AkhandBharat
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LOL, keep denying. Its not me thats punishing Europe markets.
Repeat after me.
Monetizing debt + record debt to GDP ratio = hyperinflation.
The upcoming economic collapse of US and Europe
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Monetizing debt + record debt to GDP ratio = hyperinflation.
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The Eurozone can't monetise its debt. The ECB is chartered to "maintain price stability", ie keep inflation low. So repeat after me... Akhand is talking out of his nose.
AkhandBharat
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http://www.financialsense.com/fsu/editorials/shvartsman/2010/0514.html
Repeat after me. Armand2Rep will try anything to cover up Eurozone trouble and is talking out of his ass.
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France and Germany would never go for it so no, it is you who knows not what you speak.
AkhandBharat
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France and Germany are the ones that announced the Eurozone bailout, so I know what I speak.
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A bailout is not a monetisation of debt, it is a restructuring... learn the difference.
AkhandBharat
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It would've been a restructuring if Russia/China had pledged to bailout the Eurozone. Since Germany and France would have to sell bonds to pay back debt if it comes to that (if PIIGS default), its not restructuring. So, in essence, it is monetization of debt, since eurozone is in red.
http://business.timesonline.co.uk/tol/business/economics/article7121842.ece
http://www.huffingtonpost.com/2010/05/09/europe-financial-defense_n_569468.html
Monetizing debt!
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No, it is still a restructuring of debt. Worse case scenario is the debt holders would refinance the loans using their own credit, ie restructuring. The US has already committed to picking up a quarter of the tab. Since it is highly unlikely they will default, the debt holders, French and German banks will pocket huge interest payments. France is banking nearly $80 billion a year off PIGS, Germany $60 billion.
AkhandBharat
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When you refinance the loans using your credit, you'll lose your creditworthiness (i.e. credit rating) because France is under 188% external debt (5 trillion USD) and Germany is under 155% of debt (5 trillion USD). EU will lose money as a whole, because PIIGS are not going to pay back. They just cannot. So there will be debt monetization, which will eventually drag France and Germany down.
AkhandBharat
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French debt coming under investor scrutiny
French debt coming under investor scrutiny
French debt looks set to come under pressure in the near future with investors battered by the Greek crisis arguing it is pricey and does not reflect France's growing indebtedness.
As a result, other euro zone paper, including Germany's and -- perhaps surprisingly -- Italy's, could be in for a filip.
The gist is not that France's economy is under any immediate Greece-like default stress, but the cost of its bonds -- and the cost of insuring them -- does not properly reflect what stress is actually there.
The French deficit is set to climb to 8.2 percent of gross domestic product this year, the highest for at least half a century. Its debt is projected to jump to 83.2 percent of GDP -- up 20 percentage points in just two years.
"France has been lumped as a core euro zone economy. To our mind the budgetary situation is not as good as the pricing suggests," said Richard Batty, an investment director at Britain's Standard Life Investments.
"It is being priced as though there isn't a budget problem," he said.
In it latest note, Batty's firm said it was being put off French debt because its fiscal problems and the true cost to euro zone economies of any bailout of peripheral economies are not fully priced in to its debt.
This echoes the view of a number of other fund managers and bank analysts.
Royal Bank of Canada, for example, has produced a "heat map" of sovereign risk, designed to gauge which of 21 developed global economies are under the most duress and why.
Despite being widely treated as a core euro zone economy, France ranked 6th out of the 21, coming in as less risky than only Ireland, Greece, Portugal, Britain and Italy.
Its 10-year bond yield, however, offers a relatively tight spread of only around 30 basis points over benchmark German Bunds.
The cost of insuring French debt through credit default swaps, meanwhile, is around 43,400 euros per 10 million euros of exposure, less than 10,000 euros more than for German debt and cheaper than The Netherlands, according to CMA DataVision.
SHIFTING FOCUS
All this is not just beginning to put off investors. It also has them looking to play what they expect will be a mispricing shift.
Fortis Investments, for example, is considering trades to cash in on what it expects will be a widening of French bond yield spreads over German ones.
Investment specialist Joost van Leenders says if the firm did make a move it would likely be through credit default swaps. French CDS costs would rise if investors began to treat France's economy as its numbers might suggest.
In the meantime, other euro zone countries might end up the beneficiary of any French sell off.
One of those would probably be Germany, which, as core of the core, would attract investors averse to much risk. German yields have come in about 25 basis points year-to-date, already widening spreads with others.
But investors have also begun to look at Italy for reasons that mirror their growing wariness about France -- to some, Italian bonds look cheap in relation to its economy.
Italy's bond spread over Bunds is more than 80 basis points and its CDS cost 101,500 euros per 10 million euros of exposure, nearly 2-1/2 times that of France.
Some investors, however, are making the case that the market is being over-gloomy about Italy. In the same note that it criticized France, for example, Standard Life Investments, cited Italy for its potential attractiveness.
The world's largest bond fund has also taken note. Andrew Bosomworth, executive vice president of PIMCO Europe, told Reuters that while there was a risk the French/German yield differential could increase, Italy appeared in better shape.
"Italian spreads are a lot wider. But the Italian government has been a lot more vigilant in keeping their deficit down than France," he said. "You get a higher spread and a reasonably strict discipline being exercised."
