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Portugal seeks bailout and becomes 3rd victim of Europe debt crisis


Alekbaylee
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That's my concern.  Spain or Italy is next, and the European Union is going to have a hard time funding that one, let alone coming to some consensus.  All the while investor's go blithely by inflating every asset class except cash.  Cheers! 

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What does it tell us that the Euro is not taking a hit?  That the situation is not much better elsewhere.

 

Let us look at the US.  Total federal revenue, about 2 trillion a year.  Total debt about 14 trillion.  By the time you add the off balance sheet stuff and discount it you have probably something like 30 trillion.  So 30 trillion debt and 2 trillion total revenue, the debt is 15 times the total revenue.  Is the US bankrupt or what?

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What does it tell us that the Euro is not taking a hit?  That the situation is not much better elsewhere.

 

Let us look at the US.  Total federal revenue, about 2 trillion a year.  Total debt about 14 trillion.  By the time you add the off balance sheet stuff and discount it you have probably something like 30 trillion.  So 30 trillion debt and 2 trillion total revenue, the debt is 15 times the total revenue.  Is the US bankrupt or what?

 

The theory about shorting EUR is if I am German and France, why the hell I want to use my own  money to save the PIGGS. German won't do well with sky-rocketing EURO.

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"Portugal seeks bailout and becomes 3rd victim of Europe debt crisis"

 

and doesnt even cause a ripple!

Every dog on the street knew that Portugal was going to require a bailout, especially after the current government was overturned because they weren't able to push through their austerity budget.

and didnt cause a ripple then either.

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"...Spain or Italy is next, and the European Union is going to have a hard time funding that one, let alone coming to some consensus.  All the while investor's go blithely by inflating every asset class except cash."

 

Parsad, are you implying that with the ensuing crisis in Europe interest rates will have to rise thereby allowing people with cash the opportunity to finally earn a decent return???

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Parsad, are you implying that with the ensuing crisis in Europe interest rates will have to rise thereby allowing people with cash the opportunity to finally earn a decent return???

 

Yes, rates will go up somewhat.  Not huge, but they will go up.  I'm pretty certain at this point that stagflation is exactly what we are going to experience.  Not 70's level stagflation, but stagflation nonetheless.  Pick your stocks and buy them cheap.  We'll be going sideways for a while.  Cheers!

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Guest broxburnboy

Parsad, are you implying that with the ensuing crisis in Europe interest rates will have to rise thereby allowing people with cash the opportunity to finally earn a decent return???

 

Yes, rates will go up somewhat.  Not huge, but they will go up.  I'm pretty certain at this point that stagflation is exactly what we are going to experience.  Not 70's level stagflation, but stagflation nonetheless.  Pick your stocks and buy them cheap.  We'll be going sideways for a while.  Cheers!

 

Here's a decent discussion on stagflation from Wikipedia:

 

http://en.wikipedia.org/wiki/Stagflation#Explaining_the_1970s_stagflation

 

I don't think that conditions today are similar in the Western economies.. in stagflation, the economy finds a balance in high wage and price inflation during a protracted period of economic stagnation.

I think this (US) economy is clearly worsening - decreased wealth, increasing government debt, inability of government spending to stimulate real earnings growth and now the specter of increasing interest costs to governments which will almost undoubtedly be met by the monetization of more new debt (which incidentally punishes those who hold cash by dillution). Consequently stock and commodity prices will continue to rise in USD terms especially as bond prices fall. This looks more like the beginning of a hyperinflationary period in the US.

 

My favorite quotes from the WIKI article:

 

Thus the main explanation for stagflation under a classical view of the economy is simply policy errors that affect both inflation and the labor market. Ironically, a very clear argument in favor of the classical explanation of stagflation was provided by Keynes himself. In 1919, John Maynard Keynes described the inflation and economic stagnation gripping Europe in his book The Economic Consequences of the Peace. Keynes wrote:

 

    "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some." [...]

 

    "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

 

Keynes explicitly pointed out the relationship between governments printing money and inflation.

 

    "The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance."

 

 

Keynes detailed the relationship between German government deficits and inflation.

 

    "In Germany the total expenditure of the Empire, the Federal States, and the Communes in 1919-20 is estimated at 25 milliards of marks, of which not above 10 milliards are covered by previously existing taxation. This is without allowing anything for the payment of the indemnity. In Russia, Poland, Hungary, or Austria such a thing as a budget cannot be seriously considered to exist at all."

 

    "Thus the menace of inflationism described above is not merely a product of the war, of which peace begins the cure. It is a continuing phenomenon of which the end is not yet in sight."

 

 

 

 

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