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AdamG
09-16-2011, 02:07 AM
Germany, France and the European Commission are scrambling to contain panic and "quash rumours" about a eurozone break-up amid repeated off-piste messages from other senior EU politicians.

But even amid their desperate efforts, the finance minister of Poland, the country that currently represents the EU to the world as holder of the bloc’s rotating presidency, warned of war on the continent within 10 years if the eurozone collapses.

http://euobserver.com/18/113625

Marc
09-16-2011, 04:50 AM
War in the European Union? Panic in the European Union? I do not see it. The Financial Times has a more sober explanation:


Rostowski, raised in the UK, does have a love for parliamentary thrust and parry

http://blogs.ft.com/beyond-brics/2011/09/15/poland-the-lessons-of-history/#axzz1Y5Ti66Wb

Could it be that the EUObeserver suffers from a eurocritical bias?

Fuchs
09-16-2011, 01:36 PM
People needlessly connect the EUR's fate to the fate of the European Union as a whole. It's just a currency.

The EU ought to be capable of reverting mistakes - THAT is critical for its long-term success and survival.

The EUR in its current shape was a mistake, and critics knew it back in the mid-90's. The economies are too different. Portugal and Greece did not belong into the common currency, and it would have been wise to set up a common currency (if at all) as a non-EU project. Maybe Germany should have stayed out of it, too. Germany, Northern Italy, Paris department and some other regions are the industrial centres of Europe and can be in a common currency with the less industrialised regions only with great adverse side-effects.

Actually, Italy and Germany would need two different currency zones each since even inside these countries labour mobility proved to be unable to balance the strains.
(In a simple theory monetary union theory moving labour solves a lots of common currency problems between dissimilar regions, but in practice many unproductive people stay behind and transfers from North Italy to South Italy or West Germany to East Germany are still necessary).

Surferbeetle
09-26-2011, 12:14 AM
The European Union (EU) is the beating macroeconomic heart of European Command (EUCOM); unfortunately, today, that heart has opaque and clogged fiscal, monetary, and political arteries, which impede the flow of needed capital to and from the center and periphery of the global economy. (1) Nonetheless, Russia has attempted to emulate the organization and success of the EU’s combined annual GDP of 17.5 trillion USD, with a Eurasian Economic Community (EurAsEc) concept fielding a combined annual GDP of 2.1 trillion USD. (2) Turkey (annual GDP 735 billion USD) also attempts to follow the EU model, as exemplified by its participation in regional free trade agreements with nations such as Syria and by chairing the 57 member strong Organization of the Islamic Conference, all the while continuing to work towards a fading dream of eventually joining the EU. (3) (4) (5) Global economic failures have a history of releasing unpredictable social and political pressures which increase the cost of basic necessities, reduce living standards, increase demographic inequalities, destroy livelihoods, and reduce global financial predictability. (6) (7) (8) The struggles of EUCOM countries, in their attempt to maintain a sustainable macroeconomic equilibrium, are instructive as well as of financial interest to all stakeholders within the interconnected global economy.

The concept of Market Clearing, where the prices of goods and services are in equilibrium and can be visualized at the intersection of supply and demand curves, underpins many Macroeconomic models. (9) Modeling the long run or the short run impacts the equilibrium point of the macroeconomic model used. In the long run prices are seen to be flexible while in the short run prices are seen as sticky. We also need to consider that all macroeconomic models function within a framework of fiscal and monetary policies, applied by institutions within traditional Westphalian Nation-States as well as by transnational structures. Within this framework, institutions and supra-empowered individuals continuously compete for influence. Fiscal Policy is typically formulated and supervised by a fiscal authority such as a Financial Ministry while Monetary Policy typically originates from an independent Central Bank. Fiscal Policy variables of note include taxation, government spending and borrowing. Monetary Policy variables of concern include money (quantity theory), foreign exchange rates, inflation, and interest rates. Both the International Monetary Fund (with 187 member countries) and the US National Intelligence Council publish reports, which incorporate regional projections resulting from macroeconomic modeling efforts. (10) (11) (12)

The European Union is not a fiscal union and it is an incomplete economic (common market and customs union) and monetary union; this distinction is at the center of its current macroeconomic troubles. In order to achieve a fiscal union, member states will have to cede a greater portion of national control over fiscal policy to the EU. This will require national voting on the proposed structural changes to the EU’s directly elected parliamentary institution, the European Parliament. Given the history of the Lisbon Treaty, the approvals process for structural changes are far from assured. (13) Since the EU does not have a centralized Financial Ministry (not withstanding the heroic efforts of Mr. Olli Rehn, the European Commissioner for Economic and Monetary Affairs) the union instead has 27 different financial ministries, who’s Fiscal Policies are not necessarily synchronized. This reality is seen in the unsustainable budget deficits of Greece and Portugal, which resulted from national fiscal policies, which were not synchronized with the requirements of Maastricht Treaty nor with other members of the union. Although comprised of 27 members, only 17 (the Eurozone) have ostensibly met the economic and monetary union requirements of the 1992 Maastricht Treaty. In return for the ability to participate in the world’s second largest reserve currency, these 17 members (Austria, Belgium Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain) of the EU follow Monetary Policy set by the independent European Central Bank. (14) The macroeconomic situations in Spain and Ireland however, which had low levels of government debt prior to the crisis, are indicative of the thesis that sovereign debt among Eurozone members is not risk free, and is in fact differentiable. As a result of this realization bank runs, on Eurozone banks, which hold suspect sovereign debt are increasingly seen as possible. (15) European political leaders are under incredible pressure to continue the integration process of the EU, with a short-term focus upon crafting an acceptable fiscal union, due to the interconnectedness of the global financial system. (16) Due to Germany’s position as the strongest economic member of the Eurozone, the buy-in of the German populace is seen as critical and, threshold criteria for any deeper integration of EU members are expected to be stringent. (17)

Russian dreams of financial strength and leadership as a unifying regional economic power, continually founder upon the hard realities of endemic corruption, xenophobia, weak institutions, arbitrary fiscal and monetary policy, and a cult of personality, all of which rest uneasily upon a narrow, commodities based economy. (18) (19) (20) This condition is no less a tragedy for the Russian people, than it is for the global community. (21) The Central Bank of the Russian Federation is constitutionally mandated to be an independent institution, setting national monetary policy and driven by technical concerns. The intent of this paper document is belied by the still unsolved 2006 murder of Andrei Kozlov, the first deputy central banker who fought for the rehabilitation of Russia’s more than 1,200 banks. (22) Banking corruption in Russia appears to continue unabated since his death. (23) The Russian Finance Ministry sets Fiscal Policy, and many foreign investors have hoped for positive changes in its policies since Russia’s 1998 default and its subsequent 2008 economic meltdown. (24) “This time is different, he adds, “are the four most expensive words in the English language.”” (25) The World Trade Organizations Working Party on the Accession of the Russian Federation was established in June of 1993 and efforts to meet WTO criteria continue. (26) (27) The EU-Russian relationship is a key one for Russia, and serves to influence Russian policy and actions. (28)

Turkey’s modern day economic rise, impacts members of the Middle East more than it does most members of EUCOM, nonetheless Turkey continues to follow many of the wishes of Ataturk in that it selectively continues to pursue compatible benefits of westernization. (29) (30) (31) (32) Turkey’s sovereign rating for foreign currency (provided by the S&P) remains at BB, two notches below investment grade, and 2014 forecasts for government debt/GDP ratios are trending at around 35%. (33) (34) Once Turkish sovereign debt reaches investment grade quality, it will be open to institutional investors. By Turkish Law, The Central Bank of the Republic of Turkey has an independent role in setting monetary policy. Turkey’s banking industry presently consists of approximately 45 banks, which have an average capital adequacy ratio of approximately 19% (higher than Basel III requirements – 4.5 % of common equity and 6% of tier I capital). (35) Since it’s economic meltdown in 2001, and subsequent three-year recovery, the Turkish Financial Ministry appears to have continued to follow the playbook drawn up by the Turkish Economist Kemal Dervis, to its benefit. (36) Turkish aspirations to join the EU are tempered with the knowledge of political realities present within the EU; yet Turkey realizes internal economic gains by continuing in the process. (37)

When one attempts to pass judgment, it is wise to remember that human lives are brief and that all human endeavors are flawed. (38) (39) (40) The combined population of the 51 EUCOM countries and territories exceed 500 million souls who generate in excess of 20 trillion USD in GDP annually (the population of the US is approximately 300 million souls generating an annual GDP of 14 trillion USD for scale). The spectrum of economic conditions within EUCOM display societal statements regarding the appropriate roles and responsibilities of the modern day state and, increasingly, that of transnational organizations and individuals. (41) The penetration of society, the regulation of social relationships, the extraction of capital, and the appropriation of the same are enduring capabilities used by each of these actors to varying success. (42) Furthermore these capabilities are set against a regional background of political fragmentation, heavy migration flows, select demographic declines, and an increased and widespread transparency regarding decision-making processes and resource allocation (aka the democratization of information). Ostensibly, an implied goal of just leadership is to set the conditions for a sustainable economy (which is supported by a minimal, transparent, predictable, and balanced regulatory framework) in which societies and individuals can navigate to generate growth and wealth, each according to his or her ability. (43) It is this author’s opinion that if the EU’s centralized macroeconomic heart fails, EUCOM countries, and more broadly the interconnected global financial system will struggle to avoid a global economic depression. But then, even though political successes may not always be explicitly linked to economic successes or failures, neither is political capacity always sufficient to meet the economic requirements of the times. (44)

Surferbeetle
09-26-2011, 12:15 AM
(1) How to save the Euro, September 17-23rd, 2011, The Economist

(2) Buckley, Neil, Putin sets sights on Eurasian economic union, August 16th, 2011, Financial Times

(3) Pocket World in Figures, 2011 Edition, The Economist

(4) Gardner, David, Turkey’s newly faltering foreign adventures, August 15th, 2011, Financial Times

(5) Special Reports: Turkey 2011, Financial Times Special Report, June 28th, 2011, Financial Times

(6) Commanding Heights, The Battle for the World Economy, US Public Broadcasting Service, http://www.pbs.org/wgbh/commandingheights/lo/index.html

(7) Guiding Prinicples for Stabilization and Reconstruction, 2009, United States Institute of Peace, United States Institute of Peace Press, Washington DC

(8) Ghani and Lockhart, Fixing Failed States, 2008, Oxford University Press, New York, NY

(9) Mankiw, N. Gerogory, Macroeconomics Sixth Edition, 2007, Worth Publishers, New York, New York

(10) Regional Economic Outlook: Europe, May 2011, International Monetary Fund, http://www.imf.org/external/pubs/ft/reo/2011/eur/eng/ereo0511.htm

(11) Communique of the Twenty-fourth Meeting of the IMFC: Collective Action for Global Recovery, September 24th, 2011, International Monetary Fund, http://www.imf.org/external/np/sec/pr/2011/pr11348.htm

(12) Global Trends 2025, National Intelligence Council, http://www.dni.gov/nic/NIC_2025_project.html

(13) Ireland and the Lisbon Treaty, Second Time Lucky?, October 2009, The Economist, http://www.economist.com/node/14573513

(14) Treaty of Maastricht on European Union, EUROPA, http://europa.eu/legislation_summaries/economic_and_monetary_affairs/institutional_and_economic_framework/treaties_maastricht_en.htm

(15) Lex, Eurozone Banks, 23 September, 2011, Financial Times

(16) Giles, Chris, Eurozone: A nightmare scenario, 16 September, 2011, Financial Times

(17) Weder der Weg zu Eurobonds noch zur Transferunion, 21 September, 2011, Frankfurter Allgemeine Zeitung, http://www.faz.net/artikel/C30638/euro-rettungsschirm-weder-der-weg-zu-eurobonds-noch-zur-transferunion-30690622.html

(18) Gaddy, Clifford G., Putin’s Plan, Spring 2008, The Washington Quarterly, http://www.twq.com/08spring/docs/08spring_gaddy.pdf

(19) Special Reports: Russia 2011, Financial Times Special Report, April 27th, 2011, Financial Times

(20) Gaddy, Clifford G., Will the Russian Economy Rid Itself of Dependence upon Oil?, June 16, 2011, Brookings Institution, http://www.brookings.edu/opinions/2011/0616_russia_economy_gaddy.aspx

(21) The mood of Russia, Time to shove off, September 10, 2011, The Economist

(22) Buckley, Neil, Shooting of Russian Banker condemned as an ‘act of terror’, September 16, 2006, Financial Times

(23) Belton and Buckley, Russia’s Banks: Collateral Damage, September 22nd, 2011, Financial Times

(24) Weaver, Courtney, Russian equities: shock value, August 9th, Financial Times

(25) Weaver, Courtney, Russian market retreat highlights lingering risks, August 16th, 2011, Financial Times

(26) Accessions: Russian Federation, World Trade Organization, http://www.wto.org/english/thewto_e/acc_e/a1_russie_e.htm

(27) Trade Policy and WTO Accession for Russia, The World Bank, http://go.worldbank.org/VJMFT8MXW0

(28) Lynch, Dov, Russia’s Strategic Partnership with Europe, Spring 2004, The Washington Quarterly, http://www.twq.com/04spring/docs/04spring_lynch.pdf

(29) Lord Kinross, The Ottoman Centuries: The Rise and Fall of the Turkish Empire, 1977, Harper Collins Publishers, New York, New York

(30) Kinzer, Stephen, Crescent & Star: Turkey Between Two Worlds, 2008, Farrar, Straus, Giroux, New York, New York

(31) Special Reports: Investing in Turkey 2010, December 7th, 2010, Financial Times

(32) Special Reports: Turkey 2011, Financial Times Special Report, June 28th, 2011, Financial Times


(33) S&P signals upgrade, warns of weakness, September 21st, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.php?n=sp-signals-upgrade-warns-of-weaknesses-2011-09-21

(34) Deliveli, Emre, The Turkish Ratings Comedy, September 25th, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.php?n=the-turkish-ratings-comedy-2011-09-25

(35) Boland, Vincent, Banking: Resilient sector faces different set of stresses, June 27th, 2011, Financial Times

(36) Doing it by the book: The Economy has had a big boost from much sounder management, October 21st, 2010, The Economist, http://www.economist.com/node/17276384

(37) Turkey’s EU membership talks deadlocked, FM Davutoglu says, April 20th, 2011, Hurriyet Daily News, http://www.hurriyetdailynews.com/n.php?n=turkey8217s-eu-bid-is-at-bottleneck-die-to-the-political-blockages-turkish-fm-says-2011-04-20

(38) Osterhammel and Petersson, Globalization: A Short History, 2003, Verlag, Munchen, Princeton University Press, Princeton, New Jersey

(39) Duncan-Jones, Richard, The Economy of the Roman Empire: Quantitative Studies, 1971, Cambridge at the University Press

(40) Binnendijk and Kugler, Seeing the Elephant: The US Role in Global Security, 2006, Potomac Books Inc, Dulles, Virginia

(41) Mearsheimer, John J., The Tragedy of Great Power Politics, 2001, W.W. Nortin Inc, New York, New York

(42) Weldon and Nusser, Bundestag Election 2009, Solidifying the Five Party System, Vol. 28, No 3, Fall 2010, German Politics and Society

(43) Migdal, Joel S., Strong Societies and Weak States, 1988, Princeton University Press, Princeton, New Jersey

(44) Smith, Adams, The Wealth of Nations, iPod App – BeamItDown iFLOW Reader

(45) Machiavelli, Niccolo, The Prince, iPod App – BeamItDown iFLOW Reader

Fuchs
09-26-2011, 06:13 AM
The European Union (EU) is the beating macroeconomic heart of European Command (EUCOM)

(...)

The European Union is not a fiscal union and it is an incomplete economic (common market and customs union) and monetary union; this distinction is at the center of its current macroeconomic troubles.

a) EU is not a part of EUCOM. EUCOM is merely concerned with an area in which the EU member states are.


b) I disagree on the fiscal policy thing.
Italy has the exact same macroeconomic problems between its north and its south as the Euro currency region has between its member states. Legal harmonisation and unification do not change the actual economic properties.

There are theories of optimal currency area, and one of them postulates that you need a high input factor mobility (capital, labour) inside a currency area in order to get a self-balancing effect.
An increase in Greek emigration hints that there is some labour mobility, but the past decade shows that it wasn't sufficient.
Furthermore, there is some theoretical work missing (or unknown to me) to reflect the fact that regions have fixed costs (pensions, government upkeep) and just draining them of input factors is an imperfect substitute for transfers in the case of imbalances.

There are proponents of further EU integration who continually sow the idea that problems are founded in imperfect integration into the world, but that are mere talking points. The actual macroeconomic analysis looks at different variables and finds different key problems.


(...)27 different financial ministries(...)

Actually, more. Some EU members have a federalist structure. Germany has 17 financial ministries alone.


Although comprised of 27 members, only 17 (the Eurozone) have ostensibly met the economic and monetary union requirements of the 1992 Maastricht Treaty. In return for the ability to participate in the world’s second largest reserve currency (...)

I disagree. At most 15 met the requirements. Greece lied its way into the club (and even after admitting it, continued to lie in the following years!) and Portugal was admitted despite failing to meet the requirements. It was deemed small enough to not hurt the other members significantly.


In order to achieve a fiscal union, member states will have to cede a greater portion of national control over fiscal policy to the EU.

The German federal constitutional court has pretty much written in stone by now that further integration would violate the constitution and be repealed by this court's rulings. There is not going to be a major step towards EU fiscal integration without replacing the German constitution.
Afaik amending or changing it won't suffice, for the articles in question are among the 20 first, definite ones that cannot be changed in their meaning.

davidbfpo
09-26-2011, 10:27 AM
An alternative view

The idea of a European Union (EU), which is far more than the Euro and a fiscal union, is a concept that is IMO not shared by many of the EU electorate, even less now with the debt crisis. Those who shared the concept, mainly national-level politicians and bureaucracies, failed to articulate what it actually meant, partly out of fear. Now the electorate are expected to "bail out" southern members, partly on the claimed basis it makes sense.

The EU ignored its own rules over the Euro, for political reasons and partly as Germany was distracted by the huge support costs of reunification.

Look at the Schengen Zone's weakening after the Libyan and Tunisian refugee exodus. Let alone the Common Foreign & Security Policy (CFSP) left in disarray after the Libyan intervention.

The EU appears to have attempted a politics-free economic union and then looked surprised when the markets and people have expressed concern over the state we now fin ourselves in.

Surferbeetle
09-26-2011, 08:02 PM
a) EU is not a part of EUCOM. EUCOM is merely concerned with an area in which the EU member states are.

Thank you for this observation, you are right; I incorrectly give this impression in several places within this document. I will rework it.


b) I disagree on the fiscal policy thing.
Italy has the exact same macroeconomic problems between its north and its south as the Euro currency region has between its member states. Legal harmonisation and unification do not change the actual economic properties.

There are theories of optimal currency area, and one of them postulates that you need a high input factor mobility (capital, labour) inside a currency area in order to get a self-balancing effect.
An increase in Greek emigration hints that there is some labour mobility, but the past decade shows that it wasn't sufficient.
Furthermore, there is some theoretical work missing (or unknown to me) to reflect the fact that regions have fixed costs (pensions, government upkeep) and just draining them of input factors is an imperfect substitute for transfers in the case of imbalances.

Studies by the northern league in Italy, and on some of the poorer US states immediately spring to mind…I’ll have to do some further reading and get back to you.


There are proponents of further EU integration who continually sow the idea that problems are founded in imperfect integration into the world, but that are mere talking points. The actual macroeconomic analysis looks at different variables and finds different key problems.

I incompletely visualize the many, many possible permutations of EU integration as a binary tree, and as an American I think about the possibilities of a ‘United States of Europe’ or of Germany going it alone and becoming a sort of counterfactual German version of the Republic of Texas (1836 to 1846 - but with a *lot* more ordnung and way better infrastructure? Perhaps it was simply too many Lucky Luke comics when I was younger :wry: )

I also think about traveling around Europe in pre-Schengen days, noting the differences in customs, dialects, languages, dress, and architecture. Back in the day German’s never wore tennis shoes outside of sporthalle , that was just for tacky Ami’s. Today when I visit I consider the cost of the barriers and delays to the free flow of capital (human and otherwise) of the pre-Schengen zone days and wonder about the effects of cultural homogenization.

Short answer is that I am unable to cut the Gordon knot on this one…


Actually, more. Some EU members have a federalist structure. Germany has 17 financial ministries alone.

Solid point, thanks. I’ll edit…


I disagree. At most 15 met the requirements. Greece lied its way into the club (and even after admitting it, continued to lie in the following years!) and Portugal was admitted despite failing to meet the requirements. It was deemed small enough to not hurt the other members significantly.

I went with the word ostensibly to be polite. From a purely technical standpoint it appears to me from this armchair that the accessions criteria were not met in some instances. Political successes are not strictly linked to technical successes however, which of course results in future costs or benefits depending upon how the dice fall....complicating this gamble is the observation that world's ratio of statesmen/women to politicians is not what it should be :cool:


The German federal constitutional court has pretty much written in stone by now that further integration would violate the constitution and be repealed by this court's rulings. There is not going to be a major step towards EU fiscal integration without replacing the German constitution.
Afaik amending or changing it won't suffice, for the articles in question are among the 20 first, definite ones that cannot be changed in their meaning.

Will have to review the Grundgesetz again, it’s been a while.

Speaking of laws I note that timeline wise:

September 27th ,the Greek Parliament is scheduled to vote on property taxes
September 28th, the Finnish Parliament is scheduled to vote on the European Financial Stability Facility (EFSF)
September 29th, the German Parliament might ratify the EFSF

Fuchs
09-26-2011, 08:11 PM
Will have to review the Grundgesetz again, it’s been a while.

http://www.spiegel.de/international/germany/0,1518,634506-2,00.html

The first 20 constitutional articles cannot be changed or contradicted in their meaning.
https://www.btg-bestellservice.de/pdf/80201000.pdf


Article 20
[Constitutional principles – Right of resistance]
(1) The Federal Republic of Germany is a democratic and social
federal state.
(2) All state authority is derived from the people. It shall be exercised
by the people through elections and other votes and
through specific legislative, executive and judicial bodies.
(3) The legislature shall be bound by the constitutional order,
the executive and the judiciary by law and justice.
(4) All Germans shall have the right to resist any person seeking
to abolish this constitutional order, if no other remedy
is available.

Surferbeetle
09-26-2011, 09:39 PM
An alternative view

The idea of a European Union (EU), which is far more than the Euro and a fiscal union, is a concept that is IMO not shared by many of the EU electorate, even less now with the debt crisis. Those who shared the concept, mainly national-level politicians and bureaucracies, failed to articulate what it actually meant, partly out of fear. Now the electorate are expected to "bail out" southern members, partly on the claimed basis it makes sense.

The EU ignored its own rules over the Euro, for political reasons and partly as Germany was distracted by the huge support costs of reunification.

Look at the Schengen Zone's weakening after the Libyan and Tunisian refugee exodus. Let alone the Common Foreign & Security Policy (CFSP) left in disarray after the Libyan intervention.

The EU appears to have attempted a politics-free economic union and then looked surprised when the markets and people have expressed concern over the state we now fin ourselves in.

Hey David,

I appreciate the comments. Working with my police friends in Iraq was a very interesting exposure to experiencing the on the ground reality of population demographics and ways of approaching things.

It would indeed seem to logically follow that if a fiscal union were to occur, some sort of political union would eventually appear upon the horizon.

My copy of The Economist, The World in 2011 quotes Herman Van Rompuy in the article: Europe in the new global game, as follows:


Historians will interpret the period we are living in as the transition from the economic phase of globalisation to its political phase. Economic globalisation came into full swing after the events of 1989, which ended communism and united Europe, and the West was proud of the universal attraction of its lifestyle. The number of democracies rose. Global trade and technology lifted hundreds of millions out of poverty, all over the world. Negative effects, such as growing inequalities, were brushed aside. This phase is now over.

Know that you enjoy the BBC and I do attempt to keep up with it's reporting on this topic and others.

A good book regarding the activities of The Treuhandanstalt or any other references that you would care to share would be most appreciated.

Steve the Planner
09-27-2011, 01:15 AM
Beetle:

Thanks for the great post, which has obviously inspired much discussion and debate.

I guess I am getting too old when, after reviewing many of these articles and ideas, I am taken back to the De-Industrialization issues of the mid-1990s, wherein we referenced backward to Drucker, etc... and the Marshall Plans, and the older industrial systems and structures. Not much new in the macro-world except re-arrangements of assets, and re-assessments of what makes which assets important at the moment.

Rare Earth? Re-opening the Inland Silk Road? Russia having resources on which Europe is critically dependent? Oil empires fighting for nuclear technology so that they can free up export capacity by generating domestic power from something other than oil?

Manufacturing chopsticks in Georgia (USA) for the chinese market due to availability of wood, minimal mechanization, cheap labor and cheap transport (empty reverse haul containers). Go figure?

Comparative advantage is in real-time flux, and the dynamic and interactive market complexities remain beyond the limits of command planning at the macro level.

The downfall of all this stuff is not the failures of complex market systems to track, control and project past activity into the future, but their inability to grasp what the actual future will be defined by.

Thanks for making me rethink about this stuff.

Surferbeetle
09-27-2011, 03:38 AM
Beetle:

Thanks for the great post, which has obviously inspired much discussion and debate.

Hey Steve,

Thanks; a long motorcycle ride followed by a couple of cold beers somehow always seems to help with the writing process on this end. :wry:


I guess I am getting too old when, after reviewing many of these articles and ideas, I am taken back to the De-Industrialization issues of the mid-1990s, wherein we referenced backward to Drucker, etc... and the Marshall Plans, and the older industrial systems and structures. Not much new in the macro-world except re-arrangements of assets, and re-assessments of what makes which assets important at the moment.

It sometimes seems that I regularly hit the airport just so that I can catch a copy of the latest HBR. Drucker is good, and a staple of HBR articles. Speaking of HBR did you catch the Jan-Feb 2011 Double Issue Creating Shared Value: How to reinvent capitalism, and unleash a new wave of growth by Michael Porter & Mark Kramer?

From the idea in brief rollup:


The concept of shared value-which focuses on the connections between societal and economic progress-has the power to unleash the next wave of global growth.


There are three key ways that companies can create shared value opportunities:

*By reconceiving products and markets

*By redefining productivity in the value chain

*By enabling local cluster development

...and deeper in the article:


Strategy theory holds that to be successful a company must create a distinctive value proposition that meets the needs of a chosen set of customers. The firm gains competitive advantage from how it configures the value chain, or the set of activities involved in creating, producing, selling, delivering, and supporting its products or services


However, companies have overlooked opportunities to meet fundamental societal needs and misunderstood how societal harms and weaknesses affect value chains

It's interesting to compare his latest concept with his five forces model (http://en.wikipedia.org/wiki/Porter_five_forces_analysis).


Rare Earth? Re-opening the Inland Silk Road? Russia having resources on which Europe is critically dependent? Oil empires fighting for nuclear technology so that they can free up export capacity by generating domestic power from something other than oil?

Reminds me of talk I was able to attend regarding the British East India Company; if we were to ignore the technological changes, how much have the underlying business models really changed?


Comparative advantage is in real-time flux, and the dynamic and interactive market complexities remain beyond the limits of command planning at the macro level.

The downfall of all this stuff is not the failures of complex market systems to track, control and project past activity into the future, but their inability to grasp what the actual future will be defined by.

Perhaps along similar lines, from another talk that I was able to attend:


'The Globalization Engine' consists of:

*The production of change

*New conditions for the creation of value

Steve the Planner
09-27-2011, 05:15 AM
The Porter stuff, too, all harkens back to the Structure of Scientific Revolutions: First, there is a new technological driver; Second, the implementation and dispersion.

So many technological drivers emerge from that Toynbee-esque challenge/challenge-faced stuff: sign companies in Iraq, Syria and Turkey that made a living changing out signs while the Arabization movements in the 1990s eliminated Kurdish, Aramean and Christian town names.

Otherwise, who could imagine that anyone could make money making new signs for ancient areas.

I keeping hearing about local clusters, and creative urban centers as if they were something new and magical, but its all just Jane Jacobs and David Bowie (Ch-ch-ch-changes...): that marvelous interaction that occurs between people, communities, ideas, problems and their interactions.

Hanover, MD c. 1995. We built a business park near NSA and BWI Airport, attracted a lot of defense contractors, which attracted more defense contractors, which attracted techno headhunters, then restaurants, hotels, retail, college satellites, which led to Arundel Mills Mall and a new casino under construction. Go figure?

slapout9
09-27-2011, 07:56 AM
Link to a BBC interview of a market trader......Euro will crash no matter what because governments do not control the world, big financial institutions like goldman sachs do:eek:


http://www.youtube.com/watch?v=aC19fEqR5bA&feature=player_embedded#!

Surferbeetle
09-27-2011, 01:11 PM
Link to a BBC interview of a market trader......Euro will crash no matter what because governments do not control the world, big financial institutions like goldman sachs do:eek:


http://www.youtube.com/watch?v=aC19fEqR5bA&feature=player_embedded#!

Hey Slap,

Good news and bad :o

For my 0.02 cents Goldman Sachs is the most formidable investment bank on the planet and perhaps in history. 38,300 employees generated 44.28 billion over the trailing twelve months. Their tangible book value [(total tangible assets-liabilities)/# of shares)] is $132.26 vs todays share price of $99.14. This share price is partially indicative, IMO, of the social penalty for crafting investment tools which have exited the investment arena (where it's a no holds barred fight to the death) and into the retail arena (civilians saving for retirement, weddings, and getting car loans, mortgages, small business loans, etc).

Jamie Dimon's complaints about how, that one time when he was walking to his limo from the bank lobby and that snow flake almost hit him and he thought he was going to freeze...uh, I mean about Basel III (http://en.wikipedia.org/wiki/Basel_III) and the Vickers report (http://bankingcommission.independent.gov.uk/) are worth watching. These two particular items might be enough to keep the investment banking soldiers from fighting in the retail banking neighborhoods of the civilians. We will see...:cool:

Quantum physics (atom bombs) vs newtonian physics (civil engineering) is similar to investment banking vs. retail banking. Gotta have both, but it's generally not a good idea to mix the two...:eek:

slapout9
09-28-2011, 04:37 AM
Quantum physics (atom bombs) vs newtonian physics (civil engineering) is similar to investment banking vs. retail banking. Gotta have both, but it's generally not a good idea to mix the two...:eek:

Yep, we made a big mistake by getting rid of the Glass-Steagall act:(

Steve the Planner
09-28-2011, 04:51 AM
Slap:

That was the beginning of the end.

Steve

Surferbeetle
09-28-2011, 03:16 PM
What is a rating agency? (http://www.bbc.co.uk/news/10108284), By Rebecca Marston Business reporter, 18 April 2011, BBC News


AAA, Ba3, Ca, CCC... they look like some kind of hyper-active school report.

They are, indeed, a marking system, and one that is designed to inform interested parties.

The letter formations are given to large-scale borrowers, whether companies or governments, and tell the buyers of this debt how likely they are to be able to get it back.

The score card also affects the amount that should be charged by way of return on that borrowing.

These letters have been all over the coverage of the financial impact of the crisis besetting the eurozone.

A change to the score means a change to the amount a borrower must pay its debt-holders, something that can make it more expensive to borrow as investors demand a higher rate of return for taking on more risky debt.

Timeline: The unfolding eurozone crisis (http://www.bbc.co.uk/news/business-13856580), 20 September 2011, BBC News


To join the currency, member states had to qualify by meeting the terms of the treaty in terms of budget deficits, inflation, interest rates and other monetary requirements.

Of EU members at the time, the UK, Sweden and Denmark declined to join the currency.

Since then, there have been many twists and turns for the countries that use the single currency.

Economy enters 'dangerous phase' (http://www.bbc.co.uk/news/business-14985256), By Kabir Chibber Business reporter, 20 September 2011, BBC News


Three nations in the eurozone - the 17 nations that use the euro - have been recipients of bailouts as attempts to solve the crisis keep stalling.

Italy became the latest to feel the domino effect of the markets when its debt rating was lowered, the latest in a series of downgrades.

Greece, Spain, the Irish Republic and even Cyprus have also had their ratings cut this year. The future of the euro is being questioned in a way it never has since 1999.

Which countries have fallen, and which are feared to be next?

EU 'faces its greatest challenge' - Jose Manuel Barroso (http://www.bbc.co.uk/news/world-europe-15087683), 28 September 2011, BBC News


The head of the European Commission has told Euro MPs that Greece will stay in the eurozone, but warned that the EU was facing its "greatest challenge".

Appealing for patience over the Greek debt crisis in his annual State of the Union address, Manuel Barroso said: "This is not a sprint but a marathon."


A key obstacle to the payment was removed on Tuesday when the Greek parliament passed a controversial new property tax bill, first announced earlier this month, that aims to boost revenues.

Surferbeetle
09-29-2011, 03:41 AM
Greece's debt crisis odyssey (http://www.bbc.co.uk/news/business-14977728), 22 September 2011, BBC News

Binomial tree methods (http://en.wikipedia.org/wiki/Binomial_options_pricing_model) are taught in business school, as an investment tool, for the valuation of options (http://en.wikipedia.org/wiki/Option_(finance)).

Exchange Traded Funds (http://en.wikipedia.org/wiki/Exchange-traded_fund) are evolving from simply tracking/replicating a specific index to including leverage.

These tools and others are just like a rifle or pistol in that it's good to keep in mind that they are always loaded, are not toys, and need to be used responsibly. ;)

Financial Engineering TTP's (http://en.wikipedia.org/wiki/Mathematical_finance) used by 'Quants' (http://en.wikipedia.org/wiki/Quantitative_analyst)

A good, positive, and fun to read, book regarding the world of banking and finance is Against the Gods: The Remarkable Story of Risk, by Peter L. Bernstein (http://en.wikipedia.org/wiki/Peter_L._Bernstein)

There are also plenty of examples to keep in mind of how things can quickly go wrong:

TARP (http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program)

Long Term Capital Management (http://en.wikipedia.org/wiki/Long-Term_Capital_Management)

Kweku Adoboli (http://en.wikipedia.org/wiki/Kweku_Adoboli)

Jerome Kerviel (http://en.wikipedia.org/wiki/Jérôme_Kerviel)

slapout9
09-29-2011, 04:54 AM
Link to the blog naked capitalism which has an interview with Dr. Michael Hudson on the situation in Europe and USA.



http://www.nakedcapitalism.com/2011/09/michael-hudson-debt-deflation-in-america.html

Surferbeetle
10-01-2011, 11:58 PM
Although it might be a bit much for those with delicate sensibilities (the writer has a very definite point of view), the blog London Banker (http://londonbanker.blogspot.com/) is thoughtful, very well written, and provides an interesting window into the world of finance for those so inclined.

slapout9
10-02-2011, 06:03 PM
Although it might be a bit much for those with delicate sensibilities (the writer has a very definite point of view), the blog London Banker (http://londonbanker.blogspot.com/) is thoughtful, very well written, and provides an interesting window into the world of finance for those so inclined.

Beetle, it is a good idea but I don't think it is going to happen.:(

Surferbeetle
10-09-2011, 10:13 PM
Banks to be forced to boost liquid assets, by Brooke Masters, chief regulation correspondent, October 9, 2011 7:08 pm, Financial Times, www.ft.com


Global banking regulators will press ahead with the first worldwide effort to force banks to hold more liquid assets and cut back the industry’s reliance on short-term funding, despite complaints that the rule changes could damage the broader economy, the new chairman of the Basel Committee on Banking Supervision has warned.


“It is going to be all about implementation in as uniform a way as possible. Balkanisation of the rules over the long term is not in anyone’s interest,” Mr Ingves said.

The committee plans to publish “heat” maps that show which countries are in compliance. It will also send out teams of experts to look at whether each country’s implementation laws and regulations live up to the letter of the agreement.


Belgium Said to Get Approval to Buy Dexia Unit, (http://www.bloomberg.com/news/2011-10-09/belgium-is-said-to-get-france-s-approval-to-buy-dexia-consumer-bank-unit.html) By Francois de Beaupuy, Jacqueline Simmons and Fabio Benedetti - Oct 9, 2011 1:03 PM MT, Bloomberg News


Rescuing Dexia -- the first victim of the debt crisis at the core of Europe -- has become critical to preventing contagion in the region’s banking industry. Dexia’s balance sheet, with total assets of about 518 billion euros at the end of June, is about the size of the entire banking system in Greece and larger than the combined assets of financial institutions bailed out in Ireland in the last 2 1/2 years.

Fate of Eurozone bailout rests on Slovak politician Richard Sulik (http://articles.latimes.com/2011/oct/07/world/la-fg-slovakia-bailout-20111008), October 07, 2011, By Henry Chu, Los Angeles Times


The Slovak parliament is scheduled to vote Tuesday on a plan to beef up Europe's bailout fund for financially strapped nations such as Greece. Most experts agree that broadening the fund's powers is a crucial, if limited, step in taming the debt crisis that has had financial markets somersaulting and fed worries about a double-dip recession.

Fifteen of the 17 nations that use the euro currency, including heavyweights Germany and France, have signed on to the plan, with Malta expected to approve it within days. But it requires approval by all the Eurozone countries, and a thumbs up from Slovakia, which will probably be the last to vote on the measure, is in grave doubt.


The torpid response has given ammunition to those in Brussels who yearn for a more federalist setup in which centralized institutions such as the European Parliament could make quick, binding decisions, instead of relying on getting each member state's government to sign off on policies.

Imagine the difficulties in the United States, critics say, if legislation affecting the entire country had to be approved by the government of every state, rather than by Congress.

BNP, Socgen deny reported plan to raise $9.4 billion (http://www.reuters.com/article/2011/10/09/us-bnp-socgen-idUSTRE79810320111009), PARIS | Sun Oct 9, 2011 5:13pm EDT, Reuters


The Journal du Dimanche report, which did not cite sources, follows one in German daily Frankfurter Allgemeine Zeitung saying that the top five French banks had agreed to receive 10 to 15 billion euros in fresh capital from the French state as long as Deutsche Bank (DBKGn.DE) agreed to a government capital injection as well.

Surferbeetle
10-10-2011, 05:49 PM
Gavyn Davies is a macroeconomist who is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners. He was the head of the global economics department at Goldman Sachs from 1987-2001, and was chairman of the BBC from 2001-2004.

He has also served as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury, and as a visiting professor at the London School of Economics.



Schizophrenia about debt, October 9, 2011 4:10 pm by Gavyn Davies, Financial Times, www.ft.com


German Finance Minister Schauble has graphically described his own attitude to the debt crisis. “You cannot”, he says, “cure an alcoholic by giving him more alcohol.” Maybe not, but the alternative of cold turkey does not seem to be working all that well, either. Like it or not, the global economy needs a mixture of policies which write off debt in some cases, pay off debt in others, and extend debt in still others. A one-size-fits-all approach which encourages the simultaneous deleveraging of all sectors at maximum speed could cause a genuine economic calamity.


If the debt is transferred to the government balance sheet, these risks come in the form of higher rates of taxation in the long term. If transferred to the central bank balance sheet, they come in the form of higher inflation. All this is justified on the grounds that the alternative is worse, for everyone.

Not everyone agrees with this. In the 1920s, Friedrich von Hayek wrote that the rapid expunging of debt would rid the economic system of what he called “malinvestments”.

Most recently, these malinvestments have been made in finance and real estate. Allowing them to fail, Hayekians believe, will encourage a fresh start. (Robert Skidelsky, Keynes’ biographer, discusses the Hayekian view in an excellent piece in the New Statesman this week.) Those who believe in Schumpeter’s notion of “creative destruction” may be tempted down the same path.

James Grant’s latest “Interest Rate Observer” contains an interesting account of what happened the last time a policy of outright cold turkey was tried in the US, which was in the depression of 1920-21. In the face of a deep slump, credit growth was stopped in its tracks. The Fed, under Benjamin Strong, raised interest rates and the Treasury, under Democrat Carter Glass, ran budget surpluses. “The Treasury has no money to lend. It is not in the banking business, and should not be”, said Secretary Glass. Deflation was treated as inevitable. “No-one could have stopped it…in our opinion, it was bound to come” said Chairman Strong.

The unemployed, deliberately it seems, were left to fend for themselves, even when the jobless rate increased eight-fold to over 12 per cent in 1920. Policy did not change. The public books were balanced, and the Fed even repelled an influx of gold which might have ended the downturn quicker. So did cold turkey work?

James Grant says it did. The recession was over by 1922, and unemployment was back down to 2.4 per cent by 1923. But in the meantime, real GDP fell by over 8 per cent, industrial production was down by 23 per cent, and consumer prices fell by 22 per cent.

That, says Grant, is better than a policy of endless stagnation. But surely we can find a better way.


Creative destruction (http://en.wikipedia.org/wiki/Creative_destruction), From Wikipedia, the free encyclopedia


Creative destruction is a term originally derived from Marxist economic theory which refers to the linked processes of the accumulation and annihilation of wealth under capitalism. These processes were first described in The Communist Manifesto (Marx and Engels, 1848)[1] and were expanded in Marx's Grundrisse (1857)[2] and "Volume IV" (1863) of Das Kapital.[3] At its most basic, "creative destruction" (German: schöpferische Zerstörung) describes the way in which capitalist economic development arises out of the destruction of some prior economic order, and this is largely the sense implied by the German Marxist sociologist Werner Sombart who has been credited[4] with the first use of these terms in his work Krieg und Kapitalismus ("War and Capitalism", 1913).[5] In the earlier work of Marx, however, the idea of creative destruction or annihilation (German: Vernichtung) implies not only that capitalism destroys and reconfigures previous economic orders, but also that it must ceaselessly devalue existing wealth (whether through war, dereliction, or regular and periodic economic crises) in order to clear the ground for the creation of new wealth.[1][2][3]

From the 1950s onwards, the term "creative destruction" has become more readily identified with the Austrian-American economist Joseph Schumpeter,[4] who adapted and popularized it as a theory of economic innovation and progress. The term, as used by Schumpeter, bears little resemblance with how it was used by Marx. As such, the term gained popularity within neoliberal or free-market economics as a description of processes such as downsizing in order to increase the efficiency and dynamism of a company. The original Marxist usage has, however, been maintained in the work of influential social scientists such as David Harvey,[6] Marshall Berman,[7] and Manuel Castells.[8]

Surferbeetle
10-16-2011, 07:35 PM
Financial contagion has continued it’s visible advance into the core of the 17 member Eurozone. On 19, September 2011 the S & P downgraded the Republic Italy’s credit rating to A/Negative/A-1 citing concerns regarding economic and political weakness. (1) (2) Since this report the Kingdom of Spain’s banking industry rating, has been downgraded to Group 4 (Group 1 is the strongest and group 10 the weakest). (3) Spain's resultant banking peer group includes the Czech Republic, Israel, Korea, Mexico, and the Slovak Republic. Both the Republic of France (AAA/AAA/AAA) and the Federal Republic of Germany (AAA/AAA/AAA) currently maintain their sovereign credit ratings (Local Currency Rating, Foreign Currency Rating, Transfer and Convertability Assessment), however the viability of France’s credit rating is being questioned in some financial quarters. (4) (5) (6) In the context of the third quarter of 2011, Standard and Poors has downgraded 119 credit issuers who have floated $3.1 trillion USD in debt. (7) Although history seems to suggest that select sovereign’s consider war as a viable way to solve economic problems, it is of interest to note that the G-20 can be viewed as actively seeking a political and economic solution (which may include focused action with respect to as many as 50 systemically important banks). (8)(9) Nonetheless, with respect to actual concrete solutions, skeptics and transnational institutions do not yet appear to be convinced. (10) (11)

(1) Republic of Italy, September 19, 2011, Global Credit Portal, Standard and Poors, http://img.en25.com/Web/StandardandPoors/RepublicofItaly.pdf

(2) Italy’s Rating Cut One Level by S&P as Greek Crisis Fans Contagion Concern, By Jeffrey Donovan - Sep 20, 2011 8:58 AM MT, Bloomberg News, http://www.bloomberg.com/news/2011-09-19/italy-s-credit-rating-cut-one-level-to-a-by-s-p-as-government-debt-mounts.html

(3) Spain Banking Industry Country Risk Assessment Revised To Group 4 From Group 3 On Heightened Economic Risk, 13 October, 2011, Standard and Poors, www.standardandpoors.com

(4) Sovereigns Ratings List, Standard and Poors, www.standardandpoors.com

(5) U.S. Money Funds Reduced Lending to French Banks by 44% in September, By Radi Khasawneh - Oct 13, 2011 5:01 PM MT, Bloomberg News, http://www.bloomberg.com/news/2011-10-13/u-s-money-funds-cut-loans-to-french-banks-by-44-last-month.html

(6) Governments and banks locked in fatal embrace, October 11, 2011, by John Plender, Financial Times, www.ft.com

(7) Credit Trends: Downgrades Outpaced Upgrades in The Third Quarter in the US., Europe, Emerging Markets, and The Other Developed Regions, 13 October, 2011, Standard and Poors, www.standardandpoors.com

(8) Mearsheimer, John J., The Tragedy of Great Power Politics, 2001, W.W. Nortin Inc, New York, New York

(9) Europe Crisis Plan Wins Global Backing, By Simon Kennedy and Cheyenne Hopkins - Oct 15, 2011 4:00 PM MT, Bloomberg News, http://www.bloomberg.com/news/2011-10-15/g-20-tells-europe-to-deal-decisively-with-debt-crisis-at-oct-23-summit.html

(10) Why Europe’s officials lose sight of the big picture, by Wolfgang Munchau, October 16, 2011, Financial Times, www.ft.com

(11) Global Financial Stability Report, Grappling with Crisis Legacies, September 21, 2011, International Monetary Fund, http://www.imf.org/External/Pubs/FT/GFSR/2011/02/index.htm

Surferbeetle
10-18-2011, 02:45 PM
Two viewpoints...

Germany will never leave the eurozone, by Dr. Ian Bremmer (http://en.wikipedia.org/wiki/Ian_Bremmer), 18 October 2011, A-List, Financial Times, www.ft.com


Germany accounts for little more than one per cent of the world’s population – and nearly nine per cent of its exports. A common currency ties its strength to the eurozone’s relative weakness. The shared euro is significantly weaker than the standalone German currency would be. This subsidises German exports, making them more affordable internationally.


Without Germany, the European Union would disintegrate. When the dust settles, the country would end up with less friendly neighbours from an economic and from a security perspective. In the near term, unpredictable global contagion and crisis aside, we’d see a flight to German bonds, putting immense pressure on the real exchange rate and crippling exports and competitiveness. The bottom line: people would buy Bunds instead of Benzs. A new D-Mark would follow the trajectory of the Swiss franc’s recent rise, only to a greater order of magnitude.

While the liberal Free Democratic Party has complicated Germany’s pro-euro strategy, its outlier stance matches its dwindling support (it won 15 per cent of the vote in 2009 – now it often polls below the 5 per cent required to enter parliament). Overall, the constellation of German political parties supports deeper integration to solve the debt crisis. Politicians are overwhelmingly pro-euro and pro-eurozone, even if they will drag their feet before putting Germany’s money where its mouth is. Business leaders also advocate more euro integration.

September 2011 Policy & Markets Note, by Dr. Pippa Malmgren (http://en.wikipedia.org/wiki/Philippa_Malmgren), http://www.pippamalmgren.com/77.html


The markets are focused on the imminent default by Greece. But, this is not the most important issue now. The historic development the markets have not priced in as that Germany is preparing to exit the Euro. The markets are very likely to have to contend with the re-introduction of Deutsche Marks in the near future. This is bound to mean a collapse in the value of the Euro for those countries that will remain in it (devaluation for the rest of Europe). This step may seem unthinkable but, I believe that the German government is telling us in multiple ways that there is no other solution from their point of view. It is also why you will hear various policymakers at the G7 meeting his weekend echo Christine Lagard’s comment that the world economy is entering a "dangerous new phase."[i] This was certainly the atmosphere at Jackson Hole where policymakers openly talked about entering a period of history where we would face challenges beyond the scope of anything we have seen in our careers.


Christine Lagarde’s speech at Jackson Hole revealed the recognition that there was a risk that Germany might not “write a check” to bailout the Eurozone members. She said, to paraphrase, “somebody needs to write a check or we are going to have historic multiple bank failures.” Everyone in the audience understood that no check is coming. The ESFS is not yet funded and a number of the contributors will not hand over cash if there is no collateral. Of course, the only collateral available is the insufficient gold reserve, or handing over ownership of the nations industrial assets[iv], which amounts to having a nationalization of industry, which is then put under the control of a foreign government. So, there really is no meaningful collateral. Also, there is no international party, including China, that can write a check large enough to fill the cumulative debt hole that exists across the various Eurozone countries.

