The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.
Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.
“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.
Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.
The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.
They account for three-quarters of the total $4.7 trillion £2.96 trillion in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.
Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn £47bn. The Germans have lost $22bn.
Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America.
Gee what exactly can we short?
Found by Norman Speight.
Japan looks even better. But, then, they struggled through their mortgage/construction loan-credit-greedy national bank/investor morass a while back.
Yeah… the thing is remember when the business-types were running around saying that globalization was the best thing that could happen to the US. Well, if the world is in a depression, does it really matter if we are slightly better then they are? We still need someone to buy our lousy debt.
Either europe has the most censored press since Joe Stalin’s USSR or this is more manipulative propaganda. Nevermind, just checked the telegraph, the original story gives figures without sources and is highly speculative. The US caused this crisis, now that the pigs got their pockets full of taxpayer cash they’re hoping to shake up the world to pick up bargains and gain ground on the currency exchange. Fortunately we don’t have a european ‘President’ coming on the TV to tell us there’ll be an apocalypse if we don’t bailout failing banks. Each country of the EU has it’s own financial infrastructure even if they do use the same currency, they’re well insulated from the mismanagement of other members. Some will be affected more, others less, but insinuating that things are worse for europe than the US is at best wishful thinking and at worst an ineffective strategy.
John, I don’t think this is possible. According to most who post on this blog, the EU is a paradise run ONLY for the benefit of the proletariat.
Please stop posting lies that contradict this datum.
Easy come, easy go….
The “Irish A-Hole” was probably Brian Lenihan, the irish Finance Minister. At the moment, however, he has more than enough on his plate domestically, since the Budget plans he unveiled a couple of weeks ago. The words “deckchairs” and “Titanic” spring to mind.
“According to most who post on this blog, the EU is a paradise run ONLY for the benefit of the proletariat.”
Who are you calling “proletariat” – and where’s my benefit? B)
@#3:”but insinuating that things are worse for europe than the US is at best wishful thinking and at worst an ineffective strategy.” – currency exchange does not lie. It is still quite pure market, clearly showing who’s doing what. Since late summer, dollar is raising and euro falling. Hence, things are worse in Europe when scientifically measured.
Don’t kid yourself, we are at the beginning of WORLD WIDE REPUBLICAN DERPRESSION II (AFTER THE LAST ONE IN 1929) !!! The WEAKER DOMINOES FALL FIRST, but the US is NEXT !!!
Let me guess, they’ll blame free markets. which is weird since there isn’t a free market. It’s a Keynesian market where central banks manipulate interest rates and inflate currencies. So, lets blame the system that actually is in place, the Keynesian market. I mean, if this is such a good idea then why do we keep having some kind of financial crisis about every 7 years?
#9 Pedro, “and going back to their old currencies, like Italy & Spain. ”
I remember in Spain after the switch over. The prices really shot up. But remember, for quite a while Spain was the biggest net recipient of EU “aid”, to the tune of billions of Euro’s.
#12 Pedro, “Something about not liking to support the deficits of countries like Germany came up as arguments.”
I remember thinking when the deficit rules were being written that Germany & France would end up flouting them while insisting everyone else follow them. LOL
#7 Yeah but, I remember what the dollar was worth when the Euro arrived here in Spain, then the dollar and euro were almost at par or the dollar was worth more, and in that time the dollar’s value has lost steadily with a few breif periods of recovery reaching a historic low in september 2008 at $1.5759 = 1 euro. Scientific Fact! I love it when I go home for a visit those euros spend like some fat cash.
#4 – spot on.
#7 oops that was the exchange for july not september, and I would hardly call a few percentage points in 2 months a trend. It’s more a symptom of the conservative nature of the european investor, with what was going on in the US everybody got nervous.
I am now experiencing a little schadenfreude, since these are the same countries that–when the US financial markets first started melting down a little while ago–were chastising us and enjoying their own bit of schadenfreude. That lasted about exactly 1 day before things started to collapse on their end. Karma is a bitch, ya know.
I’m just grateful that I don’t have to worry about a global economic collapse because there is probably no god. We can all stop worrying now.
I am stuck with the Irish A-hole as you call him.
We here are stuck with whatever bizzare notions he and his government come up with.
Bottom line we are royally screwed in Ireland. And the crazy thing is that in the main we haven’t noticed yet.
If this story is true, why are US markets experiencing a rally today?
Actually my real worry is (setting aside all the us-vs-them sniping) that this instability will lead to the types of strident nationalism/racism/politicism/religionism that we saw before WW2.
One sector that is still doing well in this downturn is the arms business.
#23, Trade is supposed to flow both ways at an equal clip. The product should flow to the buyer at the price he wants to buy it for. The money (in the form of currency or other trades goods) should flow to the seller at the price he wants.
Artificially increasing the price of something to ensure a local profit sends the wrong signal to the market.
