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Of course Peter. Most pleasant thoughts are there to be dreamed. The difficulty is deciding what thoughts and dreams you wish could come true!! In this case there are three thoughts to dream!

A revolution! To begin a cull! To rid Europe off......? Alas with the apathy of people, and the vigilance of the establistment. The thoughts must for now remain the dreams of some?

Huanga.

It probably wouldn't cost more than a few million lives. Do you really think it would be worth it???? After all, the Russian Revolution (a direct comparison) was such a complete success, right? All the unworthy politicians and industrialists were replaced by altruist who cared only for the downtrodden, right?

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

Oh a few million at the very least Peter, but then, the current band of unworthy politicians. In company with their various financial experts and organisations have already doomed those millions to what may be a short life of misery!

I don't think I would care to use the word 'industrialists' in connection with any of the above. You see I have this old fashioned idea that national and local industry are good for a country, and I tend to class 'industrialists' the same as engineers! The good guys.

On the other hand. I'm inclined to think of financial experts, bankers, and such as paresites. Not much good at anything really, except thievery. A sort of snobbish seedy used car or life insurance salesmen.

Incidently, I mentioned the two major European revolutionary upheavals only in passing. This would be the wrong thread to discuss either, but if you meant the Russian one was not advantageous to the serfs. I totally agree, but it did keep inflation and the population under control!.....and do remember. it is history and therefore factual.

Huanga

I think a better example would have been the American War of Independence
The situation as I understand it was of a local population being ground down by austerity measures ( taxation) imposed by a foreign entity (UK). Social unrest then war.

Sounds a bit like present-day Greece, Spain, Portugal, Ireland, etc with the 'Troika' as the 'foreign entity' Social unrest...?

Matters may come to a head soon as Sarkozy is behind in the polls and the likely new president is clearly against ANY austerity measures

And where do you think the industrialists get the money to build industries? From the pixies at the bottom of the garden perhaps? Do you live in home of some description? Yes? Do you think there is a better than even chance that a bank financed the loan to build it in the first place? Perhaps you have superannuation of some description? Unless you stuff your money in a mattress under your bed then there is a pretty good chance you rely on the evil financial experts to manage it for you, so that you can fund your retirement.

I could go on, but what is the point? You seem to equate all workers in the financial industries as, at the very least, spawn of the devil.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

To use an old saying of my grandmother. Now Now! No sense in getting angry Peter. Remember there is always someone else with an opinion that differs from you. I shall try and answer your questions, except for the one about pixies at the bottom of the garden.

So, the money to build? It comes from many sources and I don't recall the politicial or the financial experts beinging high on the source list. They seem more inclined to take, rather than give. I acknowledge that banks of course have always been a major source for local building and investment, and no doubt will continue to be so. However lets not confuse the local bank that relies on the local population, with those that we know as 'bankers' and operates from such places as Wall St. Threadneedle St., and Brussels.

[Yes Peter. I know of the connections, and I know that they are interconnected. Or most of them.]

I don't use a mattress to keep my monies in. I'm retired, comfortable, and I have never relied only on the services of a financial expert. Although I did have a very good company secretary and chief accountant once. I have always managed my own monies, quite successfully to date I might add. Perhaps thats why I'm comfortable?

I don't equate all financial industries as the same. I do make a distinction between my local bank/accountant/what have you, and the bankers and financial experts that take million from the public pocket and from struggling industries in the way of 'bonus'! As I do make the distinction between my branch here, and their head office in Melbourne, Sydney, Wellington, or where ever the hell it is!

Just to add. I would never dream of equating you or my bank here as 'spawn of the devil'...........

Huanga.

BAD (and badder) news about EuroBanks:

[from the Internet]

"...Against this backdrop, it's quite clear that the EU's banking system remains under extreme duress. Case in point, European financials have in fact wiped out all of the gains produced by LTRO 2 in just one month's time. Small wonder. When we take a big picture perspective of Europe, the entire banking system is a disaster waiting to happen.

Consider the following:

According to the IMF, European banks as a whole are leveraged at 26 to 1 (this data point is based on reported loans... the real leverage levels are likely much, much higher.) These are a Lehman Brothers leverage levels.

The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).

The European Central Bank's (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany's economy and roughly 1/3 the size of the ENTIRE EU's GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1).

Over a quarter of the ECB's balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany)

So we're talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.

And all of this is occurring in a region of 17 different countries none of which have a great history of getting along...at a time when old political tensions are rapidly heating up.

As bad as the above points may be, they don't even come close to describing the REAL situation in Europe. Case in point, regarding leverage levels, PIMCO's Co-CIO Mohammad El-Erian (one of the most connected insiders in the financial elite) recently noted that French banks (not Greece or Spain) currently have 1-1.5% capital relative to their assets, putting them at leverage levels of nearly 100-to-1.

And that's France we're talking about: one of the alleged key backstops for the EU as a whole..."

