King's (head of Bank of England) words: too many people misunderstand the concept of "lender of last resort". Central banks have access to this facility or are able to print because governments back their own solvency by perpetual state existence and unlimited taxation. Without a fiscal union, the Eurozone/EMU has no meaningful guarantee of perpetuity nor taxation. The market would recognise this sooner rather than later and nothing structural or fiscal would have been fixed. Printing can only come after fiscal union. If you have a fiscal union, then you should not have needed to print in the first place since you should have set strict rules on leverage! But if for some reason you did need to use lender-of-last resort, it would meaningfully exist due to the fiscal backstop.
rkischuk 15y ago
I'm not sure how anyone reads these articles without reaching the obvious conclusion that we've achieved abject fiscal insanity. "...the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral." "And since conditions are tightest in the peripheral [failing] economies, the ECB will have to buy their bonds disproportionately." Modern economics somehow deny every amount of basic common sense. The only way to fix irresponsibility is apparently to reward it and encourage more. Nobody ever thinks about how to compartmentalize risk and failure, how to reduce the size and influence of financial institutions that threaten economic stability. I'm sure someone from Europe can better fill in the gaps on who stands to profit here and who's pulling the strings.
- drumdance 15y ago
  To "compartmentalize risk and failure" requires regulation, which is anathema to many free marketeers. And if regulation goes too far you get stagnation. Damned if you do, damned if you don't.
- maaku 15y ago
  When you are in a crisis situation, you do what you need to do to fix the problem, then you go about making sure it doesn't happen again. There is a solution that will prevent the eurozone from collapsing and triggering a world-wide recession (depression?) that will make 2008 look like peanuts: print money. The crisis could be averted tomorrow, if Germany would just go along with ECB quantitative easing. Then we can focus on austerity and balanced budgets without brinkmanship. That's what this article is about.
  - marvin 15y ago
    That's the problem, though. I am no economist, but I have the impression that these repeated "rescue scenarios" just end up causing more and more irresponsible behavior, all the way from when it all started with Long Term Capital Management. Can you point out a single time where intervention to prevent a disaster after irresponsible money management has eventually resulted in more responsible economic behavior? In the end, something has to give.
diego_moita 15y ago
To me this story looks a lot like Word War I and the Crimean War, to talk about other European tragedies: everyone saw the disaster coming, but everyone that could have made something to prevent it didn't do it because he/she thought that it was just too bad to happen and in the end sanity would magically prevail. I thing the tragedy will repeat itself. It is possible that the common currency will crash and some countries will get out of the European Community. But the European Community will survive. Remember, before the European Community, all the biggest wars in history either happened in Europe or were started by Europeans: Crusades, colonialism in Africa and Asia, genocide of Native Americans, Napoleonic wars, WWI and WWII, ... After the European Community the only wars in Europe were outside of the Community and the only really big tragedy with European initiative (Stalin's big famine) was also outside of it.
- mafribe 15y ago
  If by "Stalin's big famine" you mean the man-made famine in the Ukrainian SSR, then that happened in 1932 and 1933, before the EU was started [1]. It is also wrong that to say that all big wars were started by Europeans, as a quick look at e.g. Chinese history shows, e.g. the Taiping Rebellion [2]. [1] http://en.wikipedia.org/wiki/Holodomor http://en.wikipedia.org/wiki/Holodomor [2] http://en.wikipedia.org/wiki/Taiping_Rebellion http://en.wikipedia.org/wiki/Taiping_Rebellion
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suivix 15y ago
I think the actual end is when lots of cities in Europe are bombed, like in WW2. But in this crisis all the infrastructure is still in place, and since there is still demand for goods and services, there will be an economy. Economists can make up whatever abstract ideas they want, but the fact is that people will create and trade things of value for other things of value. Maybe I'm just rambling but this is not "the end".
- alex_c 15y ago
  "The Euro Zone" has a different meaning from "Europe".
jbarham 15y ago
I've just finished reading "Boomerang: Travels in the New Third World" by Michael Lewis, a follow-up to "The Big Short". It's an enlightening and sobering read as it shows how destructive the temptation of cheap money (i.e., debt) was to Iceland, Greece, Ireland, Germany and the U.S. from 2001 through 2008. More importantly, he shows how radically differently the three member countries of the Euro zone he profiles (Ireland, Greece, Germany) mis-handled that temptation, and it does not bode well for the survival of the Euro, or even the EU. My own personal belief is that the Euro zone will disintegrate within months, if not weeks, and the fallout will not be pretty. (BTW, Lewis profiles Kyle Bass, a hedge fund manager from Texas throughout Boomerang. Check out what he has to say on YouTube. It's very scary stuff.) Financially there are really no safe havens. The U.S. is only able to run up trillion dollar annual deficits because its currency is the default reserve currency for the world and for now investors put up with sub 2% returns over 10 years (!) because they see no real alternatives. Canada and Australia have ridden commodity booms to blow up their property markets to massive bubbles that will crash hard. And the financial end game will play out soon for Japan as it has unsustainable debt levels. To date it has managed to fund those deficits internally, but it has almost saturated its domestic debt markets, and as soon as it has to start issuing debt on the international markets, it's game over. Although the financial causes for this monetary crisis appear to be complex, IMO at heart the reason is very simple: You cannot expect to live beyond your means indefinitely and get away with it.
