What if Santander falls?

[Richard]

The euro works when you think of it a common market based on a common unit for bartering goods. It is fantastic on a practical level as tourist or for trading goods. You can drive for hundreds of miles and still use the same currency. Incredible isn't it? Admittedly that might be lost on our USA, Australian, Russian or Chinese members.

There is a small hitch that while you may be able to use the same coins to buy a coffee, the locals use a different language so can't understand your order. Of course that's not unique to the Euro, it can happen if you go from Walloon to Flanders, New Jersey to Manhattan, or cross the Swiss Rosti line.

It falls apart when you factor in different rates of growth, national debt, and all those other complications that result in exchange rate fluctuations. Those exchange fluctuations exist for a reason, to wish them away is like Canute holding back the tide. Or to get slightly back on topic, it is like ignoring the different rates of thermal expansion between an engine block and carbon fibre chassis.

To get right back on topic, we'll see the crisis used as an excuse to settle a myriad of vendettas, from Ferrari saying its cheaper to use the old V8, to Spa disappearing from the calendar, to Bernie selling out to pay TV.

[munudeges]

Are you kidding, Lehman brothers and Fannie Mae is a breeze in comparison to what's happening in southern Europe and with the Euro as a currency, we're talking entire nations facing bankruptcy.

All that isn't over. Chickens are coming home to roost there. They painted over that by printing cash. You can't keep on doing that forever.

[Sombrero]

Montezuma pays tribute to F-1 with old fashioned chassis (F150)
and old fashioned V-8.



This is the FiA official new tool to police the budget cap...


A cost effective approach with joint developpements in
Maranello and Paris...

[Miguel]

Are you kidding, Lehman brothers and Fannie Mae is a breeze in comparison to what's happening in southern Europe and with the Euro as a currency, we're talking entire nations facing bankruptcy.

All that isn't over. Chickens are coming home to roost there. They painted over that by printing cash. You can't keep on doing that forever.

Milton Friedman disagrees.

[bhall]

Friedman. Ugh.

[Richard]

Whilst I'm not a doom laden as munudeges, I do agree that you can't have such a big hit on an economy without feeling the ripples for a long time, this one is going to have a very long tail. We've all been cushioned and propped up by low inflation, low interest rates and printing money. Take one look at Japan's lost decades of the 90s and 00s to realise what is going to happen to Europe and the USA.

Interestingly the Swedes had a similar banking collapse a few years ago but dealt with it rather differently... I'll let x tell that tale.

[munudeges]

Milton Friedman disagrees.

History disagrees, right back to the Weimar hyperinflation and the hyperinflation in ancient Athens.

To be fair to people like Friedman and John Keynes their economic philosophies have just become a self-fulfilling justification for those running economies to print as much as they like and spend it. "Oh, Keynes said this so it's OK....." Neither said that, no matter how much anyone might disagree with them.

The real fundamental problem with our economies is that our monetary systems are collapsing. Currency is pretty much worthless, especially at the current interest rates. In order for their to be a resolution to this there will have to be some extreme pain one way or the other and creditors will have to be told to lump their losses.

[bhall]

What I find most disconcerting is that no one seems to learn. History has provided anyone who cares to pay attention with a plethora of case studies in which, broadly speaking, A+B=C. Yet, despite all of the rhetoric to the contrary, nothing ever changes except that people somehow think wishful thinking alone will transform the equation to A+B=Q.

[Miguel]

The real fundamental problem with our economies is that our monetary systems are collapsing. Currency is pretty much worthless, especially at the current interest rates. In order for their to be a resolution to this there will have to be some extreme pain one way or the other and creditors will have to be told to lump their losses.

It's either that, or you somehow convince the taxpayer to pay for the losses of the creditors.

[JohnsonsEvilTwin]

I think the real problem is the trade imbalance from east to west. On top of this you have an Oil cartel exacerbating the problem.

The West have it too good for too long, spending money on Eastern produced goods that are cheaper at the expense of their own more expensive produce. I mean look at manufacturing output decline across the west the last 30 years.
The Chinese especially have grown into near superpower proportions from this level of consumption. And the cat was out the bag before the West could do anything about.

The Chinese now have a trade surplus Europeans and Americans can only dream of. Trillions of dollars and Euro's leaks out of Europe and America each year and its this issue of consumption that underpins the problem.
The banks where a catalyst by providing cheap credit lines to anyone who could sign a document, and this spiralled during the "good times".

Address the trade imbalance, and the crazy deficit's and you are half way to rescuing the situation. 'The only issue with this is it will take decades....

[bhall]

Oh, man. Talk about a can of worms...

[xpensive]

The Euro curtency was indeed a political project, I say was because I consider it dead, basically France's condition to agree to a re-unified Germany, while chancellor Kohl wanted so bad to go down in history that he went along with it. It was all covered by the stability and growth pact, SGP, which had criteria on inflation and deficit for every country to join. Problem was that countries like Greece lied through their teeth, joined and started to borrow money in heavy doses at an artificial interest rate and here we are.

...
Interestingly the Swedes had a similar banking collapse a few years ago but dealt with it rather differently... I'll let x tell that tale.

I think you have that confused with Iceland, where banks went belly up in a similar fashion, but they tightened their belts and put their head down the nordic way instead of whining to Mama-Merkel and asking to continue the party.

On topic, Montezuma had no problems with the cost of F1 when he had access to Philip Morris' chequebook?

[bhall]

He still does?

[myurr]

The Euro curtency was indeed a political project, I say was because I consider it dead, basically France's condition to agree to a re-unified Germany, while chancellor Kohl wanted so bad to go down in history that he went along with it. It was all covered by the stability and growth pact, SGP, which had criteria on inflation and deficit for every country to join. Problem was that countries like Greece lied through their teeth, joined and started to borrow money in heavy doses at an artificial interest rate and here we are.

France and Germany also broke several fiscal rules, so it's not just the southern states that didn't abide by them. That's a big part of the problem with the Euro, all the countries still operate too autonomously for it to work, but don't agree about enough for closer union to work. It should also be remembered that a large factor in Germany's current strength is that their powerful manufacturing sector is effectively enjoying a devalued currency, massively aiding their export market.

...
Interestingly the Swedes had a similar banking collapse a few years ago but dealt with it rather differently... I'll let x tell that tale.

I think you have that confused with Iceland, where banks went belly up in a similar fashion, but they tightened their belts and put their head down the nordic way instead of whining to Mama-Merkel and asking to continue the party.

On topic, Montezuma had no problems with the cost of F1 when he had access to Philip Morris' chequebook?

Iceland were also brave enough to allow their banks to default. By doing so their banking system was allowed to right itself and the contagion halted. Whilst I agree that a bank like HSBC is too big to be allowed to fail, smaller banks like Northern Rock should have been allowed to default with the taxpayer bailout being limited to guaranteeing private savers funds. There would have been some nasty repercussions but it would have been a short sharp shock and then recovery rather than this long drawn out stagnation and probably recession. Ironically the only way to quickly fix the system as it currently stands, as far as I can see, is to relax the capital requirements on the banks for a few years to allow them to get lending again and then build up their balance sheets more gradually. In the UK at least, pretty much all the bail out money has just gone into complying with the stricter balance sheet requirements required by the regulators, which is why it's had pretty much no effect on the economy.

[FrukostScones]

what if europe falls?

quite good:

http://www.spiegel.de/international/eur ... 38429.html