Food for Thought

Talks about sovereign debt default by Greece, followed my a few other countries, are gaining credibility. The ECB is likely to start dropping interest rates fast, and in the not very far future we might see close-to-zero rates. With inflation at anything higher than the ECB rate, essentially they are paying for people to take the Euro. What I am interested in right now is how the ratings agencies that are followed and very respected by the investment 'community' as a tool to monitor investment risk (in spite of catastrophic misjudgements in the past), may be turning into one of the investors worst enemies. "A banker will lend you an umbrella when it is sunny and take it away when it starts raining. A ratings agency will ensure it rains as soon as there are enough clouds."  Well, rating agencies can and do make the rain pour when it is cloudy. i.e.,  Their actions result in higher costs of borrowing when what is necessary is the opposite, thus ensuring that the s

So an 'insider', Pippa Malmgren, who is on the board of Deutch Bank among others, says that Germany has started printing the Deutsch Mark in a hurry. This is backed by public opinion in Germany where 71% see no future for the Euro. Pippa Malmgren | Commodity Online: Germany may in fact be preparing to abandon the Euro : I was surprised at first by the concept, but on second thought it makes huge sense: Germany strength IS Euro's main problem (lack of discipline by governments in peripheral countries obviously not far behind) and their removal would increase competitiveness of weaker European economies via corrective devaluation. The widely discussed scenario of marginal countries such as Greece and Ireland dropping out of the Euro presented a serious issue: once their currency dropped in value, relative debt would increase proportionally because they were issued in the stronger currency. This would trigger mass defaults by the countries that left, and further dest

The current economic crisis is frequently blamed on over-borrowing by states, banks and citizens. I suggest another angle: the source of the problem is excessive accumulation of wealth, by some countries such as China and large financial groups, such as pension and hedge funds. Think about it. Money had become cheap, very cheap, in recent years. The hoarders needed to put the money to 'work', they had run out of productive businesses to invest on, so the competition between these hoarders intensified, causing drops in the cost of money and enticing many countries and a significant part of the population to take debt as a normal fact of life. Money is still cheap, suggesting that the hoarders still have huge reserves, but they are also worried that they might not be repaid in full, so they throw s#*t into the fan by forcing austerity measures that should ensure that they get paid before anyone else. Borrowers had choices on who to borrow from while money was cheap. Once th

The Economist come to the rescue! I had endless discussions with people in Ireland about how we get far less value for money on our taxes than the Swedes. My argumentation was based on comparing notes with a Swede before the crisis started on a similar gross salary to mine and similar 'overheads', like car, children, mortgage, and so on. The finding was that although the 'take home' salary was slightly higher in Ireland, the disposable income was far lower after paying for child care, road tax, insurance and other transport costs. Since 2007 the comparison makes Sweden look even better. The table below doesn't show Ireland, but puts Sweden in a good light that might surprise some people. Effective tax rates: Taxing times | The Economist : 'via Blog this'