Across the Pond

I raise the EU as things have been a bit silent on the EU front for a while. Seriously, they do a few hundred billion in emergency funds, tie it to some extreme austerity measures, hide the EU bank stress tests from any implication of sovereign debt issues and then cross their fingers and pray people ignore them for a very very long time. Because if people pay attention then they will notice things the EU does not want them to notice.

They will start seeing that austerity is extremely painful - on private and governmental basis. Extreme austerity, which is being required in Greece and certain other EU countries, can quite easily lead to significant GDP reductions. Don't believe me, ask Ireland, which has been seeing negative GDP due to its extreme austerity. The good news is that if you survive you will come out of the tunnel and be ahead of the game. In that respect it may make some sense, like Ireland, to dive in the pool early and get it behind you. The bad news is that if too many countries dive into the pool at the same time, especially a lot of politically and economically connected countries, then all boats take on water at the same time and no one is around to through the life ring. And so we wait and we will see.

Then again there are a number of countries, like Hungary, who said no. Yes, they said no. No to austerity and the authorities can take their emergency measures and shove them. We will see.

Now some of these problems have been building for a very long time. EU has certain sovereign debt versus GDP ratios that are required for memebership. As it turns out, various EU countries, with the assistance of certain financial institutions, have been hiding their financial issues for many years. And yet, right now, things seem a bit quite there. I suspect there are some major rumblings behind those closed doors.

http://www.nakedcapitalism.com/2010/08/satyajit-das-grecian-derivative.html

I have no new negative news on the EU to pass on just at the moment, but wait, it will come. Here is a piece on the EU bank stress tests not really doing much and how things might just do a little more poorly there than the tests suggests:

http://www.calculatedriskblog.com/2010/08/sovereign-debt-part-5d-european-banks.html

And here on this side of the pond, at least one well respected expert expects housing inventory to shoot up, perhaps to a year of inventory. Boy, that is going to suck.


http://www.calculatedriskblog.com/2010/08/one-year-supply-of-houses-and-other.html