Sovereign debt bubble thread

[Syt]

Meanwhile, Germany presents its Poverty Report which comes out every four years.

In the past 20 years the privately held wealth has more than doubled from 4.6 to over 10 billion Euros. The top 10% of households own 53% of that (their share grew by 8% between 1998 and 2008).

The bottom 50% of households have 1% of the wealth.

Source: http://www.zeit.de/wirtschaft/2012-09/armuts-und-reichtumsbericht-2012 (in German)

[Zanza]

A lot of private money is withdrawn from the Southern EU states and parked in Switzerland. That drives up the price of the Swiss Franc. To keep the Franc at the level of 1.20 Euro, the Swiss National Bank had to buy gigantic amounts of Euros with Swiss Francs so it now has about 250 billion Euro on its books. To do something with these Euros, it invested mostly into government debt from Germany, France, Netherlands, Finland and Austria. Estimates are that the Swiss National Bank bought about 80 billion Euro worth of debt in 2012. Which is about half the debt issued by these countries in 2012, meaning they are mostly financed by the Swiss National Bank recycling Euros from Southern Europe. At very low interest rates. Which creates the perverse situation that the interest spread widens and debt from e.g. Italy or Spain looks worse which makes private citizens of these countries more likely to park their money in Switzerland. This effect was already known before, but the sheer size, namely financing half the government debt of the Eurozone core is still surprising.

[Martinus]

A lot of private money is withdrawn from the Southern EU states and parked in Switzerland. That drives up the price of the Swiss Franc. To keep the Franc at the level of 1.20 Euro, the Swiss National Bank had to buy gigantic amounts of Euros with Swiss Francs so it now has about 250 billion Euro on its books. To do something with these Euros, it invested mostly into government debt from Germany, France, Netherlands, Finland and Austria. Estimates are that the Swiss National Bank bought about 80 billion Euro worth of debt in 2012. Which is about half the debt issued by these countries in 2012, meaning they are mostly financed by the Swiss National Bank recycling Euros from Southern Europe. At very low interest rates. Which creates the perverse situation that the interest spread widens and debt from e.g. Italy or Spain looks worse which makes private citizens of these countries more likely to park their money in Switzerland. This effect was already known before, but the sheer size, namely financing half the government debt of the Eurozone core is still surprising.

So now we need Eurozone countries to start going bankrupt, so Switzerland can go bankrupt and the Swiss franc can depreciate.

[Barrister]

A lot of private money is withdrawn from the Southern EU states and parked in Switzerland. That drives up the price of the Swiss Franc. To keep the Franc at the level of 1.20 Euro, the Swiss National Bank had to buy gigantic amounts of Euros with Swiss Francs so it now has about 250 billion Euro on its books. To do something with these Euros, it invested mostly into government debt from Germany, France, Netherlands, Finland and Austria. Estimates are that the Swiss National Bank bought about 80 billion Euro worth of debt in 2012. Which is about half the debt issued by these countries in 2012, meaning they are mostly financed by the Swiss National Bank recycling Euros from Southern Europe. At very low interest rates. Which creates the perverse situation that the interest spread widens and debt from e.g. Italy or Spain looks worse which makes private citizens of these countries more likely to park their money in Switzerland. This effect was already known before, but the sheer size, namely financing half the government debt of the Eurozone core is still surprising.

Interesting.

Doesn't that start to call into question the stability of the Swiss Franc itself?

[MadImmortalMan]

Interesting.

Doesn't that start to call into question the stability of the Swiss Franc itself?

They can't do that repeatedly and expect it to keep working.

[Admiral Yi]

Interesting.

Doesn't that start to call into question the stability of the Swiss Franc itself?

The instability of the Franc is a given.  They're buying euros to keep the franc from appreciating.

[Zanza]

As long as the Swiss National Bank doesn't figuratively run out of paper and ink, I don't see what would stop them to buy ever more Euros with freshly printed Francs. The problem is that it creates some inflation in Switzerland, e.g. in real estate as foreigners now hold huge amounts of Swiss Francs and buy real estate in Switzerland. If the Swiss Franc ever falls again against the Euro, the Swiss National Bank may make gigantic balance sheet losses as they'll have to mark down their Euro denominated debt.

[alfred russel]

The "problem" Switzerland has is that it is one of the very few western countries in the world with its own currency, a good banking system and rule of law, and little public debt. The result is that much of the world is trying to park their money in this small country, and the demand for francs is off the charts. All that is fine, but the place has become outright unaffordable. When prices get to the point of $60 for a pizza at Pizza Hut or $20 for a sandwich at Burger King, there is a problem.

The Swiss are trying to keep currency at sane levels, so they have communicated a level at which they won't let the franc appreciate past and to defend that point simply print a bunch more money. They have to use that money for something, so they buy safe euro debt. So if Germany defaults, it will be a sad day in Switzerland, but it isn't as though they paid for those bonds with tax revenue and they really don't have much choice.

[citizen k]

http://www.zerohedge.com/news/2012-09-25/live-spanish-protestcam

[Ed Anger]

http://www.zerohedge.com/news/2012-09-25/live-spanish-protestcam

Spanish cops went up 5 notches on the Ed Anger Respect Scale when I saw the footage on CNNI of the Spanish cops beating the living hell out of people.

[Sheilbh]

I hate Switzerland. €1.50 for a glass of tap water :rage:

[citizen k]

Spanish cops went up 5 notches on the Ed Anger Respect Scale when I saw the footage on CNNI of the Spanish cops beating the living hell out of people.

The Thin Blue Line

[Richard Hakluyt]

The problem with the ultra-rich is that many of them don't seem to be spending it, instead parking it in various tax havens. It's a massive drain on demand. I wonder, also, to what extent the ageing of society leads to this playing safe; which damages the very economies which old people rely on to keep comfortable in old age.

[frunk]

The problem with the ultra-rich is that many of them don't seem to be spending it, instead parking it in various tax havens. It's a massive drain on demand. I wonder, also, to what extent the ageing of society leads to this playing safe; which damages the very economies which old people rely on to keep comfortable in old age.

I wonder if this power of the ultra-rich to effectively remove/add a good chunk of potential spending/investment from the economy is one of the reasons societies with less income inequality tend to be more stable.  Instead of the normal highs and lows being exacerbated by sudden movements of capital it's gentler and less drastic decisions by many actors rather than a few.

[Admiral Yi]

I wonder if this power of the ultra-rich to effectively remove/add a good chunk of potential spending/investment from the economy is one of the reasons societies with less income inequality tend to be more stable.  Instead of the normal highs and lows being exacerbated by sudden movements of capital it's gentler and less drastic decisions by many actors rather than a few.

Shouldn't be, as long as hot money can enter and exit a high equality country as easily as it can a low equality country.