Will the Germans Really Bring Back the Deutsche Mark?

[TheNegotiator 13]

The whole idea being touted about as the Euro becoming the world's new reserve currency seems a distant memory now. Ireland seemed to have fixed it's problems, Portugal again wasn't great but overall Greece has so far been the major problem. However, it's Italy and Spain that are the major concern. If the spread between their debt and the German benchmark widens, they'll just not be able to afford to pay for much. That ain't exactly a positive scenario for the Euro in my mind.

Now I’m no economist, but I think that the Germans would probably be relatively happy with a slightly weaker currency based on their strong manufacturing industry. Cheaper goods for foreigners = more exports right? But a currency which is potentially going to take a nosedive? An unstable and dropping currency is certainly not going to be that beneficial for a country like Germany. For example, higher resource prices coming from outside the Eurozone are a big factor.

The Swiss Franc is now many investors’ benchmark, although with them pegging the currency to the Euro, which could also prove a problematic stance down the line.

So what of the rumour which was about suggesting there were discussions and even a plan to reinstate the Deutschemark if the Euro turns sour? Well you’ve gotta believe the Germans aren’t happy with the current situation. But what would they stand to gain? Well they would hope to gain stability and I’m guessing the flexibility to allow Greece to default. But would it matter if the Euro without Germany was in turmoil anyway?

Whatever the official line is currently I think it has been at the very least thoroughly discussed. So what do you guys reckon? Any economists and/or fx traders can wade in.

[bobcollett 10]

Please add a fourth choice

 

If they leave the euro they will collapse.

bobc

[TheNegotiator 13]

Fair enough. Added that in as a fourth option for you Bob!

[zdo 20]

BobC,

 

I question that belief "If they leave the euro they will collapse."

 

Real commerce only has slight and short interuptions when a fiat currency 'goes away'

etc etc . Collaspe is a myth. However the concommitant relocations ('dislocation' is the fear word used in the current paradigm lies) of wealth / capital transfer, etc are not myth

 

See OP

http://www.traderslaboratory.com/forums/market-analysis/9749-fx-eurotrash.html

I think Germ, Inc. can keep or discard as many of its new states as it wants.

 

and btw... globally, it on soveirgn individuals whether or not they are left perpetually on the hook for the fiat financial excesses of , gov't's, banks, corp.'s, others, etc

...as 'villagee' as they are, the Germs still might surprise you in that regard

[steve46 12]

It is in the interests of the EU to hold together for the long run...although they cannot print money they have many other options. Greece it seems is being made an example of, in the sense that the measures they are taking are going to degrade civil society to the point where they will have ongoing problems for years, perhaps decades. This "example" will I think prompt the other countries including Italy and Spain to take pre-emptive measures to reduce budget expenditures BEFORE things get to this level. Bond holders will take the proverbial "haircut" and several national banks will have to be re-captialized, and it is likely that covered bonds will be implemented (easy to look up the term in Google for those interested). Ultimately there may even be a "Euro Bond" issued to take up some of the slack in terms of financing the ongoing debt of the several countries that are in trouble. Although the process will seem clumsy, because of the many soveigns involved in the problem, from what I am hearing it will be resolved over the next 8-10 months.

 

The residual however will probably delay economic recovery both in Europe and the US for at least the same time period....causing continued political debate and controversey that will last right up into the US elections. On the horizon for both US and European theatre are negotiations to fix the ongoing mortgage problems by introducing a program to re-price those still existing bad loans and get them off the bank's books. Once this is in place, it will take another 16-24 months to get through the process of removing the overhang of bad debt in all countries. Although there are likely to be structural changes in term of governance for individual countries, for the most part financial institutions expect the Euro to stabilize and remain the common currency of the member nations.

Edited October 21, 2011 by steve46

[bobcollett 10]

Please add a fourth choice

 

If they leave the euro they will collapse.

bobc

 

Dear Neg.

Please read my post carefully.

Add a comma after euro. My bad grammer.

I will rephrase it

Germany will colapse without the euro

Its friday night. 8.45pm. Another bottIe of dry white darling.

I will explain tomorrow

The problem with these threads is most members are not really interested in mainline economic theory.So the thread progresses 1 page, and the same intellectuals participate.

I am talking to the converted.

regards

bobc

[TheNegotiator 13]

Bob, I phrased the additional option as such because I didn't think you could mean that the German economy would "colapse" if they left the Euro. It's my opinion that real "intellectuals" draw from all sources good or bad. Debate drives intrigue which in turn brings new ideas to the table, intentionally or not. Us blokes don't really drink white wine in Britain, Bob. Maybe the quality we get isn't very good. :shrug: I'm sure it's much better in South Africa.

 

Steve a point I'd make about Italy in particular is that they have been running on such high debt to gdp ratios for years that the measures which they can bring in just may not be enough if the yields are heavily squeezed. It just seems a little bit too systematic in the way it's one country after the other. Call me cynical.

