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fxramper
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Euro Trumps The Pound.

Tue Dec 30, 2008 6:31 am

What a screwy state of world economy. I guess someone saw this coming?  confused 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aDeya8Ha_0Vk
 
Klaus
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 7:27 am



Quoting FXramper (Thread starter):
I guess someone saw this coming?

From Do We Want The Euro In The UK - Volume 3 — Non Aviation Forum | Airliners.net (September 2005):

Quoting Klaus (Reply 22):
I would actually prefer Britain to ride out the impending burst of the real estate bubble before they join the Euro. If they joined before that, we would all have to pay for it due to an overinflated accession course for the Pound. If they'll join after that, the course will be more realistic.

Just saying...
 
Elite
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 7:43 am

Britain will manage to ride it out, but will the Pound gain enough against the Euro for the British to keep the pound?
 
Klaus
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 8:04 am

Quoting Elite (Reply 2):
Britain will manage to ride it out, but will the Pound gain enough against the Euro for the British to keep the pound?

A currency is not viable by reaching high speculative exchange rates (as the Pound has done in recent years) but by being sufficiently resistant against speculation and by being backed by a sufficiently solid real-life economy which ultimately provides its real value.

Britain could certainly continue with the Pound for the long term, but that comes with its own costs and risks as we see; The same would apply for an accession to the Euro. Ultimately it is a cost/benefit calculation either way, besides the obvious psychological/emotional issues.

[Edited 2008-12-30 00:05:21]
 
AverageUser
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 1:55 pm



Quoting Klaus (Reply 3):
besides the obvious psychological/emotional issues.



Quoting Klaus (Reply 3):
and by being backed by a sufficiently solid real-life economy which ultimately provides its real value.

Yes that's how the song goes, the British will enjoy joining the Eurozone in their mental department so much that their real-life productivity jumps 100%, just like it has done in the Eurozone proper already!
 
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OA260
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 2:03 pm

The UK wont go into the Euro and this 1 Euro 1 Pound will not be a long term thing.

Its great news for me though getting paid in Euro and living on the border between the Pound and Euro Zone. I have been doing all my shopping in the North of Ireland. It was good value before the Pound slumped but now its amazing value.
 
Elite
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 2:09 pm



Quoting OA260 (Reply 5):
The UK wont go into the Euro

If things get bad enough, then maybe... "till the British public sees fit". I don't think the UK can continue to hold out forever, unfortunately.
 
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OA260
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 2:14 pm



Quoting Elite (Reply 6):
I don't think the UK can continue to hold out forever, unfortunately.

But even though some suffer a weak Pound is good for exports. I know a few business owners that are happy with the weak Pound.They export to the Euro Zone so their products are now more competitive.
 
andaman
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 7:34 pm



Quoting OA260 (Reply 5):
now its amazing value.

This is really good news for us Euro-zoners planning to visit UK soon, I have been avoiding London for many years...

The pound has seen many ups and downs.
I remember in late 1980's it was common to make package holidays (for a week!) from HEL to London, about everything was less expensive in UK then. My first flight to London was a charter on Air UK Leisure.
Chinese cookie in SFO: "You're doomed to a life of forever travelling abroad and to be able to afford it!"
 
egmcman
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 8:03 pm



Quoting AverageUser (Reply 4):
Yes that's how the song goes, the British will enjoy joining the Eurozone in their mental department so much that their real-life productivity jumps 100%, just like it has done in the Eurozone proper already!

We won´t it´s only a few politicians who would like us to.

Quoting OA260 (Reply 5):
The UK wont go into the Euro and this 1 Euro 1 Pound will not be a long term thing

Exactly ,until recently it was great for Brits visiting the USA as the Dollar was week.

Quoting OA260 (Reply 7):
But even though some suffer a weak Pound is good for exports. I know a few business owners that are happy with the weak Pound.

As with everything in life there is an upside. British factories could be selected to produce goods instead of ones in the Euro zone due to favorable exchange rate.


In Gibraltar today they preferred goods being paid in Pounds.

Quoting Elite (Reply 6):
If things get bad enough, then maybe... "till the British public sees fit". I don't think the UK can continue to hold out forever, unfortunately.

Isn't there a risk if more Euro zone countries enter recession then the value € will drop?
 