Not something you hear very often in relation to Italian economics.
French debt coming under investor scrutiny
French debt looks set to come under pressure in the near future with investors battered by the Greek crisis arguing it is pricey and does not reflect France's growing indebtedness.
As a result, other euro zone paper, including Germany's and -- perhaps surprisingly -- Italy's, could be in for a filip.
The gist is not that France's economy is under any immediate Greece-like default stress, but the cost of its bonds -- and the cost of insuring them -- does not properly reflect what stress is actually there.
The French deficit is set to climb to 8.2 percent of gross domestic product this year, the highest for at least half a century. Its debt is projected to jump to 83.2 percent of GDP -- up 20 percentage points in just two years.
"France has been lumped as a core euro zone economy. To our mind the budgetary situation is not as good as the pricing suggests," said Richard Batty, an investment director at Britain's Standard Life Investments.
"It is being priced as though there isn't a budget problem," he said.
In it latest note, Batty's firm said it was being put off French debt because its fiscal problems and the true cost to euro zone economies of any bailout of peripheral economies are not fully priced in to its debt.
This echoes the view of a number of other fund managers and bank analysts.
Royal Bank of Canada, for example, has produced a "heat map" of sovereign risk, designed to gauge which of 21 developed global economies are under the most duress and why.
Despite being widely treated as a core euro zone economy, France ranked 6th out of the 21, coming in as less risky than only Ireland, Greece, Portugal, Britain and Italy.
Its 10-year bond yield, however, offers a relatively tight spread of only around 30 basis points over benchmark German Bunds.
The cost of insuring French debt through credit default swaps, meanwhile, is around 43,400 euros per 10 million euros of exposure, less than 10,000 euros more than for German debt and cheaper than The Netherlands, according to CMA DataVision.
SHIFTING FOCUS
All this is not just beginning to put off investors. It also has them looking to play what they expect will be a mispricing shift.
Fortis Investments, for example, is considering trades to cash in on what it expects will be a widening of French bond yield spreads over German ones.
Investment specialist Joost van Leenders says if the firm did make a move it would likely be through credit default swaps. French CDS costs would rise if investors began to treat France's economy as its numbers might suggest.
In the meantime, other euro zone countries might end up the beneficiary of any French sell off.
One of those would probably be Germany, which, as core of the core, would attract investors averse to much risk. German yields have come in about 25 basis points year-to-date, already widening spreads with others.
But investors have also begun to look at Italy for reasons that mirror their growing wariness about France -- to some, Italian bonds look cheap in relation to its economy.
Italy's bond spread over Bunds is more than 80 basis points and its CDS cost 101,500 euros per 10 million euros of exposure, nearly 2-1/2 times that of France.
Some investors, however, are making the case that the market is being over-gloomy about Italy. In the same note that it criticized France, for example, Standard Life Investments, cited Italy for its potential attractiveness.
The world's largest bond fund has also taken note. Andrew Bosomworth, executive vice president of PIMCO Europe, told Reuters that while there was a risk the French/German yield differential could increase, Italy appeared in better shape.
"Italian spreads are a lot wider. But the Italian government has been a lot more vigilant in keeping their deficit down than France," he said. "You get a higher spread and a reasonably strict discipline being exercised."
Not something you hear very often in relation to Italian economics.
AkhandBharat
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Europe's Flight to Quality Is Leaving France Behind
Europe's Flight to Quality Is Leaving France Behind
Fears about a government debt default in Europe have now spread to France, one of the founders of the common European currency and long considered as safe as Germany. On Monday, the difference between the yield on 10-year French bonds and Germany's 10-year bunds widened to 49 basis points, the biggest difference since April 2009.
In addition to the spread on bonds, the cost of insuring against a French government debt default also rose sharply on Monday. According to research firm Markit, the cost of five-year credit default swaps on French debt, a form of insurance against default, rose to 100 basis points from 92 basis points on Friday, an increase of more than 8%.
"I think France is no longer seen as a safe haven," says Simon Johnson, a professor of economics at the MIT Sloan School of Business and the co-author of new book on the U.S. financial crisis titled 13 Bankers. "There is a flight to quality in Europe and around the world, and it's much more going just to Germany and just to the U.S. If France is going to lose that status, that's a big deal."
"Pressure for Austerity"
Johnson says one likely outcome of the flight to quality is that big institutional investors like insurance companies and pension funds will now be pulling back from French bonds and sitting on the sidelines to see what happens.
"Then you get pressure for austerity, and you have to look at the social dynamics of what would happen if they try to cut the budget deficit in France," he says. "What would happen -- what sort of street protests would there be? That's just a very different way of thinking about the economy."
Win Thin, a senior currency strategist at Brown Brothers Harriman in New York, says the danger is that the European crisis, previously confined to so-called peripheral countries like Greece and Portugal, will now affect the European core, the countries that made up the eurozone at its founding.
"It has turned into a classic emerging markets-type contagion with investor sentiment," Thin says. "France per se is not a huge issue -- it's closer to Germany than Portugal. But it's not just France, it's Belgium and Austria. What worries me is this contagion is spreading."
Is a Debt Restructuring in the Cards?
