Friday, 9 September 2011

9/11 - Nine eleven - We are all Greek - ...and also Italian...

On Sept 2011, nine eleven - to echo clearly what is going on, let's put few facts on the table:
  1. interest rates on 1 year government greek bond shoot to 98%, which means that if you invest in those bonds you double your money each year. Obviously, you won't do that. The market is saying that Greek is about to default on its debt.
  2. Mr Juergen Stark resigned this 9.11, following few months early the departure of Mr Axel Weber, high figures of the ECB executive board. That says a lot on the fragmentation of opinion or strategy on the direction of the ECB monetary policies. On other words, The germans totally rejects the bond buying purchasing program or the bail out initiatives launched on the Greek and Italians debts.

Disintegration or no disintegration of the euro area, that is the question on the item highlighted above. Would a break occur and if so what are the consequences? This will shape the future of the economical and political landscape in the generations to come.

Break of the euro zone is what the market is pricing and it is what the ECB has been fighting all along during this crisis. Would Greece exit the euro zone and get back to their drachma in order to regain lost competitiveness or would German exit in order to safeguard Germans against inflation, returning to their old currency the "Deutsche Mark" in order to let it appreciate?

What would be the consequence of such event on Finland - especially on the housing market?
My answer would be to paraphrase Joe Granville from his 1960 book, "If it's obvious to everyone, it's obviously wrong." As a contrarian, I feel that everybody sees housing price going higher and never retreating, I see people investing in housing and seeing it as a 100% safe investment and I see irrational exuberance around an asset that does not produce anything...then this worries me.

On the monetary front, It seems now that the ECB policy has aggravated, rather than ameliorated our basic problems because it has encouraged an unwise and debilitating buildup of debt, while also pursuing short term policies that have increased inflation, weakened economic growth, that will ultimately decreased our standard of living. As a consequence, People are defecting the ECB, and encouraging unilateral initiative as expressed by Finland in its pursue of collaterals in the Greek bailout. All in all, the mess get bigger and bigger and history is no guide as what is happening is unique.


HousingFinland said...

It could also be that Stark resigned owing to a decision to be taken on the greek rescue. Maybe stark would like to see Greek to default something that the ECB executive board won't allow.

Andrew said...

All thru this crisis you have been telling us what fine inflation fighting people are present at the ECB. Axel Weber told us 'this is why people like me exist'
The reality must be that Germany is so exposed to the mess and so deep in it that it has to bail out Greece to bail out the others where if france falls Deutsche bank will be gone too.

Whatever happens you can be sure the ECB keeps to the mandate of ensuring the Euro gets devalued.

HousingFinland said...

All is needed from independent central banks is to deliver price stability that's their mandate. If they can't fulfill it then they should cease to exist.

Who would fill the void, government controlled central banks?

we saw the disastrous effect in the 70's where they trig erred stagflation, where they aimed at reducing their though inflation that resulted in very high inflation and high unemployment and loss of productivity.

Anonymous said...

I have three words for you