Past as prologue? German reunification (http://en.wikipedia.org/wiki/German_reunification)

Fuchs
10-18-2011, 03:40 PM
I may be slightly confused in regard tot he detail of macroeconomics at times (I studied it a decade ago, details got lost) - but the basic premise of the first quote seems to be wrong.

Net exports equal net capital export. A capital flight to Germany would equal a net capital import of Germany. So either he asserts that Germany would get a trade balance deficit with the DM (unlikely; it's more like a halved surplus - similar to the yr 2000 situation) or he's inconsistent.

My 50 Euro cents are on the latter.


Besides, a stronger economy also means considerable advantages - not only disadvantages. Imports (such as oil, gas and microelectronics) would become cheaper and Germans could make even more vacations in foreign countries.
We have IIRC even a law (since the 60's) that in theory demands a policy towards a balanced trade. It's been ignored (Germany nurtures the myth that a budget surplus is a great thing) and is being considered to be obsolete from an economic science point of view. No parliament is going to cancel a law that's named "stability law", though...



Surferbeetle; I strongly recommend a look at the optimal currency area (http://en.wikipedia.org/wiki/Optimal_currency_area) theories in detail (there are about 7 iirc). They're the key to looking beyond the superficialities of politics in regard to the Euro crisis. The great experiment has settled the late 1990's debates about those theories and the conclusions are now quite inescapable unless you insist on looking the other way (as many politicians do).

Fuchs
10-27-2011, 09:23 PM
Slightly related to topic:
A google translate version of a FAZ.net (one of the big German national newspapers) article.

1515

It gives a good idea of the German opposite of the U.S. credit card and "consumption drives the economy" culture.

Surferbeetle
10-31-2011, 02:53 AM
If one is living abroad and being paid in a currency that is stronger than the local currency, after paying ones local expenses in local currency, one can save more. Similarly, if one manufactures a competitive item for a cost effective price, in local currency, and sells it in a stronger currency a greater profit is possible.

Let's run the numbers for these two cases:

Case 1


Monthly living expenses in Deutsche Marks (DM prior to 1 Jan '99) = 2,000



Exchange rate: 2 DM to 1 USD




Resultant monthly living expenses in USD = 1,000



Exchange rate: 1 DM to 1 USD




Resultant monthly living expenses in USD = 2,000


Case 2


Production cost in Deutsche Marks (DM prior to 1 Jan '99) for a hypothetical product = 1,000 DM = manufacturing cost + labor cost + overhead cost + profit cost


Typical product pricing in USD, for hypothetical product = 1,000




Exchange rate: 2 DM to 1 USD




Production Cost in USD = 500 USD. Potential additional profit per item, 500 USD



Exchange rate: 1 DM to 1 USD




Production Cost in USD = 1,000 USD. Potential additional profit per item, 0 USD




In a real world example of the effects of currency fluctuations from this year, recall that the Swiss Franc was acting as a 'haven currency' due to the low political and economic risk associated with Switzerland.

Due to the resulting currency appreciation, Swiss manufacturers were having difficulties selling their products globally, for a profit. On 6 September 2011 the Swiss National Bank (http://www.snb.ch/en/mmr/reference/pre_20110906/source/pre_20110906.en.pdf) pegged the Swiss Franc to the Euro at 1.2 Swiss Francs to the Euro. This means that the SNB may be printing money in order to devalue the Franc to maintain this peg.

The Economist ran an informative article regarding the effects of currency interventions entitled How to Stop a Currency War (http://www.economist.com/node/17251850) on 14 Oct, 2010

Fuchs
10-31-2011, 10:22 PM
The opposite effect applies to imports; they become more expensive when your currency is strong. The net welfare gain is thus small if there's any.

Artificially boosted competitiveness tends to lead to trade surpluses. Trade surplus = net capital export = not available as capital investment or consumption at home = you basically work for the quality of life of others, in exchange for a mere promise to be paid back sometime in the future.

Promises are being broken at times (just look at a certain country that's known for its series of very much lying governments), and even if there's no promise; a capital investment in a foreign country can go wrong and yield no capital income, thus be wasted.

Surferbeetle
11-28-2011, 05:55 PM
Central Banks Ease Most Since ‘09 to Avert Europe-Led Slump (http://www.bloomberg.com/news/2011-11-27/central-banks-ease-most-since-2009-to-avert-impact-of-european-debt-crisis.html), by Scott Lanman, Nov. 28 2011, Bloomberg News


Central banks across five continents are undertaking the broadest reduction in borrowing costs since 2009 to avert a global economic slump stemming from Europe’s sovereign-debt turmoil.


Monetary easing will push the average worldwide central bank interest rate, weighted for gross domestic product, to 1.79 percent by next June from 2.16 percent in September, the largest drop in two years, according to data and projections from JPMorgan, which tracks 31 central banks. The number of those banks loosening credit is the most since the third quarter of 2009, when 15 institutions cut rates, the data show.


Yields on 10-year French debt increased to 3.58 percent as of 3:54 p.m. London time from 2.44 percent in September. Italy’s 10-year bond yields were at 7.20 percent, up from 4.52 percent in February. German 10-year rates have declined to 2.31 percent from 3.51 percent in April even after Germany failed to get bids for 35 percent of the 10-year bonds it offered Nov. 23.


Europe’s turmoil has led Australia, Brazil, Denmark, Romania, Serbia, Israel, Indonesia, Georgia and Pakistan to reduce interest rates since late August. Chile, Mexico, Norway, Peru, Poland and Sweden are also forecast by JPMorgan Chase to lower borrowing costs by the end of the first quarter, while Australia, Brazil, Indonesia and Romania may cut rates further. Israel today lowered its main rate a second time, by 0.25 percentage point to 2.75 percent.

In the U.S., Federal Reserve Chairman Ben S. Bernanke is considering further actions to lower borrowing costs in the world’s biggest economy. He vowed in August to keep the benchmark interest rate close to zero through at least mid-2013. The central bank in September decided to replace $400 billion of short-term securities it holds with longer-term debt to reduce rates on extended-maturity debt.


Policy makers in much of the developing world, including Asia, are reluctant to ease with inflation high and the chance of economies overheating, Hensley said. Instead, they’re more likely to keep interest rates unchanged, he said.

India’s central bank has raised interest rates 13 times to 8.5 percent to control inflation that has stayed above 9 percent this year. “The central bank would prefer to hold policy interest rates steady for a prolonged period,” said Siddhartha Sanyal, chief economist for the country at Barclays Plc in Mumbai. He worked at the Reserve Bank of India from 1999 to 2007.

In China, the world’s second-largest economy, the central bank on Nov. 16 reiterated Premier Wen Jiabao’s pledge to “fine-tune” policies when needed. While inflation may continue to moderate, “the foundation for price stability is not yet solid,” the bank said in its third-quarter monetary policy report.

davidbfpo
12-01-2011, 12:54 PM
Hat tip to the Australian Lowy Institute pointing at a speech by the Polish Foreign Minister yesterday, which has some stark passages and I have selected this section, which historically is poignant and telling:
I will probably be the first Polish foreign minister in history to say this, but here it is: I fear German power less than I am beginning to fear its inactivity. You have become Europe’s indispensable nation. You may not fail to lead: not dominate, but to lead in reform.

There is nothing inevitable about Europe’s decline. But we are standing on the edge of a precipice. This is the scariest moment of my ministerial life.


Link:http://www.ft.com/cms/s/0/b753cb42-19b3-11e1-ba5d-00144feabdc0.html#ixzz1f8jH7ngU

Fuchs
12-01-2011, 02:33 PM
The Poles had the choice between guys like him and the Germanophobe tin foil-hat populists of their previous government...

There's some truth in his words, but Germany can only fix the mess completely by reversing its course totally. ECB money as short term fix and permanently high inflation in Germany and some other well-off Euro zone countries as long-term fix.
We're not going to do that, for the pressure of the problem is not really on us.

In fact, the left wing in Germany is so deeply asleep that it didn't yet grasp that part of the problem are the low wage increases in Germany - a cause that they should fight against with enthusiasm.
In stead, we've go the un-economics Greens, the badly mauled social democrats who still didn't recover from betraying the worker class and the (on the federal level) boycotted far left party that's composed of the former left wing of the social democrats and the former (?) communists.
None of them raises a voice in favour of a 10% wage increase, and even if they did: There's an autonomy between employers and employees. The government or legislative simply does not dictate wages in Germany.

We would need to undo the reforms of the past 15 years in order to lower the competitiveness of the German export economy far enough to allow the Mediterranean region to recover from our trade pressure.



The tragedy is that a few countries with competitive industries pushed for ever greater competitiveness, while countries with rather uncompetitive industries were content with the bubbles enabled/caused by the common currency and the associated blind trust of many incompetent financial market players.

Surferbeetle
12-02-2011, 04:07 PM
Dollar Funding Costs Decline for Second Day After Swap Rate Cut (http://www.bloomberg.com/news/2011-12-01/dollar-funding-costs-decline-for-second-day-after-swap-rate-cut.html), By Namitha Jagadeesh - Dec 1, 2011 2:03 AM MT, Bloomberg News


The cost for European banks to borrow in dollars fell for a second day after central banks led by the Federal Reserve cut the cost of emergency dollar loans.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 121 basis points below the euro interbank offered rate at 9:02 a.m. in London, from minus 131 basis points yesterday. The gap had widened to 162.5 below Euribor yesterday, the most in three years, before the Fed move.


Lenders increased overnight deposits at the European Central Bank, placing 304 billion euros ($408 billion) with the Frankfurt-based ECB yesterday, up from 297 billion euros on Nov. 29. That compares with a year-to-date average of 81 billion euros.

The Fed’s Secret Liquidity Lifelines (http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/#/overview/?sort=nomPeakValue&group=none&view=peak&position=0&comparelist=&search=), Interactive Graphic by David Yanosfsky, Bloomberg News


The US Federal Reserve mounted an unprecedented campaign to head off a depression by providing as much as $1.2 trillion in public money to banks and other companies from August 2007 through April 2010. The emergency loans were intended to help recipients cope with cash shortfalls and keep credit markets from grinding to a halt. Bloomberg News sorted through 29,000 pages of previously secret documents and Fed spreadsheets detailing more than 21,000 loans to compile a database showing which companies got the emergency liquidity, and when.


See loans to foreign governments or banks owned by them (http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/#/compare/?comparelist=Bayerische_Landesbank-Arab_Banking_Corp_Bahrain-Free_State_of_Bavaria-Republic_of_Korea-Gulf_International_Bank_BSC-Land_Bank_of_Taiwan).

Surferbeetle
12-04-2011, 05:47 PM
Draghi Signals ECB May Step Up Debt Measures If EU Considers Fiscal Union (http://www.bloomberg.com/news/2011-12-01/draghi-says-ecb-bond-purchases-can-only-be-limited-pushes-fiscal-union.html), By Jeff Black and Simone Meier - Dec 1, 2011 5:27 AM MT, Bloomberg News


European Central Bank President Mario Draghi signaled the ECB could do more to fight the debt crisis as long as governments push the euro area toward a fiscal union.

“A new fiscal compact” is “definitely the most important element to start restoring credibility,” Draghi said in an address to the European Parliament in Brussels today. “Other elements might follow, but the sequencing matters. It is first and foremost important to get a commonly shared fiscal compact right.” Draghi didn’t specify what more the ECB could do and said the central bank’s bond purchases “can only be limited.”

ECB balance sheet hits new high last week (http://www.marketwatch.com/story/ecb-balance-sheet-hits-new-high-last-week-2011-11-29), Nov. 29, 2011, 9:59 a.m. EST, Marketwatch/WSJ


The balance sheet of the Eurosystem, which comprises the Frankfurt-based European Central Bank and the 17 euro-zone national central banks, grew by EUR26.2 billion compared with the previous week, settling at EUR2.42 trillion. This was EUR503.6 billion larger than a year earlier.


Net lending to credit institutions decreased by EUR10.4 billion to EUR189.7 billion last week. Still, lending at its main refinancing operations rose. Last Wednesday, a main refinancing operation of EUR230.3 billion matured and a new one of EUR247.2 billion settled. Earlier Tuesday, the ECB said it lent EUR265.5 billion to banks in seven-day funds, the highest demand for seven-day funds since June 2009.


The Eurosystem's holdings of securities held for monetary policy purposes increased by about EUR9 billion to EUR263.3 billion, the ECB said. The increase was due to the net result of EUR8.6 billion in settled purchases under the ECB's Securities Markets Program, the formal name for its program of buying euro-zone government bonds on the secondary market, and EUR0.5 billion under the ECB's second covered bond purchase program, as well as the redemption of securities under the SMP.

ECB Website, Home > Monetary Policy > Instruments > Open market operations (http://www.ecb.int/mopo/implement/omo/html/index.en.html)


The Eurosystem’s regular open market operations - i.e. one-week and three-month euro liquidity-providing operations - serve to steer short-term interest rates, to manage the liquidity situation, and to signal the stance of monetary policy in the euro area.

Currently, the regular operations are complemented by euro liquidity-providing operations with a maturity of (around) one month as well as US-dollar liquidity-providing operations. In addition, until 30 June 2010, the Eurosystem purchased euro-denominated covered bonds under the Covered Bond Purchase Programme (CBPP) and, since 10 May 2010, it has conducted interventions in debt markets under the Securities Markets Programme (SMP). The liquidity provided through the SMP is currently absorbed by weekly collections of fixed-term deposits.

Fuchs
12-04-2011, 06:00 PM
“A new fiscal compact” is “definitely the most important element to start restoring credibility,”

"compact" or "contract"?

davidbfpo
12-04-2011, 06:38 PM
To my amusement Jacques Delors, the EU Commission's President (1985-1995), has now come out to announce what went wrong:
the eurozone was flawed from the beginning....the lack of central powers to co-ordinate economic policies allowed some members to run up unsustainable debt.

Link:http://www.bbc.co.uk/news/world-europe-16016131 and the actual interview:http://www.telegraph.co.uk/finance/financialcrisis/8932640/Jacques-Delors-interview-Euro-would-still-be-strong-if-it-had-been-built-to-my-plan.html

Now we have bankers and politicians advocating a compact or union. Which is a typical European response, a grand scheme that promises much and later is found to have failed to deliver.

Instead of the public, let alone parliaments, evaluating such suggestions it will be the markets and methinks bankers. Now who got us into this mess?

Fuchs
12-04-2011, 06:46 PM
It's especially symptomatic of political elites who are adept at bartering and law, but know little about economic theory.

Surferbeetle
12-05-2011, 01:58 AM
Gentlemen,

When considering the genesis of the EU as an economic and political entity I wonder about the contributory impacts of the Roman Empire (http://en.wikipedia.org/wiki/Roman_Empire) (177AD), the Holy Roman Empire (http://en.wikipedia.org/wiki/Holy_Roman_Empire) (1600), the Marshal Plan (1947), the European Payments Union (http://en.wikipedia.org/wiki/European_Payments_Union) (1950), the European Coal and Steel Community (1951), the European Economic Community (1957), the European Atomic Energy Community (1957), the European Commission, the Snake in the Tunnel (http://en.wikipedia.org/wiki/Snake_in_the_tunnel) (died in 1973) as well as many other European agreements, frameworks, organizations, and institutions.


A map (http://en.wikipedia.org/wiki/File:RomanEmpireTrajan117AD.png) of the Roman Empire's maximal extent (AD 117) superimposed over today's Europe



A map (http://en.wikipedia.org/wiki/File:Holy_Roman_Empire_ca.1600.svg) of the extent of the Holy Roman Empire (around 1600) superimposed over today's Europe



A map (http://en.wikipedia.org/wiki/File:EU_Globe_No_Borders.svg) of the European Union (2011) superimposed upon the globe


Why did recent statesmen such as Konrad Adenauer (http://en.wikipedia.org/wiki/Konrad_Adenauer) & Charles de Gaulle (http://en.wikipedia.org/wiki/Charles_de_Gaulle), Willy Brandt & Valery Giscard d'Estang, Helmut Kohl & Francois Mitterrand and their associated technocrats spend so many billable hours on the vision of the EU? Perhaps it was that some of these statesmen lived and soldiered through war and had truly seen a bit of what the human animal is about? :wry:

I also wonder about who today's key players are and who is aligning with who and who is selectively strengthening and weakening who...politics aka chess without rules as one of my friends was found of saying. ;)


Germany is winning the debate on fiscal union, December 4, 2011 6:36 pm by Gavyn Davies, Financial Times, www.ft.com


The leaders of the eurozone have finally reached crunch time. This is the week in which Angela Merkel’s “grand bargain” is due to reach fulfilment at the European summit. On one side of the bargain, the eurozone will be required to accept Germany’s demand for “fiscal union”. On the other side, Germany will agree to the provision of funds to help indebted countries to remain liquid while they reduce government deficits and debt ratios, and thereby regain market access. These provisions of liquidity will come from the EFSF, which will transform into the ESM in 2013, and potentially from the ECB.

Public finances in EMU 2011 (http://ec.europa.eu/economy_finance/publications/european_economy/2011/pdf/ee-2011-3_en.pdf), Marco Buti, European Commission


This year's report comes at a time when doubts on continued steady output growth have emerged and the optimism of the Spring that the European economy is emerging into the post-crisis world has become more cautious. This optimism is moreover further muted by the risks associated with the Member States with high spreads on their bond yields, as concerns about solvency and sustainability persist.


Given the difficult times that euro area has faced in recent years, and the central role that debt sustainability has come to play for a number of particularly affected countries, I trust that this year's report will provide a much needed addition to the debate of how to emerge from this crisis economically wiser than we went in.

Fuchs
12-05-2011, 01:15 PM
I'd drop the quite unimportant Marshall Plan from the list and add the InterWar years efforts of left German and French foreign politicians at cooperation instead. They were the prototypes for Adenauer's integration policy.


The Montanunion (the coal and heavy industries treaty) was rather a weighted shackle that inhibited the French and German heavy industries in their development. It was more meant as a check against Germany (a price Germany paid for more useful forms of cooperation) than as a mutually beneficial cooperation.


Much of the current crisis and the German reactions to it has to be seen in the context of the German reunificaiton. The reunification process was a prototype for the economic and monetary union on European scale.
The feature of the reunification that we did not want to duplicate at all were the transfers from West to East.
Some Europeans want such transfers (often hidden through Eurobonds, asymmetric financing of public budgets by money printing and so on). That makes no sense for us. Such transfers would suck so much wealth out of our country that we'd be better off working much less and earn much less.

Surferbeetle
12-12-2011, 12:49 AM
The buffet that comprises the EU’s most recent fiscal and monetary deliverables is in some ways reminiscent of the mind-boggling spread found at a Vegas Buffet. Prime Minister David Cameron of the UK has recently cast a historic veto, as the only EU member to do so, against a proposed tax and budget agreement to address the current European political and economic crisis. (1) This has exposed significant ideological differences internal to the UK, led to open speculation regarding a perception that, in so doing, the UK has undercut it’s ability to circumscribe German leadership of ‘the continent’ and led to further speculation that the UK veto has perhaps further weakened the UK’s ability to negotiate for pro City of London EU financial policy. (2) (3) (4) (5) (6) (7) Historically, Mr. David Cameron’s actions may be seen as faintly echoing Prime Minister Harold Macmillan’s (UK PM, 1957-1963) unsuccessful strategy to circumscribe the European Common Market, which later led to an unsuccessful attempt at a u-turn and the UK’s subsequent attempt to join the EU core nations. (8) The high stakes clash of ideas may also be seen as the UK’s embrace of high risk/high payoff financial tactics, techniques, and procedures such as ‘rehypothetication’ versus that of a German vision of austerity and prudence. (9) (10) (11) (12) This struggle, and the advocates of the differing visions, is partially visible at the global level by considering which nations are contributing funding to IMF and other efforts to resolve the crisis. (13) (14) This does not mean that the world is simple, black and white, since resolution is desired by all, but it does mean that as always methodology, and political appearances, matters. (15) (16) Nonetheless,winners are already being anointed. (17)

(1) UK alone as EU agrees fiscal deal, 9 December 2011 Last updated at 11:37 ET, BBC News, http://www.bbc.co.uk/news/world-europe-16115373

(2) Nick Clegg warns European veto 'bad for Britain' , 11 December 2011 Last updated at 12:41 ET, http://www.bbc.co.uk/news/uk-16129004

(3) Triumph und Zweifel in Grossbritannien, 11. Dezember 2011, Neue Zürcher Zeitung, http://www.nzz.ch/nachrichten/politik/international/triumph_und_zweifel_in_grossbritannien_1.13600699. html

(4) Europa lässt Großbritannien zurück, 09.12.2011, 10:48 Uhr, Handelsblatt, http://www.handelsblatt.com/politik/international/europa-laesst-grossbritannien-zurueck/5940698.html

(5) Toward a Gentler, Kinder German Reich?, by Dr. Tony Corn, November 29, 2011 - 8:32am, Small Wars Journal, http://smallwarsjournal.com/jrnl/art/toward-a-gentler-kinder-german-reich#_edn7

(6) Franco-British Alarm of 1989 Comes True as Merkel Calls EU Shots, By Leon Mangasarian, December 07, 2011 6:01 PM EST, Bloomberg News, http://mobile.bloomberg.com/news/2011-12-07/franco-british-alarm-of-1989-comes-true-as-merkel-drives-eu-crisis-plans?category=%2F

(7) Cameron Negotiates U.K.’s Isolation in EU, By Gonzalo Vina and Rebecca Christie, December 09, 2011 8:05 AM EST, http://mobile.bloomberg.com/news/2011-12-09/cameron-wishes-euro-nations-well-as-u-k-negotiates-isolation?category=%2Fnews%2Fworldwide%2F

(8) Marsh, David, The Euro, 2009, Yale University Press, New Haven and London

(9) Shadow Rehypothecation, Infinite Leverage, And Why Breaking The Tyranny Of Ignorance Is The Only Solution, by Tyler Durden, 12/10/2011 13:10 -0500, Zero Hedge Blog, http://www.zerohedge.com/news/shadow-rehypothecation-infinte-leverage-and-why-breaking-tyrrany-ignorance-only-solution

(10) The (sizable) Role of Rehypothecation in the Shadow Banking System, by Manmohan Singh and James Aitken, IMF Working Paper WP/10/172, http://www.imf.org/external/pubs/ft/wp/2010/wp10172.pdf

(11) German Vision Prevails as Leaders Agree on Fiscal Pact By STEVEN ERLANGER and STEPHEN CASTLE, Published: December 9, 2011, NY Times, http://www.nytimes.com/2011/12/10/business/global/european-leaders-agree-on-fiscal-treaty.html?_r=2&partner=rss&emc=rss&src=igw

(12) Does Math Support Euro Survival?, Lawrence Goodman
December 5, 2011, Center for Financial Stability, Inc., http://www.centerforfinancialstability.org/research/LG_Euro_120511.pdf

(13) IMF Resources to Stem European Crisis Will Get Boost Without U.S. Backing, by Sandrine Rastello and Ian Katz, Dec. 10, Bloomberg Business Week, http://www.businessweek.com/news/2011-12-11/imf-seeks-funds-for-european-debt-crisis-as-u-s-stands-back.html

(14) China Can’t Use Reserves to ‘Rescue’ Countries, Fu Says, by Michael Forsythe, December 04, 2011, 7:16 PM EST, Bloomberg News, http://www.businessweek.com/news/2011-12-04/china-can-t-use-reserves-to-rescue-countries-fu-says.html

(15) Euro Crisis Pits Germany and U.S. in Tactical Fight, By NICHOLAS KULISH, Published: December 10, 2011, NY Times, http://www.nytimes.com/2011/12/11/world/europe/euro-crisis-pits-germany-and-us-in-tactical-fight.html?_r=1&partner=rss&emc=rss&src=ig

(16) Euro in der Krise, Handelsblatt, http://www.handelsblatt.com/politik/euro-in-der-krise/3732552.html

(17) Ein Zeichen inmitten der Euro-Krise, Deutschlands Finanzminister Wolfgang Schäuble erhält den Karlspreis, 10. Dezember 2011, 14:53, NZZ Online, http://www.nzz.ch/nachrichten/politik/international/deutschland_finanzminister_schaeuble_karlspreis_20 12_1.13588386.html

Surferbeetle
12-13-2011, 03:34 PM
CONTINENTAL SHIFT: Safeguarding the UK’s financial trade in a changing Europe, By Stephen Booth, Christopher Howarth, Mats Persson, Vincenzo Scarpetta, December 2011, Open Europe, http://www.openeurope.org.uk/research/continentalshift.pdf


Firstly, the UK's level of influence on new European financial rules has decreased; regulation is now less geared to financial services growth but more towards curtailing financial market activity, irrespective of whether such activity is good or bad. There are at least 49 new EU regulatory proposals potentially affecting the City of London either in the pipeline or being discussed at the EU-level – while some are justified, very few of these are aimed at promoting financial services trade.

Luck May Be Key Ingredient for EU Leaders’ Latest Blueprint to Save Euro, By Simon Kennedy, December 12, 2011 3:59 AM EST, Bloomberg News, http://mobile.bloomberg.com/news/2011-12-12/eu-leaders-must-avoid-more-self-inflicted-wounds-to-euro-rescue-plan-work?category=%2Fnews%2Feconomy%2F


“Luck is likely to be required,” said Joachim Fels, chief global economist at Morgan Stanley in London.

To have a chance of success, a deal reached after all-night talks on Dec. 9 to restore faith in the single currency requires investors to avoid dumping European debt, Standard & Poor’s to hold off on threatened downgrades, foreign countries to chip in rescue cash and the European Central Bank to soothe bond markets.

Politicians also have to avert the unforced errors that sank previous initiatives and turned a Greek deficit problem in 2009 into a threat to the international financial system.

Russia added to oil traders’ risk lists, By Javier Blas, Last updated: December 13, 2011 10:13 am, Financial Times, www.ft.com


After a year in which many unusual events hit oil prices – including the collapse of the 42-year long regime of Muammar Gaddafi in Libya – traders are not ruling out anything and have added Russia to their risk lists.

Russia is the world’s second largest oil producer and recent demonstrations in Moscow have spooked oil investors and traders. On Saturday, tens of thousands took to the streets in the capital to demand a rerun of elections, Russia’s largest opposition demonstration since Boris Yeltsin took on the Supreme Soviet in 1993.


The International Energy Agency estimates that Russia oil output hit a post-Soviet high of 10.7m barrels a day in October. But at the same time [...Russian...] oil demand is also rising strongly, hitting nearly 3.5m b/d this year, up 5 per cent from 2010.

Firn
12-15-2011, 07:01 PM
I think you are offering a good overview. In my humble opinion the British veto was in some ways unique. We have already had a couple of states using this card but never in such a situation and never against such political pressure, with one country so completely isolated. Remaing alone in among 27 member states is quite a feat of diplomancy.

Europe alone would have the (private) money to handle to crises on the bond market, the big problem is the lack of trust of potential private investors and the persons handling that money in certain economies and states. The fligth of Greek capital is just the worst instance of it.

During the Euro years a massive amount of captial, sometimes luring also considerable amounts of people, from the core of Europe, especially Germany flew into the countries with a better economic future and bigger captial gains at a just moderatly higher risk. This caused a lack of investment in, once again especially in Germany and meant painful reforms and a (relative) loss of income for the workers.

So the current adjustment after a phase of very cheap and plentiful credit is especially for former boom countries. Sadly the political freedom to follow Mr. Keynes is perceived to be almost non-existent although it was used considerably to lessen the impact of the 2008 crisis. Personally I would like the see an aggressive policy by the central bank. Even if monetary policy alone will not solve the crisis, it can not miss.

Fuchs
12-16-2011, 05:53 PM
During the Euro years a massive amount of captial, sometimes luring also considerable amounts of people, from the core of Europe, especially Germany flew into the countries with a better economic future and bigger captial gains at a just moderatly higher risk. This caused a lack of investment in, once again especially in Germany and meant painful reforms and a (relative) loss of income for the workers.

Germany had a lack of investment?
What's your expectation for investments?
We're capital investment central.

Capital export is in macroeconomic bookkeeping the other side of the coin for trade balance surplus - unavoidable (save for exceptions such as transfers).

Surferbeetle
12-17-2011, 06:44 PM
I'd drop the quite unimportant Marshall Plan from the list and add the InterWar years efforts of left German and French foreign politicians at cooperation instead. They were the prototypes for Adenauer's integration policy.

Fuchs, reading recommendations are always welcome and appreciated. :)

The key names of the financial teams backing Herr Adenauer and Gen de Gaulle ~ 1949 - 1957 that I am chasing history on include:

-Germany: Ludwig Erhard (Economics Minister), Karl Blessing (Bundesbank President), Wilhem Vocke (Bank Deutscher Lander – Directorate President)

-France: Jacques Rueff ? Maurice Couve de Murville?


The feature of the reunification that we did not want to duplicate at all were the transfers from West to East.

Has not Germany already paved this particular route with myriad bank loans to the periphery? Commerzbank appears about to pay the price for mispricing the risk of recovering principal from debtors. Am I correct in understanding that the current cost/benefit transfer union calculation being run includes loss of goodwill (intangible assets), the nationalization of select German banks, myriad contractual reconfiguration costs, appreciation of the Deutsche Mark (ranging from 30% to perhaps 70% relative to specific/discrete currencies?), the reapplication of border transaction costs, currency exchange costs, usw., usw, usw?


I think you are offering a good overview.

Firn, appreciate it as well as everybody’s insights. :)


Remaining alone in among 27 member states is quite a feat of diplomacy.

There are a number of issues that we have insight into as well as a number of questions that arise as a result of this diplomatic action; how & why Germany, the UK, and France actually produced this result, will this kill Germany’s preference for full treaty (all 27) change, is an outside the treaty agreement (27 minus) discredited, can existing treaties still be used to accomplish the objective (full 27), does this lock in a two speed solution (17 core vs. 10 periphery) is the French financial establishment (not to mention France) adequately represented by the emotional responses of multiple senior representatives during the last week, why could not the UK find allies such as Ireland, will this action embolden & facilitate Scotland’s (Alex Salmond) interest in succession, etc., etc.


During the Euro years a massive amount of capital, sometimes luring also considerable amounts of people, from the core of Europe, especially Germany flew into the countries with a better economic future and bigger capital gains at a just moderately higher risk.

Do you mind expounding and do you have some references to share on this topic? I see a number of economic models that were developed during this period, and I wonder about what worked, what went wrong, and if these models are salvageable and applicable to other locations. Dublin’s growth from 1997 to 2001 appeared to average ~9% per year and low corporate taxes were part of that model. Irish (Bank of Ireland, Allied Irish Bank, etc) financial leverage of ~8 times GDP during this period was not sustainable however. Iceland’s (Kaupthing,) amazing boom and bust during this period appeared to include financial leverage of ~12 times GDP. Scotland’s (RBS) financial leverage of ~15 times GDP was not sustainable either. Yet, Switzerland (Credit Suisse, UBS, etc) while acknowledging the recent insights into internal controls system of UBS, continues to thrive with financial leverage of ~ 6 times GDP. Poland is interesting as well.


Sadly the political freedom to follow Mr. Keynes is perceived to be almost non-existent although it was used considerably to lessen the impact of the 2008 crisis.

Maybe I am cheating, but, I wonder if both Keynes and Hayek have something to say…I am mostly in agreement with Gavyn Davies recent statement in the FT:


“…the global economy needs a mixture of policies which write off debt in some cases, pay off debt in others, and extend debt in still others. A one-size-fits-all approach which encourages the simultaneous deleveraging of all sectors at maximum speed could cause a genuine economic calamity.”

davidbfpo
12-17-2011, 08:01 PM
An intriguing Kings of War blog post by David Betz, albeit with a strange opening part, OK it is the season of goodwill, but Yoko Ono. Anyway I digress.

This part struck me, although citing Anglo-French military co-operation we would be foolish to think that is the only instance:
Case in point: today’s intervention by the head of France’s Central Bank to downgrade UK first. Can someone remind me why it is a good idea to share major defence assets with people whose first instinct when crisis hits is to cry ‘shoot him first!’?

There are other strategic points raised, notably the decline of (Western) Europe, the rise of China (big assumption author notes) and whether the BRIC are competitors or partners.

Link:http://kingsofwar.org.uk/2011/12/happy-christmas-war-is-over/

Fuchs
12-17-2011, 10:24 PM
There's a difference between shareholders of a stupid corporation being on the hook while hoping that they get their returns and taxpayers paying and seeing how towns in another region rebuild themselves while theirs decay.

Surferbeetle
12-19-2011, 01:03 AM
Draghi warns on eurozone break-up, By Ralph Atkins and Lionel Barber in Frankfurt, December 18, 2011 10:44 pm, Financial Times, www.ft.com


Mario Draghi has warned of the costs of a eurozone break-up, breaching a taboo for a president of the European Central Bank, even as he sought to play down market expectations about the ECB’s role in combating the sovereign debt crisis.

Mr Draghi’s willingness to discuss a scenario for Europe’s 13-year-old monetary union that his predecessor, Jean-Claude Trichet, simply described as “absurd,” highlights the high stakes in the eurozone debt crisis, which has rattled global financial markets.


EU demands £25bn lifeline from the UK (http://www.telegraph.co.uk/news/worldnews/europe/eu/8964734/EU-demands-25bn-lifeline-from-the-UK.html), By Tim Ross and Bruno Waterfield9:51PM GMT 18 Dec 2011, The Daily Telegraph


European finance ministers will aim to agree a new €200 billion (£167.7 billion) loan to the International Monetary Fund as part of a deal to save the single currency.

Three quarters of the money is expected to come from eurozone members, but Britain will also be asked to provide funds.

Figures suggest European Union officials expect British taxpayers to be the second largest contributor. The Prime Minister has repeatedly promised not to provide any extra funding for the IMF for the specific purpose of saving the euro and Britain is already liable for £12 billion of loans and guarantees to Ireland, Greece and Portugal.

Financial tricks to get out of debt, By James Mackintosh, Last updated: December 18, 2011 3:39 am, Financial Times, www.ft.com


Something funny has been going on in Greek debt markets. Even as the yields available on bonds maturing in just a few months have soared to silly levels, the government has been able to raise money at perfectly reasonable rates.

Last Tuesday, for example, Greece issued a bill – a short-dated debt instrument – that matures in June. It raised €3.7bn ($4.8bn), paying 4.95 per cent, annualised. By the standards of ordinary times this would be a disaster; Germany is paying zero interest on similar bills.



What is going on in Greece is a reworked version of the old principle of printing money to pay government debt (“monetising” it), this time via the banks. Such tricks are likely to become increasingly common as governments grapple with horrific debts.

Crisis fears fuel debate on capital controls, By Gillian Tett, December 15, 2011 7:53 pm, Financial Times, www.ft.com


Is the world stealthily sliding towards capital controls? That is the question which is starting to hover, half-stated, on the edge of policy debates, as financial anxiety spreads across Europe.

But now, a new salvo has been fired into this debate from an unexpected source: the Bank of England. Earlier this week, the Bank released a paper on global capital flows written by three of its economists, William Speller, Gregory Thwaites and Michelle Wright, which draws heavily on earlier research by Andy Haldane, the Bank’s head of financial stability.

Financial Stability Paper No. 12 – December 2011, The future of international capital flows (http://www.bankofengland.co.uk/publications/fsr/fs_paper12.pdf), William Speller, Gregory Thwaites and Michelle Wright, Bank of England


The experience of the past decade has demonstrated the challenges that international capital flows can pose for financial stability. The build-up of global imbalances (large net capital flows) was one of the preconditions for the recent financial crisis. Increased interconnectedness between countries’ financial sectors (large gross capital flows) created channels through which the initial shock could spread around the world. In these respects, the scale and volatility of international capital flows were crucial determinants of the depth and breadth of the crisis which followed Lehman Brothers’ demise.

These dramatic events demonstrate that it is incumbent upon policymakers to develop strategies to deal with these risks in the future. But however great the challenges policymakers may have faced in the most recent episode, these are set to become even greater in the future as large emerging market economies (EMEs) increasingly integrate into the global financial system.


The key challenge for policymakers is to mitigate the potential financial stability risks associated with much larger future international capital flows while simultaneously preserving the key benefits that financial globalisation has to offer. The increase in capital flows will have implications for many policy issues, including, but not limited to: the elimination of data gaps; policies which limit the build-up of balance sheet mismatches; the Basel III international capital and liquidity standards; macroprudential policies; the use of capital controls; and reforms to the international monetary and financial system.

Surferbeetle
12-19-2011, 02:01 AM
Hal S. Scott (http://www.law.harvard.edu/faculty/directory/index.html?id=63)


Hal S. Scott is the Nomura Professor and Director of the Program on International Financial Systems (PIFS) at Harvard Law School, where he has taught since 1975. He teaches courses on Capital Markets Regulation, International Finance, and Securities Regulation. He has a B.A. from Princeton University (Woodrow Wilson School, 1965), an M.A. from Stanford University in Political Science (1967), and a J.D. from the University of Chicago Law School (1972). In 1974-1975, before joining Harvard, he clerked for Justice Byron White.

When the Euro Falls Apart, Hal S. Scott, Harvard Law School, International Finance 1:2; 1988 pp. 207-228, http://www.law.harvard.edu/programs/about/pifs/research/15scott.pdf


The paper then focuses primarily on two significant problems related to a break-up. First, a country seeking to leave EMU, particularly after the transition period, may have difficulty re-establishing its national currency unilaterally, as its economy is likely to have become thoroughly 'euroized'. Second, any break-up accompanied by re-denomination of existing euro obligations, including government bonds, will create great legal uncertainty and costly litigation. There are no continuity of contract rules for exiting EMU equivalent to those for entering. Both problems require cooperative and deliberative solutions and will be difficult and costly to solve.

Firn
12-21-2011, 08:48 PM
Germany had a lack of investment?
What's your expectation for investments?
We're capital investment central.

Capital export is in macroeconomic bookkeeping the other side of the coin for trade balance surplus - unavoidable (save for exceptions such as transfers).

Regarding capital movement I thought mostly along the lines of this this blog entry (http://krugman.blogs.nytimes.com/2011/11/07/wishful-thinking-and-the-road-to-eurogeddon/).

Germany suffered from a severe lack of investment, according to that paper (http://www.ftd.de/wirtschaftswunder/resserver.php?blogId=9&resource=1132-WirtschaftsdienstJuliDullienSchieritz.pdf), even if you take into account the lack of bubble "investment" into construction, like in Spain (or the US)

Fuchs
12-21-2011, 11:57 PM
http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Content/Publikationen/Fachveroeffentlichungen/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/InvestitionenPDF__5811108,property=file.pdf



Look at the graphic on page 14 and keep in mind our working age population is shrinking and the statistic is in real, not nominal, terms.

Capital investments equalled 17-21% BIP (BIP ~ GDP) over the last decade,
About 2-7% BIP net capital investments in that decade.

Meanwhile, Germany still had a net capital export / trade balance surplus on the order of several per cent GDP.

Better don't look at the UK or US for comparison, for you'd get a shock.

Firn
12-22-2011, 06:04 PM
http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Content/Publikationen/Fachveroeffentlichungen/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/InvestitionenPDF__5811108,property=file.pdf



Look at the graphic on page 14 and keep in mind our working age population is shrinking and the statistic is in real, not nominal, terms.

Capital investments equalled 17-21% BIP (BIP ~ GDP) over the last decade,
About 2-7% BIP net capital investments in that decade.

Meanwhile, Germany still had a net capital export / trade balance surplus on the order of several per cent GDP.

Better don't look at the UK or US for comparison, for you'd get a shock.

Thanks for the link. It is of course always interesting to look at both sides of the coin when it comes to trade balance - capital "balance". As with all macro and economy things are relatively easy when look upon in isolation, but become much more difficult and controversive when combined.

One could argue that the UK or the US are in comparison in an overall better situation then Germany because the world is willing to invest into them, but that would be as narrow minded as to state that Germany is in a better shape because it is so much more competitive.

As you have written demographics play a central role in the net capital investments, however one should not lessen the influence of culture and politics and the often irrational aspects of markets. For example while the increasing population of the US was key for the heavy investement in the durable consumer good housing the cultural norms (want own suburb home) and politics (Fannie and Freddie) were also important. But the bubble was only possible due to the common illusion based on experience that housing prices "always" went up and that boundless greed was fueled by extremely easy credit in a time of very low interest rates. Massive investement/spending in construction drove many other sectors of the economy be in the US or in Spain.

In Germany and in Italy the government did not support private investment into the private building sector as heavily and combined with a different consumer climate/confidence and tighter credit and the aging population an important driving force for the economy was missed in the last ten years. Increased public and private investment might have helped the overall economy, but the current crisis has shown the danger of an excessive spending fuel by too loose credit outstripping demand by a great margin especially if followed up by crippling austerity.

Overall I have to confess that such discussion are very hard to do in such a from. :D

@Suferbeetle, I will also try to respond to your post, it might take a bit. Still I agree when you say:


Maybe I am cheating, but, I wonder if both Keynes and Hayek have something to say…

Hayek and Keynes did invest a lot of their work and theory driven by experiences outside the realm of the "normal" economic environment. A cynic might say that a good deal of the economic research based upon a close look at recent stable times has hobbled the ability to tackle a big crisis. Most European and even more the dominant US-American economists suffered in short from a very focus on a restricted geographical area and a restricted timeframe.

Firn
01-08-2012, 05:38 PM
Do you mind expounding and do you have some references to share on this topic? I see a number of economic models that were developed during this period, and I wonder about what worked, what went wrong, and if these models are salvageable and applicable to other locations. Dublin’s growth from 1997 to 2001 appeared to average ~9% per year and low corporate taxes were part of that model. Irish (Bank of Ireland, Allied Irish Bank, etc) financial leverage of ~8 times GDP during this period was not sustainable however. Iceland’s (Kaupthing,) amazing boom and bust during this period appeared to include financial leverage of ~12 times GDP. Scotland’s (RBS) financial leverage of ~15 times GDP was not sustainable either. Yet, Switzerland (Credit Suisse, UBS, etc) while acknowledging the recent insights into internal controls system of UBS, continues to thrive with financial leverage of ~ 6 times GDP. Poland is interesting as well.

While both Hayek and Keynes did a good job explaining who one could come into such a dire situation like a deep depression Keynes did a far better job at giving the economic science (finally) the framework and the politicians the tools to get out of such a crisis. The effects of monetary policy in the last years has been remarkably close to what Keynes described as the liquidity trap, and textbook models (IS-LM, in a Mankiw) stemming from that era fit very close indeed.

Lessons learned from this prolonged crisis have been many, perhaps too many to discuss here in detail. Anyway Ireland with a young population and deep reforms, depreciation agains the European benchmark the DM, access to ever more open markets and a beggar-thy-neighbour approach to taxes roared mightily in the 90s. While the Euro prevented further deprecations, the high productivity partly due internal boom, fueled to a good degree to ready consuming and hefty construction aided by loose credit by highly leveraged banks, facilitated by much capital and workforce influx from the rest of Europe and led to a great success story. Sadly the Irish had a similar shock as many Americans, with big elephant in the room, the lacking ability to print money and to depreciate heavily to boost an small, integrated economy compared to the rest of Europe. Additionally they shouldered, perhaps out of a mixture of pride, the call of duty and a lot of pressure the banking debts and went for austerity. Not surprisingly the wages have been very sticky, internal devaluation was hardly there and unemployment is very very high compared to better times.

In short high leverages tell just part of the story, but if the story includes lax regulation, low rates, a lot of (in hindsight) risky debt, a booming economy and housing prices seemingly going only up and maybe a good headline like "Celtic tiger" helping to sell it to foreigners with money and willing hands then a bad bust is almost certain.

The deep irony is, as usual, that when prices have fallen massively be it in construction or in equity all is suddendly perceived as much much riskier as when those prices had been sky high. It is quite natural that way, as without that psychology the economy and the markets would not fluctuate that widly.

BTW Switzerland has it's own currency, a reputation of solidity and as a haven of security. Traditionally in such a crisis the money is not leaving the swiss depots, but it is coming in. Additionally the Swiss federation as very low debt and a lot of firepower and there is hardly doubt that it could support the big Swiss banks. In fact it has been fighting (successfully) very hard to keep the Franken from rising by all that demand further into the sky. The printing press must have been very busy indeed.

P.S: I will try to link some of the papers in question. Macroenconomics (http://www.amazon.com/Macroeconomics-N-Gregory-Mankiw/dp/1429218878/ref=sr_1_1?ie=UTF8&qid=1326044411&sr=8-1) have been surprisingly helpful, if you (as usual the difficult part) looked at the right things.

Dayuhan
01-09-2012, 08:37 AM
Interesting article in Foreign Affairs. Full text available with free registration.


The Failure of the Euro

The little currency that couldn't

The euro should now be recognized as an experiment that failed. This failure, which has come after just over a dozen years since the euro was introduced, in 1999, was not an accident or the result of bureaucratic mismanagement but rather the inevitable consequence of imposing a single currency on a very heterogeneous group of countries. The adverse economic consequences of the euro include the sovereign debt crises in several European countries, the fragile condition of major European banks, high levels of unemployment across the eurozone, and the large trade deficits that now plague most eurozone countries...

http://www.foreignaffairs.com/articles/136752/martin-feldstein/the-failure-of-the-euro?page=2&cid=nlc-this_week_on_foreignaffairs_co-010512-the_failure_of_the_euro_3-010512

Surferbeetle
01-09-2012, 02:36 PM
Hildebrand Steps Down at SNB (http://www.bloomberg.com/news/2012-01-09/hildebrand-quits-as-swiss-national-bank-chief-after-wife-s-currency-trade.html), By Jennifer M. Freedman and Klaus Wille - Jan 9, 2012 6:37 AM MT, Bloomberg News


Philipp Hildebrand resigned as head of the Swiss central bank after a currency transaction by his wife last year dented the credibility of the franc’s chief guardian.


As head of the SNB, he helped toughen financial regulation, forcing UBS AG and Credit Suisse Group AG to boost capital buffers. He also lowered borrowing costs to zero and in September introduced the first currency ceiling since the 1970s to help protect the economy.


Hildebrand’s first round of currency purchases forced the SNB to declare a record loss in 2010 and prompted calls from Christoph Blocher, vice president of the Swiss People’s Party, for him to resign. Bank Sarasin, a Basel-based private bank, said on Jan. 3 it had fired an employee who helped pass data on the trades by the Hildebrands to Blocher.

Philipp Hildebrand (http://en.wikipedia.org/wiki/Philipp_Hildebrand) from wikipedia


Hildebrand is currently under attack due to the losses arising from SNB’s exchange rate interventions between March 2009 and June 2010. In this period, the SNB accumulated foreign currency reserves worth over 200 billion Swiss francs. Since the Swiss franc has since appreciated substantially, the interventions caused losses on SNB foreign currency positions equivalent to 26.5 billion Swiss francs in 2010 and a further 11.7 billion Swiss francs in the six months thereafter.[4] Although the SNB has repeatedly defended these interventions as they made “sense at the zero lower bound when the traditional monetary policy instrument is exhausted”,[5] the international press and financial market analysts by and large deem the interventions a “costly failure”.[6]

Given the size of the loss (equivalent to around 5,000 francs per capita), Hildebrand is under fierce political attack for being the driving factor behind these interventions. Critics point out that the interventions were undertaken when there was no underlying need to intervene and that they were continued even when the European debt crisis in spring 2010 already had intensified so that the exchange rate the SNB was trying to support was unrealistic.

The right-wing People’s Party (Schweizerische Volkspartei (SVP) / Union Démocratique du Centre (UDC)) and the politically colored magazine Weltwoche are among the loudest critics of Hildebrand, repeatedly demanding his resignation. These attacks however led to prominent figures of other parties voicing their support for Hildebrand and moreover emphasized the political independence of the SNB. However, in an article titled “With Unsteady Hand”, Switzerland’s center-leaning major business magazine Bilanz criticized Mr. Hildebrand’s leadership of SNB, citing in particular his limited experience and that Mr. Hildebrand’s actions in large parts seem to be the result of his eagerness to appeal to the public.[7]


Christoph Blocher (http://en.wikipedia.org/wiki/Christoph_Blocher) bio from Wikipedia


Blocher built his political career through campaigning for smaller government, for a free-market economy, against Switzerland's membership in the European Union and for more tightly controlled immigration. He represented the canton of Zürich in the Swiss National Council from 1980 until his election to the federal council in 2003 as a deputy of the Swiss People's Party (Schweizerische Volkspartei/Union démocratique du centre; SVP/UDC). In addition to the Zürich chapter of the Swiss People's Party, he led a mass organisation, the Action for an Independent and Neutral Switzerland (Aktion für eine unabhängige und neutrale Schweiz). He has frequently been compared by the media and his political opponents to figures such as Jean-Marie Le Pen and Jörg Haider.

