• You will need to login or register before you can post a message. If you already have an Agriville account login by clicking the login icon on the top right corner of the page. If you are a new user you will need to Register.

Announcement

Collapse
No announcement yet.

Greek Vote; More questions than answers

Collapse
X
Collapse
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Greek Vote; More questions than answers

    Tomorrow's Greek election results will
    have a direct impact on Western Canada
    come Monday morning.

    1. Could the loonie make a break toward
    90 cents should Greece exit?

    2. Could WTI oil make a break toward $75
    per barrel placing global crude projects
    at risk?

    3. Will Europe's credit markets seize or
    will global 'Peter pay Paul stimulus'
    come to the rescue or is this just
    another band aid.

    4. Where exactly is Italy's (a far
    bigger economy) position? Has their
    crisis just begun or is there any fix?

    5. Could global oil price woes break Cdn
    real estate values 10 to 25% depending
    on region?

    6. Can deflation be turned back to
    inflation without further economic harms
    or is this a fairy tale?

    7. Will the U.S. fiscal cliff hit the
    U.S. before their November elections?
    Can it be delayed much longer?

    8. Are rising interest rate talk just a
    pipe dream in a deflationary world?

    9. How will Western Cdn livestock prices
    fare? Can cattle prices restart?

    10. Canola's long-term uptrend broke
    this week. Can it be repaired by a
    possible drop in the loonie? Or is the
    fallout in palm oil and soyoil too
    great?

    11. Greece or no Greece, how long will
    the current global recession/depression
    last? less than 5 years / more than 5
    years?

    Errol

    #2
    Thanks for the pretty picture!
    It could get pretty ugly.
    Hope Stephen Harper has a plan?

    Comment


      #3
      He does, a government job.

      Comment


        #4
        That's funny Agstar!!!

        It would seem stock traders have sold stocks and need a reason for stocks to go down so they can buy again. Seems to be a repeating cycle last couple years.

        Sell, make some bad news, market goes down, buy, migrates up, repeat.

        Comment


          #5
          It doesn't matter which way Greeks vote.
          Europe is done and the only thing left is
          to nail the coffin shut and stick the
          corpse in the ground. The world will
          enter total depression and we can debate
          weather or not it is an inflationary one
          or deflationary but it really doesn't
          matter. The bottom line is the same.

          Comment


            #6
            What is the bottom line?

            Comment


              #7
              Bottom line is this either you don't have
              any money or the money you do have will
              not buy anything. I suspect this time it
              will be the later. So you have to
              rebuild the economy from the bottom up by
              using barter. Living standards will be a
              lot lower across the western world as
              that is a lot less efficient that being
              able to use currency that you can have
              some trust as to its purchasing power.

              Comment


                #8
                The bank runs going on in greece and now spain is
                also a huge issue.

                It further weakens already weak banks and if it gets
                out of hand you have what is called a bank holiday.

                Rumours of it spreading to france today.

                Comment


                  #9
                  By MATTHEW CRAFT
                  AP Business Writer


                  AP Photo/Nikolas Giakoumidis
                  Business Video

                  Advertisement




                  Buy AP Photo Reprints

                  Photo Gallery
                  Violent protests in Greece

                  NEW YORK (AP) -- The unthinkable suddenly looks
                  possible.

                  Bankers, governments and investors are preparing for
                  Greece to stop using the euro as its currency, a move
                  that could spread turmoil throughout the global
                  financial system.

                  The worst case envisions governments defaulting on
                  their debts, a run on European banks and a worldwide
                  credit crunch reminiscent of the financial crisis in the
                  fall of 2008.

                  A Greek election on Sunday will determine whether it
                  happens. Syriza, a party opposed to the restrictions
                  placed on Greece in exchange for a bailout from
                  European neighbors, could do well.

                  If Syriza gains power and rejects the terms of the
                  bailout, Greece could lose its lifeline, default on its
                  debt and decide that it must print its own currency,
                  the drachma, to stay afloat.

                  No one is sure how that would work because there is
                  no mechanism in the European Union charter for a
                  country leaving the euro. In the meantime, banks and
                  investors have sketched out the ripple effects.

                  They think the path of a full-blown crisis would start
                  in Greece, quickly move to the rest of Europe and
                  then hit the U.S. Stocks and oil would plunge, the
                  euro would sink against the U.S. dollar, and big banks
                  would suffer losses on complex trades.

                  ACT I

                  What would Greece's exit look like? In the worst case,
                  it starts off messy.

                  The government resurrects the drachma, the currency
                  Greece used before the euro, and says each drachma
                  equals one euro. But currency markets would treat it
                  differently. Banks' foreign-exchange experts expect
                  the drachma would plunge to half the value of the
                  euro soon after its debut.

