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We conclude that the concentration of wealth is natural and inevitable, and is periodically alleviated by violent or peaceable partial redistribution. In this view all economic history is the slow heartbeat of the social organism, a vast systole and diastole of concentrating wealth and compulsive recirculation.That rings true.
I know you are in trouble and want China to help. I have heard your repeated calls in the media for our leaders to bail you out by buying the debt of European governments. I want to assure you your entreaties have not been in vain.
Last week our premier pledged that China will "get more deeply involved" in resolving your debt crisis. Our central bank governor tried to buoy up market confidence in the euro by vowing to continue holding your sovereign debts. Such comments came even as the international rating agencies - Moody's, Standard & Poor's and Fitch Ratings - cut their ratings for your nations because of the weakening prospects for an overhaul in Europe.
We want you to know that we are your friend in your time of need.
In fact, the ever-expanding trade ties between China and the European Union have brought us closer together. China is now the EU's top trade partner, and vice versa. So a collapse of the eurozone would also hurt China's interests. The International Monetary Fund has warned that a deepening EU debt crisis could slash China's economic growth in half this year. So we are both in the same boat.
But that does not mean you should take China's help lightly.
Yes, China has the money. Its stockpile of foreign currency, valued at nearly $3.2 trillion, is the world's largest. Yet this has been amassed over three decades of trade and built up from razor-thin profits. We are at the low end of the global value chain and we have to sweat and toil for every penny we earn. China has to export more than 800 million shirts to buy one Airbus A380.To be frank, some of us don't understand why the rich are holding out their hands to the poor and asking for money. For common Chinese people, the wealth of your nations is unimaginable. The average monthly income of your citizens - at around $4,000 in countries such as Germany and Belgium - is 12 times that of the average Chinese citizen. The Chinese workers in the factories in coastal cities have to work 12 hours or longer each day with basically no days off, while workers in France enjoy two months of paid vacation, national holidays and regional festivals each year. If we can save 50 percent of our earnings, surely it should be possible for you to save just 1 percent of yours.
The cause of the crisis is simple: You have spent more than you earned. If we are injecting our hard-earned money into Greek, Irish, Portuguese or Italian government bonds, you should show the political resolve to clean up your own backyard. You have to stop bickering and dragging your feet over the urgently needed austerity measures. It is time to roll up your sleeves and get the job done.
And while I know that any investment has risks, I hope you will try to ensure our money does not evaporate. We have already been snared in a "dollar trap". You are not legally obliged to ensure our investment safety. But surely you don't want to be seen as luring China into a "euro trap". We have suffered huge losses from holding US Treasury bonds because of the unrestrained printing of the greenback. As Nobel Prize-winning economist Paul Krugman has pointed out, the dollar depreciation will result in losses of up to 20-30 percent of China's investment in US bonds. That's the reason we have sought to divert our investment in a basket of currencies other than the US dollar.
Perhaps now that China has shown its goodwill toward you with its chivalrous purchasing of European debts, we can expect some demonstration of goodwill from you. I think you should recognize China's market economy status as soon as possible. After all it is of no substantial significance. China is going to get the status anyway in a few years' time according to the World Trade Organization rules. Good relations are all about reciprocity.
I hope everything goes fine with you.
The author is a senior writer with China Daily.
...magnanimous private holders are expected to voluntarily take a 50% haircut. The plan under consideration is that for each €100 of debt tendered, €15 in cash would be received and €35 in long dated (as much as 30 or 40 years), low-interest Greek debt.I bolded the part that is the most dangerous part of the game. The report goes on to say:
Now if this plan was anywhere close to a reality, Greek debt would be trading near that 50% of face value mark, but it is not. It is trading around 32% of face value.
Additionally, if this voluntary plan goes into effect, it would not be a “credit event”. It is a non-event according to the determiner of such things (the International Swaps and Derivatives Association), because it is “voluntary” and not everyone is affected; remember the Troika would be exempt. That is important, because it would not trigger the insurance contracts on the bonds, known as credit default swaps (CDS). Without the insurance to make up the 50% of value that goes poof, losses will be very real.
However, if not enough private holders volunteer, then the deal falls apart and Greece will default for real. The CDS holders will be made whole because a default is a “credit event” and will affect everyone.
So hedge funds have been accumulating Greek debt with the specific intention of not volunteering their holdings. They are also buying CDS, which cost 8% of face value.
In other words, funds are paying €32 for Greek bonds that have a face value of €100, and paying €8 for insurance, resulting in a total cost of €40. When they withhold their bonds from the voluntary swap, Greece will be unable to roll its debt and will default. Then the CDS will trigger and they will receive €100 on an average investment of little more than €40. A tidy 150% profit before the end of March!
A Greek default will have huge ripple effects. It doesn’t even matter if Greece is forced to leave the Euro or it is allowed to stay -- a run on Italian and Spanish sovereign debt is sure to follow.So let's sum this up in layman's language.
The big money manipulation of the markets is going to cause a serious monetary and economic dislocation that could move Europe rapidly from mild recession to full on depression. The US stock market and economy are not on an insulated island; there will be a deleterious effect on both when the tsunami effect hits these shores.
Okay, maybe there are more variables than you might imagine.
Technivorm is a Dutch company specializing in coffee makers that (a) heat water to the right temperature (195 - 200F) and (b) have adjustments to restrict the flow of water through the filter. Most drip coffee makers fail at both of these.
We have one. It makes better coffee than our old drip maker. Better flavour, better to drink.