Readers may recall that Ron Paul once surprised everyone with a seemingly very elegant proposal to bring the debt ceiling wrangle to a close. If you're all so worried about the federal deficit and the debt ceiling, so Paul asked, then why doesn't the treasury simply cancel the treasury bonds held by the Fed? After all, the Fed is a government organization as well, so it could well be argued that the government literally owes the money to itself. He even introduced a bill which if adopted, would have led to the cancellation of $1.6 trillion in federal debt held by the Fed.
Friday, October 19, 2012
Monday, October 15, 2012
A few weeks ago we noted Bundesbank president and ECB governing council member Jens Weidmann's analogy between the Faustian bargain offered by a money-printing Mephistopheles in Goethe's classic prose and today's ubiquitous oh-so-tempting short-term solution to everyone's pain. His full speech (below), while a little dramatic, should indeed strike fear into many with its clarity. The financial power of a central bank is unlimited in principle; it does not have to acquire beforehand the money it lends or uses for payments. Many believe Goethe was portraying the modern economy with its creation of paper money as a continuation of alchemy by other means. While traditional alchemists attempted to turn lead into gold, in the modern economy, paper was made into money. Indeed, the fact that central banks can create money out of thin air, so to speak, is something that many observers are likely to find surprising and strange, perhaps mystical and dreamlike, too – or even nightmarish. Of course, Weidmann concludes, it is important that central bankers, who are in charge of a public good – in this case, stable money – bolster public confidence by explaining their policies.
Monday, September 24, 2012
German Chancellor Angela Merkel maybe be trying her utmost to keep Greece in the euro, but a high school teacher from Bavaria may have found a better solution and is pitching the idea to Greek politicians.
Economics teacher, Christian Gelleri, started a local currency in 2003 with his students in the small town of Prien am Chiemsee, around 50 miles south of Munich. The currency has performed so well that on Wednesday he was invited to travel to the Greek region of Macedonia to show local politicians how it could keep them from leaving the euro.
"We see complementary local currencies as an answer to balance differences between regions within a currency zone," he told CNBC.com. "We have very big differences in the euro zone when you compare a region like Munich with Thessaloniki [in Greece]."
His idea doesn't stop at Greece and he believes it could prevent the euro zone break up in the long run.
The idea is called "express money" that would be issued by governments. It would have fast circulation with a 2 percent levy for hoarding notes with a 10 percent charge for conversion into euros. A supporting document co-written by Gelleri reminds readers that doubling monetary velocity, doubles gross national product.
He recommends a complementary currency on a national level in Greece and even if they did break from the euro, he believes that local currencies could be used alongside the drachma to strengthen poorer areas.
And Gelleri has plenty of experience, the currency he created - the Chiemgauer - will celebrate its 10-year jubilee next year.
"With a turnover of 6 million euros last year and a growth rate of 20 percent we see a continuous and very positive development," he said.
The amount of local currencies across Europe has now reached 104, all of which are listed on complementarycurrency.org. This week Bristol, a city in southwest England, launched the latest of these - the Bristol Pound.
The project is backed by the Bristol Pound Community Interest Company who initially set the exchange rate which is simply one-to-one with the pound sterling.
A secure printing firm creates the notes, seven main outlets then issues them and 350 independently owned businesses in the region will be accepting them in the coming weeks. They hope 1000 businesses will sign up to the scheme by the end of the first year.
A business consultant who lives in the area, Ross Parker, isn't so keen on the idea saying it won't change people's spending habits or the amount of money they have.
"The Bristol Pound is linked to the U.K. pound, and neither the Bristol Pound, nor other local currencies would survive without such a link," he told CNBC.com. "There is no reason why people would trust their local council to stand behind any currency if they can't trust their central bank."
Dr Gill Seyfang, an academic from the University of East Anglia in the U.K., who lectures on sustainable consumption, has a more positive outlook for the Bristol Pound.
She sees it as being more professionally-organized, more useful and better marketed than previous attempts. There's a clear reason why these local currencies are appearing according to Seyfang.
"As people find that more of their needs are simply not met by national (and international) currencies, then naturally people look to new, innovative financial solutions," she told CNBC.com.
"These initiatives always spring up in times of economic recession," she said, citing the "stamp scrip" that begun in the American state of Iowa during the 1930s Great Depression.