Klaus
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 8:05 pm



Quoting AverageUser (Reply 4):
Yes that's how the song goes, the British will enjoy joining the Eurozone in their mental department so much that their real-life productivity jumps 100%, just like it has done in the Eurozone proper already!

Please re-check the productivity numbers after subtracting the purely ficticious money that's just going up in smoke simply because it never really existed anywhere but in some of the books.

The numbers had been heavily skewed by the inflated bubbles in the anglo-american finance system, but the normalization to realistic values is apparently under way.
 
Klaus
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 8:25 pm



Quoting Egmcman (Reply 9):
As with everything in life there is an upside. British factories could be selected to produce goods instead of ones in the Euro zone due to favorable exchange rate.

Except for easily replaceable commodity goods the fluctuations will remain an impediment. It is more difficult than ever to commit to a longer-term contract if the prices can go all over the place at a moment's notice.

Quoting Egmcman (Reply 9):
Isn't there a risk if more Euro zone countries enter recession then the value € will drop?

Against what? Trade within the Eurozone would not be affected even then. Prices would still remain stable. And with the Euro flooding an increasing share of the global currency reserves right at this point I'm not really worrying all that much. Most of the continental EU has kept its focus on actual manufacturing and development of goods and services outside of the financial area. Which will probably turn out to be a strength in the difficult phase we're entering.

Britain's trade with EU partners is more than half of the total – staying outside of the Eurozone subjects pretty much all of Britain's foreign trade to potentially severe fluctuations. British manufacturers will have to eat up the fluctuation costs even in intra-european trade since they have to compete with european manufacturers who have direct market access without currency risks.

Without the inflated finance casino running at full RPM any more, it could get a bit difficult to prop up the remaining british manufacturers against these risks.
 
AverageUser
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 8:45 pm



Quoting Klaus (Reply 10):
purely ficticious money

I think you're after the term fiat currency, which means currency lacking any intrinsic value. What we have here is a very intricate set of mutual agreements, but I would not go as far as calling any such set purely "fictitious". The value of a purely fictitious currency could be decreased, increased or annuled at the turn of the hat.

I should think Klaus that if you look around you in the Eurozone, you'll see quite a few cases of that "fictitious money" at work, i.e. commitments that never will be honoured.
 
jacobin777
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 8:53 pm



Quoting OA260 (Reply 5):
The UK wont go into the Euro and this 1 Euro 1 Pound will not be a long term thing.

I agree.. highfive 
"Up the Irons!"
 
egmcman
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 8:53 pm



Quoting Klaus (Reply 11):
Except for easily replaceable commodity goods the fluctuations will remain an impediment. It is more difficult than ever to commit to a longer-term contract if the prices can go all over the place at a moment's notice.

It´s become increasingly obvious to most people that the UK will only be producing high value goods and be used as centre for research and development. Most people here care about one thing alone price not where a product was manufactured. All commodities valuees can fluctuate.
 
Klaus
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 9:01 pm



Quoting AverageUser (Reply 12):
I think you're after the term fiat currency, which means currency lacking any intrinsic value.

No. I am not talking about printing currency, I am talking about ficticious accounting on the basis of ficticious returns on real (and/or ficticious) investments.

That is going up in smoke right now.

Quoting AverageUser (Reply 12):
I should think Klaus that if you look around you in the Eurozone, you'll see quite a few cases of that "fictitious money" at work, i.e. commitments that never will be honoured.

We're currently in a phase where large volumes of such ficticious commitments are being realized and adjusted accordingly. And depending on the relative exposure it hits different countries to a different extent.

My personal view is that we are not really in a recession so much as we are simply re-scaling the ficticious part of the growth in recent years back to what it really was – it just hits the books right now while the ficticious numbers of the past years remain standing, nominally.

Of course there are additional repercussions and damages which follow directly or indirectly from the delayed re-adjustment which would have been avoidable with a steady but slower growth; But I think the most important thing is to take the previous numbers with more than just a grain of salt and to view the current changes in relation of that.
 
egmcman
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 9:10 pm



Quoting Klaus (Reply 15):
My personal view is that we are not really in a recession so much as we are simply re-scaling the ficticious part of the growth in recent years back to what it really was – it just hits the books right now while the ficticious numbers of the past years remain standing, nominally.

If that´s more than two quarters of negative growth that then it is a recession by my understanding of when the term is used by politicians.
 
slz396
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 9:11 pm



Quoting FXramper (Thread starter):
What a screwy state of world economy

It certainly demonstrates what a strong currency the Euro is...