- dnc 15y ago
  >> IMO at heart the reason is very simple: You cannot expect to live beyond your means indefinitely and get away with it. Yes, and there are basically two mutually exclusive, and opposite responses to this: 1) printing money (euphemism for it being "quantitative easing") and generating more debt which is just short term fix to buy yourself more time. 2) spending less and working hard to get yourself out of trouble which is only sustainable long term solution. The way I see it is that Germany is pushing the second agenda, but it faces a great pressure to embrace the first solution. This pressuring is orchestrated by US/UK media that are creating panic and atmosphere of inevitable financial Armageddon. This, of course, threatens to become self-fulfilling prophecy if only sufficiently large number of people start to believe in it.
itmag 15y ago
I always feel like a retard when the discussion is about economics. Everyone seems to know exactly why things are the way they are and what needs to be done to fix the situation. Whereas I really have no idea myself why these various crises happen, beyond "them thar Mericans sure borrow alotta moneys hurr durr". Am I the only one here? Is there something obvious I am missing? I am usually able to learn anything I want, but economics seems quite opaque to me for some reason. Please help me level up this domain of my knowledge :)
- nhaehnle 15y ago
  You are probably one of the wisest people here :) Here's my humble opinion for what you should look for if you truly want to understand this particular situation better. Forget about microeconomics (supply and demand and so on) and fancy mathematical models at least initially, and try to understand what money is. What is money? What is the relation you have with money? What is the relation the government has with money? What happens when you transfer money to pay your bills? These types of questions should be your guide initially. Look for bloggers who write on Modern Monetary Theory - there are quite a number of academics and hedge fund type people who do so, you can start e.g. here: http://neweconomicperspectives.blogspot.com/p/modern-money-primer.html http://neweconomicperspectives.blogspot.com/p/modern-money-p... - or go straight to the book "Understanding Modern Money" by Randall Wray (economist at UKMC). That is roughly the path I took over the last one and a half years, though I started via Bill Mitchell's (Australian economist) blog at http://bilbo.economicoutlook.net/blog/ http://bilbo.economicoutlook.net/blog/. As always, seek out different perspectives, but I've found that with some minor nitpicks, MMT really does seem to provide the best framework for understanding what's going on.
  - itmag 15y ago
    Thanks! I'll look into that! My current analogy of money is kind of that society is a giant vending machine capable of producing eg hamburgers, thai massage, anal lube, laptops, BMWs, etc. Money is kind of tickets that you put into this vending machine. And then there are people loaning out these tickets (banks) and also there are different kinds of tickets (currencies) and vending machines (countries) with exchange rates. Another analogy: money is to the bottom-level production of value (ie real goods and services) as functional programming is to assembly language. Ie you can do a lot of cool tricks and abstractions with it, but you can also shoot yourself in the foot with endless recursive data structures and what not. Am I on the right path here? I seem to grok most things in terms of analogies and pictures btw, it's how my mind works. This isn't always a good thing, though, sometimes it's more useful to see something as sui generis (unlike anything else) rather than to say "it's like X". When I have more time I'm going to read my copy of this book: http://en.wikipedia.org/wiki/Georg_Simmel#The_Philosophy_of_Money http://en.wikipedia.org/wiki/Georg_Simmel#The_Philosophy_of_...
tete 15y ago
Yes, there are Greece, Italy, Ireland, Portugal and Spain (where Greece still is the only really serious problem), but on the other hand there are a lot of strong/rich countries that are part of the EU and the Eurozone. There are Germany, France, Austria, Belgium, Netherlands and Finland, Estonia and really awesome ones like Luxemburg. The rest to my knowledge is doing fine. In the mean there isn't a big difference to any other strong currency, like the US who comparatively has a much bigger problem and already had it for a long time. The only thing that Europe lacks compared to the US is something like strict rules and sharing debts. A finance minister (or something similar) and Eurobonds would fix that. Besides that it's really not like the Euro isn't worth a lot. Some years ago when the EUR/USD exchange what way lower everyone complained about the Euro being too strong and therefor causes export problems (low income). Now it is still way higher than that and everyone says the Euro is at its end. Besides that the US as well as China devalue their currencies by printing -hardcore- and still have a lot more trust. Why?
rnadna 15y ago
When German cars age, they tend get replaced by new German cars. Germany has wealth because it sells expensive things in high quantity. Greece? Spain? Not so much.