Why are the markets so nervous? There is general disillusion with the European Union response to the crisis that began in Greece. While EU governments and the International Monetary Fund agreed to a $900 billion rescue plan, it really just replaced one type of debt with another. The problem is that many of these smaller European countries now have more debt than they can pay back. So delaying payment will just make the problem worse, not better.
Thin thinks the solution would be a general European agreement on debt restructuring for Greece and Portugal. Restructuring is a euphemism for repudiating a part of these countries' debt, so that banks wouldn't get back all the money they are owed. This idea has prompted huge concerns about the health of European banks, which are the main holders of Greek government debt. And in turn, these concerns have contributed to share prices plunging around the world.
Simon Johnson says he believes a "substantial and significant depreciation" of the euro is likely because of the continued lack of a coherent European policy response to the crisis. While he declines to set a number, he doesn't rule out the possibility of parity with the dollar, meaning one euro for one dollar. The euro, which traded as high as $1.50 only last December, dropped to $1.18 at one point on Monday, near a four-year-low.
Thin believes the euro is actually still overvalued by a purchasing-power parity measure, with fair value somewhere around $1.15. "This move still has a way to go," he says.
Europe's Flight to Quality Is Leaving France Behind
Fears about a government debt default in Europe have now spread to France, one of the founders of the common European currency and long considered as safe as Germany. On Monday, the difference between the yield on 10-year French bonds and Germany's 10-year bunds widened to 49 basis points, the biggest difference since April 2009.
In addition to the spread on bonds, the cost of insuring against a French government debt default also rose sharply on Monday. According to research firm Markit, the cost of five-year credit default swaps on French debt, a form of insurance against default, rose to 100 basis points from 92 basis points on Friday, an increase of more than 8%.
"I think France is no longer seen as a safe haven," says Simon Johnson, a professor of economics at the MIT Sloan School of Business and the co-author of new book on the U.S. financial crisis titled 13 Bankers. "There is a flight to quality in Europe and around the world, and it's much more going just to Germany and just to the U.S. If France is going to lose that status, that's a big deal."
"Pressure for Austerity"
Johnson says one likely outcome of the flight to quality is that big institutional investors like insurance companies and pension funds will now be pulling back from French bonds and sitting on the sidelines to see what happens.
"Then you get pressure for austerity, and you have to look at the social dynamics of what would happen if they try to cut the budget deficit in France," he says. "What would happen -- what sort of street protests would there be? That's just a very different way of thinking about the economy."
Win Thin, a senior currency strategist at Brown Brothers Harriman in New York, says the danger is that the European crisis, previously confined to so-called peripheral countries like Greece and Portugal, will now affect the European core, the countries that made up the eurozone at its founding.
"It has turned into a classic emerging markets-type contagion with investor sentiment," Thin says. "France per se is not a huge issue -- it's closer to Germany than Portugal. But it's not just France, it's Belgium and Austria. What worries me is this contagion is spreading."
Is a Debt Restructuring in the Cards?
Why are the markets so nervous? There is general disillusion with the European Union response to the crisis that began in Greece. While EU governments and the International Monetary Fund agreed to a $900 billion rescue plan, it really just replaced one type of debt with another. The problem is that many of these smaller European countries now have more debt than they can pay back. So delaying payment will just make the problem worse, not better.
Thin thinks the solution would be a general European agreement on debt restructuring for Greece and Portugal. Restructuring is a euphemism for repudiating a part of these countries' debt, so that banks wouldn't get back all the money they are owed. This idea has prompted huge concerns about the health of European banks, which are the main holders of Greek government debt. And in turn, these concerns have contributed to share prices plunging around the world.
Simon Johnson says he believes a "substantial and significant depreciation" of the euro is likely because of the continued lack of a coherent European policy response to the crisis. While he declines to set a number, he doesn't rule out the possibility of parity with the dollar, meaning one euro for one dollar. The euro, which traded as high as $1.50 only last December, dropped to $1.18 at one point on Monday, near a four-year-low.
Thin believes the euro is actually still overvalued by a purchasing-power parity measure, with fair value somewhere around $1.15. "This move still has a way to go," he says.
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Again, talking out of your nose. External debt (excluding public) is largely backed by assets which can be sold off. It is not a measure of a nations indebtedness unless you include overseas liabilities which are low for the EZ. There is a reason no one with knowledge bothers to mention it.
At the above... get to me when France has lost its triple A rating, then I will be worried. lol
AkhandBharat
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LOL! Exactly the reason why French govt is selling 1700 buildings.
http://news.yahoo.com/s/ap/20100609/ap_on_bi_ge/eu_france_selling_the_state
PARIS – Fancy setting up house in a French government ministry? Or retiring to a royal hunting lodge? Line up now for a supersize sale of 1,700 properties by the French state, seeking to shed dilapidated, expensive-to-maintain buildings and chip away at the country's record-high debt.
Foreigners are welcome to join the bidding, Budget Minister Francois Baroin said in announcing the sell-off Wednesday — but their cash must be clean. Any buyer, whether a movie star, foreign government or ordinary taxpayer, will undergo thorough background checks.
By releasing a long-term list of state properties for sale publicly for the first time, the government appears determined to avoid the kind of controversies and secrecy that dogged some past sales of French property, both public and private, to shady magnates or deposed despots.