I've been away for a week taking my grandsons back to school and so far have not yet managed to catch up on who will be the next failure in Europe. From what I have read so far. It appears the only change in France will be the name of the President. thats sad news, I had at least hoped they might select a far right candidate or even a socialist. Perhaps even pick a fight with their traditional enemy across the channel, who seem to be confirming they are in the double did recession?

Spain it telling all who will listen that they have some quite serious problems. That has to be an under statement! They are reported to have mega problems, and if reports are true? They are hinting they will be unable to meet the conditions laid down by their visiting finacial 'experts'. I'll bet that is a suprise to the Germans.

Doug, The sooner that damm European system falls apart, the better. It might help cut the last of out ties with the British, and then we can get on with being a pacific people!

Huanga.

tststs huanga, you are wishing us a collapse just so you can cut off the formal ties with the UK.... Why not organize a referendum in NZ and cut the ties with GB without any problems?

Europa Über Alles
Bardhi

I'm not quite sure where exactely you are bardhi? and we tried the Referendum a few years back. At that time there must have had too many monarchists visiting from Australia. We lost! But not to worry, No doubt one day we shall see them depart. The way they are sellin their country. They will not have to play with the euro. We can pay them in their local currency. Chineese yuan!!

Huanga

Perhaps too many of the NZ republicans were in Austalia at the time of the referendum.

As to the Euro and dollar collapse..Spain 25% unemployment. France heading towards a socialist president who has already said he will reject any austerity measures. The UK in recession, the Netherlands, Latvia, and Romania in deep trouble, Belgium once again rudderless.......

If the USA thinks it is insulated against a Euro collapse then I can only conclude they have swallowed their own spin. The Euro goes South, the dollar goes South.

Perhaps Australia is in the right position if they are now 'using' the Yuan....which brings us back to the NZ republicans living in Australia.

It never cases to amaze me how republicans (here in Australia at least) rail against ties to the monarchy (however ceremonial and tenuous they might be). They had a chance to become a republic a few years ago, when there was a referendum. They lost, not least because they can't decide what model of republic they want! Under the current system, Parliament is supreme, with the Governor General the figurative Head Of State. The Governor General is appointed by the Prime Minister

The Governor General has certain reserve powers, even has the ability to sack a government in certain extreme circumstances. However, if those powers are used, it is the electorate that decides what happens as a result by way of an election.

Personally, I don't want to pay a huge amount of money for an immaterial change of no consequence. Nor, by the way, do I want to see a directly elected President to replace the Governor General. The position is mostly ceremonial and parliament must remain sovereign. anyway, we have enough hopeless politicians already!

As to Europe, about the only EURO Zone country still in good shape is Germany. But then, Germany was the major winner in the setting up of the zone in the first place. Spain has over 25% unemployment, worse though is the unemployment amongst under 25yo. That is over 50%.

Greece is now in it's fifth year of recession, with the economy forecast to shrink by another 5% this year.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

maszki. Which 'socialist president' do you mean? I understood it to be Melenchon who would reject the austerity measures if he became president. [He preached!...and came forth!] I could be wrong but I think the other one. Hollande, said he would re-negotiate the austerity measures, not reject them?

Peter, thats why the are in place. Like you I can see no need for an extravagant change to the system. At least no urgent need.

As to the eurozone. It cannot remain in being in the present form for very much longer. If there is any common sence left in politicians in Europe. Which incidentally I doubt! Perhaps they would now be better employed in exploring ways to stop, or at least lesson the effects of the coming unrest that could destroy the place.

...............then where would I go? I like visiting there!

Huanga

Huanga, Francois Hollande is the likely new president of France. The polls are showing him clearly in front of Sarkozy by a margin of 8 to 14 points, depending who you listen to. The socialist party policy is stated to be 'growth' not 'austerity', and Hollande is very clear about what he intends to do after he is elected.

Personally I think the following article better describes the reality of his election. Socialist doctrine may well give way to pragmatism.

http://www6.lexisnexis.com/publisher/En ... =7&start=3

In relation to NZ or Australia and the republicanism issue, I agree with PeterS as the greatly increased cost will bring no tangible benefits. If it ain't broke-don't fix it.

An interesting publication mazski. I've read a few similar articles over the past few weeks from other sources, all more or less going along the same line. Of course that may only indicate that the media is as fed up with the Germano-Franco tag team as the electorate is.

Or it may mean that the French political machine is as adapt at lying as the front stage puppet is? As always, the truth of a politicians promise is only known after elections!!

Meanwhile back to the eurozone. I must find out if the British bookies have opened, or intend to open a book on the survival of the euro? Although with the odds about even? Any money made may end up worthless!

Huanga.

Here are my charts of the day.

There has been a lot of hype in this country about the risk (especially currency risk) the major banks have to offshore loans. Well, these charts put the perceived risks into context.

Firstly, Certificates of Deposit



Since the GFC, these have been stagnant (or even dropped off).