Thursday, September 20, 2012
Moments ago, the Fed released its latest Z.1, aka the Flow of Funds, which is the primary source of information of that one component of modern finance which all modern economists continue resolutely to ignore because it blows all their anachronistic theories on monetary theory out of the water: shadow banking data. But more on that later. for now, here is the graphic summary of that most important of conventional data points updated every quarter: the US household balance sheet, and specifically the net worth of the US consumer, which in Q2 declined from a 4 year high of $63 trillion to $62.7 trillion, on a $900 billion drop in financial assets, offset by a $400 billion hike in real estate assets. Most importantly, and the reason why to the CTRL-P operator the only thing that matters is the stock market, of a total of $76.1 trillion in assets, only $24.2 trillion are tangible: i.e., real estate and durable goods. The remainder, $51.9 trillion or 68.2% of total, is Financial assets. It is this number that is the sole target of Bernanke's "monetary policy" and which must be inflated at any and all cost.
Thursday, September 13, 2012
Steve Keen: This is probably the most detailed seminar I have given on my views on monetary macroeconomics. I begin with the data that, back in December 2005, led me to expect that a huge economic crisis was imminent: the ratio of private debt to GDP. Then I explain why this ratio matters, in contrast to the arguments that Neoclassical economists put that only the distribution of debt matters. This takes me through the empirical data, the theories of Schumpeter and Minsky, and the mathematics needed to prove that “aggregate demand equals income plus the change in debt” is correct, and that this does not involve double-counting.
QUESTION: My question is -- I want to go back to the transmission mechanism, because speaking to people on the sidelines of the Jackson Hole conference, that seemed to be the concern about the remarks that you made, is that they could clearly see the effect on rates and they could see the effect on the stock market, but they couldn't see how that had helped the economy.
So I think there's a fear that over time this has been a policy that's helping Wall Street, but not doing that much for Main Street. So could you describe in some detail, how does it really different -- differ from trickle-down economics, where you just pump money into the banks and hope that they lend?
BERNANKE: Well, we are -- this is a Main Street policy, because what we're about here is trying to get jobs going. We're trying to create more employment. We're trying to meet our maximum employment mandate, so that's the objective. Our tools involve -- I mean, the tools we have involve affecting financial asset prices, and that's -- those are the tools of monetary policy.
There are a number of different channels -- mortgage rates, I mentioned other interest rates, corporate bond rates, but also the prices of various assets, like, for example, the prices of homes. To the extent that home prices begin to rise, consumers will feel wealthier, they'll feel more -- more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they'll, you know, make a better return on that purchase. So house prices is one vehicle.
Stock prices -- many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend.
One of the main concerns that firms have is there's not enough demand. There are not enough people coming and demanding their products. And if people feel that their financial situation is better because their 401(k) looks better or for whatever reason -- their house is worth more -- they're more willing to go out and spend, and that's going to provide the demand that firms need in order to be willing to hire and to invest.
Tuesday, September 11, 2012
Just in case there wasn't enough excitement and fury directed at Swiss bank account holders, which continue to dominate the presidential election "debate" above such mundane topics as the economy, or, say, reality, here comes the IRS, which as we noted yesterday collected $192 billion less than the government spent in the month of August alone, and have awarded Bradely Birkenfeld, a former UBS employee who in 2008 pleaded guilty to conspiracy to defraud the United States and was sentenced in 2009 to 40 months in prison, but received preferential whistleblower status after a prior arrangement to expose numerous Americans with Swiss bank accounts, has just been awarded $104 million.
The chart shows 2050 years of relative global GDP, during which there was a surprisingly flat distribution of the major economic powers: China, India, and the "West", at least until the mid-1800s, when the "Western" Golden Age began primarily courtesy of the industrial revolution, followed by the arrival of the Fed and virtually endless leverage (i.e., borrowing from the future until such time as no more debt capacity remains at either the public or private sectors), only to end in the late 1900s when the marginal balance of power shifted back to Asia, which became the next nexus of debt accumulation (see our earlier post on The Great Recoupling for some additional perspectives).
And while the chart, from Deutsche Bank and PWC, attempts to predict the next 40 years of relative GDP distribution by eventually regressing back to the the long-term trendline, we feel that this is quite an optimistic assumption for a world in which virtually every "developed" country is insolvent, begs for China to ease whenever western inflation sends gas prices soaring making reelection of the incumbent impossible, and is reliant on the indefinite continuation of the USD's reserve status to preserve the last traces of western superiority (not to mention cheap funding of $-trillion deficits as far as the eye can see).
