My Name Is Bond, Junk Bond

What has changed with the €500 billion EU bailout package? Not much. Greece, Spain, Portugal, Ireland, and maybe even Italy, are still on track to debt madness. Their debt ratios and budget deficits will look even worse in three years from now. As markets rightfully anticipated last week, debt restructuring still looms at the horizon for those countries. There is no other way out of this mess. It is as simple as that. The bailout package can only delay this process for one or two years.

So, will the “attacks” against the Euro stop? No, they may become even stronger, as the European Central Bank now made clear that they are willing to inflate Europe out of this crisis. Though, inflation might be some years away, because of a possible double-dip recession (and even depression in the “PGS” countries) and because of dramatic undercapitalization of European banks after the financial crisis of 2008/09.

Furthermore, now the “PIIGS” have no incentives at all to restrain their debt issuance. This will lead to further international political clinches. It might even end with (some of) the PIIGS leaving the Euro.

<sarcasm>However, there is one possibility for a different outcome, but I doubt that it will be considered: We could get high inflation in countries that are not headed for depression right now, like Germany, France, and so on, if the ECB pumped trillions of freshly printed Euros into the market. Assuming that the PIIGS would inflate more slowly because of their banks being almost in default mode (they need the Euros for recapitalization), we could indirectly devalue their economies against the “competitive” ones without having them leave the Euro.</sarcasm>


5 comments on “My Name Is Bond, Junk Bond

  1. Well how about a more down to earth solution?
    A firing squad for all the investment bankers who gave the credits in the first place and now are betting on the demise of the Euro and millions of (retirement) savings from the people in the other country’s.
    BTW the guarantees are mostly to pay the interest from Greek and Co to Banks.
    Looks much like another case of socialised “errors” from banks.
    Strangely in such cases Banks always agree that “Socialism” is a good thing.
    But when it comes to share the billions in profit….
    (And guess who will make profit with the crisis again… if you get a picture of a vulture in a pinstripe suit you are correct”

    • Was it really wrong to lend money to a country that had for years higher GDP growth rates than Germany and the same budget deficit in 2006 (3% of GDP)? Things have gone awfully wrong since then, but this is also a result of Keynesian fiscal policies, without which Greece wouldn’t have such a huge deficit. The future of Germany today looks worse than that of Greece in 2006. So how about investors stop lending to Germany right now?

      Besides, it’s always easy to blame other people for own faults. Like, “Why did you take me to that irish pub, you know that I’m a drinker!”

      Of course, bankers are greedy. Watch this video to understand why: http://www.youtube.com/watch?v=1ovnjTmrXxk

  2. Oh BTW I am flexible… we can change the fire squad to a stakes…
    worked for “witches” well. 😉
    Using a cross… well we saw 2000 years ago what happened then.
    Toooo risky! 😀

  3. 😉
    My favourite!

    • Es stimmt, dass Aktienanalysten praktisch keinen theoretischen Boden unter ihren Füssen haben.

      Ich hasse es, auf einen Witz ernst zu antworten, aber nur für den Fall, dass jemand Herr Pispers Sketch für bare Münze nimmt: Wie sieht es denn aus, wenn Menschen ihr Vermögen selber managen sollen? Die meisten sind überhaupt nicht im stande dazu, weil ihnen Zeit oder Wissen fehlt, oder beides. Entweder haben sie alles jemals verdiente unter der Matratze, wo es in 40 Jahren minus 50% Rendite bringt, oder auf dem Girokonto, wo es in 40 Jahren minus 20% Rendite bringt.

      Übrigens hat der Herr Pispers vergessen, in seinem Gedankenspiel Ärzte zu erwähnen. Die Krankenschwestern kann man recht einfach ersetzen, Ärzte nicht. Aber das hätte natürlich nicht zu seinem volkstümlich-sozialistischem Sketch gepasst. Nichts gegen solche Sketche, auch darüber kann ich lachen. Wie gesagt, hauptsache man nimmt es nicht ernst.

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