Next, Current (on call) deposits. Many of these pay bugger all interest (less than 1%)



Then we have Term Deposits. These have become the investment of choice, it seems. These will, due to banking requirements, be domestic depositors only (with perhaps some minor overseas deposits that have snuck in). This category is also the largest single source of funds, by a very long way.



Penultimately, we have Deposits in the "Other" category.



These charts represent the reality that, at least in Australia, cash is king. The Stock Market has underperformed the US by a long way. A good part of the reason is the fact that we have relatively high interest rates in a very benign inflation environment.

Oh, Overseas borrowings (by Australian Financial Institutions). Effectively zero growth since the GFC and only a small component of total Bank funding.



So, my take is that suggestions that Australian Banks are hostage to both the Exchange rate and overseas lenders is (at the very least) premature.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

Peter, I realise that this is off topic, but this topic has wandered to so many places, I am not sure it matters any more.

You know as well as I do that the British Monarchy has absolutely no power in Australia, even with the so called reserve powers of the G-G - what happened with Kerr will never happen again, and that the question of a Republic is purely academic. I really don't give a damn.

We don't need a President, or really, a Governer-General, just as we don't need a Monarchy, and it works just fine as long as these a purely historical Ceremonial models. A G-G does take some responsibility from the PM as far as ceremony is concerned, so it is useful in-so-far as it reduces work pressure on the PM. But not essential. She can delegate.

Years ago we abolished appeals to the English Courts, which is as it should be, so they are irrelevant to our daily lives. For all intents and purposes, the Monarchy is dead in Australia. And everybody knows it.

AND, we already have three levels of Government which is more than enough. Get rid of the States, if anything, but that would take a lot of effort, thought and planning. But we do not need a President. EVER. And, no, I am not a Monarchist. I am just somebody who thinks enough is enough.

Norm

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Geelong, VFA Premiers 1878, 1879, 1800, 1882, 1883, 1884, 1886, AFL Premiers 1925, 1931, 1937, 1951, 1952, 1963, 2007, 2009, 2011, .

Norm, the Reserve Powers of the Crown, exercised by the Governor General, are enshrined in the Australian Constitution. The only way to abolish them is by an amendment to the constitution by way of a referendum. Such a referendum would only get up if all parties were supportive. In any event, the circumstances where the powers would be used are severely limited.

1975 was probably unique, in that the Government sought to continue to govern without supply. It was available to Whitlam to challenge his sacking in the High Court, the only place where Constitutional issues can be determined. He didn't and the election a few weeks later was the largest landslide in Australian political history (well, to that time....the recent NSW and QLD elections might challenge that, as will the next Federal election - based on today's polls).

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

I think that "Federal Republic of Australia" sounds more sexy....

This thread experienced a hiccup when I gave an answer to a comment from bardhi a few days ago. Can we forget the Australian internal squabbles and get back to the heading, otherwise the thread will make no sence!

Huanga.

Savings deposits in the US have followed a similar track since the GFC - up, up, and away. They are currently up 15% over last year's numbers (5.236T from 4.542T, March 2011).

As you say, cash is king. However, this begs the question, is cash approaching bubble status? There is clearly little appetite for risk premiums, but holding cash could be considered expensive in the near future.

Inflation would deflate the "bubble" as could a sudden attractive asset class(es). Either way, holding too much cash in your portfolio should be avoided.

From a Bloomberg article remarking about a talk on March 7th by Robert Rubin, a former US Treasury Secretary.

"A “disproportionate amount” of his assets are in cash and he “should be more allocated away from the dollar,” Rubin, 73, said yesterday in a speech at the TradeTech conference in New York."

Such a strong vote of confidence in the dollar, no?

David

David, I don't think cash accumulation can be considered a bubble. Principally because it is infinitely convertible into something else. If inflation started to take off (and, frankly, I see no real sign of that at the moment), savers could spend their cash easily. Holding other asset classes in a bubble is a different matter, since buyers will suddenly disappear leaving you holding a rapidly depreciating asset.

The main driver of the growth in the US Stock Market (it seems to me, anyway) has been the rounds of quantitative easing that made so much money available. That money had to go somewhere. There was no QE in Australia and the market has traded sideways for some time now.

To keep huanga happy, let's compare the situation with that in Europe. The underlying problems in the Euro zone in particular seem intractable. At a time when economic contraction is gaining pace the European Governments have run out of ammunition to ease the contraction. They are, in fact, being forced to cut spending at a time when there is really a need for an increase in spending.

This situation compares extremely unfavourably with the US, where the underlying fundamentals are sound. There has been no double dip recession in the US and the Federal Reserve retains the ability to 'print' money if needed. The European Central Bank is much more constrained.

As an aside, the Reserve Bank of Australia lowered the cash rate yesterday, from 4.25% to 3.75%. The RBA, unlike either the Fed or teh ECB, still has bullets in the gun.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

Thank you Peter, as always I find your analysis of the financial situtations informative and interesting. Now tell me what odds you would allow for the survival of the euro? Or indeed the odds of the EU surviving in the present form.