Tuesday, September 4, 2012
Friday, August 31, 2012
It will come as no surprise to many but everyone's favorite enemy #1, the US banker, decided to give himself a well-earned pay-rise in 2011 - according to data from Moody's Analytics (via Crain's). What is perhaps a little more surprising is the sheer gall of it given that the financial industry profits plunged over 70% from $27.6bn in 2010 to a mere $7.7bn in 2011. While the rise in salaries is not large, and the average man on the street actually saw a bigger rise, the critical point is that for two years in a row - from 2009 to 2010, and now from 2010 to 2011 - banking industry profits have dropped like a stone but the average salary of those oh-so-deserving 'Wall-Street'ers has risen.
Tuesday, August 28, 2012
A rush by consumers and firms to pull their money out of Spanish banks intensified in July, with private sector deposits falling almost 5 percent as Spain was sucked into the centre of the euro zone debt crisis.
Private-sector deposits at Spanish banks fell to 1.509 trillion euros at end-July from 1.583 trillion in the previous month.
However, in a more positive sign, Greek banks stopped bleeding deposits in July after June elections decreased the worst fears of the country dropping out of the common currency bloc, European Central Bank data showed on Tuesday.
Speculation about Greece possibly quitting the euro was intense in May when anti-bailout parties saw a strong showing in elections, but the Greek central bank said the process had reversed after the elections.
Sunday, August 26, 2012
Bail me out once, shame on you; bail me twice, shame on me; shame on me; come back for a third (and final, we promise!) bailout, only a Franco-Belgian SNAFU is capable of such Einstein-ian repetition. Dexia, that stress-test-passing bastion of all things entirely wrong with European banking and politics is back at the trough. Reuters is reporting what we have known all along, that without massive additional capital injections the bad-bank, crap-bank model simply cannot work. To wit: Dexia needs to recap its Luxembourg unit (BIL) before its apparently 'imminent' sale to a Qatari sovereign wealth fund (one more billionaire sucker family born every day it seems). The somewhat comical aspect is that the post-October (the second - and final, we promise - bailout), BIL's 'legacy' bond portfolio was 'transferred' to its parent Dexia at December 2011 prices - creating a net loss of EUR1.9bn for the subsidiary. This significantly affected the sub's solvency - making it unlikely to meet its capital requirements (which it was 'sure' would be 9% Tier 1 by now!). But given Dexia's own extensive losses - EUR11.6bn in 2011 and EUR1.2bn in the first six months of 2012 - a capital increase for Dexia BIL may force Dexia to seek funds itself. That would mean mo' money, mo' bailout from the states currently guaranteeing its borrowings - principally Belgium and France, and to a lesser extent Luxembourg - which now look set to rise to EUR90bn in aggregate!
Thursday, August 23, 2012
Back in my Bernstein days, I never really took a large amount of presentation materials to most of my meetings. However, there was one chart that I always printed out and brought with me and I called it “The Most Important Chart in the World.” It still is. The chart I am referring to is the ratio of the Dow Jones Industrial Average: The Gold Price. In a nutshell, charting this ratio demonstrates the “real” return on stocks adjusted for inflation or currency debasement. As we all know, the Zimbabwe stock market essentially went up to infinity during their hyperinflation but did anyone get rich from that? Of course not, the shares were denominated in a currency that was on its way to worthlessness. At the moment, with many U.S. stock indices hitting new post-2008 highs there seems to be a general view that stocks as an asset class will do well in an inflationary environment. As a result, whenever there is actually QE or even the mention of the potential resumption of Fed balance sheet expansion there is a rally in equity prices. In fact, I think the entire investor class in the U.S. has been lulled into a sense of sleep and complacency at the moment. There are two things I want to point out to people when they are considering whether to increase exposure to equities broadly or not.
Professor Richard Werner, of the University of Southampton, says he has found a way to resolve Europe’s financial crisis, and Germany had it all along.
Wednesday, August 22, 2012
Bank of England officials were so concerned about the potential for a financial crisis late last year they took the extraordinary step of warning the entire banking system could collapse “before Christmas”.
Tuesday, August 21, 2012
Monday, August 20, 2012
For approximately three years, our governments, the banking cabal, and the Corporate Media have assured us that they knew the appropriate approach for fixing the economies that they had previously crippled with their own mismanagement. We were told that the key was to stomp on the Little People with "austerity" in order to continue making full interest payments to the Bond Parasites -- at any/all costs.