Edited October 21, 2011 by TheNegotiator

[steve46 12]

To the extent that austerity measures can reduce expenditures as a percentage of GDP they (Italy and others) may escape the brunt of the problem. With Greece however the issue if already cast if you will because even with austerity as voted on recently AND a haircut of 50-60% they will not be able to generate enough GDP to get back on their feet. The write downs are going to be drastic and (as mentioned previously) the EU will have to re-capitalize several banks and issue bonds in addition to what they are now planning to float....As to portugal and others only time will tell...based on my recent conversation with old colleagues in the industry that is what is currently being debated at troika meetings.

[TheNegotiator 13]

Bob I've been thinking about the idea that the German economy would collapse if they left the Euro. The thing is, unless everything really starts going downhill, I doubt they will. But if it does, the Euro will likely collapse first anyway. After this they may end up collapsing anyway, but surely they have a better chance of survival on their own in these circumstances?

[bobcollett 10]

Dear Negotiator

 

Germany is the largest economy in the EEC and the third biggest exporter in the world

 

The euro was created as a common currency ,and more so a trade enhancer.

AND how did we establish a value when it was first introduced?. Its an average of all the previous currencies with the larger countries , Germany , France and Italy carrying more weight. When the euro was introduced, Germany gained a 15% trade advantage. Their exports were much cheaper in euros than marks. The euro was weaker than the mark because of averaging

 

This trade advantage allowed Germany to absorb East Germany (a trillion dollar operation) and still emerge as a very strong economy.

 

Now imagine Germany abandoning the euro and bringing back the mark.

Their exports go up 15% in price at a minimum

The multiplier effect adds another 5%

And their stong reserves will add another point

My use of the word collapse is to strong, but their economy will be in ruins

Germany , and France, cannot afford to leave the euro,and they wont!!!

 

They also cant afford to have Greece default,because that could just start a snowball effect with the other PIGGS. So Greece will get her money this week.

But Greece is going to default in the next few years. As steve46 points out, their economy has shrunk too much to recover and pay back all the borrowed money.

 

What is the solution.?

 

Far wiser minds than mine are at this moment discussing a solution.We will know by Wednesday. I dont expect anything more than hedging.US and European markets closed up on Friday so the good news is already factored in.If the solution is not a new approach, expect a sell day next Thursday..

I think the weak countries will have to leave.And get some help from China.

A smaller EEC will make for a stronger euro.But still better than a strong mark.

 

Kind regards

bobc

[TheNegotiator 13]

Bob, I understand the reasoning why they joined. But if it came to a point where the Euro was absolutely tanking, they might stand a better chance on their own. Given those circumstances the outlook would be pretty bleak not just in Europe but on a global scale. I don't think for one minute that they'd leave unless things got so dire. But I also believe they'd be the first to jump IF things spiralled out of control. Greece will not be the proverbially straw to break the er, Euro's back. Italy and Spain however are a different kettle of fish. Question is as Steve suggested, can they put their houses in order before things go too far?

[MadMarketScientist 11]

Even though it is in their best interest (why pay for the overspending greeks, spaniards, italians?) I don't think their overwhelming guilt over the 2 world wars will let them be the bad guys a third time. There is always talk about taking some assets in exchange of the bailout (some nice greek islands or their 'free' subway system) - which would seem like a good solution. But again, not wanting to appear aggressive is their primary (but not spoken of) concern.

 

MMS

[C4Warrior 10]

Though I am new here, and hesitant to butt heads with those more experienced than myself, I am a student of economics and I do believe that Germany will bring back the DM, though probably not soon.

 

The problem with the Euro and the EU is that they are both political entities. The market did not create them, nor does it respect them. Having a universal government for a collection of wildly disparate states makes no more sense than having one currency for a collection of wildly disparate economies. The fact of the matter is that they will break apart no matter what anyone does because they are not the same, and there is no centralized solution to their troubles.

 

How does one control a currency that is hyper-inflated in some regions and depressed in others? How does one control economies that are hyperactive in some regions and severely depressed in others? It can't work (yet) because the whole premise is based upon a collectivized wealth system, which is to say a centralized one. That never works because it violates the basic principles of the free market. Worse, it tries to pair the two, with predictable results. Vaclav said it best: "The Third Way is the fastest route to the Third World", and we're seeing that in action right now.

 

Germany will abandon the Euro and the EU eventually because it will be forced to. Everyone is worried about the PIGS today, but France and Britain are on a collision course with disaster as well. It will take even greater austerity measures to return them to solvency once they get in real trouble because they have much more momentum in terms of economic interest and populace. The socialists aren't about to abide that. They'll sink those economies before they ever agree to give up their entitlements. As a proof I offer what is going to happen in Greece over the next few weeks, months, and years. Whether Germany supports or abandons them, we'll see worse riots and possibly even the adoption of a more socialist government that absolutely wrecks the economy. What option is left to a state that is economically ruined and with nothing but a sense of entitlement to push it forwards?