As our part of the world is quite stable [Excluding earthquakes!] and apart from an Aussie sporting win now and again. There is little that could separate us. Europe is different and I find events there are much more interesting. I'm curious to see if it will........disintegrate?

Huanga.

Actually, it's more like the tip of the Iceberg with cash. More and more people are now going back to using cash due to credit card fraud and identity theft that the demand for cash will reach 60 year highs at this rate by 2014. Fraud in the United Kingdom in 2006 alone was estimated at £535 million .

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"Life is a tough Teacher, it gives you the test first and the lesson later"
Anonymous

I am somewhat pessimistic about Europe, the EURO in particular. This is against my generally optimistic nature, but the facts are rather stark.

One of the likely effects of the turmoil, especially in southern Europe, will be a lurch to the more extreme ends of politics. We have seen this in France recently, where 20% of the electorate voted for a extreme right winger (Marine Le Pen, a name to conjure demons!). And a majority voted for a Socialist candidate.

The rallying cry of the extremists will be "Down with austerity!" Populist but, ultimately, self-defeating. There is no easy way out for most of Europe. They have run massive deficits and borrowed massively for years. Now the chickens are coming home to roost, with a vengeance.

As I have said before, the European governments have no control over monetary policy and bugger all over fiscal policy. They are locked into a downward spiral and, where other countries can improve their competitiveness by engineering a fall in the value of their currency (by printing it, for example), European governments cannot. Spain, with 25% unemployment, has to live with a currency that is par in value to Germany. The only diffirentiator can be in wage rates. There is a limit to how low wages can fall in Europe, for many reasons. At a time, however, when the Spanish government (as an example) needs to spend...well, it has no capacity to do so. Previous policies (spending like there was no tomorrow, for example) have come home to roost.

So, electorates will react against the endless rounds of austerity required to recover the budget situation. They will vote for anybody who tells them they can avoid the pain. It will be a lie, but it won't stop demagogues and the like perpetuating the lie. That is what the Socialists in France are promising today. They must know it is a fraud on the electorate. Hell, even the electorate probably knows it is a fraud, but it won't stop people hoping it is true.

So, we will see changes of government. If the new governments do what is likely, break those promises (the only way they can keep the EURO and the EU), then they won't last more than 1 or 2 terms. If they actually implement the policies they are espousing, it will result in an earlier breakup of the zone than might otherwise be the case.

Either way, i find it hard to believe that the European experiment (altruistic and noble as it is was), in its current form, can or will survive. Chaos is the big risk, with the consequences (probably) far worse than what is currently the case. The EURO is certainly, in my view, on borrowed time.

I would just point out that Fascism arose in Europe in not dissimilar circumstances some 90 years ago.

There is one job I would not wish on my worst enemy right now, head of the European Central Bank.

And before everybody starts pointing out that the US is in just as bad a shape! It isn't. It is running an unsustainable deficit, for sure. However, the economy is recovering and unemployment is falling (albeit much more slowly than most would wish). Unlike Europe, the US Federal Reserve still has levers to pull. Not in monetary terms (interest rates are already effectively at zero) but in terms of quantitative easing. The Fed could (but I don't think will) simply 'print' more money, if it felt the need. The ECB is precluded from doing that by it's constitution.

Being the world's largest economy, having the world's reserve currency and being more heavily engaged (economically) with Asia than with Europe has it's benefits.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

This piece was attributed to Ross GREENWOOD a media money commentator. It puts a down to earth spin on the Australian and U.S. economies.

COMMENT FROM ROSS GREENWOOD

Reality pill needed for Australians

This is really well put, in terms the average punter can understand.. it cuts thru political doublespeak and provides clarity.

USA Today
Lesson # 1:

Why the U.S. was downgraded:

* U.S. Tax revenue: $2,170,000,000,000
* Fed budget: $3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000

Let's now remove 8 zeros and pretend it's a household budget:

* Annual family income: $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total budget cuts: $385

Got It ?????

OK now Lesson # 2:

Here's another way to look at the Debt Ceiling:

Let's say, you come home from work and find there has been a sewer backup in your neighbourhood ... and your home has sewage all the way up to your ceilings.

What do you think you should do?

Raise the ceilings, or pump out the (ummmm) 'effluent'?

Lesson # 3:
Australia today

FROM ROSS GREENWOOD

Quoted by: Ross Greenwood of Money News..

Right now the Federal Government is at pains to tell everyone - including us the mug-punters and the International Monetary Fund, that it will not exceed its own, self-imposed, borrowing limits.

How much? $200 billion. And here's a worry.

If you work in a bank's money market operation; or if you are a politician; the millions turn into billions and it rolls off the tip of the tongue a bit too easily. but every dollar that is borrowed, some time, has to be repaid. By you, by me and by the rest of the country.

Just after 5 o'clock tonight I did a bit of math for Jason Morrison ( Sydney radio presenter). But it's so staggering its worth repeating now.

