maandag 29 november 2010
HOW TO DEAL WITH KING CHAOS, part 5.
The euro is under pressure. Banks allow less credit, just now people and businessmen need it so bad. As a consequence people and business leaders think and talk themselves into a state of panic. Completely overdone. International rescue is active behind the scenes and on stage. And we have a superhero in our midst, called €URO.
by Frank van Empel
Let’s talk about money. Yesterday, November 28, 2010 the European Union (EU) and the International Monetary Fund (IMF) decided to bail out Ireland, the second victim of structural overspending, after Greece. Who is the next candidate in the European default dominoes game to tumble? All analysts bet on Portugal. And so it will be Portugal. Once fear grasps the minds of investors, they behave in ways that make those fears a reality. Portugal has a high debt, meager growth and political disarray, the storytellers say. An easy prey for money hunters and speculators.
Spain will be next in the doom-scenario, but that will change the game. Spain is too big to fail and too big to bail out as well. It has a trillion (1.000 billion, or 1.000.000.000.000) euro in public debt and on top of that almost a trillion of foreign liabilities of the private sector: houses, financial institutions, corporates. As a matter of fact Spain is running a current account deficit for some time to finance an excessive spending of the private sector. It has to attract investors from abroad that want to buy bonds from the government for a certain return (interest) to fill up the gap. If investors become aware of the default risks they’re going to ask a higher return. Et ceterablabla.
The point I want to score is that King Chaos again shall make it clear for insiders as well as outsiders that reality is no dedicated follower of expectations. The reason why is simple. There are too many interrelationships between nations, organisations, consumers, et cetera to handle by a human mind. The becoming of reality is a black box containing several ‘chemical’ and social-economic labs that make ever new combinations of human behaviour, technological progress and all kinds of decision making and market shaking.
Apart from this, there is a phenomenon that’s called imperfect knowledge. Which investor or newsreader realizes that Greece and Ireland are totally different cases? Greece’s problems were fiscal. Its public sector was spending more than it could earn in taxes. Ireland’s problems are caused by a real estate bubble that has poisoned the whole financial sector. The Irish government tried to bail out banks and by doing so, weakened the whole system. Imperfect knowledge breeds imperfect foresight and imperfect policy. So far so bad.
Now, the good news. Greece, Ireland, Portugal, Spain and twelve other European countries form one monetary unit: the euro zone, a monetary space shared by 329 million citizens. If some member countries run a current account deficit, that’s no problem, as long as there are other countries, like Germany, that run a surplus. If Spain still had the peseta as a national currency, than it almost certainly would have been devaluated in relation to other currencies. As a consequence Spanish consumers would have paid more for foreign goods and services. Their own stuff however would have been cheaper abroad.
That Spain runs a deficit on its current account is the mirror image of the surplus that Germany runs. The Germans are as responsible for Spain’s deficit as Spain itself. The Germans should have bought more orange juice from farmers in Valencia and should have visited the beaches of the Costa del Sol more frequently. They still can. If they stay in their own Beerhalls and Euroland as a whole is going to run a deficit on its current account with the outer world, that’s no problem either. Maybe the euro looses some value in relation to the monetary units of the other economic powerhouses: the US, China, Japan. But the Euro zone won’t fall of the cliff. On the contrary. A devaluation of the euro makes it easier for us in Euroland to compete.
Moreover, on November 26, 2010 the euro got unexpected support from no one less than the prime minister of Russia, Vladimir Poetin. On a visit to Berlin he declared himself and his big, big country a supporter of the euro. ‘We have to get rid of the overwhelming dominant position of the US-dollar in international trade and finance,’ Poetin said, and he suggested the idea of Russia becoming a part of Euroland. First he wants to work on the realisation of a free-trade zone between the EU and Russia (a kind of extended European Economic Community). ‘The advance approach of Russia and Europe is inevitable,’ the Russian maestro said. If he is right, King Chaos had made his biggest move ever.
In the meantime the jammed motor of the European Economy has been kick-started and is running again, thanks to Germany and investors that throw off their burden of fear and become a little bit greedy again. The year 2009 was a very, very bad year after all, with a shrinking world economy: -4% on average, that’s more than ever. Even in the thirties of the last century it never happened. But the bad days are over. Over viewing the stock markets we observe the same pattern everywhere: investor’s optimism seems to outweigh the bad news labelled ‘realism’.
The stock market is a front-runner, like designers of clothes. If the fashion gets wilder and more colourful, good times are returning, I bet. If I see the girls walk by, I get the spirit and the energy of a recovered former hero too. It’s not all red and yellow yet, but brown doesn’t make it anymore. In winter fashion it’s ochre that rules men and women alike, if my eyes are right. Spring 2011 will give us all the kicks we need. If King Chaos is working it out fine.
Gepost door nonfiXe op 08:05
- Op 11 april 2015 kwam 'Parkinson Hotel' uit. Een uitgave waarin Franky de dialoog aan gaat met Parkie. Zie: http://www.studiononfixe.nl/parkinson-hotel/ Deze blog is een aanvulling hierop. Doel is o.a. de bekendheid met de ziekte te vergroten, ook voor hen die net als ik een ongenode gemene gast herbergen en hun partners. Ik hoop mensen met de ziekte van Parkinson te inspireren om niet bij de pakken neer te zitten. Sinds de diagnose Parkinson’s Disease, voorjaar 2004, strijd ik tegen de ziekte, tegen toenemende medicatie en de bijwerkingen van pillen. Ooit zei een collega dat ik 'sneller typte dan God kon lezen'. Ik was politiek en economisch redacteur van o.a. NRC, Elsevier en Haagse Post (in omgekeerde volgorde). De ziekte van Parkinson staat bekend om haar progressiviteit, de symptomen worden met de tijd erger. Mijn verzet bestond en bestaat uit het trainen van hersenen en lichaam. Ik promoveerde in 2012, voetbal iedere zondag, doe aan Nordic Walking en andere sporten. Ik speel gitaar. En bovenal, ik blijf schrijven. Allemaal dingen die ik graag doe. Op 24 april 2015 onderga ik een 'deep brain stimulation' en schakel ik naar hogere frequenties van levensgenot.