Who would have thought a supra-national currency created less than 10 years ago, would become the world's preferred legal tender and one of the strongest currencies in the world???

Wonder what the Euro-sceptics will now say to throw mud at it?
What they have said about it in the past, certainly makes very good reading...  Wink


Quoting OA260 (Reply 5):
The UK wont go into the Euro

If they wait much longer, the EU will simply BUY the entire UK for a few euro's.  Smile
 
Klaus
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 9:17 pm



Quoting Egmcman (Reply 16):
If that´s more than two quarters of negative growth that then it is a recession by my understanding of when the term is used by politicians.

Of course it is, nominally.

It just isn't caused so much by the actual economic performance suddenly dropping off but rather by us now realizing and acknowledging that the performance had actually been lower for some time already. There are of course some additional effects on top of that, but to a large degree it is just people waking up to an already pre-existing reality which they had ignored, hoping that the promised fantastical gains were real.
 
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OA260
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 10:54 pm



Quoting Slz396 (Reply 17):
the EU will simply BUY the entire UK for a few euro's. Smile

I think they have more pressing issues in Brussels like trying to help the locals find a government  Wink
 
Alessandro
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RE: Euro Trumps The Pound.

Tue Dec 30, 2008 11:44 pm

Sterling isn´t alone, Swedish crown as slumped against the Euro as well...
From New Yorqatar to Califarbia...
 
AverageUser
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RE: Euro Trumps The Pound.

Wed Dec 31, 2008 12:36 am



Quoting Klaus (Reply 15):

No. I am not talking about printing currency, I am talking about ficticious accounting on the basis of ficticious returns on real (and/or ficticious) investments.

Ok, this is a bit hard for me to follow right now, sorry. So what you're saying is in fact a huge accounting blunder, perhaps even a criminal one, going on in the UK, and that said accounting does not concern any (fiat) money issued by a central bank at all?
Taking what you say at the face value, I would say the central bank is off the hook and any losses only fictional, since the instrument of that loss is a fictional one as well, right?

You'd just say something like: "the confidence on getting the expected return on your investment failed across the market" and that would be it. The term you were perhaps seacrhing for in the above is in fact derivative instrument -- a return on those will also fail rapidly when the primary market fails.
 
WunalaYann
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RE: Euro Trumps The Pound.

Wed Dec 31, 2008 12:57 am



Quoting FXramper (Thread starter):
Euro Trumps The Pound

With due respect, I think the thread title is misleading as I personally do not see an exchange rate as the reflection of a competition between two currency zones, but simply the forces of supply and demand, combined with psychological factors at play.

I do not think the Pound and the Euro compete against each other. For what would they fight anyway?

Quoting Klaus (Reply 10):
The numbers had been heavily skewed by the inflated bubbles in the anglo-american finance system, but the normalization to realistic values is apparently under way.

If you are talking about some bubbles such as the real estate one, I entirely agree. I think we are only seeing valuations coming back to reality and banks adjusting to customers' actual income and assets accordingly.

I do not see how house prices can increase by 10% a year over long period when economic and demographic growths point to 2-to-4% a year in the vast majority of developed countries.

Just wondering.
 
signol
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RE: Euro Trumps The Pound.

Wed Dec 31, 2008 10:51 am



Quoting WunalaYann (Reply 22):
I personally do not see an exchange rate as the reflection of a competition

An Australian comedian on Mock the Week some time ago (I forget his name but he has a wooden leg) said that he watched the 2003 Rugby World Cup Final in England. Amongst other chants, the crowd in the pub were singing "We get 2 dollars to the pound"... [to the tune of "He's got the whole world in his hands"]  Smile

signol
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egmcman
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RE: Euro Trumps The Pound.

Wed Dec 31, 2008 11:39 am



Quoting Elite (Reply 6):
If things get bad enough, then maybe... "till the British public sees fit". I don't think the UK can continue to hold out forever, unfortunately

If you were to ask most of our major political parties about having a referendum on the giving up the Pound in favour of the Euro they would not hold one because of they know the the electorate would say no resoundingly.

It´s all about confidence Gordon Brown and Alistair Darling´s management of the UK economy. The UK has been badly hurt by Icelandic crisis as many retailers are owned by Icelandic companies and banking crisis which has affected house prices.
 