First thought; Gillard, Swan, Wong, before that Rudd, all of the Labor Cabinet, call these temporary borrowings, a temporary deficit.

Remember Those Words : Temporary Deficit.

The total Government debt will end up around $200 billion.
So here's a very basic calculation .. I used a home loan calculator to work it out..... it's that simple..
$200 billion is $2 hundred thousand million.

The current 10 year Government bond rate is 4.67 per cent. I worked the loan out over a period of 20 years. Now here's where it gets scary .... really scary.

The repayments on $200 billion, come to more than one and a quarter billion dollars - every month - for 20 years. It works out we as taxpayers, will be repaying $15.4 billion in interest and principal every year .. $733 for every man woman and child - every year.

The total interest bill over the 20 years is - get this - $108 billion.

Remember, this is a Government, that just 4 years ago, had NO debt. NO DEBT.

In fact it had enough money to create the Future Fund, to pay the future liabilities of public servants' superannuation, and it had enough to stick $20 billion into the Building Australia Fund .....

A note was sent to me which explains that the six leading members of the Government, from Ms Gillard down, have a collective work experience of 181 years, but only 13 in the private sector.

If you take out of those 13 years the number that were spent as trade union lawyers, 11, only two years were spent in the private sector.

So out of those 181 years:

- no years spent running their own business
- no years spent starting their own business
- no years spent as a director of a family business or a company
- no years as a director of a public company
- no years in a senior position in a public company
- no years in a senior position in a private company
- no years working in corporate finance
- no years in corporate or business restructuring
- no years working in or with a bank
- no years of experience in the capital markets
- no years in a stock-broking firm
- no years in negotiating debt facilities with banks
- no years running a small business
- no years at the World Bank or IMF or OECD
- no years in Treasury or Finance.

But these people have plunged Australia into unprecedented debt.

Well, in a way you can't blame them.
It's clear the electorate did not do their homework, because the Government is there by right.

Ah, but they are Labor and people vote for them because Labor is good for the working family - right??? DUH

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We sleep safe in our beds because rough men stand ready in the night to visit violence on those who would do us harm.

Exactly.

You anticipated my question Peter. I was going to ask if the current events being played out in Europe are similar to those that occured during the first half of the last century, and gave rise to fascism! The 1920's and 30's to be precise. Its a frightening scenario.

Huanga.

Traralgon 3844.......Exactly......twice! .....and your banks own my bank! An even more frightening scenario.

traralgon3844,

Thanks for that post.

S&P upgraded Greece's debt rating from "selective default" to CCC.

What does this new rating mean? According to S&P, Greece is currently vulnerable and dependent on favourable business, financial and economic conditions to meet financial commitments.

To add to the mixture, the Greeks head to the polls for national elections this Sunday.

Is this going to change anything?

Source: BBC

Paul, Greenwood is right...sort of. The difference is that a government can eliminate its debt at the stroke of some computer keys, should it be so inclined. The US could, tomorrow, eliminate all it's debt by 'printing' currency. It won't, but that isn't the point.

A family can only spend more than it earns by borrowing (just like a government). A family has no capacity, however, to 'create' money to repay the loans.

My problem is not so much with the Australian Government borrowing as it is with what it does with the borrowed money. The previous Howard Government left no net Commonwealth Government debt and a large annual budget surplus. That meant that, when the GFC hit, the Australian Government was in a good position and was able to borrow and spend to keep the economy going.

It is just such a pity that they wasted so much of that spending. The BER (Building Education Revolution) that wasted billions on buildings that schools neither wanted nor needed (when they could have spent it on schools in a way that was useful). Then there was the insulation fiasco, that made a lot of rip off merchants a lot of money (and tragically resulted in the deaths of some installers). So much of the spending over the last 4 years has been wasted.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

The current predictions are that Greece will need another bailout reasonably soon (within a couple of years). The forecast is for a contraction in the Greek economy of 5% for 2012, the fifth year in a row of contraction.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

Fantastic lecture today by Mervin King, always has shown a little humility in the face of the massed reporters and seems to be the opposite of Timothy Geithner when it comes to attributing appropriate blame for the festering mess we are in now.

http://www.bbc.co.uk/programmes/b01gvryl (Audio link)

Here is just a snippet, the whole piece is well worth listening to.

So tonight I want to try to answer three questions. First, what went wrong? Second, what are the lessons? Third, what needs to change?

Let me start by pointing out what did not go wrong. In the five years before the onset of the crisis, across the industrialised world growth was steady and both unemployment and inflation were low and stable. Whether in this country, the United States or Europe, there was no unsustainable boom like that seen in the 1980s; this was a bust without a boom.

So what was the problem? In a nutshell, our banking and financial system overextended itself. That left it fragile and vulnerable to a sudden loss of confidence.

