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PIIGS / Europe's Debt Troubles

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Inflation.

 

It was huge in these countries (including wages) when their borrowing rates were so high, yes?

 

Now the fear is deflation, with high borrowing rates (ouch :o ) double trouble.

OK, biggest financial crisis ever, but hyper-inflation still "only" lurking/in the hide. Fine. 25% interest is pretty fair under these conditions for Italy, no? I wouldn't give them any money at all (i.e. interest = +infinity), to be frank.

 

Whining about IMO still very low interest rates of 7% only shows that something SEVERELY wrong. Same with UK house owners: if they'd be in trouble at 7% interest, then what when we go back to 15%-20%?

 

(Paste your favourite pic of a nuclear explosion here.)

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OK, biggest financial crisis ever, but hyper-inflation still "only" lurking/in the hide. Fine. 25% interest is pretty fair under these conditions for Italy, no? I wouldn't give them any money at all (i.e. interest = +infinity), to be frank.

 

Whining about IMO still very low interest rates of 7% only shows that something SEVERELY wrong. Same with UK house owners: if they'd be in trouble at 7% interest, then what when we go back to 15%-20%?

 

(Paste your favourite pic of a nuclear explosion here.)

 

No problem (yet).

 

Until Germany gets its own way, and all the weaklings sign up to their vision that is. Then, the ECB "might" be allowed to print, and the hyper can begin.

 

Until then, and by definition, credit crunches are "deflationary".

 

As for UK house owners, you've been away too long. UK mortgage holders, more than most other countries, generally switch to fixed rates when the outlook changes. Anyone who doesn't fix for 10 years at just over 4%, as soon as the ECB report they are about to print, is, as Berlusconi would say, a coglioni :lol:

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I hope they have paid down most of their loans by the time they come off the fixed rate. Otherwise...

(Paste your favourite pic of a nuclear explosion here.)

 

As for UK house owners, you've been away too long. UK mortgage holders, more than most other countries, generally switch to fixed rates when the outlook changes. Anyone who doesn't fix for 10 years at just over 4%, as soon as the ECB report they are about to print, is, as Berlusconi would say, a “coglioni” :lol:

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I hope they have paid down most of their loans by the time they come off the fixed rate. Otherwise...

(Paste your favourite pic of a nuclear explosion here.)

 

Eh? :blink:

 

With 10 years of the hyper-inflation you predict, even Bubb would agree that the debt they had back in 2011 would be pennies in comparison in 2021, at the end of their fixed rate, would it not? :rolleyes:

 

(Paste your favourite pic of a ringing till "cer-ching" here. :D )

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Eh? :blink:

 

With 10 years of the hyper-inflation you predict, even Bubb would agree that the debt they had back in 2011 would be pennies in comparison in 2021, at the end of their fixed rate, would it not? :rolleyes:

 

(Paste your favourite pic of a ringing till "cer-ching" here. :D )

Hmm, that sounds too easy to me.

 

How about this:

- Value of pound drops 75% over 10 years.

- Nominal income stays the same (it's called an inflationary depression).

- Mortgage interest when the fixed rate comes off is 25%-30%.

 

Now, how many chips precisely can you afford for dinner? :o (Better even don't think about supplemental fish here...)

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I think this is the way it used to be, but everyone I know is on IR only trackers.

 

 

 

As for UK house owners, you've been away too long. UK mortgage holders, more than most other countries, generally switch to fixed rates when the outlook changes. Anyone who doesn't fix for 10 years at just over 4%, as soon as the ECB report they are about to print, is, as Berlusconi would say, a “coglioni” :lol:

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Hmm, that sounds too easy to me.

 

How about this:

- Value of pound drops 75% over 10 years.

- Nominal income stays the same (it's called an inflationary depression).

- Mortgage interest when the fixed rate comes off is 25%-30%.

 

Now, how many chips precisely can you afford for dinner? :o (Better even don't think about supplemental fish here...)

 

Simplicity is beauty GF :D

 

Too easy or not, it is the most likely outcome in a hyper-inflationary environment of the type that you described.

 

However, I can't really see that happening myself. Inflation, yes (possibly a bit higher than now, but probably not). But hyper..... very very unlikely.

 

As for the other points.....

 

1) The value of the pound is largely irrelevant, if you work, live, get paid in, and pay your mortgage in, UK pounds. (We just had the mother of all financial meltdowns and the pound dropped 20-30%. Another 75% drop from here? That would be very very unlikely, and if it did happen, the rest of the rich world would rush in and buy up the rest of the property they don't already own here :lol: ).