Blocher is leader of the party's nationalist wing, which dominates the party's delegation to the National Council.

Germany issues debt with negative yield, By Richard Milne, Capital Markets Editor, January 9, 2012 12:04 pm, Financial Times, www.ft.com


Germany issued debt on Monday for the first time with a negative yield, meaning that investors were in effect paying Berlin for the privilege of lending it money.

A €4bn auction of 6-month bills drew a negative yield of 0.0122 per cent in a sign of Germany’s haven status amid the eurozone debt crisis.

But demand for the debt was down with the so-called bid-to-cover ratio dropping to 1.8 times from 3.8 times at the previous auction a month ago.

German short-term debt has traded at negative yields in the secondary market for some weeks with three-month, six-month and one-year debt all below zero. Bills for six-month debt hit a low of minus 0.3 per cent shortly after Christmas.

Firn
01-10-2012, 09:50 AM
The policy of the Swiss NB to draw a line into the sand at a very deep point was so far successful, and the Euro is still hovering above it, despite it came closer in the turmoil of the last days. Traditional monetary policy has indeed run out of room, which forces me to once again make a nod to Keynes, so other tools were needed to achieve the desired effect. This policy has a couple of effects, even if it won't be able to stem the tide of liquidity into the "safe heaven" Switzerland.

1) The Swiss economy, especially the export, the retail in border areas (Switzerland is small and well connected) and tourism sector suffered already heavily due to a Franken, widely seen as overvalued. This will at least mitigate that damage

2) It helps those in Europe which took a credit in the Franken, a strategy rather popular a couple of years ago in Austria and some regions of Italy and especially in countries like Hungary where the rates on the own currency were relatively very high. (A 'very' controversial law was passed in Hungary to mitigate the effect of the big slide of the Florint against the Euro at the cost of the banks)

Anyway around 1950 you got 1 CH for roughly 1 DM, perhaps the unofficial reseve currency of Europe, around 1970 even more then that and around 1995 quite a bit less then that. Before the SNB acted like it did you got at the lowest point roughly 1 CH for 1 Euro. In fact the CH gained roughly 90% in the last 20 years...

Fuchs
01-10-2012, 05:48 PM
...which accounts for little unless we compare the inflation rates.

The really interesting thing about exchange rates is in the long term not the official exchange rate, but its movement in comparison to purchasing power parity (PPP).


One example about PPP; Krugman recently published some stats about Japan which made Japanese workers look rather unproductive in comparison to U.S. workers (http://krugman.blogs.nytimes.com/2012/01/09/japan-reconsidered-2/). This can be wholly explained with the undervaluation of the Yen; the same statistic expressed with PPP would have looked very differently.
This PPP thing contributes to an outdated and false sense of superiority of Americans in regard to their economic standing.

-------------------------------------

Somewhat related to the topic in general:
A short story and defence-related concern about the Euro crisis (http://defense-and-freedom.blogspot.com/2012/01/euro-crisis-and-defence.html).

davidbfpo
01-10-2012, 06:14 PM
A short KoW comment by David Betz that takes imagination - in my case - to follow. Citing a German source:
1. If Greece gets the next big (80 billion Euro) tranche of IMF-EU bailout moulah in March; then,

2. it will be able to conclude a whole bunch of new defence contracts including, inter alia, new Eurofighter jets, frigates from France, submarines from Germany, and Apache helicopters from the USA.

Link:http://kingsofwar.org.uk/2012/01/guns-not-butter/

He's also written a wider comment on the world economy, with many valid points beyond money. This is only a taster:
If you’ve read a newspaper lately you’ll have seen ample evidence that no one has the faintest idea how to deal with simultaneously:

a credit bubble
a bond bubble
a real estate bubble and a farmland bubble
a commodities bubble, and
several currency bubbles.
(Plus a higher education bubble?)

Link:http://kingsofwar.org.uk/2012/01/please-dont-break-out-the-bubbly/

Fuchs
01-10-2012, 06:47 PM
There's a way how to deal with it; understand that you an allow all this to blow up and have a comeback in less than ten years IF you get rid of the burden.
Germany reached 1936 levels of industrial production in 1952, only seven years after the war and only three to four years since actual recovery began.
Less than eight years later it had defeated unemployment (temporarily) and was transitioning to real wealth for everyone (refrigerator, TV set, kitchen electrical equipment, car - the stuff that was used to measure wealth well into the 80's).


The worst you can do is to lack confidence and courage and muddle through.

Firn
01-10-2012, 07:18 PM
...which accounts for little unless we compare the inflation rates.

The really interesting thing about exchange rates is in the long term not the official exchange rate, but its movement in comparison to purchasing power parity (PPP).


One example about PPP; Krugman recently published some stats about Japan which made Japanese workers look rather unproductive in comparison to U.S. workers (http://krugman.blogs.nytimes.com/2012/01/09/japan-reconsidered-2/). This can be wholly explained with the undervaluation of the Yen; the same statistic expressed with PPP would have looked very differently.
This PPP thing contributes to an outdated and false sense of superiority of Americans in regard to their economic standing.

-------------------------------------

Somewhat related to the topic in general:
A short story and defence-related concern about the Euro crisis (http://defense-and-freedom.blogspot.com/2012/01/euro-crisis-and-defence.html).

Leaving the PPP issue aside, which has it's merits even despite the difficulty to calculate it, as it is usually better to be roughly right then exactly wrong, I can not imagine that the slight difference in inflation in the last, say 20 or 30 years can explain the rise of the Franken. Swiss (http://de.global-rates.com/wirtschaftsstatistiken/inflation/verbraucherpreisen/vpi/schweiz.aspx) and German (http://de.global-rates.com/wirtschaftsstatistiken/inflation/verbraucherpreisen/vpi/deutschland.aspx) inflation differ only slightly even if compounded.

The radical gain of the Franken in such a short time is IMHO only explainable by the same, almost desperate rush for perceived safety which drives up the parked money at the ECB to ever greater heights and which has driven the interest rates on Danish and German bonds into the negative.

----

The story in the liberal ZEIT states to some extent the obvious and well-known. Greece has a very large military compared to it's size, seemingly mostly due the perceived Turkish threat, composed of many products bought abroad with big German share. The German politicians have pressed (like others) the Greece to buy German (or European, for example the Eurofighter) and the German defense industry has long established Greek subsidiaries to better play the political game which created some odd purchasing decision. And last but not least Greece doesn't seem to be ready to cut the defense budget nearly as much as other ones, for example that of social security even if it is running a massive current budget deficit...

AdamG
01-16-2012, 04:47 PM
Reading music (http://www.youtube.com/watch?v=FtK-QCiD-FE)

BUCHAREST, Romania — Romania’s prime minister warned Monday that violent protests that left 59 injured over the weekend could jeopardize the country’s stability and chances for economic growth.

Some of the around 1,000 protesters clashed with police in downtown Bucharest Sunday, after four days of demonstrations against the government’s austerity measures turned violent. Police used tear gas and flares to repel demonstrators hurling stones and firebombs.

http://www.washingtonpost.com/world/europe/protests-continue-in-romania-over-widespread-anger-to-austerity-cuts/2012/01/15/gIQAIgF10P_story.html?tid=pm_world_pop

Surferbeetle
01-18-2012, 02:36 AM
Adam (and Slapout),

Like your ideas....here is some reading music (whiskey in the jar (http://www.youtube.com/watch?v=OIh3nO6-V_A) by Lars Ulrich and the boys - the theme song for our bankster friends and any sympathizers :wry: ) to enjoy with your black and tan :D

World Bank Projects Global Slowdown (http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:23088473~pagePK:34370~piPK:34424~the SitePK:4607,00.html), with Developing Countries Impacted, Press Release No:2012/236/DEC, Beijing, January 18, 2012, World Bank


Developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects, says the World Bank in the newly-released Global Economic Prospects (GEP) 2012.

The Bank has lowered its growth forecast for 2012 to 5.4 percent for developing countries and 1.4 percent for high-income countries (-0.3 percent for the Euro Area), down from its June estimates of 6.2 and 2.7 percent (1.8 percent for the Euro Area), respectively. Global growth is now projected at 2.5 and 3.1[1] percent for 2012 and 2013, respectively.

Slower growth is already visible in weakening global trade and commodity prices. Global exports of goods and services expanded an estimated 6.6 percent in 2011 (down from 12.4 percent in 2010), and are projected to rise by only 4.7 percent in 2012. Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011. Declining commodity prices have contributed to an easing of headline inflation in most developing countries. Although international food prices eased in recent months, down 14 percent from their peak in February 2011, food security for the poorest, including in the Horn of Africa, remains a central concern.

“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics.

Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.

To prepare for that possibility, Hans Timmer, Director of Development Prospects at the World Bank, said: “Developing countries should pre-finance budget deficits, prioritize spending on social safety nets and infrastructure, and stress-test domestic banks.”

Surferbeetle
01-19-2012, 04:17 AM
Reading music by Bon Scott and the crew as they explain to us why it's a long way to the top (http://www.youtube.com/watch?v=zFDhxJJMEIY&feature=related) back in '76 on Australian Bandstand.

"No Deal" - Greek Bondholders Do Not Think Agreement Can Be Reached Before "Crunch Date" (http://www.zerohedge.com/news/no-deal-greek-bondholders-do-not-think-agreement-can-be-reached-crunch-date), by Tyler Durden, on 01/18/2012 17:48 -0500, at ZeroHedge


Because as the supposed restructurng expert should know, once you have a disparate group of ad hoc creditors, which is precisely what we have in the Greek circus now, there is nothing even remotely close to a sure deal, especially when one needs a virtually unanimous decision for no CDS trigger event to occur (yes, ISDA, for some ungodly reason, you are still relevant in this bizarro world).

Fears rise over Commerzbank and MPS, by Patrick Jenkins in London, Rachel Sanderson in Milan and James Wilson in Frankfurt, January 18, 2012 8:14 pm, Financial Times, www.ft.com


European regulators are convinced that two of the continent’s banks will fail to produce credible plans to plug capital deficits by Friday’s deadline, exposing both to the risk of full or partial nationalization.

Officials said that it looked “almost inevitable” that a fresh injection of state funds would be needed at Italy’s Monte dei Paschi di Siena and Germany’s Commerzbank. “These are the big cases,” said one.

Surferbeetle
01-22-2012, 10:37 PM
Charlie Rose and Dr. Jim O'Neill have an interesting talk (http://www.charlierose.com/view/interview/12097) on Thursday January 19, 2012. Topics covered include:



The combined GDP of the BRIC countries is forecasted to exceed that of the US by 2015


Will France leave the EMU?


Will the EU muddle through the crisis?


What happens if nationalist politics simultaneously come to the fore in Germany, France, and Greece?


Will the Renminbi become a convertible currency in 2015?


Chinese bilateral currency deals


National control or housing prices


Political polarization in the US


The state of the US recovery


Growth vs Austerity strategies


The state of Russia


Nation-state economic models


Global governance


Changes in the global energy economy


War - nukes & cyber


Israel


Globalization


Occupy Wall Street


Teach First/Teach for America


The role of women in society



Charlie Rose (http://en.wikipedia.org/wiki/Charlie_Rose) bio by wikipedia


Charles Peete "Charlie" Rose, Jr. (born January 5, 1942)[1] is an American television talk show host and journalist. Since 1991 he has hosted Charlie Rose, an interview show distributed nationally by PBS since 1993. He has also co-anchored CBS This Morning since January 2012.

Dr. Jim O'Neill (http://en.wikipedia.org/wiki/Jim_O'Neill_(economist)) bio by wikipedia


Jim O'Neill is presently the Chairman of Goldman Sachs Asset Management. He was previously head of global economic research and commodities and strategy research at Goldman Sachs.[1] He is best known for his prominent economic thesis regarding the economically related nations referred to as BRICs (Brazil, Russia, India and China). He coined the phrase in a 2001 paper entitled "The World Needs Better Economic BRICs." [2]. He also has coined the term MIKT that stands for Mexico, Indonesia, Korea (South) and Turkey.[3]

O'Neill has particular interest and success in the foreign exchange market, Gavyn Davies describing O'Neill as "the top foreign-exchange economist anywhere in the world in the past decade" in 2005.[4]

A 2011 report worth rereading by the Economist Intelligence Unit: After Eurogeddon? Frequently Asked Questions About the Breakup of the Euro Zone. (http://search.eiu.com/default.aspx?sText=after%20eurogeddon)


There are too many unknowns to make confident predictions about the trajectory of the crisis or the extent and speed of any break-up, should efforts to save the single currency fail. The following FAQ represents an exploration of alternative scenarios that diverge from our central forecast. We attach a 60% probability to this central “muddle through” scenario, not least because the catastrophic consequences of a break-up provide a strong incentive for policymakers to do whatever is necessary to save the euro. In contrast, we think there is a 35% chance of a break-up of the euro zone, in which the most likely scenario would be the exit from monetary union of the smaller so-called “periphery” economies, as well as both Italy and Spain. We assign a 5% probability to Greece leaving the euro zone on its own, without triggering other departures.

Firn
01-23-2012, 12:11 PM
Doom and Gloom are of course dominating the headlines, and it is often hard to believe that live seems to go in many parts of Europe rather normally and the sun is still rising. Anyway a big decision has in my humble opinion been rather underreported:

Croatia votes to join the EU (http://www.nytimes.com/2012/01/23/world/europe/croatia-votes-2-to-1-to-join-european-union.html?ref=europe)


The state referendum commission said that with almost all the votes counted, about 66 percent in Croatia supported membership, while 33 percent were opposed and 1 percent of the ballots were invalid. The commission put the turnout at about 44 percent of eligible voters.

The low turnout means that less then a third to eligible voters actually did vote "Yes", but the outcome was pretty much given. Perhaps the most surprising bit is the following one:


And in a surprise move, Croatia's wartime military commander Ante Gotovina - currently serving a long sentence abroad for war crimes against Serbs - earlier sent a message to his compatriots urging them to vote "yes" in the referendum.

Gotovina's flight from a war crimes indictment by The Hague - and Zagreb's perceived half-heartedness in tracking him and other war crimes suspects down - delayed Croatia's EU bid.

His conviction in 2011 sparked a surge of anti-European sentiment in Croatia, where he is viewed by many as a national hero.

Other then that I wonder how and when the talks about the 'voluntary' haircut on Greek debt will end. As a have written before I have a personal stake in the matter, having bought Greek bonds for roughly 40 Cent on the €.
A 50% cut would be fine with me, if the conditions are not too bad although after a couple of months it would be perfectly fine so, after I got that € for those 40 Cent. A 65% would mean that I get out slightly ahead, depending on the conditions and future inflation...

Surferbeetle
01-26-2012, 02:07 PM
Firn,

Doom and gloom always seems to be in fashion, however, it certainly seems to be more so than usual of late. A motorcycle ride, or a day on the slopes, beach, etc always seems to help with returning to a baseline of sanity. :wry: Anyway, here are a couple of links to some of my morning reads today...

Income inequality comes out of the igloo at Davos, by Dr Gillian Tett, January 25, 2012 1:01 am by FT, Financial Times, www.ft.com


During the last year confidence among chief executives has apparently plunged, as many fear that the macroeconomic outlook looks dangerously uncertain. On a micro level, however, many companies say that their own operations are going quite well. In other words, even amid individual company success, the world seems a scary place.

Why? It might be tempting to point the finger at the euro (and, yes, those euro woes and Greek dramas will certainly dominate Davos debate). What came out of the FT panel debate is that the malaise actually has much deeper roots: businesses fear that that the current economic system is unsustainable in many senses. There are rising natural resource constraints; social pressures are growing; and political systems seem ill-equipped to cope. Add the destabilising impact of social media, and you get a combustible, and nerve-racking, mix — the Arab spring is just one case in point.


Edelman Trust Barometer (http://trust.edelman.com/), The Path Forward (http://trust.edelman.com/trusts/declining-trust/), and for all the powerpoint fans out there - the slide deck (http://www.slideshare.net/EdelmanInsights/2012-edelman-trust-barometer-global-deck)


The 2012 Edelman Trust Barometer examines trust in four key institutions -- government, business, media, and NGOs -- as well as communications channels and sources. This is the 12th year of the study and this year we took a deeper look at what drives trust.


The 2012 Trust Barometer reveals that the factors responsible for shaping current trust levels are less important than those that will build future trust. Consistent financial returns, innovative products and highly regarded senior leadership are the primary factors on which current trust levels lie. However, listening to customer feedback and putting customers ahead of profits are far more vital to building future trust.

Surferbeetle
01-29-2012, 04:06 AM
A quick survey of the perceptions of various demographics regarding control, trust, and socializing private & public losses:

Russia Davos party has unusual opposition flavor (http://www.reuters.com/article/2012/01/28/us-davos-russia-idUSTRE80R0HZ20120128), by Dmitry Zhdannikov
DAVOS | Sat Jan 28, 2012 10:08am EST, Reuters


Putin, Russia's president from 2000 to 2008 and now prime minister, is expected to return to the presidency after March elections, but is looking increasingly out of touch after the opposition brought tens of thousands of people onto the streets in December to demand a re-run of parliamentary elections.

Putin first dismissed the protesters as chattering monkeys financed from abroad, then backed a proposal from his protg President Dmitry Medvedev for gradual political reform, but later had a former KGB spy appointed as Kremlin chief of staff.

Kremlin insiders say the muted response is the result of a fight for the ear of Putin between the 'siloviki', men with a security services background, and a 'liberal' or 'moderate' faction whose influence has substantially weakened as Medvedev's term draws to a close.

Almost the entire "moderates" clan travelled to the World Economic Forum in Davos in Switzerland this week and used the event, previously attended by both Putin and Medvedev, to speak about the massive political challenges Russia faces.

Plan zur Finanzkontrolle, Griechenland strubt sich gegen EU-Aufpasser (http://www.spiegel.de/politik/ausland/0,1518,812009,00.html), 28.01.2012, Spiegel


Berlin - Die Debatte ber ein zweites Hilfspakets fr Griechenland wird hrter: Angesichts wachsender Zweifel an die Reformfhigkeit des Landes kommt aus Deutschland jetzt der Vorschlag, dass Griechenland im Gegenzug fr weitere Hilfen zulassen soll, dass die Haushaltspolitik von EU-Institutionen kontrolliert wird. Die Bundesregierung hat gemeinsam mit anderen Lndern die Idee eines Sparkommissars aufgeworfen. Dieser soll auch ein Veto gegen einen Etat einlegen drfen.

Die griechische Regierung will von solchen Vorhaben jedoch nichts wissen. "Es ist ausgeschlossen, dass wir das akzeptieren", hie es in Athen. "Diese Kompetenzen fallen unter die nationale Souvernitt."
ber die Zukunft Griechenlands wird derzeit auf verschiedenen Ebenen beraten. Zum einen verhandelte die Regierung in Athen weiter mit den privaten Glubigern ber eine Umschuldung. Ministerprsident Loukas Papademos hatte am Freitag gesagt, er erwarte eine Einigung innerhalb weniger Tage. Zum anderen prft die Troika aus IWF, EZB und EU-Kommission in Athen die Umsetzung der Verpflichtungen aus dem ersten Hilfspaket sowie die wirtschaftliche Entwicklung im Land.

Ein positives Urteil ist Voraussetzung dafr, dass das hoch verschuldete Land weitere Kredite im Rahmen eines zweiten Hilfspaketes erhlt. Nach SPIEGEL-Informationen reichen dabei die bisher kalkulierten 130 Milliarden Euro bis Ende 2014 nicht aus. Stattdessen wrden 145 Milliarden Euro bentigt.

Greeks reject German plan for EU budget commissioner (http://www.bbc.co.uk/news/world-europe-16777322), 28 January 2012 Last updated at 17:14 ET, BBC News


Greek officials have reacted angrily to a leaked German proposal for an EU budget commissioner with veto powers over Greek taxes and spending.

The Greek government said it must remain in control of its own budget.

The European Commission says it wants to reinforce its monitoring of Greek finances, but Greece should retain sovereign control.

Meanwhile, Greece and its private investors are close to a deal which will pave the way for a second bailout.

Negotiators say a tentative agreement could be finalised next week.

Greece must reach agreement in the next few days in order to receive the next tranche of funds from its first bailout.

It needs the money to pay off a significant number of bondholders whose bonds mature in March. Without the bailout funds, Greece could be forced into an uncontrolled default from the euro.

In Davos, Europe Is Pressed for Debt Crisis Solution (http://www.nytimes.com/2012/01/29/business/global/in-davos-europe-is-pressed-for-debt-crisis-solution.html?_r=1), by Jack Ewing, Published: January 28, 2012, NYT


DAVOS, Switzerland World leaders turned up the pressure on Europe on Saturday to erect a more formidable wall of money against the sovereign debt crisis, warning that the euro zone continues to pose a severe threat to the global economy.

George Osborne, the chancellor of the Exchequer in Britain, said a bigger firewall was a key to unlocking further confidence, while Christine Lagarde, managing director of the International Monetary Fund, said the fund should be big enough to eliminate any doubts about European resolve.

If it is big enough, it will not get used, she said on Saturday during a panel discussion at the World Economic Forum here.

Echoing comments by United States officials, including Treasury Secretary Timothy F. Geithner on Friday, leaders in Davos said that aid to the euro zone from the rest of the world would be contingent on a larger commitment by Europe. Some critics have said it is perverse that the I.M.F., which is financed partly by developing countries, should be aiding wealthy Europe.

Europe has to be making more effort; otherwise, I dont think developing countries will want to pay more for the I.M.F., said Motohisa Furukawa, the Japanese official responsible for economic and fiscal policy.

The firewall, known formally as the European Stability Mechanism, would have a lending capacity of 500 billion euros ($656 billion) when it begins operating in July, replacing a temporary fund. European leaders are debating ways to increase the bailout funds resources to aid overindebted countries, but they face powerful opposition from voters in countries like Germany and have so far failed to act boldly enough to reassure financial markets.


Greece, Bankers Expect Debt-Swap Deal Next Week (http://www.bloomberg.com/news/2012-01-27/greek-debt-talks-drag-on-as-lagarde-keeps-pressure-on-creditors.html), by Marcus Bensasson and Maria Petrakis - Jan 28, 2012 2:04 PM MT, Bloomberg News


Greece and its private creditors said they expect to complete a debt-swap accord in the coming week, after bondholders signaled they would accept European government demands for lower interest rates.

The sides are close to completing a voluntary exchange within a framework outlined by Luxembourg Prime Minister Jean- Claude Juncker, the Institute of International Finance, negotiating on behalf of private creditors, said in an e-mailed statement in Athens today.

Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds, said a person familiar with the talks, who declined to be identified because a final deal hasnt been struck yet.

Institute of International Finance: Greece (http://www.iif.com/emr/eu/greece/)


Greece remains mired in a damaging economic downturn. Despite a massive underlying fiscal adjustment of more than 12 percent of GDP during 2010-2011, EU-IMF fiscal targets been difficult to achieve with tax revenues undermined by weakening activity caused by the adjustment itself and an intensified credit contraction in response to growing liquidity pressures.

Liquidity pressures have grown with the ECB reluctant to assume unlimited Greek risk, which would have lessened the need for Euro Area creditor governments to provide additional financing with the government unable to issue new bonds in 2012, as the current EU-IMF program had assumed.

Agreements reached at the October 26-27 EU summit clear the way for a second EU-IMF program providing €130 billion in additional financing through 2014. Funding has been included for collateral for a revised voluntary agreement with bondholders reducing nominal bond values by 50 percent. Implementation, however, will require at least the interim support of Greece’s two largest political parties. This is likely to prove problematic amid jockeying ahead of elections now likely early next year.

European Central Bank, Mario Draghi, President of the ECB, Vítor Constâncio, Vice-President of the ECB, Frankfurt am Main, 12 January 2012 (http://www.ecb.int/press/pressconf/2012/html/is120112.en.html)


The Governing Council welcomes the European Council’s agreement to move to a stronger economic union, which was announced on 9 December 2011. The new fiscal compact, comprising a fundamental restatement of the fiscal rules together with the fiscal commitments that euro area governments have made, is an important contribution to ensuring the long-run sustainability of public finances in the euro area countries. The wording of the rules needs to be unambiguous and effective. The further development of the European financial stability tools should make the operation of the European Financial Stability Facility and the European Stability Mechanism more effective. The swift deployment of these tools is now urgently needed. Concerning the involvement of the private sector in financial assistance for indebted countries, we welcome the reaffirmation that the decisions taken on 21 July and 26 and 27 October 2011 concerning Greek debt are unique and exceptional.

Fuchs
01-29-2012, 10:47 AM
I don't think they're serious about the commissioner. It's a model from the German constitution (in federal - states relations) that has never been applied in Germany (despite our three city states being in fiscal trouble for decades).

I suspect they're trying to push Athens into seeking an independent solution. Athens doesn't appear to be able to reform fully, and austerity in Athens merely wrecks the Greek economy a bit more - leading to less GDP and thus a higher debt : GDP ratio.

The obvious escape is to either declare bankruptcy, force lenders to accept a huge cut or to re-establish flexible exchange rates and re-create a lender of last resort by leaving the Euro zone. The latter is in combination with reforms the only really viable long-term solution.

Surferbeetle
01-29-2012, 03:28 PM
Fuchs,

Not all technocratic solutions are politically feasible...

EURO-RETTUNG, Partner drngen Deutschland zu ESM-Aufstockung (http://www.handelsblatt.com/politik/international/euro-rettung-partner-draengen-deutschland-zu-esm-aufstockung/6124980.html), 29.01.2012, 13:24 Uhr, Handelsblatt


Berlin/DavosDer internationale Druck auf Deutschland wchst, einer Aufstockung der Euro-Rettungsfonds zuzustimmen. Neben dem IWF und mehreren anderen auslndischen Regierungen forderte am Wochenende auch sterreichs Bundeskanzler Werner Faymann (SP) eine Erhhung der Kapazitt der Euro-Rettungsschirme auf rund 750 Milliarden Euro. Die SPD und Faymann dringen zudem darauf, dass der knftige dauerhafte Rettungsmechanismus ESM eine eigene Banklizenz erhlt, um sich bei der Europischen Zentralbank refinanzieren zu knnen. Whrend die Bundesregierung bei ihrer Linie bleibt, dass ber eine mgliche Aufstockung ohnehin erst im Mrz geredet werden soll, deutete der CDU-Haushlter Norbert Barthle im Reuters-Interview an, dass im Notfall die Rettungsschirme EFSF und ESM kombiniert werden knnten, um die Summe fr Hilfsaktionen fr angeschlagene Euro-Staaten erheblich zu erhhen.


Der Chef des ifo Instituts, Hans-Werner Sinn, warnte dagegen vor weiteren Haftungsbernahmen. Die Wirtschaftswoche berichtet, dass nach Berechnungen des ifo Instituts die deutschen Steuerzahler im Rahmen der Rettungsaktionen der EU-Regierungen und der EZB bereits Risiken ber 595 Milliarden Euro bernommen htten. Wrden die 190 Milliarden Euro deutscher Haftungsanteil des ESM hinzuaddiert, klettere die gesamte Haftungssumme auf 785 Milliarden Euro. Die Finanzmrkte taxieren die Wahrscheinlichkeit fr einen Staatsbankrott Deutschlands in den nchsten zehn Jahren schon jetzt auf zwlf Prozent, mit steigender Tendenz, warnte Sinn.

Hilfe unter Konservativen, Merkel macht Wahlkampf fr Sarkozy (http://www.spiegel.de/politik/ausland/0,1518,812014,00.html), 28.01.2012, Spiegel


Die CDU setzt bei den Wahlen in Frankreich auf den Amtsinhaber. Angela Merkel plant mehrere Wahlkampfauftritte mit Nicolas Sarkozy. Den sozialistischen Herausforderer bezeichnet Generalsekretr Grhe als "Hemmschuh fr die Zukunft der Europischen Union".

Global Agenda Council on Geopolitical Risk (http://www.scribd.com/WisdomNote/d/79663389-WEF-GAC-Geopolitical-Risk-Report-2012), Davos-Klosters, Switzerland 25-29 January 2012


Both the US and China desire to see the existing global order and institutions evolve to meet their particular strategic needs. The US wants to preserve its existing institutional advantages while managing its relative decline and China wants to leverage its growing size and influence while seeking to defer leadership responsibilities. The European Union remains the strongest defender of multilateral global organizations and governance, but its global leverage has been declining, even before the Eurozone crisis, which exposed enormous internal faults. As a result, the EU has lost significant credibility and influence.


Germany is a potential winner, yet perhaps reluctantly so, as it remains less than fully enthusiastic about the increasing leadership role it currently plays in Europe. No other state is financially able or willing to meet so many of the current challenges facing the region. And yet, Germanys historical attempts to play a leadership role within Europe have not always gone well, and this remains a defining characteristic of its bilateral and multilateral relationships within the EU.


A global power vacuum is the most daunting potential consequence of this weakening of global institutions and rules. While regional alliances will likely gain in importance, neither they nor individual countries will completely fill this global vacuum. Many countries now have both national and regional ambitions, yet only a few have global ones. Only the US and China appear willing and able to spend considerable resources far beyond their borders. Yet, neither can assume overt global leadership and responsibility nor does either want to. There is a significant difference between the respective levels of this reluctance on the part of China and the US. Each has a very different political philosophy, with those differences extending well beyond the issue of democracy. China remains primarily focused on its own domestic concerns chiefly development and tends to look at global issues through that prism. It is far more committed to addressing its own problems before advancing to a more internationalist agenda. The US, by contrast, retains incomparably greater diplomatic and military reach and is more outwardly engaged in the world, often requiring it to balance its own domestic and international concerns. The US remains willing to assume at least some of the functions of international leadership. Though the decline of the US should not be overstated, the US economy today limits the countrys ability to exercise unbridled global leadership. China still insists that its developing country status absolves it from shouldering too many global responsibilities, though it wants to make sure the world does not unify against it. No other mega-state is credibly thinking in global terms. As the world drifts towards what is increasingly seen as potentially a G2 world, with the US and China at the table, this could possibly lead to a world more prone to competition than a multipolar/multilateral world and could lead to more state-to-state conflicts. Yet, we might also be more likely to see conflicts within states, the rise of non-traditional threats including cyber threats and proxy conflicts, in which countries destabilize others in different ways. Such new conflicts could even escalate to a military level, especially if global crisis management mechanisms are weak.

Firn
01-29-2012, 03:48 PM
I don't think they're serious about the commissioner. It's a model from the German constitution (in federal - states relations) that has never been applied in Germany (despite our three city states being in fiscal trouble for decades).

I suspect they're trying to push Athens into seeking an independent solution. Athens doesn't appear to be able to reform fully, and austerity in Athens merely wrecks the Greek economy a bit more - leading to less GDP and thus a higher debt : GDP ratio.

The obvious escape is to either declare bankruptcy, force lenders to accept a huge cut or to re-establish flexible exchange rates and re-create a lender of last resort by leaving the Euro zone. The latter is in combination with reforms the only really viable long-term solution.

A similar system also exists in Italy, but of course there it can wield some power while I hardly can imagine an EU appointed person doing a similar job in Greece. Indirect pressure is in general preferable, however so far it doesn't seem to work. Greece was never a first class economy, and the massive, decade long flow of money from the EU and the all the ups of the Euro did not result in deep structural reforms and great productivity increases but rather delayed and blocked progress. Even the best input can be turned into a terrible output, and while many regions and much of Eastern Europe profited from EU policy Greece and regions like southern Italy and southern Spain did certainly so. There nice Wall Street adage about something very similar, concerning ideas.

The problem is that austerity in a downturn is in general a terrible idea like the Great Depression has shown, even in more advanced and robust economies with much higher productivity. Cameron is trying to prove the point pretty hard. So while deep reforms have to made quickly to convince key European partners to help, as I don't think the Lehman argument will suffice in the mid term, a deep haircut is needed. Perhaps dropping the Euro might even be a good move, as frankly the economic situation is already so grim that it could be more of a liberation and create a clean sheet again. The external devaluation would make Greece a lot more productive.

On a side note Spain's housing bubble was and is certainly amazing and it is just incredible just how much was built in Spain compared to the rest of Europe and just how high the prices are still, despite the downturn. To some extent it reminds me a bit how the big three built and built and built cars far in excess of demand in the years before the big crash. However they had to sell those cars and to do so they cut deep into their pricing power.

P.S: Those bad days were however an excellent time to buy stock and I got Ford shares under 3$, a very rare amount of lucky timing. Sadly greed and stupidity let me sell them with a considerable profit, instead of trusting the company and the US government. Even after the recent drop they sell over 10$. Fortunately I was able to resist the urge to sell for other stocks which I bought around that timeframe when everything seemed doom and gloom. I still remember that rock solid enterprises who payed out only over 50% of profits in the forms dividends and still gave you a yearly yield of over 10%. It was a good times to switch from bonds to stocks, and with the last buys I have increased considerably that weighting already heavy due to capital gains. Even if the profits shrink a fair amount the dividends alone should yield in the region of good European bonds.

As it seems now the decision to buy cheaply stock of a country has bitten me almost as heavily my poor decisions to buy cheap stock of companies with bad fundamentals and no reliable creditor in form of a government like US one. It is always good to be reminded of his own stupidity, and it seems I'm trying hard to do so.

Fuchs
01-29-2012, 03:50 PM
Hans-Werner Sinn

This guy is extreme. He had in my opinion a track record of being wrong on almost everything for years - until about two years ago when he began to make sense in new topics (typically only in regard to trade and fiscal stuff). Prior to that, he looked a lot like a totally purchasable speaker for big business who said the most obviously stupid and ignorant things.

In general, his opinion should be weighed with zero due to his past.

Firn
01-29-2012, 03:59 PM
This guy is extreme. He had in my opinion a track record of being wrong on almost everything for years - until about two years ago when he began to make sense in new topics (typically only in regard to trade and fiscal stuff). Prior to that, he looked a lot like a totally purchasable speaker for big business who said the most obviously stupid and ignorant things.

In general, his opinion should be weighed with zero due to his past.

From what I have read he seems to be on a wave lenght with the so called freshwater school of economics. Some of his arguments make indeed sense, sadly success for a mission under certain conditions doesn't make the a certain approach always the correct one when things change.

So in a military sense a macroeconomic METT-TC analysis seems to be disregarded for ideological reasons.

Fuchs
01-29-2012, 04:12 PM
He did for example argue against a minimum wage while it was obvious that corporations were increasingly ripping workers off due to weakened labour unions and a quite treacherous left government (which didn't behave 'left' at all).

His argument was a 1st semester economic studies basic model that lacked the plethora of real world complications which lead to a totally different conclusion.
The minimum age discussion at the time was about a sector which is not in competition with foreign businesses, where workers could not be substituted (except for faux self-employed workers) and where corporations were eroding formerly family-sustaining jobs into jobs that did at full time work not yield a living wage (necessitating public social transfers to full-time workers who previously had been net contributors to the social net!).

Surferbeetle
01-30-2012, 05:10 PM
Guest post by Vladimir Putin: Russia needs more technology and less corruption
January 30, 2012 1:12 pm, Financial Times, www.ft.com


We are living through a period of serious changes in the world economy. Never before has technology advanced so quickly. What we see today would have seemed like science fiction only fifteen years ago.

In such circumstances it is important to ensure the stable development of our economy, to give our citizens maximum protection from the impact of global crises, and at the same time to renew all aspects of our economy. For Russia, it would be inadmissible to not have an economy that can guarantee stability, sovereignty and a decent standard of living.

We need an economy with competitive industries and infrastructure, a developed service sector, and effective agricultural system; in short an economy that harnesses modern technology.


Speaking plainly, we still have system-wide corruption. The cost of doing business varies depending on your “proximity” to specific individuals within the government machinery. In these conditions entrepreneurs quite rationally tend to find backers and strike deals with them rather then observe the law. Then, having made their deals, such businesses try to suppress competition.

Clearing the way for businesses prepared to win a competitive battle on a level playing field is our fundamental system-wide goal. And this cannot be attained through economic policy alone. We must transform the state itself, its executive and judiciary branches. We must dismantle the accusation-driven collection of law-enforcement, investigative and judiciary agencies and eliminate from our legislation all vestiges of the Soviet legal system.

Economic cases must be transferred from trial courts of general jurisdiction to arbitration courts. Together with the expert community, judges and entrepreneurs we should publicly discuss and introduce before the end of this year all the necessary initiatives to achieve this.

When it comes to economic policy, it must be adjusted in the coming years to reduce the level of government regulation, by replacing regulations with market-based mechanisms, and administrative control with liability insurance. The global crisis lent more credibility to the proponents of state-led management of the economy. But we understand that, as opposed to many other countries, the share of the state in the Russian economy and the degree of government regulation remains rather high.

Firn
01-31-2012, 11:42 AM
Reflecting the whole crisis I have to say that it is to a good deal luck when a person gets born into relatively decently working economy with little employment. It is a lot easier to get a good job, live a nice life and to keep out of trouble and dark actions when you life in such a peaceful environment. Much harder to make your hands dirty under such circumstances. For a person in Bergamo it is much easier to resist the pizzo then for a guy working in Palermo.

Said that I really hope that the EU and the various governments work hard to resolve the crisis and lessen it's impact and that ways can be found to contain the increasing inequalities in Europe between the rich and the rest without harming productivity.

Surferbeetle
02-05-2012, 03:29 PM
The website Punk Economics (http://www.davidmcwilliams.ie/2012/01/30/punk-economics) by David McWilliams

Lesson 1 (http://www.youtube.com/watch?v=oAR0VRLRGHE&feature=player_embedded) on Youtube

David McWilliams (http://en.wikipedia.org/wiki/David_McWilliams) bio by Wikipedia


David McWilliams (born 1966)[1] is an Irish journalist and economist.[3] McWilliams has worked with as an economist with Central Bank of Ireland and as a banker with UBS bank and the Banque Nationale de Paris. More recently, he has become a broadcaster and documentary-maker with TV3 and Raidi Teilifs ireann (RT), as well as publishing three books, The Pope's Children, The Generation Game, and Follow the Money.

McWilliams has called for a radical change in currency, arguing that Ireland should abandon the Euro project and establish a new punt.[4] McWilliams has also called for a different approach to the current crisis in Ireland, including a demand for a more aggressive negotiating stance with the European Union, the creation of an alliance between Ireland, Greece, Portugal and other debtor nations, default on the Irish bank debts (97 bn) held by the ECB and exploiting the deposits of multinational companies in the IFSC as a stimulus. He has also expressed a number of ideas about political reform, including extending the vote to the Irish diaspora.[5]

EU HAS HIT SELF-DESTRUCT BUTTON AS WORLD MOVES ON (http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-eu-has-hit-selfdestruct-button-as-world-moves-on-3005706.html), by David McWilliams, February 1, 2012, Irish Independent


Think about the world as it is, not as the politicians who met on Monday night would like it to be.

Here in Italy, youth unemployment is running at 30pc. In Greece, it is 51pc. In Spain it is 48pc and in Portugal it is 31pc. In Ireland, unemployment amongst young men between 15 and 19 is 45pc and one in three young men between 20 and 24 are on the dole. (I have just read excellent research on Irish unemployment by economist at NUIM Aedin Doris. Sobering but realistic.)

How can austerity now be the answer when these young people are on the dole because of a lack of demand? Everyone knows you can’t go on spending indefinitely, but there is a stage in the cycle when the Government has to support demand and that stage is now.

Why else would Portuguese bond yields be at 17pc yesterday if it wasn’t because the market thinks it is impossible for Portugal to survive in this straitjacket? Are yields high because austerity is making Portugal more likely to pay its debts? I think not.

And if Europe is putting its financial house in order and confidence is returning to the market — which is what the politicians have assured us — how come eurozone banks are set to borrow about €1 trillion in emergency loans from the ECB at its next three-year money auction?

If everything was hunky dory they would be borrowing from each other, but they are not because no one trusts anyone.

Then there is the little point about democracy. On Monday night I chatted to one of Greece’s foremost political commentators, Pavlos Tsimas, who painted a picture of a country imploding. Greece is supposed to be in the European family but is being cast aside.

At the weekend we saw Germany demand that the Greeks “give absolute priority to debt service” and “transfer budgetary sovereignty” to the EU while refusing to allow the issue to be put to the Greek people in a referendum. How are the Greeks supposed to react?

I write not as a eurosceptic but as a graduate of the College of Europe, someone who believes in the EU and has voted ‘Yes’ in every referendum. However, the EU that I voted for is being dismantled in front of our eyes.

Reading music, Snow Patrol, New York (http://www.youtube.com/watch?v=Ytlz0rWantI)

AdamG
02-07-2012, 04:02 AM
Bucharest, Romania (CNN) -- Romania's prime minister resigned Monday in the wake of weeks of public protests against austerity measures and a deadly spell of bitterly cold weather.
The resignation makes Romania the sixth European country to see a prime minister fall amid the debt crisis sweeping European Union member states.

http://www.cnn.com/2012/02/06/world/europe/romania-politics/index.html

Fuchs
02-07-2012, 10:55 AM
Keep in mind there are about three dozen countries in Europe; some government is going to fail (in elections or otherwise) almost every month, even in normal times.

Firn
02-07-2012, 03:20 PM
Merkozy not happy about progress in Greece (http://www.nytimes.com/2012/02/07/world/europe/merkel-and-sarkozy-address-syria-greece-and-french-election.html?ref=world)


Mrs. Merkel signaled some exasperation with the Greek situation as well. She made it clear that Europe was losing patience with Athens, where politicians are arguing over whether and how to respond to demands by the country’s foreign lenders — the European Central Bank, European Commission and the International Monetary Fund. The lenders, known collectively as the troika, want the Greek leaders to take more steps to cut spending and revive the Greek economy before they hand over nearly $171 billion in new loans meant to stave off a disorderly default and sustain Greece’s membership in the euro zone.

“We want Greece to stay in the euro,” Mrs. Merkel said, but she added: “I want to make clear once again that there can be no deal if the troika proposals are not implemented. They are on the table; time is of the essence.”

Greece announced Monday that 15,000 government jobs would be eliminated this year, though the administrative reform minister, Dimitris Reppas, did not provide further details.

The signals have become very clear and rather harsh for European norms. First the rumours about the 'savings commissioner', now talk about a special 'saving account' which are in fact nothing less then demands to hand over some direct control over the budget.

As a matter of fact there has been a lot of talk about reform in Greece but very little action due inertia of quite poor bureaucracy, week governments, strike-happy population in terrible economic conditions (for a 'modern'European country). Every further lending for Greece will on the other hand be very hard to swallow for the voters in countries like Germany, Austria, the Netherlands, Finland but also hard to explain to the Baltic states, Slovenia, Slovakia and so forth.

I don't think Greece leaving the Euro zone is a terrible thing for the rest of the continent, perhaps it will even be a boost as fait accompli. For Greece itself it will be of course very difficult in every case.

Fuchs
02-07-2012, 05:52 PM
It's no lending to Greece anyway.
It's rather taking the load of bad bonds from banks, insurances, funds and about delaying Greek bankruptcy till this socialisation of risk is about complete.

Fuchs
02-08-2012, 05:59 PM
related

Last year, some observers hailed a close Franco-Anglo cooperation and diagnosed the end of the Franco-German couple which had exercised above proportional influence in Europe.

These politics games are simple; a few (two) large powers agree on common ground on a topic, then they go to a target summit and prevail with their proposals and demands because there's not going to be any agreement without them anyway. The advantage for the two is basically that the special interests of many others are a much weaker bargaining position.

Well, the British-French cooperation in military affairs is largely irrelevant now since the elephant in the room is the Euro currency area / PIIGS fiscal crisis. The UK is not part of the common currency and thus irrelevant; Cameron was not happy to be informed about this directly. The UK is a stakeholder, not a shareholder - and thus largely powerless in the issue.


Now there' much being written about 'Merkozy' and how they define the political reaction to the crisis. Authors ascribe especially great power to Merkel, often with reference to the German economic position.

Judging by the conventional view of great power games and by the view assumed by many journalists, Germany is now powerful.

Hmm, right.
Now what's the benefit of being powerful?

You know, Germans have become accustomed to expect that whenever they're being called 'important' or 'indispensable', it's actually about their money. It's thus not surprising that there's not exactly great cheering about this 'power' in Germany.

Moreover, the whole anecdote exemplifies how power must not be advantageous under all circumstances; the political reaction to the crisis is actually a rather primitive, and not really self-serving reaction. German foreign policy uses the crisis to shove some long-term improvements down the throats of Greece, and to influence the long-term outcome (at the cost of being called out for disastrous short-term effects).

There's a huge price, though; we're being played like a violin by the financial sector. We're the dog who gets wagged by his tail. So much about our 'power'.
Said 'power' or 'greatness' is rather 'size' - a common misunderstanding in many other cases of 'power' or 'greatness' as well.

What's really happening is that investors in the financial markets bought PIIGS public bonds and were promised a risk premium (higher than about 2% interest rate). In many cases, said investors were incompetent and did not understand that the risk premium was way too small. Well, their problem; but now they've got the additional problem that the risk might realize and they might indeed not get their money back.

This was when a lucky set of circumstances created the terrible urge "to do something" about the crisis, for, you know, people dislike change. The idea of supporting the countries in peril was born, and much fear about 'contagion' was spread.
As a result, said dumb investors were able to transfer much of their risks to European governments (the people of Europe); they socialised risk. Nobody's talking about socialising profit, of course.

Merkozy were dumb enough to get caught in this vicious circle; the more they support Greece, the more is at stake. The sunk costs theory say that must not play a role, but they're politicians and the only cost that really counts to them is the loss of their office.
Now they're adding one 'helping' measure after another and dig the hole deeper and deeper, delaying the collapse as much as they could (or at least till after their re-elections?). This means of course that more and more risk is being socialised.


Now where exactly is the benefit of being 'powerful'?
It certainly doesn't appear to be of much use if you're a fool.

Accordingly, getting rid of foolish policy should attract much more attention, and only once this has succeeded anyone should care much about the difficult-to-define 'power' of a nation.

Surferbeetle
02-13-2012, 01:16 AM
So, how will Greece's only future, it's youth, be prepared to lead their country out of austerity?

Will EU universities and apprentice programs open satellite offices in Greece, will small business startups be cultivated, or has the brain-drain officially begun? Or maybe, perhaps, future remittances will be enough and Greek politicians have not epically failed their country after all...:cool:

Greek MPs pass austerity plan amid violent protests (http://www.bbc.co.uk/news/world-europe-17007761), 12 February 2012 Last updated at 18:40 ET, BBC


Greece's parliament has passed a controversial package of austerity measures, demanded by the eurozone and IMF in return for a 130bn-euro ($170bn; £110bn) bailout to avoid default.

Coalition parties expelled over 40 deputies for failing to back the bill.

The vote came amid some of the worst violence seen in Greece in years.

Euro Gains as Greece Approves Austerity Measures (http://www.bloomberg.com/news/2012-02-12/euro-gains-as-greece-approves-austerity-measures.html), by Candice Zachariahs and Kristine Aquino - Feb 12, 2012 4:11 PM MT, Bloomberg News


The 17-nation currency rose against most major peers after at least 151 members of the chamber voted for the measure, according to a tally of votes. The dollar slid versus 12 of its 16 most-traded counterparts before data tomorrow forecast to show U.S. retail sales rose in January by the most in four months, damping demand for haven assets.

Why Greece and Portugal ought to go bankrupt, By Wolfgang Münchau, Last updated: February 12, 2012 11:04 pm, Financial Times, www.ft.com


Two years ago, most European policymakers still believed that Greece would pull through. They lacked experience in managing financial crises. They did not even consult with policymakers in other parts of the world who had dealt with crises in previous decades. Armed with ignorance and arrogance, they ended up repeating everyone else’s mistakes. They thought they were clever when they came up with the idea of an expansionary fiscal contraction. And they thought that a voluntary private sector involvement (PSI) could really help.

Having failed to learn from the mistakes of others, some of them are now beginning to learn from their own. In some northern European capitals, policymakers are beginning to understand that the Greek programme has been an unmitigated failure. They have lost trust in Greek politics. As we enter year five of a depression, and the certainty that Greek gross domestic product will fall further under the influence of austerity, they are on the verge of giving up on Greece.


Some say it would be better to force Greece out of the eurozone right now, and use the funds to save Portugal. I disagree. I personally believe it would be best to recognise the desolate state of both countries, let both default inside the monetary union, and then use a sufficiently increased rescue fund to help them to rebuild themselves, and to ringfence the rest at the same time.