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SKAirbus
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RE: Euro Trumps The Pound.

Sun Jan 04, 2009 9:30 am

I don't think Denmark will enter the euro even though there will possibly be a referendum later this year... Denmark's economy hasn't been hit as hard as those in the Eurozone and the UK which may have been helped by having an independent currency and the ability to fix exchange rates... Unfortunately Anders Fogh thinks Denmark would be better off in the Euro (he is desperate to get a top job in the EU so will do anything)...

However economists in Denmark have said that either Denmark joins the Euro or they take the DKK out of the ERM (the Danish krone is attached to the Euro at an almost fixed exchange rate)..

Nevertheless... i did all my christmas shopping in Sweden where the currency is very weak and i was in the UK for christmas where i spent next to no money on clothes etc etc.. it was great!!!!
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Klaus
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RE: Euro Trumps The Pound.

Sun Jan 04, 2009 9:47 am



Quoting SKAirbus (Reply 25):
Denmark's economy hasn't been hit as hard as those in the Eurozone and the UK

What are you talking about?

At this point our economy is still doing pretty well, with an excellent christmas season in retail and a stable currency. Of course we'll have to see what 2009 still has in store...

Quoting SKAirbus (Reply 25):
which may have been helped by having an independent currency and the ability to fix exchange rates...



Quoting SKAirbus (Reply 25):
(the Danish krone is attached to the Euro at an almost fixed exchange rate)

So which is it? You're contradicting yourself there...!  mischievous 
 
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SKAirbus
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RE: Euro Trumps The Pound.

Sun Jan 04, 2009 9:56 am



Quoting Klaus (Reply 26):
So which is it? You're contradicting yourself there...!

Well although there is a fixed exchange rate the Danish national bank still has the ability to change interest rates... that is pretty independent  Wink
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Klaus
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RE: Euro Trumps The Pound.

Sun Jan 04, 2009 10:11 am



Quoting SKAirbus (Reply 25):
the ability to fix exchange rates...



Quoting SKAirbus (Reply 27):
Well although there is a fixed exchange rate the Danish national bank still has the ability to change interest rates... that is pretty independent

That's not what you posted the first time, but okay about that...

You're just still wrong, apparently:

www.denmark.dk

Quote:
The Danish krone, as well as national interest rates, are tied to the euro and the ECB's interest rate.

The problem is that the peg to the Euro needs to be maintained by danish means – if the krone should be attacked by speculation, the danish economy would have no protection but would have to defend the peg on its own. While the waters are smooth this is not much of a challenge, but the coming years won't be a picnic. It can put some strain on an economy that's outside of but still pegged to the Euro...
 
baroque
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RE: Euro Trumps The Pound.

Sun Jan 04, 2009 10:14 am



Quoting Klaus (Reply 10):

The numbers had been heavily skewed by the inflated bubbles in the anglo-american finance system, but the normalization to realistic values is apparently under way.

Excellent Klaus.  bigthumbsup  And I am not being sarcastic. It is by far the best Orwellian phrasing of the current disaster to the world financial systems that I have read to date.

When I get that severe bout of pain across my superannuation statements I now know that it is just being caused by "normalization to realistic values".  rotfl   rotfl  I have no idea why I am laughing as it is also perfectly true. I think it must be the hint of:
"normal service will be resumed as soon as possible"
that has me in (half hysterical) kinks.

My take on the Euro and the pound is that while the pound is "down" at near parity with the Euro, the UK would be far too proud to take that as the value of its currency and if it ever recovered (which I think is far more doubtful than some seem to believe), then it would be beneath the dignity of the UK to stoop to such an "inferior" currency.

Remember guys, I have seen more devaluations of the pound sterling than most of you. The devaluation to 2.80 in 1949 was worse even than the Ashes loss in 1948, worse even than the first day of the fifth test in that series!!! And things do not get much worse than that.
 
Klaus
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RE: Euro Trumps The Pound.

Sun Jan 04, 2009 11:11 am



Quoting AverageUser (Reply 21):
Quoting Klaus (Reply 15):

No. I am not talking about printing currency, I am talking about ficticious accounting on the basis of ficticious returns on real (and/or ficticious) investments.

