Buying in the Dips or the top of a Clift?

9th Jun '12 by Christopher Bussell

4 comments 7415 reads

I try to read as much as I can about the market and trading conditions, So why is Europe dragging it's feet? They have to keep the Euro and make it stronger. extend the time line of the debt short term and then pay off the debt faster in the good times. Get some trust back into the system. Start to be more productive and then pay back the debt back faster at a later date.

Explane this in simple terms and the reason why this has to happen and the top of the Clift starts to go away. A good business is still a good business so why push it over the edge. If investers have more trust in the economic system and a good plan is followed. Then we can all still buy in the dips and make a profit for all our futures.

There is nothing wrong with making money. It is how you spend it or invest it that is important. Note to self, do not buy banks with rotten debt packages! In US or Europe.

Have fun and make money.

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Fangorn

10th Jun '12

I suspect you've hit the nail on the head in your second paragraph where you state " A good business is still a good business so why push it over the edge"

The Eurozone is not a good business, in any form. It has been a politically driven ideology from start to finish. It is undemocratic,and exceedingly inefficient and costly in its current form.What is required is full fiscal as well as political union. Fixing currencies, without any of the other elements, is doomed to failure. History has shown us that.

Add to that the fact that none of the electorates of its members would have voted(or indeed will now vote) for full fiscal and political union - not even the Germans when they realise they will be on the hook for hundreds of billions and you can see how utterly bad the whole idea is.

On the plus side their continued procrastination offers up opportunities to bottom fish but, given the real problems in Spain and Italy I'm pretty concerned that we might see a complete EU implosion - the effects on the pensions and savings in the face of such eventuality will be grim reading to say the least.

LongbeardRanger

Mmm...I very much agree, with perhaps one slightly different take on the situation. The whole set up of the Euro was (and is) structurally designed for the benefit of the German economy - whether wittingly or, more likely imho, unwittingly. It has entrenched the absorption of German surpluses by consumption in the so called periphery, and has also entrenched the corresponding capital flows from Germany to the periphery (in this case largely by the extension of loans through the German banking system) and the accumulated German surplus is recycled into the periphery to finance its consumption of German excess production. The accumulated deficits of peripheral Eurozone nations are simply an inevitable consequence of the mechanics of capital flows.

There is an important conclusion to draw from this, and that is that any view of the eurozone crisis that seeks to explain the problems in terms of "feckless peripherals" and "virtuous Germans" (or any variation on that theme) is doomed to failure. The Germans are at least as much (and probably, given their size and influence in eurozone economic policy, much more) responsible for the current debacle as the peripherals. Until a solution is proposed that takes this into account (and there are effectively only two: either fiscal transfers from surplus to deficit areas, or peripherals leaving the zone) then problems will continue to accumulate.

Hi Longbeard.

There is indeed no doubt that the German export machine has benefited immensely from the relative cheap Euro compared to the likely strong Deutschmark they would've had if the Eurozone hadn't come into existence. I wouldn't go as far as saying it was structurally designed for the German economy however, witting or unwitting, as the whole premise was originated in post WW2 determination to entwine Germany so tightly with the rest of Europe that a fourth major European conflict could never occur. To this extent it has been remarkably successful it seems.

Fecklessness of peripherals has certainly played a part - some, such as Greece, should never have even been allowed to join. I'd certainly not say the Germans are at least as responsible for the current debacle. Concurrent Euro politicians yes. Quite simply because they have all consistently lied - what was meant to be a "Free trade" idea has morphed into ever closer political union. The political class also conveniently avoided mentioning that for a united currency to work would also require a common fiscal/political policy because they knew member states would not vote for that. So they took what they could get away with, a common currency - and even then they ignored the democratic wishes of several national populations. This is why we are at the point we are now at. The Euro has always been doomed to fail.

Just watch how things develop from here. Spain bailout will precede "closer" union of member states, a new treaty will be drafted. Again the populations of nation states will either be denied the right to vote or will be ignored if they vote the wrong way. The Euro crisis will be used as an excuse to force nation states, undemocratically, to forge ever closer union. Which is exactly what the original proponents of the common currency were banking on,and why they accepted the Euro as the first step, knowing that they would eventually get the fiscal and political union they so wanted.

The solutions are simply.

1) The Eurozone needs to either split into a Hard / Soft Euro(with Germany and Benelux in the former), the Southern Europeans being in the latter with Greece expelled

2) Germany alone needs to leave the Euro, reintroduce the Deutchmark allowing both currencies to float to where their real values lie.

Yes both routes imply a serious reduction in quality of life/purchasing power for Southern Europeans but that is inevitable - they simply don't produce nearly enough things competitively in this modern age. And much is far too expensive, both in Europe and the UK for that matter.

marben100

Whilst the issues are not as simple as the OP suggests, Niall Ferguson and Nouriel Roubini summed them up - and the remaining options - very well on Saturday, here: http://www.ft.com/cms/s/0/c49b69d8-b187-11e1-bbf9-00144feabdc0.html

The only real solution to Eurozone (and probably EU) breakup - with potentially devastating political as well as economic consequences - is fundamental treaty change. Normally, that is a process that would take years, but as Soros expounded here: http://neoalpha.blogspot.co.uk/2012/06/george-soros-speech-from-festival-of.html the politicans haven't got years - more like a few months, at most.

I feel we are really approaching a turning point in history. Whilst I am normally an optimistic chap, I do fear that there won't be enough political imagination to solve this in time. If they do, then the UK will be faced with a key question: in or out of a fundamentally new EU? The disadvantages of staying out could be substantial, as our exporters would have to comply with EU directives, if they wish to trade with Europe but would no longer have any say over their drafting (simiular situation to that which Norway finds itself in). Personally (assuming there is a referendum, which I think there will have to be) my decision would rest on whether the current "democratic deficit" is resolved, or whether EU laws continue to be drawn up by unelected commissioners.

Mark

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Christopher Bussell

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