Can we Solve Problem of Too Much Debt by having More Debt?

[Dennis Ng]

What is the Cause of Europe's Debt Problems? It's European countries spending more than they earn and borrowing more than they can repay.

How to solve this problem of Over-Borrowing by some European countries?

They have a brilliant solution: to Borrow More Debt!

Euro zone is proposing to increase the Europe "rescue fund" from the current 500 billion euros by 5 times to 1.5 trillion Euros! Great News indeed.

This is akin to how we decide to help a drug addict, by buying him more drugs to satisfy his craving for drug! When the next time he needs drug again, will he become better or worse?

So the world right now is "rejoicing" that Euro Zone seems to be getting their Act together, to agree on a Greater "Rescue" package, ie. borrowing more money....

Well, to me this is called Kicking the Can Down the Road....what's the problem with such a Solution?

The problem is one day they will reach the end of the Road...when will that be? Who knows? But the longer they delay in facing up the problem, the worse it will be when the whole thing finally blows up.

Even Japan is over-borrowing, with debt at 200% level and needs to borrow more in its re-building efforts after Japan earthquake Disaster.

And U.S. in my opinion, is also waiting for Opportunity to launch QE3 (3rd round of printing money (borrow money)...hooray!!!

Let them all borrow even more money to solve the borrow too much money problem. With such a solution, I think we will see the light at the end of the tunnel soon, but I'm very afraid it'll be the headlights of an on-coming train.

Cheers!

Dennis Ng

Eurozone mulls hiking rescue firepower to 2.5 tn: sources
12 October 2011, 22:45 CET
— filed under: eurozone, Finance, debt, public, economy

(BRUSSELS) - Eurozone nations are mulling ways of multiplying by up to fivefold, or to 2.5 trillion euros ($3.5 trillion), the firepower of their rescue fund, EU sources told AFP Wednesday.

European Commission president Jose Manuel Barroso earlier Wednesday urged the 17-nation eurozone to increase the firepower of the European Financial Stability Facility (EFSF), without governments provide new guarantees.

"We should maximise its capacity," he said in a speech to the European Parliament, without offering further details.

One EU source said experts were looking at several options to "leverage" the EFSF's potential financial impact.

One was to turn it into a bank that could obtain monies from the European Central Bank (ECB) through limitless loans, but "this option has been ditched as it would breach the EU treaty," the source said.

A second option would see the EFSF insure holders of bonds from indebted states "up to 15 or 20 percent for instance", thus covering part of their losses should a nation default.

In this case, where the EFSF would play the role of guarantor, "experts believe we could multiply by three, four or five the Fund's intervention capability," a source said.

The EFSF, which was created to shore up distressed nations after the 17-nation eurozone bailed out Greece in May 2010, currently has an effective lending capacity of around 250 billion.

This is to be boosted to 440 billion euros once all 17 euro nations have ratified a July accord to enhance and increase its scope.

It is to be replaced by the European Stability Mechanism (ESM) between mid-2012 and mid-2013, which would have a lending capacity of 500 billion euros.

Through leverage this could be raised to 2.5 trillion euros.

The sources said no decisions had been taken and that talks were still ongoing.

Text and Picture Copyright 2011 AFP. All other Copyright 2011 EUbusiness Ltd. All rights reserved. This material is intended solely for personal use. Any other reproduction, publication or redistribution of this material without the written agreement of the copyright owner is strictly forbidden and any breach of copyright will be considered actionable.

[AdrianChua]

Somehow or rather, I happened to came across this video without having read this post. Great minds think alike.

If you work to earn money, you need to watch this.
http://www.youtube.com/watch?v=Tp2nu0Qd ... re=related

[Dennis Ng]

6% Bond Yield is the Tipping point.

Watch out the 10 year bond yield for Italy and Spain, once it goes above 6%, then likely that Italy and Spain would spiral downwards into trouble like Greece...

Reasons? When Italy can borrow at about same interest rate as Germans (about 2%) they can afford to pay their debt (bonds), when it is above 6%, investors would start re-doing their calculations and might conclude that Italy and Spain would have problem paying its debt and thus selling off their bonds, which will lead to lower Bond prices and which in turn will spike up Bond Yield even further, it is a Vicious Cycle or what George Soros terms as "Reflexivity"...

This is likely to happen soon to Italy and/or Spain.

As at 20 Oct 2011, Italy 10 year bond yield at 5.99% and Spain at 5.49%. German at 1.99% and French at 3.13%...

