Eastern Europe's role in the coming Crash.

E. Europe C. Banks Step in Verbally to Prop up Forex

Central banks in Central and Eastern Europe (CEE) launched a coordinated verbal intervention Monday to try to stop the steep depreciation of currencies in the region, which has hurt the emerging economies and put the brakes on years of fast growth.

Poland's central bank said it may fight off the impact of the zloty depreciation, and said cooperation and exchanges of information between national banks in the region have intensified.

Rising global risk-aversion has eroded about a third of the zloty's value against the euro, prompting some analysts and central bankers to say high volatility could be a threat to the government's plan to join the pre-euro Exchange Rate Mechanism (ERM-2) this year.

"In the central bank's view, the macroeconomic situation of Poland does not justify such a scale of zloty weakening. The central bank can undertake action in order to avoid the negative impact of zloty volatility on the economy," central bank Governor Slawomir Skrzypek said in a statement.

Romania's central bank, which last year in October thwarted a speculative attack on the leu and which jealously guards the currency against what it sees as excessive depreciation, said it stood ready to fight speculators.

"The excessive depreciation of some local currencies is not justified by economic fundamentals and can create destabilizing effects," central bank governor Mugur Isarescu told a news conference. "The central bank is ready to act against destabilizing exchange rate moves."

This is the case made by many around the world. Easter Europe is directly tied to what is going on here in the US. They have issues with their currency, and are expecting drastic exchange rate changes in the coming weeks and months. The Yen is hurting right now because they've spent on bailout after bailout trying to fill a gap that's far bigger in losses than they can cover. Now their GDP has contracted an astonishing 12.7% as of last report and that is set to get worse. Remember that Japan holds alot of our debt, if they cease to do that, and at some point they will have to, it will just be another nail in a coffin essentially made into Swiss cheese with nail holes. E. Europe is directly tied to all of these things.

As it Falters, Eastern Europe Raises Risks

Since the fall of the Berlin Wall, the countries of Eastern Europe have emerged as critical allies of the United States in the region, embracing American-style capitalism and borrowing heavily from Western European banks to finance their rise. Now the bill is coming due.

The development boom that turned Poland, Hungary and other former Soviet satellites into some of Europe’s hottest markets is on the verge of going bust, raising worrisome new risks for the global financial system that may ricochet back to the United States.

Last week, Wall Street plunged after Moody’s Investors Service warned that Western banks that had recently beat a path to Eastern Europe’s doorstep now faced “hard landings,” spooking investors with new fears that the exposure could spread beyond Europe’s shores.

“There’s a domino effect,” said Kenneth S. Rogoff, a professor at Harvard and former chief economist of the International Monetary Fund. “International credit markets are linked, and so a snowballing credit crisis in Eastern Europe and the Baltic countries could cause New York municipal bonds to fall.”

The danger is on several fronts. The big European economies, including Britain, France, Germany and Spain, are already in recession, and many of their largest banks have curbed lending at home and abroad.

Anyone remember what I said about bonds collapsing around the country? This is why. As the article says, this is snow balling. Bernanke said yesterday that the economy could see a turn around this year, "We could be out of the recession this year" is what he said. Who the hell is he kidding? The market calls all bluffs, and it will call this one.

[edit on 25-2-2009 by projectvxn]