Eurozone Problems

[DaytonIllini]

Austerity Works

All these countries (Canada, Switzerland, Estonia, Latvia, Lithuania) are following the successful examples set by other nations such as Chile, Ireland, and New Zealand in the 1980s and '90s, and Slovakia from 2000 to 2003.

Of course, none of these examples is perfect, and cuts in government spending will not, by themselves, cure all ills. These countries often benefited from circumstances aside from fiscal discipline. Still, the evidence is there. Cutting government spending, reducing taxes, and liberalizing labor markets brings more economic growth, increased employment, less debt, and more prosperity. The opposite is also true: Bigger government and higher taxes result in more economic misery — see Greece, Spain, etc.

As the United States looks to its future, it is time to decide which path we will follow.

[illini80]

^^^
That is what I see as the long term path to prosperity vs. the short term" kick the can down the road til the road runs out" path that we are on. There ain't much road left imo.

[DaytonIllini]

Originally Posted by illini80

^^^
That is what I see as the long term path to prosperity vs. the short term" kick the can down the road til the road runs out" path that we are on. There ain't much road left imo.

U r a smart man.

[Sure Shot]

Originally Posted by DaytonIllini

Austerity Works

The analogy between all of those countries except Estonia and the PIIGS is pretty tough to draw since they have control over their own monetary policy.

But LOL at the little aside for Latvia and Switzerland "Unfortunately, they also raised taxes". In every other country, tax increases and spending decreases are considered equal from an austerity perspective. Which of course, is the only way of thinking about it that makes any logical sense.

[DaytonIllini]

Originally Posted by Sure Shot

The analogy between all of those countries except Estonia and the PIIGS is pretty tough to draw since they have control over their own monetary policy.

But LOL at the little aside for Latvia and Switzerland "Unfortunately, they also raised taxes". In every other country, tax increases and spending decreases are considered equal from an austerity perspective. Which of course, is the only way of thinking about it that makes any logical sense.

And yet Canada cut government spending deeply while holding taxes steady. They then cut taxes. All the while their economy improved.

BTW, I agree about the Euro piece. That's why I think they need to abandon the euro. A common currency cannot exist for nations that don't have a political union and the people don't want a political union. I think you'll see one weekend and announcement that the Euro is dead and that the banks will remain closed for a week while new currencies are laid out. I don't know when but I cannot imagine another scenario. Germany doesn't have enough money to bail out the PIIGS even if she wanted to.

[Sure Shot]

Here's an interesting think piece for you:

A better, bolder and, until now, almost inconceivable solution is for Germany to reintroduce the mark, which would cause the euro to immediately decline in value. Such a devaluation would give troubled economies, especially those of Greece, Italy and Spain, the financial flexibility they need to stabilize themselves.

http://www.nytimes.com/2012/06/27/op...ave-it.html?hp

Now, Germany would never do this. But I just think looking at it that way helps frame the issue.

[DaytonIllini]

Originally Posted by Sure Shot

Here's an interesting think piece for you:



http://www.nytimes.com/2012/06/27/op...ave-it.html?hp

Now, Germany would never do this. But I just think looking at it that way helps frame the issue.

No. That is precisely what I am talking about. It is far less disruptive for Germany and perhaps the Netherlands and Finland to drop out than it is to have the weak sisters drop out. Germany benefits from a Euro because their workers are so much more productive. Dropping out will diminish that advantage through devaluation of the opposing currencies but it will be far less painful than continuously supporting nations with their tax revenue.

[Sure Shot]

Originally Posted by DaytonIllini

No. That is precisely what I am talking about. It is far less disruptive for Germany and perhaps the Netherlands and Finland to drop out than it is to have the weak sisters drop out. Germany benefits from a Euro because their workers are so much more productive. Dropping out will diminish that advantage through devaluation of the opposing currencies but it will be far less painful than continuously supporting nations with their tax revenue.

Well it's a way better idea than Spain leaving, that's for sure.

The thing to remember though, is the way that the Euro has propped up the exports of Germany by artificially strengthening the currency of their major trading partners. That "productivity" would see a major dive in competitiveness vis a vis the likes of Italy and Spain if they left. But hey, maybe that's their best option.

[BES76]

Wow. The only moral to this is to spend it all now. Just let the EU collapse. They would be better off in the long run.

http://worldnews.nbcnews.com/_news/2...u-bailout?lite

[DaytonIllini]

Originally Posted by BES76

Wow. The only moral to this is to spend it all now. Just let the EU collapse. They would be better off in the long run.

http://worldnews.nbcnews.com/_news/2...u-bailout?lite

Wow. That is an amazing thing. Imagine if you are in Greece right now watching this. You are going to be withdrawing your money from the bank on Monday morning as fast as you can. That will put more pressure on Greek banks.

The idea of confiscating wealth is stunning. It would have been unthinkable 30 years ago. Now we have seen it in Argentina and may see it in Cyprus.

You have to really think twice before trusting your wealth to the banks right now. Unfortunately you cannot trust the government not to take land. Gold and silver looking particularly good right now. When people think that way, it is a disaster for the poor amongst us.