 

On a similarly pessimistic note, the EU could just kick the PIGS out and/or dissolve, with predictable short-term effects. Though this would be a better move in the long term, there would be no real political support for such a move, and even if they did it we'd see a major slump. Europe is going down, one way or the other, and it is only a matter of time before the Germans are forced to abandon this lost cause.

 

The best thing Germany could do now (though they won't) is to simply abandon the EU right now and soak up the market potential that their fellow nation-states are busy suffocating. Sure, the market will tank for a little bit, but it desperately needs to tank and readjust for decades of state meddling that have ruined the price mechanism and the flow of capital in nations around the world.

 

That's my 2 cents, though I'd turn it into a lot more if I traded it against the Euro right now.

[SIUYA 11]

I would have thought as Germany is an exporting nation they would be happy to have a weaker Euro and be part of it.....a DM might not be wanted by Germany....it would be too strong until it causes them problems.

and when it comes to states banding together and all the issues surrounding that.....my history recalls a place called the United States sort of comes to mind, and didn't they have a civil war over largely economic issues a few years back.

The real issue with the Eurozone has been stated time and time again - until you have a system that controls both the spending and the taxation/collection/revenues part of the equation then you will have issues, as there is little disincentive apart from political and civil unrest to thumb your nose and spend other peoples money. The Greeks merely were irresponsible opportunists and did what many others probably wanted to do - because the system in place partly encouraged, and allowed them to do so.

Just to throw something else into the mix - China - its made up of a centralised government and surrounding provinces.....who do you reckon holds the debt there, and who holds the assets???? and who would you rather be dealing with - the one who holds the assets or the debt.

food for thought.

[zdo 20]

Systemantics: The system's actions come to serve keeping the system intact instead of serving the purposes the system was created for… with less than desirable consequences ultimately…

BobC “Far wiser minds than mine are at this moment discussing a solution”

It would be sad if you were serious. Hope you were joking…

 

re “their economy has shrunk too much to recover and pay back all the borrowed money”

How ‘bout

‘ALL the economies have ‘shrunk’ too much to recover and pay back all the borrowed (ie fiat) money’ ?

 

Steve46 re “the EU will have to re-capitalize several banks” ie ? … the Fed will have to re-capitalize many banks…

 

C4 “Eur0 and EU… The market did not create them” Does the market as a whole create fiat currencies, or are they always created by the actions of a tiny few? A serious and less conspiratorial question than you might first think…

 

oops sorry BobC re “are not really interested in mainline economic theory”

… especially when it’s used as a paradigm tool to screw the real world

[bobcollett 10]

Well zdo,

You certainly summed up the posts in a positive fahion, and with a bit of humour (wink).

I lost my internet access this weekend so I was unable to reply to the posts.

I was wondering why Negotiator thinks the Euro is going to tank, and with it the EEC.

There are 17 countries in the EEC including Britain.

Is Britain going to tank?

My daughter lives in London.

Britain is the same as always.100 knowledgable people and 50 million experts.

ALL present company excluded.

I also wonder why MMS thinks the Germans feel guilty.

He has a medal for an avator.Obvious war monger.

My family on my mothers side come from Germany.

There is no guilt!!

In fact I am quite proud that Bismarck beat Napoleon at Waterloo. (wink)

 

On a more serious note.........

Basel 111 requires all European banks increase their reserves to safeguard depositors.

Where are these reserves going to come from?

Would you follow your rights in a bank issue?

No chance.

Banks will find it easier to cut out the riskier clients.

Less credit will lead to a mild recession,starting NOW.

As traders , how do we use my unqualified predictions?

Think bear market.

 

Now Negotiator,

I think with all my provocative remarks , your thread is on page 3.

regards

bobc

[TheNegotiator 13]

It's about quality not quantity dear Bob! Anyway, when did I say that I believe the Euro will tank??

[bobcollett 10]

For those of you interested in more economic predictions and analysis.

Go to Index of /. co. uk for a free news letter

Nadeem Walayed, the author, is the best modern day trading economist

It can be a difficult read if your economics is a bit rusty.

Just ignore those parts.

 

regards

bobc

[bobcollett 10]

The correct address is http://www.marketoracle.co.uk

Hope it works this time

bobc

[bobcollett 10]

Well.

Just like we predicted. Greece got her money.

And the new plan is a haircut of 50% for all bond holders.

Thats Central European Banks.

And the markets went up.

A buy day. I made $600 .

Sounds very rosy.

BUT

I dont think the whole truth has been revealed.

