Death Spiral in Euroland

If you indulge in Black Friday shopping, have fun. I hate shopping with crowds. I always trade the day after Thanksgiving. It’s a light trading day, but sometimes you can get some good opportunities.

Today might be one of those days, but be very careful. Europe has hit the point of no return I am afraid. Debt ratings in some countries went to junk yesterday. Italy paid record highs in their latest auction. Tell me, how is Italy not junk?

The only countries in Europe that aren’t junk are probably France and Germany. However, without knowing the true exposure of their government finances to the rest of the EU, it’s hard to know if they can maintain their status or not. As rates continue to steepen in weekly European Union debt auctions, the entire continent speeds it’s collision course with stagflation.

The only way out of their financial mess is print money or grow. They aren’t going to grow given their current economic policies. Watch the near term months in the Eurodollar ($GE_F) contract. If they start to break hard, EU banks and governments are having funding problems.

As we mark time to the eventual day of reckoning, December 1 seems like the next big data point to me. It’s the date of the next French OAT auction. Spreads between French and German debt are at all time highs. As the PIIGS careen upwards to 8%, I don’t see how the French can keep their debt costs from spiraling higher as well.

It’s just too risky to hold these securities. Investors have to demand a huge premium. No doubt the resolution will be haircuts if you hold the security, and devaluation of the currency they are denominated in.

I don’t see any white knight coming in and changing things. The Europeans have made their bed, now they have to lie in it.

thanks for the link Instapundit

thanks for the link, Bill O Reilly.

thanks for the link American Thinker

thanks for the link Red State

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Early Sunday night, the futures are up sharply. Rumors that the IMF is going to bail out Italy, and that ICAP is beginning to test trade the Drachma. The Day of Debt Reckoning is here. The plan could be put a tourniquet on Italy, kick out the Greeks, and hold the EU together. Then they will have to float some huge Eurobond type debt.

Why are the futures up? Because they like certainty.

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  • Sharmac2002

    I hope you teabuggers take advantage of the Buycott by using your credit
    cards as often and as much as possible! Let me give you some advice,
    however: thanks to credit card lobbyists about one third of the states
    now have laws making it possible to throw debtors into prison (debtors’
    prisons, like in Dickens’s day?) if they don’t–or can’t–pay their
    bills! Also, such operations as Capital One, Bank of America, etc. will
    often have mailing addresses for their customers at opposite ends of
    the country, in smaller post offices, so that if customers are even a
    few hours late in making a payment his interest rate will skyrocket from
    the 13% or 15% “teaser” rate up to 27%, 29% or even 32%! So “shop ’til
    you drop” you rubes!

    • pointsnfigures

      Thanks to Dodd-Frank, credit card fees indeed went up.  If you are a small business merchant and want to reduce your fees, try

    • SwampWoman

      So, what’s the problem?  If you can’t afford credit cards, don’t use ’em.  When the rates went up, I closed mine.  Now I just use cash and don’t owe anybody anything.  If I can’t afford it, I don’t buy it. 

    • Wilbur Post

      I have used my credit cards successfully for over 30 years, never paying interest (I pay off the bills the next month) or late fees.  It’s called “living within your means” (if the PIIGS practiced it, they would not be in trouble today.)  Maybe if you spent some time learning to count and manage money instead of yelling “Gimme” perpetually, things would work out better for you, too.

    • Emerson

      Sharmac, tell me more about the glorious socialist future where geniuses like you finally get to run things and get revenge on everyone you hate because they’re not as good as you.

    • Lonestar78730

      Sharmac’s typical leftist foolishness is on display again.  The slightest effort with an online search shows that only 6 states (hardly a ‘third’) allow for debt imprisonment (AZ, AR, MN, IL, IN, and WA) and they allow it generally for taxes, child support and other state-owed debt -.NOT cc debt (this is separate from contempt-of-court charges resulting from not responding to debt collection efforts through the courts – for which you can be jailed in all 50 states).  If you’re really concerned about it, why don’t you talk to Joe Biden (former US Senator D-MBNA), who was a driving force behind the 2005 Bankruptcy ‘Reform’ Act that made it so much harder to declare bankruptcy, and so much easier for cc companies to entice people into debt?

      As for obscure addresses – what?  You’re arguing that the USPS – a classic government agency – can’t handle such deliveries?  Hmmmm.

  • Willy G

    I think there are European countries that are in even better shape than France. The problem is they’re small: Finland, Austria, Netherlands.

  • egoist_capitalist

    I read that France (and Belgium) is on the hook for a rather large part of Dexia’s bailout, but really can’t spare it. NPR/Marketplace made a lot of claims about Dexia pipe lines for our munis – which would be very bad news for cities in the US. I check where my school-district and city bonds were auctioned. Happily, no European connection. But at any rate, if France gets clobbers, I will still be clobbered – for other connections I have there.

  • Willy G

    The problem is that Sharmac2002 is a child, despite having reached the age of 18 long ago. He needs someone to guide and control him–tell him what he can an cannot afford, pay his way, tell him whether he’s eating too much trans fat. Freedom is his enemy. He needs someone to fill the role of Mommy, since she didn’t teach him how to take care of himself.

  • TMLutas

    Here’s a surprising addition to your “not junk” list, Romania. They got there by not giving a hoot about the people’s standard of living and big austerity cuts and have as their most recent credit actions upgrades this year.

    And a happy thanksgiving to all. 

  • Anonymous

    They will do what they’ve always done. Pass more regulations. And that will have the same effect it has always had. Kill business and make things better for the connected oligarchs of Europe. Unfortunately, this is the pattern our supposed anarchists actually want us to follow. Gee, anarchists that think like bureaucrats. Who’da thunk?

    • Anonymous


      Now the EU bureaucrats are looking to “repatriate” Swiss bank accounts of wealthy Greeks back to Greece to stop capital flight from that country.  The day capital controls are announced is the day this fiasco will explode. 

  • Snorri Godhi

    “The only countries in Europe that aren’t junk are probably France and Germany.”

    You’d rate France over Austria? over Finland? over Denmark?
    You’d rate France AND Germany over Switzerland?
    That sounds insane to me.

    • pointsnfigures

      Who is in the EU?  And, Who has a large economy?  Denmark’s economy is pretty small compared to France and Germany, as is Finland.  You are splitting hairs.

      Switzerland isn’t part of the EU, has a good economy-and also has a lot of exposure to EU debt.  If the EU goes down, they will come tumbling behind them.  

      The key to the EU is France and Germany.  No one else. 

      • Snorri Godhi

        Perhaps I see the argument now: if France+Germany collapse, every other country in Europe collapses, so the other countries are at least as risky. But I don’t buy it. Let’s leave aside the UK. The fact remains that there are degrees of “collapse”, and France and Germany would not collapse to the same degree, which is why there is a spread between French and German debt.
        In fact, I suspect that France is more threatened by a Greek default than Switzerland would be by a French default: that is because France is not in a position to absorb the shock. Also, keep in mind that it’s the Swiss banks that are exposed, not the Swiss treasury.

        • pointsnfigures

          The Swiss are not in the EU, and neither is the UK.  But, they will both be affected by a EU collapse.  (and it will happen)

          Of course there are spreads between French and German debt.  Germany is more secure than France.  At least that’s what spreads tell you today.  The reason being, Germany has more growth than France.

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  • best way to get out of debt

    Yes I think it is now more difficult.

  • Credit Repair Software

    Well the UK is picking up.