Ok, this is a bit hard for me to follow right now, sorry. So what you're saying is in fact a huge accounting blunder, perhaps even a criminal one, going on in the UK, and that said accounting does not concern any (fiat) money issued by a central bank at all?

The central banks had only a secondary role in the whole affair – especially the US Federal Reserve handled interest rates and money supply as if the ficticious deals were actually real and stoked the fire by pushing an unending supply of cash into the markets. The ECB ran a much tighter ship with a much more conservative policy dedicated primarily to stability, but then the ficticious deals never made up a really meaningful portion of our economies over here (both in the transatlantic and in the trans-channel sense).

And yes, it was criminally negligent if not outright fraudulent (if maybe not always in the strictly legal sense – we'll have to keep watching the eventual fallout) to file the ficticious "investments" with the heavily inflated values from the sales brochures instead of the real junk they were.

These "Structured Instruments" – as the euphemism went – were primarily designed to hide the actual risks they contained; Basically the same probable return was sold multiple times to different people, hiding the fact of an ever-decreasing probability that a specific "investor" would actually see that value return to him. "fiat value" if you will – but only the appearance of it with ever-decreasing substance to back it up.

In my book creating this kind of product was fraudulent, buying it at any but a junk price was negligent. And there were plenty of warnings, but the lemming drive and the clamoring for ridiculous "performance" numbers unhinged reason in far too many people.

In effect the book values of these junk papers would have had to be much, much lower than they appeared in the books which would ordinarily have had made them completely unattractive for any sensible investor.

That would of course have left the economies with much lower but actually real growth and value figures. Basically substantial bread instead of a fluffy but highly unstable soufflé.

And the central banks should and would have adjusted to that slower pace; But the main trigger was in the almost total lack of oversight in the US and in Britain, with crazy schemes running wild with real and ficticious money, infecting parts of the real economy as well (the US and british real estate markets, particularly).

Quoting AverageUser (Reply 21):
Taking what you say at the face value, I would say the central bank is off the hook and any losses only fictional, since the instrument of that loss is a fictional one as well, right?

Most of the "losses" are in fact just fictional, deflating the ficticious gains from before – the problem is that real money had been sucked out of the real economy into that vortex of madness; And as in the game of musical chairs: When the ficiticious money is going up in smoke, the "winner" is the one who just happens to hold the real money in his hands at that very instant. Not really a great way to manage an economy, if you ask me.

Quoting AverageUser (Reply 21):
You'd just say something like: "the confidence on getting the expected return on your investment failed across the market" and that would be it. The term you were perhaps seacrhing for in the above is in fact derivative instrument -- a return on those will also fail rapidly when the primary market fails.

No. The "failing confidence" merely reflects the realization of much higher probabilities of failure in the fictitious "investments" than people had in their books. Any investment basically is a bet on a successful return, with some markup on the nominal investment (hopefully more than) compensating for the risk of failure. That's how any investment (including credit) works.

The problem here is that the risk of failure was grossly underrepresented in the sales pitch in order to achieve AAA prices for D- products; And moreover, that AAA prices have actually been paid for what was actually just junk.

That the widespread deflation of the fictitious "investment" bubble will lead to a loss of faith even in real investments with actually much higher chances of success is unfortunate but probably unavoidable. The outright failure of the rating agencies to perform as advertised is just one of the problems there.

Quoting Baroque (Reply 29):
Excellent Klaus.    And I am not being sarcastic. It is by far the best Orwellian phrasing of the current disaster to the world financial systems that I have read to date.

Um... thanks, I guess.

But "orwellian" in what sense, exactly?

Quoting Baroque (Reply 29):
When I get that severe bout of pain across my superannuation statements I now know that it is just being caused by "normalization to realistic values".       I have no idea why I am laughing as it is also perfectly true. I think it must be the hint of:
"normal service will be resumed as soon as possible"
that has me in (half hysterical) kinks.

The whole situation reminds me much of the Infinite Improbability Drive invented by Douglas Adams – in a very real way the bubble economy has worked on that same principle, just unfortunately resulting in an inevitable crash at the end of every run – ultimately getting nowhere, but at least really, really fast...!  cool 
 
baroque
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RE: Euro Trumps The Pound.

Sun Jan 04, 2009 12:12 pm



Quoting Klaus (Reply 30):
The whole situation reminds me much of the Infinite Improbability Drive invented by Douglas Adams

Yes, I had not thought of the IID, it certainly had many features in common with those damned certificates of deposit. Except I think a statistician would have worked out there was a 100% certainty that most of said deposits were going to be worthless (remember the Bird and Fortune interview).