The properties in question include chateaux, such as one in Thonon-les-Bains built in 1800 and perched on the shore of Lake Geneva at the foot of the Alps. Another is a royal hunting lodge and guest house built the century before in the Saint-Germain-en-Laye forest west of Paris. "Buildings unoccupied for many years. Needs restoration," reads the government's listing for that property.
France, with its historically strong, centralized state, has too much property, Baroin said, disproportionate compared with other countries. The state must get rid of "useless and unadapted buildings." The plan announced Wednesday lays out planned sales from now through the end of 2013.
"Contributing to the reduction of debts" is part of the reason for the sales, Baroin said, though he wouldn't give an overall estimate of the value of the 1,700 properties. And it does not appear that the state's real estate profits will make much of a dent in France's euro1.49 trillion debt, which is worth about 77 percent of the country's gross domestic product, according to the state statistics agency.
Less than 20 percent of the property sale proceeds will go directly to debt payments, with the rest for new government investments. Of the euro3 billion in revenue from sales of state property since 2005, the minister said, just euro427 million went toward the debt.
The sale is part of a larger effort to streamline bureaucracy in a country where more than a third of workers are employed by the state.
A large chunk of the properties for sale belong to the Defense Ministry, which is undergoing a sweeping rehaul to make the military smaller, more modern and technology focused. The Defense Ministry itself is moving to a new facility under construction on the southwest edge of Paris that some dub a "Pentagon a la francaise," after which the old Defense Ministry buildings along the elite, Left Bank artery, Boulevard Saint-Germain, will be sold off.
Local authorities get first dibs on the properties for sale, but if they are not interested, the bidding is open to anyone. All sales will be subject to verification that "the origin of the funds is not likely to pose difficulties regarding anti-money laundering laws," according to materials on the sell-off from the Budget Ministry.
That is a sensitive issue at the moment in France, where Panamanian ex-dictator Manuel Noriega is going on trial this month on charges he laundered cocaine trafficking proceeds via French banks and three Paris apartments bought by his wife in the 1980s.
Anti-corruption groups are awaiting a French appeals court ruling on a lawsuit they filed against the presidents of Gabon, Equatorial Guinea and the Republic of Congo, accused of buying properties in France worth millions of euros that human rights groups say was embezzled from state resources.
The president of one of the groups, Daniel Lebegue of Transparency International France, stressed that the properties involved in the African presidents' case were private, not public.
He welcomed the government's proposals to verify the origin of any money used to buy state properties.
"If the government had been more proactive in enforcing checks before then we could have avoided a situation whereby these African leaders were able to squander public funds ... in total impunity," he told The Associated Press on Wednesday.
Francis Cahuzac, president of the French Commission for the Protection of Historic and Rural Heritage, said the "copious" government property sale was "a sign that the state no longer had the means to maintain valued property."
"What matters is that the properties are protected, never mind if the owner is a foreigner or the government. In most cases, foreigners are very good at restoring old buildings," he said.
The budget minister, speaking to mayors and legislators at his ministry Wednesday, sought to assuage fears that France, so proud of its culture and history and status as the world's most popular tourist destination, was selling its soul.
"Our goal is not to sell just to sell, without any respect for the future of our heritage," he said.
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State assets are not the majority of external debt, external is held by public, private and commercial. Most of the debt is held by banks and large corporations financing and running overseas ventures which have assets to sell if they go belly up. You totally missed the boat.
AkhandBharat
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The European Union's biggest countries are rolling out austerity programs that range from the tough to the brutal. Notably absent from the list of courageous cutters is France. President Nicolas Sarkozy refuses to mention the R word – rigeur – which is French for austerity.
As France's public finances deteriorate at an alarming rate, Mr. Sarkozy's reluctance to wield the axe is bound to change, economists say. "France's main task is to ensure financial markets that things are under control," said Jurgen Matthes, international economist at Germany's Cologne Institute for Economic Research. "I tend to think that, sooner or later, France will bow to this pressure."
So far, France has talked the talk but not walked the walk, insisting on austerity measures elsewhere but making relatively few cutbacks itself even though both its national debt and budget deficits are climbing rapidly.
In 2009, France's deficit was 7.5 per of gross domestic product (GDP). According to Deutsche Bank forecasts, the figure is expected to rise to 7.9 per cent this year even as those of many other EU countries are falling. France's goal is to cut the deficit to 6 per cent in 2011.
France's 2010 deficit will be almost as high as Greece's. Among the large EU countries, only the deficits of Spain and Britain are worse. France's overall public debt, meanwhile, has been rising and is just under 80 per cent of GDP. The country is also running a current account deficit of about 2 per cent of GDP, meaning it has to rely on foreign financing.
The French government has taken some steps to get its deficit under control. It recently announced that it will freeze all spending, except in certain crucial areas, such as pensions and interest payments on government debt, between 2011 and 2013. It also will cut state operating costs (though not state budgets) by 10 per cent over the same period. Mr. Sarkozy has said the measures do not amount to an austerity plan.
Compare this to other big EU countries. Germany, the healthiest European economy, is eliminating €80-billion ($100-billion) of public spending between 2011 and 2014. The effort will reduce public-sector employment by 15,000 and raise revenue by slapping a tax on air travel and nuclear power plant operators.