The most obvious symptom was that banks were lending too much. Strikingly, most of that increase in lending wasn't to families or businesses, but to other parts of the financial system. To finance this, banks were borrowing large amounts themselves. And this was their Achilles' heel. By the end of 2006, some banks had borrowed as much as £50 for every pound provided by their own shareholders. So even a small piece of bad news about the value of its assets would wipe out much of a bank's capital, and leave depositors scurrying for the door. What made the situation worse was that the fortunes of banks had become closely tied together through transactions in complex and obscure financial instruments. So it was difficult to know which banks were safe and which weren't. The result was an increasingly fragile banking system.

So how did banks find themselves in such a precarious position? Banks are a vital part of our economy. They run the payment system, allowing us to pay our bills and receive our wages. They finance businesses investing in new ventures and families buying a new home. Without a banking system our economy would grind to a halt. Because of that, markets correctly believed that no government could let a bank fail since that would cause immense disruption to the economy. This meant that large banks in particular benefited from an implicit taxpayer guarantee, enabling them to borrow cheaply to finance their lending. In good times, banks took the benefits for their employees and shareholders, while in bad times the taxpayer bore the costs. For the banks, it was a case of heads I win, tails you - the taxpayer - lose.

This cheap funding fuelled lending. Banks got bigger. In the UK, their balance sheets rose from around one-half to more than five times our national income in less than a generation. As the banks got bigger, so did the implicit subsidy - by the time of the crisis it reached many billions of pounds a year. The bigger banks became, the more they were seen as too important to fail, and the surer markets became that the taxpayer would bail them out. But there are only so many good loans and investments to be made. In order to expand, banks made increasingly risky investments. To make matters worse, they started making huge bets with each other on whether loans that had already been made would be repaid. The seeds of the eventual downfall of the financial system had been sown. As loans and investments went bad, those seeds started to sprout.

In August 2007 came the moment when financial markets began to realise that the emperor had no clothes. The announcement by the French bank BNP Paribas that it would suspend repayments from two of its investment funds triggered a loss of confidence and a freezing of some capital markets. A month later, the crisis claimed its first victim when Northern Rock failed. In the months that followed, there was a steady procession of banking failures culminating in the collapse of the American bank Lehman Brothers in September 2008. Financial waters, already extremely chilly, then froze solid. Banks found it almost impossible to finance themselves because no-one knew which banks were safe and which weren't.

From the start of the crisis, central banks provided emergency loans but these amounted to little more than holding a sheet in front of the emperor to conceal the nakedness of the banks. They didn't solve the underlying problem - banks needed not loans but injections of shareholders' capital in order to be able to absorb losses from the risky investments they had made. From the beginning of 2008, we at the Bank of England began to argue that UK banks needed extra capital - a lot of extra capital, possibly £100 billion or more. It wasn't a popular message. But nine months later, market pressure forced banks to raise new capital or accept it from the state. UK tax payers ended up owning large portions of two of our four biggest banks, Royal Bank of Scotland and Lloyds TSB, but almost all banks would have failed had not taxpayer support been extended. That bold action in October 2008 could have happened sooner. But the most important thing is that it was done. And the policy of recapitalising the banks was soon copied by other countries.

Bailing out the banks came too late though to prevent the financial crisis from spilling over into the world economy. The realisation of the true state of the banking system led to a collapse of confidence around the world and a deep global recession. Over 25 million jobs disappeared worldwide. And unemployment in Britain rose by over a million. To many of you this will seem deeply unfair, and it is. I can understand why so many people are angry.

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Looking for South Korea up to 1884-1951,North Korea 1st issue 1946-1957,China 1898-1912 and P.R.C 1963- 1980,Thailand 1883- 1918, Commonwealth QV Issues.

Yes sukhothai it was a good lecture, and I'm glad he mentioned the greed shown by bankers. I'm presently too tired to comment in any detail on any points or his palns for future changes. I shall do tomorrow!!

Huanga

It would appear sukhothai that the lecture has upset some of the Queens second rate subjects. This from a UK daily!

'MPs demand probe into Bank's failure: Backlash after governor's admission of mistakes.'

When MPs demand answers it usually means they want to stall at all costs. Which very likely means there is a great deal they can't allow to become public. However I wish him luck in his effort to change the system.

Huanga.

An interesting item I came across today, From the Irish Times. It seems Norway is looking at reducing it's EURO exposure.

http://www.irishtimes.com/newspaper/breaking/2012/0504/breaking16.html

Norway’s sovereign wealth fund sold all its Irish and Portuguese government bonds after rejecting the Greek debt swap and warned that Europe faces considerable challenges.

Norway’s $610 billion Government Pension Fund Global returned 7.1 per cent, or 234 billion kroner ($41 billion), as measured by a basket of currencies, in the first quarter.

Its equity holdings gained 11 per cent while its fixed-income investments rose 1.6 per cent. The fund, which voted against Greece's debt swap this year because it disagreed with being subordinated to the European Central Bank, also said it reduced debt holdings in Italy and Spain amid a broader strategy to cut investments in Europe.