Ask yourself would German government have any problem convincing Germans the need to help bail out Italy and Spain who are No 3 and No 4 biggest economy in Euro Zone...if you're Germans, of course you're not happy. The Germans work so hard and end up having to dish out money to lazy neighbours Italy and Spain who are not small economies...

Expect Germans to dilly dally on the Eurozone Rescue Package and which means Euro Zone might NOT have a concrete rescue package sewn up by 23 Oct 2011...but markets last week already built up expectation that agreement is on the way when the G20 meeting ended quite promisingly, on a positive note that Euro Zone say they will do something.

[Juz]

European Leaders Postpone Decision on Bailout Plan
http://www.cnbc.com/id/44976094

Europe's efforts to solve its escalating debt crisis plunged into disarray Thursday after Germany and France could not bridge their differences in time for a summit Sunday, forcing them to call a second meeting.

Sunday's summit was supposed to deliver a comprehensive plan to finally get a grip on the currency union's debt troubles by detailing new financing for debt-ridden Greece, a plan to make Europe's banks fit to sustain worsening market turbulence and a scheme to make the euro-zone bailout fund more powerful.

The offices of French President Nicolas Sarkozy and German Chancellor Angela Merkel announced they needed more time after it became clear that the currency union's two biggest countries could not agree on the main points of the plan.

Both governments said that all elements of the euro zone's crisis strategy would be discussed on Sunday, "so it can be definitively adopted by the Heads of State and Government at a second meeting Wednesday at the latest."

It also said that the two leaders would meet Saturday evening ahead of the summit in Brussels in the hope of making progress.

"The chancellor is confident that in this way, good, coordinated measures for the stability of the euro zone can be achieved," Merkel's spokesman, Steffan Seibert, told journalists in Berlin.

The announcement of a second summit is likely to increase concern over the euro zone's ability to stick together and stabilize the common currency. Sunday's summit had already been delayed from earlier in the week to give the leaders more time to agree on the key issues.

"The parochialism and procrastination that got us into this mess continues," said Sony Kapoor, managing director of economic think-tank Re-Define. "Unless EU leaders pull a rabbit out of their hat now, this will worsen the already deep politico-economic crisis that Europe is facing."

European officials said ahead of the announcement that the euro zone remained deeply divided on important parts of its strategy on debt-ridden Greece, banks and its bailout fund.

Germany and several other rich countries have been pushing for banks and other private investors to take steeper losses on their Greek bondholdings, before the euro zone can sign off on a second multibillion-euro rescue package for the struggling country.

France and the European Central Bank have so far opposed forcing banks to write off more Greek debt, fearing that would destabilize the banking sector and worsen market turmoil.

But Greece's international debt inspectors warned earlier in the day that even under a rescue package tentatively agreed upon in July, the country's debts were not sustainable.

In their statements Thurday, Merkel and Sarkozy said that, based on the inspectors' report, Greece should immediately start negotiations with the private sector to reach a deal "that would improve this debt sustainability."

The euro zone is also divided on how to give its bailout fund more firing power, with the French wanting the ECB to help out, which Germany opposes.

A third point of contention is how to fund expensive capital injections into weak banks that might take losses on Greek debt and have already taken a hit from falling prices of other government bonds. France and several other countries are worried that bailing out their banks could hurt their credit rating and want the bailout fund to support lenders directly, rather than lending first to governments.

Ahead of the announcement, one European official, who was speaking on condition of anonymity, suggested that the need for more time may also have been caused by disagreement between Merkel's government and the German parliament, which felt decisions affecting taxpayer money were being taken over its head.

Seibert appeared to support that assessment, saying further changes to Europe's bailout fund would require the agreement of the Bundestag, the German parliament.

"A two-step summit allows for this to take place," Seibert said.

Merkel's address to parliament scheduled for Friday was canceled, and Seibert said it would take place next week.

Governments in rich and poor countries are finding it increasingly difficult to get their parliaments to support the common rescue efforts.

Greek lawmakers late Thursday barely passed a deeply resented austerity bill needed to get the next batch of rescue money and avoid a disastrous default next month.

But the vote further diminished the ruling Socialists' grip on parliament and triggered violent protests on the streets of Athens, leaving one person dead and dozens injured.

Tear gas choked the air in Athens' central Syntagma Square, as riot police tried to separate more than 50,000 peaceful protesters from smaller groups determined to wreak havoc with firebombs and stones. The scene degenerated into running battles between groups of protesters beating each other and between helmeted, heavily armed police and masked rioters.

One central Athens hospital said it had treated 74 people injured in the clashes. Some of the injured were covered in blood from head wounds.