                  For Greeks, that would likely mean surging inflation -
                  35 percent in the first year, according to some
                  estimates. The country is a net importer and would
                  have to pay more for oil, medical equipment and
                  anything else it imports.

                  Greece's government and banks currently survive on
                  international loans, and if it dropped the euro, the
                  country would probably be locked out of lending
                  markets, says Athanasios Vamvakidis, foreign-
                  exchange strategist at Bank of America-Merrill Lynch
                  in London. So the Greek central bank would need to
                  print more drachmas to make up for what it could no
                  longer borrow from abroad.

                  That's one reason analysts say the switch to a
                  drachma would lead the country to default on its
                  government debt, possibly triggering losses for the
                  European Central Bank and other international
                  lenders.

                  Most assume foreign banks would have to write off
                  loans to Greek businesses, too. Why would Greeks
                  pay off foreign debts that effectively double when the
                  drachma drops by half?

                  Say a small shop owner in Athens has a (EURO)50,000
                  business loan from a French bank. She also has
                  (EURO)50,000 in savings in a Greek bank. The Greek
                  government turns her savings into 50,000 drachma.

                  If the new currency fell by 50 percent to the euro as
                  expected, her savings would suddenly be worth
                  (EURO)25,000. But she would still owe (EURO)50,000
                  to the French bank.

                  European banks would take a direct blow. They've
                  managed to shed much of their Greek debt but still
                  held $65 billion, mainly in loans to Greek
                  corporations, at the end of last year, according to an
                  analysis by Nomura, a financial services company.
                  French banks have the most to lose.

                  ACT II

                  Here's where things get scary.

                  The European Central Bank and European Union
                  would have to persuade investors in government
                  bonds that they will keep Portugal, Spain and Italy
                  from following Greece out the door. Otherwise,
                  borrowing costs for those countries would shoot
                  higher.

                  The main way European leaders have tried to calm
                  bond markets is by lending to weaker governments
                  from two bailout funds. Experts say these two funds,
                  designed as a financial firewall to stop the crisis from
                  spreading, need more firepower.

                  Much of the (EURO)248 billion ($310 billion) left in
                  one of them, the European Financial Stability Facility,
                  was pledged by the same countries that may wind up
                  needing it, Vamvakidis says.

                  There's also a (EURO)500 billion European Stability
                  Mechanism that's supposed to be up and running
                  next month, but Germany has yet to sign off on it.

                  "If they fail to reassure bond investors, all of the
                  nightmare scenarios come into play," says Robert
                  Shapiro, a former U.S. undersecretary of commerce in
                  the Clinton administration.

                  The biggest danger is a fast-spreading crisis known
                  in financial circles as contagion - a term borrowed
                  from medicine and familiar to anyone who has
                  watched a disaster movie about killer viruses on the
                  loose.

                  "It's like a disease that spreads on contact," says Mark
                  Blythe, professor of international political economy at
                  Brown University.

                  The bond market, where banks, traders and
                  governments cross paths, provides the setting. If
                  Greece dropped the euro, traders would become
                  more suspicious of Spain, Portugal and Italy and sell
                  those countries' government bonds, pushing their
                  prices down and driving their interest rates up.

                  Higher borrowing costs squeeze those countries'
                  budgets and push them deeper into debt. Plunging
                  bond prices also would imperil Europe's troubled
                  banks. The banks are big holders of government
                  bonds, which they bought when the bonds were
                  considered safe.

                  At this point, the risk would be high for a run on
                  banks throughout Europe. People would worry that
                  the banks might fail and would rush to withdraw what
                  they could. Analysts and investors say that's the
                  biggest fear.

                  People in Spain, for example, have already seen
                  what's happened in Greece and have started pulling
                  euros out of their accounts in fear the country will
                  switch back to cheaper pesetas.

                  "People see their banks in trouble," Shapiro says.

                  In less frantic times, the government would come to
                  the rescue with cash or take over the banks.
                  Individual European countries insure bank deposits,
                  so if one bank fails people can still get their money
                  out. But all this is happening in the middle of a
                  government debt crisis, and if the crisis gets worse,
                  the Spanish or Italian government couldn't raise
                  enough money in the bond markets to save the day.

                  "They can't afford to guarantee deposits or money
                  market balances," Shapiro says. "They don't have the
                  ability to borrow internationally from bond markets.
                  Where are they going to get the funds?"

                  From here, the crisis could get much worse: Banks
                  could fail, the surviving banks could stop lending to
                  each other, and a credit freeze could shut down
                  commerce in Europe as assuredly as a blizzard did
                  last winter.

                  One way to stem the contagion would be to create
                  so-called eurobonds - bonds backed by all 17
                  countries that use the euro. They could be sold to
                  raise money to buy the bonds of troubled European
                  governments. With the backing of 17 countries,
                  including mighty Germany, eurobonds would have a
                  yield far lower than the bonds of countries like Spain
                  and Italy.

