The Next Crisis – Mark your calendar. The Next Crisis – Mark you calendar The date will be on or about September 30th. The issue will be the need to pass a Continuing Resolution by the House. For more than 850 days the US has gone without a budget. The House passed one not long ago; the Senate tabled it. The Administration has not offered up one either. The absence of an approved budget means that the only way the country can continue to operate is through a series of temporary extensions. The last time we went through a vote on a continuing resolution was just four months ago. The fight back in April was the opening salvo of the war between Democrats and Republicans. It was the debt ceiling catastrophe that drove S&P to cut the US credit rating. To get a new Resolution through the house the Democrats and the WH will have to make concessions.
On AAA’s We lost ours a week ago. A new AAA was created this week. . The CDO is structured with (get this) six tranches. The most senior tranche came to $350mm. I’m scratching my head.
In Deutschland wird das Wesen der Eurokrise nicht verstanden « Never Mind t. So einfach, wie es sich die Deutschen machen, ist es nicht: Angela Merkel während ihres Spanien-Besuchs, 6. September 2012. (Foto: Keystone) Beginnen wir mit einem hübschen Chart. Das hier könnte der Aktienkurs von Apple sein: Ist es aber nicht. Die Grafik zeigt die Anzahl deklarierter Konkurse in der spanischen Unternehmenswelt (Quelle: J. Falls die hohe Zahl der Konkurse im Immobiliensektor jemanden überraschen sollte: Es werden noch viele Hundert weitere kommen, denn so sieht die momentane Lage am spanischen Häusermarkt aus (Quelle: TINSA): Sie zeigt die jährliche Veränderungsrate der Immobilienpreise im Land.
Drei weitere Zahlen: Spaniens offiziell ausgewiesene Arbeitslosenquote: 25,1 ProzentSpaniens offiziell ausgewiesene Jugendarbeitslosenquote: 52,9 ProzentGemäss Daten der EZB wurden aus dem spanischen Bankensystem im Juli 74,2 Milliarden Euro abgezogen. Spanien steckt nicht in einer normalen Rezession. So viel zum Einstieg. Leider nein. Schön wär’s. « Zur Übersicht. Chart of the day: Euro nations with largest deterioration in fiscal situati. For Euro Investors, Time to Check the Fine Print - WSJ.com. The risk that the euro could break up is now so pressing that Nomura Holdings is advising investors to check the small print on their bonds, as legal frameworks may determine whether the assets stay in euros, or switch into "new" currencies that are expected to rapidly depreciate.
The Japanese bank's report, released Friday, is thought to be the first major practical study of what a splintering of the 17-country currency would be like for investors, and is a sign that the once improbable prospect of euro disintegration is becoming a serious concern. "Breakup risk is for real," said Jens Nordvig, senior currencies analyst for Nomura in New York and author of the 12-page paper. The report, which focuses on Greece, urged investors to "pay close attention to the redenomination risk of various assets" and whether the euro-area bonds or other instruments they currently hold are issued under English law, or local law. A reintroduced German Deutsche mark would almost certainly rocket higher. For Everyone Shocked By What Just Happened... And Why This Is Just The Begi.
Today, lots of people woke up in shock and horror to what happened in Cyprus: a forced capital reallocation mandated by political elites under the guise of an "equity investment" in insolvent banks, which is really code for a "coercive, mandatory wealth tax. " If less concerned about political correctness, one could say that what just happened was daylight robbery from savers to banks and the status quo. These same people may be even more shocked to learn that today's Cypriot "resolution" is merely the first of many such coercive interventions into personal wealth, first in Europe, and then everywhere else. For the benefit of those people, we wish to point them to our article from September 2011, "The "Muddle Through" Has Failed: BCG Says "There May Be Only Painful Ways Out Of The Crisis", which predicted and explained all of this and much more. What else did the September BCG study conclude?
For those who missed it the first time, here it is again. Flushdoc.aspx.
Does the Euro Have a Future? by George Soros | The New York Review of Books. The euro crisis is a direct consequence of the crash of 2008. When Lehman Brothers failed, the entire financial system started to collapse and had to be put on artificial life support. This took the form of substituting the sovereign credit of governments for the bank and other credit that had collapsed. At a memorable meeting of European finance ministers in November 2008, they guaranteed that no other financial institutions that are important to the workings of the financial system would be allowed to fail, and their example was followed by the United States. Angela Merkel then declared that the guarantee should be exercised by each European state individually, not by the European Union or the eurozone acting as a whole. This sowed the seeds of the euro crisis because it revealed and activated a hidden weakness in the construction of the euro: the lack of a common treasury.