This is really bad.

[BES76]

Trying to get more info on this. It looks even worse to me. Once this line is crossed there is precedent set to do it again. If I have money, I would look elsewhere immediately, or stick it in a shoe box! This could have tremendous negative impact trickle down for investment capital. This stinks unless you're Henry F. Potter (Soros comes to mind) looking for deal.

http://www.reuters.com/article/2013/...92G0BG20130317

[IntenselyOrange]

Originally Posted by DaytonIllini

Wow. That is an amazing thing. Imagine if you are in Greece right now watching this. You are going to be withdrawing your money from the bank on Monday morning as fast as you can. That will put more pressure on Greek banks.

The idea of confiscating wealth is stunning. It would have been unthinkable 30 years ago. Now we have seen it in Argentina and may see it in Cyprus.

You have to really think twice before trusting your wealth to the banks right now. Unfortunately you cannot trust the government not to take land. Gold and silver looking particularly good right now. When people think that way, it is a disaster for the poor amongst us.

This is really bad.

Although we're shocked, this was a bit predictable. I don't know all the details but I have a colleague who moved all of his parents money over a year ago. They took a small hit at the time, but they saw this coming.

[886Illini]

In this case for Cyprus, there is a school of thought that this is a ploy by the EU to drive out "Russian influence" in Cyprus.


http://au.finance.yahoo.com/news/unf...092914695.html

Conservative reports put the amount of personal deposits of Russian money in Cypriot banks at 20 billion euros, though it could be as high as 35 billion euros, according to media reports. Last year, Moody's ratings agency reported that at the end of 2012, Russian banks had around $12 billion placed in Cypriot banks, an increase of around $3 billion from 2011, according to data from Russia's central bank.

Indeed, the IMF is reported to have been keen on the levy as a way to stem the flood of Russian money into the island over the last few years which has prompted concerns over money laundering .

[DaytonIllini]

Originally Posted by IntenselyOrange

Although we're shocked, this was a bit predictable. I don't know all the details but I have a colleague who moved all of his parents money over a year ago. They took a small hit at the time, but they saw this coming.

Originally Posted by 886Illini

In this case for Cyprus, there is a school of thought that this is a ploy by the EU to drive out "Russian influence" in Cyprus.


http://au.finance.yahoo.com/news/unf...092914695.html

If that was the goal, why confiscate money from people below the 100K Euro threshhold that has the equivalent of FDIC insurance.

Depositors are in NO WAY to blame for the troubles of the Euro, the troubles of the banks or the troubles of the government fiscal balance sheet. They are punishing people that are the solution rather than the problem. This is insanity.

[886Illini]

According to two sources cited by the agency, the new proposal would see savers with less than 100,000 euros in their accounts pay a one-time tax of 3 percent.

Probably a small price to pay for receiving an EU bailout.

The prime lending rate in Cyprus has been running at more than 3% higher compare to that of the staple countries (France, Germany) of the euro zone.
Source: https://www.cia.gov/library/publicat...elds/2208.html

[DaytonIllini]

Originally Posted by 886Illini

Probably a small price to pay for receiving an EU bailout.

The prime lending rate in Cyprus has been running at more than 3% higher compare to that of the staple countries (France, Germany) of the euro zone.
Source: https://www.cia.gov/library/publicat...elds/2208.html

No it's not. They should not pay a penny. It ruins the compact between saver and bank and the inplementation of this directly threatens your savings. Why would we ever trust a bank when this can happen.

It is a given that one of the great constructs of the western banking system was the protection afforded by post-depression era banking regulations including FDIC insurance. To sacrifice that for some fly speck like Cyprus is foolhardy by any measure.

People's wealth is not some savings bank the government should be able to raid at will.

[886Illini]

Originally Posted by DaytonIllini

People's wealth is not some savings bank the government should be able to raid at will.

If no bailout is involved, yes, we would be in agreement. In order to receive a bailout, some concession(s) must be made. Why should people in Germany again shoulder the brunt of this EU bailout? Ultimately, it is the people in Cyprus that put that government in place, which produced a fiscal policy that required a bailout. So this is the collective responsibility must be shoulder by people of Cyprus. For the foreign depositors, they just got caught in a risky maneuver seeking higher return. And if that pinches the tinted money, even better.

Hopefully a lesson here for some of the less fiscally sound countries in the euro zone. If they dont want to see a bailout tax levied on their bank savings, put in a fiscally responsible government.

[DaytonIllini]

Originally Posted by 886Illini

If no bailout is involved, yes, we would be in agreement. In order to receive a bailout, some concession(s) must be made. Why should people in Germany again shoulder the brunt of this EU bailout? Ultimately, it is the people in Cyprus that put that government in place, which produced a fiscal policy that required a bailout. So this is the collective responsibility must be shoulder by people of Cyprus. For the foreign depositors, they just got caught in a risky maneuver seeking higher return. And if that pinches the tinted money, even better.

Hopefully a lesson here for some of the less fiscally sound countries in the euro zone. If they dont want to see a bailout tax levied on their bank savings, put in a fiscally responsible government.

