Solution to the PIIGS debt crisis....

Quote from achilles28:

...What if the ECB/IMF/Federal Reserve cleared their respective commercial banks of toxic PIIGS debt, then immediately revoked all stabilization, loan and bailout packages to stricken countries?

This would effectively sterilize the risk of contagion to America and broader Europe, which is the number#1 threat to fragile global banks, while simultaneously imposing hardcore austerity on the laggards.

The logic here is the ensuing bank panic and credit freeze is much worse than the default itself. Actual losses and exposure uncertainty forces banks to curtail lending, both in the money market and to the private sector, which reduces money supply many times that of the actual size of the default.

So, if the goal is to protect the global banking system against collapse, the cancer ought to be isolated then cut out. Right now, Central Bankers are rewarding both the reckless borrower and lender, putting the entire system in jeopardy.

How am I wrong?
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It won't perpetually solve the problem it just restructures the debt a higher interest rate for the same repayment just over a longer time.

Even if the current problem is solved can you really see that level of debt being repaid even if it is, the affect to the aggregate demand cuvre will put the economy through the floor for the next twenty years.

What happens if the repayments fail to the IMF? does the IMF, ECB etc go bust too?

It doesn't really solve the problem it just postpones it and makes someone else responsible for the loss.
 
Quote from achilles28:
Respective Central Banks would set the price. Obviously, it should be an amount no less than that originally paid by each bank. What's next?
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Huh? I bot all my bonds at par and that's the price I will demand. What you're suggesting therefore is a one-off full bailout of all the periph sovereigns (i.e., for example, you want to forgive the currently outstanding EUR 300bn worth of Greek debt)? Or did I misunderstand?

Is this type of "solution" something that I, as a German taxpayer, should feel all warm and fuzzy about? Moreover, this doesn't really solve the bigger picture issues of either Greece or the EMU.
 
Quote from Martinghoul:

Huh? I bot all my bonds at par and that's the price I will demand. What you're suggesting therefore is a one-off full bailout of all the periph sovereigns? And that's something that I, as a German taxpayer, should feel all warm and fuzzy about?
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Isn't there a fundamental issue with the basis of the system. It is based on what was produced not what is produced so repayment becomes impossible in economic contraction. The repayment is inflexible too.

The situation is inevitable.
 
Quote from morganist:
Isn't there a fundamental issue with the basis of the system. It is based on what was produced not what is produced so repayment becomes impossible in economic contraction. The repayment is inflexible too.

The situation is inevitable.
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Well, there's the question of timing, innit? Also, ultimately everyone in the EMU does realize that the ccy union is only viable with an orderly system of fiscal transfers, like they have in the US.
 
Quote from Martinghoul:

Well, there's the question of timing, innit? Also, ultimately everyone in the EMU does realize that the ccy union is only viable with an orderly system of fiscal transfers, like they have in the US.
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You mean they will have to implement a SGP that actually works?
 
Quote from Martinghoul:

Not sure what your SGP actually stands for, but the answer is yes, I imagine.
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Stability and Growth Pact. It is the fiscal requirements of eurozone members.
 
Quote from morganist:
Stability and Growth Pact. It is the fiscal requirements of eurozone members.
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Yes, I know what it is, but I have never associated it with the abbreviation SGP. At any rate, SGP, as it exists now, is for sissies. Ultimately, the solution is a single centralized fiscal and tax authority (briefly mentioned by Trichet in one of his speeches).
 
Quote from Martinghoul:

Yes, I know what it is, but I have never associated it with the abbreviation SGP. At any rate, SGP, as it exists now, is for sissies. Ultimately, the solution is a single centralized fiscal and tax authority (briefly mentioned by Trichet in one of his speeches).
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I think you might like my book would you like a copy. If you do pm me your email.
 
Boycotts can work. Don't do any business with any of the PIIGS... shove them off the edge of the world and let them fight over the scraps that are left of their economies and then they can rebuild from the ground up...
 
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