The crisis itself erupted more than a year later, in 2010. Unfortunately the euro crisis is more intractable. Why I remain a pessimist on Europe’s solvency - FT.com. Europäische Lohnkoordinierung oder nationale Währungen – entscheidet euch! Mit der Auflösung der nationalen Währungen und Einführung des Euro hat man bewusst Markt-mechanismen außer Kraft gesetzt. Die Ausgleichsfunktion nationaler Währungen im Bezug auf sich unterschiedlich entwickelnde Volkswirtschaften wurde ausgeschalten. Weniger Markt erfordert mehr Staat, doch ist dieses “Mehr” an Staat zurzeit erkenntlich? Schon 1988 hat Fritz W. Scharpf (Danke für den Hinweis an Matthias Garscha), emeritierter Direktor des Max-Planck Instituts für Gesellschaftsforschung in seinem Aufsatz “Weltweite, europäische oder nationale Optionen der Vollbeschäftigungspolitik?”
Das Ergebnis waren bisher unterschiedliche Steigerungsraten der nominalen Lohnstückkosten, deren Wirkung auf die internationale Wettbewerbsfähigkeit mancher Länder verheerend gewesen wäre, wenn sie nicht durch die(auch innerhalb des Europäischen Währungssystems bisher möglichen) Anpassungen der Wechselkurse immer wieder ausgeglichen worden wäre. Aufgrund dessen prognostizierte er die düstere Aussicht: Bruegel - The Brussels-based think tank | blog > Detail. In December 2012 we published a blog post reporting that German wage growth rates (year-over-year comparison) for 2012 had been higher than the Eurozone average, with at that time, 2.5 percent versus 1.7 percent. In the meantime the annual rates for nominal wage and salary growth have been published showing that the difference has increased; German wage growth of 3 % compared to a 1.8 percent increase of the euro area. France and Italy had wage and salary growth rates of 2.1 percent and 1.1 percent respectively (see Figure 1).
German wage growth rates have been increasing over the previous 8 years, except for a sharp decrease to 0.4 percent in 2010 when Germany had one of the lowest rates in Europe (see Figure 2). When looking at the net wage increase and taking inflation into account the picture becomes even more pronounced. This review confirms the conclusion made in December 2012; the adjustment process is continuing in the euro area. .  Source: Eurostat  Faz.de (08.04.2013) More on the European Bank Bailout. Cross-posted from Credit Writedowns Overnight, a group of us were exchanging e-mails on the recent coordinated central bank action to provide European banks the funding being denied them by the markets. I haven’t been active on the e-mail chain, but I did find some of the commentary interesting. I had a few comments of note I wanted to address, but here’s why I am writing this post: “See NYT report which says clearly that the Fed did nothing to cooperate since the swap was already in place and would make no statement.”
When I read that I realised it was true. I think this is curious messaging because the US Treasury Secretary Timothy Geithner is over in Europe right now banging the table about the need for a Euro TARP. I think that’s it exactly. Here’s what I think is happening: European politicians are paralysed and are only doing enough to push off the day of reckoning. Comments and insights appreciated. By VoxEU.org Some view the improvements in current accounts for Greece, Italy, Portugal, and Spain as short-lived – the result of a temporary compression of import demand that is likely to be reversed as the recession eases.
This column argues the contrary, based on the fact that their improving trade balances reflect better export performance. This development points toward a fundamental stabilisation of the competitiveness of these economies. By Raphael Auer Current-account (CA) rebalancing is a necessary step for the Southern EZ countries to overcome their debt and external balance of payments crises.1 Figure 1 documents the impressive speed and magnitude of the southern EZ’s CA rebalancing. From the low point in 10:2008 to the most recent data in 10:2013, the combined CA balance of these four nations has increased by €232 billion at an annualized rate. Source: BIS and Datastream. For example, Friedman (2014) argues that imbalances “have apparently only been ‘solved’ by recession. 1.
Miguel Cardoso, Rafael Doménech, Juan Ramón García, Camilo A. Ulloa 20 December 2013 With its huge unemployment rate, if there is a country in need of assessment of labour markets reforms and wage moderation, it is Spain. In the third quarter of 2013 the unemployment rate reached 26% of the labour force, more than twice the Eurozone’s 12.1%. As shown in Figure 1, since the beginning of the crisis in the first quarter of 2008, Spain has lost 17.5% of its employment (22.8% in the private sector), while the average real wage increased 7.6% until the second quarter of 2012. Figure 1 Employment and real wages in Spain, 2007-2013 Two events occurred in 2012 that changed the behaviour of real wages.
Decentralisation of collective bargaining and elimination of indefinite job security.Reduction of firing costs.Greater internal flexibility of employment in the organisation of production at the firm level. Which are the short- and long-run effects of this wage moderation on employment? Calvo, G, F. Antonio Fatas | Seeking Alpha. Flushdoc.aspx. For Everyone Shocked By What Just Happened... And Why This Is Just The Begi. The Post-Crisis Crises by Joseph E. Stiglitz - Project Syndicate. Exit from comment view mode. Click to hide this space NEW YORK – In the shadow of the euro crisis and America’s fiscal cliff, it is easy to ignore the global economy’s long-term problems. But, while we focus on immediate concerns, they continue to fester, and we overlook them at our peril.
