Posted on 04/27/2010 4:36:48 PM PDT by bruinbirdman
European Central Bank may soon have to invoke emergency powers to prevent the disintegration of southern European bond markets, with ominous signs of investor flight from Spain and Italy.
Greece’s fortunes were dealt yet another blow as Standard & Poor’s slashed its credit rating to junk status - BB+ - the first time that has happened to a euro member since the single currency was created, pushing yields on 10-year Greek bonds up to a record 9.73pc.
Pigeons swirl in front of the National Bank of Greece headquarters
The credit-rating agency also cut Portugal’s sovereign debt ratings by two notches to A-, as the swirling storm hit the country with full-force.
“We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.
“The ECB has been side-lined in the Greek crisis so far but do you allow a bond crash in your region if you are the lender-of-last resort? They may have to act as contagion spreads to larger countries such as Italy. We started to see the first glimpse of that today.”
Mr Cailloux said the ECB should resort to its “nuclear option” of intervening directly in the markets to purchase government bonds.
This is prohibited in normal times under the EU Treaties but the bank can buy a wide range of assets under its “structural operations” mandate in times of systemic crisis, theoretically in unlimited quantities.
Mr Cailloux added: “This feels like the banking crisis in late 2008 post-Lehman, though it has not yet spread to other asset classes. ECB will have to act it if does.”
Yields on 10-year Portuguese
(Excerpt) Read more at telegraph.co.uk ...
once again, government is asking tax payers to bail out LENDERS. Who are these folks who keep lending money to government. They really should lose all their money
The funny thing is that these liberal pundits continue to blame this problem on the banks. Even if the banks did exacerbate some of the World’s problems, the biggest problem has always been the size of debt. Deficit spending is inevitable in these tough times, the problem is that so many countries had an unsustainable debt before the bust.
“In Greece, complying with the rules is a matter of dishonor. They call you stupid if you follow the rules.”
http://online.wsj.com/article/SB10001424052702303828304575179921909783864.html
So keep sending more money!
Is S&P government owned? Just wondering out loud here, but is this the next big crisis?
yitbos
You are one of the folks lending money to government (assuming that you pay Social Security).
SS takes your money and buys treasury bonds with what's left over after they pay all the current SS recipients.
That's what's in your SS account lock box!
There are of course lots of other idiots that think that buying "Treasuries" is a safe investment......and up until recently they were right.....but not so much now.
Money is fleeing EU and going into US Treasuries. Treasury rates fell today.
yitbos
Where is that scum Soros hiding his fortune?
And the Maastricht Treaty won't be of any help. Bailouts of a member nation (EU/EMU) by other nations are expressly prohibited. Thus, the hotshots misrunning EU/EMU are looking for a way to bail out Greece (and soon, Portugal and Spain) w/o leaving their fingerprints on the machinations. The situation is SO dire that US long-date debt is being bid up as a 'flight to quality'. US debt? Quality??? Oh, puh-lease.
However, this fiasco has one positive effect: the demonstration to anyone with any functional brain cells that Lady Thatcher was **exactly** correct in her famed evaluation of socialism.
EVERYTHING else, absolutely everything, US and foreign shares, currency pairs and commodities generally, including crude, got smashed as the USD rose apace.
The only serious question is: will this repeat itself tomorrow? Absent MORE bad news on the Greek/Portuguese situation, I think not. We should see some knock-on effect tonight, but absent more distinct bad news in tomorrow's US session (keep in mind, FOMC are meeting), I'd say we'll be lower to start, then rally as the session goes on.
Just one view, of course. We shall see what we shall see.
And how is this different than what the US is already doing?
"The key ingredient is the ECB window! IF this is still open (as under the rules it must be!), the PIGS will be “round tripping” on a massive and increasing scale – getting national banks to discount government debt at par with the ECB for Euros and then using these Euros to buy more of their Government s debt etc, etc, only doing this faster and faster. On this basis the debtors will be cash rich."
If this is the case, didn't we see this occur after the Lehman crash? Unlimited windows opened around the world?
yitbos
With the Greek gov’t bonds attaining junk status the ECB can no longer use them as securities. The credit window is closed for Greece. (That is if the ECB sticks to its rules....and BTW I have nice bridge over the river Seine to sell.)
The ECB works most of its nefarious deeds behind an opaque window.
Heck, ECBs books are cooked worse than Greece's
yitbos
The net of this all is that Euro, just 11 years old, is in far more danger of collapse than USD, no matter how shamefully we're bungling our 'management' of our currency.
FReegards, m'FRiend!
We see that as Greece and Portugal are downgraded, $ rises, commodities in $ fall.
If the EUrotopia dominoes are falling, we can have a long thread on the results. Or the sequence of the dominoes falling.
I see as interesting a succession of threads as was begun in 2006 just before the housing bubble burst.
Does EUro bubble bursting continue V shapped recovery?
yitbos
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