Let's think a little bit

Posted on 2011-11-10 by fdominicus

Well maybe thinking is a litttle to much maybe speculate would be the better word.

As you may have read, Euro land is in as deep trouble as the US. It’s an open question who really is the worse, but well that’s another story.

Now we have read a lot of ideas about saving. One of the ideas of saving was a tighter “cooperation”, well it probably is a asked quite much to synchonise 27 different countries, but welll that’s another story again.

But now something changed the ideas slightly. At first Greece is finished. Well just remember the vote then the note vote etc. Anyway Greece just stands for around 350 billions of debt. If you look over Euroland this really is not much. Anyway with the default of Greece bonds french banks will get in knee deep trouble. So far there’s nothing new.

But here we go. The interest Italy has to offer are exploding. We are now well beyond 7%. That means a doubling of your debt in “just” 10 years. Or the other way round with 7% interest and 1.8 trillions of debt (official!!), Italy has to pay interest of 1.8 trillions in 10 years (with 7% interet). No that are as much as 180 biillions a year the budget of italy is well below that of Germany that are around 300 billions. So let’s assume 250 billions. You can see 180 billions are way too much. So saying that Italy is bankrupt also could be seen as fact.

Now as you know ESFS III should be leveareged to over 1 trillions guranteees (which seems to be illusory) just see my entry on my old mises blog at: http://mises.org/Community/blogs/fdominicus/archive/2011/11/09/extension-to.aspx

So with high likliness this all can not be expected to work. Now the “new” idea is to split up the euro zone into a core zone and a “rest” And now comes the information I found most “revealing”. This is driven by France and Germany. Now we know France and Germany have seen itself as “engines” of the eu process. but guess what the french banks have a hell of outstanding bonds from Italy of around 270 billions!. Now the budget of France surely is in that areas. So if italyy defaults France is “finished” also. They can not bear another 270 billions alons. If you see that with the work on the core europe one can come on some ideas….

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Extension to

Posted on 2011-11-09 by fdominicus

my blog entry a few days ago, about the sustainability of the ESFS.

  • Fact 1) the “auctions” were bad. And the ESFS has to offer much more interest then Germany bonds alone (guess how many would “back” up this bonds)
  • Fact 2) neither the Chinese nor the Japanes, nor the Russion are willing to buy ESFS bonds
  • Fact 3) hardly and private held bank “invests” in this bonds also the only ones taking some of the bonds will probably be government controlled banks.

    • Just imagine the last auction was just over 3 billions now how will they get the leverage on 1 trillion?

    I’m not afraid but sure, that ESFS III can be judged a big failure. Well for liberals and libertarians this can’t be a suprise, but even for normal people this is good news. It means there
    is some natural limit on the manipulations of markets and this supports my other entry:
    http://mises.org/Community/blogs/fdominicus/archive/2011/10/21/in-the-long-run-markets-will-prevail.aspx

    I’m still as sure that we did not have seen the end of the interventions. The deldefs world-wide will try to find another way of prolonging their “dicatorship” and I’m sure everyone will have
    to suffer under this decisions. But in the end they will end on the dungheap of history. A new round will start but then I’m afraid again. The spongers will come back. And the honest again will suffer.
    Freedom is just a seven letter word for them, they have absolutely no bonds with it….

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    A good guess I guess

    Posted on 2011-11-07 by fdominicus

    I wrote it 3 years ago about the billions Paulson requsted.

    The original is at: http://fdominicus.blogspot.com/2008/09/im-afraid-itll-be-not-enough.html

    I just cite it here (just in case anyone tells one could not know)

    If one sees how much in debt each US citizen is, people must be aware that 700 MRD will be simple not enough. We’ve to see also how much worth houses are if loans busted. The price is that high as people are willing to sell it for. if building a house has costed let’s say 100 000 then that was it’s worth one build. Howerver the money for it is gone, and now the debt can not be paid. So you have to write down this price to whatever you find acceptable. The difference to 100 000 is a loss. Now this isn’t a big thing if that happens a few times, but if it happens on mass, then nothing can stop this avalanche crumbeling down. Impossible in theoretical and practical means. If you look at the figures of Fay and Fred Mac you’ll see the loans exceed 5 Billions.(Trillion in US speack) 700 Mrd are a bit above 10% of that value. Howerver let us try to estimate how much worth the houses are. Let us assume that at least a bit money was “ones” own. So let’s say 20 % that’s around 1 Billion. So the housing are “worth” let’s day roughl 6 Billions. (I know it’s too low but let’s just take it for some calculations) This was the prices the lend the money for. let’s assume that 2 Billion were spend on the mortgages in the last 6 years. During that time the prices have risen by 85 per cent. Let’s calculate the value that money has had 7 years ago with an inflation rate of 3 % we have
    2 / 1.03^7 = 1,62 Billions, we must also take into account that hardly anyone will buy for that prices so let’s assume a discount at around 30 % then we have 2,11 billions for the costs of the debt for the houses of this large failures. This alone is 3 time as much as the asked 700 Mrd.