This will be very expensive. But to ignore reality for another two years will be ruinous.

Greece - Cutting out the Middle Man (http://londonbanker.blogspot.com/), TUESDAY, 7 FEBRUARY 2012,


It seems that central bankers and politicians are endlessly resourceful when it comes to innovating ways to profit themselves and bankers at everyone else's expense. Where I had thought Greek default inevitable just two weeks ago, I no longer think so today. It appears that Sarkozy, Merkel and the Troika have decided to prevent a default regardless of what Greek politicians or citizens may choose to do.

The new plan is to take the EUR 130 billion that would have gone to Greece in the second bailout, and put it in an escrow account. The account may be labelled "Greek Government", but Greek politicians will not have any authority over the funds. The funds will be disbursed by a non-Greek overseer to pay holders of Greek debt. Official creditors will receive full payment. Private creditors will receive the new discounted rates agreed with the IIF for restructured debt. I am not sure what private creditors who reject the IIF proposal might receive, but it will not much matter as ISDA will find there is no credit event regardless.


The can is kicked down the road for another quarter, and the bankers can pay themselves their 2011 bonuses.

After all, innovation is the driving force of economic growth, and deserves to be generously remunerated.

Junge Griechen-Elite verlässt ihr Land (http://www.handelsblatt.com/politik/international/exodus-der-akademiker-junge-griechen-elite-verlaesst-ihr-land/5765892.html), 29.10.2011, 17:50 Uhr, Handelsblatt


Je höher ein junger Grieche heute ausgebildet ist, desto stärker ist sein Drang, auszuwandern. Neun Prozent aller Uni-Absolventen verlassen ihr Land, sogar 51 Prozent der Promovierten. Doch sie gehen nicht gerne.


Jeder Dritte landet von der Universität direkt in der Arbeitslosigkeit. Unter Akademikern hat sie sich seit 2007 verdoppelt. Insgesamt haben vier von zehn Griechen zwischen 15 bis 24 Jahren keinen Job. 2008, vor der Krise, waren es zwar auch schon 18,6 Prozent, aber seither hat sich diese Zahl mehr als verdoppelt. Griechenland bietet nicht nur eine turbulente Gegenwart, Griechenland bietet vor allem keine Zukunft.

Unter den 25- bis 35-Jährigen haben 22 Prozent keine Arbeit, nach offiziellen Statistiken. Damit verspielt das Krisen-Land eine wichtige Ressource: Etwa ein Zehntel der Bevölkerung (1,1 Millionen Menschen) sind jünger als 25 Jahre, weitere 1,5 Millionen sind zwischen 25 und 34 Jahre alt. Das sind die Zahlen, die Eleftheria und Sofia im Hinterkopf haben, während sie in den Räumen des Goethe-Instituts deutsche Vokabeln lernen. Die beiden jungen Frauen sind wie viele Griechen, sie lieben ihr Land. Und dennoch sehen sie keine Alternative zur Auswanderung.

Griechische Industrieproduktion mit -11,3% im Dezember (http://www.querschuesse.de/griechische-industrieproduktion-mit-113-im-dezember/), Querschuss am 9. Februar 2012 in Allgemein


Eigentlich unfassbar, welch miese Wirtschaftdaten geboten werden und wie oft man sie noch darstellen muss, um der simplen seit 2 Jahren hier dokumentierten Erkenntnis zum Durchbruch zu verhelfen, dass die Maßnahmen der Troika (EU, EZB und IWF) völlig kontraproduktiv sind und zu einer beispiellosen Depression in Griechenland führen. Das griechische Statistikamt ELSTAT berichtete heute für Dezember 2011 einen Einbruch des unbereinigten Outputs der breit gefassten Industrieproduktion von -11,3% zum Vorjahresmonat. Besonders brisant, gerade das vergleichsweise stark unterentwickelte Verarbeitende Gewerbe in Griechenland, brach selbst zum schwachen Niveau des Vorjahresmonats um weitere -15,5% ein. Die organisierte Desasterzone “feiert” zum Schaden Aller in der Eurozone Urstände, insbesondere zum Schaden der griechischen Bevölkerung.

Surferbeetle
02-17-2012, 10:35 PM
Greece has a 14.5 billion Euro bond redemption scheduled for 20 March, 2012. Gavyn Davies, in today's FT (Eurozone’s reluctant take-over bid for Greece, February 17, 2012 1:43 pm), estimates that Greece's ~353 billion euro debt results in a debt to GDP ratio of 163 percent, (with no end in sight).

A breakout of Greece's economy, by wikipedia, can be found here (http://en.wikipedia.org/wiki/Economy_of_Greece)

Public Debt Bulletins from the Greek Ministry of Finance can be found here (http://www.minfin.gr/portal/en/resource/contentObject/contentTypes/genericContentResourceObject,fileResourceObject,ar rayOfFileResourceTypeObject/topicNames/publicDebtBulletin/resourceRepresentationTemplate/contentObjectListAlternativeTemplate). The latest posted, as of today 17 Feb 2012, is for Dec 2011.

Wikipedia:
Socialization (http://en.wikipedia.org/wiki/Socialization) (or socialisation) is a term used by sociologists, social psychologists, anthropologists, political scientists and educationalists to refer to the process of inheriting and disseminating norms, customs and ideologies.


The Doom Loop (http://www.lrb.co.uk/v34/n04/andrew-haldane/the-doom-loop), by Andrew Haldane, Vol. 34 No. 4 · 23 February 2012, pages 21-22 | 3181 words, London Review of Books


In the first half of the 19th century, the business of banking was simple. The UK had around five hundred banks and seven hundred building societies. Most of the former operated as unlimited liability partnerships: the owners-cum-managers backed the banks’ losses with every last penny of their own personal wealth. The building societies operated as mutually owned co-operatives, with ownership, control and liability all pooled. Financial sector assets amounted to less than 50 per cent of annual UK GDP.


At first, limited liability status was not taken up enthusiastically by banks: they were reluctant to give up unlimited liability, which they regarded as a badge of prudence. But the collapse of the City of Glasgow bank in 1878, caused by speculative lending and false accounting practices, ended that. Eighty per cent of the bank’s shareholders were made destitute. The opinions of bankers, Parliament and public alike shifted quickly. By 1889, only two unlimited liability British banks remained.


What impact did these changes have on banks’ incentive to take risks? The answer was provided in 1974, around a hundred years after the introduction of limited liability, by the Nobel Prize-winning economist Robert Merton, who showed that the equity of a limited liability company could be valued as if it were a financial option – that is, an instrument which offers rights over the future fruits of the company’s assets. This option has value – in the jargon, it is ‘in the money’ – provided a firm’s assets cover its debts. But the most extraordinary implication of Merton’s framework is that the value of those options can be enhanced by increases in the degree of uncertainty about the value of the bank’s assets. How so? Because while uncertainty increases both upside and downside risks, downside risks are capped by limited liability. For shareholders, the sky is the limit but the floor is always just beneath their feet. To maximise shareholder value, therefore, banks need simply to seek bigger and riskier bets.


Finance has a further trick up its sleeve, a trick that at a stroke boosts both volatility and returns to the owners of a bank. Leverage, simply put, is borrowing against your capital stake. For example, if borrowing allows a bank to hold assets of 120 against capital of ten, then its leverage is 12. The beauty of leverage is that it effortlessly multiplies the amount shareholders receive as a return on their assets. Consider a bank that makes a 1 per cent return on its assets. By allowing leverage (assets relative to equity) of two, shareholders can double their money; with leverage of four, they can quadruple their money. And so on. Banks have been using this device for well over a century. As unlimited liability was phased out, leverage among banks rose from about three or four in the middle of the 19th century to about five or six at its close. Leverage continued its upward march when extended liability was removed, and by the end of the 20th century it was higher than twenty. In 2007, at its high-water mark, bank leverage hit thirty or more.


Consider the effects of the too-big-to-fail problem on risk-taking incentives. If banks know they will be bailed out, those holding their debt will be less likely to price the risk of failure for themselves. Debtor discipline will therefore be weakest among those institutions where society would wish it to be strongest. This encourages them to grow larger still: the leverage cycle isn’t merely repeated, but amplified. The doom loop grows larger. The biggest banks effectively benefit from a disguised, and growing, state subsidy. By my estimate, for UK banks this subsidy amounts to tens of billions of pounds per year and has often stretched to hundreds of billions. Few UK government spending departments have budgets this big. For the global banks, the subsidy can reach a trillion dollars – about eight times the annual global development budget.

Andy Haldane (http://www.bankofengland.co.uk/about/people/biographies/haldane.htm), Executive Director, Financial Stability, Bank of England


Andy Haldane is Executive Director for Financial Stability. Andy has responsibility for developing Bank policy on financial stability issues and the management of the Financial Stability Area. He is a member of the newly established Financial Policy Committee as well as several senior management committees of the Bank. He is also a member of the Basel Committee.

Andy joined the Bank in 1989. In previous roles he has headed the Bank's work on risk assessment, market infrastructure and on international finance. Prior to that he worked on various issues regarding monetary policy strategy, inflation targeting and central bank independence.

Andy has written extensively on domestic and international monetary and financial stability, authoring around 100 articles and three books. He is the co-founder of a charity 'Pro Bono Economics', which aims to broker economists into projects in the charitable sector.

Hat Tip to the blog, Jesse's Café Américain (http://jessescrossroadscafe.blogspot.com/)


Today [17 February, 2012] was an option expiration.

There was an interesting divergence between the financials and big tech.

Monday the US markets will be closed. Another Greek drama may be in the offing.


Feb. 23 Comex March silver options expiry
Feb. 23 Comex March copper options expiry
Feb. 24 Nymex February platinum futures last trading day
Feb. 24 Nymex February palladium futures last trading day
Feb. 27 Comex February gold futures last trading day
Feb. 27 Comex February copper futures last trading day
Feb. 27 Comex February E-micro gold futures last trading day
Feb. 27 Comex March E-mini copper futures last trading day
Feb. 27 Comex March miNY silver futures last trading day
Feb. 29 Nymex March palladium futures first notice day
Feb. 29 Comex March silver futures first notice day
Feb. 29 Comex March copper futures first notice day
March 16 Nymex April platinum options expiry
March 20 Nymex April platinum futures first notice day
March 27 Comex April gold options expiry
March 27 Comex April copper options expiry
March 28 Comex April miNY gold futures last trading
March 28 Comex March silver futures last trading day
March 28 Comex March copper futures last trading day
March 28 Comex April E-mini copper futures last trading day
March 28 Nymex March palladium futures last trading day
March 29 Comex April E-mini gold futures last trading day
March 30 Comex April gold futures first notice day
March 30 Comex April copper futures first notice day

Firn
02-18-2012, 07:42 AM
I think I already pointed out the influence of lax regulations, little oversight and high leverages in making monetary policy less effective then in the past. A hefty drop in leverage in times of crisis requires thus a relative higher effort in quantity and quality of the monetary policy, supported by a big fiscal one if the risk is high.

As usual few see a problem with the system as long it is working even if akin to a car running at ever higher speed on a dangerous road. And if experience is a guide most person will buy stocks when the car accelerates its high speed even further and more aggressively. And for the time being most are quite happy.

Surferbeetle
02-19-2012, 03:38 AM
Firn,

The market is harshly beautiful and in many ways it mirrors nature which is 'red in tooth and claw'; however, i suspect that there is a reason why our brains combine both 'mammalian and shark brains'....:wry:


"When bad men combine, the good must associate; else they will fall one by one, an unpitied sacrifice in a contemptible struggle."

Edmund Burke


Edmund Burke PC (http://en.wikipedia.org/wiki/Edmund_Burke) (12 January [NS] 1729[1]– 9 July 1797) was an Irish[2][3] statesman, author, orator, political theorist and philosopher who, after moving to England, served for many years in the House of Commons of Great Britain as a member of the Whig party.

He is mainly remembered for his support of the cause of the American Revolutionaries, and for his later opposition to the French Revolution. The latter led to his becoming the leading figure within the conservative faction of the Whig party, which he dubbed the "Old Whigs", in opposition to the pro–French Revolution "New Whigs", led by Charles James Fox.[4]

Burke was praised by both conservatives and liberals in the 19th century. Since the 20th century, he has generally been viewed as the philosophical founder of modern Conservatism,[5][6] as well as a representative of classical liberalism.[7]

MF Global Reveals You Are a Bank Counter-Party (http://www.economonitor.com/blog/2012/02/mfglobal-reveals-you-are-a-bank-counter-party/), Author: Barry Ritholtz · February 15th, 2012, Economonitor


And therein lay the dirty little secret of modern banking: THERE IS NO SUCH THING AS A SEGREGATED ACCOUNT. It is simply a helpful way to think about money and banking; it does not exist in the real world.

Consider your basic bank account — checking, savings, passbook, etc. We go through massive contortions to create an illusion that your money is yours, that its safe and sound in a bank with your name on it, in your own virtual safe deposit box. But that is simply not the reality of modern banking. What you perceive as “your money” is little more than an electronic journal on the banks accounting ledgers.

Fractional reserve banking means that the $100 you deposit is lent out — only $10 of your $100 is kept in reserve. Under normal circumstances, with thousands of depositors and millions of dollars, the banks have no trouble giving customers who ask for their money back the full amount at anytime. But it is not as if your money is sitting in an account waiting for you — you merely have a claim on those monies, and that claim is insured by the FDIC, and backed by taxpayers (theoretically).

You are, in fact, a counter-party to your bank.


The risks and rewards are to use a big word “asymmetric.” Hit a home run as a trader or banker, collect a huge bonus. Lose it all and then some, and the taxpayer is on the hook. Anyone who fails to see the simple math of this either spends their days shilling for banks or are acting as CEO mouthpieces.

Sarkozy Says France Will Impose Transaction Tax in August (http://www.bloomberg.com/news/2012-01-29/financial-transaction-tax-in-france-to-take-effect-in-august-sarkozy-says.html), by Helene Fouquet and Mark Deen - Jan 30, 2012 8:01 AM MT, Bloomberg news


France plans to unilaterally impose a 0.1 percent tax on financial transactions starting in August, President Nicolas Sarkozy said, brushing aside opposition from the nation’s banks.

“What we want to do is provoke a shock, to set an example,” Sarkozy said late yesterday on French television from Paris. “There’s no reason why deregulated finance, which brought us to the current situation, can’t participate in the restoration of our accounts.”

A France-only levy is opposed by the country’s financial community and its feasibility has been questioned by the Bank of France. It has become a political challenge for the president, who faces elections in a two-round vote in April and May and wants to make good on a pledge he made to impose such a tax when France last year held the presidency of both the G-8 and G-20 group of countries.


The tax will apply to share purchases, including high frequency trading, and CDS transactions. Unlike the European Commission proposal, it will not apply to bond trading.

Vickers report: banks get until 2019 to ringfence high street operations (http://www.guardian.co.uk/business/2011/sep/12/vickers-report-banks-given-until-2019), Jill Treanor, Monday 12 September 2011 02.44 EDT, The Guardian


Britain's biggest banks are to be given until 2019 – longer than had been expected – to implement radical reform of their operations to prevent another taxpayer bailout of the system.

The Independent Commission on Banking – issuing its report almost three years to the day after the collapse of Lehman Brothers which led to the major 2008 bank bailouts – said that banks should ringfence their high street banking businesses from their "casino" investment banking arms.

The much anticipated final report by Sir John Vickers admitted its proposed reforms would cost between £4bn and £7bn but were more practical and less expensive than the full-scale separation of the kind that business secretary Vince Cable had called for in opposition.

The ICB conceded that its reforms were "deliberately composed of moderate elements" but insisted "the reform package is far-reaching".

Sir John Vickers (http://en.wikipedia.org/wiki/John_Vickers), bio by wikipedia


Sir John was educated at Eastbourne Grammar School and Oriel College, Oxford, culminating in his graduating with a DPhil from Oxford.


After a period working in the oil industry, he taught economics at Oxford University and was Drummond Professor of Political Economy from 1991 to 2008. His academic posts have also included the London Business School, the Woodrow Wilson School at Princeton University and the Kennedy School of Government at Harvard University. He was President of the Institute for Fiscal Studies, 2003–2007, and of the Royal Economic Society, 2007–10.

From 1998–2000 he was Chief Economist at the Bank of England and a member of the Monetary Policy Committee. From 2000–05 he was Director General/Chairman of the Office of Fair Trading. He was knighted in 2005.

Foreign critics should not worry about ‘my’ rule, By Paul Volcker, February 13, 2012 6:25 pm, Financial Times, www.ft.com


Let’s get serious.

National regulatory (and at least as important, accounting and auditing) authorities should, to the extent that it is practical, seek common understanding and common approaches. In the past, I participated in that process, helping to initiate the effort to achieve common capital standards for banks. I am today encouraged by efforts under way by the US, British and other authorities to reach the needed degree of consensus with respect to resolution authority – in plain English how practically to end the “too big to fail” syndrome. This is really complex. The major banks are international and managing their orderly merger or liquidation will necessarily involve co-operation among jurisdictions. That is a key challenge, arguably the most important one for banking reform. It needs to be dealt with.

Meanwhile, let us not be swayed by the smokescreen of lobbyists dedicated to protecting the interests of some highly compensated traders and their risk-prone banks.

Paul Volcker (http://en.wikipedia.org/wiki/Paul_Volcker), bio by wikipedia


Paul Adolph Volcker, Jr.[1] (born September 5, 1927) is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and early 1980s. He was the Chairman of the Economic Recovery Advisory Board under President Barack Obama from February 2009[2] until January 2011.[3]

Surferbeetle
02-19-2012, 04:58 PM
Iran 'halts oil sales to France and Britain' (http://www.bbc.co.uk/news/world-middle-east-17089953), 19 February 2012 Last updated at 10:08 ET, BBC News


Iran has halted oil sales to British and French companies, the nation's oil ministry has said.

A spokesman was reported as saying on the ministry's website that Iran would "sell our oil to new customers".

European Union member states had earlier agreed to stop importing Iranian crude from 1 July.


The French news agency AFP says the decision is not expected to have a big impact. Last year France bought only 3% of its oil - 58,000 barrels per day (b/d) - from Iran and the UK imported even less Iranian oil. A UK government official told the BBC there would be "no impact on UK energy security".

Téhéran stoppe ses ventes de pétrole à la France et au Royaume-Uni (http://www.france24.com/fr/20120219-iran-stoppe-ventes-petrole-francais-anglais-ministere-compagnie-sanctions-carburant), DERNIÈRE MODIFICATION : 19/02/2012 - FRANCE - IRAN - PÉTROLE - ROYAUME-UNI, France 24


L'Iran a interrompu ses livraisons de brut aux compagnies françaises et britanniques, a annoncé le ministère iranien du Pétrole. Téhéran entend ainsi répondre à l'embargo graduel sur le pétrole iranien décidé par l'Union européenne.


Il vend un peu plus de 20% de son pétrole aux pays de l'Union européenne (soit environ 600.000 barils/jour), essentiellement à l'Italie, à l'Espagne et à la Grèce. Téhéran exporte 70% de son pétrole vers les pays d'Asie.

La France, pour sa part, importait en 2011 quelque 58.000 barils/jour de brut iranien, ce qui couvre 3% de ses besoins d'or noir.

Cientos de miles de personas protestan en toda España contra la reforma laboral (http://economia.elpais.com/economia/2012/02/19/actualidad/1329646121_782015.html), EL PAÍS / AGENCIAS Madrid 19 FEB 2012 - 14:15 CET


El Gobierno de Mariano Rajoy y los sindicatos han tenido en las calles el primer termómetro del sentir ciudadano ante la reforma laboral. Cientos de miles de personas han acudido a las 57 manifestaciones convocadas en toda España por CC OO y UGT, que habían llamado a convertir las calles en un clamor ante lo que consideran una involución de los derechos de los trabajadores al dictado de la patronal. La respuesta ciudadana también servirá para medir la conveniencia de convocar una huelga general.


A la espera de datos oficiales de participación en todo el país, los sindicatos han calculado en 500.000 los asistentes a la marcha de Madrid, en 450.000 los de Barcelona, en 80.000 los de Valencia, en 35.000 los de Alicante, en 50.000 los de Gijón y en 70.000 en Zaragoza. Como es habitual, se ha desatado una nueva guerra de cifras, ya que la policía nacional rebaja a 50.000 los asistentes en Madrid, a 22.000 los manifestantes en Alicante y a solo 25.000 los de Valencia, aunque aún no son cifras oficiales, mientras que el Departamento de Interior ha cifrado en solo 30.000 los manifestantes en la Ciudad Condal. En Andalucía, los sindicatos elevan a 100.000 las personas que han salido en toda la comunidad, la mitad de ellas en la capital y 30.000 en Málaga, aunque la policía local de Sevilla reduce los asistentes a 5.000, informa Javier Martín-Arroyo.

Cientos de miles de personas protestan contra la reforma laboral en 57 ciudades españolas (http://www.20minutos.es/noticia/1313210/0/marcha-reforma-laboral/sindicatos/15m/), 20MINUTOS.ES / AGENCIAS / VÍDEO: ATLAS. 19.02.2012 - 12.52h


En Barcelona, 400.000 personas, según los sindicatos y 30.000 según el departamento de Interior de la Generalitat, han abarrotado el Paseo de Gràcia. Muchos de los manifestantes han coincidido en que el Gobierno ha recortado derechos de los trabajadores con esta reforma: "Seguramente me veré afectada por ello", dice una asistente a la marcha en declaraciones a RNE.

La manifestación ha comenzado en el Paseo de Gràcia en la confluencia con la avenida Diagonal y ha finalizado en el cruce del paseo barcelonés con la Gran Vía, donde se ha dado lectura a un manifiesto conjunto de los dos sindicatos contra la reforma.

el Paseo de Gràcia (http://www.barcelona.com/barcelona_city_guide/shops/department_stores_shopping_centers_in_barcelona/passeig_de_gracia)


Passeig de Gràcia was from the beginning designed to be Barcelona's Grand Avenue. It is Barcelona's most elegant avenue and one of the best architectural walks in the city with lots of Modernist buildings (la Casa Batlló, La Casa Milà...). The quality and quantity of modernist buildings is unrivalled.

It's origins can be traced back to Roman times when it was a path that linked to the Via Augusta. In medieval times the city's door to this road was the Portal dels Orbs (blind people's gate), today the Portal del Angel pedestrian shopping area.

Surferbeetle
02-20-2012, 04:11 AM
Reading music...Coldplay, Don't Let it Break Your Heart (http://www.youtube.com/watch?v=SnPt2uIBvl0), YouTube for that 'sensitive' Russian :wry:

Putin stands at political crossroads, by Catherine Belton in Moscow, February 19, 2012 4:26 pm, Financial Times, www.ft.com


Diminishing approval ratings present Mr Putin with a dilemma he has never faced before. Broad public support had always been the source of his political authority. How Russia’s prime minister responds to the protests as he seeks to return as president in elections next month – which he is still certain to win – will determine which direction he steers the country, and even how long he is able to hold on to power.

“Putin has little choice but to make concessions, otherwise he will not be able to rule,” said Mikhail Dmitriev, head of the government-connected Centre for Strategic Research. “This is a serious change when people in his team are losing authority and they will have to compromise to stay in power.”



Liberal-minded elements of the Russian elite are seeking to persuade Mr Putin to loosen the reins so he can survive in power and lead a gradual evolution of the regime. Alexei Kudrin, a former finance minister and close friend of the premier, has led calls for parliamentary elections in 18 months – a nod to opposition demands after December’s alleged vote-rigging.


But Mr Putin will have to weigh the risks. A parliament no longer dominated by United Russia could launch an inquiry, for instance, into Mr Putin’s friends who have become billionaires under his rule.


“He always compares the situation with the 1990s; this is hard-wired into his head,” said Gleb Pavlovsky, a former Kremlin political consultant who recently met Mr Putin. “This forces him to oversimplify the picture into one where he must prevail against the ambitions of oligarchs and foreign powers to create anarchy, when this is really not the case.”


“The public attitude [is] shifting independently of what Putin does and says,” said Mr Dmitriev. “The system he epitomises personally … has been outgrown by Russian society.”

“Putin will disappear,” says Sergey Aleksashenko, a former deputy central banker. “The water is already moving under the ice and there is no way of stopping it. We can only discuss how long this might take.”


Russia (http://205.254.135.7/countries/country-data.cfm?fips=RS), Country Analysis Brief, US Energy Information Administration



Russia holds the world's largest natural gas reserves, the second largest coal reserves, and the eighth largest crude oil reserves.


Russia was the largest producer of crude oil in 2009, surpassing Saudi Arabia.

Firn
02-20-2012, 12:21 PM
From the Guardian: To save itself, Greece must realise that its crisis is the result of three decades of incompetence and corruption (http://www.guardian.co.uk/commentisfree/2012/feb/20/greece-crisis-ignorance-protest-corruption)


What makes ignorance particularly frustrating in this case is that the facts are at our fingertips. Let me give you one: although 750,000 people (15% of our workforce) have lost their jobs since the crisis began, not a single one is from the wider public sector, which employs one out of four Greeks.

The story behind this figure tells us all we need to know. First: what we call a crisis is the result of actions performed over decades. Second: its creator is an ineffective, incompetent and corrupt political establishment, which transformed politics into a mechanism for exchanging favours with votes, most of the former having the effect of making the state more ineffective and costly. Third: the critical point came when this mechanism became so ineffective and costly that it brought down the rest of the economy. Of course, the international financial situation, banks, speculators, crooks, etc played their part in making things worse. But they couldn't have done so if Greek politicians had not destroyed, over 30 years, the heart of our economy.

This is close to my personal viewpoint. In an ideal world the Greek government would have appreciated the gravity of the situation at the very least 2 years ago and made deep and broad reforms while avoiding to starve the economy. Sadly the real world is a mess and the inertia of the aweful bureaucracy has kept the Greek ship running towards the cliffs.


I have to confess that I might be biased towards Monti, but for me and others, who had to witness for so many years a certain presidente del consiglio treating the state as his private property and personal bordello the change could hardly be bigger.

Monti : «Entro marzo riforma del mercato del lavoro con o senza accordo dei sindacati» (http://www.corriere.it/economia/12_febbraio_20/monti-borsa-incontro_cdac945c-5bab-11e1-9554-12046180c4ab.shtml)

Apart from a much needed reform of the labour market the government wants to ease the tax burden on low incomes and step up the efforts to reduced the heavy tax evasion.

Vivir troikado (http://internacional.elpais.com/internacional/2012/02/17/actualidad/1329502379_057312.html)


Lo denominan “vivir troikados”, con un neologismo que no necesita traducción. En una sintomática encuesta reciente diseñada para encontrar la palabra del año en Portugal 2012, “troika” figuró en tercera posición, después de “austeridad” y “esperanza”. Passos Coelho está convencido de que Portugal debe plegarse milimétricamente a las exigencias de la troika (“cueste lo que cueste, y cuesta mucho”, es una de sus frases) a fin de demostrar a sus socios (y acreedores) que Portugal no es Grecia, y que si algo falla (y, paradójicamente, por el contagio griego, todo puede que falle) no habrá sido por los portugueses, sino por las circunstancias. De ahí ese empeño en arrogarse, hasta el final, el papel de alumno obediente.

Greece really seems to have a ripple effect on the whole Eurozone, most of it bad but some don't seem to waste the crisis and have moved into the right direction. Of course, as the article states, it the hard hits come at a bad time. More action by the ECB is needed and possibly efforts by the stronger countries to stimulate their economies, which however runs against the current political will.

On a sidenote the fact that politicians like Coelho uses the troika as some sort of dictator is unfortunate for the European cause but sadly understandable.

Last but not least: The famous conversation (http://www.youtube.com/watch?v=rVD9FfhbCBw&feature=related)

Surferbeetle
02-24-2012, 02:40 AM
Firn,

Thanks for the links. ;)

Signore Monti (Bocconi University (http://en.wikipedia.org/wiki/Bocconi_University)) seems to have a number of fans, to include Edward Hugh (LSE (http://en.wikipedia.org/wiki/London_School_of_Economics)). :wry:

For Whom The Bailout Tolls (http://fistfulofeuros.net/afoe/for-whom-the-bailout-tolls/), Posted on February 21, 2012 by Edward Hugh, A Fistful of Euros


And then there is growth. Ah yes, growth. Noone really has any idea how this will be achieved, and of course without it even the (un)ambitious 120% goal is way out of reach. But beyond the details, I have serious doubts whether Greece itself is now rescuable. I don’t mean the financial dimension, I mean whether or not the country will even raise its head again. The social fabric and the country’s reputation is being so destroyed, that it is hard to see serious investors getting back into the country again, with or without that much needed internal devaluation. At the end of the day the Greek bailout is not for the Greeks at all. Certainly they will see very little of the money, and there will be none whatsoever to help restart their withering economy.The Greek bailout is to protect the rest. It is a vain attempt to let Greece go its course (or even die) while preventing the contagious smell from reaching Spain or Italy. The only real creditors now are the official sector. This is not a bailout, it is a “cordon sanitaire”.


The Details

Greece has agreed to be placed under permanent surveillance by an increased European presence on the ground, and it will have to deposit funds in an escrow account to service its debt to guarantee repayments. effectively this will rule out future defaults against the private sector. This is why Europe’s leaders think this agreement will end contagion, there will be nothing to “contage”. But the problem simply becomes worse, since any default now will be against the official sector, and they are not nice, friendly people to default on.

The European Central Bank agreed to help the process by distributing its profits from bond-buying. A Eurogroup statement said the ECB would pass up profits it made from buying Greek bonds over the past two years to national central banks for their governments to pass on to Athens “to further improve the sustainability of Greece’s public debt.” The bond holdings of the ECB and national central banks from their investment portfolios (about 12 billion Euros) and the Security Markets Programme (around 40-45 billion Euros) are to be swapped for instruments that appear to be exempt from any future Collective Action Clauses. They will be repaid at face value, albeit with an understanding that the profits accruing from this repayment plus coupon payments will be transferred to governments via the various National Central Banks. This money can then be passed to Greece in the form of a transfer. The importance of this arrangement is that it reinforces the subordination of private sector bond holders to central bank buying. Moreover, it is not clear that there is any obligation for the national governments to give these income flows from Greek restructuring back to Greece, and if this proves to be the case this outcome would simply amplify the subordination of private investors.

Private bondholders are being asked to accept more losses than originally postulated. Private sector holders of Greek debt will take losses of 53.5 percent on the nominal value of their bonds. They had previously agreed to a 50 percent nominal writedown, which equated to around a 70 percent loss on the net present value of the debt. This being said, all is still far from clear. The IMF document detailing the underlying economic assumptions for Greece assumes a 95% participation rate in the PSI. This outcome seems unlikely, especially in light of the increased haircut for private investors in the new deal, which was implemented in order to reduce Greek debt/GDP to the targeted 120% by 2020 from the 129% it would reach according to earlier PSI assumptions. What this implies is that those dreaded Collective Action Clauses may still be needed sometime early next month to ensure no hold-outs, and if this happens it is quite possible that CDS will trigger. So we are not out of the woods yet, it seems.

The latest IMF document reaffirms its view that Greece is unlikely to be able to access the market in its own name during the programme period until at least 2020, “and it is assumed that financing needs are met by Greece’s European partners on standard EFSF borrowing terms”, if good policies are maintained. One problem the IMF mentions here is important, and that is the fact that future debt issuance would be subordinated to the currently being restructured pool of debt. This would obviously make it hard to sell bonds to new investors even in the most favourable of circumstances.

As if this wasn’t enough in the way of headaches, the latest IMF document also suggests that Greece is likely to need additional funding well before 2020. The Fund outlines two scenarios: a “base” case whereby Greece may need an additional 50 billion Euros during the period 2015-20 given that the new 136 billion Euro support package will only meet Greece’s funding needs until 2014. They also cite a more bearish case involving slower-than-targeted growth and fiscal consolidation, whereby debt/GDP only declines to 160% by 2020 rather than the targeted 120%, in which case Greece would require a further 109 billion. Hence far from having put Greece off the EU radar, the new debt deal only marks the end of the beginning, and we still need to get through to the beginning of the end.

In terms of timescale, the private creditor bond exchange is expected to be launched on March 8 and complete three days later, according to Greek sources. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.


But as Sushil Wadhwani suggests, rather than overcoming contagion, what the agreement does is give a whole new twist to the issue. In particular, the general impression that has been generated is that Germany’s leadership will now make almost any concession in order not to have to look for the Euro exit door, and the others, starting with the highly intelligent Mario Monti, are beginning to sense this. Even Spain’s Mariano Rajoy has caught-on, and seen he can negotiate a relaxed deficit target for 2011, despite the fact that the country missed last year’s target by a large margin. So we may well now see a chain of events were one country after another sets out to test the patience of the “core”. And in addition (see below), even the Greek contagion problem is a long way from being over.

Surferbeetle
02-25-2012, 11:40 AM
James Edward Miller: Greece and the EU Face Their Walt Kelly Moment (http://uncpressblog.com/2011/11/10/james-edward-miller-greece-and-the-eu-face-their-walt-kelly-moment/), Posted by Ellen on 10 November 2011, 11:02 am, UNC Press Blog


Among the peoples attracted into the orbit of Europe during the era of Enlightenment and industrialization, Greece proved a particularly quick study. Created in 1829-33, the Greek kingdom speedily acquired a European constitution, universal suffrage, and a set of national ideas that focused on territorial expansion at the expense of its Balkan and Ottoman neighbors. Economic expansion, efficient public administration, education reforms, infrastructural development, and even military professionalization played second fiddle to “redeeming Greek” lands and people. Greece ran up. However, Greek ambitions ran contrary to the calculations of the European great powers. “Europe” repeatedly intervened to throttle Greek designs. Greece grew fitfully through concessions made to the Greeks after the powers had arranged their own interests. Greece’s large, unpaid external debts to European banks led the powers to impose an oversight board to regulate its finances in 1893.

A legacy of military defeat and repeated European encroachment on Greek sovereignty were at the core of the 1909 Goudi military revolt. The military summoned Eleftherios Venizelos to initiate long overdue internal reforms and give the country an independent foreign policy. In the wake of World War I, seeking to create a nation of “two continents and five seas,” Greece conducted a war in Asia Minor against Turkish nationalists, throwing its army into an expanding conflict without clear military objectives. “Europe” turned on Greece. The Italians and French backed Turkey, and Britain withdrew its support for Athens.

In 1922, Greece lost its army and its war. Victorious Turkey expelled over a million Asia Minor Greeks, retook Constantinople, and reasserted its territorial claims to Eastern Thrace. Defeated, impoverished, divided, Greece plunged into an era of military coups, economic stagnation, the authoritarian dictatorship of John Metaxas, and a crushing German occupation. Civil war ensued from 1943 to 1949. The United States poured money and know-how into Greece, defeating a Communist-dominated insurrection and bringing Greece into Western institutions. In 1961, Greece applied to membership in the European Economic Community (EEC).

The United States and the Making of Modern Greece History and Power, 1950-1974 (http://uncpress.unc.edu/books/T-8527.html), By James Edward Miller


Focusing on one of the most dramatic and controversial periods in modern Greek history and in the history of the Cold War, James Edward Miller provides the first study to employ a wide range of international archives--American, Greek, English, and French--together with foreign language publications to shed light on the role the United States played in Greece between the termination of its civil war in 1949 and Turkey's 1974 invasion of Cyprus.

Miller demonstrates how U.S. officials sought, over a period of twenty-five years, to cultivate Greece as a strategic Cold War ally in order to check the spread of Soviet influence. The United States supported Greece's government through large-scale military aid, major investment of capital, and intermittent efforts to reform the political system. Miller examines the ways in which American and Greek officials cooperated in--and struggled over--the political future and the modernization of the country. Throughout, he evaluates the actions of the key figures involved, from George Papandreou and his son Andreas, to King Constantine, and from John Foster Dulles and Dwight D. Eisenhower to Richard Nixon and Henry Kissinger.

Miller's engaging study offers a nuanced and well-balanced assessment of events that still influence Mediterranean politics today.


James Edward Miller is adjunct professor in the School of Foreign Service at Georgetown University and chair of Western European Studies at the Foreign Service Institute.

Marshalling capital for euro periphery, February 24, 2012 7:30 pm, Financial Times, www.ft.com


Greeks scrambling to do the homework demanded from them by Berlin and the rest of the eurozone are being given an encouragement of sorts. It takes the form of calls by the Federation of German Industries and the European Investment Bank for a “Marshall plan” to restart economic growth in Greece. The term is a misnomer and the proposal unlikely to see the light of day. But the idea is right.

For Greece in particular and the eurozone in general, the solution to the debt crisis has been cast as public sector austerity and structural reform. While the latter is essential and should produce long-term growth, the need to buoy up demand through the adjustment has been all but ignored. In return for deficit country reforms, surplus country governments should have boosted spending. Since this seems ruled out, only the core countries’ private sectors can save the eurozone from adjusting through stagnation rather than growth.

Die griechische Regierung startet den Schulden-Umbau (http://www.handelsblatt.com/politik/international/kampf-gegen-staatspleite-die-griechische-regierung-startet-den-schulden-umbau/6253740.html), 25.02.2012, 10:19 Uhr, aktualisiert 10:44 Uhr, Handelsblatt


AthenMehr als 160 deutsche Finanzbeamte stehen nach Informationen der „Wirtschaftswoche“ bereit, Griechenland beim Aufbau einer modernen Finanzverwaltung zu helfen. Für die Aufbauhelfer seien englische Sprachkenntnisse Voraussetzung, ein Dutzend spreche auch Griechisch, sagte Staatssekretär Hans Bernhard Beus aus dem Bundesfinanzministerium der „Wirtschaftswoche“. Besonders viele Freiwillige kommen demBericht zufolge aus Nordrhein-Westfalen.

„Wir sollten bei der Hilfe für Griechenland auch die Möglichkeit der Reaktivierung deutscher Steuerbeamter im Ruhestand in Erwägung ziehen“, empfahl der hessische Finanzminister Thomas Schäfer (CDU) in der „Wirtschaftswoche“. So könnten „große praktische Erfahrungen mobilisiert werden“.


Das Programm läuft bis 2042. Die neuen Anleihen sollen bis 2015 einen Zinssatz von 2 Prozent haben. Danach soll der Zinssatz stufenweise steigen - bis 2020 auf 3,0 Prozent, 2021 3,65 und danach 4,3 Prozent. Verzicht und veränderte Konditionen summieren sich nach Berechnungen von Experten auf einen Verlust von mehr als 70 Prozent des Nominalwerts der Anleihen. Das Angebot sieht vor, dass die privaten Gläubiger auch zum Forderungsverzicht gezwungen werden könnten, falls die Beteiligung am freiwilligen Schuldenschnitt zu niedrig ausfallen sollte. Der Schuldenschnitt betrifft ausstehende Anleihen mit einem Gesamtvolumen von 206 Milliarden Euro. Die griechische Schuldenlast soll durch den Gläubigerverzicht um 107 Milliarden Euro schrumpfen.

La Grèce lance officiellement son offre d'échange de dette pour les porteurs privés (http://www.lemonde.fr/economie/article/2012/02/24/la-grece-lance-officiellement-son-offre-d-echange-de-dette-pour-les-porteurs-prives_1648285_3234.html), LEMONDE.FR avec Reuters | 24.02.12 | 21h20 • Mis à jour le 24.02.12 | 21h20


La Grèce a officiellement lancé, vendredi 24 février, son offre d'échange de dette pour les porteurs privés d'obligations dans le cadre du deuxième plan de sauvetage de 130 milliards d'euros qui lui a été consenti. Un communiqué du ministère des finances grec confirme les modalités de cet échange telles qu'elles ont été présentées cette semaine.

Cette procédure a été finalisée après des mois de négociations tortueuses entre Athènes et ses créanciers, compliquées par les exigences sévères posées par les partenaires européens de la Grèce, la présence de hedge funds jouant la montre afin que le pays fasse défaut et qu'ils puissent encaisser les CDS sur les obligations grecques et celle de la Banque centrale européenne.

Cet échange de dette doit permettre à la république hellénique de réduire son endettement public de 100 milliards d'euros sur un total qui dépasse 350 milliards. Les banques, les assureurs et d'autres investisseurs détiennent un total de 206 milliards d'euros d'obligations grecques qui subiront une décote faciale de 53,5 % avec une perte réelle entre 73 % et 74 %.

Selon les termes de l'accord, les investisseurs empocheront des obligations assorties de maturités allongées d'une valeur représentant 31,5 % des titres qu'ils détiennent ainsi que des obligations à court terme émises par le Fonds européen de stabilité financière représentant 15 % de la valeur des anciennes dettes. Les nouvelles obligations serviront un coupon moyen de 3,65 % et seront régies par la législation britannique.

Firn
02-25-2012, 06:15 PM
La Grèce lance officiellement son offre d'échange de dette pour les porteurs privés (http://www.lemonde.fr/economie/article/2012/02/24/la-grece-lance-officiellement-son-offre-d-echange-de-dette-pour-les-porteurs-prives_1648285_3234.html), LEMONDE.FR avec Reuters | 24.02.12 | 21h20 • Mis à jour le 24.02.12 | 21h20

So the Greek bonds I purchased seem to be make a good nominal gain but will lock in the capital at low rates for quite some time. With an average inflation rate smaller then 3% over the next 30 years the investment should not suffer a loss of value, if there will be such an agreement and if Greece will be able to pay back....

Anyway a proper reform of the tax collection system should a pillar of the Greek reforms, however I don't think that Germany will get much love for helping the Greeks to do so. ;)

Fuchs
02-25-2012, 06:24 PM
You should factor in opportunity costs in an investment.

Surferbeetle
02-26-2012, 02:02 AM
Firn,

Good to hear that you are still standing. :)

Consistently assessing risk properly and reaping the appropriate rewards or paying the appropriate penalties is not an easy business. Investors/clients have very definite expectations; at the end of the day however, it is Capitalism (Mr. Market) that’s powering much of the 7 billion or so of us who are happily consuming food, water, electricity, security, and other ‘public goods’ each and every day.

Fuchs,

If it matters, I use long-term dollar cost averaging into well-diversified, low cost, index funds (equities and bonds) for all my heavy investment lifting. IMHO it reduces risk and increases the chances of a ‘reasonable’ return. As economist would you agree or recommend something else? :)

For enjoyment I ‘playing/modeling/trading' with equities, however, as a former bill collector for a large international bank (in my pre-degrees days), i am 'religious' about my resultant profits and losses. ;)

Bonds, although they appear simple, are arguably a different level of complexity (http://en.wikipedia.org/wiki/Bond_valuation).

Bill Gross (http://en.wikipedia.org/wiki/Bill_Gross) bio by Wikipedia


Gross graduated from Duke University in 1966 with a degree in psychology.[5] At Duke he joined Phi Kappa Psi.[6] He then served in the Navy and earned an MBA from the UCLA Anderson School of Management in 1971. Gross briefly played blackjack professionally in Las Vegas, and has said that he applies many of his gambling methods for spreading risk and calculating odds to his investment decisions. He is also a CFA Charterholder, earning his credentials while working as an investment analyst for Pacific Mutual Life between 1971 and 1976.[7]

Gross manages one of the world's largest mutual funds, focusing mostly on bonds. Called "the nation's most prominent bond investor" by the New York Times,[8] he co-founded Pacific Investment Management (PIMCO) and currently manages PIMCO's Total Return fund (the world's largest bond fund and fifth largest mutual fund) and several smaller ones.[9]


_________________________________________

Gentlemen,

Any thoughts about Japan's recent decision to follow everybody else by taking up quantitative easing/soft money policy? I for one was very surprised when I saw Switzerland take this route, and now Japan. International debt levels are approaching breath-taking levels...:eek:

_________________________________________

The toxic distortions of the market resulting from the Greek Kleptocracy and it’s Political Sycophants are disturbing to us all; not least because similar things are in various stages of display throughout the world.

Thinking music: Dire Straits (with Eric Clapton), Live At Knebworth, Money for Nothing (http://www.youtube.com/watch?v=dlPjxz4LGak) on 'the YouTube'

Fuchs
02-26-2012, 02:37 AM
Fuchs,

If it matters, I use long-term dollar cost averaging into well-diversified, low cost, index funds (equities and bonds) for all my heavy investment lifting. IMHO it reduces risk and increases the chances of a ‘reasonable’ return. As economist would you agree or recommend something else? :)

I would recommend not to try to beat the market. It's like trying to win against a casino. It happens, but the attempt is foolish unless you consider it to be very entertaining.

Diversification is reasonable (but limited by 'transaction costs'), but the problem is that it's difficult to do a proper analysis of links between risks ('systemic risks'), and without it you have really no idea about the effectiveness of your diversification.
You might feel that Spanish bonds, a house in Florida and shares of a Wall Street bank are a well-diversified portfolio and *boom* it's suddenly 2007 and all are hit by the same crisis. Who'd have thought so in 2006?


I won't write more on this. There would be a lack information (such as age, sums in question) even if I was a consultant for private savings.

Surferbeetle
02-26-2012, 11:57 PM
Eric Clapton - "Pretending" [Official Music Video] (http://www.youtube.com/watch?v=zm2PvnM7Vds&feature=fvst) on the YouTube

One PSI Chart To Rule Them All (http://www.zerohedge.com/news/one-psi-chart-rule-them-all), Submitted by Tyler Durden on 02/24/2012 11:35 -0500, Zero Hedge Blog


As the Greek PSI deal rears its ugly head on our screens once again with Merkel, Schaeuble, and Papademos all pulling from one angle or another (and Dallara disquietingly silent in his uselessness), BNP created a simple flowchart of the various steps and probabilities of participation rates, retroactive embedded CACs, CDS triggers, and actual debt reduction that may (or may not) occur in the next week or two. The price action in Greek CDS and Bonds strongly suggest the CDS will trigger (as we have been vehemently explaining for weeks/months now) but there is a long way between here and there.

G-20 Official: Communique Cites Aim For EU Firewall Decision Next Month (http://online.wsj.com/article/BT-CO-20120226-703519.html), By Ian Talley, FEBRUARY 26, 2012, 2:49 P.M. ET, WSJ


WASHINGTON (Dow Jones) -- World financial leaders from the Group of 20 industrialized and developing economies will include an explicit March timeline for Europe to boost the size of its emergency bailout fund, a senior G-20 official involved in the discussions said Sunday.

The official G-20 communique will link the strengthening of Europe's bailout fund as "essential input" into its considerations of bulking up the International Monetary Fund's own lending resources, the person said.

Although the G-20 statement won't incorporate specific amounts officials are targeting for the European Union firewall and IMF coffers, the finance ministers and central bankers pointed to an IMF study recommending $2 trillion in combined backstop facilities as a reference point.

Mexico City G20 Communique: full text, (http://www.telegraph.co.uk/finance/financialcrisis/9107453/Mexico-City-G20-Communique-full-text.html) Sunday 26 February 2012, The Telegraph


The world's leading economic powers have said they will not stump up more cash to fight Europe's debt crisis until the eurozone members increase their own contributions. Here is the G20 communique text in full.


2. Substantial policy actions have taken place since our last meeting, and recent economic developments point to the continuation of a modest global recovery and an easing in global financial market stress. We welcome the important progress made by Europe in recent months to strengthen their fiscal positions, adopt measures to reduce financial stress, build stronger institutions, implement growth enhancing structural reforms and to put Greece on a sustainable path. We also welcome the market improvement associated with the actions undertaken by the ECB. Nevertheless, growth expectations for 2012 are moderate and downside risks continue to be high. The international economic environment has continued to be characterized by an uneven performance, with weak growth in advanced economies and a stronger, albeit slowing, expansion in emerging markets. Structural problems, insufficient global rebalancing, a persistent development gap and high levels of public and private indebtedness and uncertainty continue weighing on medium-term global growth prospects. While volatility in international financial markets has declined, it generally remains high and we are committed to further reduce downside risks. We are alert to the risks of higher oil prices and welcome the commitment by producing countries to continue to ensure adequate supply. With unemployment still too high in many countries, we are firmly committed to supporting growth and job creation.


4. G20 members have been actively engaged in taking the steps needed to safeguard the global financial system and to avoid adverse scenarios. At Cannes, our Leaders asked us to review the adequacy of IMF resources. This review is particularly important against the backdrop of continued downside risks. Euro area countries will reassess the strength of their support facilities in March. This will provide an essential input in our ongoing consideration to mobilize resources to the IMF.

5. We are reviewing options, as requested by Leaders, to ensure resources for the IMF could be mobilized in a timely manner. We reaffirmed our commitment that the IMF should remain a quota-based institution and agreed that a feasible way to increase IMF resources in the short-run is through bilateral borrowing and note purchase agreements with a broad range of IMF members. These resources will be available for the whole membership of the IMF, and not earmarked for any particular region. Adequate risk mitigation features and conditionality would apply, as approved by the IMF Board. Progress on this strategy will be reviewed at the next Ministerial meeting in April. Other options mentioned by Leaders in Cannes such as SDRs are under review.

Firn
02-27-2012, 09:05 PM
@Surferbeetle: Excellent choice of music.

Switzerland eased due to suffering heavily from being regarded to be such a nice and safe reduit in the Alps in a war, sorry, financially torn Europe. In relation to the economy they might have done more in this regard then even the USA. I'm mean you have to counteract to such degree the negative effect of all those Euros pouring in, for example from Greece (http://www.faz.net/aktuell/politik/euro-rettung-griechische-abgeordnete-ueberweisen-privatvermoegen-ins-ausland-11662932.html)? :D


Whrend mit Bundesinnenminister Friedrich (CSU) am Wochenende erstmals ein Mitglied der Bundesregierung Griechenland geraten hat, aus der Eurozone auszutreten, ist in Athen eine heftige Debatte darber entbrannt, ob die Namen von Parlamentariern verffentlicht werden sollen, die im vergangenen Jahr je mindestens 100.000 Euro von ihren griechischen Konten ins Ausland berwiesen haben. Finanzminister Venizelos hatte dem Parlament berichtet, eine bedeutende Anzahl Abgeordneter habe hohe Betrge unter anderem nach Grobritannien und in die Schweiz berwiesen just zu dem Zeitpunkt, als Athen die Griechen aufforderte, ihr Geld im Lande zu belassen, um griechische Banken nicht zu gefhrden. Laut Venizelos besitzt das Finanzamt Erkenntnisse ber groe Summen, die 2009 und 2010 auer Landes geschafft wurden, sowie eine entsprechende Liste fr 2011. Die Liste umfasse Politiker und Verwandte von Politikern mit berweisungen in Hhe von mehr als 100.000 Euro.

Anyway the Corriere della Sera run an very important article (http://www.corriere.it/economia/12_febbraio_26/stipendi-italia-eurozona_dd1b9550-606f-11e1-aa87-12427cb0d5f0.shtml), highlighting that Italy has indeed become un paese per vecchi, even when it comes to your busta paga. Especially the young earn very little compared to many 'old' EU members. (the online article doesn't come with the graph, but Europstat should have all the data)


In Italia la disoccupazione, soprattutto quella giovanile un problema grave. Ma anche chi un posto di lavoro ce l'ha e pure a tempo indeterminato non se la passa troppo bene. E non solo per il peso del carico fiscale e contributivo. In Italia infatti gli stipendi medi sono tra i pi bassi dell'Eurozona. Addirittura inferiori a quelli della Grecia. E in assoluto superiori solo a Malta, Slovacchia, Slovenia e Portogallo, Paesi non certo comparabili al nostro per dimensioni e sviluppo industriale.

---

As the Greek made an offer one hardly can refuse I will give it a very close look. We will see.

@Fuchs: Of course the opportunity costs are 101 stuff one should always take into account. I just made a very rough guess without knowing all the facts, we will see.

The correlation between various markets and assets does fluctuate on an, in general increasingly higher level. At least those witnessed in 2008/2009 was something to behold. Still not everything moved in step.

As for beating the market: It is perfectly right that one should be aware of the dangers of trying to be too smart. However Mr. Market does on occasions offers sometimes after some intensive study some very bad ones and many neutral ones some really excellent deals. If you want you can pass on or accept them. It is still surprisingly difficult to trust your hard-won intellectual judgement.

Anyway my graph (http://www.stoxx.com/indices/index_information.html?symbol=SXFINE) of the day to illustrate the turst into financial services of the eurozone. Go to chart and max setting to look back how thinks developed since 1986. (Needless to say that one should keep inflation and economic growth in mid).

Surferbeetle
02-28-2012, 05:50 AM
Firn,

Thanks for the great links ;) Send some music back if you get a chance

The FAZ article was spot on ... sometimes, although i know it's 'not polite' :rolleyes: i really wonder about who is on our/US list of high net worth individuals who have made deals with the IRS regarding their previously 'tax-free' Swiss accounts...oops bummer ha!

John Authers, a very bright Lex contributor, has a sobering article worth the time in the FT (www.ft.com): To reduce banks’ risks, profits have to shrink, February 24, 2012 8:25 pm

With respect to Italy's stats, you might also take a look at the US Food Stamp Participation graph (http://www.csmonitor.com/Business/Paper-Economy/2011/0903/Food-stamp-participation-on-the-rise) at CS Monitor. The date range on this particular graph is limited from 2005 to 2011, it would be interesting to chase the longer trend line over a number of recessions...the early 80's (http://en.wikipedia.org/wiki/Early_1980s_recession) were a rough time in the US while we boomed in the 90's (http://en.wikipedia.org/wiki/1990s_United_States_boom)...another time perhaps. Cycles such as the Kondratiev (http://en.wikipedia.org/wiki/Kondratiev_wave), Kuznets (http://en.wikipedia.org/wiki/Kuznets_swing), etc are interesting to think about in this context as well.

Stocks (aka real-time applied supply and demand equations) are similar to fishing...know what you looking for, where it hangs out, and what it's gonna take to get that sucker in the frying pan...never easy, never guaranteed, but sometimes....I swear that fish was this big...ha ha. Along those lines:


Google Finance (http://www.google.com/finance) has upped it's game and is now showing 'realtime' intraday equity prices (although you still can't download intraday time series data)



NASDAQ (http://www.nasdaq.com/) has an interesting website which includes a short interest (http://www.nasdaq.com/quotes/short-interest.aspx) indicator


And of course the always necessary disclaimer (and also the thing the world market needs to avoid doing): Etrade Baby loses everything (http://www.youtube.com/watch?v=AYrpROr9Gmk) on the YouTube :eek:

Let's hope not

Firn
02-29-2012, 11:28 AM
Firn,

Thanks for the great links ;) Send some music back if you get a chance

Don Raffaè (http://www.youtube.com/watch?v=tVxcBsMqMVw) - Fabrizio De Andrè. It might be difficult to understand even for fluent Italian speakers.


The FAZ article was spot on ... sometimes, although i know it's 'not polite' :rolleyes: i really wonder about who is on our/US list of high net worth individuals who have made deals with the IRS regarding their previously 'tax-free' Swiss accounts...oops bummer ha!

This article had the most comments I have yet seen on the FAZ on such matters. It is just very human to be enraged by the very real possibility that some smart persons not only preach water and drink wine but are also attacking those who are helping out.




With respect to Italy's stats, you might also take a look at the US Food Stamp Participation graph (http://www.csmonitor.com/Business/Paper-Economy/2011/0903/Food-stamp-participation-on-the-rise) at CS Monitor. The date range on this particular graph is limited from 2005 to 2011, it would be interesting to chase the longer trend line over a number of recessions...the early 80's (http://en.wikipedia.org/wiki/Early_1980s_recession) were a rough time in the US while we boomed in the 90's (http://en.wikipedia.org/wiki/1990s_United_States_boom)...another time perhaps. Cycles such as the Kondratiev (http://en.wikipedia.org/wiki/Kondratiev_wave), Kuznets (http://en.wikipedia.org/wiki/Kuznets_swing), etc are interesting to think about in this context as well.

As you said the graphic does show just a short period of time and doesn't start at zero, so it is 'just' a drastic snapshot.


Stocks (aka real-time applied supply and demand equations) are similar to fishing...know what you looking for, where it hangs out, and what it's gonna take to get that sucker in the frying pan...never easy, never guaranteed, but sometimes....I swear that fish was this big...ha ha. Along those lines:


Google Finance (http://www.google.com/finance) has upped it's game and is now showing 'realtime' intraday equity prices (although you still can't download intraday time series data)



NASDAQ (http://www.nasdaq.com/) has an interesting website which includes a short interest (http://www.nasdaq.com/quotes/short-interest.aspx) indicator


Thanks for the links, I'm always interested in sites who give you the ability to track developments over longer timeframes. Sadly so far one can hardly get them easily adjusted for inflation.


And of course the always necessary disclaimer (and also the thing the world market needs to avoid doing): Etrade Baby loses everything (http://www.youtube.com/watch?v=AYrpROr9Gmk) on the YouTube :eek:

Let's hope not

Love it!

Firn
03-01-2012, 08:26 PM
Eurocrisis Live (http://www.guardian.co.uk/business/2012/mar/01/eurozone-crisis-summit-greece)


6.12pm: Here's a summary of the main events today (although I'll leave the blog open in case of any major developments)

• The eurogroup has given conditional approval to Greece's aid package, but fallen short of a final decision. After meeting in Brussels, eurozone finance ministers agreed to authorise some of the €130bn programme, but will wait for Greece to complete its Private Sector bond swap before giving the green light.

• EU leaders continue to meet in Brussels. Growth is top of the agenda, with David Cameron warning that the region suffers from a growth crisis as well as a debt one.

• The organisation overseeing the credit default swap sector ruled that Greece has not suffered a credit event. ISDA said that recent Greek developments did not, themselves, trigger CDS contracts, but left the door open to give a different answer as events develop.

• The Eurozone manufacturing sector shrank again. Greece, Spain and Italy all suffered sharp contractions, but the UK grew in January.

Thanks for the comments and for reading. More again tomorrow....

The "dicke Bertha" (http://en.wikipedia.org/wiki/Big_Bertha_%28howitzer%29) of Draghi has provided a massive boost for mostly southeuropean banks. Stocks have risen sharply as the ECB shows that it is ready to give cheap credit even for the long term.

Personally I do think it is necessary, however it is of course poison for the guys keeping their money in low-yield securities and accounts. Happy are those who bought a lot of European stocks in the last months, like Warren Buffet. At least you get a share of that money.

ECB "laying the seeds for the next crisis" (http://www.guardian.co.uk/business)


A leading British banker has warned that the huge sums of money being pumped into western economies to underpin banks and promote financial stability risk "laying the seeds for the next crisis".

As central bankers on both sides of the Atlantic played down expectations that they were poised to unleash a fresh round of money creation, Peter Sands, the chief executive of Standard Chartered bank, warned it was "going to take time for the rich West to sort itself out".

But Sands's main concern was that support operations by western central banks, which have seen trillions of dollars pumped into the financial system through so-called quantitative easing, could set the scene for more trouble in the years ahead.

Breaking ranks from his fellow bosses, Sands, whose bank is focused mainly in Asia, said: "Banks are still going to have to refinance their loans in three years time. It's not clear what the exit strategy is, nor is it possible to predict what the long-term consequences will be."

It may very well be that we are laying the seeds for an inflation driven crisis in two to three years. However with the Eurozone suffering a recession, unemployment going through the roof in souther Europe I see hardly an alternative. So far the banks were unable or unwilling to lend so the ECB is pumping and pumping money into them until they can not take it anymore. It is of course a massive gift, taxing the individuals with capital.


The president of the Bundesbank, Jens Weidmann, has warned the European Central Bank president that yesterday's Long Term Refinancing Operation (in which €529bn was loaned to European banks on generous terms) poses significant dangers to the eurozone economy. In a letter to Draghi, Weidmann urged the ECB boss to return to safer monetary policies.

Surferbeetle
03-05-2012, 01:49 AM
Firn,

Appreciate the tunes; i was able to catch a few words here and there, but had to chase the written lyrics (http://lyrics.wikia.com/A67:Don_Raffa)...alora, i count on my feo Spanish to allow me to read French and Italian and will sometimes use google translate when i am feeling especially lazy. :wry:

Eros Ramazzotti - Bambino Nel Tempo (http://www.youtube.com/watch?v=Z10D26NQyCY), was popular when i last visited. HD is said to have received an assist from Porsche on the engine and Getrag on the transmission for the new one (http://en.wikipedia.org/wiki/Harley-Davidson_VRSC). The old school nightster (http://en.wikipedia.org/wiki/Harley-Davidson_Sportster#Nightster) is a fun one though the engine can be a bit much for the frame & tires in the corners...me880/z4 combo (prefer the z1/z4) is getting it done on the other/old-reliable/teutonic (http://en.wikipedia.org/wiki/BMW_Motorrad) one. Long distance riding weather is almost here...wanna break 100k miles :wry:

Dicke Bertha is further covered in Gavyn Davies' latest at the FT and in the follow on comments: ECB liquidity is not a free lunch, March 4, 2012 12:20 pm by Gavyn Davies, Financial Times, www.ft.com


The initials LTRO, barely ever discussed prior to last December, now form the most revered acronym in the financial markets. Before the first of the ECBs two Longer Term Refinancing Operations in December, global equity markets lived in fear of widespread bankruptcies in the eurozone financial sector. Since LTRO I was completed on December 21, equities have not only become far less volatile, but have also risen by 11 per cent.

With LTRO II completed last week, over 1tn of liquidity has been injected into the eurozones financial system. Private banks were permitted to bid for any amount of liquidity they wanted, the collateral required was defined in the most liberal possible way, and the loans will not fall due for three years. Any bank that might need funds before 2015 should have participated to the hilt, thus eliminating bankruptcy risk fora long time time to come.

What can there possibly be not to like about this? A few things. Some observers point to the danger of a zombie banking system, kept alive artificially as a wing of the central bank. And, in a much-publicised private letter to Mario Draghi in February, Jens Weidmann, Bundesbank president, expressed concerns that the latest two LTROs will expose the ECB to potential losses which will undermine its capital base.

The Economist has an interesting article: Measuring inflation, Which of these is not like the others? (http://www.economist.com/blogs/americasview/2012/02/measuring-inflation), Feb 24th 2012, 5:46 by H.J. | SO PAULO


IN THIS weeks print edition, we explain why we have decided to drop Argentinas official inflation statistics and publish a private-sector estimate, State Streets PriceStats Index, instead. The PriceStats method involves an automated daily trawl of huge numbers of internet prices, instead of the traditional government approach of identifying a representative basket of goods and then sending dozens of mystery shoppers out to buy those things monthly. It was dreamed up by an Argentine, Alberto Cavallo, who set up a website, Truth in Argentine Statistics , and did the research needed to validate the method during his studies at Harvard University. You can find out more about the theory at the Billion Prices Project, a collaboration between Mr Cavallo and Roberto Rigobon, another Harvard economist an economist at MIT Sloan School of Management. The two set up PriceStats to commercialise the idea, and now the company produces daily inflation information for 19 countries, which are available from State Street, an investment bank a financial services firm.


With respect to corrections for inflation, some of the goldbugs have been pricing houses in terms of gold over time and producing some rather alarming downward sloping charts which span the last few years of the recession.

Bernard Baumohl, The Secrets of Economic Indicators, 2nd Edition (http://www.amazon.com/Secrets-Economic-Indicators-Investment-Opportunities/dp/0132447290) provides the following websites in order to track the pressures of inflation:


Consumer Price Index
www.bls.gov/cpi/



Producer Price Index
www.bls.gov/ppi



Productivity and Costs
www.bls.gov/lpc



Employer Costs for Employee Compensation
www.bls.gov/news.release/ecec.toc.htm



Employment Cost Index
www.stats.bls.gov/news.release/eci.toc.htm



Historic Rates of US Inflation (the CPI) going back to 1913 - I had no luck with the site given this evening, and did a search using the second site but have not yet found downloadable stats
http://woodrow.mpls.frb.fed.us/research/data/us/calc/hist1800.cfm



http://search.newyorkfed.org/mpls_public/search?text=inflation+statistics&x=0&y=0&source=mpls_pub


The wikipedia entry on Weimar hyperinflation (http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic) is also very interesting:


The hyperinflation in the Weimar Republic was a three-year period of hyperinflation in Germany (the Weimar Republic) between June 1921 and July 1924.

Surferbeetle
03-05-2012, 05:01 AM
Greece, like a Ducati 1198 (http://en.wikipedia.org/wiki/File:Ducati_1198.jpg) - irresistibly beautiful, exotic, highstrung, unforgiving, a money pit, and after one gets out of the hospital the wife will probably have one killed for the insurance money....and yet.... :eek: :wry:

So now that the LTRO has immunized the Euro Banks (and the US Banks due to the magic of financial globalization) does Greece default?

Greece Debt-Swap Deadline This Week to Show If Europe Moving Past Crisis (http://www.bloomberg.com/news/2012-03-04/greece-debt-swap-deadline-this-week-to-show-if-europe-moving-past-crisis.html) By Patrick Donahue - Mar 4, 2012 4:00 PM MT, Bloomberg News


The European Union faces a first test in its attempt to turn the page on the two-year debt crisis when Greece’s private creditors decide this week whether to sign off on the biggest sovereign-debt restructuring in history.

The success of the 106 billion-euro ($140 billion) debt swap, confirmed on the eve of last week’s European Union summit, depends on how many investors agree to the writedown by the March 8 deadline. Euro-area finance ministers will hold a teleconference on March 9 to review the deal’s outcome.

Fuchs
03-05-2012, 11:54 AM
They should have immunised the banks with new bankruptcy legislation that means the governments step in AFTER the stupid shareholders lost their value (which means the governments would gain property for the taxpayer money, not just throw it away), not by setting up a system in which they prevent the punishment of economic stupidity.
They're harming the markets in the long term this way.

Firn
03-05-2012, 01:04 PM
@Surferbeetle:Greece reminds me a bit about the following canzone di Faber (http://www.youtube.com/watch?v=B7fVuQadB40). The male fatto in un ora was done over many years but to some extent I fear the lyrics mirror the feelings of many Greeks...

Anyway your point about the inflation is a rather interesting one. So far the massive injection of liquidity has not quite the impact on inflation, clearly due to lack of demand having caused the famous liquidity trap. How long and how strongly it will remained trapped is a key question...

Unternehmensanleihen - Das Beste ist vorbei (http://www.faz.net/aktuell/finanzen/anleihen-zinsen/unternehmensanleihen-das-beste-ist-vorbei-11671367.html) raises a very important aspect. While bond yields of great companies hit massive heights during the big downturn and financial crisis pushing me to acquire some, but sadly due to the lack of trust into my intellectual judgment, too few, the are now at an almost historic low.

I shifted in the last quarter increasingly from bonds into stocks after considerable thought, aided by Graham. The yield of those German enterprises is around 2%, while the dividends of them should be a tad over 4%. At least the Euro Stoxx 50 pay out roughly 50% of their earnings out to the shareholder so they should earn roughly between 8-9% on the invested capital. Of course it is difficult to know the true owner's earning or the respective ROIC, the return on the owners invested capital.

The Graham/Dodd or Shiller P/E (present price/earnings of the last 7 or 10 years) were also with 11 or 12 at that time IIRC quite attractive. The liquidity is massive but not so much in stocks and despite the troubles in the economy and the markets I thought the margin of safety offered by me with the prices of Mr. Market was quite good.

To sum it up why should I now invest into bonds when I can get at low prices shares of mostly great enterprises earning me roughly 5% more on my capital? It is a businesslike investment which resulted to the recent ralley in considerable speculation gains on paper. We will see how things go on, but as long as enterprises to so well I don't know why I should sell them anytime soon.

P.S: It is interesting that Ben Graham uses very similar words to Ludwig Beck when talking about the importance of trusting a personal judgement and acting on it after a careful and intelligent use of the grey cells. No wonder that I try to limit my ambitions :D

Surferbeetle
03-05-2012, 05:39 PM
Firn,

Appreciate your latest well thought out (and thought provoking) post, i will get back to it later this weekend when there is more time and i can focus the sole braincell that i have left. Until then here are a few placeholders that i will try and cover at that time:


A Japan Scenario for the rest of the western world



Target2 Imbalances


Foreign Direct Imports

Sector Analysis

Can stocks be thought about as the present value of expected cash flows?


Screening Criteria/Growth at a Reasonable Price/Growth/Value/Technical Metrics

P/E ratio's...how are earnings calculated?

Currency Exchange Rates/ADR tracking gaps

Firn
03-05-2012, 08:20 PM
Interestingly when I reread "The intelligent investor" Graham makes in Chapter 20 the same case, which I must have internalized, about 1972 bond and stock market.


Assume in a typical case that the earning power is 9% on the price and that the bond rate is 4%.; Then the stockbuyer will have an average annual margin of 5% accruing in his favor. Some of the exess is paid to him in the dividend rate; even though spent by him it enters into his overall investment result. The undistributed balance is reinvested into the business for his account [Ideally increasing the future earnings, intelligent buy-back of stocks].

Earning power or earning yield are very roughly the inverse of the price/earning ratio. Of course it just a facet and the book earnings don't tell the whole story and Graham used additional means to screen stocks and analyse enterprises.

I forgot to mention just high the price of some older bonds is right now to get to as such low overall yield. It is indeed a liquidity flight into the perceived safety of good enterprise bonds. A good deal of that big Bertha liquidity was also key to bring down the spreads on PIS gov. bonds.

Worldwide the corporate bonds seem to close in on the historic low:


The potential for issuance to continue surging is strong as companies seek to refinance debt at extremely low cost.

The Barclays index only needs a slight nudge to hit a record-low yield. The index finished Monday at 3.37% -- a six-month low and just one basis point away from the all-time low set on Aug. 4, 2011. The index dates back to 1973.

Basically it should get even better for shareholder, as the companies into which they are invested have to pay considerably less interest. How could I forget to add that point in the first place.

Surferbeetle
03-06-2012, 05:22 PM
They should have immunised the banks with new bankruptcy legislation that means the governments step in AFTER the stupid shareholders lost their value (which means the governments would gain property for the taxpayer money, not just throw it away), not by setting up a system in which they prevent the punishment of economic stupidity.
They're harming the markets in the long term this way.

Fuchs,

Hope to get to this and try and formulate/provide a semi-coherent response with respect to the gap between theory and reality and cost/benefit considerations:


The idealism of Ayn Rand



The reality of depending upon your team in order to provide 360 24/7 security services (work breakdown structure - task, skill set, cost, schedule, etc.)


Recognizing, understanding, and utilizing the tools of nation building through the prisms of the private sector and the public sector



Guiding Principles for Stabilization and Reconstruction (http://www.usip.org/publications/guiding-principles-stabilization-and-reconstruction), USIP, Chapter 9 Sustainable Economy



Motorcycles = power/weight = ~170hp/410lbs = Ducati



Economy = destruction/political representation = ~2 trillion Euros/X number of political representatives = Greece?



Economy = construction/political representation = ~ 2.4 trillion Euros-year/X number of politicians = Germany?


In the meantime, the February 25th-March 2nd edition of The Economist (hardcopy or digital if you have a subscription or here (http://www.economist.com/search/apachesolr_search/financial%20innovation) if you don't) has a 14 page special report on Financial Innovation which will either keep you awake a bit longer or put you right to sleep...:wry:

Surferbeetle
03-06-2012, 06:33 PM
I shifted in the last quarter increasingly from bonds into stocks after considerable thought, aided by Graham. The yield of those German enterprises is around 2%, while the dividends of them should be a tad over 4%. At least the Euro Stoxx 50 pay out roughly 50% of their earnings out to the shareholder so they should earn roughly between 8-9% on the invested capital. Of course it is difficult to know the true owner's earning or the respective ROIC, the return on the owners invested capital.

Firn,

Keeping mind that i am only a small beer retail guy (I track and work in a small 'universe' of stocks with small amounts of money that is 'disposable'), went from investing (~3-5 year horizon) to tactical trading (~2% profit/loss (http://en.wikipedia.org/wiki/Income_statement) on principle risked) in January with a small portfolio. Booked a years worth of profits in Feb. :D

Today's a bloodbath in the Euro financial sector's exposed to Greece, FDI (http://en.wikipedia.org/wiki/Foreign_direct_investment) into the Euro industrials (and the 'promised' delivery of future dividends) is not happy, and the euro is down. :eek:

Massive amounts of risk and uncertainty out there as we close in on the 8th of March (Athens threat to bond holdouts, By Richard Milne and David Oakley, Last updated: March 6, 2012 5:40 pm, Financial Times, www.ft.com) :eek:

Sell when the angels sing, buy when the blood runs in the streets? :D

Firn
03-06-2012, 07:17 PM
Firn,
Sell when the angels sing, buy when the blood runs in the streets? :D

This month there won't be any personal buying or selling until the trend gets more bloody. In the latter case it might be worthwhile. Of course nobody knows the future as it has that nasty habit of being unpredictable, that is why one should prepare for it. I have already a list of bonds up I would shift in that case, depending of course on their price. ;)

The economic situation is as it is and the stock market won't have a big impact on that in the short term. All we can do is to make the best of it and look now on then if there are any new threats or chances for the dear money. :D

In the end I'm completely confident that in the long term the investment will pay off. Fear has already been my dear friend in the past as well as the angels singing, considering that despite my often glaring omissions my portfolio advanced in the last 7 years a bit over 50% while the Euro Stoxx 50 lost IIRC over 10%.

On a big sidenote I really hope that Europe will grow again, it is just painful to see so many young people out of work in many regions. So much productive power, so much hope lost there. Puts things into perspective. :(

Firn
03-07-2012, 12:33 PM
More on the flight into safety by some desperate liquidity.

Bund zahlt Anlegern so niedrige Zinsen wie noch nie (http://www.faz.net/aktuell/finanzen/staatsanleihen-bund-zahlt-anlegern-so-niedrige-zinsen-wie-noch-nie-11675239.html)


Der deutsche Staat kommt so billig zu Geld wie noch nie. Bei der Emission von Staatsanleihen mit fnfjhriger Laufzeit fiel der durchschnittliche Zins auf 0,79 Prozent, teilte die mit dem Schuldenmanagement des Bundes beauftragte Finanzagentur am Mittwoch mit. Noch nie fiel die Rendite bei einer Versteigerung in dieser Anleihenklasse so niedrig aus. Das alte Rekordtief lag bei 0,9 Prozent und wurde im Januar erreicht.

Trotz der niedrigen Rendite hatte der Bund keine Probleme, Geldgeber zu finden. Die Aufstockung der Bundesobligationen splte gut 3,3 Milliarden Euro in die Staatskasse, sie war 1,8-fach berzeichnet. Das war unter dem Strich eine sehr gute Auktion, sagte Analyst Michael Leister von der DZ Bank.

0,79% yield for 5 year bundesanleihen, we are really witnessing financial history.

Pil in calo. E la cassa integrazione vola (http://www.corriere.it/economia/12_marzo_06/pil-cassa-integrazione_e8097c68-677f-11e1-894d-3b3e16fcb429.shtml)



L'economia frena, la cassa integrazione decolla. Il Pil nell'Eurozona calato dello 0,3% nel quarto trimestre 2011, cos come quello della intera Ue a 27. In Italia il calo si conferma pi sensibile della media Ue: -0,7% nell'ultimo trimestre dello scorso anno. il dato della seconda stima resa nota da Eurostat che conferma i dati preliminari pubblicati lo scorso 15 febbraio. Nel confronto su base annuale, ovvero rispetto al quarto trimestre del 2010, il prodotto interno lordo della Ue-17 risultato aumentato dello 0,7%, quello dell'Italia invece calato dello 0,5%.

Unsurprisingly bad news from the Italian economy, the last decade was a terrible one in part thanks to a bald man. We have really suffered quite a bit more then many other EU member states. Let us hope that we finally will have true reforms able to tap into the many, mostly human ressources of this country.

Surferbeetle
03-11-2012, 02:42 AM
Firn,

Thought this might be of interest as we consider the importance of growth (aka nation building in some circles); I do not see the issues as being limited to America.

Special Report: Restoring US Competitiveness, Harvard Business Review (http://hbr.org/magazine), March 2012


Why U.S. Competitiveness Matters to All of Us
by Nitin Nohria

The Looming Challenge to U.S. Competitiveness
by Michael E. Porter and Jan W. Rivkin

WORKFORCE
A Jobs Compact for America's Future
by Thomas A. Kochan

A Warning Sign from Global Companies
by Matthew J. Slaughter and Laura D'Andrea Tyson

Rethinking School
by Stacey Childress

STRATEGY
Choosing the United States
by Michael E. Porter and Jan W. Rivkin

Does America Really Need Manufacturing?
by Gary P. Pisano and Willy C. Shih

How to Make Finance Work
by Robin Greenwood and David S. Scharfstein

POLICY
Macroeconomic Policy and U.S. Competitiveness
by Richard H.K. Vietor and Matthew Weinzierl

Reviving Entrepreneurship
by Josh Lerner and William Sahlman

Green Rules to Drive Innovation
by Daniel C. Esty and Steve Charnovitz

CONTEXT
The Incentive Bubble
by Mihir Desai

Fixing What's Wrong with U.S. Politics
by David A. Moss

Enriching the Ecosystem
by Rosabeth Moss Kanter


...and here is a quick internet drive-by on some of the topics I am thinking about with respect to my equity selection and trading:


• A Japan Scenario for the rest of the western world


After half a century of trade surpluses, Japan is now in deficit, Jan 14th 2012 | from the print edition, The Economist, http://www.economist.com/node/21542794

Deficit in current account biggest ever, Friday, March 9, 2012, Japan Times, http://www.japantimes.co.jp/text/nb20120309a1.html

• Target2 Imbalances


What is the meaning of TARGET balances?, By Silvia Merler on 29th February 2012, Bruegel, http://www.bruegel.org/blog/detail/article/691-what-is-the-meaning-of-target-balances/

Debate on Target 2, Bruegel, http://www.bruegel.org/debate-on-target-2

• Foreign Direct Investment


Inward Foreign Direct Investment from the rest of the world, Eurostat

http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/dataset?p_product_code=TGIBC410


• Sector Analysis


By Yahoo Finance

Industry Browser - Industrial Goods Sector - Industry List, http://biz.yahoo.com/p/6conameu.html

Industry Browser - Financial Sector - Industry List, http://biz.yahoo.com/p/4conameu.html


• Can stocks be thought about as the present value of expected cash flows?


Net present value, http://en.wikipedia.org/wiki/Net_present_value#NPV_in_decision_making

• Screening Criteria/Growth at a Reasonable Price/Growth/Value/Technical Metrics


Stock selection criterion, http://en.wikipedia.org/wiki/Stock_selection_criterion

Trend following, http://en.wikipedia.org/wiki/Trend_following

• P/E ratio's...how are earnings calculated?


P/E ratio, http://en.wikipedia.org/wiki/P/E_ratio

Earnings per share, http://en.wikipedia.org/wiki/Earnings_per_share

• Currency Exchange Rates


Currency pair, http://en.wikipedia.org/wiki/Currency_pair

• ADR tracking gaps


ADR Arbitrage Opportunities for Dummies, BEATRIZ AMARY OTAVIO OTTONI, http://people.hbs.edu/mdesai/IFM05/AmaryOttoni.pdf

Surferbeetle
03-11-2012, 05:44 AM
Cam Penner, Rye Whiskey (http://www.myspace.com/music/player?sid=47220074&ac=now) from the album What's Kickin

Homeric Similes And Spanish Debt (http://fistfulofeuros.net/afoe/homeric-similes-and-spanish-debt/), Posted on March 6, 2012 by Edward Hugh at a Fistful of Euros


“Nothing” remember, “is more hateful to wisdom (astucia) than true cleverness”, which means if you try to go rummaging round round Spain for Goldman-Sachs-style interest-rate-swaps you will almost certainly leave empty handed. Handiwork here is all much simpler, and more artesanal than that, and therein lies the beauty and the sophistocation of the thing.

Hence, if you are someone who is really interested in trying to answer the question about just how high the present level of Spanish sovereign debt actually is (officially it was to have been 67.8% of GDP in December, but that estimate was made before the latest set of budget deficit “revelations” and when the estimate of 2011 GDP was rather higher than it turned out to be, so it is probably nearer to 70% now, even on the official Eurostat EDP measure) you should start here (http://www.bde.es/webbde/en/estadis/ccff/ccff.html), with the Financial Accounts of the Spanish Economy (http://www.bde.es/webbde/en/estadis/ccff/ccff.html). The part you really need is Chapter Two the “Financial Accounts (http://www.bde.es/webbde/en/estadis/ccff/cfcap2.html)” – actually, I will add in a small but revealing personal anecdote here, since when I sent all these links off to the IMF Spanish Mission Head back in the spring of 2010 he mailed me back saying “thanks a lot” – he plainly didn’t know that this sort of thing existed., although the Spanish head of Global Financial issues for the IMF - ex Bank of Spain man José Viñals – most surely did, but he simply hadn’t seen fit to brief his colleague. As I say, this is how Spain works, you have to ask the right person the exactly right question, and make sure you don’t get sidetracked. Otherwise you will learn nothing apart from a lot of useless and most likely thoroughly misleading information.

Surferbeetle
03-11-2012, 05:00 PM
Cam Penner, Walk On (http://itunes.apple.com/us/album/felt-like-a-sunday-night/id304287718), from the album Felt Like a Sunday Night

Los sindicatos exhortan al Gobierno a retomar el dilogo para desconvocar la huelga general (http://www.elperiodico.com/es/noticias/economia/miles-personas-manifiestan-contra-reforma-laboral-barcelona-1528401), TONI FUENTES / AGENCIAS / Barcelona, Domingo, 11 de marzo del 2012 - 17:24h, El Peridico


Ms de 450.000 personas, segn los sindicatos, y 17.000, segn la Guardia Urbana, se han manifestado en Barcelona contra la reforma laboral aprobada por el Gobierno bajo el lema Ni reforma laboral, ni recortes, una protesta convertida en un llamamiento a que la huelga general del 29 de marzo sea un xito. La manifestacin se ha celebrado al mismo tiempo en una sesentena de ciudades de toda Espaa.

Toxo: "Si el Gobierno no rectifica, habr conflicto y no terminar el da 29" (http://politica.elpais.com/politica/2012/03/11/actualidad/1331464468_374117.html), MANUEL V. GMEZ Madrid 11 MAR 2012 - 14:47 CET, EL PAS


"La huelga del da 29 no es el fin de nada, que sepa el seor Rajoy que la movilizacin va a continuar alrededor de las alternativas". Este es el mensaje que el secretario general de CC OO, Ignacio Fernndez Toxo, ha querido lanzar al Gobierno al trmino de la gran manifestacin convocada en Madrid por los sindicatos. "Seor Rajoy, tiene el mes de marzo para abrir la mesa de negocio y para presentar unos Presupuestos razonables y los sindicatos estarn ah", ha agregado Toxo, quien, junto al secretario general de UGT, Cndido Mndez, ha advertido que las medidas adoptadas por el Ejecutivo para salir de la crisis no son temporales, sino "para toda la vida".

Los dos sindicatos mayoritarios han organizado 60 manifestaciones en Espaa que sirvan para poner en marcha la maquinaria de movilizacin contra la reforma laboral y de paso medir sus fuerzas para la huelga general del 29 de marzo. Segn las estimaciones sindicales, la participacin en la marcha ha sido de medio milln de personas. Fuentes policiales lo reducen a entre 25.000 y 35.000 asistentes.

Ignacio Fernndez Toxo (http://es.wikipedia.org/wiki/Ignacio_Fernndez_Toxo), by wikipedia


Comienza su vida laboral como aprendiz en la Empresa Nacional Bazn de Construcciones Navales Militares S.A. (Bazn), empresa que se fusion con Astilleros Espaoles, S.A. (AESA) en julio del 2000, constituyendo la empresa Izar Construcciones Navales. En esta empresa continuar su vida laboral hasta que es prejubilado dentro del ERE iniciado por la SEPI en abril de 2005.
Durante su juventud fue militante de la Liga Comunista Revolucionaria2 y posteriormente del Partido Comunista de Espaa.

Su actividad sindical comienza en Bazn durante su etapa como aprendiz. Con 19 aos participa en la organizacin de la huelga general de Ferrol del 10 de marzo de 1972. Durante las manifestaciones la Polica Armada acorral a algunos huelguistas, entre los que se encontraba el joven aprendiz Toxo, y comenz a disparar indiscriminadamente, hiriendo a ms de 40 personas y matando a dos trabajadores de Bazn, miembros de CCOO, Amador Rey y Daniel Niebla.3 La vida sindical de Toxo, que acude regularmente a la ofrenda floral anual frente al monumento en Ferrol a los asesinados el 10 de marzo, fue marcada profundamente por esta experiencia de juventud, como se desprende de sus sucesivas declaraciones sobre los hechos.4

Como consecuencia de la huelga del 10 de marzo Toxo ser despedido y condenado a 5 aos de prisin.5 Toxo huye del penal de La Corua y pasa a vivir en la clandestinidad hasta la aprobacin de la Ley de Amnista de octubre de 1977, no obstante lo cual se presentar a las elecciones generales de Espaa de 1977, como cabeza de lista del Frente por la Unidad de los Trabajadores para la provincia de La Corua.6 Por aplicacin de la ley de amnista Toxo recuperar su empleo en Bazn, donde llegar a ser elegido presidente del Comit Intercentros de la empresa.7

En noviembre de 1987 es elegido Secretario General de la Federacin del Metal de CCOO en sustitucin de Juan Ignacio Marn,8 cargo que ocup hasta noviembre de 1995, cuando se fusionan las federaciones del Metal y de Minera del sindicato. Tras la fusin, Toxo es elegido Secretario General de la organizacin resultante, la Federacin Minerometalrgica de CCOO, cargo que ostentar hasta que en 2004 es sustituido por Felipe Lpez Alonso. En esta etapa es de destacar su defensa de la posicin sindical ante la reconversin industrial y, muy especialmente, su participacin en la organizacin de la Marcha de Hierro.9

Desde 2004 a 2008 desempe el cargo de Secretario de Accin Sindical y Polticas Sectoriales de la Confederacin Sindical de CCOO, y es miembro del Consejo Confederal y de la Comisin Ejecutiva Confederal del sindicato.
El 19 de diciembre de 2008 fue elegido Secretario General de CCOO en el 9 Congreso Confederal, sustituyendo a Jos Mara Fidalgo.10
El 18 de mayo de 2011 fue elegido Presidente de la Confederacin Europea de Sindicatos en sustitucin de Wanja Lundby-Wedin, miembro del sindicato LO de Suecia.11

Generación 'nimileurista' (http://politica.elpais.com/politica/2012/03/09/nimileurista/1331312384_412362.html), CARMEN PÉREZ-LANZAC Madrid 9 MAR 2012 - 17:59 CET, El Pais


Hace seis años, en agosto de 2005, una joven catalana escribió una carta a este periódico. Se titulaba ‘Yo soy mileurista’, término que ella acuñó. Carolina Alguacil tenía entonces 27 años y se quejaba de la precariedad laboral de su generación: “El mileurista es aquel joven, de 25 a 34 años, licenciado, bien preparado, que habla idiomas, tiene posgrados, másteres y cursillos. Normalmente iniciado en la hostelería, ha pasado grandes temporadas en trabajos no remunerados, llamados eufemísticamente becarios, prácticos (claro), trainings, etcétera. Ahora echa la vista atrás, y quiere sentirse satisfecho, porque al cabo de dos renovaciones de contrato, le han hecho fijo (…) Lleva tres o cuatro años en el circuito laboral, con suerte la mitad cotizados (...). Lo malo es que no gana más de mil euros, sin pagas extras, y mejor no te quejes. No ahorra, no tiene casa, ni coche, ni hijos, vive al día. A veces es divertido, pero ya cansa (...)”. Releer hoy aquella carta deja un sabor amargo. Porque evidencia que se ha retrocedido. El mileurismo ha dado paso a una versión aún más precaria de sí mismo, el nimileurismo. “Antes éramos mileuristas y aspirábamos a más. Ahora la aspiración es ganar mil euros”, resume la propia Alguacil, que estudió Comunicación Audiovisual, es autónoma y se ha mudado a Córdoba. “Ni mucho menos me imaginaba yo entonces que la cosa iba a ir a peor”. Ella ya no es mileurista, pero no cree que gane lo que debería: “No me conformo”.


En España viven 10.423.798 personas de entre 18 y 34 años. Al igual que Pedro, reman contra los elementos y un mercado laboral menguante mientras los ya viejos problemas empeoran y se alimentan: salarios precarios, paro de larga duración, sobrecualificación, tardía emancipación, fuga de cerebros… Su ingreso medio neto (incluyendo a los parados), es de 824 euros al mes. Y los que están trabajando, ganan de media 1.318 euros mensuales (datos del Consejo de la Juventud de España). Profesiones que parecían a salvo del mileurismo, ya no lo están. La Politécnica de Valencia siguió los primeros pasos laborales de ingenieros y arquitectos que se licenciaron en 2008: uno de cada cuatro no llegaba a mileurista. Y lo que es más grave: el nimileurismo había avanzado un 8% respecto a los graduados un año antes.


Ante la falta de expectativas, muchos cerebros de la generación mejor preparada siguen haciendo las maletas, protagonizando una fuga de cerebros “sin precedentes”, en palabras de Fátima Báñez, ministra de Empleo y Seguridad Social. Según el último eurobarómetro de la Comisión Europea, un 68% de los jóvenes españoles está dispuesto a marcharse de España (http://ec.europa.eu/public_opinion/flash/fl_319b_en.pdf); un 36% por un plazo limitado. Y un 32%, por mucho tiempo. Sólo cinco países —de 31 encuestados— nos superan: Islandia, Suecia, Bulgaria, Rumania y Finlandia.

Youth on the move (http://ec.europa.eu/public_opinion/flash/fl_319b_en.pdf), Flash Eurobarometer, Fieldwork January 2011 (A Gallup poll with 30309 respondents)

Firn
03-13-2012, 08:41 PM
I will take a closer look at that Harvard Business Review if I find a bit more time.

Nanneddu meu (http://www.youtube.com/watch?v=ObIDfnKhT6s&feature=related)


Nanneddu meu, su mundu er gai:
a sicut erat non torrat mai.
Semus in tempus de tirannia
infamidade e carestia.
Como sos populos cascan che cane
gridende forte: "Cherimos pane".
Famidos nois semos pappande
pane e castanza, terra cun lande.

Let us hope that things will not turn out quite as harsh as in that coro sardo. The latter however seems to be already true in some areas of Europe, especially for the young:


Peus sa famene chi forte sonat
sa janna a tottus e non perdonat.
Avocadeddos laureados
busciacca boida, ispiantados.

Worse, the hunger strongly knocks
at everyone's door and doesn't forgive
Advocates with degrees
the pockets empty, penniless.

(My own poor translation)

Interest rates: Libor – a benchmark to fix (http://www.ft.com/intl/cms/s/0/6e5d1d0e-694e-11e1-9618-00144feabdc0.html)


Their answers are now at the heart of a sprawling regulatory investigation into possible manipulation of the London interbank offered rate, one of the most important reference points of the global financial system.

At least 10 enforcement agencies in the US, Canada, Europe and Japan are examining whether bankers and brokers colluded to rig Libor – the index interest rate used for $350tn worth of financial products – and other widely watched rates to boost profits from their in-house trading positions.

If that goalpost was indeed moved it would show quite an modus operandi, certainly one which won't increase my trust into the financial system as a whole.

P.S: Sonata sarda (http://www.youtube.com/watch?v=q0BWoyZ5heQ&feature=related) - just to enjoy a piece of old European tradition before the wedding day.

Surferbeetle
03-19-2012, 01:11 AM
Had a very interesting discussion today with a friend regarding the importance of a free press in providing transparency and accountability...

LIBOR/London Interbank Offered Rate (http://en.wikipedia.org/wiki/Libor) by Wikipedia


The Libor is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR, /ˈlaɪbɔr/). Banks borrow money for one day, one month, two months, six months, one year, etc., and they pay interest to their lenders based on certain rates. The Libor figure is an average of these rates. Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the Libor rate. As such, it is a benchmark for finance all around the world. [1]

Bank lending probe lights up dark financial corners, Dr Gillian Tett, February 9, 2012 6:08 pm, Financial Times, www.ft.com


Being a financial journalist often feels akin to chasing bars of soap in the bath. On occasion, we hear fascinating rumours, and peer into dark corners of finance, aware that something odd is going on. Yet, all too often the “story” quarry slips away for lack of evidence or of quotable sources – or because powerful financial public relations officials are waving libel laws in our face.

Interbank borrowing rates such as Libor are a case in point. Five long years ago, I first heard tales of strange happenings in the Libor, Tibor and Euribor world. So I duly wrote a column expressing general concerns about the accuracy of Libor, and my FT colleagues peered deeper into Libor, and then the wider swaps world (check out, for example, the 2010 piece co-written by Michael Mackenzie, himself a former broker, on the oddities of “page 19901”). But, wherever we looked, we faced obfuscation; catching anything tangible in that slippery, slimy pond seemed hard.

No longer. This week it has emerged that almost a dozen traders and brokers around the world have been fired, suspended, or put on leave, amid a multinational probe into alleged manipulation of Libor. In particular, there are allegations that financial players have colluded to influence these rates, which serve as a benchmark for some $350tn worth of financial products worldwide, either to trade directly, or influence how other securities are priced.

Why I Am Leaving Goldman Sachs (http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?_r=1&pagewanted=1&sq=greg%20smith&st=cse&scp=1), By GREG SMITH, Published: March 14, 2012, NYT


TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

The Quiet Coup (http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/), By SIMON JOHNSON, ECONOMY, MAY 2009 ATLANTIC MAGAZINE


The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

What Makes Countries Corrupt (http://www.theatlantic.com/business/archive/2010/11/what-makes-countries-corrupt/66362/), Richard Florida, NOV 10 2010, 2:51 PM ET , The Atlantic


The United States and other advanced nations are stepping up their efforts to combat corruption in poorer, less developed nations by publicizing the corruption and by punishing their own companies when they engage in it. The U.S. Congress added a bipartisan amendment to pending financial reform legislation, requiring oil, gas, and mining companies to disclose every payment they make to foreign governments, according to a recent report in The Economist.

But can such efforts stem the tide? My own analysis suggests that before we can deal with systemic corruption we must first come to grips with the fact that it doesn't occur in a vacuum -- it is a symptom of deeply rooted economic and social maladies.

The map above shows how the nations of the world stack up on Transparency International's 2010 Corruption Perception Index or CPI, which tracks government bribes, kickbacks, embezzlement, and other forms of public corruption. Topping the list as the world's least corrupt nation is Denmark, followed by New Zealand, Singapore, Finland, Sweden, and Canada. The United States ranks 22nd. The BRIC nations--Brazil, Russia, India, and China--rank in the bottom third of the CPI, even though they are among the fastest-growing nations in the world. Countries like Angola, Somalia, Afghanistan, and Iraq are at the very bottom.

SEC (http://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission), at Wikipedia


The U.S. Securities and Exchange Commission (frequently abbreviated SEC) is a federal agency[2] which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States. In addition to the 1934 Act that created it, the SEC enforces the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes–Oxley Act of 2002 and other statutes. The SEC was created by section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C. § 78d and commonly referred to as the 1934 Act).

FSA (http://en.wikipedia.org/wiki/Financial_Services_Authority), at Wikipedia


The Financial Services Authority (FSA) is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government.[1] Its main office is based in Canary Wharf, London, with another office in Edinburgh. When acting as the competent authority for listing of shares on a stock exchange, it is referred to as the UK Listing Authority (UKLA),[2] and maintains the Official list.

Surferbeetle
03-20-2012, 05:50 PM
European Stocks Decline as BMW, Daimler Retreat on China (http://www.bloomberg.com/news/2012-03-20/european-stock-futures-decline-before-u-s-housing-report.html), By Tom Stoukas - Mar 20, 2012 11:05 AM MT, Bloomberg News


Vehicle sales in the world’s second-largest economy will probably miss the China Association of Automobile Manufacturers’ forecast for 2012, according to an official at the state-backed body.

Total vehicle deliveries -- forecast to grow 8 percent this year -- may fail to increase by even 5 percent because of the “difficult” economy, Gu Xianghua, one of two deputies to the secretary general at the CAAM, said at a conference in Qingdao today, giving his personal opinion.

Wen lays ground for Tiananmen healing to begin, By Jamil Anderlini in Beijing, 20 March 2012, 1:24 PM, Financial Times, www.ft.com


As Mr Wen prepares to step down at the end of this year as part of a once-in-a-decade political transition, he may be gambling that the time has come to right historical wrongs as a way of launching political reform.

NRW-WAHL, Röttgen, der Hasardeur (http://www.handelsblatt.com/politik/deutschland/nrw-wahl-roettgen-der-hasardeur/6349518.html), von Georg Watzlawek, 20.03.2012, 13:00 Uhr, Handelsblatt


DüsseldorfVon der Alternative „Berlin oder Düsseldorf“ will Norbert Röttgen nichts mehr hören. Keine Fragen von Journalisten, und auch keine Beiträge seiner Vorstandskollegen. „Wir hatten im Landesvorstand lange kontrovers diskutiert, aber jetzt ist Kampfzeit“, begründet der CDU-Spitzenkandidat für die Wahl in Nordrhein-Westfalen die Tatsache, dass er jede Personaldebatte unterbunden hat. Und er weiß, welches Risiko er damit eingeht: „Es gibt eine Linie – und derjenige, der sie entschieden hat, übernimmt die volle Verantwortung“.

Landesbanken, Das teure Erbe der WestLB (http://www.wiwo.de/unternehmen/banken/landesbanken-das-teure-erbe-der-westlb/6334154.html), von Anke Henrich, 19.03.2012, Die WirtschaftsWoche


Diese Antwort war sicher nicht geprobt. 29. Februar 2012, Landgericht Düsseldorf. Eine Richterin verhandelt die Klage eines Anlegers gegen die WestLB. Da schwant ihr etwas. „Sagen Sie mal“, fragt sie den Anwalt der WestLB, „wer ist denn zuständig, wenn Ihre Bank im Juli zerschlagen wird?“ Spontan und aufrecht antwortet der Advokat: „Das wissen wir noch nicht.“

Die beiden sind nicht allein. Auch das Land Nordrhein-Westfalen (NRW) und seine Steuerzahler, die milliardenschwere Garantien für die ausgezählte WestLB übernommen haben, können die Langzeitfolgen des WestLB-Niedergangs nicht überblicken. Ebenso rätseln WestLB-Kunden, die mit der Bank noch eine Rechnung offen haben.

Sie alle wollen wissen: Wer übernimmt ab Juli die Lasten aus dem Erbe der WestLB, wo überall liegen noch Leichen im Keller – und welche Konsequenzen haben die plötzlich angekündigten Neuwahlen in Nordrhein-Westfalen für die Landesbank? Schließlich platzte ein Haushaltsentwurf, der auch eine Milliarde Euro Rücklagen für die WestLB enthielt.

Die Zeit für eine Antwort drängt. Denn am 30. Juni läutet das Totenglöckchen in der Düsseldorfer Herzogstraße. Dann wird die Landesbank zu Grabe getragen, weil es EU-Wettbewerbskommissar Joaquin Almunia so wollte: Sie sei dank staatlicher Hilfen jahrzehntelang im Wettbewerb bevorzugt worden.

Germany-China rail freight plan (http://news.bbc.co.uk/2/hi/business/7180906.stm), Last Updated: Thursday, 10 January 2008, 12:22 GMT, BBC News


...rail freight service between Germany and China, that would be twice as quick as sea travel, has been backed by six countries, Chinese media says.

The China Daily state newspaper says China, Mongolia, Russia, Belarus, Poland and Germany are to work together on the Hamburg to Beijing train route.

DB Schenker Begins Germany-China Container Rail Service (http://www.joc.com/intermodal-shipping/db-schenker-begins-germany-china-container-train-service), Bruce Barnard, Special Correspondent | Oct 13, 2011 12:31PM GMT, The Journal of Commerce Online - News Story


DB Schenker said its new daily rail container service between Germany and China, starting in late November, will more than halve the transit time of sea transport.

Firn
03-20-2012, 07:14 PM
Business made difficult (http://www.nytimes.com/2012/03/19/world/europe/in-greece-business-rules-can-puzzle-entrepreneurs.html?ref=global-home&gwh=2A3D82EC3603A2FE786A69A7997FF830) for a Greek start-up.


It was about a year ago that Fotis I. Antonopoulos, a successful Web program designer here, decided he wanted to open an e-business selling olive products.

Luckily, he already had a day job.

It took him 10 months — crisscrossing the city to collect dozens of forms and stamps of approval, including proof that he was up to date on his pension contributions — before he could get started. But even that was not enough. In perhaps the strangest twist of all, his board members were required by the Health Department to submit lung X-rays — and stool samples — since this was a food company.

One of the reasons why Greek is in trouble. One really only appreciates the qualities of his own bureaucracy when being confronted with a much worse one. Nevermind the old Roman one (http://www.youtube.com/watch?v=JtEkUmYecnk) , reminding posters about the EU comission or the Polish city halls.

Strangly it seems most popular in Germany (http://www.youtube.com/watch?v=lIiUR2gV0xk&feature=related) offering inside of the inner working of the Arbeitsamt :eek: - while in Italian (http://www.youtube.com/watch?v=cNbpc_o2XgY) it is taken as a satirical symbol of the Italia attuale.

Surferbeetle
03-21-2012, 06:50 PM
With so much sunshine in Greece one wonders what is being done by the 'elites' for the good of their country; meanwhile others are busy making things happen instead of making excuses...

Germany’s $263 Billion Renewables Shift Biggest Since War (http://www.bloomberg.com/news/2012-03-19/germany-s-270-billion-renewables-shift-biggest-since-war.html), By Stefan Nicola - Mar 19, 2012 5:34 AM MT, Bloomberg News


Not since the allies leveled Germany in World War II has Europe’s biggest economy undertaken a reconstruction of its energy market on this scale.

Chancellor Angela Merkel is planning to build offshore wind farms that will cover an area six times the size of New York City and erect power lines that could stretch from London to Baghdad. The program will cost 200 billion euros ($263 billion), about 8 percent of the country’s gross domestic product in 2011, according to the DIW economic institute in Berlin.

Germany aims to replace 17 nuclear reactors that supplied about a fifth of its electricity with renewables such as solar and wind. Merkel to succeed must experiment with untested systems and policies and overcome technical hurdles threatening the project, said Stephan Reimelt, chief executive officer of General Electric Co. (GE)’s energy unit in the country.

Utilities running gas-generating plants in Germany lost 10.92 euros a megawatt-hour today at 12:16 p.m. local time, based on so-called clean-spark spreads for the next month that take account of gas, power and emissions prices. That compared with a profit of 20.95 euros in October 2009, according to data compiled by Bloomberg. U.K. generators earned 2.06 pounds ($3.27), down from a profit of 7.02 pounds in October.


A gigawatt is about enough to supply 800,000 homes in the U.S. and a bit less than the capacity of a nuclear reactor.


Germany’s efforts in the industry are sending shocks through European power markets. When it’s windy and sunny, turbines and solar cells flood the grid with electricity, undermining the economics of natural-gas fired generators, since clean energy has supply priority over fossil fuels.

Utilities running gas generating plants in Germany lost 10.92 euros a megawatt-hour today at 12:16 p.m. local time, based on so-called clean-spark spreads for the next month that take account of gas, power and emissions prices. That compared with a profit of 20.95 euros in October 2009, according to data compiled by Bloomberg. U.K. generators earned 2.06 pounds ($3.27), down from a profit of 7.02 pounds in October.


Norbert Roettgen, the 46-year-old lawyer who is Merkel’s environment minister and protege, is managing the transition and aims for the nation to generate at least 35 percent of its power from renewables by 2020, up from 20 percent last year.

Roettgen seeks 25,000 megawatts of power generated by wind farms in the North Sea and Baltic Sea by 2030, about the same as 25 nuclear power stations. About 200 megawatts of offshore wind plants are working now.


Already, Germany has built the world’s biggest renewable generation complex, with 53.8 gigawatts of wind and solar generators at the end of last year. Italy last year added a record 9 gigawatts of solar panels, overtaking Germany for the first time. The U.K. plans 18 gigawatts of offshore wind capacity by 2020, up from 1,500 megawatts now.

Some of Germany’s biggest companies are entering the renewables business and backing the innovations needed to make expand the scale of the industry.

Solar’s 80% Plunge Hurts Utilities From Hawaii to Spain (http://www.bloomberg.com/news/2012-03-21/grid.html), By Ben Sills and Marc Roca - Mar 20, 2012 6:00 PM MT, Bloomberg News


On grassy pasture in western Spain, Fotowatio SL is preparing to build a solar plant to supply electricity 25 percent cheaper than a local utility charges for traditional power, a breakthrough that’s sending tremors through the global energy industry.


Solar panels costs have tumbled 80 percent in the past five years. A technology that in the 1970s was so expensive it only made economic sense for satellites and offshore drilling rigs is today a $100 billion industry that’s transforming the world’s power supply in the same way semiconductor efficiencies put personal computers everywhere, changing the way information flows.


Panel makers such as Baoding, China-based Yingli Green Energy Holding Co. are themselves feeling the strain of crushed margins. The Bloomberg Global Large Solar Energy index, led by Chinese PV panel maker Hanwha SolarOne Co., erased 68 percent of its market value in 2011. At the same time, annual installations jumped 49 percent to about 28 gigawatts.

Twelve of the index’s 17 members will lose money in 2012, according to analyst estimates compiled by Bloomberg. Yingli saw its gross margin reduced to 3 percent in the fourth quarter compared with 11 percent in the preceding three months and lost $510 million in 2011.

The competition is hurting suppliers as it helps the industry accelerate toward so-called retail grid parity, when homes and businesses will be able to generate their own power more cheaply than they buy it from coal- or gas-fired plants through local utilities.


Not every industry observer believes grid parity is around the corner.

Gordon Johnson of Axiom Capital Management Inc., the top- ranked solar-energy analyst of more than 30 tracked by Bloomberg, says the financial strain on panel makers reflects fundamental problems with their business rather than pressure from competitors.

There’s a limit to how much the cost of solar energy can fall because some components -- the racks, cables and inverters that make the power compatible with utility grids -- are not declining as fast and because PV requires backup from conventional plants during the night, he said.

Fuchs
03-21-2012, 07:02 PM
Context:

The conservative-liberal (European "liberal"!) government first lengthened the projected service life of the German nuclear powerplants as a gift to the nuclear lobby (and possibly Siemens), then came Fukushima and Merkel did what she had done several times already: She completely gave up a cornerstone of her party's policies and made a u-turn. Now she's doing a more radical anti-nuclear power than did the red (social democrats) - GREEN Schrder government (which was in bed with big business just as all (West) German governments, and with much less style than their pre-'82 predecessors!) .


The switch to less nuclear power wasn't nearly as problematic as the scaremongering of the nuclear lobby had suggested for decades. We're still a net electricity exporter while the extremist pro-nuclear power France is a net importer AFAIK.

There is one major problem, though; the German electrical grid is compartmentalised. This is actually in part still a heritage from a Nazi law from the 1930's (the same Nazi law that made the German electrical grid more unable to cope with damaged powerplants than the Allies ever dared to dream prior to their 1945 Strategic Bombing Survey!).
Said old law created a landscape of regional monopolies (typical fascist-typical gift to big business in exchange for support), which were not much connected.


Now there's a lot talk about a need for additional very high voltage power lines, but planning and building such 'unpleasant' power lines is a slow process and some embarrassing power line failures two or three winters ago had already revealed that even the existing grid requires some overhaul (because the power corporations had pursued easy profit by neglecting maintenance).


The power plants are only the obvious surface; the practical issues are rather about the power line grid. We could have dozens of DESERTEC solar power plants in Africa right now, but what would that be good for if we cannot even transfer their output between North and South Germany?

Surferbeetle
03-21-2012, 07:11 PM
Fuchs,

Appreciate the insights :)

What if the grid (http://en.wikipedia.org/wiki/Electrical_grid) is no longer cost effective? What does that mean for centralized planning & control, and allocation of capital in al of it's forms? :wry:

Grid parity (http://en.wikipedia.org/wiki/Grid_parity), by wikipedia


Grid parity is the point at which alternative means of generating electricity produces power at a levelized cost that is equal to or less than the price of purchasing power from the grid. Reaching grid parity is considered to be an important point in the development of new sources of power, the point at which it becomes a contender for widespread development without subsidy support. The term is most commonly used when discussing renewable energy sources, notably photovoltaics, wind power and wave power. It is widely believed that a wholesale shift in generation to these forms of energy will take place when they reach grid parity.

Fuchs
03-21-2012, 07:22 PM
Not "cost-effective"?
How would one determine that?

The "well"-earners in the top floors of the glass palaces were simply neglecting long-term thinking.

Surferbeetle
03-21-2012, 07:34 PM
At some point, perhaps sooner than later, the average user runs a cost estimate which examines the costs of a renewable set-up sufficient to power their needs versus the costs of continued purchases from the grid...cost effectiveness wins and perhaps the gird and all it's associated infrastructure & costs is downscoped in size and changes focus to primarily supporting heavy users.

Perhaps similar to the evolution of mainframes -> pc's -> smartphones

Fuchs
03-21-2012, 07:46 PM
Germany has about 90% scattered light and 10% direct sun radiation on average. Only photovoltaic and direct solarthermal power works well, the reflection-requiring solar techs don't work well. The sun's radiation in Germany is overall unsatisfactory for a cost-efficient energy supply in all but single/two-family houses warm water supply and isolated installation electrical power supply. Northern Germany is even substantially worse than Southern in this regard.

Wind power is only available at some times, and only so in substantial amounts in the north.

Geothermal power is only available in probably practical quality in the very few former volcanic areas (Eifel, for example).

Water power has already been maxed out with known technologies. You really need to go for tidal or wave energy North Sea installations to find any major growth potential.

Waste burning (including waste from garbage and water filtration) is already being used, but its potential is limited to about one site per community.



This leaves energy efficiency stuff (further improved internal combustion engines, improved building insulation) and investment in solar power in more Southern countries (I'd look especially at Spain, since it has semi-arid regions) as the huge potentials for improvement.

I don't see how communities or households could seriously go down an energy autarky route.



By the way; the bio-energy wave that has hit the U.S. about a year ago; it's bullocks. We looked at that stuff long ago, and for a while.
In Germany, only the agrarian lobby still pretends to buy into this stuff, while environmentalists and the non-agrarian ministries are set against it. The pro arguments are largely con tricks.

Surferbeetle
03-21-2012, 09:02 PM
Energy supply is half of the equation, the other half is energy draw...$/m2...efficiency being the holy grail on both sides.

As you point out the cost/benefit calculation is complex, will vary by location, includes such things as climate variations, seasonal variations, insulative (http://en.wikipedia.org/wiki/R-value_(insulation)) properties of building materials, light source (http://en.wikipedia.org/wiki/Light-emitting_diode) types, motor efficiencies (http://www.engineeringtoolbox.com/nema-electrical-motors-efficiency-ratings-d_1501.html), smart appliances (http://en.wikipedia.org/wiki/Internet_of_Things#Applications), tax rates, property age, payback periods (http://en.wikipedia.org/wiki/Payback_period), cost of alternatives, etc, etc.

Anecdotal observations from my neck of the woods include friends (and companies) making good consulting fees from enacting cost savings/energy efficiency programs for a variety of organizations, as well as a sudden 'wave' of photovoltaic installations/retrofit's in my neighborhood.

The grid will not change tomorrow, however i do think about how we went from gaslight (http://en.wikipedia.org/wiki/Gas_lighting) (~1524 in the West) to electrical light (http://en.wikipedia.org/wiki/Incandescent_light_bulb) (~1880) over the course of three hundred some years and then made a jump from mainframes to smartphones in about fifty years...both were large conceptual jumps...when thinking about changes to the grid :wry:

Surferbeetle
03-25-2012, 08:54 PM
Merkel se prpare une ventuelle victoire de Hollande (http://www.lemonde.fr/election-presidentielle-2012/article/2012/03/23/merkel-se-prepare-a-une-eventuelle-victoire-de-hollande_1675020_1471069.html)
Le Monde.fr avec Reuters | 23.03.2012 20h08 Mis jour le 23.03.2012 20h12


Malgr son soutien explicite la rlection de Nicolas Sarkozy, Angela Merkel se prpare discrtement la possibilit de voir Franois Hollande accder la prsidence franaise le 6 mai. La chancelire allemande est intervenue de fait dans la campagne lectorale en France en apportant son soutien "sur tous les plans" au chef de l'Etat sortant le 6 fvrier et en refusant de rencontrer son adversaire socialiste.

Merkels Party Wins Saarland State in Show of Crisis Backing (http://www.bloomberg.com/news/2012-03-25/merkel-s-cdu-wins-saarland-elections-zdf-exit-poll-shows.html), by Brian Parkin and Tony Czuczka - Mar 25, 2012 1:37 PM MT, Bloomberg News


Merkels Christian Democratic Union took 35.2 percent in todays election to retain power in Saarland, a former coal-and- steel state that borders France and Luxembourg, preliminary results showed. The Social Democrats, the main opposition party nationally, had 30.6 percent, paving the way for a so-called grand coalition with the CDU as senior partner.


Saarland, which represented 1.2 percent of German gross domestic product in 2010, the smallest proportion of any state except the city of Bremen, held elections more than two years early after Annegret Kramp-Karrenbauer, the CDU state premier, dumped the Free Democratic Party in January out of a government that also comprised the Greens. The FDP, Merkels coalition partner at national level, got 1.2 percent in the election, well below the 5 percent threshold needed to win assembly seats.

The anti-capitalist Left Party led by Oskar Lafontaine took 16.1 percent and the Greens 5 percent. The Pirate Party, which campaigns for open internet access, had 7.4 percent, allowing it to enter a second regional parliament after winning seats last year in Berlins state assembly. While the projections showed the Social Democrats and Left with enough seats to form a coalition, Heiko Maas, the SPD state leader, ruled out such an alliance in favor of a coalition with Kramp-Karrenbauer.


Saarland sets the stage for two more state elections this year that offer the latest indication of voter sentiment in Europes largest economy. Next up is Schleswig-Holstein on May 6, then North Rhine-Westphalia, Germanys most populous state, which votes on May 13 after the government collapsed this month.

With almost a quarter of Germanys 82 million people, North Rhine-Westphalia is a bellwether for federal political fortunes. The SPD took the state from Merkels party in May 2010 in a result Merkel blamed on agreeing to a first bailout for Greece days earlier. The result deprived her of a majority in the national upper house, where states are represented, and presaged defeats or a loss of support for her coalition parties in all seven state votes in 2011.

Merkel set to allow firewall to rise, by Peter Spiegel in Saariskel, Finland, Ralph Atkins in Frankfurt and Quentin Peel in Berlin, March 25, 2012 6:47 pm, Financial Times, www.ft.com


Germany is poised to bow to international pressure and allow a temporary increase in the eurozones financial firewall this week, to prevent the crisis in the regions periphery spreading to other member states.
Officials in Berlin signalled on Sunday that the government would allow funds to be boosted as a way of calming financial market pressures.



Senior European officials said a consensus appeared to be building behind Mr Rehns mid-range option, which would allow the 440bn European Financial Stability Facility, the current temporary rescue fund, to keep running when a new permanent 500bn fund, called the European Stability Mechanism, starts up in the middle of this year.

That would boost the rescue systems overall firepower to 940bn, although with about 200bn committed to Greek, Irish and Portuguese bailouts, the total available would be 740bn.


Rumors of a LTRO for Danish Banks?

Danish Private Debt Burden Triggers Central Bank Warning (http://www.bloomberg.com/news/2012-03-22/denmark-s-record-private-debt-load-triggers-central-bank-warning.html), By Frances Schwartzkopff - Mar 22, 2012 8:31 AM MT, Bloomberg News


Denmarks central bank is stepping up its focus on the countrys record private debt load to ensure households dont suffer losses when interest rates start to rise, Governor Nils Bernstein said.

People who are highly indebted are more vulnerable to interest rates and can be hit hard by changes, Bernstein said in an interview in Copenhagen yesterday. The bank is now conducting a review of the risks, he said.

Households in the AAA rated nation increased their debt burdens to 310 percent of disposable incomes in 2010, the worlds highest ratio, according to Exane BNP Paribas. While the debt is backed by the worlds second-highest pension savings rate after the Netherlands, those assets are locked shut, Bernstein said. The central bank has argued that failure to address the risks may jeopardize the stability of Denmarks $470 billion mortgage bond market.

The goal is to analyze how vulnerable households are to changes in the interest rate, Bernstein said. There are certainly some who are vulnerable. What we want to know is how widespread it is and how vulnerable they are.

Denmarks central bank uses interest rates to maintain the krones peg to the euro. Bernstein lowered the benchmark lending rate to 0.7 percent in December after investors fleeing the euro regions debt crisis turned to the Nordic country, threatening to strengthen the Danish currency.

Surferbeetle
03-26-2012, 04:26 AM
Piraten im Saarland, Kapern und ein wenig Kaspern (http://www.faz.net/aktuell/politik/inland/wahl-im-saarland-2012/piraten-im-saarland-kapern-und-ein-wenig-kaspern-11697615.html), Von MARIE KATHARINA WAGNER, 25.03.2012, FAZ


Seit Anfang des Jahres befindet sich die Piratenpartei in einer von Umfragen befeuerten Vorwahleuphorie. So ging die Partei fest von ihrem Einzug in den saarlndischen Landtag aus manche glaubten noch am Sonntagnachmittag, der Landesverband werde sogar das Ergebnis der Berliner Piraten von 8,9 Prozent bertreffen. Bedenkt man die miserable Ausgangslage des Saar-Landesverbands, ist das Ergebnis von 7,4 Prozent allerdings mindestens so spektakulr wie das der Berliner vom September. Entsprechend respektvoll kommentierten die Berliner Abgeordneten die ersten Hochrechnungen: Willkommen im Fnf-Parteien-System, twitterte Fabio Reinhardt. Ein anderer Pirat schrieb: Take this, etablierte Parteienlandschaft!


Darum begann der Wahlkampf im Saarland auch mit einer Notlage. Noch Ende Januar bestand die Partei hier allenfalls aus Rudimenten: Damals gab es 200 Mitglieder, kein Programm und einen einzigen Kreisverband in sieben Landkreisen. Heute sind es knapp 400 Mitglieder und sechs Kreisverbnde, seit zwei Wochen gibt es auch ein Programm. Darin fordert die Partei ein Wahlrecht vom 16. Lebensjahr an ein Thema, das in der Bundespartei hoch umstritten ist , Transparenz im Staatswesen und fr die Wirtschaftspolitik das Motto: Erst der Mensch, dann der Markt. Dass sie die Whler allein mit ihrem Programm berzeugt hat, glaubt die Partei selbst nicht. An den Infostnden sei vor allem die Frustration mit den herrschenden Verhltnissen ein Thema gewesen, erzhlen die Piraten von denen viele aus ebendiesem Grund in die Partei eingetreten sind.

ELECCIONES ANDALUZAS 2012 La izquierda vence en Andaluca (http://politica.elpais.com/politica/2012/03/25/actualidad/1332711507_316592.html), JOS MANUEL ROMERO Madrid 25 MAR 2012 - 23:38 CET, EL PAS


El PSOE cosech este domingo dos premios maysculos para recuperar su autoestima: los resultados de Andaluca le permiten mantener el Gobierno con el apoyo de IU y la victoria en Asturias, aunque insuficiente, abre la puerta a que su candidato, Javier Fernndez, sea investido presidente si el partido de Francisco lvarez-Cascos (segundo ms votado) no logra el apoyo del Partido Popular.

Tres meses despus del triunfo incontestable del partido de Mariano Rajoy en las elecciones generales, las urnas le han sido esquivas en Andaluca, el gran objetivo del PP para consolidar su hegemona institucional en toda Espaa. La candidatura de Javier Arenas (50 diputados, 1.567.202 votos, el 40,66% del total) ha perdido cinco puntos de apoyo y casi medio milln de votos respecto a los resultados del pasado 20 de noviembre. El PSOE gan tres puntos porcentuales respecto a las elecciones generales y se mantuvo muy cerca del PP (47 escaos, 1.523.465 votos con el 39,52% de los sufragios) para mantener intacta su opcin de seguir en el poder.

Los socialistas se enfrentaban este domingo a una amenaza histrica: la prdida del Gobierno en Andaluca. Y superaron la prueba ms exigente con un resultado que les permitir mandar otros cuatro aos con el apoyo necesario de IU.

Overnight Asia-Pacific Indexes (http://www.bloomberg.com/markets/stocks/world-indexes/asia-pacific/) at Bloomberg

Los Lobos, The Giving Tree (http://www.youtube.com/watch?v=D9SgUbFUmhA) on YouTube

Firn
03-27-2012, 11:30 AM
„Das Vertrauen in die EZB geht verloren“ (http://www.handelsblatt.com/politik/deutschland/juergen-stark-das-vertrauen-in-die-ezb-geht-verloren/6363952.html)


Jürgen Stark war von Juni 2006 bis ende 2011 Chefvolkswirt der Europäischen Zentralbank (EZB).


Glauben Sie denn, dass diese Ausstiegsklausel eine Bank wahrnimmt?

Ich weiß es nicht. Die Europäische Zentralbank hat ja auch aktiv für die Teilnahme an dieser Operation geworben. Es sei kein Stigma für die Banken, sich mit dem günstigen Geld zu versorgen.

Ist das nicht eine Subventionierung des Finanzsektors?

Es ist die Ermöglichung sogenannter Carry Trades. Das bedeutet, die Banken erhalten Kredit zu einem Zins von einem Prozent und können in einigen Ländern Staatspapiere kaufen, die mit viereinhalb bis fünf Prozent verzinst werden.

Im Klartext: Das ist der todsichere Profit, eine Einladung an die Banken zum Geldverdienen.

Ja natürlich, sie könnten aber auch die Realwirtschaft finanzieren. Es schreibt ihnen keiner vor, wie sie das Geld verwenden.

Sind wir in eine Staatsfinanzierung eingestiegen?

Wir befinden uns in einem Teufelskreis.

I think it is highly unusual to hear such words from an European/German bureaucrat who served not long ago in such a key position of the ECB.

Wie versprochen, so gebrochen (http://www.handelsblatt.com/politik/deutschland/euro-rettung-wird-zum-billionen-projekt-wie-versprochen-so-gebrochen/6440124.html)

As promised, broken.


Berlin Die Euro-Rettungspolitik von Bundeskanzlerin Angela Merkel (CDU) schürt Unmut in ihrer eigenen Koalition. Unter den Abgeordneten ist die Stimmung angesichts des Dauerzoffs zwischen Union und FDP über diverse Themen seit Monaten angekratzt. Da ist es umso problematischer, wenn wichtige Euro-Entscheidungen anstehen, die wieder einmal den Grundkonsens verletzen, einmal getroffene Beschlüsse nicht wieder in Frage zu stellen. Exakt das passiert an diesem Freitag, wenn die Euro-Finanzminister in Kopenhagen die Weichen für eine Ausdehnung des Euro-Rettungsschirms stellen werden.

The Handelsblatt clearly not being happy that Merkel agreed to raise the firewall with even more German money ( and of course much money from many other countries too).


Aktien sind viel günstiger als wichtige Staatsanleihen (http://www.faz.net/aktuell/finanzen/aktien/anlageklassen-aktien-sind-viel-guenstiger-als-wichtige-staatsanleihen-11698635.html)


26.03.2012 · Glaubt man der umstrittenen amerikanischen Investmentbank Goldman Sachs, so sind Aktien gegenüber Anleihen so attraktiv wie seit einer Generation nicht mehr.

I brought up this topic some time ago but timeo Danaos et dona ferentes so I might take another look at it :D

Btw I have now a lot of Greek gifts on my account with the nomial value not looking actually too bad but the true Gift in the German sense is of course the low yield.

Händel: Deh! fuggi un traditore (http://www.youtube.com/watch?v=w2T8DW1j8qg)

Surferbeetle
03-28-2012, 03:59 AM
Jurgen Stark (who flew from the ECB nest with the departure of Jean Claude Trichet) and Jens Weidmann (he of the recent leaked letter disparaging recent ECB actions) can be characterized as monetary policy hawks neither of whom want to encourage economic bubbles due to easy liquidity as exemplified by the LTRO and the CBPP2. Mario Draghi meanwhile worries about the solvency of both the European Banking System and the Sovereigns. Shorthand this clash might be summarized along a continuum of fear: Depression vs. Hyperinflation or Recession vs. Zombie Banks?

Is Signore Monti correct in his assessment that the Euro crisis has transitioned from acute heart attack to chronic illness status (my analogy not his), or is John Authers correct in cautiously wondering if the bull bond market is in the process of transitioning to a bear bond market (barring an oil shock or significant geopolitical event) while the equity market transitions from bear to bull? If so interest rates are set to rise at some point...

Are the seeds of a future European war being sown by the choices made today? As is said, stay tuned and keep an eye out for both the gift (http://www.bbc.co.uk/languages/yoursay/false_friends/german/be_careful__its_a_gift_englishgerman.shtml) and gifts :wry:




Jurgen Stark's Resignation Is Setback for Merkel (http://www.spiegel.de/international/europe/0,1518,785668,00.html), By Peter Mller, Christoph Pauly and Christian Reiermann, 09/12/2011, Der Spiegel



Bundesbank squares up to ECBs Draghi, By James Wilson in Frankfurt, March 1, 2012 7:19 pm, Financial Times, www.ft.com



Monti Says Euro Area Sovereign Debt Crisis Is Almost Over (http://www.bloomberg.com/news/2012-03-28/monti-says-euro-area-sovereign-debt-crisis-is-almost-over-1-.html), By Andy Sharp - Mar 27, 2012 8:33 PM MT, Bloomberg News



Mario, put on your toga (http://www.economist.com/node/21549963), Charlemagne, Mar 10th 2012 | from the print edition, The Economist



Bonds and equities face a plate-shifting moment, By John Authers, March 24, 2012 3:27 am, Financial Times, www.ft.com


Yeasayer - 2080 (ttp://www.youtube.com/watch?v=P2A_Juv213s)

Fuchs
03-28-2012, 09:35 AM
A bit mroe about Germany, its politics and economy:


One of the leading (pretty (http://de.wikipedia.org/wiki/Sahra_Wagenknecht)) faces of the far left wing socialist party Die Linke has changed a bit her style.
She used to be part of the 'caucus' Kommunistische Platform which was extremely hard left wing, but now she's talking a lot about "Wohlstand fr Alle" of Ludwig Ehrhardt (http://en.wikipedia.org/wiki/Ludwig_Ehrhard).
He was Germany's minister for economy during the economic miracle period from late 40s to mid 60s and a social conservative (social conservative as in European standards; someone who cares a lot about the well-being of workers and the weak - not someone who's defined by hatred of homos and anti-abortion obsession!).

The early economic miracle brought Germany back to pre-war standard of living by the turn from 40s to 50s. The early 50s were the period when consumption had caught up; people who hadn't bought any new shoes or furniture during the 40s did so in the early 50s, for example.

The 50s period saw a dispersion of the wealth; production gains were more than proportionally allocated to the working class while the rich were still allowed to become richer; "Wohlstand fr Alle" / prosperity for all.

The late 50s and early 60s saw a sudden turn towards mass introduction of luxury goods. Motorcycles were abandoned in favour of cars, TV sets and fridges were in almost every family by the mid-60s.
The mid 60s saw a period of almsot zero unemployment and Germany's economy reached its potential/natural output level. There was no catch-up effect any more, in Solow-Swan terms we had probably met the golden rule of steady state (http://en.wikipedia.org/wiki/Neoclassical_growth_model#Graphical_representation _of_the_model). A tiny bit of economic crisis was already perceived as a major problem back then.

The material wishes of the previous decades were met; by the late 60s, (young) people turned towards more liberty as their main interest (a lot of brownish #### was still in office as judges, policeme, politicians, CEOs), and the economic miracle period politicians did not meet this well. The social democrats and Brandt with his 'dare more democracy' agenda came to power.


It's extremely interesting that someone from the far left would become a disciple of Erhardt, a conservative.
It shows both
- incompetence in macroeconomics (an even longer story)
and
- that the conservatives have strayed too far away from their fomer expectations for income equality and the social democrats were ineffective if not even harmful in regard to income equality as well (no wonder their election results suck).


Indeed, the macro figures look well, but regional, age, ethnicity, upbringing and industrial sector distribution of those macro variables are unsatisfactory. There's furthermore always the demographic change, the energy outlook problem and a multitude of external shocks in the background.

------------

The favourite idea for addressing the demographic change (security of the retimrement incomes) of the last 15 years was bull####: People were supposed to buy a capital-based pension insurance. It was a gift for the insurance sector and entirely useless in regard to the problem.
The elderly of 2050 need to be supplied almost entirely with goods and services created in 2049/2050. To save now only helps if
- this increases our economic output in 2049/2050
or
- if the savings are invested abroad AND if the savings are not lost in the meantime.

Both is nonense, for our savings rate was already high enough and capital invested now would be depreciated almsot entirely by 2030.
The "savings abroad for retirement" idea helped to create the economic imbalances of todays' Europe. Obviously, investmenets abroad over a 30-50 years period are not really secure nor a macroeconomic solution.
In the end, we'll simply get used to the demographic change that occurs over a period of decades. People get used to almost everything.

-----------

The only openly and strongly pro-employer (pro-business) party of Germany, the FDP (European-style liberals, not U.S.-style liberals whom we'd call social conservatives) is dying, btw. They appear to be in the process of replacement by the Piraten, who basically do what the FDP save for one federal FDP minister only claim to do (it's interesting to see that teh Greens did not do this, as they had a reputaiton of being awkwardly similar tot eh FDP in civil liberties stuff).
The FDP also committed suicide by offering a blatant display of its corruption when it forced a value added tax deduction for hotels, a totally pointless and obviously paid-for measure.
A set of top FDP politicians who displayed more party infighting skill and show skill than any real enthusiasm for liberal ideology wasn't helpful either. They've got only two good politicians in my opinion; one very old man and aforementioned minister (who has stopped the slide towards more domestic spying).

In short; we might experience a turn towards more income equality and less influence of big business in this decade in Germany. The conditions are met.

Surferbeetle
03-29-2012, 05:57 AM
Fuchs,

Appreciate your very interesting post (and links!), thanks.

Along these lines, here are some late night thoughts (and associated links)...with what level of fidelity are the pressures of economic crisis' historically quantifiable in terms of political fragmentation and a strengthening of the 'left' and 'right' at the expense of the 'middle'? You have provided some additional background on Germany, while Rajoy's trials & tribulations in imposing austerity across the regions as evidenced by the recent elections in Spain and La Pen's drawing power in France are modern day places/events to watch.

The Hanseatic League, Japan, America, and the costs of the restriction of oil on the world economy might also provide some insights:

The Hanseatic League (http://en.wikipedia.org/wiki/Hanseatic_League) by wikipedia


Most foreign cities confined the Hansa traders to certain trading areas and to their own trading posts. They seldom interacted with the local inhabitants, except when doing business. Many locals, merchant and noble alike, envied the power of the League and tried to diminish it. For example, in London the local merchants exerted continuing pressure for the revocation of the privileges of the League. The refusal of the Hansa to offer reciprocal arrangements to their English counterparts exacerbated the tension. King Edward IV of England reconfirmed the league's privileges in the Treaty of Utrecht (1474) despite this hostility, in part thanks to the significant financial contribution the League made to the Yorkist side during The Wars of the Roses. In 1597, Queen Elizabeth I of England expelled the League from London and the Steelyard closed the following year. Ivan III of Russia closed the Hanseatic Kontor at Novgorod in 1494. The very existence of the League and its privileges and monopolies created economic and social tensions that often crept over into rivalry between League members.[13]

The balance sheet recession, charted (http://ftalphaville.ft.com/blog/2012/03/28/941241/the-balance-sheet-recession-charted/), Posted by Izabella Kaminska on Mar 28 16:38, Alphaville Blog at the FT, http://ftalphaville.ft.com/


Nomura’s Richard Koo has been banging on about the similarities between Japan’s balance sheet recession and the current financial malaise for a long while.

His main point has always been that the financial system won’t recover unless corporates and households complete their deleveraging journey.

On Wednesday he provides some charts to help illustrate the journey’s progress thus far.

Bitter Money Fights Shaped U.S History (http://www.bloomberg.com/news/2012-03-25/bitter-money-fights-shaped-u-s-history-part-1-johnson-kwak.html), By Simon Johnson and James Kwak Mar 25, 2012 5:01 PM MT, Bloomberg News

Abandoning Gold Helped Dollar Gain Preeminence (Part 2) (http://www.bloomberg.com/news/2012-03-26/abandoning-gold-helped-dollar-gain-preeminence-part-2-.html), By Simon Johnson and James Kwak Mar 26, 2012 5:01 PM MT, Bloomberg News

How the U.S. Became Banker to the Post-War World (Part 3) (http://www.bloomberg.com/news/2012-03-27/how-the-u-s-became-banker-to-the-post-war-world-part-3-.html), By Simon Johnson and James Kwak Mar 27, 2012 5:01 PM MT, Bloomberg News

Iran Oil Flow Slows, and Price Fears Rise (http://online.wsj.com/article/SB10001424052702304177104577305400565164514.html), By BILL SPINDLE And BENOÎT FAUCON, Updated March 28, 2012, 7:03 p.m. ET, WSJ


By the end of March, with three months until a European Union embargo on Iranian oil takes effect, Iran's exports are expected to fall by about 300,000 barrels a day from last month, to 1.9 million barrels daily, a nearly 14% drop, according to Swiss oil-shipping specialist Petro-Logistics SA.


Global oil prices might climb between $5 and $14 per barrel, leaving oil consumers paying between $14.7 billion and $36 billion more, because of concerns that global spare capacity is shrinking, Mr. Houser says.

Saudi Arabia will act to lower soaring oil prices, By Ali Naimi, March 28, 2012 4:30 pm, FT, www.ft.com


The bottom line is that Saudi Arabia would like to see a lower price. It would like to see a fair and reasonable price that will not hurt the global economic recovery, especially in emerging and developing countries, that will generate a good return for producing nations, and that will attract greater investment in the oil industry.

It is clear that geopolitical tensions in the region, and concerns over supply, are helping to keep prices high.

Yet fundamentally the market remains balanced. It is the perceived potential shortage of oil keeping prices high – not the reality on the ground. There is no lack of supply. There is no demand which cannot be met. Total commercial stocks for OECD nations are within target, and there is at least 57 days forward cover, enough to handle almost any eventuality.

Ulenspiegel
03-29-2012, 08:50 AM
Re: Influence of Saudi Arabia on price of crude:

http://www.econbrowser.com/archives/2012/03/a_rational_reas.html

Check the comments of J.J. Brown, who has good data covering this topic.

No chance that they are able to lower the price.

Surferbeetle
03-29-2012, 02:18 PM
Ulenspiegel,

Nice catch, very interesting site and the ~$25/barrel figure cited by JJ Brown is quite the reference point in today's price world.

Los sindicatos reclaman un gesto del Gobierno o recrudecern el conflicto (http://politica.elpais.com/politica/2012/03/28/actualidad/1332958776_265683.html), MANUEL V. GMEZ / SOLEDAD ALCAIDE Madrid 29 MAR 2012 - 14:58 CET, El Pais


Los mensajes de los sindicatos

El lmite. "Sabemos que Espaa est al lmite. Pero tambin lo sabemos que es porque as lo provoca la poltica del Gobierno. Y si la poltica contina as, es probable que Espaa vaya a estar ms al lmite, algo que no se puede permitir en ningn caso", asegura Mndez.

La participacin.

Segn el ltimo dato disponible, la participacin en la huelga oscila entre un 97% de los trabajadores en industrua y construccin, y un 57% en las administraciones pblicas. El dato ponderado promedio es el 77%".

Un compromiso.

Mndez: "Hay que buscar un compromiso con el Gobierno para remar unidos en la misma direccin.
Bruselas. El lder de CC OO ha negado que sea la Unin Europea la que impone a Espaa las polticas de recorte, sino que el Gobierno tiene margen de maniobra. No cabe la excusa de Bruselas

Las consecuencias.

Toxo ha avisado al Gobierno de las consecuencias de continuar con su poltica: "El dilogo puede convertir esta huelga en una oportunidad. Si es as, se puede reconvertir la situacin. S no habr un conflicto social creciente, que se har bien patente el prximo 1 de mayo".

La esperanza.

Toxo se ha referido del nuevo escenario que se abre tras la huelga. "El Gobierno tiene maana una magnfica ocasin para cambiar de rumbo, en dilogo con las organizaciones sociales. El Gobierno habla mucho del dilogo social, pero no lo cumple".


Spagna in tilt per lo sciopero generale (http://www.corriere.it/esteri/12_marzo_29/spagna-sciopero-generale_4268e7d6-7967-11e1-a69d-1adb0cf51649.shtml), 29 marzo 2012 | 15:45, Corriere della Sera


MILANO - Guerra di cifre sulle adesioni allo sciopero generale in Spagna, proclamato contro la riforma del mercato del lavoro: per i sindacati, l'adesione stata nelle prime ore della mattinata dell'85%, percentuale e dovrebbe scendere al 75% durante la giornata. Per l'esecutivo, invece, la protesta non ha avuto molto seguito, se si valutano i dati sui consumi elettrici, e sul funzionamento degli uffici pubblici, dei centri commerciali e degli sportelli bancari. Il direttore generale della Politica Interna Cristina Diaz ha segnalato che la normalit nei posti di lavoro molto elevata. Insomma, per il Governo l'adesione allo sciopero sicuramente inferiore a quella registrata nello sciopero di settembre 2010 contro la riforma Zapatero. I sindacati contestano le cifre del Governo: secondo i loro dati, la partecipazione nei turni notturni ha avuto picchi del 90% in alcuni settori. Nel settore scolastico, 70% dei lavoratori ha incrociato le braccia. E se i sindacati autonomi ritengono che l'adesione sia stata del 17%, nel settore aereo, alle 7 di mattina, erano operativi 246 voli in tutti gli aeroporti del paese. Un gruppo di circa 500 manifestanti ha marciato lentamente sulla Gran Via di Madrid, una delle principali strade commerciali della capitale, bloccando per un'ora circa il traffico. Chiusa anche l'Alhambra di Granada, il monumento pi visitato di Spagna.

Spanish Economy Disrupted as Unions Strike to Protest Rajoy Cuts (http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/03/29/bloomberg_articlesM1LNK01A74E901-M1N4C.DTL#ixzz1qW0Mr8le), Emma Ross-Thomas, 2012 Bloomberg News, Thursday, March 29, 2012, San Francisco Chronicle


March 29 (Bloomberg) -- Spanish transport, power demand and manufacturing were disrupted today in the first general strike against labor reforms and austerity policies since Prime Minister Mariano Rajoy took office three months ago.

Iberia, the Spanish unit of International Consolidated Airlines Group SA, said it canceled 65 percent of flights, while national power demand was 16 percent below that of a typical day, grid operator Red Electrica Corp SA data showed. At Volkswagen AG and Renault SA factories, 100 percent of workers followed the strike during the nightshift, the Comisiones Obreras union said in a statement.

The People's Party government "will not cede" to union demands to retract changes to labor rules, Budget Minister Cristobal Montoro said yesterday. Thirty percent of workers planned to strike, according to a poll by El Pais.

While Rajoy's measures have angered unions and undermined support for the party in a regional election on March 25, the government is still struggling to convince investors its policies are enough to restore the public finances and reduce a 23 percent jobless rate. Spanish 10-year borrowing costs have surged almost 50 basis points since the start of March.

"He has no choice," said Antonio Barroso, a political analyst at Eurasia Group in London and a former government pollster. "If he gives in, the markets will punish Spain. Rajoy has his back against the wall."


The latest labor overhaul goes further than the attempt by the Socialists to reduce the European Union's highest jobless rate, which amounts to 50 percent among young people. The bill makes it easier to cut wages, reduces unions' negotiating power and allows for lower firing costs.

Firn
03-30-2012, 08:26 PM
Football has a great emotional and financial impact on many Europeans. While I do not agree that it reflects the culture of a nation it is a rather interesting topic especially for a fan like me. In some ways from a financial point of view it looks like a smaller version of the Eurocrisis with a club Med and fiscally responsible Germany. (I will leave out the Premier, which is not on the continent and has sold out anyway :p).

Top 20 European clubs by revenue (http://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/Industries/Sports%20Business%20Group/UK_SBG_DFML2011.pdf)

Revenue does of course not equal income. The Spanish (http://www.insideworldfootball.biz/worldfootball/europe/9383-report-reveals-total-la-liga-debt-of-35-billion-euros) clubs have 3,500,000,000 € of debt, with 750 millions of them being in unpaid taxes and roughly 600 millions due to social security (poor players). The spanish government reacted relative mildly, causing furor in at least one country competiting at the highest level against them.


When faced with the prospect of the Spanish government waiving the collective €752m debt the nation's football clubs owe to the country's tax authorities, the reaction in Europe last week was one of outrage. The German tabloid Bild even asked how long the German taxpayer would be obliged to subsidise the wages of Lionel Messi and Cristiano Ronaldo.

And the best part from one of the greatest football managers of all times:


Uli Hoeness, the outspoken president of Bayern Munich, got to the point rather more quickly when asked about the proposal to excuse Spanish clubs their tax debt. "This is unthinkable," he said. "We pay them hundreds of millions to get them out the #### and then the clubs don't pay their debts."

Anyway personally I very worried about the state of the Italian football. Lost the 4th place in the Champions League due to an increasing weakness over the last ten years and terrible performances in the less prominent European league the last Report Calcio 2012 (http://www.figc.it/other/RC2012_Completo_LowRes.pdf) is a dismal read. Pretty much performance indicator bar debt has been going down. We stand now at a debt of 2,6 billion thanks to losses 400 million €. Our % of equity stands at a grand 5%... :rolleyes:

Financial fair play (http://www.uefa.com/uefa/footballfirst/protectingthegame/financialfairplay/index.html) can hardly come early enough :wry:

While the Serie A and La Liga have a massive amount of debt the Bundesliga (http://static.bundesliga.de/media/native/autosync/dfl_bl_wirtschaftssituation_2012_01-12_dt_72dpi.pdf) has a far smaller one of 600 millions (1/4th of the Serie A, 1/6th of la Liga) and has been also the most profitable. In this case almost all the good numbers are going up and bad ones down. Far from perfect but not comparable to our purgatorio (http://en.wikipedia.org/wiki/Purgatorio).

Of course my club has also quite some financial problems not considering the poor performance in the campionato. And that only two years after the triplete. (http://www.youtube.com/watch?v=hjdVomE_2V4) For excellent info go here (http://swissramble.blogspot.com/search/label/Inter).

Come Oriali - Una vita da mediano (http://www.youtube.com/watch?v=E9Y99UgaxhU). (Mediano: central midfielder, box-to-box player with high stamina, intelligence and discipline)

Firn
04-03-2012, 08:18 PM
Seems like the football - in the true European sense - topic did not cause much sparkle or perhaps you guys are still bussy reading the long papers. :D

Something more serious, I recently gave a look at Net international investment position (http://en.wikipedia.org/wiki/Net_international_investment_position) and the Macro around it. It is not much talked about but reflects a bit like a balance sheet the flows of captial and goods over a considerable arc of time.

The situation of the USA is nicely explained by this paper (2010) (http://www.bea.gov/scb/pdf/2011/07%20July/0711_iip.pdf).

A nice German paper (http://www.bundesbank.de/download/volkswirtschaft/mba/2008/200810mba_auslandsvermoegen.pdf) does have a good overview from the German point of view. More recent data comes from this paper (http://www.bundesbank.de/download/statistik/sdds/stat_auslandsvermoegen/sdds_auslandsvermoegen_jahr.pdf).

It is interesting to note that the people of "Germanic" Europe (Austria, Belgium, Denmark, Germany, Liechtenstein, Luxenburg, Netherlands, Norways, Switzerland minus the UK) have bar "neutral" Austria in general terms the role of creditor while the people from the rest of Europe are (their) debitors. So not only has much national money flown through EU channels to said nations but and into the recent firewalls but obviously (considering the various accounts deficts over the years) much private money went into states who currently suffer.

The five biggest debitors of NIIP in % GDP are according to the Wiki entry:

Greece -83.1[74]
New Zealand -90.1
Spain -87.1[79]
Ireland -97.8
Portugal -108.

Warren Buffet has touched the situation of the U.S on many occasions, perhaps best read in this collected wisdom (http://www.amazon.com/The-Essays-Warren-Buffett-Corporate/dp/0966446127/ref=sr_1_5?ie=UTF8&qid=1333485245&sr=8-5). Of course every intro. book about Macro has a good overview about the situation, be it the Mankiw (http://www.amazon.com/Principles-Macroeconomics-N-Gregory-Mankiw/dp/0324589999/ref=sr_1_1?s=books&ie=UTF8&qid=1333485454&sr=1-1) or Krugman (http://www.amazon.com/Economics-Paul-Krugman/dp/0716771586/ref=sr_1_2?s=books&ie=UTF8&qid=1333485562&sr=1-2). Surprisingly those are much cheaper in Europe.

Anyway this is what a positive cahs flow of 50.000 € (http://www.youtube.com/watch?v=fErNOiaXLPo) looks like - a "tragic error" (http://www.guardian.co.uk/football/2012/apr/02/andrea-masiello-match-fixing-serie-a?newsfeed=true) indeed. Grazie Andrè for **** our dear calcio even more. Match-fixing (http://espn.go.com/sports/soccer/news/_/id/7386459/cristiano-doni-acknowledges-match-fixing-italy) Doni has ironically been able to get out of jail into house arrest in the village of his wife in the midst of the Dolomites. Not a shabby place at all (http://www.youtube.com/watch?v=yyT6b-aSWfA).

Firn
04-05-2012, 12:09 PM
Finanzspaehre sollte Realwirtschaft dienen (http://www.nzz.ch/finanzen/nachrichten/die-finanzsphaere-sollte-der-realwirtschaft-dienen_1.16260879.html)


NZZ Online: Herr Chesney, Sie kritisieren, dass weltweit die Menge aller derivativen Finanzprodukte gefhrlich hoch ist.

Marc Chesney: Der Nennwert aller derivativen Finanzprodukte entspricht rund dem 12fachen des weltweiten Bruttoinlandproduktes (BIP). Das ist viel zu viel. Wenn diese Produkte nur als Absicherung dienen wrden, wie es in den Lehrbchern vorgesehen ist, dann sollten sie einen Anteil von vielleicht 10 bis 20 Prozent des BIP ausmachen. Aber sicher nicht 1200 Prozent.

Was fuer realwirtschaftliche Auswirkungen haben diese Derivate?

Angesichts der grossen Menge an Derivaten uebernimmt nur ein kleiner Teil davon seine ursprngliche Funktion der Absicherung. Der goersste Anteil erzeugt hingegen neue Risiken, was fuer die Realwirtschaft und die Gesellschaft letztlich problematisch ist. Diese Risiken entstehen aus dem Finanzsystem heraus. Dahinter steckt eine pyromanische Feuerwehrlogik. Die Investmentbanken verkaufen zu viele sogenannte Absicherungsprodukte und setzen damit falsche Anreize, die gefaehrlich sind fuer die Realwirtschaft und damit auch fuer die Gesellschaft.

Sadly the spirits called by the financial apprentice (http://www.youtube.com/watch?v=98VVhvfadYw&feature=related) with all their liquid transactions have created many risks to the real economy.

To much 'securities' designed to reduce risk creating big risks, the irony. 1200% of the world wide GDP in derivatives instead of 10-20% is indeed quite gross, I didn't knew the figure was that large :o.

Fuchs
04-05-2012, 02:56 PM
Finanzsphäre (~financial sector)

Surferbeetle
04-07-2012, 05:15 PM
Euro econ themes of the last week or so have included questions regarding the costs of the role of the state & elites in society, if the hoi polloi will continue to fund poor choices made by the same, monitoring and curtailing the activities of the heuschrecken, reactions to the curtailment of heuschrecken activities, and finding the proper balance point between growth and austerity.

Des centaines de Grecs rendent un dernier hommage au retrait qui s'est suicid (http://www.lemonde.fr/europe/article/2012/04/07/des-centaines-de-grecs-rendent-un-dernier-hommage-au-retraite-qui-s-est-suicide_1682253_3214.html), Le Monde.fr avec AFP | 07.04.2012 18h36 Mis jour le 07.04.2012 18h40


Des centaines de personnes ont rendu un dernier hommage samedi 7 avril au septuagnaire qui s'est suicid mercredi dans le centre d'Athnes. En quelques jours, le geste du retrait est devenu le symbole du dsarroi provoqu par la crise conomique en Grce. Aprs les funrailles, un rassemblement a t organis sur la place centrale de Syntagma, o le dfunt s'tait tir une balle dans la tte.


Dimitris Chrisoula s'tait suicid mercredi matin sous les yeux des passants sur la place Syntagma, thtre de la contestation qui secoue le pays depuis le dbut de la crise en 2010, quelques mtres du Parlement. Malade du cancer, selon la police, et vivant seul, il a laiss une lettre manuscrite accusant le gouvernement de l'avoir priv de ressources par les coupes imposes aux pensions de retraites, et l'assimilant l'excutif mis en place par les occupants nazis en 1941. "Je ne trouve pas d'autre solution pour en finir dignement avant de devoir commencer faire les poubelles pour me nourrir", a-t-il crit.

458,615 register for household tax ahead of March 31 deadline (http://www.independent.ie/national-news/458615-register-for-household-tax-ahead-of-march-31-deadline-3066099.html), By Independent.ie reporters and Lyndsey Telford, Thursday March 29 2012


A total of 458,615 households had registered for the tax out of an estimated 1.6 million due to make the payment, according to figures released by the Department of the Environment this afternoon.


With registration deadline for the charge just two days away, nine TDs from the Technical Group made a last-ditch appeal to the two-thirds of the population who have not yet paid.

Socialist Party TD Joe Higgins urged them to maintain the boycott.

Spekulationen ber gezielten Computerangriff auf Bast (http://www.faz.net/aktuell/finanzen/aktien/nach-gescheitertem-boersengang-spekulationen-ueber-gezielten-computerangriff-auf-bats-11701962.html), Von NORBERT KULS, NEW YORK, 29.03.2012, FAZ


:eek:


Der geplatzte Brsengang der elektronischen Handelsplattform Bats Global Markets am vergangenen Freitag fhrt an der Wall Street zu Verschwrungstheorien. Nach einer Analyse des Datendienstleisters Nanex hat es sich bei dem raschen Kurssturz der Bats-Aktie zur Handelserffnung um einen gezielten Angriff eines Computerhandelsprogramms gehandelt.

Heuschreckendebatte (http://de.wikipedia.org/wiki/Heuschreckendebatte), by wikipedia


Der Begriff Heuschreckendebatte wurde im April und Mai 2005 geprgt. Auslser war eine uerung des damaligen SPD-Vorsitzenden Franz Mntefering. Er verglich das Verhalten mancher anonymer Investoren mit Heuschreckenplagen. Heuschrecken gelten im deutschen politischen Sprachgebrauch seitdem als eine abwertende Tiermetapher fr Private-Equity-Gesellschaften sowie gegen andere Formen der Kapitalbeteiligung mit mutmalich zu kurzfristigen oder berzogenen Renditeerwartungen, wie Hedge-Fonds oder sogenannte Geierfonds.

Barnier hits out at lobbying rearguard, by Alex Barker in Brussels and Brooke Masters in London, April 2, 2012 6:48 pm, FT, www.ft.com


Europes most senior financial regulator has hit back at rearguard lobbying by the hedge fund and private equity industries, saying he will not be intimidated by an attempt to undermine a deal to regulate the industry for the first time.

The fightback from Michel Barnier, the European Union commissioner for the single market, comes after the industry publicly raised the alarm over technical standards proposed to implement the alternative investment fund managers directive (AIFMD).

Alternative Investment Fund Managers Directive (http://en.wikipedia.org/wiki/Alternative_Investment_Fund_Managers_Directive) by wikipedia


The Alternative Investment Fund Managers Directive COM (2009) 20 is a proposed European Union law which will put hedge funds and private equity funds under the supervision of an EU regulatory body. These kinds of business vehicle have not been subject to the same rules to protect the investing public as mutual and pension funds. Lack of financial regulation is widely seen to have contributed to the severity of the global financial crisis. The European Parliament voted through a final text of the Directive on 11 November 2010.[1] The proposals have to be written into national statute books by 2013, and only then will they really begin to bite.[2]

Wolfson Prize: Schoolboy plan to save euro commended (http://www.bbc.co.uk/news/business-17598550), 3 April 2012 Last updated at 11:31 ET, BBC


The prize sought to find the best answer to the following question: "If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?"


An 11-year-old boy's plan to save the eurozone has been commended in a major competition that has attracted some of the world's top economists.

The Secret To Germany's Low Youth Unemployment (http://www.npr.org/2012/04/04/149927290/the-secret-to-germanys-low-youth-unemployment?ps=cprs), by ERIC WESTERVELT, April 4, 2012, NPR


Germany's dual system trains 1.5 million people annually. Across the board, from bakers and car mechanics to carpenters and violin-makers, about 90 percent of apprentices successfully complete their training, German government figures show. The apprenticeships vary in length, between two and three-and-a-half years. The average training "allowance" is 680 euros a month (approximately $900), and about half of the apprentices stay on in the company that trained them.


But Rolf von Luede, an economic sociologist at the University of Hamburg, isn't so sure the German system would translate well to other parts of Europe. He notes that German industry and its powerful trade unions have a unique relationship marked by what he calls "antagonistic cooperation," a far cry, he says, from the more confrontational policies pursued by unions in Spain and Britain.

"One of the crucial aspects of the German dual system is that it is created by a cooperation of the employers and the trade unions," von Luede says. "[It is] really a model that ensures that the qualifications that are needed within the industry are supported by this apprenticeship."

Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive (http://mobile.bloomberg.com/news/2012-04-04/draghi-scotches-ecb-exit-talk-as-spain-keeps-debt-crisis-alive?category=%2Fnews%2Feconomy%2F), By Jeff Black, April 05, 2012 3:45 AM EDT, Bloomberg News


Speaking just hours after Spanish Prime Minister Mariano Rajoy warned his country faces extreme difficulty, Draghi said yesterday that talk of the ECB starting to withdraw its support for euro-area banks is premature. At the same time, in a nod to growing inflation concerns in Germany, he said the ECB wont hesitate to counter price risks if needed. Policy makers left their benchmark rate at a record low of 1 percent.

The ECB has expanded its balance sheet by about 30 percent since Draghi took office in November, pumping more than 1 trillion euros ($1.3 trillion) into the banking system in a bid to stem the debt crisis. Pressure to unwind the emergency measures is rising in Germany, where workers are winning some of the biggest pay increases in two decades, threatening to stoke inflation.

Premature Bundesbank calls for an ECB exit strategy have now triggered a new round of market wobbles, with a focus on Spain, said Holger Schmieding, chief economist at Berenberg Bank in London. The risk of a new irrational market panic remains serious.

Sports investments....

FC-St.-Pauli-Anleihe: 6% fr echte Fans (http://www.gevestor.de/details/fc-st-pauli-anleihe-6-fuer-echte-fans-506080.html)


Die FC-St.-Pauli-Anleihe bietet einen Zinssatz von 6 %. Die Laufzeit der Anleihe betrgt sechs Jahre und acht Monate und das Volumen ist auch sechs Mio. Euro festgelegt.

Bei der 6 % FC-St.-Pauli-Anleihe 2011/2018 handelt es sich um festverzinsliche Inhaber-Schuldverschreibungen, die von der Millerntorstadion Betriebs GmbH & Co. KG begeben werden.

Die Zinsen der FC-St.-Pauli-Anleihe werden jeweils nachtrglich zum 1. Juli eines jeden Jahres ausgezahlt.

Surferbeetle
04-07-2012, 08:09 PM
The £250,000 (€286,000) Wolfson Prize, a shrewd approach that i suspect would find with Margaret Thatcher (http://en.wikipedia.org/wiki/Margaret_Thatcher)'s approval :wry:

The Wolfson Economics Prize (http://www.policyexchange.org.uk/component/zoo/item/wolfson-economics-prize) at the UK think tank Policy Exchange (http://www.policyexchange.org.uk/about-us)


The Wolfson Economics Prize, which challenges the world’s brightest economists to prepare a contingency plan for a break-up of the Eurozone, today unveiled a shortlist of five finalists. The shortlisted entries, though all very different from each other, provide valuable ideas about how best to manage a member state leaving the euro.

The finalists:

Catherine Dobbs



Catherine received a BA in engineering from Oxford University. She subsequently worked in quantitative research at NatWest Investment Management and Gartmore, developing investing and trading algorithms. She now divides her time between the UK and Asia, and is an active personal investor.


The NEWNEY approach to unscrambling the Euro (http://www.policyexchange.org.uk/images/WolfsonPrize/wep%20shortlist%20essay%20-%20catherine%20dobbs.pdf)



This document has been written as a contribution to the debate for what might be a “Plan B” in case one of more countries decided to leave the Economic and Monetary Union but also as a mechanism for the Union removing the risk of speculative attacks.


A Two-Euro Plan to Break Up the Euro Zone (http://www.businessweek.com/articles/2012-04-05/a-two-euro-plan-to-break-up-the-euro-zone), By Peter Coy on April 05, 2012, Bloomberg Business Week


Jonathan Tepper



Jonathan Tepper is the co-author of the NY Times bestseller Endgame: The End of the Debt Supercycle, a book on the sovereign debt crisis. Jonathan is the Chief Editor of Variant Perception, a macroeconomic research group that caters to asset managers. He is also the portfolio manager of an equity long/short hedge fund at Hinde Capital. Jonathan is an American Rhodes Scholar. Since leaving Oxford, Jonathan has worked as an equity analyst at SAC Capital and as a Vice President in proprietary trading at Bank of America. He earned a BA with Highest Honors in Economics and History from the University of North Carolina at Chapel Hill, and a M.Litt in Modern History from Oxford University.


A Primer on the Euro Breakup: Default, Exit and Devaluation as the Optimal Solution (http://www.policyexchange.org.uk/images/WolfsonPrize/wep%20shortlist%20essay%20-%20jonathan%20tepper.pdf)



“Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else.”
President Lyndon B. Johnson



Many economists expect catastrophic consequences if any country exits the euro. However, during the past century sixty-nine countries have exited currency areas with little downward economic volatility. The mechanics of currency breakups are complicated but feasible, and historical examples provide a roadmap for exit. The real problem in Europe is that EU peripheral countries face severe, unsustainable imbalances in real effective exchange rates and external debt levels that are higher than most previous emerging market crises. Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable. Exiting from the euro and devaluation would accelerate insolvencies, but would provide a powerful policy tool via flexible exchange rates. The European periphery could then grow again quickly with deleveraged balance sheets and more competitive exchange rates, much like many emerging markets after recent defaults and devaluations (Asia 1997, Russia 1998, and Argentina 2002).

Roger Bootle


Bio (http://en.wikipedia.org/wiki/Roger_Bootle) by wikipedia


Roger Bootle is an economist and a weekly columnist[1] for the Daily Telegraph. He is currently the Managing Director of Capital Economics, an independent macroeconomic research consultancy.


After studying at Merton and Nuffield Colleges, Oxford,[2] Bootle began his career in the academic world as a lecturer in Economics at St Anne’s College, Oxford.


Leaving the euro: A practical guide (http://www.policyexchange.org.uk/images/WolfsonPrize/wep%20shortlist%20essay%20-%20roger%20bootle.pdf), A submission for the Wolfson Economics Prize MMXII by Capital Economics, Lead author: Roger Bootle



This report is a practical document designed to answer the question:

If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?

Accordingly, each of the main sections concludes with recommended actions, which are then brought together at the end of the paper in a step-by- step plan.

Jens Nordvig


Planning for an orderly break-up of the European Monetary Union (http://www.policyexchange.org.uk/images/WolfsonPrize/wep%20shortlist%20essay%20-%20jens%20nordvig.pdf), Jens Nordvig (Lead Author), Dr Nick Firoozye, Nomura Securities



Two types of break-up scenarios for the Eurozone are possible, from a practical perspective: A very limited break-up scenario, involving the exit of one or a few smaller countries, and „big bang‟ break-up scenario, which would see the Euro cease to exist. A sequential „onion peeling‟ type of break-up process, which would see only stronger core countries remain in the eurozone, is highly unlikely to be possible as the process would become uncontrollable around the exit of a larger Eurozone country. Policy makers should therefore plan primarily for the very limited break-up as well as the full-blown break-up scenario. The latter could be highly disruptive from a macroeconomic stand- point in the absence of any detailed and thoughtful advance planning.

Neil Record


If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership? (http://www.policyexchange.org.uk/images/WolfsonPrize/wep%20shortlist%20essay%20-%20neil%20record.pdf)



In this essay, I have sought to design a route out of the Euro for one or more countries, which will minimise economic, financial and political damage, and allow growth and prosperity to replace crisis and austerity.

Firn
04-10-2012, 10:19 AM
Some news from Spain:

La deuda externa de Espaa creci en 2011 hasta un rcord de 1,78 billones (http://economia.elpais.com/economia/2012/04/09/actualidad/1333997260_130398.html)


El volumen de la deuda externa espaola representa ya el 165,4% del producto interior bruto (PIB), uno de los niveles ms altos de todo el mundo. La deuda externa comprende todos los pagos pendientes con el exterior de principal y de intereses. Incluye tanto la deuda pblica como la privada. De hecho, el grueso de la deuda externa es privada y solo un 16% pblica.

...

La deuda externa haba cado en 2010 por primera vez en una dcada por la reduccin del dficit corriente, las repatriaciones de capital y la venta de activos por parte del sector privado. Eso se interpretaba como un sntoma de que la economa estaba reaccionando y se empezaban a corregir los desequilibrios. En 2011, segn las cifras que acaba de hacer pblicas el Banco de Espaa, la deuda externa no solo volvi a crecer, sino que el aspecto ms preocupante es la creciente dependencia de la autoridad monetaria.

Compared to Italy the debt of Spain is mostly financed by 'foreign' creditors. That the external debt increased after the slight and unique reduction in 2010 and is financed to a greater degree by the ECB is bad news indeed.

El envo de dinero de emigrantes hacia Espaa bate su rcord (http://economia.elpais.com/economia/2012/04/09/actualidad/1333998687_567670.html)

Money send home from abroad was very important for Spain and Italy in darker days and this latest record seems to fit almost too well with the crisis in Spain.

P.S: The forum software ignores pasted è,ä and so forth making the reading more difficult then it should be. Is it possible to fix that?

Thanks

Firn
04-10-2012, 11:21 AM
I wanted to add that:

El envo de dinero de emigrantes hacia Espaa bate su rcord (http://economia.elpais.com/economia/2012/04/09/actualidad/1333998687_567670.html)

Money send home from abroad was very important for Spain and Italy in darker days and this latest record seems to fit almost too well with the crisis in Spain. One of my ancestors was btw an Americano, working in gold mines before returning home. He was a tall strong man with very big hands who sent most of his hard earned money to his little, poor alpine village. His story has been repeated in recent times all over the developed world, where immigrants support their relatives living still in developing countries. Recently I read that the Chinese immigrants in Italy are sending per capita roughly 12.000 € home, quite a massive amount compared to all the other ethnic groups. Their saving rate might be even higher then back home.

Of course for a proud nation like Spain it must almost feel like the wheel of time has been turned back a bit.

davidbfpo
04-10-2012, 12:27 PM
Firn you asked:
P.S: The forum software ignores pasted , and so forth making the reading more difficult then it should be. Is it possible to fix that?

This issue has appeared before, usually when JMM & Stan start an exchange in Finnish and my understanding is it cannot be changed.

davidbfpo
04-10-2012, 12:39 PM
Firn you referred and I cite in part:
His story has been repeated in recent times all over the developed world, where immigrants support their relatives living still in developing countries.

This economic aspect of 'kith & kin' has pooped up before; there is a thread on the population and political aspects of 'kith & kin' on:http://council.smallwarsjournal.com/showthread.php?t=8829

In the latest issue of the RUSI Journal Dr. Jonathan Eyal, a political analyst, has an article 'The EU's Alternative Futures' amidst the generally grim prose was this surprise:
..the better educated from the poor EU states will migrate outside Europe altogether; the flow has already started from Spain to Latin America and from Portugal to its former colonies of Brazil, Angola and Mozambique.

The Portuguese aspect puzzled me, having visited a 'new town' built after 1974 in northern Portugal to accommodate the refugees from Angola and Mozambique. Given the manner in which those refugees left, it is noteworthy others are now prepared to return.

Firn
04-12-2012, 11:08 AM
Davidfpo: Thanks for the information. Diversity is the norm even when it comes to other Indoeuropean languages, it is a bit sad that the software can not handle that.

-----

The kith & kin aspect is very interesting indeed. I might add that the article stated that the foreign outflow per capita is higher in the poor South then in the richer North. At first this seems surprising but perhaps it might be a sign that many in the North set up roots and family, deciding to stay while those working in the South (agriculture etc) just sleep and work there planning to set up their family elsewhere.

Surferbeetle
04-22-2012, 07:55 PM
Hollande steals poll march on Sarkozy, By Tom Burgis, Hugh Carnegy and James Boxell in Paris and Scheherazade Daneshkhu in Tulle, April 22, 2012 8:11 pm, Financial Times, www.ft.com


Following a bitter campaign marked by opposing visions of how to steer France’s debt-laden economy through the eurozone crisis, the Socialist challenger won 27.5 per cent of the votes, according to a projection based on partial results published by the interior ministry on Sunday evening.

The centre-right Mr Sarkozy, who is seeking to avoid adding his name to the string of European incumbents swept aside since the start of the sovereign debt crisis, secured 26.6 per cent support.

But the shock of the night was a record 19.9 per cent performance by the National Front’s Marine Le Pen, who outdid pollsters’ predictions after capitalising on widespread French discontent with the mainstream poilitical elite.


Ms Le Pen has already drawn Mr Sarkozy to the right with her broadsides against immigration. Like her counterpart on the far left, she has also tapped a lack of enthusiasm for the two leading contenders, whom she dubbed “Siamese twins”.

She comfortably saw off a challenge for third place from Jean-Luc Mélenchon of the Left Front. His oratory and anger drew impassioned crowds to his rallies. His 11.7 per cent was lower than many of his supporters had expected but they will still hope he can pull the less radical Mr Hollande to the left in exchange for second-round support.

The 8.5 per cent garnered by François Bayrou, a centrist, could yet make him the kingmaker.

Runoff election is May 6th. The CAC 40 (http://www.bloomberg.com/quote/CAC:IND) will be of interest tomorrow...meanwhile, in Spain...

Spain's Lost Generation Looks Abroad (http://www.businessweek.com/articles/2012-03-29/spains-lost-generation-looks-abroad#p1), By Ben Sills on March 29, 2012, Bloomberg Businessweek


Artells worked part-time to support herself through her undergraduate degree and finished her doctoral thesis last July. Her options in Spain consisted of a job as a lab technician or a sales representative for a drug or chemical producer, she says. Instead, she got the university post in southern France studying the toxicity of nano-size particles of titanium and cerium. She earns more than she would for a similar position in Spain, if she could even find one. “I don’t know what happened,” Artells says. “I worked. I went to university. I studied. And now if you want a job, you have to take something totally unrelated to your qualifications, or you have to go abroad. For what have they trained us so much?”

Spain’s mistake, says Rafael Doménech, chief economist for developed countries at BBVA Research and a former adviser to Zapatero, was to encourage the training of researchers before the economy was ready to put them to work. “That strategy was not well designed,” he says. Spain’s economy has less capacity to employ the most-skilled because of its continued high proportion of small companies, despite the rise of a few giants like Telefónica (TEF) and Banco Santander (STD). About 28 percent of jobs in Spain were at companies with fewer than 20 workers in 2006, according to BBVA. These companies generally operate in lower-tech industries. For Greece and Portugal, the same figure was more than 30 percent. For Germany it was only 14 percent. Spain impeded the growth of its companies with rigid labor rules and costly regulation during the boom years. The country ranks 44th on the World Bank’s ease of doing business index, between Puerto Rico and Rwanda.

Prime Minister Rajoy has little time to get the economy moving with his plan to make labor more flexible, overhaul the public sector, and turn Spain into a viable member of the euro zone, says Megan Greene, head of European economics at Roubini Global Economics. “You don’t really get a second shot,” she says. “It’s a long road. It’s questionable whether Spain can do it.” One bright spot: Exports have risen 12 percent since the crisis began in 2008.

El Rey pide perdón por su viaje de caza en Botsuana: 'Lo siento mucho. No volverá a ocurrir' (http://www.elmundo.es/elmundo/2012/04/18/espana/1334732412.html), Ana Romero | Agencias | Madrid, Actualizado miércoles 18/04/2012 13:55 horas, El Mundo


"Agradezco al equipo médico y a la clínica cómo me ha tratado. Estoy deseando retomar mis obligaciones. Lo siento mucho. Me he equivocado y no volverá a ocurrir. Gracias a todos vosotros por haber estado aquí durante tanto tiempo", ha dicho un apesadumbrado Rey ante la cámara que grababa su salida de la habitación.


Se había especulado mucho sobre si el Rey haría alguna declaración o no, a tenor de las críticas recibidas y que han ido en aumento. De hecho, la portavoz del PSOE en el Congreso, Soraya Rodríguez, reclamó ayer directamente al Rey que hiciera alguna declaración pública sobre su polémico viaje a Botsuana, dado que está al tanto del "malestar, la incomprensión y la indignación" que ha generado en una parte de la sociedad española, en una semana muy delicada para España desde el punto de vista económico.

Firn
04-23-2012, 09:56 AM
Terrible economic news from Spain (http://economia.elpais.com/economia/2012/04/23/actualidad/1335171015_901817.html)


En trminos anuales, el PIB ya est en terreno negativo (-0,5%). Segn los servicios de estudios privados, esa comparacin anual llegar a superar el -2% a lo largo de 2012. Es la segunda recesin que sufre la economa espaola en poco ms de tres aos, aunque en 2009, despus del colapso internacional, la cada fue ms pronunciada (-3,7%).

---

Spain needs all but more austerity and is as a state completely different case from Greece as the former was always fiscally very conserative and had a very low public debt (although high private one).

---


By the way, I managed to buy stock in Repsol a bit over a week ago only to open up the homepage of El Pais with dear Kirchner trumpeting out the nationalicaton of YPF. Arguably the best timing ever, even if the stock price already had in my view priced in that state robbery.

La battalla que Argentina s gan (http://economia.elpais.com/economia/2012/04/20/actualidad/1334953475_769034.html)

Clearly I did not expect this man,Axel Kiciloff (http://www.youtube.com/watch?v=aSWA2SAgZno) to have such an influence on Kirchner which ironically profited personally along with her former husband by the privatisation of YPF. Then again I should not have invested with such exposure to persons cooking the books. (http://www.economist.com/node/21548229)

Good luck with foreign investment after things like that (http://economia.elpais.com/economia/2012/04/21/actualidad/1335029884_592382.html)


El documento describe con detalle los momentos de tensión que rodearon la toma de control de la compañía por parte de las autoridades argentinas, el pasado lunes. “Mientras estaba todavía hablando la presidenta [Fernández de] Kirchner, presentando la Ley de Utilidad Pública, el ministro [Julio] de Vido, el viceministro [Axel] Kicillof y otras personalidades acompañadas de agentes de seguridad armados, penetraron por la fuerza en la sede bonaerense de YPF y expulsaron, con violencia física y amenazas, a los 15 ejecutivos españoles presentes, tras concederles solamente cinco minutos para recoger sus pertenencias personales”

Antes del asalto, agrega la nota, “las fuerzas de seguridad había cortado todas las comunicaciones de la sede de YPF por teléfono, móviles o Internet. Posteriormente, algunos de los expulsados fueron buscados por las fuerzas de seguridad y duramente interrogados en el intento de encontrar argumentos contra Repsol. Los españoles y sus familias, visiblemente conmocionados y asustados, se refugiaron en la residencia del director de Repsol para Argentina hasta su repatriación”..

Not only they carry not the biggest stick, they even speak loudly and insult. This is of course not going down well in Spain but neither in the US or the EU. I just can not believe the sheer chutzpah under the personal lead of a minister and a vice-minister...

---

A very interesting piece:

Fed watch (http://economistsview.typepad.com/)



All of this is one more reason to prefer the NGDP path target promoted by Scott Sumner and his merry Market Monetarists. It might prove difficult in practice to target inflation without paying some especial attention to wage growth. But a central bank can target the path of aggregate expenditure without playing favorites about who pays what to whom. Simple neutrality by the central bank in the contest between capital and labor would be a huge improvement over the status quo.

Note that even if the central bank is no longer playing "favorites", monetary policy would still have a distributional impact. For example, reverting to the pre-recession path of nominal spending would likely entail a temporarily higher rate of inflation than currently expected. And higher than expected inflation will indeed create some winners and losers:

However, the biggest losers are creditors who are almost by definition wealthy, since people owe them money. If a creditor has lent out $100 million at 2 percent interest (e.g. buying a 10-year U.S. or German government bond) and the inflation rate rises from 2 percent to 4 percent, this creditor has lost an amount equal to 100 percent of his expected income or 2 percent of his wealth. This is a far larger loss than any worker could experience as a result of this increase in the inflation rate.

Who would be the winners?

Also, most workers are debtors to some extent. They are likely to have mortgage debt, credit care debt, student loan debt and or car debt. A higher rate of inflation means that they can repay this debt in money that is worth less than the money they borrowed.

And once again, we get to the same place - changing monetary policy at this juncture would likely have significant impacts on the distribution of income and wealth. And an unwillingness to alter this current distribution is likely another reason we would not expect the Federal Reserve to change their basic policy framework away from the current 2 percent inflation target regime.

Surferbeetle
04-26-2012, 12:45 AM
Firn,

We will have to keep on eye on how the nationalization of Respol plays out. Have you run a pre-nationalization analysis that you would be willing to share?

I have been looking at the Euro financial sector....low, low prices...but for a reason :eek:

Speaking of banks, here is some interesting work on the globalization and interconnectedness of finance:


Bloomberg: “Money, Power & Wall Street” “Takes No Prisoners” (http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/money-power-wall-street/bloomberg-money-power-wall-street-takes-no-prisoners/), April 23, 2012, 1:45 pm ET by Azmat Khan


FRONTLINE’s four-hour epic on the global financial crisis — the first two hours of which air tomorrow evening — goes inside the struggles to rescue and repair a shattered economy, exploring key decisions, missed opportunities and the unprecedented and uneasy partnership between government leaders and titans of finance.

“Money, Power and Wall Street is demanding — this isn’t Finance for Dummies,” Evans writes in the review. “But it’s a compact and thorough lesson.”

Episode 1 and Episode 2 are posted at the PBS Frontline Money, Power, and Wall Street (http://www.pbs.org/wgbh/pages/frontline/money-power-wall-street/) website

Firn
04-26-2012, 11:58 AM
Firn,

We will have to keep on eye on how the nationalization of Respol plays out. Have you run a pre-nationalization analysis that you would be willing to share?


I do this stuff with small notes and mental number crunching, however I made four key prediction about YPF which all were dead wrong:

1) I believed that Kirchner&Co had learned from the poor performance of their nationalized Aerolneas Argentinas. If not:

2) Price controls and the weak peso created their negative energy balance, by reducing the incentives to invest and making imports more expensive, not Repsol per se. If not:

3) I assumed that they would pay for the shares like they did with Aerolinas. If not:

4) At least it would be only roughly 25% of YPF gone. It never crossed my mind that they would just take the shares from Repsol, leaving the other shareholders unharmed.

So it pretty much went perfectly wrong and the safety margin has completely gone :D

Surferbeetle
04-28-2012, 05:41 PM
...is pretty tough. The market rewards and punishes and i have been on both sides of this type of education :D :eek:


I do this stuff with small notes and mental number crunching, however I made four key prediction about YPF which all were dead wrong:

1) I believed that Kirchner&Co had learned from the poor performance of their nationalized Aerolneas Argentinas. If not:

2) Price controls and the weak peso created their negative energy balance, by reducing the incentives to invest and making imports more expensive, not Repsol per se. If not:

3) I assumed that they would pay for the shares like they did with Aerolinas. If not:

4) At least it would be only roughly 25% of YPF gone. It never crossed my mind that they would just take the shares from Repsol, leaving the other shareholders unharmed.

So it pretty much went perfectly wrong and the safety margin has completely gone :D

Thanks for sharing your investment thesis, good learning/practice for how to develop investment them.

The Spanish company Repsol YPF SA (http://en.wikipedia.org/wiki/Repsol_YPF) (company website (http://www.repsol.com/es_en/)) is familiar to me via my travels and through their sponsorship of "Doctor" Valentino Rossi (http://en.wikipedia.org/wiki/Valentino_Rossi) (while puttering around on my motorcycles i dream :wry: ) and I am aware that Repsol took over Argentina's YPF (http://en.wikipedia.org/wiki/YPF#Operations) in 1999; so let's see if we can add some background to your thesis via a quick (free time is tight) internet drive-by?

Oil Overview

There are apparently eight oil refineries in Argentina with a capacity of 625,165 barrels per day. With today's FT's report of Brent at $119.83 USD, and wrongly assuming 100% operational output, that works out to potential daily sales of $74,913.521.95 USD before labor, material, equipment, overhead, and profit costs. Repsol-YPF owns three of these refineries (La Plata, Luja'n de Cuyo, and Plaza Huincul - startup date 1919) with the potential for 331,690 barrels per day and potential daily sales (not including costs) of $39,746.412.70 USD. 'Proved' Argentinian oil reserves are estimated at 2.5 billion barrels in size, while shale oil reserves are estimated at an additional 150 million barrels and there is a report of a discovery called Vaca Muerta, which may hold 927 million barrels. This information is of interest when attempting to forecast future YPF revenues due to oil. With the 100 day moving average currently at $116.40, and the 200 day moving average at $113.60, Javier Blas of the FT forecasts that between seasonal maintenance of refineries, price differences between crude oil grades, and futures contracts any falls in oil prices will be short lived.



Wikipedia - Argentina's Refineries http://en.wikipedia.org/wiki/List_of_oil_refineries#Argentina




EIA - Argentina Country Study http://205.254.135.7/countries/cab.cfm?fips=AR




Oil & Gas Journal (OGJ) - http://www.ogj.com/index.html



FT Commodities - http://www.ft.com/intl/markets/commodities




Support for oil prices weakens – for now, By Javier Blas, Commodities Editor, April 20, 2012 10:29 am, Financial Times, www.ft.com


Natural Gas Overview

Argentina's substantial natural gas reserves are estimated at 13.4 trillion cubic feet (Tcf) and 774 Tcf of shale gas. YPF competes with Total Austral, CNOOC-affiliate Pan American Energy, Petrobras (Brazil), Pluspetrol (Argentina), Tecpetrol (Argentina), and Apache Energy (U.S.) for natural gas.



EIA - Argentina Country Study http://205.254.135.7/countries/cab.cfm?fips=AR


Political Risk Overview

Ms Fernandez' appears to be interested in achieving national self-sufficiency in oil and gas production, and it was claimed that Repsol YPF SA did not reinvest enough of its YPF profits to boost Argentinian production. By circumventing rule of law issues via nationalization she invites an international backlash...whose scope, breadth, and composition remains to be seen and which could potentially harm a weak nation still recovering from a financial meltdown in 2003.

The Expropriation Law will apparently be used to determine how to compensate Repsol for the loss of it's 51% stake in YPF.



Argentina risk: Alert - YPF's expropriation fuels investor concerns, April 18th 2012, Economist Intelligence Unit, www.eiu.com




Repsol weighs strategy after loss of YPF (http://mobile.reuters.com/article/idUSBRE83Q0FB20120427?irpc=932), By Tracy Rucinski, Fri, Apr 27 06:25 AM EDT, Reuters




Wikipedia - Argentine economic crisis (1999–2002) http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999–2002)


Technical Overview

Repsol [ REP.MC (Madrid), REP.BA (Buenos Aires) ] stock data in Euro (and as of 27 April 2012) includes a 52 week high of 24.23, 52 week low of 13.92, April 27th 2012 close at 14.70, a tangible book value of 12.90, a 7.5% dividend paid on January 10th 2012, and a beta of 0.9876 as compared to the IBEX 35 Composite Index.

I usually download stock data via google and interrogate the heck out of it via excel...however, no joy with google (i can only find data for the ADR) and i am presently unaware of how to ask the FT interactive chart to reveal the 15 day, 50 day, 100 day, 200 day, and 252 day moving average for share price and volumes....hints would be appreciated.



Repsol, Home > Shareholders and investors > Financial information > Repsol on the stock exchange > Interactive chart, http://www.repsol.com/es_en/corporacion/accionistas-e-inversores/informacion-economico-financiera/Repsol_YPF_en_bolsa/grafico/default.aspx

Surferbeetle
04-28-2012, 09:39 PM
Oil Overview

There are apparently eight oil refineries in Argentina with a capacity of 625,165 barrels per day. With today's FT's report of Brent at $119.83 USD, and wrongly assuming 100% operational output, that works out to potential daily sales of $74,913.521.95 USD before labor, material, equipment, overhead, and profit costs. Repsol-YPF owns three of these refineries (La Plata, Luja'n de Cuyo, and Plaza Huincul - startup date 1919) with the potential for 331,690 barrels per day and potential daily sales (not including costs) of $39,746.412.70 USD. 'Proved' Argentinian oil reserves are estimated at 2.5 billion barrels in size, while shale oil reserves are estimated at an additional 150 million barrels and there is a report of a discovery called Vaca Muerta, which may hold 927 million barrels. This information is of interest when attempting to forecast future YPF revenues due to oil. With the 100 day moving average currently at $116.40, and the 200 day moving average at $113.60, Javier Blas of the FT forecasts that between seasonal maintenance of refineries, price differences between crude oil grades, and futures contracts any falls in oil prices will be short lived.



Wikipedia - Argentina's Refineries http://en.wikipedia.org/wiki/List_of_oil_refineries#Argentina




EIA - Argentina Country Study http://205.254.135.7/countries/cab.cfm?fips=AR




Oil & Gas Journal (OGJ) - http://www.ogj.com/index.html



FT Commodities - http://www.ft.com/intl/markets/commodities




Support for oil prices weakens – for now, By Javier Blas, Commodities Editor, April 20, 2012 10:29 am, Financial Times, www.ft.com




Ok...the value of information is what one pays for it, i suppose. :wry:

Was not as clear as i could have been and i have made a number of mistakes on my rough order of magnitude cost estimate. By not explicitly accounting for the value/benefits of refined products versus the costs of labor, material, equipment, overhead, and profit my estimated values may be substantially off and my shortcut may not be valid.



Oil sells for $119.83 USD per barrel of Brent, unrefined. Argentina produces Escalante, Medanito, and Rincon grades which will vary in price from Brent.



Refining a barrel of oil produces a number of products which ascend the value chain and are higher in price than oil. With 42 gallons of oil in a 'barrel of oil' (and depending upon the grade), a barrel of oil will yield ~19 gallons of gasoline, ~10 gallons of diesel, ~ 4 gallons of jet fuel/kerosene, etc.



References



Wikipedia - List of crude oil products, http://en.wikipedia.org/wiki/List_of_crude_oil_products




How Many Gallons of Gasoline in a Barrel of Oil?, Thursday, February 08, 2007, Fat Knowledge For Your Fat Brain, http://fatknowledge.blogspot.com/2007/02/how-many-gallons-of-gasoline-in-barrel.html




What Fuels Are Made From Crude Oil? EIA, http://www.eia.gov/kids/energy.cfm?page=oil_home-basics#oil_refining-basics




Cost Estimates (Rough Order of Magnitude vs Detailed), UT-Austin, http://www.utexas.edu/pmcs/services/cost.html

Surferbeetle
04-29-2012, 01:23 AM
Platts Methodology and Specifications Guide, Crude Oil (latest update: April 2012)

http://www.platts.com/IM.Platts.Content/methodologyreferences/methodologyspecs/crudeoilspecs.pdf


Platts assesses latin american crude grades and publishes the differentials to their benchmark. Most transactions are concluded on a differential to Wti.

The rollover of the Wti benchmark is done on the first day after the 25th day of every month. Platts uses Wti 2nd line for all latin crude assessments.

All latin crude oil assessments reflect market-on-close (mOc) values at 3:15 Pm eastern time. An explanation of the mOc methodology can be found elsewhere in this document. Please check the table of contents (also see related specifications document titled “americas crude oil specifications guidelines”).

Price assessments for latin crudes are basis FOB the loading terminal, and do not include top-off charges. The minimum cargo volume is 350,000 bbl. The assessment window for all latin american crudes is 15-45 days forward from date of publication.

State of plays: Argentina, Repsol & the rise of energy nationalism, Featuring Richard Swann, Robert Perkins, and William Powell, April 27, 2012 09:30:00 EST (14:27 mins), Platts, http://www.platts.com/videos/2012/apr/argentinarepsol


The Argetinian goverment's decision to re-nationalize the Repsol-owned YPF has exposed the ongoing battle between private and national oil & gas companies.Richard Swann and Robert Perkins and William Powell discuss the significance of the "Dead Cow" shale formation in the forced takeover; the questions raised over global investment opportunities for IOCs; China's ongoing acquisition of foreign energy assets; & the global trends in energy nationalisation.

Surferbeetle
04-29-2012, 03:56 AM
En un masivo acto, Cristina reivindic el rol del Estado y agradeci a la oposicin por el apoyo a YPF (http://www.ambito.com/noticia.asp?id=634762), En el Estadio de Vlez, Informe de Pablo Jimnez, Viernes 27 de Abril de 2012, Ambito.com (Argentina)


Ante un estadio repleto de militantes, Cristina de Kirchner realiz un fuerte llamado a la unidad, celebr la llegada de los jvenes a la poltica y agradeci a las fuerzas de la oposicin por acompaar el proyecto de ley sobre la expropiacin de YPF. De esta manera, reivindic el rol del Estado y argument que la nacionalizacin de la petrolera "es recuperar la direccin nacional".


Durante los 40 minutos de micrfono, donde se permiti algunos guios a los jvenes, Cristina realiz un repaso por los logros de gestin desde que el kirchnerismo lleg al poder en 2003 realzando el rol del Estado. Al mismo tiempo asegur que exigir nuevas formas de intervencin, nuevas formas de participacin del Estado junto al sector privado. "El Estado no puede declinar las responsabilidades polticas, sociales, econmicas e institucionales en la conduccin de un pas", dijo.

A maior parte da populao argentina apoia estatizao da YPF (http://oglobo.globo.com/economia/a-maior-parte-da-populacao-argentina-apoia-estatizacao-da-ypf-4711668), O Globo | ltima atualizao: 6 dias atrs (Brazil)


Seis em cada dez argentinos apoiam a estatizao da YPF anunciado pelo governo, de acordo com a ltima pesquisa nacional Poliarquia realizada por consultores para o jornal portenho La Nacion. O estudo mostra, no entanto, que o consenso sobre a medida acompanhada por uma forte crtica da poltica energtica argentina: 44% dos inquiridos considerou que a presidente Cristina Kirchner a principal responsvel pelo declnio da produo hidrocarbonetos, outros 36% culpam o setor privado.

A anlise detalhada dos dados revela tambm uma elevada correspondncia entre a opinio dos entrevistados sobre a expropriao e identificao poltica: quase nove em cada dez argentinos, que reconheceu ter votado para Cristina Kirchner nas eleies concordou com a iniciativa do governo. Entre aqueles com uma imagem positiva da presidente, a adeso foi maior: 92%. Leitura reversa revela um aviso aos lderes adversrios que nos ltimos dias foram a favor a expropriao: metade dos entrevistados que votaram neles em 2011 por rejeitar esse tipo de medida.

Expropriao da YPF mais um retrato das duas Amricas Latinas (http://oglobo.globo.com/economia/expropriacao-da-ypf-mais-um-retrato-das-duas-americas-latinas-4685374), O Globo | ltima atualizao: 19/04/2012 08h46


RIO A proposta de expropriao da petrolfera espanhola Repsol-YPF pelo governo da Argentina mostra-se cada vez mais uma tentativa derradeira da presidente Cristina Kirchner de abafar a avalanche de denncias contra seu governo e ofuscar as crescentes dificuldades econmicas do pas. Mas a iniciativa que, segundo a Reuters, deve ser a maior nacionalizao na rea de recursos naturais desde o episdio da russa Yukos, uma dcada atrs segue tambm uma tendncia de resgate do nacionalismo em pases latino-americanos cujas economias so baseadas em commodities e conduzidas por populistas como Hugo Chvez, na Venezuela, e Evo Morales, na Bolvia, ambos aliados prximos de Cristina.

Lamenta Caldern expropiacin de YPF e insta a Argentina a rectificar (http://www.milenio.com/cdb/doc/noticias2011/5deadfb9f5fad5614f3244727c7bbaca), NEGOCIOS 16 ABRIL 2012 - 6:58PM SILVIA ARELLANO, ENVIADA, Milenio (Mexico)


El presidente Felipe Caldern lament la decisin de su homloga de Argentina, Cristina Fernndez, de expropiar YPF, filial de Repsol, nadie en sus cinco sentidos invierte en un pas que expropia las inversiones.


Indic que aunque desconoce los detalles, ley una nota en donde el argumento de Fernndez es que Repsol estaba produciendo menos petrleo, pero aclar: en un mundo con los precios de petrleo que tenemos, s t obligas a una empresa a poner precios ms bajos de los del mercado, pues estas matando los incentivos para que esa empresa produzca ms, entonces no hay que ir muy lejos por entender que esta pasando con esas inversiones va a ser una medida que le va hacer mucho dao a Argentina desgraciadamente, y lo lamento muchsimo.

Surferbeetle
04-30-2012, 01:59 AM
Let's kick around the Repsol YPF SA Estimates a bit more, and see if we can tighten the shot group regarding how much profit YPF generates for Repsol-YPF.


Platt's estimates that YPF generates 25% of Respsol YPF SA's Operating Income.



I will make the bold assumption that this translates directly to 25% of Respsol YPF SA's Profit :eek:


The EUR:USD exchange rate is given as 1.323 by the FT today


The Repsol YPF SA Income Statement ending Dec 31 2011 reports Net Income for the year as 2,193,000,000 Euro. Multiplying by 1.323 EUR:USD, this works out to $2,901,339,000 USD


25% of $2,901,339,000 USD results in a yearly profit of $725,334,750 or a daily profit of $1,987,218


The 25% figure used was taken from statement given at 1:42 minutes in - State of plays: Argentina, Repsol & the rise of energy nationalism, Featuring Richard Swann, Robert Perkins, and William Powell, April 27, 2012 09:30:00 EST (14:27 mins), Platts, http://www.platts.com/videos/2012/apr/argentinarepsol


Repsol YPF SA Net Income can be found here - Home > Shareholders and investors > Financial information > Financial reports, http://www.repsol.com/es_en/corporacion/accionistas-e-inversores/informacion-economico-financiera/informes_financieros/


My previously given rough order of magnitude estimate for YPF's Daily Operating Revenue was $39,746.413 USD



If 7% is retained as profit this works out to a yearly profit of $1,015,520,844 or a daily profit of $2,782,249



The Economist estimates YPF's yearly profit at $1,300,000,000, and this works out to a daily profit of $3,561,644



Argentina’s energy industry Fill ’er up, Apr 21st 2012 | BUENOS AIRES | from the print edition, The Economist, http://www.economist.com/node/21553070


So, having happily traveled around Robin-Hood's Barn to estimate the profits attributable to YPF can I at least confidently say that there is a tried and true relationship between profits and share price? Nope...:eek:



Profit expectations and investment, By Seamus Mac Gorain of the Bank’s Monetary Instruments and Markets Division and Jamie Thompson of the Bank’s Structural Economic Analysis Division, Bank of England, http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb020404.pdf




This article examines the relationship between expectations of future profits and companies’ physical investment. Theory suggests that increased profit expectations should raise share prices as well as investment. But this correlation between investment and share prices may be rather weak if investors’ opinions of companies’ prospects differ from those of the companies’ managers. Using a simple aggregate investment equation, the article illustrates that measures of profit expectations based on current profits and analysts’ earnings forecasts appear to be more informative for investment than stock prices themselves. This result is consistent with recent research at the Bank using company data.


I'll start doing pushups for taking you guys through this ;)

Surferbeetle
05-06-2012, 06:35 PM
99% vs 1%? Growth vs Austerity?

EU to Show Flexibility on Budget-Deficit Rules, Rehn Says (http://www.bloomberg.com/news/2012-05-05/eu-to-show-flexibility-in-enforcing-rules-rehn-says.html), By Jones Hayden - May 5, 2012 1:29 PM MT, Bloomberg News


European Union Economic and Monetary Affairs Commissioner Olli Rehn indicated the EU would show flexibility in enforcing the bloc’s deficit rules as nations across the region struggle to spur growth as they cut debt.

Hollande supporters confident of victory, By Ben Hall and Hugh Carnegy in Paris, Last updated: May 6, 2012 6:52 pm, Financial Times, www.ft.com


Exuberant crowds anticipating victory for François Hollande in France’s presidential election gathered outside socialist party headquarters in Paris, confident that he had defeated President Nicolas Sarkozy’s in Sunday’s run-off vote.
The Hollande camp had already begun making preparations for a celebration in the Place de la Bastille in eastern Paris.


Hollande zum neuen Präsidenten Frankreichs gewählt (http://www.nzz.ch/nachrichten/politik/international/hollande-zum-neuen-praesidenten-frankreichs-gewaehlt_1.16777746.html), EILMELDUNG: Politik: 6. Mai 2012, 19:59, NZZ


Linksrutsch in Frankreich: Erstmals seit 17 Jahren zieht mit François Hollande wieder ein Sozialist in den Elysée-Palast ein. Der 57-Jährige Herausforderer gewann klar die Stichwahl um das höchste Staatsamt. Amtsinhaber Nicolas Sarkozy musste sich geschlagen geben.

