come on Pete, the Icelandic investment bubble and the Irish property bubbles were there for all to see. The Icelandic banks were way over-leveraged and anyone looking at the Irish property market could see that it was built on foreign debt and nothing else - the local market couldn't sustain it. There was no reason for the bubble apart from cheap money - no new industrial or financial base. You could say the same is true of London, except that here the market is sustained by banking and foreign (European) investors buying a safe and largely untraceable haven for their money. The Spanish property market is up shit creek because the foreign buyers who helped inflate the market are not buying now, expecting a substantial crash. The Spanish can't deflate to make themselves more competitive because they don't control their currency. Any recession in Spain, or any recession in any country in the Eurozone, will be deeper and longer because they have no way to manage their currency - they can't deflate to make themselves more competitive. Unless they pull out of the Eurozone. BTW, the 1000 year European Union is an unfortunate comparison: the Third Reich was supposed to last a thousand years...
Yes, I thought this was a somewhat optimistic prediction. I'm not at all sure that the human race is going to last 1'000 more years, let alone the EU. As for predicting a bubble, that isn't actually that difficult. It's pretty easy to spot. It's like blowing a soap bubble - you can see it easily enough, but you have no idea when it's going to burst. If you refuse to participate in inflating the bubble, you'll forego a lot of money. The secret is to help blow it up and then scarper before it explodes in your face. Not simple. In the markets there are all sorts of things which go up unsupported by any great underlying fundamentals, and there are things with great fundamentals which never seem to go up. If you get overly exercised by fundamentals rather than by the spurious valuations of "the market" you'll never make any money. The thing is, after all, nothing more than a massive Ponzi scheme.
Lord Tebbit gave the Euro between 10 and 20 years from its introduction, and I think he will be proven correct. Once Nation States fall behind there is no way back, they need ever greater handouts that require ever greater interest payments, then they fall into the event horizon of the EU.
Oh really? Let's look at some current situations. Here are some things of which the prices have risen a lot recently in various time frames in the real world: * Classic Ducati bevels * Apple shares * Gold * Premium apartments in Knightbridge * Oil If the price stays up long term, it wasn't a bubble; if the price drops, it was. So short the bubbles, and keep your hypothetical money in the non-bubbles. But which is which? You say it is not that difficult, I think it may be.
That's what I was alluding to, obviously. Hitler's brutal tyranny lasted only 12 years; several great federal structures (of which I gave examples) lasted hundreds of years and the First Reich really did last 1000 years. Thanks for spelling it out, but there's nothing 'unfortunate' about the comparison which makes my point.
Some confusion here I think. Deflation is when prices, wages and values drop. That can happen in any country, regardless what currency they are using. Deflation leads to stagnation, lack of investment, depression and often negative growth. It is not something any government or central bank would choose deliberately. As an example, Japan has suffered damaging deflation and the government has tried (but failed) to get some inflation and growth going. I wonder if you meant to say 'devaluation'? If you did, devaluation is a double-edged sword not a solution. It reduces the income from exports and increases the cost of imports, thus worsening the balance of trade. Overseas debts become harder to pay back or service. A country with a weak currency under pressure might be forced to devalue reluctantly (like the UK in the 1960s) and swallow the consequences. The Euro is not weak at present, and there is no reason why Spain, or any other country, would either want to or be forced to devalue it.
Pete, really, the PIIGS are in real trouble. The Italians - the strongest of that group - are openly discussing dropping the Euro and reintroducing the Lira. the Spanish have borrowed and blown huge amounts of cheap money and are now faced with paying it back. Their property market is set to drop to 40% of their peak value this year. Massive unemployment, very few prospects, almost permanent recession... The euro zone is beset with huge inequalities and it can't operate s it is structured. Maybe if Germany and Holland stepped up and started openly subsidising the weaker members. But that will never happen without some major reforms. Can Europe make those reforms through a democratic process? Unlikely. Will the 'lite' force it through? Maybe, but I don't expect the populace to roll over and accept it
Bubbles are really bubbles when the price gets totally out of synch with the underlying fundamentals: witness the dot.com boom where P/E ratios went through the roof, making these shares ludicrously expensive and very unlikely to pay back. But if you weren't in the dot.com market when it was on the rise, you missed making a load of money.