"Greece set a precedent for 'Here's what you're going to get, take it or leave it'" is how the WSJ summarizes an analyst's 'shocked' thoughts on the growing game of 'call my bluff' being played among beggars being choosers. Belize is surprise surprise running out of money to pay its debts and is insisting that creditors forgive 45% of what they are owed - OR allow it to delay any debt payments for 15 years (yes, seriously, read that again) - leaving a default on the country's $543.8mm almost inevitable. Three things stand out to us: 1) the nation's government shunned bondholders by simply posting a note on its website that it would be 'skipping a payment' as opposed to telling creditors directly; 2) none other than 'Long GGBs are the slam-dunk trade-of-the-year' Greylock Capital are "mystified" that yet another trade has gone pear-shaped adding that they are "sure every country could benefit from not paying their debt but this isn't the way to do it!"; and 3) this would be one of the worst restructuring terms ever as the "Greek effect" could inspire other countries to pursue restructurings on more favorable terms - especially given that: "Even if you don't need a restructuring you can force one upon bondholders because it's so hard to recover money from a sovereign who won't pay,"
Sunday, August 19, 2012
The modern “debt jubilee” is characterised as “quantitative easing for the public”. It has been boiled down to a procedure where the central bank does not create new money by buying the sovereign debt of the government. Instead, it takes an arbitrary number, writes a check for that number, and deposits it in the bank account of every individual in the nation. Debtors must use the newly-created money to pay down or pay off debt. Those who are not in debt can use it as a free windfall to spend or “invest” as they see fit. This, it is said, is the only way left to restart economic “growth” and finally get the spectre of unending financial crisis out of the headlines. It is the latest of a long string of “print to cover” remedies.
Thursday, August 16, 2012
Over the past several years, there has been much speculation and numerous reports that America is deleveraging. It isn't. In fact, consolidated across the 5 different kinds of American debt, which takes into account not only federal, but also financial, municipal, household and non-financial, total debt as a percentage of GDP has not budged over the past 4 years and is flat at 350% of GDP. Which simply means that all of the household debt that has supposedly vaporized (at least until the next major Flow of Funds revision), all of which has taken place purely from discharges on uncollectable mortgage and credit card debt, has been replaced by federal debt, while financial debt has merely soared to take the place of the collapsing shadow debt which is imploding as the confidence in a Fed-free financial system erodes to zero. Which of course, is the worst possible outcome: instead of funding private, individual entrepreneurs, who are the true basis for America's historic growth, prosperity and success (and who, unlike the government can and will fail if they dont allocated capital efficiently) the transferred debt (from household to federal) merely goes to fund the unproductive components of the US economy: the US government which by definition produces nothing, and the financial sector, whose only product is financial innovation which serves to make the TBTFs TBTFer, and pay record bonus after record bonus, and... that's it.
The Bristol pound - usable only with member businesses in the city in southwest England - is to launch in September, and organisers are deluged with local firms wanting to sign up.
"The perception of banking and money is that it's a very ruthless system: people are out for what they can get," co-founder Ciaran Mundy told AFP.
"This is about saying yes to something new. It's tapping into a different set of values about money."
The scheme has "captured people's imaginations", he added, in a recession-hit year when British banks have been beset by scandals and ministers talked openly of a possible euro collapse.
LONDON -- A painful economic recession, rising unemployment and biting austerity measures may have already driven more than 1,000 people in Britain to commit suicide, according to a study published on Wednesday.
The answer is simple: fiat paper money that is not grounded in any objective standard can be manipulated at the whim of the issuer. Without the requirement to exchange fiat money for gold or some other commodity, the central bank can issue unlimited amounts, thus making its value subject to extreme volatility and, as we have seen, perpetual debasement.
Yes, we all know that Europe is in deep, deep, trouble, and we all know that Europe has a major fiscal deficit issue which is why well over half of the Eurozone is effectively locked out of the capital markets, and only has funding courtesy of various back door Ponzi schemes funded by the ECB, and we also all know that on a consolidated basis Europe's debt/GDP is very high. But the truth is that at least Europe is taking small steps to rectify its historic profligacy and is at least pretending to be implementing austerity (in some cases actually truly doing so). How about the US. Well, the chart below should answer that particular question. Because while the consolidated GDP of the US and Europe are nearly identical, they differ very materially in terms of both fiscal deficit, and total Debt/GDP. The chart below shows precisely where the differences lie between the United States of Europe and the United States of America.