                  Germany, which has the strongest economy of the
                  euro countries, has slowly warmed to the idea but
                  wants weak governments to fix their finances first.
                  "Germany's strength is not infinite," Chancellor
                  Angela Merkel said Thursday.

                  Cash-strapped European governments should be able
                  to turn to the International Monetary Fund for help,
                  but the IMF's money comes from 188 member
                  countries. Peter Tchir, who runs the TF Market
                  Advisors hedge fund, says the U.S. and other
                  countries may balk if the IMF asks for help supporting
                  Europe.

                  He worries that the IMF may take a loss on the
                  roughly $28 billion it has already loaned to Greece.

                  "People are happy to put money in if they think they
                  won't lose it," Tchir says. "In this case, the IMF loses
                  money, then everybody gets scared."

                  ACT III

                  A full-blown crisis would cross the Atlantic through
                  the dense web of contracts, loans and other financial
                  transactions that tie European banks to those in the
                  U.S., experts say.

                  Blythe, the professor at Brown, believes credit default
                  swaps, the complex financial instruments made
                  infamous by the 2008 financial crisis, would provide
                  the path.

                  Banks created the swaps to sell as insurance for
                  loans. After lending money to a business or
                  government, investors can turn to a bank and take
                  out protection on the amount they lent. If the
                  borrower runs into trouble and can't pay - say, the
                  government of Spain defaults - the banks that sold
                  the insurance cover the loss.

                  A $2 billion trading loss that JPMorgan Chase
                  revealed in May, traced to a hedge against the Europe
                  crisis, shows just how easy it is for even the safest
                  and savviest of banks to slip up.

                  And it doesn't even take a default for a credit default
                  swap to go bad.

                  If traders think other countries will follow Greece,
                  they'll drive up borrowing rates by selling government
                  bonds, which also pushes up the cost of insuring
                  their debt. That's similar to how your neighborhood
                  insurance agent handles a teenage driver.

                  In the derivatives market, where credit default swaps
                  are traded, there's a twist. When markets treat Spain
                  like a bad credit risk, those who took out insurance
                  on Spanish debt to protect against a default can force
                  the banks that sold the insurance to prove they can
                  make good on the claim.

                  To do that, banks cash out something else - U.S.
                  government debt, gold, or anything easy to sell. In
                  normal times, it's no big deal. In a crisis, it can lead
                  to a cascade of selling, spreading trouble from one
                  market to another.

                  Another problem: It's not clear how much U.S. banks
                  have at risk to Europe through credit default swaps
                  because regulations let banks keep that information a
                  secret.

                  "You could have American banks up to their necks in
                  CDS liabilities," Blythe says. "We don't even know."

                  There are other paths the turmoil could take into the
                  U.S.

                  Money market mutual funds, which hold more than
                  $2.5 trillion, have an estimated 15 percent of their
                  investments in Europe. European banks are also large
                  buyers of U.S. mortgage bonds. If they're forced to
                  sell them, mortgage rates could jump, imperiling the
                  U.S. housing market. Frightened banks in Europe and
                  the U.S. might also pull the credit lines companies
                  depend on for global trade.

                  So what's the good news? It's hard to find anybody
                  who believes the crisis will get that far.

                  The bankers planning for a Greek exit from the euro
                  say they think European leaders will get scared into
                  action. The Federal Reserve and other central banks
                  learned from the financial crisis in 2008, they believe,
                  and will jump in to stop the nightmare scenario from
                  unfolding.

                  Just in case the worst comes to pass, analysts at
                  Barclay's have attempted to estimate the fallout. They
                  say it would be like the days after the investment
                  bank Lehman Brothers collapsed in September 2008.
                  This time, they project that oil would fall to $50 a
                  barrel, stock markets outside of Europe would plunge
                  30 percent, and the dollar would soar to trade nearly
                  even with the euro.

                  Blythe is skeptical that it will get that bad because he
                  hopes the previous financial crisis has left
                  governments and central banks prepared.

                  However the Greek story ends, Blythe believes it's
                  bound to be ugly. Putting 17 countries together to
                  share a common currency worked well when Europe
                  prospered. Now that they're struggling, "all the
                  design flaws are becoming apparent," he says. And
                  every solution that's supposed to fix a problem
                  creates another problem.

                  The proposed $125 billion loan to save Spanish
                  banks, for instance, will add to the debt burden of
                  Spain. That sent Spain's borrowing costs higher this
                  week and will put a tighter squeeze on its budget.

                  "The euro itself," Blythe says, "is a bloody doomsday
                  machine."

                  Comment


                    #10
                    So in other words..Yuk...lol

                    Comment

                    • Reply to this Thread
                    • Return to Topic List
                    Working...