Europe is falling apart---close to bringing the whole world down.

I'm kinda surprised the stock market isn't lower. It fell almost 400 today, but over the past month it rallied from under 11,000 to over 12,000.

 

Norway's working it too.

 

LMAO Obama's leadership has been pitiful throughout this. He's the most powerful man in the world, but nowhere to be found.

 

It's artificially inflated. Cute trick

 

yes he should have been more vocal in his support for less regulation.

 

Ron Paul's been saying it for more than years... decades.

 

Leave it to you to blame him for Europe's problems. If he did something more, you'd probably have blasted him for it.

 

They need to solve the sovereign debt problem by not just kicking the can further down the road. The Greece plan appears to be sound based on the periphery details, they need to take similar action in Italy, Spain, and Portugal.


http://www.economist.com/blogs/freeexchange/2011/11/euro-crisis-5

The euro crisis

Finito?

Nov 9th 2011, 15:09 by R.A. | WASHINGTON

SILVIO BERLUSCONI'S promise to resign has done nothing to calm European bond markets. Italian bond yields are soaring today; both the two-year and the ten-year are above 7%. There are rumours that the ECB is in the market and buying heavily. If so, it's not having the desired effect. The ECB can't hope to keep yields reasonable through brute force. It will need to make an expectations-changing announcement. Will it? Italy's yields aren't the only ones rising. Markets are ditching Irish, Spanish, Belgian, and French debt too. The ten-year Treasury is back below 2%.

Yesterday, I wondered why equities weren't falling. Today, they are. But I think Tim Duy is on to something here:

"All I can say is that we have been here before. Recall 2007...By the middle of 2007 the TED spread was exploding, signaling enormous financial turmoil. Yet equities kept heading upward, fueled by data that was just not that bad coupled with ongoing expectations that a solution was just around the corner. And now we find ourselves in almost the exact same position...the news out of Europe is abysmal...There is no solution, no magic summit at hand. At this point, it is a choice between severe recession and depression. There is no happy ending to this story."

I have been examining and re-examining the situation, trying to find the potential happy ending. It isn't there. The euro zone is in a death spiral. Markets are abandoning the periphery, including Italy, which is the world's eighth largest economy and third largest bond market. This is triggering margin calls and leading banks to pull credit from the European market. This, in turn, is damaging the European economy, which is already being squeezed by the austerity programmes adopted in every large euro-zone economy. A weakening economy will damage revenues, undermining efforts at fiscal consolidation, further driving away investors and potentially triggering more austerity. The cycle will continue until something breaks. Eventually, one economy or another will face a true bank run and severe capital flight and will be forced to adopt capital controls. At that point, it will effectively be out of the euro area. What happens next isn't clear, but it's unlikely to be pretty.

Can this cycle be interrupted? I think so. I think that an ECB guarantee to backstop sovereign debt, coupled with massive purchases to establish credibility and a substantial easing in monetary policy, could change the dynamic, particularly if quickly followed up with a major fiscal commitment from core economies to support bail-out efforts and invest in peripheral economies while peripheral economies focus on substantial labour market, public-sector, and tax reforms. How likely does all of that sound? Could the ECB even commit to the above bold actions without facing debilitating criticism, and perhaps intervention, from national governments?

I hate to get this pessimistic about the situation. It feels panicky and overwrought. I can't believe that Europe would allow so damaging an outcome as a financial collapse and break-up to occur. And I still don't understand why, if this is all as obvious as it seems to me, equities aren't down 20% now, rather than 2% or 3%. But the window within which something could be done to prevent it is closing, and fast. I hope to be proven astoundingly wrong in my assessment, but I'm struggling to see alternative outcomes.

 

Greek plan is sound only in the respect that they just made all the banks take huge losses on debt, and somehow pretended it was voluntary, so none of the CDS contracts had to pay off.

That doesn't work with Italy, Spain, and Portugal because there's way too much debt involved. You'd collapse the banks, and CDS contracts would blow up the system.

The problem with anyone doing anything here is that I don't know if anyone knows what actually can be done. The ultimate solution is likely to be blowing up the Euro, which will be chaotic, or printing lots and lots of Euros and buying up everyone's debt, if they can get all the countries to reform the EU and even allow it.

 

Have you ever heard about the story where the chicken says that the sky is falling?

 

That's pretty much it. The ECB could help a lot by buying up the Italian bonds, but I'm not sure that's even legal for them. Or Eurobonds could be issued, but it's doubtful Germany would ever go for that.

I wonder why they never planned exit strategies for individual countries when they first started the Euro?

 

The sky eventually fell?

 

How does this actually affect the average American like me?

 

Check the stock market today for starters.

 

It could cause another recession here.

 

Good question - I remember lots of people talking about how one currency was going to be a disaster. Most of it was because of imbalances between needs of different countries, as opposed to a debt debacle, but you'd think they'd at least have prepared some kind of contigency plan for if those concerns came true.

 

At the time, I thought the British were wise to keep their own currency. I still think so, but if their banks hold hundreds of billions in bonds from Greece, Italy, etc., etc., then they still have exposure in this crisis, and they aren't alone. They need to get this fixed, soonest. The Euro must have seemed like a good idea in the abstract, but the reality has proven to be a disaster. Italy would be better off had they kept the lira.