The most serious is global warming. While the global economy’s weak performance has led to a corresponding slowdown in the increase in carbon emissions, it amounts to only a short respite. Some suggest that, given the economic slowdown, we should put global warming on the backburner. At the same time, the pace of technological progress and globalization necessitates rapid structural changes in both developed and developing countries alike. Just as the Great Depression arose in part from the difficulties in moving from a rural, agrarian economy to an urban, manufacturing one, so today’s problems arise partly from the need to move from manufacturing to services. Euro zone lending falls for 8th month | Reuters.
Europe faces week of challenges in debt crisis | Reuters. 2013 Financial Crisis deepening | Blog Big Time. Three Charts Explaining the Financial Crisis. By www.thetrader.se So what is going on in the markets? We had Fukushima, but that was all good for the economy, because we had to rebuild Japan (with printing money).Then those guys in MENA wanted freedom (and lower food prices). NATO started Operation bomb Libya to stone age, but that was all good, that needs rebuilding too. Greece suddenly discovered it had no money left. Ireland joined, and Spain, Italy etc are still knocking on the same door. But we will save those guys too, just bail them out, or? The Germans taxpayer is getting rather tired of the bailing out the rest of Europe, but what will happen IF Germany gets downgraded, or is that impossible in this world, where we get Black Swans every two days? And the "kicker";
Crisis today. Phantom Crises (Wonkish) - NYTimes.com. Simon Wren-Lewis is puzzled by a Ken Rogoff column that sorta-kinda defends Cameron’s austerity policies. His puzzlement, which I share, comes at several levels. But I want to focus on just one thing: Rogoff’s assertion that Britain could have faced a southern Europe-style crisis, with a loss of investor confidence driving up interest rates and plunging the economy into a deep slump. As I’ve written before, I just don’t see how this is supposed to happen in a country with its own currency that doesn’t have a lot of foreign currency debt – especially if the country is currently in a liquidity trap, with monetary policy constrained by the zero lower bound on interest rates. You would think, given how many warnings have been issued about this possibility, that someone would have written down a simple model of the mechanics, but I have yet to see anything of the sort. Photo Now suppose that investors turn on your country for some reason.
Counterpoint’s visual tool for comparing populists at the European election. [UPDATE 5/6/14: upon receiving feedback, we have revised our rating for the 5 Star Movement from green to amber on the ‘Hostile to representative democracy’ dimension. the Movement’s vision of democracy is hard to place, but it is clear that it opposes representative democracy in its current form in Italy – with leader Beppe Grillo stating, for instance, that “I will never again ask for anything from this political class.
To change [Italy], politicians have to be replaced by the citizens”.] A range of populist parties are tipped to perform well at this week’s European elections. As the results come in, one of the key questions for observers will be: how dangerous are these parties? Our visual tool sets out to answer this question. For each party, we have devised a set of dimensions that we think are crucial in evaluating the threat each party poses.
Three key messages emerge. Second, despite these differences, all the parties we have included have their problems. Methodology Violent Racist. For Euro Investors, Time to Check the Fine Print - WSJ.com. Investors flock to buy ESM debt | FX-MM. Britain’s National Curriculum teaches the metric system of measurement that is used across most of the world. Yet not all measurement in Britain is metric. Petrol is sold by the litre but vehicle efficiency is quoted in miles per gallon. Landlords must sell beer by the pint and gin by the millilitre. A greengrocer can go to jail for selling potatoes by the pound. Fortunately, the government has a plan to resolve this confusion. There were two systems operating in the FX market yesterday.
An announcement by Finance Minister Taro Aso that Japan will be a buyer of European Stability Mechanism (ESM) bonds was briefly positive for the euro. Aso San’s revelation coincided with the very first auction of ESM debt. €1.9bn of three-month bills attracted bids for three times that much. Tuesday’s economic data were almost universally euro-centric. There was better news on the Euroland confidence front though.
So it looks as though sterling might be today’s Aunt Sally. Investors take hammer to ‘Teflon’ euro - FT.com. George Dorgan sur Twitter : "U decide: #Italy got unproductive since 2000 or Italy was productive in 2000& did not go in spending (akaGDP) bubble? Europe’s Banking Union starts on an encouraging note. Bruegel sur Twitter : "So far apart and yet so close: Should #ECB care about #inflation differentials? Deflation Isn't What's Holding Europe Back. Herabgestuft: Zu hohe Risiken belasten französische Banken - Europas Schuld.