81 points by mixmax 15y ago

if the EZ fails, there will be a liquidity crisis, and IPO runways will have to be extended, so all seed to mid-stage startups will go bust over the next 8 months, as their cash dwindles, and they can't get financing. Expect massive layoffs in the web 2.0 space, if it happens. Cash is king. Conserve it.

kposehn 15y ago
"if the EZ fails" - Ok, if it fails... "there will be a liquidity crisis" - Ok, yes "IPO runways will have to be extended" - Probably "all seed to mid-stage startups will go bust over the next 8 months" - Wait, what? How did you arrive at this conclusion? By what do you infer this? Yes, liquidity may get crunched and runways may go long, but you've taken one set of results and taken it way past the likely outcome. I do understand the thinking that cash may dwindle, but you're assuming far too much here.
- knowsnothing613 15y ago
  seed funding usually provides an 18 month runway before more financing is needed. Mid stage runways are for a 2-5 years. You had a seed/angel funding bubble in 2010, so those companies are likely close to the end of their runways now, so they will need a cash influx. If there is a liquidity crisis, it'll be highly unlikely for them to get funding. Also, they is still alot of inventory (mid stage web startups) from the 2007 funding bubble to work through. Mid stage companies, funded in 2007, and had a 2-5 year runway, were waiting on the recent IPOs (Groupon, LinkedIn, Pandora, Zynga, ..) to raise appetite for their stock, but Groupon & LinkedIn, and Pandora IPOs are busts. So the capital markets will likely be closed off to them, and their will have to turn to the secondary markets. But once again, if there is a liquidity crisis, they will not get funding, and they will face a cash squeeze over the next 9-12months, depending on their burn rate. So you have two web bubbles that will collapse, if the EZ fails. The 2007 funding bubble (digg, etc), and the 2010 angel funding bubble.
  - drumdance 15y ago
    It's possible, but difficult to predict. Back in 2008 Sequoia famously predicted startup capital would dry up, but it didn't come to pass. (http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times-presentation-get-your-copy-here http://venturebeat.com/2008/10/10/the-sequoia-rip-good-times...) Of course, the rise of super angels probably played a large role in that.

mixmax 15y ago

This crisis is becoming increasingly worrisome. and things are now deteriorating rapidly in the Eurozone. It appears that the pace has quickened considerably, with bad news almost every day. Yesterday Belgium was downgraded by Standard and Poors, the day before Germany was unable to sell all of the bonds it offered on sale, the day before that Italy had to pay an unsustainable 7% on new bonds. Unfortunately I have trouble seeing a short-term solution, though I hope there is one as the alternative is really really scary.

holri 15y ago
It was also very common in the past that Germany could not sell all bonds offerd. The rate of return for German Bonds is very low now, no wonder that the demand is also low. It is just how markets work. The fact that this makes it to the headlines is alarming not the fact itself.

jscore 15y ago

I want the Schengen zone to end so I'm not limited by 3 months in all of Europe but instead on a country by country basis.

