Sovereign debt bubble thread

[alfred russel]

I think I might as well add that the stocks of the Portuguese banks are falling hard again (they've been falling for the last three days), and that the upper limits on withdrawals at the ATMs suddenly vanished yesterday (no official word given, the maximum option is just... gone. We could withdraw up to 400 euro per day, now it's 150 euro max).

Yes, I think this could be a self-fulfilling prophecy; If I lived in the Eurozone country, I'd be wanting to have a fair few hundred/thousand euros under my mattress at the moment.

What is the punishment for buglary in your typical euro country? Two weeks of no television?

This might be a lucrative time for such activities in southern europe. 

[The Minsky Moment]

Time for people to be reading up on the history of crowd psychology ?

Or just game theory under assumptions of rationality.

[Ed Anger]

I think I might as well add that the stocks of the Portuguese banks are falling hard again (they've been falling for the last three days), and that the upper limits on withdrawals at the ATMs suddenly vanished yesterday (no official word given, the maximum option is just... gone. We could withdraw up to 400 euro per day, now it's 150 euro max).

Yes, I think this could be a self-fulfilling prophecy; If I lived in the Eurozone country, I'd be wanting to have a fair few hundred/thousand euros under my mattress at the moment.

What is the punishment for buglary in your typical euro country? Two weeks of no television?

This might be a lucrative time for such activities in southern europe. 

In other words, a normal day.

[Richard Hakluyt]

I wouldn't like to have my euros turned into drachmae or escudos overnight and lose some high percentage of their value. I'd say the people taking out their money (especially in Greece of course) are being rational.

[Zanza]

What is the punishment for buglary in your typical euro country? Two weeks of no television?

The market value of your loot is deducted from your monthly welfare check. 

[DGuller]

I wouldn't like to have my euros turned into drachmae or escudos overnight and lose some high percentage of their value. I'd say the people taking out their money (especially in Greece of course) are being rational.

Many tragedies in economics are due to individually rational decisions adding up to be a collectively irrational decision.  Confidence is a foundation made of C4.

[MadImmortalMan]

And yet, it is the source of all value.


Are we dead yet?

[Habsburg]

I wouldn't like to have my euros turned into drachmae or escudos overnight and lose some high percentage of their value. I'd say the people taking out their money (especially in Greece of course) are being rational.

I agree. 

CNBC reported this morning, ths is going on increasingly in Spain as well.  Of course as long as said banks can cover, no problem.
If someone falls we are in for big trouble IMHO.  I feel we are in a very dangerous period.

[The Minsky Moment]

And yet, it is the source of all value.

Productive activity is the source of value.  Money is just an efficient and convenient technology that facilitates exchanges of disparate types of commodities and services that are generated by value-creating productive activity.

[MadImmortalMan]

And yet, it is the source of all value.

Productive activity is the source of value.  Money is just an efficient and convenient technology that facilitates exchanges of disparate types of commodities and services that are generated by value-creating productive activity.

No. Buyer perception is the source of value. Doesn't matter how productive I am if nobody is willing to pay for the stuff I'm making or service I'm providing.

[The Minsky Moment]

No. Buyer perception is the source of value. Doesn't matter how productive I am if nobody is willing to pay for the stuff I'm making or service I'm providing.

I'll flip the proposition on it head - it doesn't matter what someone is willing to pay for a commodity or service if no one has it to offer for sale.

My point above is not a point about about intrinsic vs. conventional value but rather about the relationship between a monetary system and the confidence reposed in it, and real economic activity.  Whether value is a function of intrinsic qualities of economic product, or the collective perception concerning that product, it is a judgment about some real product.  Regardless of whether one accepts or not that a tulip is really worth the same as a small house because the last guy paid that amount, one still has to grow and harvest the tulip, transport it, and market it.  That activity is the pre-requisite for the creation of economic value; perceptions of market participants simply play a role in setting the precise terms of exchange for that particular activity vis-a-vis other forms of productive activity. 

Confidence in a monetary system, OTOH, is not a source of economic value.  It only helps determine the terms of exchange between the conventional phenomenon that has been selected to serve as the standardized means of exchange and the real goods and services produced.  Of course, the absence of a viable monetary system will have severe negative impact on trade and commerce, and hence the real economy; but confidence in the monetary system itself does not help create that value - it only helps faciliate favorable conditions for the manifestation of that value.

[Sheilbh]

I wouldn't like to have my euros turned into drachmae or escudos overnight and lose some high percentage of their value. I'd say the people taking out their money (especially in Greece of course) are being rational.

Indeed.  Similarly if I was investing, I wouldn't bet against the Euro but right now I wouldn't be betting on it either.  This is the only crisis I can think of when politicians have possibly addressed the long-term issues but done nothing to help the immediate short-term problem.

If this does intensify in Spain then we're at the point when moral hazard needs to be thrown out to restore confidence.

Edit:  Also I can't think of another example of the sort of public pressure being put on Merkel.  Obama, Cameron, Hollande have all publicly stated that there needs to be a change of policy - the Canadians have said it before.  Get Monti and the Japanese involved and that's the entire G7.

Edit:  Apparently Monti and the Japanese said there needs to be a change.  So that's everyone.

[alfred russel]

If this does intensify in Spain then we're at the point when moral hazard needs to be thrown out to restore confidence.

I think we are at a major tipping point now, but what is crazy is in the US at least this is getting almost no mainstream attention. Donna Summer is the top story on CNN, on Fox News it is some space story, and neither has this featured prominately--CNN doesn't even have it in the business section on the first page (and Fox tangentially as a cause of falling stocks).

I'm interested to see how this plays out, especially since Greece doesn't have a government. I'm not as up on this as some people, but it seems likely some hard decisions are going to need to be made before then.

[The Larch]

Define significant money.

I'm not trying to start a panic, and maybe I'm a hypochondriac, but there seems to be a non zero chance that spanish accounts end up in a devalued currency. If I had a chance to open a foreign account in a euro currency (and I was Spanish), I would do so. I wouldn't withdraw my life savings and put them under my mattress--that carries risks too (fire, robbery). Maybe I would do that if I were Greek.

I think I would be more interested in getting a foreign account if I was Hungarian. Tamas, wtf?

Well, I don't know, I have my monies split amongst two banks, the main share in one of the big two of Spanish banking (BBVA) and the smaller share in the Spanish branch of Barclays, so I don't fear for those banks' survival. Most of my stuff is not in cash in a savings account, though, but in shares and a few funds, so I don't think that I could make those liquid on the short term. Personally I feel rather secure, it's not as if I had the money in one of the former cajas that are going down the drain as we speak.

[MadImmortalMan]

it seems likely some hard decisions are going to need to be made before then.

Like how quickly can the brokers roll out a 3x short ETF on European financials. EUFNx3