Tuesday, August 14, 2012
Yesterday, I strongly insinuated that easy monetary policy enriches the financial sector at the expense of the wider society. I realise that I need to illustrate this more fully than just to say that when the central bank engages in monetary policy, the financial sector gets the new money first and so receives an ex nihilo transfer of purchasing power (the Cantillon Effect).
The first inkling I had that this could be the case was looking at the effects of quantitative easing (monetary base expansion) on equities (S&P500 Index), corporate profits and employment.
The first inkling I had that this could be the case was looking at the effects of quantitative easing (monetary base expansion) on equities (S&P500 Index), corporate profits and employment.
Can anyone seriously claim the European Union, the European Central Bank and its alphabet-soup programs still retain a shred of credibility? Every EU/ECB "save" is fictitious, every "fix" expedient, every promise empty, every face-saving summit a living lie. Ultimately, all the posturing, promises and saves come down to an impossibility: "rescuing" phantom assets purchased with astounding levels of debt by issuing even more astounding levels of debt. Does anyone truly believe this absurdity is anything more than a transparent fraud designed to extend the life of a failed, corrupt system constructed on fantasies and lies? Those with assets are fleeing for less fantastic and dangerous climes. The handful of French millionaires who are supposed to magically bail out a failed-state that absorbs 55% of GDP are busy transferring their assets out of France, a mass exodus of capital that is also playing out in China, where those who embraced the slogan "to get rich is glorious" are transferring their wealth, ill-gotten or well-earned, overseas. So vast is this outflow of wealth that for the first time the outflow of capital from China exceeds the inflow of investment capital. The smart money is exiting, and the last batch of credulous "China story" rubes are dumping their capital down a rathole.
Monday, August 13, 2012
Just as we were complaining about lack of newsflow, here comes Germany, coincidentally just as Merkel comes back from vacation, with an update from Karlsruhe that the Constitutional court, which may reject the ESM as is in its September 12th decision, will likely be delayed even more following the filing of a brand new lawsuit challenging the constitutionality of the ESM.
Sunday, August 12, 2012
The financial crisis that started in 2008 has condemned 100 million more people to destitution globally, he said, quoting World Bank statistics.
Jamie Dimon Just Admitted To The World That JPM's Assets Are Overvalued By $150 Billion
It's easy to see on the PDF:
Go to page 9. Under the wipeout scenario JPM describes a $50 billion trading loss turning into a $200 billion loss as soon as the FDIC takes over. Why... ? Because JPM says they would expect the FDIC to immediately writedown JPM's assets by an additional $150 billion.
Holy mark to bullshit. Jamie Dimon just admitted to the world that JPM is mis-marking assets to the tune of $150 billion.
It gets better. Go to page 10. The chart shows that they only have $184 billion in equity, minus the $50 billion loss, minus 'the $150 billion fdic reality adjustment', which leaves them in a negative equity position of (-$16 billion).
So, we can extrapolate that without this phantom loss of $50 billion, JPM's real equity position is just $34 billion currently, not the $184 billion on their books.
While Frau Merkel remains beach-bound somewhere, hence the lack of 'Neins' recently, her deputy chancellor Michael Fuchs made it unequivocally clear this morning in a Handelsblatt interview that Germany had "reached the limit of its capacity" over additional EFSF payments to Greece and reiterated the double-whammy that the ESM should NOT receive a banking license and that the ECB should NOT act as "money printing press in disguise" by extending emergency loans and bypassing EFSF/ESM. A decision about whether Greece should be given the second tranche of its loan will not be made until October, after the Troika finalizes its first review of the second rescue program in September. However, BNP Paribas notes that there have been a couple of developments worth noting over the past week and more are likely in the coming weeks.
A week ago we explained quite clearly why instead of encouraging self-defeating, short-termist behavior by promising to save Europe's insolvent countries if and when needed, which does nothing to resolves Europe's problems and make it worse in exchange for a brief respite from bond selling, the ECB should be doing precisely the opposite: encouraging local governments to understand that there is no magic bazooka from the central banks. Specifically we said that "this Catch 22 of confounding cause and event can continue seemingly indefinitely, although in reality it can't. Because fundamentally what the bond market does is keep sovereigns "honest" - just as Schauble said a week ago, Spanish yields at 7% are not the end of the world - instead what they are is a signal to the country to get its spending in control in order to reduce its deficit, and fundamentally get its house in order - yes, that means getting government spending to a sustainable level and firing hundreds of thousands of workers, as well as probably raising taxes even more. It also means pain all around, but the pain is inevitable and will only be worse the longer reality is denied." This logic is so clear that only a lifelong economist, PhD or Goldman apparatchik can not grasp it: sadly that accounts for most of the people "in charge."