harryf 15y ago
For Europeans the Schengen zone has made travel within the Union far simpler. They should revert this because it ruins your gap year?
soult 15y ago
The Schengen zone has nothing to do with the Euro. We had "open" borders before the Euro and non-Euro states (UK, Sweden, ...) are part of the Schengen zone. Even Switzerland is part of the Schengen zone. EDIT: The UK is only partially a member of the Schengen zone.
- learc83 15y ago
  I thought the UK wasn't part of the Schengen zone.
  - soult 15y ago
    Thanks for the tip. You are of course right, according to Wikipedia the UK is only partially part of the Schengen zone. I must have confused it with Denmark which is not part of the Euro zone, but part of the Schengen zone.
- umarmung 15y ago
  Wrong. The UK and Ireland have never been part of the Schengen Area and have specific exemptions just for them in the Schengen Agreement. Also, EU Directive 2004/38/EC is not the same as Schengen and unlike Schengen is virtually unimplemented in full in any country, especially in the UK. Border control is a very politically contentious topic in the UK. So, changes and implementations that attempt to erode borders generally fail, whether upfront or in practice (even if it is illegal according to EU laws such as the directive above).

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knowsnothing613 15y ago
wtf. If you live in Europe, you should be selling Euros and buying property in London/Germany/USA, and prepare for the collapse of fiat currencies. if the ECB prints to bailout the PIIGs, it'll cause hyperinflation, and the disparity between the 99% and 1% will widen. Already the drums of war are beating for Syria (a proxy for Iranian war, and control of the oilfieds around the Strait of Hormuz) to distract the masses from the inevitability of economic collapse, whether it be in the short, or medium run. #occupyWallStreet is the shapes of things to come.
- desireco42 15y ago
  This is really smart advice :) buying property in London.

rewiter2011 15y ago

Reset the thing finally, thank you Tyler!

latch 15y ago

I don't understand why people aren't doing bank runs. Is it really because, as the article states, people believe leaders will solve the problem? For an individual, that seems like an unreasonable/unecessary risk to take.

jerf 15y ago
The result of a bank run would be a fistful of Euros. I don't see much point in running a bank, as the way they're going to take the value away from you is to inflate away what you've got, be it Euro or $LOCAL_CURRENCY. They can do that with it in the bank or it in your hands. (Progress!)
- flourpower 15y ago
  But then why not just change your euros into dollars?
  - latch 15y ago
    Yes, exactly what I'm getting at. That's the point of my parent...people should do it now BEFORE mass-inflation so that they can convert it to a more stable currency (USD/GBP/CAD). I agree that once everyone starts doing it there isn't a point, but now...geezz..I don't see what you have to lose.
    - flourpower 15y ago
      I agree with your advice - I just don't think most people follow financial news that closely. However, the euro is down about 8% since June, so it's safe to say there's been a fair bit of selling.
    - Atropos 15y ago
      If you believe that currency market are somewhat efficient, the chances of a catastrophe happening are already priced in. For example, the Eur vs. Swiss Francs historically hovered around the 1,50 mark for a long time; now it's at 1,23. The swiss franc is considered clearly overvalued and there is speculation that their national bank wants to push it back up to 1,30. Anyway if the Euro problems get solved, you would probably lose at least 10-15% of your assets. Of course maybe such an "insurance" is worth it, but it is by no means an easy decision.

avar 15y ago

Whenever I read one of these articles I'm struck by how disconnected the vast financial abstractions we've constructed are from reality. Essentially they just discuss problems with the shared illusion (debt, bonds etc.), but not problems with what those abstractions actually mean. What's going to happen in a few weeks to cause everything to come crashing down? We'll still have the same people working, the same infrastructure / factories etc. I'm not saying the issues aren't real. Just that they're always discussed through so many layers of jargon to essentially be meaningless to someone who doesn't work in finance.

flourpower 15y ago
I think that in this case the reporter doesn't understand what's going on behind the abstraction. One thing that might happen is that some country's equivalent of our treasury dept will realize that they're not going to be able to make the next set of payments on their bonds.
harryf 15y ago
An fun exercise is to ask random people you know why changes in interest rates are so important and so diligently reported by the press. My own experience is most people have no idea.
- twoodfin 15y ago
  I think most people understand that lower interest rates mean it's easier to afford a larger mortgage or car loan. That being said, the beauty of free markets is that individual agents don't have to understand macro (or even micro) economics to make good decisions: Prices provide all the information they need. Interest rates, materials cost, labor cost, dealer margin... who cares? All that matters is whether I think it's worthwhile to make a $300/month payment for this car. That's why relatively stable prices are important. Uncertain future prices make the cost/benefit trade-off of economic decisions too complex for the average person to make rational choices.
  - drumdance 15y ago

tlear 15y ago

Yes it is the end, the scam is over and it is time to pay. It was clear for couple years now. PIIGS are about to go and with them the rest of this over bloated, over regulated pyramid.

