Quote: (05-03-2013 05:20 PM)samsamsam Wrote:
Euro slumps on dollar in wake of rate cut
http://www.independent.ie/business/world...39247.html
"If negative deposit rates were adopted, eurozone banks would have to pay to deposit money at the central bank, giving them an incentive to lend money rather than hoard it."
I am not the smartest guy, but this quote seems to indicate some pretty bad stuff is still to come. If a bank has to pay to deposit money, Europe must really be on a downhill trajectory. I mean I get that obviously with news from Cypress, etc yada yada bailouts, etc. But this point about paying to deposit, I have never heard of that before.
Can any of the smarter folks chime in and give an opinion of what the future holds? Do you ever see Dollar Euro Parity (1 for 1)?
Thanks.
Everything "Euro" awaits the outcome of the next German federal election in late September.
http://en.wikipedia.org/wiki/German_fede...tion,_2013
If Merkel's party is spanked, then a hardline on ECB lending and bailouts of ECB member governments may happen. And then places like Slovenia and their need for bank bailouts will be hit and left begging. (Like Cyprus, a painful "haircut" may happen.)
Merkel has already made such noises to Hollande. But it could be merely election season posturing.
The whole Euro-zone problem necessitates a South/North divide monetary division (eg, a North Euro and South Euro). Then labor there could rise in utilization (the unemployment rate falls) and productivity (real GDP) could grow once more - but it would take six to twelve months of pain for that to happen after the breakup of the Euro.
It is the Northern (including French) bank's exposure to loans made in the South that keep this game going. If it happens, even these banks in the North will fail.
The EU and ECB integration keeps the game going, playing "duck" the crisis...after crisis.... Where it stops, only the interplay of political possibility and financial dire crisis knows. Meanwhile, economic conditions in the Eurozone look pretty flat, overall. SEE
http://www.independent.ie/business/world...24204.html
AND
http://www.independent.ie/business/world...17347.html
PS-
QUOTE from the LINK at the top
Quote:Quote:
"[ECB bank chairman]Mr Draghi said the central bank is technically ready for negative deposit rates.
_ _ _
If negative deposit rates were adopted, eurozone banks would have to pay to deposit money at the central bank, giving them an incentive to lend money rather than hoard it.
The idea seems to be that if the European Central Bank adopts negative rates for bank's deposits there, which is considered the safer place for money, then these banks will assume more market risks in order to earn a positive return on their deposits, thereby lending more to businesses and consumers instead of parking (or "hoarding") it at the Central Bank. (In other words, banks will be penalized for seeking the safety of leaving money at the ECB.
This posture - if it happens - will be a more limited response to what the US Fed and Japan's Central Bank have done already: depreciating their currencies through "Quantitative Easing" measures that have the direct effect of lowering interest rates, making their respective currencies less expensive by comparison. The hope with "QE" measures is to thereby encourage more exporting of goods in the depreciated currencies.
The hope here is that if exports are stimulated, then these competing economies can grow again.
In the finance circles I travel in, these are thought to be deceptive and deluded measures because they always rely on the "greater fool" theory to work: the first depreciated monies is more effective than the later depreciated currency - then it stops working as the expectations of the market adjust. Once adjusted, the stimulus fails to "work." Japan seems to be proving that it doesn't work, indeed, right now.
This may sound convoluted (it is), but I hope it is nearer to becoming clear for you.
![[Image: Playboy_2010_07_Greece_Page_001_768x1024.jpg]](http://s19.postimage.org/6m4pc3ryr/Playboy_2010_07_Greece_Page_001_768x1024.jpg)