The fund added government bonds issued in emerging markets such as Brazil, Mexico and India.

"Predictability is important for a long-term investor and the euro area faces considerable structural and monetary challenges," Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said in a statement.

Stocks jumped globally in the quarter after the European Central Bank stepped in with more than $1 trillion in three-year loans to the region's banks. The rally was tempered toward the end after Spain announced in March it would miss a deficit target and as austerity measures dragged euro region economies into a recession and boosted unemployment to a 15-year high.

Greece pushed through the biggest sovereign debt restructuring in history in the period, with private investors writing off more than €100 billion of debt. That decision spurred European finance ministers to approve a second bailout package for the nation of €130 billion.

The Norwegian fund said today that it held 1.3 billion kroner in Greek bonds before the debt swap. Its holdings in Italian government debt fell to 26.6 billion kroner from 33 billion kroner at the end of 2011, while Spanish debt declined to 15.6 billion kroner from 18 billion kroner.

It holding of euro-denominated government bonds declined to 39 per cent of the fund at the end of March from 43 per cent at the end of last year.

Norway's government deposited 60 billion kroner of oil revenue into the fund in the quarter. The fund was set up in 1990 as a fiscal policy tool to support long-term management of Norway’s petroleum revenue. It invests outside Norway to avoid stoking domestic inflation.

Bloomberg

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

Added to that, is news the exodus of monies from the eurozone is reported to be increasing rapidly, which perhaps gives you some measure of the confidence they have in the survival of the currency. It is also reported that the US is the safe haven of choice!!

Greek borrowers, as I understand it, are now required to sign an agreement that in the event of Greece leaving the euro. They will guarantee the repayment of all loans. Although I'm not sure in what currency they would be required to repay?

Tomorrow brings two elections, and I listened this evening to one of the Greek party leaders state that as of from Monday. All recent austerity agreements made. "Did not happen!" I guess that means back to square one if his party gains a measure of power? I don't suppose it matters now who wins in France, the division of the eurozone now seems certain. That division being the best result, the worst being the complete disinteration of the EU.

As for Norway, that is a lesson on how to manage your own assets. I see they have discovered another large oilfield within their own borders. Meaning they don't have to share this one!

Huanga.

The US Dollar, specifically US Treasuries, has been the safe haven of choice for a very long time. Whenever the global economic circumstances look even slightly gloomy, the money pours into the safe haven. Like it or not, the US Dollar is the safe bet whenever the market becomes risk averse (as it is right now).

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

Many years ago a Jewish friend of mine gave me some advice. He never claimed ownership of the advice, in fact quite the opposite, the advice had been given to him by his father, who had received it from someone else, and it is thus.

If you owe a sum of money say in the region of $10,000, and are having trouble repaying the bank. Then you have a problem!

If you owe a sum in the region of $10,000,000, and are having trouble repaying the bank. Then the bank has the problem!

With the two more important European elections over. I somehow think that the latter problem may well be the situtation the ECB, the IMF, and some German politicians now find themselves in?

Huanga.

Let's see how it transpires. If France decides to, effectively, abrogate the fiscal compact reached only recently then the EURO may have an extremely short life. Hollande is going to, if his policies follow his election rhetoric, supposedly increase spending and still head towards a balanced budget "eventually". Of Course, France has run in deficit for decades (I think it was back in the early 1970s that they last ran a surplus).

It is not the ECB that is going to suffer, it will be the countries that have to prop up their banks if/when the situation all goes to hell. You think the money that the individual governments, like Ireland, have had to lay out to prop up banks was a lot? You 'aint seen nothing yet, if austerity is reversed completely and spending goes back into vogue! Where on earth do you think they are going to be able to borrow the money to spend it??

Unlike the US, where money can (effectively) be created (Quantitative Easing), the Europeans in the EURO Zone have no control over the supply of money. A common currency means that France cannot just spend a few hundred billion extra by 'creating' it. And does anybody really think, for one minute, that the ECB will simply change course (even if the charter allowed it) and say, "Sure, let's get another couple of trillion EURO out there."

I am afraid the reality will soon enough have to be faced. It is very easy, when not in government, to promise to alleviate the electorates pain. It is, however, a hollow promise that, if actually implemented, would make the situation worse in the medium term.

The reaction of global markets over the last couple of trading days is testament to what the financial world thinks. Once again, the safe haven of the US Dollar is all anybody wants to be. Although, if you have EURO and can't take the exchange hit, German bonds are the alternative. Pretty much anything else is being treated as toxic.

Of course, the French situation could be worse...it could be Greece.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

I remember the collection of metal during the war they chucked it all in the Thames.The U.S. is reliant on China it holds all its depts.
The problem with the Euro is that all the old history gets in the way they are still fighting old wars. It was a system that grew too fast too quickly.So back to barter.

Reading all the posts here I risked a heart attack - I live in Germany & hold a few US bonds.
Nevertheless I just decided to continue my normal life and not to fret about things to come or not to come. Care to copy me?