You description struck me as Orwellian in that it described something fairly unpleasant in simple but accurate terms that, said quickly, tends to hide the awful import of what is being said.

I mean normalization of a data set takes place in microseconds (even in Windows) and causes no pain, but the "normalization to realistic values" is going to take for ever and cause immense pain - probably to most of us.

Sitting in Aus, with possibly an even worse housing bubble in terms of prices than either the US or the UK, and yet only having the mortgage failures as a knock on effect, we are sitting waiting for the other shoe to fall. Our housing market is down far less than almost all the others up for comparison. So are we waiting for more "normalization to realistic values"!! Or will our housing shortage and rapid rate of population increase give us a different fate?

Something is different because in Sept/Oct 08 our dollar went down far more rapidly than the pound did, but has been "recovering" against the pound for some weeks now.

Ah, as ever Wiki is our friend:
The adjective Orwellian describes the situation, idea, or societal condition that George Orwell identified as being destructive to the welfare of a free-society.
http://en.wikipedia.org/wiki/Orwellian
Yep that is "normalization to realistic values" pretty accurately! I do concede that you also have to do that before you can restore said welfare. But it is close.

Quoting Klaus (Reply 30):
Most of the "losses" are in fact just fictional, deflating the fictitious gains from before -- the problem is that real money had been sucked out of the real economy into that vortex of madness; And as in the game of musical chairs: When the fictitious money is going up in smoke, the "winner" is the one who just happens to hold the real money in his hands at that very instant. Not really a great way to manage an economy, if you ask me.

 checkmark   checkmark  Indeed not.
 
Klaus
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RE: Euro Trumps The Pound.

Sun Jan 04, 2009 1:57 pm



Quoting Baroque (Reply 31):
Yes, I had not thought of the IID, it certainly had many features in common with those damned certificates of deposit. Except I think a statistician would have worked out there was a 100% certainty that most of said deposits were going to be worthless (remember the Bird and Fortune interview).

Well, maybe not necessarily 100%, but still far in excess of the risk coverage people deemed necessary...

Quoting Baroque (Reply 31):
You description struck me as Orwellian in that it described something fairly unpleasant in simple but accurate terms that, said quickly, tends to hide the awful import of what is being said.

Yeah, I'm all out of sugar frosting on that matter.  mischievous 

Quoting Baroque (Reply 31):
I mean normalization of a data set takes place in microseconds (even in Windows) and causes no pain, but the "normalization to realistic values" is going to take for ever and cause immense pain - probably to most of us.

To different extent, probably; Over here the real estate situation has never seen much inflation recently, so there is not much height of fall really. Public debt is largely held domestically, our industries are largely efficient and up to modern standards (no doubt our car manufacturers still need a kick in their collective behinds for further increased efficiency!) and even the state bank troubles are unpleasant but not really threatening. The unemployment agency just announced a substantial surplus with a relatively low level of unemployment.

The indirect fallout of the financial crisis can of course still cause major problems in the medium term, but in general the situation is still stable at this point. Even christmas shopping has been quite good this season, reaching the level of the year before.

Quoting Baroque (Reply 31):
Sitting in Aus, with possibly an even worse housing bubble in terms of prices than either the US or the UK, and yet only having the mortgage failures as a knock on effect, we are sitting waiting for the other shoe to fall. Our housing market is down far less than almost all the others up for comparison. So are we waiting for more "normalization to realistic values"!! Or will our housing shortage and rapid rate of population increase give us a different fate?

I've not watched the australian situation much; Was there a similar price inflation and reckless lending as in the US or what has been the problem there?
 
AverageUser
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Joined: Tue Oct 23, 2007 6:21 pm

RE: Euro Trumps The Pound.

Sun Jan 04, 2009 4:20 pm



Quoting Klaus (Reply 30):

The central banks had only a secondary role in the whole affair

I think you're contradicting yourself, if you say "the whole affair". You always rejoiced in the past in the "price stability" that your beloved ECB seemed to offer, then now when the investements denominated in something a central bank has a absolute monopoly in (the fiat currency again) fail, we find that as if my miracle the central bank have had no role in it. What good is a central bank if they can't control their main product? The ECB was established for the explicit purpose for bypassing the nationalist politicians of the era bygone, and here we are all in the same boat, worldwide!

