European Debt

[Martinghoul]

Quote from [Proximo]:
Martinghoul what your outlook on the US and the world economy.

Everything back to normal ? S&P new highs in a few years?

I don't know about the Spooz. I think there's a real divergence between the large firms that constitute the main indices and the real economy. To get a sense of it, I look at the NFIB confidence numbers vs the PMIs.

In general, my view is that the deleveraging process has to happen and that means that for the next few years the Western economies will not look good and will definitely experience disinflation.

 

[Martinghoul]

Quote from morganist:
Like I said it is my opinion that the eastern block countries will be next. We have different strategies otherwise we would agree on everything. I still don't think you see my point. The nature of the spending habits are as important as the level of debt because they indicate the reaction of government and the strength of the private sector. I don't feel I have to justify or explain my point again, but I think you are still ignoring the point I am making.

I am not ignoring the point you're making, pm... I am not suggesting all is perfectly well in Eastern Europe. Clearly, Hungary is in a proper bind, as are the Baltics. All I am saying is that, to me, Poland, Czech Republic and Slovakia actually don't look like the candidates for the next blowup, especially if you juxtapose their situation against the state of affairs of their Western brethren. So I am looking at them on a relative basis, rather than absolute. If you talk about dysfunctional govts, spending habits etc, I don't think you should start with Poland, when you have countries like France and Italy.

 

[morganist]

Quote from Martinghoul:

I am not ignoring the point you're making, pm... I am not suggesting all is perfectly well in Eastern Europe. Clearly, Hungary is in a proper bind, as are the Baltics. All I am saying is that, to me, Poland, Czech Republic and Slovakia actually don't look like the candidates for the next blowup, especially if you juxtapose their situation against the state of affairs of their Western brethren. So I am looking at them on a relative basis, rather than absolute. If you talk about dysfunctional govts, spending habits etc, I don't think you should start with Poland, when you have countries like France and Italy.

What I was really saying is that they are the next to go not that they are worse. Although they do have a history of debt and growth dependent on debt. This to me indicates a long term downturn if the debt is constrained.

 

[Martinghoul]

Quote from morganist:
What I was really saying is that they are the next to go not that they are worse. Although they do have a history of debt and growth dependent on debt. This to me indicates a long term downturn if the debt is constrained.

But if, say, Poland is not worse than, say, France, what makes you think Poland is the next to go, rather than France? I use France, rather than Italy, because of the primary budget deficits of the two countries.

 

[morganist]

Quote from Martinghoul:

But if, say, Poland is not worse than, say, France, what makes you think Poland is the next to go, rather than France? I use France, rather than Italy, because of the primary budget deficits of the two countries.

Because the state of the French private sector is not as dependent on debt as the Polish. If you look at the debt of the Western Countries and the Eastern Block Countries you see the west reacted to the credit crunch and had to borrow enormously at the time whereas the east had consistent debt. This indicates they are dependent on debt to enable growth. Thus they have a constrained private sector.

As the situation worsens the east is less capable of growth due to further debt constraints. The west is not so dependent on debt for growth and the private sector is better.

Just my opinion, but I was right about Hungary using these forecasts. You have to admit that. Remember it is as much the nature of the debt.

 

[Martinghoul]

Quote from morganist:
Just my opinion, but I was right about Hungary using these forecasts. You have to admit that. Remember it is as much the nature of the debt.

Sure, and pls note I never disagreed with you about Hungary...

My point is that I don't really see much predictive power in the history of deficits. On the one hand, you have countries with reasonably high budget deficits (primary and otherwise) that are perceived as safe (e.g. France with its AAA rating). On the other hand, you have countries like Ireland and Spain, which were running surpluses throughout the decade. Look at them now. Sorta the same for the Baltics. My point is that numbers by themselves don't tell us much and that we need to look at each country's economy on its own merit.

 

[ivanbaj]

How does Romania and Bulgaria look like?

Not sure about Romania but Bulgaria has its currency hard pegged to the Euro since 1999. Do they still have foreign reserves to keep up the peg? They will be hard press to keep up the peg if the economy stays bad.

What is a good way for a small trader to bet that some of these countries will go down?


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On a totality different topic, by seeing the type of people are elected to work in Brussels, I am very afraid that this EU experiment will not work. These characters are in need of a serious overhaul on their knowledge about business and economic growth etc...

Can someone tell me what is the benefit for the new members? Will it be better if some of these new members stayed independent and use the east Asia model to grow their business?

I am sure the big majority of the population in the new members like the social protection of the EU.

I think that the east Asia model will provide more prosperity in the long run? It seems to me that the EU member growth is driven by the old members ambition to capture and control more territory and bigger population, and the new members desire for a quick fix.

 

[morganist]

Quote from Martinghoul:

Sure, and pls note I never disagreed with you about Hungary...

My point is that I don't really see much predictive power in the history of deficits. On the one hand, you have countries with reasonably high budget deficits (primary and otherwise) that are perceived as safe (e.g. France with its AAA rating). On the other hand, you have countries like Ireland and Spain, which were running surpluses throughout the decade. Look at them now. Sorta the same for the Baltics. My point is that numbers by themselves don't tell us much and that we need to look at each country's economy on its own merit.

I agree with you in part. The history of deficits does not necessarily indicate the situation. But tells you the way the economy works.

For example continual debt means dependency. Volatility shows it is following a business cycle and high debt in specific years namely 2008 shows sensitivity to the global credit crunch. These things are useful and can help with the prediction of the economy. In my opinion Slovakia and Malta are in a serious position. Poland and the Czech Republic are on a risky road. I guess we will see.

 

[Debaser82]

Quote from Martinghoul:

I am not ignoring the point you're making, pm... I am not suggesting all is perfectly well in Eastern Europe. Clearly, Hungary is in a proper bind, as are the Baltics. All I am saying is that, to me, Poland, Czech Republic and Slovakia actually don't look like the candidates for the next blowup, especially if you juxtapose their situation against the state of affairs of their Western brethren. So I am looking at them on a relative basis, rather than absolute. If you talk about dysfunctional govts, spending habits etc, I don't think you should start with Poland, when you have countries like France and Italy.

The NY times posted the next chart some time ago...

I'd be interested in your thoughts about the Polish data.

Cheers.

 

[Martinghoul]

I am familiar with Gokhale's work, as he's one of the very few people doing this sort of research. I will most certainly look, do some digging and get back to you, debaser. Will I be getting some nice chocolate for my trouble ?