From Variant Perception, whose new blog is here.

Source: Variant Perception

Category: Currency

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

4 Responses to “A Primer on the Euro Breakup”

  1. rktbrkr says:

    in the past century sixty-nine countries have exited currency areas with little downward economic volatility

    I’m drawing a blank – is he referring to former European colonies going off the British pound, French Franc etc? I don’t think that’s very much like this Greek drama.

    Currency manipulation is the perfect tool to rob the most people with the least effort. Jacking up unemployment and cutting wages to repay German and French bankers isn’t going to lead to more profound reactions than we have seen so far. Occupy Athens coming up!

  2. machinehead says:

    ‘Money is already moving our of the periphery country banking systems into foreign banks: US, Switzerland and banks in the European core. Arguably, the people and companies moving theirsavings outside of periphery countries are the most sophisticated and agile of savers. It follows logically, that small savers without sufficient wherewithal of banking facilities elsewhere will be thebiggest losers.

    ‘Unfortunately, it is not possible to solve the real effective exchange rate problems andreduce the real value of periphery debt without harming savers. This will be an inevitable consequence of exiting, re-denomination of legal tender and devaluation.’

    What do you do if you’re a small depositor in Greece, rumors start flying of a surprise devaluation over the weekend (as advocated in this paper), and you can’t break away to ferry your cash out of the country?

    Two ideas come to mind:

    1. Convert your deposits to cash and buy gold. Since gold’s price is set internationally, it will hold its value even in a new, devalued local currency.

    2. In a brokerage account, buy foreign sovereign debt (e.g., German, British, Swiss or U.S. T-bills). Just as with gold, these foreign assets will hold their value, as the new local currency devalues against them.

    The second option is potentially riskier, because financial accounts are highly visible, and holders could potentially be taxed on their so-called ‘windfall gains.’ Depending on the regulations imposed on gold dealers and private gold transactions, cash-for-gold might be a better bet to escape retroactive taxation.

    As the paper makes clear, it’s always the ‘little people’ who get burnt the worst in a currency devaluation or exchange.

  3. JDinCT says:

    Great Post Barry!
    Fascinating.

    What do we make of Fitch;s upgrade of Iceland? A model for Greece?

    Problem: Could Greece fuel it’s factories and homes for a week before it goes broke?

  4. Simon says:

    “it’s always the ‘little people’ who get burnt the worst” This is key. Sophisticated observers noted, as soon as Angel Merkel denied that it was ever possible for Greek to leave, default and departure was almost a given. As was observed in the BBC drama “Yes Minister ” you cannot be absolutely sure something will happen until it is officially denied.

    Life is never fair but degrees of unfairness are important. High degrees of unfairness have precipitated some of the worst events in recent history. The post world war one treaty of versailles led to the rise of fascism in Germany, Hitler and the Second world war. Arguably there are parallels between the situation in Greece and Spain now and Germany under the treaty of versailles. Chronic and Acute youth unemployment will lead to social unrest if not now than in the future.