At 11:09 27/11/2010 -0500, Ed posted:
<http://www.washingtonpost.com/wp-dyn/content/article/2010/11/26/AR2010112601943.html?wpisrc=nl_headline>http://www.washingtonpost.com/wp-dyn/content/article/2010/11/26/AR2010112601943.html?wpisrc=nl_headline
Even though investors may be dumping some Spanish and Portuguese bonds at the moment I don't think there can be a major selling wave just yet. Where else can the big investors park their money? Most large businesses in Europe that have survived the credit-crunch are building up large reserves of their own and don't need additional investment. There's not much opportunity of buying commodities ('cos China has bought most of any spare that's going for the next few years). Emergent countries like China, India and Brazil don't need any investment just now (they're already fighting incipient inflation). American Treasury bonds yield hardly any return.
And on the other side of the coin the ECB and IMF will invent some sort of formulae for inventing more spurious money to help Portugal or Spain, even though, as happened with Greece's bail-out already, the ECB will be breaking its own constitution, and the IMF its own previous rules.
Thus, even though the EMU is steadily unravelling in real accountancy terms and although it's quite obvious that several countries will never be able to pay their governmental debts, investors' funds are so large (including many of the world's largest pensions funds) that there's no obvious place for them to go just now in any quantity. All that will happen for the time being is that interest rates on eurobonds of the PIIGSs countries (Portugal, Ireland, Italy, Greece and Spain) will continue rising as they come up for renewal.
But the risks are rising also. And, considering the restive populations and unemployed in several European countries, the risk is rising faster. Some sort of catastrophe is bound to break some time. Perhaps -- it's not silly to say this -- if there is to be a currency breakdown the ECB wants the American dollar to crash first. And, given Bernanke's frame of mind (still imprinted with events of the 1930s Great Depression) and his current eagerness to unleash further quantitative easing on the world, it may not be too long hence.
Keith Keith Hudson, Saltford, England
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