Saturday, August 11, 2012
Cities around the country, from Baltimore to Oakland, are taking legal action against the banks responsible for suppressing the London interbank offered rate, Libor. And some 75% of major cities involved in libor-tied interest-rate swaps stand to reclaim taxpayer losses in addition to libor-backed mortgage holders who lost money on the rate's manipulation.
Friday, August 10, 2012
After I turned in the completed manuscript of my upcoming book, my editors were a little worried about my extreme pessimism over the euro, and suggested that I hedge a little so as not to look foolish if these things didn’t happen, but honestly I am less worried about that possibility than I am worried that by the time my book comes out Spain will have already abandoned the euro.
The Morgue is like Leonardo Dicaprio in the movie “Catch Me If You Can.” The bank has amassed a laundry list of fraudulent activities that have burst onto the radars of numerous governmental agencies and into the public spotlight. Probably, we are looking at a similar outcome as in the movie. Instead of prosecutions, the bank, like Dicaprio’s character in the movie, will probably be merely asked to go to work for the Feds in some capacity to “pay off” their wrongdoings.
Thursday, August 9, 2012
From April 10, via Francesco Garzarelli, two weeks into Q2:
And of course this from June, which just happened to be was a tag-end in June:Our recommendation to be short 5-yr Spanish bonds (Oct-2016) against their Italian counterparts (Sept-2016), initiated on March 14 at a yield differential of -6bp, is now at -24.9bp, against our target of -50bp. We would now close the trade, with a potential period total return of 0.35%. in light of the re-pricing that has already occurred, we advise investor to close this particular trade as markets tensions originated on concerns over Spain are now also affecting Italian rates and we do not see much more room for Italian rates to further outperform Spanish ones.
In other words, Goldman advised clients to be buying Italian bonds exiting Q1 and heading into Q2, as well as exiting Q2 and heading into Q3.We recommend being long an equally-weighted basket of benchmark 5-year Spanish, Irish and Italian government bonds, currently yielding 5.9% on average, for a target of 4.5% and tight stop loss on a close at 6.5%.
There was a time, not too long ago (relatively speaking), that governments and the groups of elites that controlled them did not find it necessary to conscript themselves into wars of disinformation.
Propaganda was relatively straightforward. The lies were much simpler. The control of information flow was easily directed. Rules were enforced with the threat of property confiscation and execution for anyone who strayed from the rigid socio-political structure. Those who had theological, metaphysical or scientific information outside of the conventional and scripted collective world view were tortured and slaughtered. The elites kept the information to themselves, and removed its remnants from mainstream recognition, sometimes for centuries before it was rediscovered.
How about something even more radical, I asked him at today’s press conference? Why not, for instance, simply cancel the gilts the Bank of England has bought, thereby substantially reducing the national debt and creating the fiscal space for tax cuts? Or, rather than spending the money on further bond purchases, perhaps he should simply distribute it to consumers to spend – Milton Friedman’s famous suggestion of a helicopter drop?
No entity is willing to stand up and say the obvious, that Greece is insolvent and cannot and will not pay back its debts. Moreover, in spite of an ECB mandate that prohibits direct financing of governments, the ECB is doing just that. Simply put, the ECB is printing euros, to give to the Greece, so that Greece can make interest payments to the ECB on maturing bonds. Der Spiegel notes the absurdity of this setup in The European Central Bank's Discreet Help for Greece.
Through an almost astrological coincidence of timing, the European Central Bank, the Bank of England and the U.S. Federal Reserve Board all held their policy meetings this week immediately after Wednesday’s publication of the weakest manufacturing numbers for Europe and America since the summer of 2009. With the euro-zone and Britain clearly back in deep recession and the U.S. apparently on the brink, the central bankers all decided to do nothing, at least for the moment. They all restated their unbreakable resolution to do “whatever it takes” – to prevent a breakup of the euro, in the case of the ECB, or, for the Fed and the BoE, to achieve the more limited goal of economic recovery. But what exactly is there left for the central bankers to do?