Italy, whose deficit, at 5.3 per cent, is well below the EU average, recently approved €24-billion in spending rollbacks, including pay cuts to senior civil servants. On June 22, Britain's new coalition government will unveil an "emergency" budget that is expected to reduce the government's role in the state by the greatest amount since Margaret Thatcher's early days as prime minister. Prime Minister David Cameron on Monday said the cuts will be so extensive that they will affect "our whole way of life."
Economists think France has been reluctant to introduce an aggressive austerity program because it doesn't have the political courage to do so and because it fears that deep spending cuts might plunge the country back into recession. "They don't want to dampen demand and risk a deflationary spiral," Mr. Matthes said.
Politics may be the bigger factor. In late May, hundreds of thousands of French workers protested the Sarkozy government's plans to raise the retirement age past 60. Retiring relatively early is considered an iron-clad social right. The images of protests – some 400,000 people took to the streets – may have scared Mr. Sarkozy's ruling, centre-right UMP party.
"Given the electoral cycle Рpresidential elections are in May, 2012 РI am suspicious about the ability of the government to cut meaningfully the deficit next year," said UBS economist St̩phane Deo.
Some French ministers, if not Mr. Sarkozy himself, are convinced that France must take swift deficit-reduction action. On May 30, Budget Minister François Baroin said it would be "a stretch" to keep France's triple-A credit rating (the highest rating) intact. The blurt had an immediate effect on the market, sending the yield spread over benchmark German bonds, considered the EU's least risky sovereign debt security, soaring. At one point, the spread doubled to almost half a percentage point.
Other French ministers quickly went into damage control, arguing that France's rating was not under threat. They noted that the government was having no trouble selling long-term debt.
Economists doubt France can rely on GDP growth to whittle down its debt and deficit. This year, French growth is expected to be only about 1 per cent, in line with the euro zone average but well less than Germany's 2-per-cent rate. Mr. Deo said "trend" GDP growth alone is not enough to stabilize France's debt-to-GDP ratio; deficit reduction would have to tossed into the mix.
The Organization for Economic Co-operation and Development has expressed doubts about France's ability to bring down its deficit quickly. Even if growth rises to a relatively strong 2 per cent, it sees France's deficit falling only to 6.9 per cent next year, almost a full point above the government's goal. "A stronger fiscal framework is needed to rebuild credibility and ensure that fiscal policy is countercyclical, especially in good times," the OECD said last month.
Mr. Deo said "large fiscal tightening is only a matter of time, it is unavoidable."
As France's public finances deteriorate at an alarming rate, Mr. Sarkozy's reluctance to wield the axe is bound to change, economists say. "France's main task is to ensure financial markets that things are under control," said Jurgen Matthes, international economist at Germany's Cologne Institute for Economic Research. "I tend to think that, sooner or later, France will bow to this pressure."
So far, France has talked the talk but not walked the walk, insisting on austerity measures elsewhere but making relatively few cutbacks itself even though both its national debt and budget deficits are climbing rapidly.
In 2009, France's deficit was 7.5 per of gross domestic product (GDP). According to Deutsche Bank forecasts, the figure is expected to rise to 7.9 per cent this year even as those of many other EU countries are falling. France's goal is to cut the deficit to 6 per cent in 2011.
France's 2010 deficit will be almost as high as Greece's. Among the large EU countries, only the deficits of Spain and Britain are worse. France's overall public debt, meanwhile, has been rising and is just under 80 per cent of GDP. The country is also running a current account deficit of about 2 per cent of GDP, meaning it has to rely on foreign financing.
The French government has taken some steps to get its deficit under control. It recently announced that it will freeze all spending, except in certain crucial areas, such as pensions and interest payments on government debt, between 2011 and 2013. It also will cut state operating costs (though not state budgets) by 10 per cent over the same period. Mr. Sarkozy has said the measures do not amount to an austerity plan.
Compare this to other big EU countries. Germany, the healthiest European economy, is eliminating €80-billion ($100-billion) of public spending between 2011 and 2014. The effort will reduce public-sector employment by 15,000 and raise revenue by slapping a tax on air travel and nuclear power plant operators.
Italy, whose deficit, at 5.3 per cent, is well below the EU average, recently approved €24-billion in spending rollbacks, including pay cuts to senior civil servants. On June 22, Britain's new coalition government will unveil an "emergency" budget that is expected to reduce the government's role in the state by the greatest amount since Margaret Thatcher's early days as prime minister. Prime Minister David Cameron on Monday said the cuts will be so extensive that they will affect "our whole way of life."
Economists think France has been reluctant to introduce an aggressive austerity program because it doesn't have the political courage to do so and because it fears that deep spending cuts might plunge the country back into recession. "They don't want to dampen demand and risk a deflationary spiral," Mr. Matthes said.
Politics may be the bigger factor. In late May, hundreds of thousands of French workers protested the Sarkozy government's plans to raise the retirement age past 60. Retiring relatively early is considered an iron-clad social right. The images of protests – some 400,000 people took to the streets – may have scared Mr. Sarkozy's ruling, centre-right UMP party.
