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View Diary: Is France about to default? (40 comments)

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  •  These are the droids I'm looking for (1+ / 0-)
    Recommended by:
    PrahaPartizan

    because contrary to popular belief, I'm not looking for the droids with the most debt. Debt isn't even the problem. At all.

    "It is, it seems, politically impossible to organize expenditure on the scale necessary to prove my case -- except in war conditions."--JM Keynes, 1940

    by randomfacts on Thu Nov 10, 2011 at 07:16:31 PM PST

    [ Parent ]

    •  Your chart is about the cost of "Debt." (4+ / 0-)

      Your title has the word "Default."

      France's ownership of other nation's bonds is insured by CDS issued by the US banks -- which will make the French whole again.

      Italy was bailed out by China in their bond auction last night.

      I don't know what droids are keeping you up at night -- but you should ignore them and get some rest.

      •  I am aware of certain facts. (0+ / 0-)

        But these are the symptoms of the problem, in this case, not the problem itself.

        "It is, it seems, politically impossible to organize expenditure on the scale necessary to prove my case -- except in war conditions."--JM Keynes, 1940

        by randomfacts on Thu Nov 10, 2011 at 07:37:34 PM PST

        [ Parent ]

      •  Do you have a link for the China buy? (2+ / 0-)
        Recommended by:
        randomfacts, Pluto

        I know there have been talks. A Chinese buy of Italian bonds at the current 7.4% will not help Italy out of it's predicament. There's no way it can repay debt at that cost of borrowing. It will only slow and prolong it's death throes.

        If Europe eventually bails out Italy, China will do very well on the deal at those rates.

        BTW, who's going to cover the US (and German) banks that offered the CDS on European bonds if things get more out of hand and Italy and France continue to lose their bond ratings? This alone could trigger a credit tsunami. This European finacial crisis is much larger than the mortgage fiasco.

        Looks like another case of "systemic risk" only this time it is involving the 750 trillion dollar derivatives markets worldwide.

        •  How China can help Europe (3+ / 0-)
          Recommended by:
          FG, Pluto, Claudius Bombarnac

          is not buy buying Italian bonds directly, but through some indirect help. But it also needs the agreement of the ECB.

          You see, the ECB has the power theoretically to create an infinite amount of money (euros) to buy as much Italian bonds as necessary to stabilize Italy. That would certainly calm the markets. Only German, Dutch and other ECB members object to this because it would increase the amount of euros in circulation, lowering its value, hence imposing a cost on all other holders of euros.

          What China can do since it has 3.2 trillion dollar reserves, is agree to buy up (or 'sterilize') all of the money the ECB creates. To do this it would sell dollars and buy euros, as the ECB creates euros. China would then park its euros at the ECB in specialized securities that would earn interest, which the ECB transfers from the interest it earns on Italian bonds. Hence the money would be 'sterilized' and the ECB could create as much as it wants without hurting any other European country. China, meanwhile, would get to diversify its reserves and protect the stability of its export markets.

          Once again though, it would require the parties to agree to this.

          "It is, it seems, politically impossible to organize expenditure on the scale necessary to prove my case -- except in war conditions."--JM Keynes, 1940

          by randomfacts on Thu Nov 10, 2011 at 08:17:19 PM PST

          [ Parent ]

          •  Yes, China could help out Europe (1+ / 0-)
            Recommended by:
            randomfacts

            (where it already has substantial investments) but it would only do so through the IMF as far as I know (that's why I asked for a link).

            But, China wants some reform in the IMF's quota system and it's SDRs. It also wants the IMF to build an international reserve currency to replace the US$. BTW, China has sold off about 3.5% of their US$ in the last few months.

            I figure China will stand back and let the Europeans go to the very edge before they offer any financial help to get better leverage in the reforms they want. In the meantime, they will take advantage of any bargains to be had.

        •  Don't have a link for China. (4+ / 0-)

          Let's just be glad that the auction went so well, whoever the very deep pockets were.

          As for this:

          BTW, who's going to cover the US banks that offered the CDS on European bonds if things get more out of hand...

          The FDIC.

          Both Merrill Lynch and JP Morgan (the Euro bond CDS sellers) were slid under FDIC protection two weeks ago at the insistence of Bernanke.

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