Wednesday, August 8, 2012
General Act of the Berlin Conference launched the Scramble for Africa which saw the partition of the continent, formerly a loose aggregation of various tribes, into the countries that currently make up the southern continent, by the dominant superpowers (all of them European) of the day. Subsequently Africa was pillaged, plundered, and in most places, left for dead. The fact that a credit system reliant on petrodollars never managed to take hold only precipitated the "developed world" disappointment with Africa, no matter what various enlightened, humanitarian singer/writer/poet/visionaries claim otherwise. And so the continent languished. Until what we have dubbed as the "Beijing Conference" quietly took place, and to which only Goldman Sachs, which too has been quietly but very aggressively expanding in Africa, was invited. As the map below from Stratfor shows, ever since 2010, when China pledged over $100 billion to develop commercial projects in Africa, the continent has now become de facto Chinese territory. Because where the infrastructure spending has taken place, next follow strategic sovereign investments, and other modernization pathways, until gradually Africa is nothing but an annexed territory for Beijing, full to the brim with critical raw materials, resources and supplies.
While the surging unemployment rates across Europe are the most troublesome for politicians (and the extreme youth unemployment even more so), if we take a closer and more 'local' view of the stress, it is interestingly more regional than national. While Spain and Greece stand out, the unemployment rate, as analyzed in the chart below by Flute Thoughts blog, does not follow national borders. Northern Italy, for example, seems to have more in common with the German-speaking regions of Europe than with Southern Italy; France appears more peripheral than core; and the former eastern Germany still has not caught up with the west (so much for fiscal integration). Eastern Europe also has some striking differences as we suspect the ovals are slowly collapsing in on themselves as the reality of lower revenues from more unemployed procyclically pulls the euro-zone into depression.
Tuesday, August 7, 2012
Recent research by Robert Shiller indicates sounding the all-clear for a housing recovery is premature since the home-price rebound, if that's what it is, doesn't yet have momentum - which is the most powerful driver of home prices. As he notes in today's WSJ, momentum is a modestly weak force in the stock market but the most important driver of the 'feedback loop' in home-price increases (followed by unemployment). "It could be a bottom, I just don't know", he adds pointing to the large overhang of homes that are either in foreclosure of near it - which would push prices down further if they were ever released to the market (wanting to see momentum carry into the Spring to be convinced). Critically, he sees bubbles once again forming in some areas, commenting that investors have been "primed to think speculatively" adding that "There was a change in our mindset. Now we start thinking about the housing market as like the stock market." Our question is, if the increasingly speculative housing market is part of the CPI basket, why then is the stock market not also part of what is now an inflationary basket chock full of QE-sensitive assets.
According to the latest Centro de Investigaciones Sociológicas (CIS) poll, Spanish Prime Minister Mariano Rajoy’s popularity has sunk to the point where 77.9% of the country’s electorate has little or no confidence in him. The survey still shows Rajoy’s conservative Popular Party (PP) ahead of the Socialist Party, however, by 6.7 per cent – eight percentage points down from the PP’s historic election win eight months ago. Ironically, during his entire his political campaign, and during his time as leader of the opposition, Rajoy’s fundamental message was that the country needed “a shot of confidence” to overcome its economic woes. Rajoy’s promises to implement swift and credible policies that would restore confidence in Spain were pivotal to his landslide electoral victory last November. However, the complete U-turn his Administration begun only days after taking office has left many feeling betrayed. Broken promises aside, his distant and elusive manners have only added to the detriment of his public image.
Friday, August 3, 2012
Happy by the headline establishment survey print of 133,245 which says that the US "added" 163,000 jobs in July from 133,082 last month? Consider this: the number was based on a non seasonally adjusted July number of 132,868. This was a 1.248 million drop from the June print. So how did the smoothing work out to make a real plunge into an "adjusted" rise? Simple: the BLS "added" 377K jobs for seasonal purposes. This was the largest seasonal addition in the past decade for a July NFP print in the past decade, possibly ever, as the first chart below shows. But wait, there's more: the Birth Death adjustment, which adds to the NSA Print to get to the final number, was +52k. How does this compare to July 2011? It is about 1000% higher: the last B/D adjustment was a tiny +5K! In other words, of the 163,000 jobs "added", 429,000 was based on purely statistical fudging. Doesn't matter - the flashing red headline is good enough for the algos.
Tuesday, July 31, 2012
depression recession that clearly CEOs do not believe wil be short-lived, is seeing "Companies generally are under serious pressure to keep their labor forces as tight as possible to contain their costs in the face of the current limited demand, strong competition and worrying and uncertain growth outlook,” and as Reuters points out from IHS's Howard Archer, "there looks to be a very real danger that the euro-zone unemployment rate could reach 12 percent in 2013."