 

2) No, that would be similar to the situation we have now (with ultra low rates to stay for some time yet). That's not the hyperinflation scenario you are talking about.

 

3) Mortgage interest rates at 25% have NEVER happened in the UK (even during world wars and in the ultra high inflation of the 70's, when wages doubled every 5 years BTW) and, as I think you know, were it ever to happen, without massive wage inflation at the same time, there would be far far more to worry about than just your house in such circumstances. Now where did I hide the entrance to my bunker? :D .

 

And, chips are packed with carbs, and they are bad for you :P

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I think this is the way it used to be, but everyone I know is on IR only trackers.

 

And why wouldn't they be while rates are ultra low?

 

PS Did you hear the news that Osborne will be offering to underwrite mortgage deposits for wannabe homebuyers.

 

It will be announced in his Nov 29th speech.

 

Ouch!

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1) The value of the pound is largely irrelevant, if you work, live, get paid in, and pay your mortgage in, UK pounds.

Err. Is it?

 

Of course not irrelevant, if food and energy prices rise.

The UK could afford to be complacent when the North Sea oil was flowing.

But the UK is now a net-IMPORTER OF OIL. So the exchange rate is relevant.

 

So when UK people pay for their oil, they will need to worry about the GBP's exchange rate.

 

If you have a long commute by car, you'd better think about moving.

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IR's will rise stupendously at some point and when that happens you won't have time to react and fix a mortgage, you have to be ahead of the curve. They are also only paying off the interest and not the principal and to be blunt, I don't think most could afford a 10 year fixed repayment.

 

And why wouldn't they be while rates are ultra low?

 

 

 

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Err. Is it?

 

Of course not irrelevant, if food and energy prices rise.

The UK could afford to be complacent when the North Sea oil was flowing.

But the UK is now a net-IMPORTER OF OIL. So the exchange rate is relevant.

 

So when UK people pay for their oil, they will need to worry about the GBP's exchange rate.

 

If you have a long commute by car, you'd better think about moving.

 

As I said, largely irrelevant. Besides, a 75% devaluation from here is, I'm sure you'd agree, very unlikely.

 

UK petrol is ~80% tax. Lots of room for manoeuvre there, if necessary.

 

Also, as has been seen recently here, when petrol rises, people use their cars less. No bad thing.

 

IR's will rise stupendously at some point and when that happens you won't have time to react and fix a mortgage, you have to be ahead of the curve.

 

Maybe one day, but not for a long while yet. This could take years. When they do, it will still take a good while to get to even long term average rates.

 

As rates rose last time (into 2007), huge numbers moved over to fixed rates.

 

The vast majority of trackers are also now of the type where a move to fixed incurs no charge.

 

Unless there is a major shock, it will likely be the same again. Of course, in a major shock, our Gov will step in again to prop the whole mess up again.

 

They are also only paying off the interest and not the principal and to be blunt, I don't think most could afford a 10 year fixed repayment.

 

Then they can't afford a house. Essentially they are renting already.

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Personally I think there will be a shock, it's just it may be rampant inflation rather than anything deflationary. The system will reset one way or another.... Nevertheless, these people have beautiful homes and life styles to boot, they are living beyond their means at every possible opportunity.

 

 

 

As I said, largely irrelevant. Besides, a 75% devaluation from here is, I'm sure you'd agree, very unlikely.

 

UK petrol is ~80% tax. Lots of room for manoeuvre there, if necessary.

 

Also, as has been seen recently here, when petrol rises, people use their cars less. No bad thing.

 

Maybe one day, but not for a long while yet. This could take years. When they do, it will still take a good while to get to even long term average rates.

 

As rates rose last time (into 2007), huge numbers moved over to fixed rates.

 

The vast majority of trackers are also now of the type where a move to fixed incurs no charge.

 

Unless there is a major shock, it will likely be the same again. Of course, in a major shock, our Gov will step in again to prop the whole mess up again.

 

Then they can't afford a house. Essentially they are renting already.

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Wow, looks like the ECB might lend to the IMF, so the IMF can lend to EU countries now.

 

Gets around that pesky little rule that stops ECB financing government borrowing :blink:

 

“Euro zone and International Monetary Fund officials have discussed the idea of the European Central Bank lending to the IMF (Berlin: MXG1.BE - news) , to provide the fund with sufficient resources for bailing out even the biggest euro zone sovereigns, officials said.”