linuxhansl 15y ago

It's interesting to me that this is not caused by European countries being in bad shape (most have a lower debt to GDP ratio than the US, although there are of course other indicators). The problem is the perception of a problem and that leads to higher bond yields and that is what leads to this real problem. I'm not a conspiracy theorist, but it seems the timing of the downgrades of Greece, Portual, and Spain by US rating agency was quite perfect to cause exactly this effect. It seems at least "dubious".

learc83 15y ago
A US ratings agency also downgraded the US. Also, the US can inflate its way out of debt, the individual European countries can't because they don't have control over their currency.
tsotha 15y ago
>The problem is the perception of a problem and that leads to higher bond yields and that is what leads to this real problem. No, there is a real problem, which is the eurozone is a monetary union without a fiscal union. It's fundamentally unstable, something that can only work in good economic times. One of two things is going to have to happen to align fiscal and monetary boundaries - either national currencies will be reintroduced or fiscal policy will have to be aligned for the entire eurozone.
- linuxhansl 15y ago
  How exactly is this causing the problem? The problem is the cost of financing debt. That cost is high because the risk of the investment is (perceived) high.
  - tsotha 15y ago
    >That cost is high because the risk of the investment is (perceived) high. Eh, that's semantics. The risk is high. None of these countries can afford the slightest rise in interest rates, whether that rise is associated with a loss of confidence or because there are better places to put money. That's what the Maastricht treaty was supposed to prevent. But that was a pipe dream because there's no way for the union to keep the spendthrifts in line.

sandee 15y ago

"The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral." This line of thinking is been pushed a lot. Its a one sided view. Why is it so difficult to understand the German point of view, or at least put it across to readers ? Germany insists that covering up the problems by printing money is just treating the symptoms not the root cause. The root cause is the bad monetary policies at some of member nations. They correctly understand than politicians guarantee of fixing the bad monetary issues (once printing is done) is wishful thinking. What they want is either go through painful process of austerity in these nation or tighter political/financial integration where member nations have say on finance budgeting in countries (in which case there could be common bonds). I am neither a US or EU resident. I am not a finance guy. But the approach taken by Germany seems very sensible to me. What i see over and over again is the US/UK media and economist pushing for the solution that they have taken in their countries (monetary easing), to solve EU problems. Is there a agenda in this or whether its just that they want to make their policies appear right is open question. I for one think that if Germany gets through this crisis (without blind printing) it will open the new era of EU dominance in the world. EU would come out as the most financially prudent currency and society (a more integrated union, almost like a country). In such a case the high debt, bad finance strategies of US/UK appear foolish. Keep going Germany ! Long live EU

umarmung 15y ago
Exactly. Printing is also a fiscal policy that happens to be implemented by central banks. Without a fiscal backing for unlimited asset purchases or printing money, no central bank is able to act. A central bank implements monetary policy transmission by controlling liquidity. They cannot provide funds to insolvent institutions or be exposed to risk of default/credit risk without backing. To put it in Mervyn King's (head of Bank of England) words: too many people misunderstand the concept of "lender of last resort". Central banks have access to this facility or are able to print because governments back their own solvency by perpetual state existence and unlimited taxation. Without a fiscal union, the Eurozone/EMU has no meaningful guarantee of perpetuity nor taxation. The market would recognise this sooner rather than later and nothing structural or fiscal would have been fixed. Printing can only come after fiscal union. If you have a fiscal union, then you should not have needed to print in the first place since you should have set strict rules on leverage! But if for some reason you did need to use lender-of-last resort, it would meaningfully exist due to the fiscal backstop.

rkischuk 15y ago

I'm not sure how anyone reads these articles without reaching the obvious conclusion that we've achieved abject fiscal insanity. "...the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral." "And since conditions are tightest in the peripheral [failing] economies, the ECB will have to buy their bonds disproportionately." Modern economics somehow deny every amount of basic common sense. The only way to fix irresponsibility is apparently to reward it and encourage more. Nobody ever thinks about how to compartmentalize risk and failure, how to reduce the size and influence of financial institutions that threaten economic stability. I'm sure someone from Europe can better fill in the gaps on who stands to profit here and who's pulling the strings.

