I'm getting a great deal of "de ja vue" with what's happening these days, The ERM....I remember everybody desperately trying to keep it going long after the game was
up, then finally when the bang came, it came big time. I think the same will
happen to the Euro. One mighty loud bang about to come, and when it does
come, it will happen very very quickly......After all, was the ERM not the
farther of the Euro?.....The European Exchange Rate Mechanism
(ERM) is based on the concept of fixed currency exchange rate margins,
but with exchange rates variable within those margins. This is also known as a
semi-pegged system. Before the introduction of the euro, exchange rates were
based on the European Currency Unit (ECU), the European unit of account, whose
value was determined as a weighted average of the participating currencies....A
grid (known as the Parity Grid) of bilateral rates was calculated on the basis
of these central rates expressed in ECUs, and currency fluctuations had to be
contained within a margin of 2.25% on either side of the bilateral rates (with
the exception of the Italian lira, which was allowed a margin of 6%). Determined
intervention and loan arrangements protected the participating currencies from
greater exchange rates fluctuations.
The European Exchange Rate Mechanism (ERM) was a system
introduced by the European Community in March 1979, as part of the European
Monetary System (EMS), to reduce exchange rate variability and achieve monetary
stability in Europe, in preparation for Economic and Monetary Union and the
introduction of a single currency, the euro, which took place on 1 January 1999.
After the adoption of the euro, policy changed to linking currencies of
countries outside the Eurozone to the euro (having the common currency as a
central point). The goal was to improve stability of those currencies, as well
as to gain an evaluation mechanism for potential Eurozone members. This
mechanism is known as ERM2.
6 comments:
30pc of companies are regularly reliant on their overdraft facilities, surprise surprise? Of course they are the lucky ones that have overdraft facilities. Many don't, or do but at new higher interest rates.
They are probably also the ones whose customers are using them to try and stretch their credit terms in order to help their own cash flow because they in turn either don't have an overdraft, or wont give the Bank their house as a guarantee in order to get one. In addition these firms that are hitting their OD limit are probably also still paying off debt they incurred when the Banks stopped lending money in 2008 and they in turn had to find funds from other sources such as credit cards or loans to fill the gap until the Banks sorted themselves out.
Once the debt is paid down then these firms will be able to use their OD more effectively and start to grow again.
American firms never fail they go Chapter 11 and the rise from the flames like a Phoenix which gives them a competitive edge over our companies. Chapter 11 shouldn't be applied to US companies over here.
Our banking system is creating vast numbers of business failures.
The bankers create our money on their computers using a highly abused form of fractional reserve banking.
All money is created as debt.
The current massive reduction in loans granted by the banks has shrunk our money supply. If this shrinkage continues few businesses will be safe from bankruptcy.
Banks are like vampires.
They drain our society of its wealth.
This is how capitalism is supposed to work.
A failing business means opportunity for new capital, new ideas, new energy. We seem to have lost faith in this engine preferring what we know over what is yet to be created and imagining for some reason that the old and existing can't be replaced. QE is feeding new money to failed and old money.
The same principle should apply to banks, individuals and governments.
Unfortunately the reaction to the crisis since 2008 has been to bail out; Lehman, AIG, GM, RBS, BTLers (low interest rates), Greece. Part of this is due to high levels of counter party risk via securitization and part is the prevailing orthodoxy of economics that thinks we are still living in the Thirties. But this is why the credibility of capitalism is failing and our leaders are failing us.
The same principle was in action prior to the crash with the Greenspan put. Whenever there was a down turn the taps were turned on.
With low interest rates and QE Governments believe they are creating an environment for investment, filling output gaps and avoiding liquidity traps to force out capital for investment. In fact they are doing the opposite, back filling bad debts, asset price inflation and entrenching failure, all the time reducing the credibility and energy of capitalism. This is why every sugar rush of QE only gives a short boost as traders and the 1% rejoice and investors and innovators despair.
IF the banks did pull the plug on companies that are ripe for it, then the banks would have to report a loss for each company. Keeping these zombies "alive", the banks don't have to such losses and in addition the banks have it easier to declare pure fictous valuse for their outsatnding loans and holdings instead of real market value.
Btw, the exactly same shenanigan is played out in for example Spain.
The plan could see vast national debt and banking liabilities pooled – and then backed by the financial strength of Germany – in return for eurozone governments surrendering sovereignty over their budgets and fiscal policies to a central eurozone authority.
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