"Given the electoral cycle Рpresidential elections are in May, 2012 РI am suspicious about the ability of the government to cut meaningfully the deficit next year," said UBS economist St̩phane Deo.
Some French ministers, if not Mr. Sarkozy himself, are convinced that France must take swift deficit-reduction action. On May 30, Budget Minister François Baroin said it would be "a stretch" to keep France's triple-A credit rating (the highest rating) intact. The blurt had an immediate effect on the market, sending the yield spread over benchmark German bonds, considered the EU's least risky sovereign debt security, soaring. At one point, the spread doubled to almost half a percentage point.
Other French ministers quickly went into damage control, arguing that France's rating was not under threat. They noted that the government was having no trouble selling long-term debt.
Economists doubt France can rely on GDP growth to whittle down its debt and deficit. This year, French growth is expected to be only about 1 per cent, in line with the euro zone average but well less than Germany's 2-per-cent rate. Mr. Deo said "trend" GDP growth alone is not enough to stabilize France's debt-to-GDP ratio; deficit reduction would have to tossed into the mix.
The Organization for Economic Co-operation and Development has expressed doubts about France's ability to bring down its deficit quickly. Even if growth rises to a relatively strong 2 per cent, it sees France's deficit falling only to 6.9 per cent next year, almost a full point above the government's goal. "A stronger fiscal framework is needed to rebuild credibility and ensure that fiscal policy is countercyclical, especially in good times," the OECD said last month.
Mr. Deo said "large fiscal tightening is only a matter of time, it is unavoidable."
AkhandBharat
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France's 2010 deficit will be almost as high as Greece's. Among the large EU countries, only the deficits of Spain and Britain are worse. France's overall public debt, meanwhile, has been rising and is just under 80 per cent of GDP. The country is also running a current account deficit of about 2 per cent of GDP, meaning it has to rely on foreign financing.
anoop_mig25
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i do not know about economics but i know one thing that this European countries took lot of debt to support their social-welfare activities(in hindi it is siad as taking loan from our future generations to support our present correct me if i am wrong).And thing i want to tell is that if US-EUROPEAN STYLE economic collapse in near future then though i would hurt china ,but only for short duration. it would hurt us more because china will start propagating its style of functioning and indirectly would force its wishes(as now done by usa, in past done by british,francs ,germany) on other countries.
AkhandBharat
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The funny thing is, they're still taking a lot of debt to continue supporting those social welfare programs that are making them bankrupt. And to top it off, US president barack oh' bummer expanded medicaid/medicare program to include tons of people in the US and has raised the govt debt cap to 14.2 trillion dollars, making the government debt go above 100% of GDP.
It will hurt China a lot. They have wiped out atleast between 5 to 10 years of their growth if there is a worldwide recession leading to hyperinflation in the west. They will also hurt bad because the growing inflation in housing markets in China will ensure a hard crash there. It will take a lot of time to recover for them. That will put their world domination plans on hold for a long time.
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AkhandBharat
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CNN Money: Why the worst isn't over yet
FORTUNE -- Economists, as you have likely heard, are enjoying a bit of a renaissance these days. With a startling new piece of economic news emerging on a near daily basis -- Greece is going under! No, it's Spain! China is in the midst of a housing bubble! China is our savior! -- there's been a surge in demand for those who would purport to tell us what it all means.
If, like us, you don't like your economics dry-as-dust, the man to turn to is David Rosenberg, chief economist and strategist at Canadian wealth management firm Gluskin Sheff. Rosenberg's daily missives (which you can sign up for on the firm's web site) both inform and entertain, while at the same time scaring the bejesus out of you.
Rosenberg, you see, is an unapologetic bear. He's no perma-bear -- the man was a bullish for most of the 1990s -- but his reading of today's data leaves him no choice but to continue sounding the alarm in the face of those who would have us believe the worst is past. We caught up with Rosenberg yesterday afternoon to get his read on Dow 10,000, Ben Bernanke, and the future of gold.
The last several days have been spent crossing and re-crossing what the papers have taken to calling "the important psychological level" of Dow 10,000. Is it important to you? Should it be to us?
Dow 10,000 has absolutely zero meaning, except that maybe it has more zeroes attached to it than any other level we're going to see anytime soon. If you're a real investor, a much more important number is 943 on the S&P 500 which is a 50% retracement of the bear market rally. That's a real technical level, whereas Dow 10,000 is nothing but a number. But you're right -- 10,000, 11,000 or 9,000 are very popular with the media. But anybody who looks at specific numbers is using technical analysis, where there is as much a chance of a zero as any other number.
You make the distinction of a secular bear market versus a correction. Unfortunately, you think we're in the former. Why?
The markets move in primary trends. Just as in life and with the seasons there are cycles when it comes to investing. It has always been such. From 1948 to 1956, there was a secular bull market. From 1956 to 1982, a secular bear market. Then, and this is what most people remember today, from 1982 to 2000, we had a wonderful secular bull market. You can go back further if you like.
The equity market peaked in inflation-adjusted terms in 2000. We had a roughly eighteen-year bull market. And today, we are 60% of the way through a secular bear market. In a secular bull market, corrections are buying opportunities for long-term investors. It's quite clear after the fact that 1987 was one of the best buying opportunities of the last century. Who knew there were thirteen more years to go in the bull run? People who paid attention to history, that's who.
