Euro's Collapse Is Not 'Unthinkable': Warren Buffett

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    Mar 25, 2011 3:22 PM GMT
    This shouldn't be a surprise to anyone who has been watching events unfold with the PIIGS.

    http://www.cnbc.com/id/42248019

    Warren Buffett told CNBC Thursday that the collapse of the euro zone's single currency is far from "unthinkable."

    "I know some people think it's unthinkable...I don't think it's unthinkable," Buffett said in an interview.

    Still, Buffett said he believes there will be "huge efforts" put forth to preserve the euro. In the meantime, struggling peripheral countries like Portugal must find a way to resolve fiscal crises.

    "You can't have three or four or five countries that are in effect free-riding on the other countries. That won't work over time—they have to get their fiscal houses in reasonable harmony," he said.

    The widely-watched investor spoke as yields on Portuguese bonds soared to new highs and markets remained alert for a potential European Union bailout of the troubled nation. Late Wednesday, Portugal's prime minister stepped down after the country's parliament rejected a fiscal austerity plan proposed by his government.
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    Mar 25, 2011 3:56 PM GMT
    I would SO much prefer the return to the DM... Germany is constantly bailing out other nations like Greece and Portugal, and We The People are having to pay for it. Our roads are deteriorating at an alarming rate, while our government doles out money right and left, ever increasing our taxes.

    So, if the €uro goes under, I would not shed a tear. The UK did the right thing in not joining.

    It's called the €wwwro for a reason... icon_wink.gif
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    Mar 25, 2011 4:20 PM GMT
    Andreas73 saidI would SO much prefer the return to the DM... Germany is constantly bailing out other nations like Greece and Portugal, and We The People are having to pay for it. Our roads are deteriorating at an alarming rate, while our government doles out money right and left, ever increasing our taxes.

    So, if the €uro goes under, I would not shed a tear. The UK did the right thing in not joining.

    It's called the €wwwro for a reason... icon_wink.gif

    Oh, puleeeze!

    The US has been footing the bill as the de facto world govt since WWII.
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    Mar 25, 2011 9:13 PM GMT
    Caslon18000 said
    Andreas73 saidI would SO much prefer the return to the DM... Germany is constantly bailing out other nations like Greece and Portugal, and We The People are having to pay for it. Our roads are deteriorating at an alarming rate, while our government doles out money right and left, ever increasing our taxes.

    So, if the €uro goes under, I would not shed a tear. The UK did the right thing in not joining.

    It's called the €wwwro for a reason... icon_wink.gif

    Oh, puleeeze!

    The US has been footing the bill as the de facto world govt since WWII.


    This litte chart paints a different picture...

    http://www.cgdev.org/section/initiatives/_active/cdi/
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    Mar 25, 2011 10:43 PM GMT
    Andreas73 saidI would SO much prefer the return to the DM... Germany is constantly bailing out other nations like Greece and Portugal, and We The People are having to pay for it. Our roads are deteriorating at an alarming rate, while our government doles out money right and left, ever increasing our taxes.

    So, if the €uro goes under, I would not shed a tear. The UK did the right thing in not joining.

    It's called the €wwwro for a reason... icon_wink.gif

    The EU problems don't surprise me. I always thought there were many paradoxes. It seemed to me the most useful function of the EU would have been standardization and economic cooperation, rather than the political structure that has appealed most to the bureaucrats in Brussels. Germany was one of the biggest supporters of the EU and Euro. I think the Germans saw the EU and Euro as a way to spread the positive aspects of the German economy throughout Europe. But the poorer countries saw it as a way to take advantage of the economies of richer countries. In my opinion, such a tight union was not consistent with the diversity of culture, especially the work ethic.
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    Mar 26, 2011 7:11 PM GMT
    Well, priot to joining the Eurozone, the member states had to be at a certain economical and financial level. When Greece went down the drain, they discovered that they highly exaggerated their condition. I guess they learned from Enron. icon_neutral.gif
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    Mar 26, 2011 7:21 PM GMT
    Surely the banking crisis and its fallout put paid to any notion of economic 'unthinkability'.
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    Mar 26, 2011 7:22 PM GMT
    Sorry to be economics nerd, but it is a little more complicated than feckless weaker states spending too much. The flip side of that is that Germans are saving too much.