Quoting Klaus (Reply 30):
And there were plenty of warnings, but the lemming drive and the clamoring for ridiculous "performance" numbers unhinged reason in far too many people.

So that much for the global free investment markets then? Never mind the Pound, but the carefully constructed edifice of the German Mark of the latter days, or the Euro, is now breaking down as well. Waiting next in the line is logically some kind of a world (monetary) government.

Quoting Klaus (Reply 30):
normalization to realistic values

Klaus, that's right I think you have a tremendous aptitude for the platitudes. There's ultimately no real "normalization" nor "realistic values", not even in Germany. One man's realism is another's undervaluation, or whatever. If, and I must put a big "if" here, we live in a free market economy, the market is always right, even when it's totally wrong! You can't return to "normal values" any more than you can sell a last Sunday's newspaper as today's issue.
 
baroque
Posts: 12302
Joined: Thu Apr 27, 2006 2:15 pm

RE: Euro Trumps The Pound.

Sun Jan 04, 2009 4:45 pm



Quoting Klaus (Reply 32):
Quoting Baroque (Reply 31):
Sitting in Aus, with possibly an even worse housing bubble in terms of prices than either the US or the UK, and yet only having the mortgage failures as a knock on effect, we are sitting waiting for the other shoe to fall. Our housing market is down far less than almost all the others up for comparison. So are we waiting for more "normalization to realistic values"!! Or will our housing shortage and rapid rate of population increase give us a different fate?

I've not watched the australian situation much; Was there a similar price inflation and reckless lending as in the US or what has been the problem there?

Yes, no and I don't think we know yet to those questions in order.

Yes we had huge house price inflation, the graphs that Alan Kohler (now there is a fine German name for you!) regales us with nightly on TV show worse than the US, and I think worse than the UK. I would produce some, but while he shows them on ABC TV, you have to buy his newsletters to see them in print or get an electronic copy.

No the lending was much less reckless, and our mortgage rates are roughly linked to our central bank rate which was up about 7% before the "fun" started. Also you cannot walk out of your obligations quite the same way as in the states. You still owe if the house sale does not meet the mortgage costs, and low doc loans (similar to the sub-prime) were a low proportion and not as reckless.

And what is the problem? Well, a bit of housing stress until the reserve bank rates started falling in about Sept Oct. Some problems with dumb lending by the banks along two known main lines and a possible third line:

A. Funding shonky (doubtful) businesses in Australia. ABC learning (pre school tuition), OPES Prime margin lending and a range of other unlikely efforts including ALLCO who tried to buy Qantas in 2007.

B. They fell for a "small" amount of the dreaded sub prime certificates; but the real fear is

C. What else they have not told us in relation to funding private equity buyouts that may still fail.

There probably IS a lesson from the Aus case. Housing bubbles can perhaps be managed with a mortgage and interest system different from the US model.

The (private) banks will never tell even their shareholders what a mess they have made of "investments" until they have to bring losses to book - or something close to that.

With Bank P/E ratios about half what they were in early 2008, and yields now over 9% for most of the banks, there is considerable fear that some other bits of REALLY bad news might be coming down the road.

It does look as if comparisons such as that between the German system and events with the US, UK and Aus can lead to conclusions about which parts of systems make them more robust.

Without going to AverageU's world banking system, it does seem there are bits of many of the different systems that are worth adopting, always making sure that the "bits" are not incompatible.

It does appear that once housing deflation starts, it is going to be difficult to avoid major pain. We appear to have been lucky in that although various disasters have struck, the whole housing market does not seem to be in the state of either the US or the UK ones.

Quoting Klaus (Reply 32):
Yeah, I'm all out of sugar frosting on that matter.

You are not R Crusoe on that!!
 
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OA260
Posts: 21124
Joined: Thu Nov 30, 2006 8:50 pm

RE: Euro Trumps The Pound.

Mon Jan 12, 2009 10:21 am

UK public still opposed to joining euro despite slide


Monday January 12 2009

BRITISH voters have maintained their opposition to adopting the euro, the currency shared by 16 other members of the European Union, even after the pound plunged in recent months, a poll shows.


http://www.independent.ie/business/e...ng-euro-despite-slide-1598798.html

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