Please remember there is something very relaxing: Philately!

You need to read more. China does not hold all the US Debt. It actually holds less than 10% of it.

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

I am no big fan of Ayn Rand, but this is thought-provoking:

“When you see that trading is done, not by consent, but by compulsion -- when you see that in order to produce, you need to obtain permission from men who produce nothing -- when you see that money is flowing to those who deal, not in goods, but in favors -- when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you -- when you see corruption being rewarded and honesty becoming a self-sacrifice -- you may know that your society is doomed.”

Global organized crime brings in more money than some G20 countries.

The Mafia is the the largest financial lender in Italy.

We treat countries, that will sell powdered babies for human consumption http://www.cbc.ca/news/world/story/2012 ... china.html, and fermaldahyde to preserve food for consumption http://www.ctv.ca/CTVNews/SciTech/20120 ... de-120507/, as a place to produce our goods so the multinational corporations can make more profit and erode our own nations middle class.

Yet again I got no cost of living increase at work this year. Eventhough my company spent $250,000.00 on a BS training course for 166 people and we purchased a new 75,000 square foot facility in Calgary. I guess supplying the Alberta oilsands engineered fluid handling equipement is not a proffitable bussiness. My company will also be helping Canada to rush a pipe line over the rockies so we can become a major supplier of all our natural resources to a growing Asian market.

What the hell happened to the balance in the world that was maintained by prefered trading partners and tarrifs that leveled the playing field so we could support our legislated socialy engineered societies.

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Please learn me.

When all currencies collapse, none of them collapse...and vice versa. Whomever above referred to food and water hit it right on. It's all about food, gold, silver, and lead here in the States.

Vote O'Bama! Vote ALL criminal illegal aliens!

Lets try and remain with the heading please, this is not the history channel and posts referring to powdered babies and the mafia are ridiclous. If you wish to accuse the Goverment of China of a milk scandal, than by all means do so, but please do so under a heading such as that!

Equally, if you wish to accuse the President of the US of favouring aliens, criminals, and anyone you wish, Again please do it on a post under that heading, and written so that it can be understood!

Thank you.

Huanga.

History channel these news stories are from today!!!!

The whole and only reason we are where we are today. Is we allowed our National and multinational companies to start open trade with countries, that we could never compete with due to our own Legislated socialist policies, for the profit of the few.

We are talking about the Euro and dollar collapse aren't we?

Europe is collapsing due to buying American Bonds which flopped when the US stopped paying thier mortgages because its manufacturing base fled to a country that, Yes, sells powdered babies TODAY, and are becoming a source for mass produced food for the world that still uses formaldahyde in food for thier own people TODAY.

In Canada we had to stop clubbing cute white baby harbour seals to save our fur trade and trade restrictions. When we stopped that, that was still not good enough and the EU impossed trade restictions for all seal products, hammering one of our natives few sources of income. They also can't trade internationally any Ivory taken from a secure source of walrus or narwhale which is a reminant from thier native subsitance hunting, due to international trade restrictions.

Where are trade restrictions on countries that powder babies for sale as medicine?

Why isn't thier an immediate ban on all food products from China like thier was on Canada or England for Mad Cow disease?

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Please learn me.

It never ceases to amaze me that people call for trade protection, yet slam "unfair" protection in other countries. The world has gone beyond the idea of protecting inefficient industries by taxing imports out of existence.

One of the reasons the US economy grew to be the worlds strongest and largest was not because of simple domestic consumption. Like Australia, the US grew by exporting to the rest of the world. You can't have it both ways! Trade is what keeps the world economy turning, with competitive advantage the engine that balances trade. The US has a competitive advantage, still, in Intellectual Property creation and smart manufacturing. China has the advantage of cheap and plentiful labour. And, yes, I know that it is not a level playing field, but the basic principle is correct.

The fact that competitive advantage was lost is behind a lot of the problems in Europe today. Spain has a currency equal to Germany's, they cannot devalue (or allow the market to devalue) their currency and make their goods cheaper for Germany. All they can do is make their wages lower, so that the cost of production is lower. Pretty tough to do in a market like the EU where just about everything is regulated centrally.

This is, in my view, the prime reason that the EURO will eventually unravel. Germany's current economic strength is coming at the expense of their treaty partners (that is not to say there is no blame attached to individual countries, there most certainly is).

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Peter
Hawthorn - AFL Premiers 1961, 1971, 1976, 1978, 1983, 1986, 1988, 1989, 1991, 2008.

The new French P/M Hollanda seems to be setting the stage to begin explaining to those French voters that elected him, why he cannot fulfil his election promises. He now accuses the outgoinging goverment of underestimating the budget problems. That has a familar ring!

Meanwhile the Germans look to be preparing for a member exit from the eurozone. The line now is that should Greece leave the zone, her exit is not expected to cause any problems for the euro. That seems to be a complete reversal of his leaders policy?

Huanga.