    The whole thing is a bit of a mess, but that's what happens when politics trumps economics. In my opinion, it would have been better to go form several mini-euros of similar economies and let those slowly converge, if people were willing to subvert other goals to that.

    Personally, I don't think it will disappear. It will either muddle through, or some countries will break out - the question is from the top or the bottom?
  • TrentGrad

    Posts: 1541

    Mar 26, 2011 7:26 PM GMT
    Caslon18000 said
    Andreas73 saidI would SO much prefer the return to the DM... Germany is constantly bailing out other nations like Greece and Portugal, and We The People are having to pay for it. Our roads are deteriorating at an alarming rate, while our government doles out money right and left, ever increasing our taxes.

    So, if the €uro goes under, I would not shed a tear. The UK did the right thing in not joining.

    It's called the €wwwro for a reason... icon_wink.gif

    Oh, puleeeze!

    The US has been footing the bill as the de facto world govt since WWII.


    icon_rolleyes.gif
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    Mar 26, 2011 7:36 PM GMT
    So now nobody is mentioning that the world's second biggest economic zone is "too big to fail"?

    The EU countries together account for a very significant part of the world economic output, so just as it's unlikely the US Dollar will "all of a sudden" completely collapse, neither is that the case with Europe or the Eurozone.

    Right now you still pay $1.40 for a Euro. This is closer to the historic high of $1.60 than the historic low of 90 cents. That doesn't really sound like any good indicator of imminent economic collapse, especially not compared to the US.
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    Mar 26, 2011 7:43 PM GMT
    I would generally agree with you Tazo, but the US Dollar is backed by a strong federal government, whereas the EU has no formal tax raising powers and relies on its member states to fund it. So you can end up with 'profligate' states running huge deficits (or rescuing banks in Ireland's case) that they cannot devalue their way out of and hence the whole currency union comes under strain.
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    Mar 26, 2011 7:50 PM GMT
    Monetary Union without Political Union led, I think, almost inevitably to the current situation.

    But let us not forget that the current economic crisis started IN AMERICA.
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    Mar 26, 2011 7:54 PM GMT
    Rundown saidI would generally agree with you Tazo, but the US Dollar is backed by a strong federal government, whereas the EU has no formal tax raising powers and relies on its member states to fund it. So you can end up with 'profligate' states running huge deficits (or rescuing banks in Ireland's case) that they cannot devalue their way out of and hence the whole currency union comes under strain.


    Not sure why a "strong federal government" would make such a difference. For now all we can say is that right now there is a strong federal government that ran the biggest national deficit in the history of the world, and a currency union containing part of the EU countries in which a few countries are putting stress on the stability of the currency with their own version of reckless borrowing.

    The US has resolved to desperate measures like "quantitative easing" next to the already uncomfortable position of a potential rival holding so much of your debt. The ECB has not been in any situation even remotely comparable to that.

    In the worst case scenario, in a currency union you can exit individual members, which is still provides a better shielding mechanism than the perception of a strong centralized government.

    All in all, governments fuck up more often than economies do. But picking the rotten apples out of the basket is easier with the latter than the former.
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    Mar 26, 2011 8:04 PM GMT
    A federal government with tax raising powers can redistribute between areas of its 'currency union'. As is being discovered, it is difficult for the EU to make those transfers. That is not to defend or otherwise economic policy of the US, just to point out that a political union allows a monetary union to occur.

    The 'reckless' borrowing was also mirrored by 'reckless' lending (i.e. certain parties saving too much), which creates a second strain pulling in the opposite direction and increasing the stress on the monetary union.

