Thursday, October 27, 2011

Ummm.. Leverage, and here's some more money

Felix Salmon has written two nice posts about the Euro deal - here and here. In sophisticated words, this is all poppycock. This is not a solution to the issue; the 50% haircut does not solve the problem, even if it is accepted by the creditors. Frankly, I don't understand the mechanisms well at all. I do know that the EFSF can now be expanded to EUR 1 Tn. Who will contribute to it, I don't know...
The way I see it, the inherent problem is that debt had somehow been assumed to be a permanent source of capital. With slowing/ de-growing economies, certain countries are going to find it difficult to service their debt. Logically and historically, this leads to a debt default. No way this is changing.

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