Trading Desk reports “mayhem” in the AAA Eurozone markets
Posted by WARREN MOSLER on November 15th, 2011
I just received this.
Seems money managers with fiduciary responsibility are holding off on buying any euro member securities since the 50% Greek haircuts were announced.
Our Trading Desk reports “mayhem” in the AAA Eurozone markets
- France 11bps wider
- Netherlands 6bps wider
France now 178bps over Germany
Increasing talk/fear of Eurozone break up and capitulation trades in AAA markets are widespread.
We are seeing no real demand for anything – even Germany.
Tomorrow’s Shatz auction looks a big ask with a yield of 30bps and no risk appetite out there.
November 15th, 2011 at 9:08 am
Warren, it’s off topic, but, where can I read something about Italy crisis of 1992? Have you ever written something about it?
thanks
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Art Reply:
November 15th, 2011 at 11:37 am
@Luigi,
Extremely timely — starts on page 52:
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
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WARREN MOSLER Reply:
November 15th, 2011 at 1:37 pm
just what’s in the 7dif. haven’t written anything else
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Luigi Reply:
November 15th, 2011 at 5:24 pm
@WARREN MOSLER,
Yes thanks Art, I’ve read 7DIF, two or three times.
In 92, Italy left EMS, so Italy had a floating exchange rate. anyway, nothing really change, but it had the characteristics of a sovereign nation. current account wasn’t so bad like now. why there was that situation?
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WARREN MOSLER Reply:
November 16th, 2011 at 6:51 am
Debt to gdp was maybe 110%, inflation was low double digit, interest rates same as the bank of italy kept them high to fight the inflation but in my way of thinking was contributing to it and largely causing it. A prof Rudi Dornbush, also from MIT, was forecasting certain default and everyone believed it. There were also with holding tax issues. Sometime back then I met with some of the central bankers, I recall one name began with a V, who were petrified that if they brought rates down to be in line with the EU entry requirements the currency would weaken. I suggested it would instead firm, as it would quickly reduce govt int. expense and interest income for the economy, which is what happened, if I recall correctly, and someone there wrote an academic paper on how lowering rates with high debt to gdp levels could be deflationary.
November 15th, 2011 at 9:41 am
Looks like deficit terrorists win in Europe and I think It is going to break up eventually. All the blame will go on excessive deficit spending.
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November 15th, 2011 at 3:44 pm
What will happen to the value of German bonds denominated in USD or AUD if Germany goes off Euro? Everyone would assume that new Mark would only appreciate as there will be a stampede to change all the existing assets into DM and the Germans are intellectually unable to contemplate any policies aiming at weakening the currency.
Does it make sense or am I too rational to be a speculator?
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Art Reply:
November 16th, 2011 at 7:51 am
@Adam (ak),
This is not investment advice, but a newly sovereign Germany probably would remain a safe haven. However, its current safe haven status does not make sense to me, as like the rest of the EMU, it is essentially an external debtor. But considering how often people claim that the German taxpayer is on the hook for other countries’ debt, I guess that shouldn’t be surprising. I just wonder when it will catch up with them, and if that’s what it will take to move them off of their Weimar phobia.
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