 

http://uk.finance.yahoo.com/news/ECB-lend-IMF-euro-zone-rescue-reuters_molt-3479766703.html?x=0

 

You couldn't make it up!

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Real bankster committing their crimes. Beautiful.

 

Wow, looks like the ECB might lend to the IMF, so the IMF can lend to EU countries now.

 

Gets around that pesky little rule that stops ECB financing government borrowing :blink:

 

 

 

http://uk.finance.yahoo.com/news/ECB-lend-IMF-euro-zone-rescue-reuters_molt-3479766703.html?x=0

 

You couldn't make it up!

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http://www.businessinsider.com/whoops-the-irish-prime-minister-actually-told-the-truth-about-the-euro-rescue-fund-2011-11

 

WHOOPS: Everyone's Starting To Tell The Truth About the Euro Rescue Fund

 

.... Irish Prime Minister .... told Reuters his thoughts on the European Financial Stability Facility.... It's not going to work—at least not as it stands right now.

 

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The voluntary haircut, which was designed to avoid triggering CDS's worth several times the actual worth of the bonds insured, (as anyone could take one out :blink: ), has had an unintended (un-thought of) consequence.

 

Bond holders are selling EU bonds, as they think these voluntary haircuts make CDS's worthless (fair appraisal), and as such, they can't hedge their exposure.

 

Europe bond dive rooted in Greek CDS deal

‘Voluntary’ writedown of bonds dents CDS’ value as a hedge

 

http://www.marketwatch.com/story/europe-bond-dive-rooted-in-greek-cds-deal-2011-11-18?siteid=bigcharts&dist=bigcharts

 

So, if the bond holders are selling because they think the CDS's are worthless, why the hell don't they (G20) just make it law that you can only have a CDS equal to the amount of bonds you hold?

 

Wouldn’t that make it an honest hedge?

 

I mean, isn’t this just common sense? For example, I can’t insure against you having a break in at your house. That would be stupid. Several of us could each insure against it, then pay someone to break in and we would receive the benefit. Crazy, yet this is what the CDS market does.

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The voluntary haircut, which was designed to avoid triggering CDS's worth several times the actual worth of the bonds insured, (as anyone could take one out :blink: ), has had an unintended (un-thought of) consequence.

 

Bond holders are selling EU bonds, as they think these voluntary haircuts make CDS's worthless (fair appraisal), and as such, they can't hedge their exposure.

 

 

 

http://www.marketwatch.com/story/europe-bond-dive-rooted-in-greek-cds-deal-2011-11-18?siteid=bigcharts&dist=bigcharts

 

So, if the bond holders are selling because they think the CDS's are worthless, why the hell don't they (G20) just make it law that you can only have a CDS equal to the amount of bonds you hold?

 

Wouldn’t that make it an honest hedge?

 

I mean, isn’t this just common sense? For example, I can’t insure against you having a break in at your house. That would be stupid. Several of us could each insure against it, then pay someone to break in and we would receive the benefit. Crazy, yet this is what the CDS market does.

 

 

Oh you mean......... It's like some kind of blatant fraud

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She's not going to relent until she gets her own way, which might be sooner than we thought.

 

Changing the European treaty to pave the way for closer European integration is vital to solving the euro zone's debt crisis and to restoring confidence, German Chancellor Angela Merkel said on Tuesday, rebuffing renewed calls for common euro zone bonds.

 

http://uk.finance.yahoo.com/news/Merkel-says-treaty-changes-reuters_molt-3517667394.html?x=0

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Greek debt now at €360.4B, or 165% of GDP (Euro-geniuses had estimated 157% for end of 2011).

 

Hyper.

 

Could be much worse as GDP figures lag Debt reporting by quite along way.

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Another step along the path....

 

German backing for the issuance of joint euro zone bonds is no longer being categorically ruled out in Chancellor Angela Merkel's coalition

 

"The German government could, for example, be forced to come up with something in return for a tightening of the euro Stability Pact," Bild wrote in the advance on Wednesday, indirectly quoting parliamentary sources in the coalition.

 

http://uk.finance.yahoo.com/news/German-coalition-open-euro-reuters_molt-2045851577.html?x=0

 

Ze plan is coming along nicely, ya?

 

Of course, nothing to do with a failed bond auction eh? :rolleyes:

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Portugal's Debt: Now "Junk" - Fitch, after downgrade

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