Can the euro payments system last the week?


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Euro equities and banks are now under attack, and the ECB is effectively borrowing hundreds of billions USD from the Fed via swap lines. The eurozone deposit insurance is by the national governments, not the ECN, which are credit constrained.

National government euro bonds have been supported by various CB/monetary authority allocations that are slowing with slowing net exports.

A major bank failure becomes infinitely more problematic in the eurozone than in the US, Japan, or UK, all who have deposit insurance at the ‘federal’ level.

The risk in the eurozone is the payments system completely shuts down, and re opens only when the ECB is allowed to conduct what amounts to fiscal transfers.

In a crunch, USD borrowings will need to be serviced from selling euros to buy USD and result in a sharply falling euro.

Yields on the national government bonds will move sharply higher due to credit concerns, as will credit default premiums in general.

For 10 years the euro ‘system’ has functioned reasonably well on the way up.

The systemic risk is only on the way down. And once in motion, it will unwind very quickly.

Protect yourself by not having any euro deposits, buying out of the money puts on the national government bonds and out of the money puts on the euro.

And then hope you lose those bets!


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13 Responses to Can the euro payments system last the week?

  1. jcmccutcheon says:

    but in the nuclear age, one starving terrorist can do a lot more damage
    Good point there.

    Reply

  2. R. Benson says:

    cutcheon: “invisible hand my good man.”

    I remember reading a book from jared diamond about these european folks in alaska who wouldn’t eat fish or seal and ate their last cow then starved to death, why didn’t the invisible hand come in and save them? They followed their “institutional structure” right into death.

    When you are raised not to worship “a few dollars more” then even when the institutional structure is pushing you over the cliff and into starvation to chase that next dollar, a person thinking outside the box will not fall into that trap. At the end of Rome citizens were gladly throwing themselves into slavery under large land owners because it was the only way they could eat, the roman military and government consumed too many resources.

    Warren: “and when market forces operating in the current institutional structure/monetary system drive up food prices as we burn up our food supply for fuel, it doesn’t stop until the marginal guy starving to death has sufficient political power to stop this madness.”

    I saw starving people in darfur, I saw farmers in china get pushed off their land for a new car dealership to be erected, the militaries and mercenaries protecting the “instiutional structure” is still far more powerful than the common plebe can rally against. It took Rome a long time to fall and for the barbarians to bust up the institutional structure that was starving many of the citizens in europe.

    “And he’s not the millionth guy to starve to death, more like the 50 millionth.”

    In the old days 1 starving terrorist maybe killed 1 or 2 of your praetorians if he had the element of surprise, but in the nuclear age, one starving terrorist can do a lot more damage.

    Reply

  3. warren mosler says:

    right,

    and when market forces operating in the current institutional structure/monetary system drive up food prices as we burn up our food supply for fuel, it doesn’t stop until the marginal guy starving to death has sufficient political power to stop this madness. And he’s not the millionth guy to starve to death, more like the 50 millionth.

    market forces work within man made institutional structure. outcomes are a function of that structure

    Reply

  4. jcmccutcheon says:

    If everyone shifted to the financial sphere then the costs of food and other goods and services would skyrocket thereby making it more lucrative to work in those other fields. That’s the invisible hand my good man.

    Reply

  5. Mike Magoo says:

    Cutcheon look at these 2 pictures.

    The worlds largest trading floor, UBS.

    http://www.rodrickbrown.com/docs/images/ubsld1.jpg

    The worlds largest casino

    http://cache.daylife.com/imageserve/03zCfMD1sTbKx/610x.jpg

    What’s the difference? Just a bunch of silly humans clicking buttons back and forth. None of the humans in either place are making science or medical advances are they?

    Reply

  6. Mike Magoo says:

    Cutcheon, I guess you are right, I think every human being on the
    planet should call up bloomberg and have him install a terminal in their house. For those kids that still live in stick huts and mud caves, well we have the OLPC laptops with mesh networking and solar and dynamo energy sources – so we can even get the starving poor kids in africa and the jungles of south america playing in the market casino making the markets more efficient. Now when all 7 billion are on thier computers clicking buttons back and forth 24/7 we will have the best world ever right? You are so silly and so myopic you can’t see the forest for the tree. This aint my meme, this is an old meme from many great monetary gods.

    I used to go to the park in new york and watch the people playing chess everyday, thousands of people dedicating their entire lives to who could win the chess game, what a waste – but to them – that was all there was to live for. But you know more than me, lets turn all 7 billion humans into bobby fischer clones clicking buttons back in forth to win the trading game, that is going to solve the long term problems of mankind. I am flying to africa now to join the peace corps to make sure every child gets their OLPC and IB trading account with tradestation software, have to get more players into the casino.

    Reply

  7. jcmccutcheon says:

    Wild hoover printing press wesley snipes guy,
    IMHO, I think we should stop when the system rewards those who actually do work that is productive to society at large.

    Reply

  8. warren mosler says:

    can i let my existing positions run off? they’ll be gone in less than a year

    Reply

  9. Mike Magoo says:

    No, you are getting sucked into the bottomless pit! Stop encouarging this Warren – you are doing a terrible thing!

    Stop the insanity, clicking buttons and trading futures on currency swaps does not get us cancer advancements or 3D high efficient solar cells. Stop encouraging people to join the “fetish of liquidity” and sell their souls to Satan! All this clicking of buttons and reading bloomberg terminals to get “a few dollars more” does not help humanity long term – stop it WARREN! Lead by example – never trade another futures contract again!

    Fired Up: Intel Chairman Barrett says America is Throwing its Future “Down the Drain”
    http://www.businessweek.com/the_thread/techbeat/archives/2008/09/intel_chairman.html

    Intel chairman Craig R. Barrett is a frustrated man. Barrett, who visited the BusinessWeek office today, sat down with a group of editors and aired his views on the financial crisis, the future of innovation and the U.S. political situation. His startling conclusion about America’s current predicament: “It’s our future and we’re throwing it down the drain.”

    An engineer and professor by training, Barrett is a typically cool character. But in a 30-minute conversation, the silver-haired technology veteran vented his anger and frustration over Washington’s inability to solve America’s long-term problems. He is particularly upset that Washington failed to write a check for the $1.2 billion in increased funding for basic research and science and technology education authorized by the America Competes Act, which President Bush signed into law in August of 2007.

    Reply

  10. warren mosler says:

    agreed, use the options

    Reply

  11. jcmccutcheon says:

    Why not play the dollar-euro forex pair or future?

    Reply

  12. warren mosler says:

    looking forward to it myself!

    Reply

  13. Mike Magoo says:

    I remember you said you were trading based on a hope of euro decline. I hope it falls too, I am tired of the euro kids getting to see mickey mouse in florida but not my kids. Maybe if the euro collapses I can afford a hotel room in orlando with american currency.

    Still, I am waiting for your jerry maguire moment where you send back the bloomberg terminal and never make another trade EVER again, the fetish of liquidity is the greatest demon of all and it steals lots of souls.

    Reply

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