drumdance 15y ago
To "compartmentalize risk and failure" requires regulation, which is anathema to many free marketeers. And if regulation goes too far you get stagnation. Damned if you do, damned if you don't.
maaku 15y ago
When you are in a crisis situation, you do what you need to do to fix the problem, then you go about making sure it doesn't happen again. There is a solution that will prevent the eurozone from collapsing and triggering a world-wide recession (depression?) that will make 2008 look like peanuts: print money. The crisis could be averted tomorrow, if Germany would just go along with ECB quantitative easing. Then we can focus on austerity and balanced budgets without brinkmanship. That's what this article is about.
- marvin 15y ago
  That's the problem, though. I am no economist, but I have the impression that these repeated "rescue scenarios" just end up causing more and more irresponsible behavior, all the way from when it all started with Long Term Capital Management. Can you point out a single time where intervention to prevent a disaster after irresponsible money management has eventually resulted in more responsible economic behavior? In the end, something has to give.

diego_moita 15y ago

To me this story looks a lot like Word War I and the Crimean War, to talk about other European tragedies: everyone saw the disaster coming, but everyone that could have made something to prevent it didn't do it because he/she thought that it was just too bad to happen and in the end sanity would magically prevail. I thing the tragedy will repeat itself. It is possible that the common currency will crash and some countries will get out of the European Community. But the European Community will survive. Remember, before the European Community, all the biggest wars in history either happened in Europe or were started by Europeans: Crusades, colonialism in Africa and Asia, genocide of Native Americans, Napoleonic wars, WWI and WWII, ... After the European Community the only wars in Europe were outside of the Community and the only really big tragedy with European initiative (Stalin's big famine) was also outside of it.

mafribe 15y ago
If by "Stalin's big famine" you mean the man-made famine in the Ukrainian SSR, then that happened in 1932 and 1933, before the EU was started [1]. It is also wrong that to say that all big wars were started by Europeans, as a quick look at e.g. Chinese history shows, e.g. the Taiping Rebellion [2]. [1] http://en.wikipedia.org/wiki/Holodomor http://en.wikipedia.org/wiki/Holodomor [2] http://en.wikipedia.org/wiki/Taiping_Rebellion http://en.wikipedia.org/wiki/Taiping_Rebellion

deleted 15y ago

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suivix 15y ago

I think the actual end is when lots of cities in Europe are bombed, like in WW2. But in this crisis all the infrastructure is still in place, and since there is still demand for goods and services, there will be an economy. Economists can make up whatever abstract ideas they want, but the fact is that people will create and trade things of value for other things of value. Maybe I'm just rambling but this is not "the end".

alex_c 15y ago
"The Euro Zone" has a different meaning from "Europe".

jbarham 15y ago

I've just finished reading "Boomerang: Travels in the New Third World" by Michael Lewis, a follow-up to "The Big Short". It's an enlightening and sobering read as it shows how destructive the temptation of cheap money (i.e., debt) was to Iceland, Greece, Ireland, Germany and the U.S. from 2001 through 2008. More importantly, he shows how radically differently the three member countries of the Euro zone he profiles (Ireland, Greece, Germany) mis-handled that temptation, and it does not bode well for the survival of the Euro, or even the EU. My own personal belief is that the Euro zone will disintegrate within months, if not weeks, and the fallout will not be pretty. (BTW, Lewis profiles Kyle Bass, a hedge fund manager from Texas throughout Boomerang. Check out what he has to say on YouTube. It's very scary stuff.) Financially there are really no safe havens. The U.S. is only able to run up trillion dollar annual deficits because its currency is the default reserve currency for the world and for now investors put up with sub 2% returns over 10 years (!) because they see no real alternatives. Canada and Australia have ridden commodity booms to blow up their property markets to massive bubbles that will crash hard. And the financial end game will play out soon for Japan as it has unsustainable debt levels. To date it has managed to fund those deficits internally, but it has almost saturated its domestic debt markets, and as soon as it has to start issuing debt on the international markets, it's game over. Although the financial causes for this monetary crisis appear to be complex, IMO at heart the reason is very simple: You cannot expect to live beyond your means indefinitely and get away with it.