#24, It’s a bump. Things don’t just drop like a hammer.
http://tinyurl.com/4vbahs
Even during the Great Depression, things went up and down. You want to see what the immediate future holds, look at gold.
the only reason we look good in this mess atm is because everyone is moving their money in US T-bills to ride out the crash..seen as a the best safe haven atm..i’m sure the USD being the reserve currency helps a bit too..
they think that we’ll never go broke or default etc… given the new powers we just gave the FED in the $700bill ponzi scheme..me thinks we’re all going to be in for a big surprise real soon.. with the Ex-Ceo of the corrupt goldman sachs (paulson) at the helm (and giving the first bailout monies to his cronies) along with more indications that JP Morgan is involved in all sorts of nifty fraud that has allowed them to profit during this crash, ie:
“FBI Probe of JPMorgan Fees Focuses on Swaps Roiling Muni Debt” -dated today
(http://www.bloomberg.com/apps/news?pid=20601109&sid=aIL9gsK5wG40&refer=home)
-nothing going on in the market anywhere can be trusted.
-if and when the market starts to rebound, everyone will start pulling their monies out
of t-bills and USD’s and the dollar will fall flat on its face. (I think due in part to the massive money printing spree the Fed is in engaged in to cover the hyped up demand. -there is no way in hell the USD can withstand long term effect this printing spree..)
*shrug* – i dunno i’m just learning about this stuff in the past year or so.. i could be completely wrong.. -but analysts that deal in “reality” and not the fantasies that the media analysts feeds us..have been talking about the current crisis coming for almost a decade..
i still say all when its all said and done, we’ll find the 1929 crash manipulators heavily involved in this one..
lastly…since the US was in danger of losing reserve currency status, oil no longer being traded in USD’s and possibly giving up economic SuperPower status to China in a year or two.. this world wide economic slowdown/crisis seems awfully well timed..
(heck, the oil “crash” alone is effectively putting the Kabash on plans Iran and Venezuela
(to name a few) had to try and get oil trading in Euros or “anything but USD’s” )
its all too perfect to be a coincidence..
-s
The smart thing to do now is for the U.S. treasury to admit that $700 billion isn’t going to be enough to re-inflate the bubble. And to admit that re-inflating a bubble is not a good idea to begin with.
Let the chips fall.
If you have a mortgage you can’t afford to pay, move out and let the banks try and sell it. If they had any sense they’d agree to sell it back to you for half the price.
If you can afford a mortgage, but your house is now worth half what you paid for it – suck it up – keep making the payments. In 10 years it will have recovered its value.
And if you never had a mortgage – now is the time to buy – there are some bargains out there. Just don’t get an interest-only mortgage.
Just a sign of what will happen when Obama is elected.
Dear John,
This is an American problem – unfortunately you’re going to take the rest of us down with you.
#28–soundwash==WAY to fast to jump to any conspiracy. Bits and pieces of corruption here and there–eg Paulson.
Occams Razor: more likely the inevitable result of greed, stupidity, good intentions, and lack of regulatory enforcement than ever a conspiracy.
Just last week Europe was getting all the praise for jumping in with bailout programs 10 times larger than the USA’s. Now, not so much.
“You Know” 10-20-even 30 % of the USA h ousing market being subprine/in default shouldn’t have this impact on world economies. Must be those securitized debt swap/guarantees (whatever they are) at 250X leverage?
Cool how that works. Leverage something at 250x. It “goes up” 10% and you take out your billions. When it goes down==total collapse.
And like any fraud/ponzi scheme==it works for those at the front of the daisy chain, especially when there is no prosecution, or defense of prosecution only cost you a small percent of your stolen wealth.
And I still hear our leaders talking about “lets not over regulate.”
Silly Hoomans.
Just because the U. S. runs the world is no reason to get pissy.
Now, the fact we’re still #1 because we can bring anyone else down, that’s something to get pissy about.
#34 James
I really don’t have a lot of sympathy for countries or institutions that allowed themselves to get into this mess. In Canada banks were limited in their off-book lending for subprime (i.e. financing to US banks) at 2%. They were limited to 4% on-book directly to customers but even this risk was mitigated by insurance qualifications from the borrower.
I’m not saying “wow aren’t we smart”. I’m saying that was our choice and if things hadn’t gone badly then our banks wouldn’t be as profitable as some others. You make your choices and live with them.
Yes, the global meltdown is affecting our economy here. Blaming the US (or the EU, or the Chinese) for our problems is not going to solve anything.
#35 QB said, “I’m not saying “wow aren’t we smart”.”
Why not? It was smarter than most other countries policy.
Today in history. It’s still interesting.
AFTER an unequivocal experience of the inefficiency of the subsisting federal government, you are called upon to deliberate on a new Constitution for the United States of America. The subject speaks its own importance; comprehending in its consequences nothing less than the existence of the UNION, the safety and welfare of the parts of which it is composed, the fate of an empire in many respects the most interesting in the world.
whenever the dissolution of the Union arrives, America will have reason to exclaim, in the words of the poet: “FAREWELL! A LONG FAREWELL TO ALL MY GREATNESS.”
PUBLIUS.
Hmmm… The U.S.’s credit crisis is like an earthquake sending tremors around the world, and institutions that were built on the theory that the ground never moves are cracking and falling apart (like many U.S. financial institutions), and some that were built more sturdily (e.g. those Canadian banks #35 QB talked about) are being shaken but still standing.
So far…