Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Europe Entering a Decade Long Recession

Economics / Great Depression II Dec 06, 2011 - 01:52 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleIf French president Nicolas Sarkozy gets his wish to "Level the Playing Field" on sovereign bonds, a decade-long European recession is on its way.

French President Nicolas Sarkozy made it clear in a speech in Toulon last week that he wanted the private sector to be given a more-level playing field when it came to the threat of having to bear losses on their investments.



He said Greece, where there have been drawn-out negotiations between the government and the private sector over how much of a hit banks and insurance companies should take under a debt restructuring, should be a unique case.

"It must be clear that what has been done for Greece, in a very particular context, will not happen again, that no other state in the euro zone will be put into default," he said.

"It must be absolutely clear that in future no saver will lose a cent on the reimbursement of a loan to a euro zone country."

Reflections on the Un-Level Playing Field

What could possibly be more un-level than guaranteeing banks and bondholders will never take losses? When there are more losses, and there will be, the only way to guarantee banks do not take them, is to have someone else take them, namely taxpayers.

While pondering that, take look at the action in Portuguese bonds.

Portugal 10-Year Government Bonds


Portugal 2-Year Government Bonds


Do either of those charts suggest there will be no more losses? If there are, who will pay them?

If Sarkozy gets his wish, taxpayers, not bondholders will pay the price.The same holds true for Ireland, Spain, Belgium, and Italy.

The only true way to level the playing field is to make banks and bondholders who take foolish risks to pay the price for their foolish actions.

Monti's "Save Italy" Package Sure to Cause "Super Recession"

Yesterday I wrote Monti's "Save Italy" Package Sure to Cause "Super Recession"

Super Mario has a five-point plan to "Save Italy".

  1. Raise more than 10 billion euros from a new property tax
  2. Impose a new tax on luxury items like yachts
  3. Raise value added tax
  4. Crack down on tax evasion
  5. Increase the pension age

The above package was dubbed the "Save Italy" package by Prime Minister Mario Monti. Supposedly it will boost growth.

While I agree pension reform is much needed, there is not a single thing in the package to boost growth. Italy is in recession. Raising taxes in a recession is the last thing you want to do, yet four of Monti's five ideas raise taxes.

This proposal may temporarily placate the bond market, but Italy is headed for one "super recession" if Mario's mix of idiotic tax hikes passes. Instead, Italy needs to cut wasteful government spending and lower taxes.
For there to be no more losses, we will need still more austerity measures in France, Spain, Portugal, Italy, Greece, and Germany.

Spanish unemployment is 22.6%, a 15-year high. Greek unemployment is a record 18.4%. What will more austerity measures do and what will cramming losses on taxpayers do to those rates?

The EU needs to reflect on the consequences of Sarkozy's ludicrous proposal to "un-level" the risks on piss poor lending decisions.

Two Consequences In Order

  1. Europe will slide into a multi-year recession
  2. Voters in Greece, Spain, Portugal (likely all) will have had enough

Then .... Eventually, Will Come a Time When ....

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2011 Mike Shedlock, All Rights Reserved.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife