I really really hope the ECB staff are huddling right now, nerving themselves up to do some serious quantitative easing. Otherwise Anno Domini 2010 is shaping up to be Anno Domino instead.
—Paul Krugman on the fate of the Euro with the bond vigilantes going after Portugal now
I’m nos sure taht I approve of the use of the term “Anno Domini” by a nice Jewish boy, but it is damn funny.
The bottom line is €120 billion in loans and guarantees, along with some fairly brutal austerity measures.
Of course, the problem is not that the Greek government is profligate, it has amongst the most meager safety net in the EU, but rather that the populace aggressively evades taxes, and the tax collection authority is inefficient and corrupt.
Estimates have the Greek government, “losing as much as $30 billion a year to tax evasion.”
The solution here is very simple. While the German people may object to lending money to the Greeks, which is one of the reasons that Angela Merkel dithered, I don’t think that the German people would object to lending a few hundred to a few thousand of their nastiest most aggressive tax collectors to Greece.
As it stands not, Greek austerity is being carried on the back of the lower and middle classes, while the wealthy will continue to avoid paying their share. Only a few thousand of the 11 million Greeks claim an income above €100,000.00, and this is clearly not true.
So now Angela Merkel is complaining that the rescue package for Greece is moving too slowly:
German Chancellor Angela Merkel said on Wednesday Greece’s international bailout must be accelerated for the sake of the entire euro zone, as the far bigger Spanish economy suffered a credit rating downgrade.
Yo! You Moron!!!!! The person who has being doing all that She can to slow walk this rescue is one, “German Chancellor Angela Merkel.”
I understand that the German public does not like the idea of bailing out Greece, but you pandered to, and encouraged, that sentiment relentlessly, unlike some of the members of your cabinet with whom you clashed, who have accepted the truth.
I hate this, “Why are you slowing down because I’m laying across the tracks,” act.
More good news, with the Conference Board’s consumer confidence index rising in April, and home prices falling in February.
I bet you are wondering how home prices falling in February is a good thing. Well, it’s simple, it fell month to month, but rose on a year over year basis, for the first time since December, 2006.
It may mean that things are bottoming out.
Certainly, it’s better than the alternative.
Still, the financial crisis looks to remain with us for some time, with Greece and Portugal’s sovereign debt downgraded by Standard & Poors, with some of Greece’s debt now rated as junk bonds.
Unsurprisingly, this has led to a flight to safety and concerns about the recovery, which has driven the dollar higher and oil lower.
The yield on 2 year Greek government bonds jumped 300 basis points (3%) to 13.522% over the past day.
To place this in perspective:
Greece’s two-year borrowing costs are now higher than those of Argentina, at 8.8 per cent, and Venezuela, at 11 per cent, two countries that have been shunned by many international investors because of the mismanagement of their economies.
This is not a collapse of Europe. What this appears to be is a classic bank run.
This doesn’t make it a potentially life threatening disaster for the George Bailey’s of this world.*
*I’m using It’s a Wonderful Life for illustrative purposes only. I never liked the film, and pretty much no one until it fell out of copyright, and TV stations around the US started using it as cheap filler.
Not surprising considering that the yields on their latest 2-year bond spiked to 11.61%, so they have asked for the activation of the financial rescue package:
Describing his country’s economy as “a sinking ship,” the Greek prime minister formally requested on Friday an international bailout, testing the solidarity of the European Union as never before.
“We drew up a plan, we took difficult and painful measures,” Prime Minister George A. Papandreou said in a nationally televised address. “But the markets did not respond.”
Concerns about the Greek budget deficit — an estimated 13.6 percent of gross domestic product last year — have pushed interest rates on Greek bonds above those of emerging countries like India and the Philippines, leading to talk of a potential default and years of stagnant growth.
(emphasis mine)
Note that as screwed up as Greece is, and it is arguably the closest to 3rd world nation status among the Euro zone members, it ain’t the Philippines.
Part of the reason for the spike is clearly heard panic mentality, but my guess is also that some of the wonderful new instruments that have come into existence over the past 20 years, credit default swaps (CDS) and the like, which make it profitable to bet on a neighbor’s house burning down, and then torching it.
These instruments magnify both risk and volatility, and this is why they need to be severely restricted or banned.
Well, it looks like the issue with a possible default by Greece has been resolved, for a while at least, by a joint action of the EU and the IMF.
I think that this puts to rest the idea that Greece will leave the Euro, for a while at least, but the real problem is that the Germans have structured the Euro with the goal of furthering their mercantilist export driven goals, much as the Chinese have with the Yuan, and the solution here is not to kick the Greeks out of the Euros, but to kick the Germans out of the Euro.
Simply put, the German desire for new export markets has made them push aggressively for countries to join the monetary union before it is prudent, and to encourage them to do so by providing economic aid and by overvaluing the sovereign currency.
Unfortunately, this creates asymmetries that are creating the problems that we have now, and it will be a tough thing to avoid something like the downfall of European Exchange Rate Mechanism that occurred when George Soros, “Broke the Bank of England.”
The problem is that, absent the labor mobility that exists in the United States, where one need neither a work permit nor to learn a new language, these asymmetries will persist.
This has been further reinforced by the efforts of Europhiles to jump-start the mechanisms of European integration through direct and indirect subsidies to entice new members to join prematurely.
Damn ………… I gotta make this a longer form, and submit it to Marketplace as a guest editorial.
China is sending signals that they will not be buying gold that the IMF is selling:
Contrary to much speculation China may not buy the International Monetary Fund’s (IMF) remaining 191.3 tons of gold which is up for sale as it does not want to upset the market, a top industry official told China Daily yesterday.
“It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility,” said the official from the China Gold Association, on condition of anonymity.
I still think that gold is not a place to be, because everyone is talking about how it is the place to be, which reminds me of dotcoms in 1999 and housing in 2006.
The IMF is coming out in favor of capital controls for developing nations:
International Monetary Fund economists, reversing the fund’s past opposition to capital controls, urged developing nations to consider using taxes and regulation to moderate vast inflows of capital so they don’t produce asset bubbles and other financial calamities. It said emerging markets with controls in place had fared better than others in the global downturn.
The recommendation is the IMF’s firmest embrace of capital controls and a reversal of advice it gave developing nations just three years ago. The IMF has long championed the free flow of capital, as a corollary to the free flow of trade, to help developing countries prosper. But the global financial crisis has prompted the fund to rethink long-held beliefs. It recently suggested the world might be better off with a higher level of inflation than central bankers now are targeting.
(emphasis mine)
I think that a lot of this has to do with the Asian financial crisis 13 years ago, and the fact that the only nation to implemented capital controls, Malaysia, was through the crisis with a lot less pain than their Asian neighbors.
It only took them 13 years, and an increasingly hostile response from the developing world, for them to get the message.
Well, it’s to their credit that it happened before some high level official visiting a 3rd world nation in crisis was actually lynched by an angry crowd, which puts them ahead of American investment bankers, Larry Summers, and Timothy Geithner, I guess.
I would suggest prosecutions of the folks who are pursuing Russia regarding bonds issued by the Czar:
The Russian government vowed to “defend our rights” after French holders of czarist bonds valued at as much as 100 billion euros ($137 billion) threatened to sue the Kremlin and seize property it owns in Paris.
“May God help them,” Viktor Khrekov, a spokesman for the Kremlin Property Department, said by phone today from Moscow, after the Paris-based International Federative Association for Russian Bond Holders, or AFIPER, pledged to sue to recoup part of the century-old debt.
The empire of Russia has not existed since 1917.
That country was liquidated, along with Czar Nicholas and his family.
People are buying this stuff at cents on the dollar, and then attempting to get be enough of an annoyance to coerce some payments out of sovereign nations.
It’s particularly egregious behavior because France and Russia had a final settlement since 1996.
Surely, if terrorism statutes can be used against the reserves of Icelandic banks, it can be used against these extortionists.
The IMF has had significant gold holdings, and it does not do them much good.
When you provide and loans, shoveling out gold does not work that well, you want to use currency of some sort, preferably something that can be transferred electronically, so they have been selling it off for some time.
Well, the, “central banks of India, Mauritius and Sri Lanka,” have been buying up gold, for reasons that appear to be tied to batsh%$ insane medieval monetary ideas, so the IMF gold has not effected the commercial markets for gold.
Well, it appears that, “India, Mauritius and Sri Lanka,” have finally had enough, and the IMF plans to sell 191.3 tons of gold, in order to be able to make low cost loans to poor nations that have been hurt from the financial crisis.
Basically, when everyone goes over crazy about an investment, it’s time to get out.
If you own gold for speculative purposes, it’s a good time to get out ………… Now.
If you are buying a gold wedding band, that’s still cool, but take my advice: Elope, and use the money saved for a party.
New Home Sales Not Just Ugly, but Fugly!
h/t Calculated Risk
Yesterday, I noted the jump in existing home sales, and posited that this was almost entirely due to people rushing to get in under the wire on the new home buyer house credit, well today, we have the new home sales numbers, and they plunged by 11.3%, which validates my thesis.
Basically, existing home sales numbers are recorded at closing, while new home sales are recorded when the contract is signed, which means that the new home sales numbers lead existing home sales by 30-60 days, so we have a snapshot of what happens when people rushing to secure a tax credit stop rushing, and it ain’t pretty.
It also explains why home mortgage application volume fell.
As I’ve said before, real estate won’t lead us out of a recession, it will follow.
On the other hand, personal income and spending rose in November, which is a sign of improvement, and the latest CNN/Opinion Research and Reuters/University of Michigan surveys show an improvement in consumer sentiment, though of the “slightly less suckage” rather than the “going well” variety..
One interesting development in the 3rd quarter of this year was that central banks have cut purchases of dollars for reserves to a record low, “30 percent of new foreign-exchange reserves,” which implies a slow walk away from the dollar by central banks.
Even so, the dollar rose today, and Oil also rose on a surprise drop in inventories………Which raises the question, why are inventories always surprising folks?
Good news everyone!
I invented a device that makes you read this in your head using my voice!
Well, the Fed’s Beige Book, more formally known as the “Summary of Commentary on Current Economic Conditions”, came out today, and they are seeing signs of improvement (also here).
It seems to me that we are talking about evidence of a bottom, or at least a moderation, as opposed to improvement, but it could be a prelude to a recovery, or a breather on the way down, but either way, it’s good news.
We still have CRE and insurance meltdowns to deal with.
There is also good news from Moody’s, that there is no expectation that they will cut the ratings on sovereign debt for any of the major industrialized nations, so the ratings of, “U.S., U.K., Germany, France. and Spain,” are safe.
Then again, if they are so safe, why did they even have to make this statement?
We also have further evidence of the credit markets thawing, with the 3-month Libor interbank lending rate hitting a record low, and the TED Spread, basically the interest rate spread between public and private debt, falling.
The dropping interest rates, kicked mortgage applications to a 3 month high.
Still, in the real world, single family home prices fell by 0.5% in July, and bankruptcy filings are up 22% in August year over year.
In energy we are now seeing statements from OPEC that there will be no changes to quotas which drove prices up 21¢ to $71.31/bbl, despite increases in inventories.
In currency, the dollar fell to a near 10-month low, despite a slight bump following the release of the Beige Book, to $1.4562:€1.0000 and $1.0000:¥91.61.
I’ve been following the tussle between the Swiss Bank UBS and the IRS over account for information for some time, and the fact that there is now a settlement which involves handing over account information for about 4500 people, and that prosecutors are working on over 150 criminal tax evasion cases is a very good thing.
Even better is the fact that there is an amnesty deadline in September, and neither UBS nor the Feds are revealing which accounts have turned over, which is having the rich pig tax evaders running around like chickens with their heads cut off, wondering whether or not they are among those accounts turned over.
One of the effects of the tax amnesty program is that about a dozen more banks have now been fingered as having aided clients in evading taxes.
Let’s be clear, for this to have a meaningful effect, there need to be dozens of prosecutions, and a significant number of people both imprisoned and made paupers by this process.
That is the only way that repeat fraud will be deterred.
Well, it was a tough day for bonds, with prices falling, and yields rising, on US Treasuries, as investors look more to the downside of the economy.
Interestingly enough, we had a lot of mixed signals from real estate, with the
Federal Housing Finance Agency saying that single family home prices rose 0.9% in May, though they are down 5.6% year over year, the U.S. architecture billings index down again in June, which indicates a continued fall in construction, mortgage applications rose last week, though they remain very low, and Standard & Poor’s losses on subprime mortgage backed securities was revised higher.
In the world of real people, the PBGC took over struggling auto parts maker Delphi’s pension obligations, which should come as a surprise to no one.
We do seem to be seeing signs of “green shoots” in other countries though, with the
South Korean GDP growing at the fastest rate in 6 years in the last quarter, and the Central Bank of Brazil cutting its benchmark rate by the smallest amount since beginning of the year, indicating that they think that their recession is largely over.
In the old standbys of energy and currency, oil ended above $65/bbl on reports of tight inventories, and the dollar hit a 7 week low on increased optimism.
Basically, with multi-trillion dollar foreign reserves, Beijing is looking at using this money to aid in acquisition of foreign companies by Chinese firms.
Well, I guess that this is one way to deal with the mountain of dollars that they have, though one wonders what happens when they run out of stuff to buy.
Specifically, this regards the US dollar, and the leader of the Japanese opposition party, which is currently leading in the polls, is saying that, “the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds,” and we have increasing evidence that China is taking baby steps away from the US dollar too, increasingly moving toward bilateral trade deals in which the currencies in question are increasingly directly exchanged, as opposed to dollar denominated.
I think that there has always been a synergy between the US financial industry and the US dollars status as the world’s preeminent reserve currency, and what has shaken it lately is not the US deficits, but the spectacle of a dysfunctional and corrupt finance industry which has our government so in its thrall that it tarnishes both the industry and the currency.
Remember the article in The Onion, dated January 17, 2001? It was titled, “Bush: ‘Our Long National Nightmare Of Peace And Prosperity Is Finally Over’“.
Well, the geniuses at Godless Geeks have now put out an annotated version, linking to specific stories that The Onion predicted.
Nostradamus wot got nothin’ on these folks.
For the past couple of years, Germany has been the engine of the Euro zone economy.
Turning bolts, Germans were told – often by other Germans – had no future in Germany. The persistence of heavy manufacturing symbolized the country’s inability or unwillingness to transform itself into a modern, services-oriented economy like the United States or Britain, two oft-used yardsticks.
Today, the manufacturing sector in Germany is growing as a proportion of the country’s total economic output, and Germany looks set to outpace far larger economies like China and the United States as the world’s largest merchandise exporter for the fourth year running.
In addition, making all manner of valves, motors, machine tools and robots is providing Germans with something rare in the global economy: shelter from the storm. Thanks to bolt-turning, the German economy grew at an annual rate of 6 percent in the first quarter of this year.
In the US, we are told it’s all services baby. Sell houses (like that’s working), or sell securities (the revenue model is vanishing in a puff of smoke), or maybe sue people for patents on stuff you never made….
Not working so well, and that’s because brokering is essentially a parasitic activity. We have been taking other’s people money and we’ve been….I don’t know…I guess employing no account coke head brothers-in-law or something.
Our economy is far closer to Spains during the height of its colonies now than it was in 1929. Then we had a robust manufacturing sector that could power a recovery, once demand picked up.
Right now, however, what does the US really make?
Damned if I know.
The Fortune magazine editor at large asks the question that we should all be asking, “Why does Wall Street always get bailed out?“
His answer is I think in some ways inadequate. It’s more than protecting the financial system. After all, if it were just about that, some of the people behind this debacle would be kicked off Wall Street for life.
It’s about the fact that central bankers feel a need to protect “people like us”.
The subprime-mortgage-market meltdown is a classic example of the way small fry get devoured, but the whales of Wall Street get rescued. Here’s the deal: People with crummy credit who took out mortgages are being allowed to fail in record numbers. The mortgage companies that made those loans are being allowed to fail.
…
But the world’s central banks aren’t letting the big guys fail. Think of it as the Escape of the Enablers. The reason this is happening, of course, is the same reason that the Fed orchestrated a bailout of the infamous Long-Term Capital Management hedge fund a decade ago-and about 20 years ago didn’t close some of the nation’s biggest banks, even though they were effectively insolvent because unrealized losses had wiped out their capital.
It’s the “too big to fail” syndrome. In a world in which big players make incredibly large and complex deals with one another – that’s what derivatives are – regulators don’t dare let a big or important institution fail for fear that the collapse of one would lead to “cascading failures,” and other institutions wouldn’t be able to collect what the collapsed institution owed them.
….
Sure, we know that Ben and the boys will always bail out the biggies. And none of us – I think, anyway – wants the world’s financial system to implode. But I’d feel a lot better if the Street had to pay a serious price to its rescuers–say, having to fork over a big equity stake and pay a loan-shark interest rate. That way taxpayers, who are picking up the tab for the rescue, would get paid bigtime for taking on bigtime risk.