© 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

[kairos31009]

Half of Greece debt is defaulted and now Greece is out of Eurozone?
What happened to China since it bought Greece debt earlier this year?

What is the Cause of Europe's Debt Problems? It's European countries spending more than they earn and borrowing more than they can repay.

How to solve this problem of Over-Borrowing by some European countries?

They have a brilliant solution: to Borrow More Debt!

Euro zone is proposing to increase the Europe "rescue fund" from the current 500 billion euros by 5 times to 1.5 trillion Euros! Great News indeed.

This is akin to how we decide to help a drug addict, by buying him more drugs to satisfy his craving for drug! When the next time he needs drug again, will he become better or worse?

So the world right now is "rejoicing" that Euro Zone seems to be getting their Act together, to agree on a Greater "Rescue" package, ie. borrowing more money....

Well, to me this is called Kicking the Can Down the Road....what's the problem with such a Solution?

The problem is one day they will reach the end of the Road...when will that be? Who knows? But the longer they delay in facing up the problem, the worse it will be when the whole thing finally blows up.

Even Japan is over-borrowing, with debt at 200% level and needs to borrow more in its re-building efforts after Japan earthquake Disaster.

And U.S. in my opinion, is also waiting for Opportunity to launch QE3 (3rd round of printing money (borrow money)...hooray!!!

Let them all borrow even more money to solve the borrow too much money problem. With such a solution, I think we will see the light at the end of the tunnel soon, but I'm very afraid it'll be the headlights of an on-coming train.

Cheers!

Dennis Ng

Eurozone mulls hiking rescue firepower to 2.5 tn: sources
12 October 2011, 22:45 CET
— filed under: eurozone, Finance, debt, public, economy

(BRUSSELS) - Eurozone nations are mulling ways of multiplying by up to fivefold, or to 2.5 trillion euros ($3.5 trillion), the firepower of their rescue fund, EU sources told AFP Wednesday.

European Commission president Jose Manuel Barroso earlier Wednesday urged the 17-nation eurozone to increase the firepower of the European Financial Stability Facility (EFSF), without governments provide new guarantees.

"We should maximise its capacity," he said in a speech to the European Parliament, without offering further details.

One EU source said experts were looking at several options to "leverage" the EFSF's potential financial impact.

One was to turn it into a bank that could obtain monies from the European Central Bank (ECB) through limitless loans, but "this option has been ditched as it would breach the EU treaty," the source said.

A second option would see the EFSF insure holders of bonds from indebted states "up to 15 or 20 percent for instance", thus covering part of their losses should a nation default.

In this case, where the EFSF would play the role of guarantor, "experts believe we could multiply by three, four or five the Fund's intervention capability," a source said.

The EFSF, which was created to shore up distressed nations after the 17-nation eurozone bailed out Greece in May 2010, currently has an effective lending capacity of around 250 billion.

This is to be boosted to 440 billion euros once all 17 euro nations have ratified a July accord to enhance and increase its scope.

It is to be replaced by the European Stability Mechanism (ESM) between mid-2012 and mid-2013, which would have a lending capacity of 500 billion euros.

Through leverage this could be raised to 2.5 trillion euros.

The sources said no decisions had been taken and that talks were still ongoing.

Text and Picture Copyright 2011 AFP. All other Copyright 2011 EUbusiness Ltd. All rights reserved. This material is intended solely for personal use. Any other reproduction, publication or redistribution of this material without the written agreement of the copyright owner is strictly forbidden and any breach of copyright will be considered actionable.

[Dennis Ng]

Half of Greece debt is defaulted and now Greece is out of Eurozone?
What happened to China since it bought Greece debt earlier this year?

Hi kairos31009,
nope, it is NOT half of Greece debt defaulted.

It is the lenders (holders of Greece bonds) need to recognise 50% as uncollectible, (write off or hair cut).

So any holders of Greece bonds would suffer min 50% loss, since the actual price might even drop lower due to poor market sentiment and confidence.

Greece is still inside Eurozone, not out. Who told you it is out?

[kairos31009]

Sorry sifu for my incorrect news. Was trying to keep up to date with the current affair. The news are so negative nowadays, I began to read it less often.

Half of Greece debt is defaulted and now Greece is out of Eurozone?
What happened to China since it bought Greece debt earlier this year?

Hi kairos31009,
nope, it is NOT half of Greece debt defaulted.

It is the lenders (holders of Greece bonds) need to recognise 50% as uncollectible, (write off or hair cut).

So any holders of Greece bonds would suffer min 50% loss, since the actual price might even drop lower due to poor market sentiment and confidence.

Greece is still inside Eurozone, not out. Who told you it is out?