If you owed me $1000 and the only chance of collecting was to accept half . OK

If you owed me $1 billion I would not accept half. I'd be bust.

I think the bond holders have been promised a guarantee by the EEC.

And guess who will pay for this . ?

Jimmy the taxpayer.

Thats my view.

bobc

[TheNegotiator 13]

There's no way that debarcles of this magnitude simply evaporate overnight. Problems and new revelations on the problems will continue for years.

[zdo 20]

There's no way that debarcles of this magnitude simply evaporate overnight. Problems and new revelations on the problems will continue for years.

 

Precisely.

 

Looks like some other things did evaporate overnight though

One Day After The Euphoria, Here Comes The Hangover | ZeroHedge

"Europe is] a monument to the vanity of intellectuals, a programme whose inevitable destiny is failure: only the scale of the final damage is in doubt" M. Thatcher

 

 

from

http://dailycapitalist.com/2011/10/27/a-brief-guide-to-the-euro-crisis/

There are several things that you need to know about the eurozone crisis and Wednesday’s Summit agreement:

 

1.It isn’t over.

2.The European Monetary Union’s (EMU) “architecture” is a failure.

3.They spent too much and can’t possibly repay the debt.

4.Banks will need to be bailed out.

5.They will print money. ...

Edited October 28, 2011 by zdo

[C4Warrior 10]

 

C4 “Eur0 and EU… The market did not create them” Does the market as a whole create fiat currencies, or are they always created by the actions of a tiny few? A serious and less conspiratorial question than you might first think…

 

I've been puzzling over this question since you posited it, zdo. I figured there was some kind of lesson I was supposed to learn from it, but I must admit that I have no idea what that lesson is. So how about I answer the question to the best of my ability and you point out where I'm wrong or what I'm missing - sound ok?

 

Does the market as a whole create fiat currencies? Well, yeah. It does that all the time in a manner of speaking. Show me two people and some goods and I'll show you a default medium of exchange by the end of the day. Ultimately, the medium of exchange, whether it's cigarettes or snak-paks or whatever, becomes a default medium, traded by people who never actually use the stuff. So yes, in that sense the market does create fiat currencies.

 

When it comes to something like the Euro, we're talking about a pure fiat currency. There was no reason for that currency to exist. It was literally created by a handful of policymakers who wanted a single currency and one of their first acts was to create a central bank as an agent of directed monetary policy, with predictable results.

 

Ok, so if you could evaluate that and tell me where you think I'm wrong I'd be much obliged. Alternatively, if I'm missing the point entirely, you could just tell me what you're on about.

[zdo 20]

I've been puzzling over this question since you posited it, zdo. I figured there was some kind of lesson I was supposed to learn from it, but I must admit that I have no idea what that lesson is. So how about I answer the question to the best of my ability and you point out where I'm wrong or what I'm missing - sound ok?

 

Does the market as a whole create fiat currencies? Well, yeah. It does that all the time in a manner of speaking. Show me two people and some goods and I'll show you a default medium of exchange by the end of the day. Ultimately, the medium of exchange, whether it's cigarettes or snak-paks or whatever, becomes a default medium, traded by people who never actually use the stuff. So yes, in that sense the market does create fiat currencies.

 

When it comes to something like the Euro, we're talking about a pure fiat currency. There was no reason for that currency to exist. It was literally created by a handful of policymakers who wanted a single currency and one of their first acts was to create a central bank as an agent of directed monetary policy, with predictable results.

 

Ok, so if you could evaluate that and tell me where you think I'm wrong I'd be much obliged. Alternatively, if I'm missing the point entirely, you could just tell me what you're on about.

 

re “some kind of lesson”

 

I’m a ‘economics’ noobie myself… Just starting to look at it.

In real time trading, in all but the first few months, while I wanted to know for sure when news or a report was coming out, I have never cared a bit about what the news actually was or which report it was or figuring out what direction its effects might have.

... never extensively put any size on the breakouts (either anticipatory / before or during – less than desirable whiplash stats for me) … instead prefer to play the almost inevitable (at least partial) reversion tendencies…

 

When it comes to understanding ponzi schemes, the public / collective is “all over it” these days. It’s a tiny few exploiting (another slightly larger group but still a) tiny few.

I think the masses need to come to the same level of ‘understanding’ about fiat money. It’s a tiny few exploiting all the others in the collective.

 

One marker is that 'fiats' can not be allowed to be voluntary, unlike the ‘village’ / emergent ‘currencies’ in your example. Voluntary fiat doesn’t ‘fiat’.

 

Markets don’t create them. They just adjust and adapt to fiats as best they can

 

… we need to redo the ‘contracts’

 

re “tell me where you think I'm wrong I'd be much obliged”

Ditto. Please you show me where I’m wrong.

[zdo 20]

Will the Italians Really Bring Back the Lira ?

 

etc... these are equally salient questions to the main OP question...