    And guess what that just covers a fraction of the real loans. So I’d argue with a quite high probability the 700 Mrd will be just the tip of the icebrg. You have to see that the greedy manages have put everything to put out risk on different areas. So we can be 100% sure that the mess us magnitudes larger than implied by this incredible 700 Mrd $. Now say something about throwing good money after bad money.

    I just can hope I’ve made some error in my calculations, otherwise the devastating “news ” is : “Game over”.

    The only “signs” that is may be a bit less worse is that, the bad credits were spread all over the world. So in fact everyone having invested in this kind of stuff, really is “busted”. Don’t expect to see much from that money back. It’s time to prepare for even worse times…

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    Forget my last entry

    Posted on 2011-11-04 by fdominicus

    It seems the vote is not held. This is interesting in two ways. At first it would be a democratic thing, that it is not held show that the deledefs do not want too loose anything they may get. Now anyway there will be some vote for a new Parliament, but I’m wondering what anyone else can do. The debts are there and have to be paid. If every party stick to this they do not have a choice. Well the only choice they have is how to “pay” back. Socialists can not reason in an economic way and it seems most of the Greek (which could and had have enough) have moved their money out of the country. This money is not accessible to the socialists they can not tax it (or if they try, the money will not be show again officially, I guess most of the money brought above will be “unofficial” anyway). Now they have big unions and so the way to more free markets will be a very tough one. They can not go along as before, because nobody is willing to pay for their granted benefits anymore.

    So no party but a true liberal party has any clue about solving the Greek debt problem. And you know a true liberal party does not exist world-wide. So they are stuck with their socialists of any colour. I can not see how any of the parties in Greek will be able to handle that and so we’ll see a lot of manouvering. The base for them will be: How do we get the EU money without too much work on our side.

    Anyway if they will not make it in the forseeable future. the other EU “partner” will have to send down money there over and over and over again. In Germany we have this clearing between countries. And in the German history just one has gone from taker to giving. (That was Bayern if anyone is interested), the other countries like Bremen, Hamburg, Berlin and surrounding just burn money one year after the other and they tell us they can not to differently. That is what Greek will be a country depending on support, they will take this route because it’s more appealing to spongers. And Greek has a lot of them….

    So we see everything turned out to be bad for those having to support such countries. But that’s the race to the bottom. It’s not honorouble to make it by oneself no the deledefs of all countries will try to get as much from others and the others will be their excuse also.”Well we could not do anything about it it comes from …”

    Yes the spongers work hard to make their life most comfortable while harming every one else. That’s their “reason” for living…..

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    Why now and not a year or so ago?

    Posted on 2011-11-03 by fdominicus

    Well I’m just puzzling why Greece does this vote about the EU help now and now a year or so ago. The reasons for doing it were the same a year ago. And in fact it could have made a difference. So I’m under the impression that the problems were underestimated a year ago. It feels as if the leaders just played on time with their old same dirty tricks. Not telling the truth directly but just so much one can not hide.

    After this year and a hundred billions more, the truth is even dearer. I wrote here some months ago Greece is bankrupt. And by any means it was bankrupt a year ago.

    So I think it’s the right way but to the wrong time. I’m under the impression, the greek politicians now can not deny the trouble they have caused any longer and are not looking for “relaxation”. In a way it feels as if they want to lighten the burden and blame it on the “heartless” other partners. Yes it feels to some extend as being black-mailing. And I think Papandreou had to inform the other EU politicians about this before he initiated this vote.

    Anyway let them decide, and we’ll see what we have than…

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    What was won with ESFS III?

    Posted on 2011-10-28 by fdominicus

    Well I’d like to write. “With ESFS III” we are now on our way to correct things.