dnc 15y ago
>> IMO at heart the reason is very simple: You cannot expect to live beyond your means indefinitely and get away with it. Yes, and there are basically two mutually exclusive, and opposite responses to this: 1) printing money (euphemism for it being "quantitative easing") and generating more debt which is just short term fix to buy yourself more time. 2) spending less and working hard to get yourself out of trouble which is only sustainable long term solution. The way I see it is that Germany is pushing the second agenda, but it faces a great pressure to embrace the first solution. This pressuring is orchestrated by US/UK media that are creating panic and atmosphere of inevitable financial Armageddon. This, of course, threatens to become self-fulfilling prophecy if only sufficiently large number of people start to believe in it.

itmag 15y ago

I always feel like a retard when the discussion is about economics. Everyone seems to know exactly why things are the way they are and what needs to be done to fix the situation. Whereas I really have no idea myself why these various crises happen, beyond "them thar Mericans sure borrow alotta moneys hurr durr". Am I the only one here? Is there something obvious I am missing? I am usually able to learn anything I want, but economics seems quite opaque to me for some reason. Please help me level up this domain of my knowledge :)

nhaehnle 15y ago
You are probably one of the wisest people here :) Here's my humble opinion for what you should look for if you truly want to understand this particular situation better. Forget about microeconomics (supply and demand and so on) and fancy mathematical models at least initially, and try to understand what money is. What is money? What is the relation you have with money? What is the relation the government has with money? What happens when you transfer money to pay your bills? These types of questions should be your guide initially. Look for bloggers who write on Modern Monetary Theory - there are quite a number of academics and hedge fund type people who do so, you can start e.g. here: http://neweconomicperspectives.blogspot.com/p/modern-money-primer.html http://neweconomicperspectives.blogspot.com/p/modern-money-p... - or go straight to the book "Understanding Modern Money" by Randall Wray (economist at UKMC). That is roughly the path I took over the last one and a half years, though I started via Bill Mitchell's (Australian economist) blog at http://bilbo.economicoutlook.net/blog/ http://bilbo.economicoutlook.net/blog/. As always, seek out different perspectives, but I've found that with some minor nitpicks, MMT really does seem to provide the best framework for understanding what's going on.
- itmag 15y ago
  Thanks! I'll look into that! My current analogy of money is kind of that society is a giant vending machine capable of producing eg hamburgers, thai massage, anal lube, laptops, BMWs, etc. Money is kind of tickets that you put into this vending machine. And then there are people loaning out these tickets (banks) and also there are different kinds of tickets (currencies) and vending machines (countries) with exchange rates. Another analogy: money is to the bottom-level production of value (ie real goods and services) as functional programming is to assembly language. Ie you can do a lot of cool tricks and abstractions with it, but you can also shoot yourself in the foot with endless recursive data structures and what not. Am I on the right path here? I seem to grok most things in terms of analogies and pictures btw, it's how my mind works. This isn't always a good thing, though, sometimes it's more useful to see something as sui generis (unlike anything else) rather than to say "it's like X". When I have more time I'm going to read my copy of this book: http://en.wikipedia.org/wiki/Georg_Simmel#The_Philosophy_of_Money http://en.wikipedia.org/wiki/Georg_Simmel#The_Philosophy_of_...

tete 15y ago

Yes, there are Greece, Italy, Ireland, Portugal and Spain (where Greece still is the only really serious problem), but on the other hand there are a lot of strong/rich countries that are part of the EU and the Eurozone. There are Germany, France, Austria, Belgium, Netherlands and Finland, Estonia and really awesome ones like Luxemburg. The rest to my knowledge is doing fine. In the mean there isn't a big difference to any other strong currency, like the US who comparatively has a much bigger problem and already had it for a long time. The only thing that Europe lacks compared to the US is something like strict rules and sharing debts. A finance minister (or something similar) and Eurobonds would fix that. Besides that it's really not like the Euro isn't worth a lot. Some years ago when the EUR/USD exchange what way lower everyone complained about the Euro being too strong and therefor causes export problems (low income). Now it is still way higher than that and everyone says the Euro is at its end. Besides that the US as well as China devalue their currencies by printing -hardcore- and still have a lot more trust. Why?

rnadna 15y ago

When German cars age, they tend get replaced by new German cars. Germany has wealth because it sells expensive things in high quantity. Greece? Spain? Not so much.