The banks are being bailed out. They are owned by shareholders and bondholders. They are not owned by passbook savings account holders.

Yet they are asking people who don't need a bailout to pay the burden while the shareholders (owners) and bondholders (creditors) are not getting a haircut. This is unprecedented.

If they wanted to give account holders above 100K Euros a haircut AFTER wiping out the shareholders and bondholders it would make sense. I don't see how you could think that the guy STORING his money in a bank should lose it before the bank OWNER does. Why would you tax people's savings? Many of them are retirees that have no way of getting that money back. If the Cypriots need to pay, and that is fine, it should be through taxes, not through confiscation of savings.

[BES76]

Originally Posted by 886Illini

If no bailout is involved, yes, we would be in agreement. In order to receive a bailout, some concession(s) must be made. Why should people in Germany again shoulder the brunt of this EU bailout? Ultimately, it is the people in Cyprus that put that government in place, which produced a fiscal policy that required a bailout. So this is the collective responsibility must be shoulder by people of Cyprus. For the foreign depositors, they just got caught in a risky maneuver seeking higher return. And if that pinches the tinted money, even better.

Hopefully a lesson here for some of the less fiscally sound countries in the euro zone. If they dont want to see a bailout tax levied on their bank savings, put in a fiscally responsible government.

This logic justifies the US Gov. declaring that to rid the US of mafia money they will tax all bank savings accounts above $xxK, and on top of that, foreign investors must carry the brunt of the US debt incurred by the US Gov/citizens (the majority of the accounts impacted are not Cypriots as I read the article). Really?

[886Illini]

Originally Posted by DaytonIllini

The banks are being bailed out. They are owned by shareholders and bondholders. They are not owned by passbook savings account holders.

Yet they are asking people who don't need a bailout to pay the burden while the shareholders (owners) and bondholders (creditors) are not getting a haircut. This is unprecedented.

If they wanted to give account holders above 100K Euros a haircut AFTER wiping out the shareholders and bondholders it would make sense. I don't see how you could think that the guy STORING his money in a bank should lose it before the bank OWNER does. Why would you tax people's savings? Many of them are retirees that have no way of getting that money back. If the Cypriots need to pay, and that is fine, it should be through taxes, not through confiscation of savings.

The last round of bailout for Greece probably had a lot do to with how EU wanted to proceed with this Cyprus bailout. EU probably wanted to have a deterministic result and not a fix hinged on some unknown variables.

Bailout is for the central bank. The pact you spoke of is between the commercial banks and their account holders. In utopia, the commercial banks probably should shield the account holders and absorb the bailout tax levied.

I do also feel bad for retirees having their savings principle reduced. But they have been the beneficiaries of a much higher compounding interest rate for many many years.

[886Illini]

Originally Posted by BES76

This logic justifies the US Gov. declaring that to rid the US of mafia money they will tax all bank savings accounts above $xxK, and on top of that, foreign investors must carry the brunt of the US debt incurred by the US Gov/citizens (the majority of the accounts impacted are not Cypriots as I read the article). Really?

The Fed is not in bailout mode, so this line of supposition with US savings accounts is immaterial.

Foreign depositors can gauge the credit ratings worldwide and have the option of where to move their money. If the fundamental credit worthiness is being ignored in pursue of some shelter or some higher interest rate, then it is just on the foreign depositors for taking that risk.

[DaytonIllini]

Originally Posted by 886Illini

Foreign depositors can gauge the credit ratings worldwide and have the option of where to move their money. If the fundamental credit worthiness is being ignored in pursue of some shelter or some higher interest rate, then it is just on the foreign depositors for taking that risk.

This is confiscation. The money in those accounts is not in any way shape or fashion the property of the government. There was no default of the banks as you say. Then why would foreign investors be worried about money in solvent banks. It's simply an absurd argument the EU made. I am surprised that several of them have not been assassinated. That would end this type of theft.

[BES76]

Originally Posted by 886Illini

The Fed is not in bailout mode, so this line of supposition with US savings accounts is immaterial..

It is material because it sets a precedent that the US Gov. (or any gov.) could follow if so desired. What happens the next time the Fed is in a bailout mode?

[DaytonIllini]

Originally Posted by BES76

It is material because it sets a precedent that the US Gov. (or any gov.) could follow if so desired. What happens the next time the Fed is in a bailout mode?

12 banks have failed so far this year. By the precedent of Cyprus you could just scalp the depositors.

Having to judge credit risk is an impossible task. If you have to do that, nobody should have any money in Spanish, Greek or Italian banks. If people start to believe that is a justifiable opinion the entire world's banking system falls apart.

Cyprus could be the Giant that Roared.

[886Illini]

Originally Posted by BES76

It is material because it sets a precedent that the US Gov. (or any gov.) could follow if so desired. What happens the next time the Fed is in a bailout mode?

My response was unclear, I meant the Fed is not in the mode of being bailed out (as the Cyprus central bank is in the process of being bailout by EU). If the Fed is ever in the situation requiring bailout by some foreign monetary entity, then the US has really really gone down that hill.