    As you say, if there is any 'falling apart' it will be individual states leaving, I just wonder if it will be the savers who choose to up and go, or the borrowers who get kicked out.
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    Mar 26, 2011 8:12 PM GMT
    I hope Great Britten can get away from it, it's dragging them down. Long live our Queen.
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    Mar 26, 2011 8:17 PM GMT
    Tazo995 said
    Not sure why a "strong federal government" would make such a difference. For now all we can say is that right now there is a strong federal government that ran the biggest national deficit in the history of the world, and a currency union containing part of the EU countries in which a few countries are putting stress on the stability of the currency with their own version of reckless borrowing.

    The US has resolved to desperate measures like "quantitative easing" next to the already uncomfortable position of a potential rival holding so much of your debt. The ECB has not been in any situation even remotely comparable to that.

    In the worst case scenario, in a currency union you can exit individual members, which is still provides a better shielding mechanism than the perception of a strong centralized government.

    All in all, governments fuck up more often than economies do. But picking the rotten apples out of the basket is easier with the latter than the former.


    You're so so so deeply wrong on many counts!

    In the old model, the different currencies of the member countries were free to float relative one another to account for differences in inflation/growth/etc. It didn't matter what government policy was in each country because the currencies would adjust to reflect this.

    In the common currency model, the external exchange rate only reflects the EU as a whole. Because there is no *political* union within the EU, governments are still free to set their own economic policies, but because the currency is common there is no arbitrage mechanism to adjust for this. What was inevitable was that some governments would take advantage of the situation by social spending above what they would have been able to afford if the currencies were freely floating. The 'fix' for this designed into the Euro, i.e. the European Stability Pact which limited social spending, did not work [and it is Germany and France's fault that it did not work] because it was NEVER ENFORCED.

    Next, the US has not posted "the biggest deficit in the history of the world". The deficit was larger in World War II. The reason you think this is that you did not adjust for inflation, which is deeply mischievous!

    Quantitative Easing was introduced because the problem facing the US was DEFLATION. Macroeconomics has excellent tools for dealing with inflation (STOP SPENDING!) but does not have effective tools for dealing with DEFLATION---see the last two decades of Japan for a lesson on why this is bad.

    In any case, you're mistaken about the ECB and QE. The ECB HAS undertaken Quantitative Easing, it just called it "enhanced credit support". They bought covered bonds, not Treasury Bonds, but the effect was exactly the same: to increase the currency supply to resist deflationary headwinds.

    Finally, your paper shamelessly over the cracks with your proposal "in a currency union you can exit individual members". This is manifest nonsense in the case of the Euro, because there is no treaty which permits such a maneuver. What rate do you leave at? Who gets debt? These questions WERE NEVER THOUGHT ABOUT, let alone AGREED UPON! You can bet that if the Euro does break up, it will be the mother of all divorces.

    Your statement "governments fuck up more often than economies do" is meaningless, because there is no way to disentangle governments from economies!
  • MikePhilPerez

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    Mar 26, 2011 8:26 PM GMT
    True_Blue_Aussie saidI hope Great Britten can get away from it, it's dragging them down.


    And they don't have the Euro.
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    Mar 26, 2011 8:32 PM GMT
    All UE is suffering with this crises... Who was the promoter? hummm...
    Hope FR stop this stupid Libya war too.. USA wanted it, NOT US! Stupid Sarkozy!!!
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    Mar 26, 2011 8:39 PM GMT
    It feels such a relief to be able to say this now. All the way through college and beyond, I kept it to myself. I was worried what people might think, had this overwhelming sense of shame and did not want to upset my family, who I was convinced would think I was ruining my life. But now, in a supportive environment like this, it feels great to say I am interested in……..economics.

    Economics is sexy!
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    Mar 26, 2011 8:45 PM GMT
    I would worry more about the US and UK collapsing before anything else. There are issues with the Euro and PIGS but there are bigger issues with United States and UK which are in wayyyy too much debt and having the most corrupted banking systems in the world....there's only so many dollars the US can print to keep bailing out its own sick economy... bailing out a few European economies is still far cheaper than bailing out the US... the titanic has started to sink unfortunately... and there was a time when everyone else would have also sank with it but not anymore... if the US goes down now it will go down alone. America needs to cut down on spending and be more conservative as well as stop interfering in every other country on this planet. UK needs to detach from the US completely and concentrate more on strengthening the EU as well as building closer ties with Asia-Pacific...

