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The economy is in the same or worse trouble than the US and the UK, but it has no central bank to fall back on to bail it out, and it can’t devalue its way out of trouble as the US is trying to do.
So what will it do? And what will happen to the eurozone when
Well, interestingly enough, it seems that
The Europeans just don’t know about it yet…
The secret bail-out of
’s banks Spain
Spanish banks issued a record £39bn of mortgage bonds and other asset-backed securities in the fourth quarter, according to ratings agency Moody’s. Now, as you’ll no doubt recall, the market for these securities seized up back in July and hasn’t really opened up since.
(Incidentally, that’s one of the reasons why mortgage rates in the
So who is buying all these Spanish mortgages? Well, it seems they are being used as collateral for loans from the European Central Bank. The ECB accepts AAA-rated securities as collateral, apparently unaware that the label AAA carries a lot less weight than it used to.
This has helped Spanish banks avoid the fate of Northern Rock. The Rock, you’ll no doubt remember, was brought down when it was unable to sell on its mortgages, which meant it was unable to pay back the money it had borrowed to write them in the first place. It seems that
Of course, no one’s overtly admitting to this. And at the moment, the consequences of all this aren’t entirely clear. But if the ECB is holding a lot of mortgages as collateral against loans to Spanish banks, and the Spanish property market crashes as badly as say, the US, you do have to wonder just how much of that money the ECB is going to get back. How will German taxpayers feel about bailing out the Spanish? I don’t know. But I can’t wait to find out.
How the Fed will keep propping up the gold price
Gold hit another fresh record yesterday, while platinum and silver hit new highs too, a 27-year one in silver’s case. Power shortages in
I’m sure our commodities writer Dominic Frisby will have more to say on gold in Money Morning later this week, but suffice to say, that while
The Federal Reserve meets tonight to discuss interest rates again and it looks like anything less than a half-point cut will disappoint the thin skins on Wall Street. And we all know there’s nothing the Fed cares about more than making sure the boys on the Street are kept happy.
A drastic cut looks even more likely after yesterday’s dreadful housing data. New home sales fell to a 12-year low in December again showing that there will be no bottoming out in this market for a long time to come.
So the Fed has all the excuses it needs to happily keep undermining the dollar and destroying the savings of those few
Under those circumstances, anyone who wants to have a hope of preserving the value of their money has to find somewhere other than cash. And many are turning to gold, in its age-old function as reliable money. You can read more about how to invest in gold in our Investing in gold area.
Turning to the wider markets…
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Housebuilders weigh on FTSE
On the Continent, the Paris CAC-40 ended the day 29 points lower, at 4,848, as SocGen extended falls. In
Gold, silver and platinum reach new historic highs
Crude oil futures were steady at $90.85 this morning. In
Spot gold hit a fresh high of $929.40 today before falling back to $924.10. Platinum also reached a new high of $1,735. Silver, meanwhile, reached its highest level since December 1980 – $16.76 – then slipped back to $16.67.
Turning to the currency markets, sterling was at 1.3455 against the euro and was little-changed against the dollar this morning – at 1.9871 – as investors await the outcome of the Fed’s latest rate-setting meeting. And the dollar was 0.6769 against the euro and 106.69 against the Japanese yen.
Our recommended articles for today…
Why didn’t banks learn from the Barings collapse?
– Not only has the scale and complexity of trading in derivatives grown hugely since rogue trader Nick Leeson brought down Barings in 1995, banks are increasingly reliant on such strategies to ensure ever-soaring profits. Click here to read more from Tom Bulford on how Jerome Kervier was able to make such a huge bet with SocGen’s money – and whether we can still place our trust in the banking sector as a whole here: Why didn’t banks learn from the Barings collapse?
Decoupling: the biggest market myth of all
– The Asian markets have clearly moved on since 1998 and domestic fuelled growth is indeed coming though. But, says Merryn Somerset Webb, that doesn’t mean Asia is immune to a