Euro on the brink of DISASTER: Germany’s debt plans could send currency into MELTDOWN

Remember what Merkel said in 2012. Destroying to rebuild is the case here.

 

GERMANY could spark the eurozone’s collapse with controversial changes to government debt and bailout rules, a leading economist has warned.

Professor Peter Bofinger, a special advisor to the Berlin-based government, said Italy and Spain could potentially be forced out of the euro and back to their own currencies under new plans.

Under the proposed scheme, investors who hold Eurozone government-issued debts through bonds would have to accept write-offs on the value of their investment before the group steps in to offer bailout cash. Continue reading

Next financial crash is coming – and before we’ve fixed flaws from last one

In case you missed it last week:

 

The next financial crisis is coming, it’s a just a matter of time – and we haven’t finished fixing the flaws in the global system that were so brutally exposed by the last one.

That is the message from the International Monetary Fund’s latest Global Financial Stability report, which will make sobering reading for the finance ministers and central bankers gathered in Lima, Peru, for its annual meeting. Continue reading

IMF warns of new financial crisis if interest rates rise

Fund says governments in emerging markets should prepare now for a new credit crunch because of a 10-year corporate borrowing binge

Rising global interest rates could prompt a new credit crunch in emerging markets, as businesses that have ridden the wave of cheap money to load up on debt are pushed into crisis, the International Monetary Fund has warned.

The debts of non-financial firms in emerging market economies quadrupled, from $4tn (£2.6tn) in 2004 to well over $18tn in 2014, according to the IMF’s twice-yearly Global Financial Stability Report. Continue reading

IMF fears ‘cascade’ of woes as Fed crunch nears

The United States is poised to raise rates much more sharply than markets expect, risking a potential storm for global asset prices and a dollar shock for much of the developing world, the International Monetary Fund has warned.

The IMF fears a “cascade of disruptive adjustments” as the US Federal Reserve finally pulls the trigger for the first time in eight years, ending an era of cheap and abundant dollar liquidity for the international system.

Continue reading

Eight possible scenarios if Greece defaults and leaves the Eurozone

A look at possible scenarios if Greece defaults and leaves the Eurozone:

2. Bank runs

Regular citizens will empty their bank accounts before they converted into a new currency worth less than the previous one. The government may impose a freeze on withdrawal and banks from other countries that have lent to Greece could also collapse. Continue reading

Billionaires Dumping Stocks, Economist Knows Why

Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.

In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel. Continue reading

US taper risks fresh crisis, says Deutsche Bank

Deutsche Bank says policymakers have become so used to “throwing liquidity” at structural problems that asset prices had become distorted and risked triggering a fresh crisis

Scaling back the Federal Reserve’s massive bond-buying programme risks throwing the global economy into disarray next year, Deutsche Bank has warned, with lenders unable to cope with higher borrowing costs, despite stronger economic growth. Continue reading

US default risk is real, Washington warns Wall Street

Money lenders trust America so implicitly that they generally dismiss the risk it won’t pay its debts. But in the US capital, fears are growing that political dysfunction might trigger the unthinkable.

A few years ago one would have said, ‘Don’t be silly. Of course they will raise the debt ceiling.’ But one can’t say that any more.  

Government veterans from both political parties are aghast that lawmakers openly speak of managing a default that could be triggered next month if they don’t authorise more borrowing. Continue reading

Italy could need EU rescue within six months, warns Mediobanca

Italy is likely to need an EU rescue within six months as the country slides into deeper economic crisis and a credit crunch spreads to large companies, a top Italian bank has warned privately.

Mediobanca, Italy’s second biggest bank, said its “index of solvency risk” for Italy was already flashing warning signs as the worldwide bond rout continued into a second week, pushing up borrowing costs.

“Time is running out fast,” said Mediobanca’s top analyst, Antonio Guglielmi, in a confidential client note. “The Italian macro situation has not improved over the last quarter, rather the contrary. Some 160 large corporates in Italy are now in special crisis administration.” Continue reading

World’s major central banks act with new boldness as economies falter

Central bankers, anywhere in the world, are a cautious lot. They prefer slow and steady over the dramatic gesture. And they rarely go public with criticisms of other central banks.

But the economic stagnation of the major developed nations has driven central banks in the United States, Japan, Britain and the European Union to take increasingly aggressive action. Because governments are not taking steps to revive economies, like increasing spending or cutting taxes, the traditional concern of central bankers that economic growth will cause too much inflation has been supplanted by the fear that growth is not fast enough to prevent deflation, or falling prices. Continue reading

The Next Big Battle Will Be About Keeping Germany In The Eurozone

While everyone at the very top still hues to the line that Greece should stay in the Eurozone, out of the other side of the mouth comes but—especially since the focus is on Spain, the real problem, the one problem that the Eurozone will have trouble digesting.

Even if it could digest bailing out Spain or losing Spain, the next step up, Italy, due to its size, is beyond bailout and would cause the Eurozone to fracture into its component pieces—unless the ECB decides against all treaty limitations and stiff German opposition to monetize directly and without qualms any sovereign debt that needs to be monetized.

And even that would tear up the Eurozone because Germany and a handful of other countries would refuse to be tied to that kind of loosey-goosey management of their currency.

Apparently, Germans have understood how insidious—insidious for Germans, but a great deal for debt-sinner countries—these bonds would be. They’d spread the risk of each country to all countries, but the last man standing, possibly Germany, would end up having to bear them all. They’d cut the borrowing costs for Greece (oops, scratch that), Spain, Italy, and a slew of other Eurozone countries but raise the costs for Germany—now zero on shorter term debt, and negative when adjusted for inflation. It didn’t help that Bundesbank President Jens Weidmann vilified them in his quiet manner every chance he got, most recently when he said, “The belief that Eurobonds could solve the current crisis is an illusion.”

But the next big battle may actually revolve around keeping Germany in the Eurozone: 50% of the respondents saw more disadvantages than advantages, up from 43% in February; only 45% saw more advantages, down from 51% in February. The more costs and risks rise for Germany, the more this number is going to skew away from the euro. A scary trend for Eurozone bailout freaks. And suddenly Germans woke up to the headline, “Greeks Pay less Taxes”—taxes being a sore subject for Germans who pay out of their noses to get their welfare-state budget into balance. For a debacle without equal, read…. The Confiscation Conundrum in Europe.

“The notoriously tax-sinning Greeks paid their government even less than before,” the article began unnervingly. Turns out, Reuters had gotten two anonymous “senior” finance ministry officials to talk: Greeks were refusing to pay their taxes in euros in anticipation that they could soon pay them in drachmas, albeit with minor penalties. And lacking a government, they wanted to wait for the outcome of the next election on June 17, which hopefully would produce a government, any government. And so tax revenues in May were on track to drop 10%. Outside of Athens and Thessaloniki, tax revenues would fall between 15% and 30%. First capital flight then quiet bank runs, and now a refusal to pay taxes to a government they don’t have, in a currency they might not have much longer…. The Greeks are preparing for a reversion to the drachma, and they’re trying, very understandably, and very smartly, to protect whatever they can—which, of course, simply speeds up the process of reverting to the drachma.

Full article: The Next Big Battle Will Be About Keeping Germany In The Eurozone (Business Insider)