    Unfortunatly one can not write anything about that. It’s not that we started making less debt, au contraire. It is tried again to fix something caused by debts to cure with more debts
    The voluntary “cut” of the banks of around 50% is absolutly open. I very depends what positions the banks take. If they think they can gain more by a open default of Greece, then they will follow that path. Anyway the problem is every bank will have to decide for themselves.

    Because of the CDS we don’t know how bad it would hit the banks. Maybe they are on the side of getting th assurances. Than the problem will be of their counterparts. I just know if anything would come from any government I would be very skeptical about any advantages supposed to hold for me.

    Just remember last year the governments actively asked the banks to “invest” in Greek bonds. Well if you’ve done that you’d have to bear quite a loss now. There won’t be any advantage.
    And see that the bonds of states were treated as if they do not have any risk. And so they are treates nearly as equity. Not it turns out they are everything but risk free. And now the states require higher equity to back up their bonds. So you can see, the states do everything they can to get more under their control.

    If you give into the sirene songs, you are in deep trouble. So I just can recommend the same as for ages. Do not hold any bonds of states or you will be sorry sooner than later.

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    leverage <> leverage

    Posted on 2011-10-27 by fdominicus

    Now you may be suprises leverage under different circumstances do have a different meaning.

    Meaning if used by politicians: “more fire power”, hardly “more” risk, telling markets stories of drunkeness and cruelty sorry, sedation. It’s just for the “bigger” good. Just well the base for this leverage still is money they do not have in the second case this is named differently, here it is named saving the taxes of the population.

    Meaning if used by not politicians, greed, high risk if done with money on does not have speculating on credit. Ah yes Lehmann was gone because of leverage but you see leverage is not leverage every where.

    In short the politicians use what the doom in the private economy. To be true, I guess we have to go back far in time to find a similiar decision day in parliament. Last time it ended in WW II.

    Deledefs is just to kind to this kind of men…..

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    The lybian catastrophe

    Posted on 2011-10-25 by fdominicus

    Before that all I wrote:

    http://mises.org/Community/blogs/fdominicus/archive/2011/08/31/the-chances-and-risk-for-lybia.aspx

    Now Lybia will get even less than even the French. Scharia as “base” or right. So in fact Lybia wants to exchange one kind of dictatorship with another one. And this time we “must” help the “poor” Lybians. Well not with my agreement. If they think Scharia is a good base for civil rights they should keep it to themselves.

    I do not want to get even near a country with such “laws”

    I really wished that people would surprise me in a positive way. But no one dictator killed another one waiting behind the next corner. What a fucking stupid business.

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    In the long run markets will prevail.

    Posted on 2011-10-21 by fdominicus

    a quick search it has not been used somewhere, where it may have been cited.So I claim having it introduced.

    Still I’m encouraging everyone to use it wherever you think it will suit.

    Let’s bite at the socialists all over the world. Help me spread this sentence.

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    If anyone says one could not know

    Posted on 2011-10-20 by fdominicus

    I looked through my outer Mises Blog and found this:

    Spare the money now, spend it later

    The Failout plan can not expected to work with an acceptable certainty. In fact I’d bet 1:10 it’ll fail.
    But if you throw out the money now , you have nothing else if this failout plan fails. It’s high time to prepare for a recession phase. The prices for home equity will fall, maybe crumble. At least down a third IMHO. That will distroy a few Trillions of value, this fall can not be held with 700 Billions.
    So keep the money, now and see how to spend it one something which will work with higher probability. Building of houses will dry out, however the US infrastructure needs some overhaul.

    You have to face the fact that Oil is sparse, and you have to face the fact that Water is sparse also in many regions. In the forseeable future California and especially Las Vegas will suffer under water shortage. You’ve to come back an invest in your own country in the producing industries. The cars are build sloppy, the houses often also, this sloppyness will cost you dearly.

    You can not help, but the chinese have over a trillion US-$ to spend, you must be prepared that they will buy cheaply if not now than just a bit later. Use the money for an “american” solution. Tha means give the people the means to help themselves. That means “fair paid” jobs, “fair prices”, you need as every developed country craftmanns which can build, repair and maintain the ideas engineers invent. So spend money wisely on education for your children and grown-ups also.

    It’s not worth hanging to just one plan, (which in fact is none). Search for alternatives, discuss them and then make an educated choice. Currently you give yourself none but one choice and that’s exactly as useful as none plan at all. If in doubt, do nothing, that’s at least an alternative….

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