Hi ads
A very Happy Christmas to you, and to all on EOS.
Briefly to answer your question it was very easy to see what was going to happen even as long ago as 2007 when i first started the thread and actually much earlier. All you needed to do was heed the following quote from Von Mises the head of the school of Austrian economics.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
So we know from this that there will be a crisis, but there are two paths. One takes it on the chin and admits fault and abandons further credit expansion to paper over the cracks, the other goes on madly to the bitter end printing more and more money until the currency collapses.
Its clear where we are now with the endless expansion of debt and funny money, and denial of the real poroblems, but where will it end?
If policy makers decide to put a stop to the credit debt expansion, there will be a deflationary depression not just in Europe, but accross the world. This is what the free market is trying to do if only it would be left alone. make no mistake that this would be a painful process involving years of depression, BUT it would solve the problems albeit in a harsh manner and enable a fresh start to be made from a sound basis. Had this correct option been chosen years ago, we would now be seeing light at the end of the tunnel.
History shows that sadly this is not the route that is often taken. So we must prepare ourselves for an inflationary depression that will most probably end in destruction of the currency.
When you over blow a balloon you know for sure it will pop, but its actually virtually impossible to tell where it will first break. The same is true of economics. The weakest links go first, but where are these in real life.
My guess in 2012 is that there will be another recession in Europe ( in reality the last one never ended )and the austerity in the Med countries will get too painful, such that further civil unrest will lead to defaults on soverign debt and exits from the Euro. The obvious candidates are Greece and Portugal to go first, but the rest will be watching to see what happens to them. Italy and Spain need to rollover 500 billion in EXISTING debt in 2012, not including new debt. This debt was financed at around 2% and now the market wants 5 plus. Imagine how that would work out for you and your mortgage!
I can see no other alternative than for the ECB to monetise the debt in 2012 or the whole region will implode as the bond market has had enough. Once the free market is gone it only leaves central banks to print the money, there is no appetite for lending of this money. Even if there was its simply adding more debt to over indebted nations that have a solvency problem, not a liquidity problem!! Solvency problems require restructuring, more debt just makes the problem worse.
Once the ECB goes nuclear on the QE, the Euro will drop like a stone and the stagflation will kick into high gear across Europe. At this point I think Germany may want to pull out of the top. The Med countries need a devaluation of approx 30% in order to get competative again, but this cannot happen from within monetary union. If the Euro was to lose 30% with Germany still in it, the Germans would simply romp home with all the trade and there would be no comparitive advantage that the PIGS desperatly need.
Timing is difficult because you don't know how crazy the policy makers will get to keep this doomed project alive. The one thing we do know is the longer the failure that is EMU is kept alive the more damage it will do and the bigger the final bill.
I note with interest that reality is starting to bite all over the place now with Europe and the economy. Where were they all back in 2007 i wonder?
Anyway what is your opinion ads?