I’m sitting on a small pile of cash here - I withdrew the day after ‘black monday’. My wife thinks I’m paranoid but I think things could move quite quickly now. BTW: I believe the sale of safes has gone through the roof.
Appreciate a few comments on the following:
This might sound strange but are all euros notes safe or are some safer than others? e.g. if we were kicked out of the euro tomorrow
How does ordinary Joe one buy into these German bonds?
I’m with the Germans btw. They know how to build good stuff, they never bought into outsourcing of manufacturing and they have been prudent. I’ll take German growth over Irish growth any day!
Evidence over the past week shows that where money and banks are concerned every country acts in it’s own interests.
The Euro would disintegrate before we get kicked out, events of the past weeks have shown where banks are concerned every country acts in its own interests rather than central control. The reaction of the ECB in the coordinated interest rate drop also shows they have hot the panic button. What is more likely is that the government will fall next year as the economy contracts.
The safest place during a crises is government bonds. In the current crises there really are only five ultra safe government bonds that are widely traded in Europe. US, UK, German, Swiss and Japanese. Unless you want to get into the whole issue of currency hedging you really are only left with German bonds for Irish savers. If the Euro has problems it will probably decline against the other currencies, but who knows what happens during a major currency crises. I dont.
What I do know is that in all potential Euro crises scenarios if Ireland ends up with an independent currency it will decline substantially against whatever currency Germany has. So if you buy german bonds and nothing happens, all you have lost is a few per cent interest pa and the brokerage fees. But you will have gained complete peace of mind. If there ever is a sovereign bond death match I would bet on the Germans to be the last one standing.
If everything goes south and the euro area breaks into two or more currencies then your german bonds will probably be worth 20% to 40% more when converted back into the home currency than if you had kept the original sum in an Irish bank or Irish government bonds. That’s assuming that the Irish fiscal situation is pretty much the same as Italy and Spains. Which seems a pretty reasonable assumption at the moment.
This is how South Americans deal with their regular domestic currency crises. Move your money into something foreign and secure when the storm clouds gather. Wait for the crises. Then move it back after the dust has settled.
Kick out was probably too strong a term. Politely but firmly shown to the door might be a more accurate description.
I completely agree that Italy will be the spark. After watching Berlusconi during the recent elections I came to the conclusion that the only reason the Italians had not pulled the trigger so far is that the cost of servicing their national debt would explode if they left the euro,. This would cause a budget crises of epic proportions, even by Italian standards…
On the German side I think Merkel is a complete loose cannon. She still does not seem to get it. I get the feeling that Steinbrück realized, belatedly, last weekend, that the game had fundamentally changed but I still get no sense that Merkel has really moved on from purely domestic issues of Agenda 2010, the next Federal elections, last month disastrous CSU election result in Bavaria, or out maneuvering the SPD. I just see a complete failure of imagination on her part.
Because of this I think everything is in play, and no option, no matter how outlandish it may have sounded only a few weeks ago, can be ruled out. My money is still on a two euro, strong euro - weak euro, solution. It would be the solution that would best fit the pattern of all past euro-fudges.
Unfortunately,things are going the way i suspected.The government target the old and the young making meagre savings while leaving the rest of the merry go round still going.These cretins simply have no concept of “value for money”. The old and young will suffer,while the waste goes on and the gravy train continues.
One thing that seems to be absent from the calculations of the national debt is an idea of where GDP will be in two years time. It’s all very well to say that we will be at 48% in 2011, but that is posited on a GDP doing what? Remaining static, increasing or decreasing?
I’ll be surprised if its less than 75% of nominal GNP in 2011. Revenue drops a further 20%/30%, they dont cut expenditure by 25%, 12% unemployment rate, contraction of the economy by 15% etc. With the nation debt rated as junk with yields to match I expect the cost of servicing the national debt to be a big issue again, just like it was in the '80’s.