Notes From Underground: While Europe Slept…

This weekend the European Union, again, failed to do anything to alleviate the PIIGS’ problems. Eurocrats continue to put Band-Aids on the problems of potential insolvency of the weakest sovereigns. Even though the official communique left more questions than it answered for investors and European citizens, there were two solid pieces about the why and how of some type of real bailout program. Nouriel Roubini had an insightful piece on Slate, but while economically sound it fails to deal with the political machinations that are in play in Europe. Adding to Merkel’s problems is the fact that her coalition lost a vote in Parliament on an education issue. While it’s not a serious affront to the chancellor’s coalition, it does reflect the serious political winds that are blowing and gathering force in Germany.

There are political ramifications to these decisions, from voter anger to the fear of the German Constitutional Court declaring a comprehensive fiscal type union unconstitutional. Roubini makes no mention of these problems, and thus, in my opinion his economic solutions are a non-starter. Another must-read piece is by one of my favorite journalists on the European beat,Ambrose Evans- Pritchard. In a piece in tomorrow’s London Telegraph titled, “SELF-RIGHTEOUS GERMANY MUST ACCEPT A EURO-DEBT UNION OR LEAVE EMU,” Pritchard goes lays out his plan for the EU. Again, he doesn’t explain how German politicians are going to sell this massive debt union to the good Bavarian Burghers so we are left with more questions than answers.

The weekend did not bring any news that would dramatically move markets but the South Koreans announced that they were going to try to slow the inflow of HOT MONEY into South Korea. It seems that the plan will place a levy on non-deposit foreign currency held by domestic and foreign banks. The money that is placed on deposit for some time duration will not be affected, but again, it is important to be attentive to the different attempts by emerging economies to stem the inflow of HOT MONEY and the impact it has on currency values.

As I wrote tonight’s NOTES, the phone rang after 60 Minutes ran a story about the difficult straits in which many U.S. states find themselves. The interviewer had Meredith Whitney on and she was warning about the coming onslaughts of municipal bankruptcies and the terrible condition of several state budgets. This is not a new story and the effects of out-of-control state houses has been simmering for three years. State and local governments have been underfunded for the entire decade and coupled with the 10 years of stagnant equity markets, the public sector defined-benefit plans are seriously underfunded. If there are deep concerns, the market will show it.


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4 Responses to “Notes From Underground: While Europe Slept…”

  1. yra Says:

    from Yra—-with the last paragraph –when the phone rang it was a AARP member who had all his wealth in MUNIS and wanted to know if there was an ETF on munis to get short to hedge himself.The panic was palpable and that is what we have to watch.I advised him that he should check with his account manager and see what munis he was in for not all muni debt is creaed unequal

  2. Fred E. Says:

    The States and Municipalities fiscal problems have been simmering for quite some time and is now coming to a boil. The repercussions to retirement funds, insurance companies, banks and individuals would be enormous in case of default on debt or pension service. Best guess is the “too big to fail” reaction will ensue, leading to bailouts number xx. Another nail in the dollar coffin. Pretty soon the corpse will be permanently enclosed (relative to real money, i.e. PM)

  3. yra Says:

    Nice Fred—and they wonder why Ben keeps the pedal to the floor?!Nice to hear from you and hope all is well

  4. Notes From Underground: A Spectre of Arrogance Chains Europe to Its Past « Notes From Underground Says:

    […] WHILE EUROPE SLEPT (December 19, 2010) […]

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