    In my opinion USA is the most corrupt country in the world with the most unstable financial system built completely on leverage and rather over-leveraging.... it is a very shaky system which can collapse anytime like a domino effect in fact it has already begun. Most average Americans don't realize the trouble USA is in right now - and how the US is losing its influence over the world. Europe will eventually survive - it is a strong and stable part of the world... with still a lot of manufacturing and new markets to sell especially in Asia...but unless the US government gets their act together, USA will be in deep deep trouble.
  • conservativej...

    Posts: 2465

    Mar 26, 2011 8:48 PM GMT
    Rundown saidA federal government with tax raising powers can redistribute between areas of its 'currency union'. As is being discovered, it is difficult for the EU to make those transfers. That is not to defend or otherwise economic policy of the US, just to point out that a political union allows a monetary union to occur.

    The 'reckless' borrowing was also mirrored by 'reckless' lending (i.e. certain parties saving too much), which creates a second strain pulling in the opposite direction and increasing the stress on the monetary union.

    As you say, if there is any 'falling apart' it will be individual states leaving, I just wonder if it will be the savers who choose to up and go, or the borrowers who get kicked out.


    I do not see the EU's lack of ability to "redistribute" as a negative. In fact, while Germany, Austria, and Switzerland are floating much of Europe, they are doing this willingly, so far. There will come a time when, as you stated, the question will be whether the fallout is from the top or bottom.
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    Mar 26, 2011 8:53 PM GMT
    Andreas73 said
    Caslon18000 said
    Andreas73 saidI would SO much prefer the return to the DM... Germany is constantly bailing out other nations like Greece and Portugal, and We The People are having to pay for it. Our roads are deteriorating at an alarming rate, while our government doles out money right and left, ever increasing our taxes.

    So, if the €uro goes under, I would not shed a tear. The UK did the right thing in not joining.

    It's called the €wwwro for a reason... icon_wink.gif

    Oh, puleeeze!

    The US has been footing the bill as the de facto world govt since WWII.


    This litte chart paints a different picture...

    http://www.cgdev.org/section/initiatives/_active/cdi/


    I don't think you really read this chart correctly... theres an adjustment for size of the country.. so the US actually contributes multiple times more than any other country... just an fyi.
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    Mar 26, 2011 8:54 PM GMT
    It wasn't meant as a positive or negative judgment, just an observation.

    Switzerland is not in the euro or even the EU, and Austria has plenty of banking troubles of its own, just not large enough (yet) to cause anything more than domestic headaches. Politically, it is very easy for German politicians to make hay out of the 'why should a 66 year old in Hamburg work to pay the pension of a 54 year old in Athens'. Germany went through their share of economic pain already and giving away a lot of hard work is not popular. That said, encouraging domestic consumption there would do no harm in rebalancing the eurozone a tad.
  • conservativej...

    Posts: 2465

    Mar 26, 2011 8:57 PM GMT
    Rundown saidIt wasn't meant as a positive or negative judgment, just an observation.

    Switzerland is not in the euro or even the EU, and Austria has plenty of banking troubles of its own, just not large enough (yet) to cause anything more than domestic headaches. Politically, it is very easy for German politicians to make hay out of the 'why should a 66 year old in Hamburg work to pay the pension of a 54 year old in Athens'. Germany went through their share of economic pain already and giving away a lot of hard work is not popular. That said, encouraging domestic consumption there would do no harm in rebalancing the eurozone a tad.


    No, Switzerland is not the 'Euro', but purchases lots of debt. :-)
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    Mar 26, 2011 8:59 PM GMT
    Iafter reading each and every 1's 'contribution' i must give Tiger Tims my kudos for the most informed and academically underpinned evaluation. Multifaceted and multilayered complex structures like the EU and it's currency can't & should not be judged on A emotional or nationalistic basis as some have done.