The difference in a secular bear market is that rallies are to be rented and not owned. It doesn't mean you can't have them. We have had rallies of 100% since this one began. But you also have wrenching volatility.
One final point: In a secular bull market, the equity market does not go to a new low in a recession. In a secular bear market, it does. If you pay attention to the historical record, you can see we're still in the jaws of a secular bear market in equities. Trade accordingly.
You paid Ben Bernanke a backhanded compliment when you cited his "brilliance as an (academic) economist," and suggested it was time that he "climb down from his ivory tower." You were reacting to his comments on Wednesday, when he said that "private final demand" was finally playing a part in the recovery. You say he's smoking something up there in that tower. What's he missing?
Look, if you put three economists into a room, you would be lucky to get four opinions. Your conclusions are driven by your assumptions. Still, I was very struck by his comment about private final demand. What is he looking at? I see consumer spending sputtering, the housing market turning down sharply, and private payroll growth falling off a cliff. I'm just not seeing what he's seeing. Then again, arguably, he has more contacts than I do. That's why I brought up the comment he made in 2007 that all would be good with the economy, and that the effects of the subprime market would be contained. Beware of brave prognostications.
The Fed's balance sheet has gone from $850 billion in mid-2007 to $2.3 trillion today. Is there any way for this to end other than badly? Say, for example, with runaway inflation?
This is all part and parcel of the post-bubble credit collapse. The Fed has been aggressively expanding its balance sheet, in the process boosting the monetary base. Ordinarily this would be inflationary, but because banks are not relending that money, it has not been. In fact, overall credit is declining. If and when we embark on the next credit creation cycle -- which is probably many years away -- this monetary inflation will probably result in real inflation. But not until money moves off of bank balance sheets and into the real economy.
You don't normally offer up asset allocation advice. But how about giving us some. What would you recommend for an investor today?
Be very defensive. I would be 30% equities, 50% bonds, and 20% cash.
What about gold? Don't you still like gold at $1,220 an ounce?
Gold is in a secular bull market, but that's a very crowded trade right now. It has moved so parabolically that it could correct 10% without violating any trend lines. Long-term, though, I am sticking with my prediction of $3,000 an ounce.
http://money.cnn.com/2010/06/11/news/economy/david_rosenberg_markets.fortune/index.htm
FORTUNE -- Economists, as you have likely heard, are enjoying a bit of a renaissance these days. With a startling new piece of economic news emerging on a near daily basis -- Greece is going under! No, it's Spain! China is in the midst of a housing bubble! China is our savior! -- there's been a surge in demand for those who would purport to tell us what it all means.
If, like us, you don't like your economics dry-as-dust, the man to turn to is David Rosenberg, chief economist and strategist at Canadian wealth management firm Gluskin Sheff. Rosenberg's daily missives (which you can sign up for on the firm's web site) both inform and entertain, while at the same time scaring the bejesus out of you.
Rosenberg, you see, is an unapologetic bear. He's no perma-bear -- the man was a bullish for most of the 1990s -- but his reading of today's data leaves him no choice but to continue sounding the alarm in the face of those who would have us believe the worst is past. We caught up with Rosenberg yesterday afternoon to get his read on Dow 10,000, Ben Bernanke, and the future of gold.
The last several days have been spent crossing and re-crossing what the papers have taken to calling "the important psychological level" of Dow 10,000. Is it important to you? Should it be to us?
Dow 10,000 has absolutely zero meaning, except that maybe it has more zeroes attached to it than any other level we're going to see anytime soon. If you're a real investor, a much more important number is 943 on the S&P 500 which is a 50% retracement of the bear market rally. That's a real technical level, whereas Dow 10,000 is nothing but a number. But you're right -- 10,000, 11,000 or 9,000 are very popular with the media. But anybody who looks at specific numbers is using technical analysis, where there is as much a chance of a zero as any other number.
You make the distinction of a secular bear market versus a correction. Unfortunately, you think we're in the former. Why?
The markets move in primary trends. Just as in life and with the seasons there are cycles when it comes to investing. It has always been such. From 1948 to 1956, there was a secular bull market. From 1956 to 1982, a secular bear market. Then, and this is what most people remember today, from 1982 to 2000, we had a wonderful secular bull market. You can go back further if you like.
The equity market peaked in inflation-adjusted terms in 2000. We had a roughly eighteen-year bull market. And today, we are 60% of the way through a secular bear market. In a secular bull market, corrections are buying opportunities for long-term investors. It's quite clear after the fact that 1987 was one of the best buying opportunities of the last century. Who knew there were thirteen more years to go in the bull run? People who paid attention to history, that's who.
The difference in a secular bear market is that rallies are to be rented and not owned. It doesn't mean you can't have them. We have had rallies of 100% since this one began. But you also have wrenching volatility.
One final point: In a secular bull market, the equity market does not go to a new low in a recession. In a secular bear market, it does. If you pay attention to the historical record, you can see we're still in the jaws of a secular bear market in equities. Trade accordingly.
You paid Ben Bernanke a backhanded compliment when you cited his "brilliance as an (academic) economist," and suggested it was time that he "climb down from his ivory tower." You were reacting to his comments on Wednesday, when he said that "private final demand" was finally playing a part in the recovery. You say he's smoking something up there in that tower. What's he missing?
