Wednesday, 3 August 2011

London 30º Italy 7% Spain 7%

As London bakes in the August heat, bond yields in Italy and Spain are fast approaching the 7% trigger for a Summer melt down of the Euro; 7% was the bail-out level for Greece, Ireland and Portugal. The problem is, there's just not enough money in reserve in the entire Eurozone to bail-out Spain and Italy. 

There are only three ways to get rid of debt; pay it down, default or inflate it away. Paying it off takes money out of the real economy, slows growth, costs jobs and has a high human cost. Inflating it away is only painless if earnings rise with prices - which isn't happening. The sensible option - to let the banks holding the junk fail, collapse and disappear, taking all their worthless derivatives with them, seems beyond the ken of our weak as dishwater dribbly political class. So as the banks get incrementally healthier we've exchanged a bank debt crisis for a sovereign debt crisis; the blood donor is collapsing from anemia. Insanity. 

Greeks know all about starvation. When the Germans took the country's food production, over 300,000 died of starvation in Athens alone; today they're queuing at the food kitchens again to stay alive. Whilst Britain's banks distributed a bonus pot of £14 billion last year. Insanity.  


Blue Eyes said...

The nationalisation of bank debt was exactly what happened in Japan. They had "zombie" banks so the BOJ printed more money while the government borrowed to "invest" in infrastructure etc..

Are we making exactly the same mistakes?

TheRagingTory said...

Unfortunatly its not quite that clean.

As you say, the money cant be paid back easily. The UK would have to cut the NHS in half to pay the debt off over 25 years.

The debts cant be inflated away, because it will crush savers.

But the banks cant default either.
If Greece defaults, it isnt refusing to pay money to a rich secret cabal of jews/wasps/bankers. Its refusing to pay money back to pension funds and savings accounts.
An iPig default will bankrupt German Banks, leave the savers penniless, and if the German state tried to reimburse the savers, if will be bankrupted as well.

There are no good roads.
That said, there are no roads, there is a road, it ends with the elderly without gold or land being left to die.

Anonymous said...

What was that event in Argentina where the government of the day "sequestered" the people's money? They issued some guarantee that it would be returned +6%??

I wonder if that could happen here and in the EU?

Coney Island

Anonymous said...

I hear Iceland isnt doing that bad these days. Wasnt their recent bond issue over subscribed?