Saturday, July 28, 2012
The first estimate of the 2nd Quarter GDP was released at a 1.5% annualized growth rate which was just a smidgen better than the 1.4% general consensus. There has been a rising chorus of calls as of late that the economy is already in a recession. For all intents and purposes that may well be the case but the GDP numbers do not currently reveal that. What we are fairly confident of is that with the weakness that we have seen in the recent swath of economic reports is that the 2nd quarter GDP will likely be weaker than reported in the first estimate. It is this environment, combined with the continued Euro Zone crisis and weaker stock markets, as the recent rumor induced bump fades, that will give the Federal Reserve the latitude to launch a third round of bond buying later this year. While the impact of such a program is likely to be muted - it will likely push off an outright recession into next year.
Wednesday, July 25, 2012
The guy who openly admitted he was getting notification from the BOE to manipulate Libor, and was advising his traders appropriately, Barclays' COO Jerry del Missier, and who quit the same day as his boss Bob Diamond, has finally had his pay package revealed. The payoff to get him out and shut him up? £8,750,000.
QE is nothing but crack to a ridiculously addicted market. With 70% of the US economy in a balance sheet recession, the Fed knows this (which he notes is now run by WSJ's Jon Hilsenrath since what he prints must be adhered to by Ben for fear of market disappointment) and is "dangling QE in front of the markets like raw meat - but it has not worked and it will not work!" But critically, he believes, the euphoric response of markets will be tempered since they have become "used to the fact that all of this unconventional monetary easing by the central bank is just not what it is supposed to be."
- Flash Germany Composite Output Index(1) at 47.3 (48.1 in June), 37-month low.
- Flash Germany Services Activity Index(2) at 49.7 (49.9 in June), 10-month low.
- Flash Germany Manufacturing PMI(3) at 43.3 (45.0 in June), 37-month low.
- Flash Germany Manufacturing Output Index(4) at 42.8 (44.8 in June), 37-month low.
Britain's longest double-dip recession for more than 50 years will be confirmed in official figures out on Wednesday. Gross domestic product (GDP) – a broad measure for the total economy – is forecast to have shrunk by around 0.2% between April and June in its third straight quarter of contraction. That would mark the longest double-dip recession since quarterly records began in 1955 and is believed to be the worst since the second world war.
Anyone who follows shadow stats will know this has been going on much longer. Not a huge fan of GDP obsession, but it shows that old stream media are slowly catching up to what the web has known for about 5 years...
Tuesday, July 24, 2012
However, the key issue for Scotland is whether or not they will be confident enough to launch their own currency. Currently there is much talk about Scotland either continuing to use the British sterling or even perhaps moving into the Eurozone. Both these aspirations are desperately misguided and both will lead Scotland into the exact situation that Greece, Spain, Portugal, Italy and Ireland face today. Because the Scottish currency will, in both these scenarios, be issued by a foreign central bank they will not have discretion over their own fiscal policy. Thus, without issuing their own currency — which, of course, will have drawbacks of its own (the Scotch pound would probably devalue vis-a-vis the British sterling upon issuance) — we can be fairly sure that Scotland’s dream of independence would soon become a nightmare.
Kashkari's intelligence, he rhetorically asks "Do you really think [the Fed] is the solution?" - and rightly so. "It's all band-aids," he exclaims, adding that "the problem is insolvency." Speaking out loud what many are thinking, Rick blasts the hypocrisy of the Kashkaris of the world who opine on solutions (and band-aids) while missing the critical underlying problem - that no one is accountable. Between Reagan, 'unreal' spending cuts, compromised 'bad' resolutions, and the continuing ostrich economics in the US mainstream, Santelli tells it like it is - as hard as it is for the CNBC anchors to hear.
[Watch the video below...]
Spain is not Uganda: this morning Spain is increasingly looking like the 10th circle of bondholder vigilante hell with its 10 Year trading at 7.59% after hitting a record 7.607% moment prior. The short end has blown out even wider and the 2 Year very appropriately at 6.66% and rising. Italy has also joined the party blowing out to just why of 6.5% and Italy's banks about to be halted across the board despite the short-selling ban. Next up: selling anything forbidden. Finally, the scramble for safety into Swiss 2 year notes accelerates as these touch a mindboggling -0.44%
The Associated Press surveyed more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, and found a broad consensus: The official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest level since 1965.