Look, if you put three economists into a room, you would be lucky to get four opinions. Your conclusions are driven by your assumptions. Still, I was very struck by his comment about private final demand. What is he looking at? I see consumer spending sputtering, the housing market turning down sharply, and private payroll growth falling off a cliff. I'm just not seeing what he's seeing. Then again, arguably, he has more contacts than I do. That's why I brought up the comment he made in 2007 that all would be good with the economy, and that the effects of the subprime market would be contained. Beware of brave prognostications.
The Fed's balance sheet has gone from $850 billion in mid-2007 to $2.3 trillion today. Is there any way for this to end other than badly? Say, for example, with runaway inflation?
This is all part and parcel of the post-bubble credit collapse. The Fed has been aggressively expanding its balance sheet, in the process boosting the monetary base. Ordinarily this would be inflationary, but because banks are not relending that money, it has not been. In fact, overall credit is declining. If and when we embark on the next credit creation cycle -- which is probably many years away -- this monetary inflation will probably result in real inflation. But not until money moves off of bank balance sheets and into the real economy.
You don't normally offer up asset allocation advice. But how about giving us some. What would you recommend for an investor today?
Be very defensive. I would be 30% equities, 50% bonds, and 20% cash.
What about gold? Don't you still like gold at $1,220 an ounce?
Gold is in a secular bull market, but that's a very crowded trade right now. It has moved so parabolically that it could correct 10% without violating any trend lines. Long-term, though, I am sticking with my prediction of $3,000 an ounce.
http://money.cnn.com/2010/06/11/news/economy/david_rosenberg_markets.fortune/index.htm
AkhandBharat
Regular Member
- Joined
- Aug 7, 2009
- Messages
- 542
- Likes
- 79
Eurozone debt crisis 'shatters' confidence
The eurozone's sovereign debt crisis has severely damaged the fragile confidence in the sustainability of a global economic recovery, the Bank of International Settlements (BIS) warns today, echoing similar concerns from the Bank of England.
BIS, the Basel-based organisation that co-ordinates much of the global banking system, said "fiscal concerns [had] shattered confidence" and prompted a flight to safety by international investors.
"Global financial markets were highly volatile from mid-April to early June as fiscal concerns and the risk of weaker growth caused investor confidence to deteriorate rapidly," the BIS said. "Faced with growing uncertainty, investors cut risk exposures and retreated to traditional safe-haven assets."
The BIS also warned that the rescue package unveiled by the European Union and the International Monetary Fund last month, had provided only temporary reassurance, following widespread fears that many economies could slip back towards recession. The alert from the banking organisation reflects widespread nervousness about the extent to which Europe's leading financial services businesses are exposed to sovereign debt – and how such problems might limit their ability to support the recovery.
The Bank of England's quarterly bulletin, published today, warns that policymakers remain intensely worried about bank lending, though also deeply unsure about exactly what effect the latest stage of the financial crisis is likely to have on the economic recovery in Britain and elsewhere.
Spencer Dale, the Bank's chief economist, said that while the UK had avoided some of the worst problems of previous recessions, particularly much higher levels of unemployment and corporate insolvency, the banking sector's difficulties could prove even more dangerous.
"In particular, companies' access to finance has been constrained, hampering their ability to fund investment spending and raise the working capital necessary for day-to-day operations," Mr Dale said.
http://www.independent.co.uk/news/business/news/eurozone-debt-crisis-shatters-confidence-1999790.html
The eurozone's sovereign debt crisis has severely damaged the fragile confidence in the sustainability of a global economic recovery, the Bank of International Settlements (BIS) warns today, echoing similar concerns from the Bank of England.
BIS, the Basel-based organisation that co-ordinates much of the global banking system, said "fiscal concerns [had] shattered confidence" and prompted a flight to safety by international investors.
"Global financial markets were highly volatile from mid-April to early June as fiscal concerns and the risk of weaker growth caused investor confidence to deteriorate rapidly," the BIS said. "Faced with growing uncertainty, investors cut risk exposures and retreated to traditional safe-haven assets."
The BIS also warned that the rescue package unveiled by the European Union and the International Monetary Fund last month, had provided only temporary reassurance, following widespread fears that many economies could slip back towards recession. The alert from the banking organisation reflects widespread nervousness about the extent to which Europe's leading financial services businesses are exposed to sovereign debt – and how such problems might limit their ability to support the recovery.
The Bank of England's quarterly bulletin, published today, warns that policymakers remain intensely worried about bank lending, though also deeply unsure about exactly what effect the latest stage of the financial crisis is likely to have on the economic recovery in Britain and elsewhere.
Spencer Dale, the Bank's chief economist, said that while the UK had avoided some of the worst problems of previous recessions, particularly much higher levels of unemployment and corporate insolvency, the banking sector's difficulties could prove even more dangerous.
"In particular, companies' access to finance has been constrained, hampering their ability to fund investment spending and raise the working capital necessary for day-to-day operations," Mr Dale said.
http://www.independent.co.uk/news/business/news/eurozone-debt-crisis-shatters-confidence-1999790.html