Hollande führt in den Umfragen (http://www.wiwo.de/politik/europa/praesidentschaftswahlen-hollande-fuehrt-in-den-umfragen/6596218.html), 06.05.2012, WirtschaftsWoche


Der Sozialist François Hollande hat im Rennen um den Élysée-Palast laut ersten Wählernachfragen die Nase klar vor Amtsinhaber Nicolas Sarkozy: In Erhebungen von drei großen Instituten, über die der belgische Rundfunk RTBF am frühen Nachmittag auf seiner Internetseite berichtete, lag Hollande bei 52,5 bis 53 Prozent und damit fünf bis sechs Punkte in Führung.

Greek Exit Poll Casts Doubt on New Democracy, Pasok Majority (http://www.bloomberg.com/news/2012-05-06/greek-exit-poll-casts-doubt-on-new-democracy-pasok-majority.html), By Maria Petrakis and Natalie Weeks - May 6, 2012 11:55 AM MT, Bloomberg News


Greek voters flocked to anti-bailout parties, an exit poll showed, throwing doubt on whether the two main parties, New Democracy and Pasok, can form a coalition to implement spending cuts to ensure the flow of bailout funds.

New Democracy led in the election today, receiving between 19 percent and 20.5 percent of the vote, an exit poll by Alco for state broadcaster NET TV forecast. Anti-bailout party Syriza got between 15.5 percent and 17 percent, according to the exit poll. Pro-bailout socialist Pasok got between 13 percent and 14 percent. Independent Greeks, a new anti-bailout party, could get as much as 11 percent of the vote.

“Greece needed this election like it needed a hole in the head,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mailed note. “The exit polls confirm what has been patently clear for some time: there’s no political consensus for the kind of reforms that Greece must implement if it wants to remain in the euro zone.”

Corriere della Sera > Politica > Elezioni Amministrative (http://www.corriere.it/politica/speciali/2012/elezioni-amministrative/)

So will Monsieur Francois Hollande follow his hero Francois Mitterrand's playbook and nationalize the banks? :eek: :wry: We will see...

Loi de nationalisation du 13 février 1982 (http://fr.wikipedia.org/wiki/Loi_de_nationalisation_du_13_février_1982), by Wikipedia


Les entreprises concernées sont indemnisées à hauteur de 39 milliards de francs. La loi concerne les secteurs et entreprises suivantes

Fuchs
05-06-2012, 10:49 PM
I did two quick and dirty looks at economic statistics this evening.

Conspicuous rise in capital income share (of total national income) after the Schröder administration's "Agenda 2010" reforms (supposedly a social-democratic / green cabinet):
http://www.scribd.com/doc/92618435/Agenda-2010


During 2003-2007 capital income rose from 29% to 37%, an unprecedented increase.
The range for capital income % for 1991-2011 was 28 to 37% (now 33%)
The same range was in 1970-1990 in the West Germany only: 26 to 34%

-------------------------------------

For Americans with a desire for depressions:
http://www.scribd.com/doc/92622874/Quick-Look
Judging by this quick&dirty calculation, your economy does not justify 70+ % of your goods consumption.

M-A Lagrange
05-07-2012, 03:28 PM
So will Monsieur Francois Hollande follow his hero Francois Mitterrand's playbook and nationalize the banks? :eek: :wry: We will see...



I think you do not really understand the meaning of that election. It is rather like the US with Obama after Bush.

Time will tell the rest

J Wolfsberger
05-07-2012, 06:51 PM
I think you do not really understand the meaning of that election. It is rather like the US with Obama after Bush.

Time will tell the rest

Some of us understood that.

It's why we're worried.

As you say, time will tell.

Surferbeetle
05-08-2012, 04:06 AM
Fuchs said:
I did two quick and dirty looks at economic statistics this evening.

Appreciate the time spent...and your questions are interesting. Let's start off with the observation that 'all models are wrong, but some are useful'.


GDP=C+I+G+(X-M), where Gross Domestic Product is (GDP), Consumption is (C), Investment is (I), Government Spending is (G) and Net Exports is (X – M)

Using a small open economy model with perfect capital mobility

Net Exports can be examined via NX = S - I, where Net Exports is (NX), Savings is (S), and Investment is (I)


Savings depends on fiscal policy



Investment depends upon the real interest rate




Fiscal policy which reduces national saving can lead to trade deficits


Economic performance cannot be evaluated from trade balances alone however.


South Korea in the 70's is an example of an economy which financed investment (I) with foreign borrowing, resulting in large trade deficits and yet it's economy developed as opposed to stagnated. ;)



The US ran large trade deficits in the 90's even though national saving (S) increased during this period. The information tech boom during this period may have caused this atypical model response. ;)


Marc said:

I think you do not really understand the meaning of that election. It is rather like the US with Obama after Bush.

I appreciate the insight and would like you to know that there is no disrespect to France intended.

For what it is worth, I have 'skin in the game' with respect to trading & investing in Europe, and have not changed my positions pre or post election as I believe that Mr. Market will help France to remain on 'the path'. Economic History has some hints:


The Economic Consequences of President Mitterrand, Jeffrey Sachs, Charles Wyplosz, Willem Buiter, Gerhard Fels and Georges de Menil, Economic Policy, Vol. 1, No. 2 (Apr., 1986), pp. 261-322


While French economic performance has not conformed to the enthusiastic promises of early 1981, this paper argues that the widely held view that it has been an unmitigated failure is unwarranted. First, the general deterioration can largely be dated back to the early seventies. Second, the early and unfortunate attempt at a demand-led expansion was both moderate in size and quickly reversed. Finally, the post-1983 anti-inflationary policies have been successful so that, overall, the disappointing French performance has been on a par with, and in some ways better than, the rest of Europe. But the main theme of the paper is the emphasis on the supply side. The analysis is organized around the NAIRU, the threshold rate of unemployment below which inflation rises. In an attempt to explain the factors which have led to a continuous rise of the NAIRU since 1973, the paper focuses on labour costs, particularly on the 'wedge' between the costs borne by employers and net take-home pay. To achieve and sustain a significantly lower level of unemployment, labour taxes must be cut, thus reducing the wedge and the NAIRU, and there must be a corresponding demand stimulus so that actual unemployment can fall to this level.

Nonetheless, 'trust but verify' have always been words of wisdom in my book.


The Greek crisis will fast expose Mr Hollande, By Gideon Rachman, May 7, 2012 6:54 pm, Financial Times, www.ft.com


In rural France on Sunday night, the newly-elected French president took to the stage and announced that he would lead the battle in Europe against austerity. On the other side of the continent, Greek voters were calling his bluff. By overwhelmingly opting for parties that want to either repudiate or renegotiate Greece’s bailout deal, they have handed François Hollande a painful dilemma. Will he stand with the Greek people against austerity? Or will he stand with the German government and the International Monetary Fund, in insisting that the Greek bailout cannot be renegotiated?

The choice Mr Hollande makes will be fateful, for France and Europe. Potentially, France’s new president could position himself as the head of Europe’s southern rebels. There is no doubt that the Spanish and Italian governments – even if nominally from different political families – have been cheering on the French socialist. They, like the Greeks, desperately want to see a challenge to German austerity orthodoxy.


John W said:
It's why we're worried.

Yes indeed

M-A Lagrange
05-08-2012, 06:37 AM
Steve,

I understand the worries but I believe it is misplaced. For many French, Sarkozi presidency has been synonymous with getting poorer and getting less basic social services while the State is spending more money for personal expenses and and handful of rich people got richer. Also, and that is something Mr market does not care of but is important, Mr Sarkozi regularly literally insulted the French people.
This is why people choose to change. (In addition to the fact he increased the popularity of extrem right wing which is even worst than the hardcore extrem left wing Melenchon, especially in terms of economical orientations)

Concerning Mr Market, he should be aware that most of the contracts announced by Sarkozi government were never finalized. Look at the contracts in India, Brazil, DRC… All a big announces effect but nothing signed in the end.

The Hollande economical program is very balanced and non “socialist” in the communist meaning this has in the US. Hollande is from the same line than DSK, the form IMF executive. Therefore, I believe the worries about nationalizations and all the “communisation” of economy is not grounded.
Here is a revue (in French) of Hollande economical and social program by a right wing news paper which is quite balance:
http://www.lepoint.fr/economie/document-le-programme-economique-et-social-de-hollande-decrypte-26-01-2012-1424142_28.php

And yes, he wants to tax the banks for making money with our money. I do not see the bad thing in it. Now what will do the trick is how it is implemented.

That said, we can debate endlessly on the idea that growth has to generate employment and that austerity is just helping several rich people to get richer when nearly 70% of the employees get poorer. I believe my position is already clear on that.

What for me looks like a good point and a guaranty that things wont get amok is that Hollande salary will double by becoming president. Therefore we have a president who knows the common people worries. Also, he is quiet, calm, takes the time to think, analyse and finally wants the State apparatus to work as a State apparatus and not as a zaibatsu.

That is why people like me do support him for the moment. And also because I want my children to have access to the same quality school and medical care that I did and not a worst one; that Justice remains neutral and in favor of the victims and not a predatory tool for companies; that the principles of the French Republic and its constitution are respected in the letter but first of all in the Spirit…

Let’s give time to time. But I really think that it would have been worst, even for the banks, with Sarkozi due to the inconsistency of his work and governance during the past 5 years.

slapout9
05-08-2012, 08:01 AM
I understand the worries but I believe it is misplaced. For many French, Sarkozi presidency has been synonymous with getting poorer and getting less basic social services while the State is spending more money for personal expenses and and handful of rich people got richer. Also, and that is something Mr market does not care of but is important, Mr Sarkozi regularly literally insulted the French people.


You could say the same thing about America.... except we don't have any good candidates from either party. The Banks own both sides:( Maybe France and America should merge:)

Fuchs
05-08-2012, 08:58 AM
Surferbeetle, the U.S. combines positive population growth with insufficient growth of national capital stock. This is very much unliek South Korea, which built up its capital stock. They were financing their capacity expansion with foreign money, the U.S. is financing its goods consumption with it.
This will blow up (again).

The primary problem is that the public doesn't understand how much it's living beyond its means at all.

Fuchs
05-08-2012, 10:46 AM
Surferbeetle, the U.S. combines positive population growth with insufficient growth of national capital stock. This is very much unliek South Korea, which built up its capital stock. They were financing their capacity expansion with foreign money, the U.S. is financing its goods consumption with it.
This will blow up (again).

The primary problem is that the public doesn't understand how much it's living beyond its means at all.

(Have a bit more time now.)
Recently,the U.S. had less capital investment than depreciation, which means that its capital stock was shrinking instead of keeping pace with population growth. That may have been a crisis-related effect, of course.
Nevertheless, the U.S. is well-known for its near-zero savings rate and its trade balance deficit was much worse pre-crisis (and is growing again to pre-crisis levels). The economic recovery (=actually a stagnation at reduced level due to the population growth) is a return to the even more imbalanced economy of the pre-crisis years.

More "recovery" of this sort = more drive towards the next huge crash

The U.S. needs to
- invest more in professional training/education for manufacturing jobs
- save more, consume less
- waste less resources (hint: low energy costs, high military expenditures)
- stop allowing non-manufacturing sectors to draw so much talent with exaggerated pay (hint: financial sector)
- stop discussing "small government vs. big government" and finally make a serious effort for "good government"
- have more public capital investments (infrastructure) again

Some necessary corrections such as more private capital investment and less consumption goods imports would follow.


The still biggest economy of the world is in a horrible state, and this will cuase trouble (again) too all who are much connected to it.

Think: Greece's unsustainability x 30, and it's going to blow up soon.

Firn
05-08-2012, 06:42 PM
@Surferbeetle: I will come back to Repsol later, I had busy weeks and did not try to think too much about it :D

Textbook economics and standard models have mostly proven indeed their worth, but using the lessons learned seems to be indeed quite difficult. Like everything, not just investment, doing things properly is the hard part.

About the foreign investment, it all depends how it is financed and how well the capital is put to work. Buying toxic paper derived from financially engineered mortages was not smart from the foreign creditors but building too expensive houses in excess was neither for the debitors.

As Fuchs said the US arguably does consume too much however as long the rest of the world is happy with the paper, green or toxic it gets for their goods allmost all is fine. It is more problematic, too put it in Buffets words, when part of the farm land, the national capital stock is sold to consume. In the latter case a big thanks for the American consumer who buys European products, at least you are doing your bit to help us.

P.S: The economic rise of South Korea has been indeed amazing especially compared to Argentina, who was once ahead of most European countries...

@Fuchs: The rise of the capital income share was more dramatic in the US. While I do have some ideas about the reasons (taxes!, ...) I wonder if this topic is well researched. Perhaps I will later give a closer look.

----

The Greek election was certainly an outcry of the people, sadly it is hard to imagine a working government after those results. It is indeed a bit of late interwar feeling, with the extreme right and the extreme left gaining and the relative moderates falling.

P.S: How a Greek party can in Greece, who suffered greatly under Nazi Germany, use some of those symbols and that rethoric is beyond believe.

Firn
05-09-2012, 10:06 AM
Guaridan €-crisis live ticker (http://www.guardian.co.uk/business/2012/may/09/eurozone-crisis-greek-euro-exit-fears)


10.52am: The UK has sold €2bn of 30-year gilts at lower borrowing costs, showing that the eurozone crisis has not dampened demand for British debt.

The yield on the sale dropped to 3.224% (from 3.341%). That has sent gilts rallying in the general bond market, with prices hitting record high levels.



10.29am: Germany has succeeded in selling new five year bonds at a record low interest rate, but didn't manage to sell as much as hoped.

The Bundesbank sold €4bn of bonds maturing in April 2017 at a yield of just 0.56%, down from 0.8% at the last auction of five-year debt. Such a low cost of borrowing shows that buyers were prioritising safety over rate of return.

P.S: The capital flight from Greece in those last two years looks really bad. Greece clearly needs foreign capital badly but who wants to lend if he hardly can hope to get it back? Only the IMF and the EU can step in but is the political will still there to overcome the internal and external hurdles?

Austrian T-bond yields at an all-time low (http://diepresse.com/home/wirtschaft/economist/756016/Oesterreich-verschuldet-sich-so-guenstig-wie-noch-nie)


Bei der Aufstockung einer fünfjährigen Anleihe im Ausmaß von 600 Mio. Euro lag die Rendite bei 1,408 Prozent. Bei der Aufstockung einer zehnjährigen Emission in Höhe von 500 Mio. Euro waren es 2,634 Prozent. „Beide Zinssätze sind Alltime-Lows“, sagte Martha Oberndorfer, Geschäftsführerin der Bundesfinanzierungsagentur (ÖBFA) am Dienstag.

Inländische Banken kamen diesmal nicht zum Zug. Beide Aufstockungen gingen zu 100 Prozent an ausländische Banken. Das sei sehr selten, so Oberndorfer. Ausschlaggebend für die Zuteilung sei allein die Höhe der Gebote. „Der Emittent steuert das nicht.“

Despite having lost the AAA rating from the American rating club 100% of the debt was picked up for a yield of just 1.4% by foreign banks....

The paths of the European T-bond yields has first almost united due to the Euro but since a couple of years they truly spread out :eek:

tequila
05-13-2012, 05:22 PM
German voters reject austerity in key poll
(http://www.ft.com/intl/cms/s/0/8edb6b32-9d18-11e1-9327-00144feabdc0.html#axzz1ulqBHJZw)




Angela Merkel’s centre-right Christian Democratic Union suffered a bruising defeat on Sunday night in regional elections in North Rhine-Westphalia, Germany’s most populous state, when the centre-left opposition of Social Democrats and Greens won a clear majority.

The vote for the CDU slumped to just 26 per cent from 35 per cent in 2010, according to the first exit polls. The result was by far its worst in the state in the post-war period.

The outcome will be seen as a rejection by voters of the strict austerity policy promoted by the CDU at both local and national level, and a boost for the opposition.

Fuchs
05-13-2012, 05:48 PM
Their lead candidate for the office of Ministerprsident (head of state & government in the state, kind of prime minister) was (is) a dud.

He was even stupid enough to regret live and on tape that the voters can decide who's going to rule.
http://www.lachschon.de/item/132181-ImmerdieseWaehler/

Firn
05-13-2012, 06:02 PM
I agree with Fuchs. The outcome will weaken Merkel and the CDU but it was not a vote against austerity.

Hannelore Kraft -Triumphatorin (http://www.faz.net/aktuell/politik/inland/wahl-in-nordrhein-westfalen-2012/hannelore-kraft-triumphatorin-11750202.html)


Mit ihrer bodenstndigen Art hatte sie keine Schwierigkeiten gegen ihren Herausforderer Norbert Rttgen: Hannelore Kraft ist die triumphale Gewinnerin der Landtagswahl in Nordrhein-Westfalen. Sigmar Gabriel sieht sie schon als Kanzlerkandidatin.

Basically it was mostly down to the performance of the two regional party leaders.

Fuchs
05-13-2012, 07:31 PM
There's no real austerity talking points wave in Germany anyway.


We added to the federal constitution an obligation to balance the budget which takes effect gradually.
Once the federal budget is stabilised at no net added debt per annum we can go on and address the revenue shortfall of the states. Their budget deficits is not so much a spending issue as it is a revenue issue. The same is even more obvious with the town and municipalities which suffer from having quite even duties to their inhabitants but very different income from businesses due to the move of many businesses to the small towns that border on larger ones. Another problem at this level is that many rural areas have a rather low economic activity, and often a lot of migration of young people to other regions.

In short: The German fiscal situation need a rearrangement that can realistically be done in a few years. The potential for reasonable austerity measures doesn't suffice to solve the various budget woes in Germany.

We could cut the budgets a bit, of course. Politicians like large projects which are often not cost-efficient, and bureaucrats have their multi-million pet projects, too. The budgets in trouble are far beyond the scale of such problems, though. Meanwhile, other budgets are in fine shape.

Ulenspiegel
05-14-2012, 06:42 AM
"Sigmar Gabriel sieht sie schon als Kanzlerkandidatin."

OMG, she won because her competitor behaved like an idiot. Against Merkel she looks like Romney vs. Obama :-)

Ulenspiegel
05-14-2012, 06:48 AM
There's no real austerity talking points wave in Germany anyway.


We added to the federal constitution an obligation to balance the budget which takes effect gradually.
Once the federal budget is stabilised at no net added debt per annum we can go on and address the revenue shortfall of the states. Their budget deficits is not so much a spending issue as it is a revenue issue. The same is even more obvious with the town and municipalities which suffer from having quite even duties to their inhabitants but very different income from businesses due to the move of many businesses to the small towns that border on larger ones. Another problem at this level is that many rural areas have a rather low economic activity, and often a lot of migration of young people to other regions.

In short: The German fiscal situation need a rearrangement that can realistically be done in a few years. The potential for reasonable austerity measures doesn't suffice to solve the various budget woes in Germany.



Fuchs, do you assume the problems of states and municipalities is simply a distribution problem and could be solved by changes of the equalization scheme of the states (Lnderfinanzausgleich) and be changes of the business tax?

Fuchs
05-14-2012, 06:51 AM
Even services with uneven revenue opportunities simply does not work.
The even services are a constitutional mandate and this won't go.

The revenue system has to be adapted to the reality of the spending obligations.


(It wouldn't hurt if we had the same low interest rate for all, of course. That's not going to happen as long as the Greece issue lingers in the news, though.)

Firn
05-15-2012, 10:30 AM
The guardian coverage (http://www.guardian.co.uk/business/2012/may/15/eurozone-crisis-gdp-greek-government-talks) is always a good read, with all the advantages and disadvantages of a live blog.

What strikes me, and has for some time, is the diametrical difference in perception within and around Germany when it comes to the power it yields. Externally a good many, media and people, think that Germany is able to make and break, leading the (wrong) way, while on the other hand internally the press and the commentators seem to believe that all the power Germany has is to foot the bill for others.

It is of course important to note that per capita other countries have a higher share of the various protection and rescue schemes.

Fuchs
05-15-2012, 02:06 PM
Keep in mind 3/4 of Germany have been in a West-East transfer scheme for 22 years.

Firn
05-16-2012, 10:59 AM
From the Guardian live blogging (http://www.guardian.co.uk/business/2012/may/16/eurozone-crisis-greece-elections-stock-markets)


11.27am: Looking back at Greece, Helena Smith reports that government officials are predicting today that Greece's GDP will have shrunk by almost a third over a five year period by the end of 2012.

That's even worse than the 20% slump that economists have been predicting.

Helena writes:

While the country's official statistics bureau announced on Tuesday that gross domestic product contracted by an annual rate of 6.2% in the first quarter of 2012 – better than the forecast estimate of 6.7% to 7.9% – Greek officials say by the end of the year the downward trajectory will have been dramatic.

"By the close of 2012 we estimate the economy to have shrunk by a total 27% since the start of the recession five years ago," said one official discounting the often-heard figure of 20%. "That's almost a third. It's completely unprecedented for an advanced western economy."

With Athens being asked to enact more austerity measures – including reducing the minimum wage by a further 22% - the process of aggressive internal devaluation would only get worse, the official said.

27% are more a quarter then a third, but it in any case a reduction unimaginable five years ago.

It seems that Greece is forced to cut but goes along the easier and faster paths. Cutting the minimum wage is easier then cutting the pay of relative good earning state and near-state employees or getting the taxes collected.
In the short run all this austerity is of course devastating. Consumption and investment are falling due the enduring demand shock, the banks are dried out of money with more and more people shifting their euros to their matresses.

While I'm more of a creditor then a debitor I would wish that the ECB would become even more aggressive, also raising the inflation target to at least 3.5%

A cyinical person might actually be glad that with Greece bleeds at least just a small country on the periphery. It's pain is not that much of a threat of the stability of the EU and it serves as a kind of guinea pig for much more important countries like Italy and Spain.

@Fuchs: I guess this is one of reasons. Another big might be the way especially Greece is [partly rightly] perceived. The tragedy is of course that such a crises hits all, mostly the weak and not just those who cheated.

Fuchs
05-16-2012, 01:39 PM
27% are more a quarter then a third, but it in any case a reduction unimaginable five years ago.

It depends.
"Natural GDP" or "Potential GDP" is a better benchmark than an arbitrary date for comparison:

http://www.tradingeconomics.com/greece/output-gap-in-percent-of-potential-gdp-imf-data.html
http://www.tradingeconomics.com/chart.png?s=/greece/output-gap-in-percent-of-potential-gdp-imf-data.html&d1=19800101&d2=20151231

They fell back a lot to normal and then a bit below normal. Nothing outrageous, except that the Greeks got used to the unusually high level of the partially foreign-financed years of 2001-2008.

Firn
05-16-2012, 05:49 PM
True enough I had not the numbers and the "natural "GDP seems to have been indeed a lot higher then Yp, the Potential output ("potential GDP").

High consumption due to easy credit and increasing debt on the private and the state level have pushed it above it. The crisis has destroyed a great deal of demand, now it should be fairly low compared to Yp, no wonder with all that production factors going to waste...

Monetary and fiscal policy should have kicked in many years ago to keep the bubbles and the budget in check now the demand must get supported.

P.S: I have written about the Greek banks running dry, now the ECB seems to have stepped in providing fresh credit.


9.30 The news that the EU has given its blessing to the release of €18bn in recapitalization funds for Greeks banks has been met with relief all round in Athens.

Greece's outgoing finance minister Filippos Sachinidis, attending last night's eurozone finance ministers' summit was told the long-awaited cash injection would be disbursed as early as today. And it is not as moment too late, say Greek officials and observers. "The banking system is in dire straits. This is very good news and shows that the EU is following through, it's acting on its promises and that in itself is an act of faith," Nikos Evangelatos, a prominent political commentator told radio listeners this morning.

With all the talk of a Greek exit from the 17-nation euro zone panic-stricken depositors have been rushing to withdraw savings from banks. Since Friday last, an estimated €1bn has been withdrawn from banks according to deeply concerned finance ministry officials. Recapitalisation of the Greek banking system – badly hit by their enforced participation in the country's unprecedented debt restructuring – is a major part of the second €130bn package of rescue loans agreed for Greece earlier this year by the EU, ECB and IMF, its 'troika' of creditors.

It is from the early morning, must have missed it before. However:


4.11pm: Speaking of the ECB, markets are coming under pressure again after this:

ECB STOPS MONETARY POLICY OPERATIONS TO SOME GREEK BANKS AS RECAPITALISATION NOT IN PLACE -CENBANK SOURCE

— Steve Collins (@TradeDesk_Steve) May 16, 2012

Earlier we reported that EU had given its blessing to the release of €18bn in recapitalization funds for Greeks banks. (9.30 am)

Firn
05-17-2012, 10:49 AM
Fuchs rightly pointed out that I made a mistake, by writing "natural" GDP instead of real GDP, which I meant. Thanks for that.

The € is now falling against the other important currencies, and has lost quite a bit of his value in the last 3-4 years. Still there is not so much difference compared to ten years ago against the CNY and JPY, while it was a lot weaker against the pound and the dollar back then.

A weaker Euro would help the European economy, however it does of course not address the big interal differences in competivness.

Surferbeetle
05-17-2012, 01:10 PM
Looks like some banks are stretching and thinking about going for a run. :eek: Average price to book ratios are ranging around 0.6 for European banks as compared to 1.3 for Asian banks.

Flight of Euros Accelerates, Adding to Greece’s Worries (http://www.nytimes.com/2012/05/17/world/europe/greece-teeters-ahead-of-new-vote.html?_r=1&ref=world), By LIZ ALDERMAN and RACHEL DONADIO Published: May 16, 2012, NYT


Money has been fleeing Greece ever since the country’s debt crisis began more than two and a half years ago. But the outflow has picked up velocity since last week’s election, when the elevation of anti-austerity leftist parties in Parliament raised the specter in international financial markets of a Greek default. At a time when Greek’s banking system needs all the help it can get from the rest of Europe, its own depositors are making the banks weaker by the day.

An average of 4 billion euros, or $5.1 billion, has flowed out of Greece every month since 2009, when the European debt crisis first broke open.

President Karolos Papoulias seemed to stoke fears further on Tuesday when he revealed that 700 million euros had been taken out of Greek banks since the election. While several senior Greek banking executives said Wednesday that the money flow should not be characterized as a full-blown run on Greek banks, analysts said that the steady drawdown on deposits by consumers and companies could be expected to continue at least until new elections are held June 17, and possibly beyond.

Bankia pierde 2.400 millones en Bolsa desde la marcha de Rato (http://www.elmundo.es/elmundo/2012/05/17/economia/1337245793.html), María Vega | Agencias | Madrid, Actualizado jueves 17/05/2012 13:03 horas, El Mundo


Los clientes han retirado en una semana más de 1.000 millones de euros


Por su parte, el secretario de Estado de Economía, Fernando Jiménez Latorre, ha negado que haya una salida de depósitos en Bankia y ha asegurado que el nuevo proyecto reúne todos los requisitos para ser un éxito de futuro.

En conferencia de prensa, Jiménez Latorre ha afirmado que hoy es una buena ocasión para transmitir a los depositantes de Bankia un mensaje de tranquilidad y ha reiterado que es un proyecto con un tamaño y un potencial extraordinario.

Only the ECB can make it a bank run: James Saft (http://in.reuters.com/article/2012/05/17/column-markets-saft-idINDEE84G04P20120517?type=economicNews), By James Saft
Thu May 17, 2012 12:45pm IST, REUTERS


Greeks have been withdrawing hundreds of millions of euros of deposits from their banks in recent days, driven by a rational but dangerously self-reinforcing fear that a Greek exit from the euro will leave them holding far less valuable new drachma.

That fear, though, is predicated on a shaky notion: that the players in the drama will do what they have said they would.

Greek depositors are worried that their politicians will repudiate the terms of the bailout and that the ECB and European authorities will, ultimately, cut them off, either directly or by refusing to accept dubious collateral in exchange for fresh euros.

That would bring down the Greek banking system, or most of it, and force Greek authorities to impose capital controls. Cue Spanish, Italian and Portuguese depositors, who might follow suit and start to withdraw their own deposits, putting massive amounts of collateral into the hands of the ECB and their own central banks.

The betting on this one comes down to whether you think European officials will stick with their principles or act in their own best interests, always a legitimate and uncertain question. The ECB could, at any point it chooses, pull the plug on the Greek banking system by refusing to accept the sort of bad collateral now being offered. A prudent act, utterly within their rights and a highly destructive one.

P/B ratio (http://en.wikipedia.org/wiki/P/B_ratio), From Wikipedia, the free encyclopedia


The price-to-book ratio, or P/B ratio, is a financial ratio used to compare a company's book value to its current market price. The calculation can be performed in two ways, but the result should be the same each way. In the first way, the company's market capitalization can be divided by the company's total book value from its balance sheet. The second way, using per-share values, is to divide the company's current share price by the book value per share (i.e. its book value divided by the number of outstanding shares).

As with most ratios, it varies a fair amount by industry. Industries that require more infrastructure capital (for each dollar of profit) will usually trade at P/B ratios much lower than, for example, consulting firms. P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are constantly valued at market values. A higher P/B ratio implies that investors expect management to create more value from a given set of assets, all else equal (and/or that the market value of the firm's assets is significantly higher than their accounting value). P/B ratios do not, however, directly provide any information on the ability of the firm to generate profits or cash for shareholders.

This ratio also gives some idea of whether an investor is paying too much for what would be left if the company went bankrupt immediately. For companies in distress, the book value is usually calculated without the intangible assets that would have no resale value. In such cases, P/B should also be calculated on a "diluted" basis, because stock options may well vest on sale of the company or change of control or firing of management.

Firn
05-17-2012, 03:30 PM
I'm pretty sure that the firefighters from the ECB ready already the pumps and will turn on the money stream...

Fuchs
05-17-2012, 03:35 PM
I dare to predict that Germany would drop the Euro if the ECB sustained 5% p.a. inflation for several years. Germany would also drop the Euro if the ECB creates a surprise inflation of 10% in one year.

Inflation aversion is a cultural trait in Germany. High inflation is considered as a highly visible marker of mismanagement, and this is a country that's obsessed about organising work and life well.

Surferbeetle
05-17-2012, 04:26 PM
I'm pretty sure that the firefighters from the ECB ready already the pumps and will turn on the money stream...

In disaster there is sometimes opportunity, but it is of course a very dangerous play given the complexities involved...great power interests, national interests, popular discontent, lady luck, murphy (http://en.wikipedia.org/wiki/Murphy%27s_law), usw, usw.

Along these lines:

European stock rout led by Spain’s Bankia, Lender tumbles 14% on reports of funds being withdrawn (http://www.marketwatch.com/story/europe-stocks-struggle-overshadowed-by-greece-2012-05-17?dist=beforebell), Europe Markets Archives | Email alerts, May 17, 2012, 9:23 a.m. EDT, MarketWatch


The French CAC 40 index FR:PX1 -1.20% fell 0.8% to 3,024.82, with Credit Agricole SA FR:ACA -3.51% down 3% and Société Générale SA FR:GLE -3.64% losing 3%.

The German DAX 30 index DX : DAX -1.18% fell 0.7% to 6,333.92, with Deutsche Bank AG DE : DBK -4.08% DB -0.91% down 2.5% and Allianz SE DE:ALV -2.81% dropping 1.5%.

The FTSE 100 index UK:UKX -1.24% fell 1.1% to 5,343.34, as Vodafone Group PLC VOD -1.72% UK:VOD -1.19% dropped 1.8%. The company’s Vodafone India Chief Executive Marten Pieters told reporters Thursday that Vodafone is planning to list its Indian venture on local markets soon, but didn’t give a date.

U.K. banks followed the Continent lower, with heavyweight HSBC Holdings PLC HBC -2.50% UK:HSBA -2.49% off 2%, and Standard Chartered PLC UK:STAN -3.41% down 2%. Energy stocks were also down with BP PLC BP -1.18% UK:BP -0.75% losing 1%, while Royal Dutch Shell PLC RDS.B -1.41% UK:RDSB -0.87% fell 1.3%.

www.centerforfinancialstability.org/research/Euro_051412.pdf

Surferbeetle
05-17-2012, 05:56 PM
Greek Euro Exit Would Risk Asia Crisis-Style Rout (http://www.bloomberg.com/news/2012-05-17/zeti-says-greek-euro-exit-would-have-unimaginable-consequences.html), Zeti Says (Update 1), By Haslinda Amin and Elffie Chew - May 16, 2012 11:25 PM MT, Bloomberg News


A Greek exit from the euro could cause contagion comparable to the Asian financial crisis, according to Malaysia’s central bank Governor Zeti Akhtar Aziz, who had first-hand experience of that turmoil.

“The worst-case scenario is what we saw in Asia,” Zeti, 64, said in an interview with Bloomberg Television in Istanbul yesterday. “When one economy collapses, then the market usually moves on to focus on the next one, then there will be a contagion that will affect different countries that probably don’t deserve those kinds of consequences.”

European leaders are now openly talking about a possible Greek euro exit after attempts to form a ruling coalition in Athens broke down on May 15. The debt crisis in the region sent Spain’s 10-year bond to a five-month high of 6.5 percent yesterday and Italy’s 10-year bond yield rose to as much as 6 percent, the highest since Jan. 30.

“The consequences for that to happen I believe will be unimaginable for Europe, therefore a solution has to be found to address the situation,” Zeti said. “I believe that such a solution can be found.”

Zeti was assistant central bank governor responsible for economics, reserves management, money market and foreign exchange operations when Thailand devalued the baht on July 2, 1997. The ringgit fell 89 percent in the next six months as regional currencies plunged and investors fled the region, pushing Asian economies into recession and prompting Thailand, Indonesia and South Korea to turn to International Monetary Fund bailouts. It was Zeti who announced Malaysia’s capital controls in 1998 as acting governor, drawing the ire of the IMF.

Firn
05-17-2012, 06:59 PM
Well I bought now after the big correction, I also had money in hand after securities became liquid. We will see in a couple of years if it was the right solution. :D

Greece is really the European Achilles’ tendon in the sense that Spain, Italy and Portugal would likely not suffer so much without the pain in the birthland of Hippocrates. It really does test the investors and EU and has already crossed bounderies, for example with the haircut, that were far from the mind of almost anybody a couple of years ago.

The ECB must step in Now, and do it's injections. With credits as tight and money circulating as slowly through many European economies there is no big inflation risk in the short term in most of Europe. The healthier countries like Germany and Austria are more likely to have a higher one, which is of course exactly what neither Frankfurt nor Vienna want. Finland and the Netherlands as well as the relative poor countries like Slovakia, Slovenia and Estonia are also not keen on it. The latter two have still a smaller GDP per capita then Greece which makes the feeling about transfers not better.

Fuchs
05-17-2012, 07:17 PM
Actually, the financial markets may be totally overrated, and likewise the problems that Greece can generate.

German banks are pleading companies to take loans - the loan demand is so small. Large corporations can get capital altogether without banks, and the medium-sized companies (SMEs) have spent years preparing for hard times and have enough liquidity.
The truly small businesses get loans through German government-sponsored loans (KfW) and few other loans.

In short: There would probably be more psychological than financial problems for the economy if banks would blow up tomorrow.

ganulv
05-17-2012, 10:44 PM
Actually, the financial markets may be totally overrated, and likewise the problems that Greece can generate.

[…]

In short: There would probably be more psychological than financial problems for the economy if banks would blow up tomorrow.

Good God, man, open your eyes to what is going on here!

http://urbanprankster.com/wp-content/uploads/2009/08/totalcrisis.jpg

Dayuhan
05-18-2012, 07:04 AM
An opinion, from Foreign Affairs...

http://www.foreignaffairs.com/articles/137642/r-daniel-kelemen/europes-new-normal?cid=nlc-this_week_on_foreignaffairs_co-051712-europes_new_normal_3-051712


Europe's New Normal

It's Here, It's Unclear, Get Used to It

The eurozone's troubles no longer qualify as a crisis, an unstable situation that could either quickly improve or take a dramatic turn for the worse. They are, instead, a new normal -- a painful situation, to be sure, but one that will last for years to come. Citizens, investors, and policymakers should let go of the idea that there is some magic bullet that could quickly kill off Europe's ailments. By the same token, despite the real possibility of Greek exit, the eurozone is not on the brink of collapse. The European Union and its common currency will hold together, but the road to recovery will be long...

Firn
05-18-2012, 07:04 AM
The direct economic impact of Greece on the EU or the Eurozone is of course rather small. Its GDP is 3% of the Eurozone, and 10% of the German one. Howerver it is somewhat of a horror story keeping investors and the financial markets on the edge, resulting partly in those high spreads for Italian, Spanish and Portuguese T-bonds.

Banks are special and in this delicate situation we won't see any big bank failures, as the governments and the ECB will step in to avoid that more fuel gets thrown into the fire. Already there has been a big wave of nationalizations throughout Europe, even in relative calm places like Austria, even though it was due to heavy lending in the East. As Surferbeetle wrote and I pointed out with an financial index earlier, the banks of Eurozone are now at close to a 25 year low.

I agree with the article and that Greece's exit from the eurozone would be a catastrophe for Greece and a trauma for Europe. Italy and Spain in particular must grow again. The public austerity here is really having strange and frankly idiotic consequences. For example someone just closed the office handling the stamps required for the 10-year prolongation of the drivers license. So basically the state forced many citiziens to break the law by making their license void. Of course in Italian style the government just told the police and the carabinieri to ignore that but try to tell a French or German police officer that while doing a business trip. Quite recently the office has opened again but you can imagine the backlog.

Dayuhan
05-18-2012, 08:41 AM
I'd be curious to know if this habit prevails in Europe...

In the US, when budgets are cut or austerity measures imposed, government agencies typically do not try to make themselves more efficient. More often they will deliberately cut services in visible areas that have immediate impact on the populace, hoping to generate public outcry and get "their" money restored. After all, if an agency accepted a budget cut, streamlined their operation, and continued without any reduction in services, they'd have little argument for getting more.

I'm wondering if the case cited above might have a bit of this habit in it...

Firn
05-18-2012, 10:13 AM
I'd be curious to know if this habit prevails in Europe...

In the US, when budgets are cut or austerity measures imposed, government agencies typically do not try to make themselves more efficient. More often they will deliberately cut services in visible areas that have immediate impact on the populace, hoping to generate public outcry and get "their" money restored. After all, if an agency accepted a budget cut, streamlined their operation, and continued without any reduction in services, they'd have little argument for getting more.

I'm wondering if the case cited above might have a bit of this habit in it...

Sounds like the blueprint for this case.

To be fair the did ease some other bureaucratic nonsense in that area like requesting persons older the 80 years to come from the whole province to a single comission who with the help of computer programs determined if they could drive on for another 2 years or so instead of doing it at their doctor. (Said that my personal doctor mentioned that he had to void a driver license from a young half-blind women which scored almost perfectly in a vision test in Sicily)

There are so many other terrible laws which are more or less ignored, depending on the region also partly by the institutions. I think this is part of the reason why breaking the sound rules is not considered by many to be a crime. Sometimes the guy not doing it is seen as dumb.

It is all a sad story, we still have a great country with many hard-working people.

About measuring inflation: (http://kantooseconomics.com/)


The Governing Council defines price stability “as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%”. What I would like to discuss in this post is not the inflation target of 2% but rather the HICP. I’d like to argue that by targeting a flawed variable (the HICP), the ECB is generating flawed policy.

The HICP has one enormous deficiency: owner-occupied housing (OOH) is presently excluded from the index, primarily because of the methodological inconsistencies that existed between the statistical methods of the different countries.

Better to be perfectly wrong then roughly right....

davidbfpo
05-18-2012, 12:33 PM
Much of the debate on banking and economic policy are simply beyond my comprehension. It is rare to have a straight forward explanation, although I did enjoy Robert Peston's programme last night; which is summarised here:http://www.bbc.co.uk/news/business-18088540

Or just this opening paragraph:
Creating the currency union was not a random act of collective economic suicide, but was in some senses a rational or even noble project that was either premature or too late. The tragedy was that a succession of post-war leaders, whose intentions would be seen by many as honourable, made a series of disastrously ill-timed decisions.

There is a link to the broadcast, but as some know the BBC sometimes declines to let others watch:http://www.bbc.co.uk/programmes/b01hy4xr

Mr Peston is very unpopular with bankers and others here, he is often accused of causing the fall of Northern Rock by his reporting.

davidbfpo
05-18-2012, 12:39 PM
This has dropped into my email box and looks interesting and sensible. It is from IPPR a UK centre-left think tank.


The political scientist Larry Bartels argues that there has been no swing to the right – or left – during the Great Recession. Instead, voters have punished incumbents of both stripes if economic growth has been low in the run-up to elections.

Political scientists in the past half-century have increasingly de-emphasised the role of ideological commitments and policy promises in accounting for voting behavior, in favour of an alternative account in which voters simply assess how the nation is faring – particularly in respect of the economy – and vote to retain the incumbent government if things are going well and to replace them if things are going badly. This so-called ‘retrospective voting’ model makes fewer unrealistic demands of voters, it seems to provide a modicum of democratic accountability, and it does a better job of explaining election outcomes than the traditional ideological model.

Link:http://www.ippr.org/junctures/166/9124/elections-in-hard-times

Personally I have a political and so a security concern that it is the failure of traditional state structures that is far more threatening than "extremism". We already have a technocrat government in Italy and for a short time in Greece. There is also a certain impetus for the "strong" state.

Surferbeetle
05-18-2012, 04:26 PM
Good God, man, open your eyes to what is going on here!

Hopefully we won't be seeing zombies in the streets snacking on brains! :wry:

Zombie banks ala Japan are more likely and keep in mind that the EU houses the largest part of the more or less global banking system. So, incessant Euro snacking by zombie banks? :eek:

Watch deposit flight not the Eurocrats (http://www.bbc.co.uk/news/business-18091109), by Paul Mason, 16 May, 2012, BBC News


One way the current crisis could nix Greek euro membership is if the bailout fund - the EFSF - refuses to dole out the relevant billions on a date coinciding with the Greek state having to use said billions to repay its debts.

That is the "political trigger" to euro exit. But market participants are watching something else: the flight of deposits out of Greek banks and into other Euro currencies.

That is because the normal mechanism for making payments across Euro borders, called TARGET2, is seen as the economic trigger for a euro exit.



Louk's account at Bank A is docked 1000 euros.
Bank A signals to the Greek central bank, Bank of Greece, that the payment will go ahead using TARGET2.
Bank A's reserves at the Bank of Greece are docked 1000 euros.
Bank of Greece's liability to the Eurosystem of central banks rises 1000 euros.
The Bank of Spain now has a claim of 1000 euros on the Eurosystem of central banks (as a whole, not merely its Greek counterpart).
The Bank of Spain creates a reserve of 1000 euros for Gomez's bank, Bank B, in Spain
Bank B creates 1000 euros in Gomez's bank account

ganulv
05-18-2012, 05:04 PM
Mr Peston is very unpopular with bankers and others here, he is often accused of causing the fall of Northern Rock by his reporting.

Meh. Pointing out that there is an elephant in the room doesn't mean you put it there. Which is not to deny that distinguishing apprehension of the facts and group delusion is a problematic of modern economic behavior.

Firn
05-18-2012, 06:31 PM
Rather long video by Krugman (http://www.youtube.com/watch?v=b6kkGx47FPY), speaking recently in Bruessel.

It is also interesting to note that he and his wife invest very cautiously, apart from T-bonds which have of course a far higher yield then the current ones they hold mostly cash and cash-like securities. Certainly no gold. It is a wild world out there, he says.

Fuchs
05-18-2012, 06:39 PM
Krugman's views are widely published, through his blog, column and books.

He's sternly on the short-term side. Others are more concerned about the long term and I personally are only interested in the long term.

Krugman experienced how little complexity the public understands when he was accused of hypocrisy after calling for higher Obama admin deficits after criticising GWB admin deficits. Totally consistent with Keynesianism, but the public doesn't get that economic policy may need to be tailored to the situation.
Too much ideology, too many laymen who believe they know economics better than economists. I personally had once a boss who believed he knew better about economics because he read a certain newspaper and its econ chapter daily.

So what would happen if the U.S. adopts Krugman's econ policy opinion?
Maybe it would be a success (I doubt it, but then again I don't care about quarter reports), and afterwards the new econ conventional wisdom would be "stimulus solves econ troubles". Stimulus would be used against every tiny ailment.
The long term issues (insufficient capital investment = savings) would not be addressed, the trade balance deficit would persist in a consumption-drives-the-economy society and it all would be blow up in less than ten years (prolly going to happen anyways).


He knows that his recipe demands too sophisticated thinking, he knows he's neglecting the long term and still he insists on his short term views. A true Keynesian.

Firn
05-18-2012, 06:54 PM
Well in the face of such a depression I do also like Keynes words about the long-term, in which we are all dead.

The influx of cheap money into various economies did really lead to a bubble consumption and bad investing, however since the the depression began consumption has indeed fallen resulting in a lack of demand. The private sector is indeed saving more and lending less, the states and regions are cutting and the result of this short time adjustment means in almost perfect text-book fashion a lot of pain without much gain. The moral arguments are all fine and I agree with them, sadly they are right now leading us just deeper into the mess.

Fuchs
05-18-2012, 08:05 PM
Actually, part of the mess is a desirable market correction while only the other part is a regrettable yet not really uncommon cycle lower end.

The United States are still importing vastly more value than they export it. Even the crisis did not come close to balance this out, despite the global trade crunch a few years ago.

United States savings rate and net capital investment are below or close to negative while the population grows by about a per cent per annum. Guess what? to even catch up with population growth requires about 2 per cent points GDP more capital investment. That's two per cent points GDP less goods consumption (and that's much more than two per cent goods consumption, since most of consumption is about services!).


The most astonishing thing about this long economic crisis is in my opinion that the countries with structural problems didn't even come close to address them properly:

The Greeks were at least trying to do so due to immense pressure.

Iceland, Ireland, Spain, Italy, Portugal - not much done, in part simply unable to cope with their issues in the short or medium term.

U.S., UK - don't even understand their structural problem (=inflated services sector, esp. financial services, middle class purchasing power stagnated in real terms for decades, too much de-industrialised in the past).

Germany - most of 'us' still believe that trade balance surplus is a good thing, that retirement pensions can be boosted with a capital-based approach (=100% nonsense on the macro level), and most tragically, we still misunderstand a shortage of skilled labour of a specific trade as a problem instead of as a symptom of a partial achievement of the desirable full employment. Well, gullible fools deserve to be ripped off by lobbyists. There are more myths , misunderstandings and stupidities in Germany, of course. Our luck is that the undervalued currency and the competence of our SMEs cover much of our failings up.

Ulenspiegel
05-19-2012, 10:05 AM
Germany - most of 'us' still believe that trade balance surplus is a good thing, that retirement pensions can be boosted with a capital-based approach (=100% nonsense on the macro level), and most tragically, we still misunderstand a shortage of skilled labour of a specific trade as a problem instead of as a symptom of a partial achievement of the desirable full employment. Well, gullible fools deserve to be ripped off by lobbyists. There are more myths , misunderstandings and stupidities in Germany, of course. Our luck is that the undervalued currency and the competence of our SMEs cover much of our failings up.

Let's simply assume we want to reduce our trade surpluywith France that is around 100 billion per year.:

1) Mass emmigration from France to Germany is a no-go.

2) France is not able to provide enough useful stuff like energy when Germany needs it.

3) Higher taxes in Germany and transfer of money to France is political suicide.

4) Therefore, we need some large-scale investment programms, i.e. German companies get tax dedection/write -offs for investments in France. Which fields would be useful?

Fuchs
05-19-2012, 10:33 AM
Let's simply assume we want to reduce our trade surpluywith France that is around 100 billion per year.:

1) Mass emmigration from France to Germany is a no-go.

2) France is not able to provide enough useful stuff like energy when Germany needs it.

3) Higher taxes in Germany and transfer of money to France is political suicide.

4) Therefore, we need some large-scale investment programms, i.e. German companies get tax dedection/write -offs for investments in France. Which fields would be useful?

A flexible currency exchange rate would help a lot, as our exports would be more expensive and theirs cheaper in this trade relation. This would even have a huge effect if the goods and services traded would remain the same.
We don't have flexible exchange rates any more, of course.

Similar (small) effect on competitiveness of German exports would come from an identical VAT. Theirs is 19.6%, ours is 19%. There might be a EU-wide harmonisation at 20% soon.

France could have a greater effort at supporting its exports, similar to German Hermes loan guarantees for exports (and we should really reduce ours except for a couple strategic industries if they have below-average profit margins).

France could at least attempt to attract more German tourists (Cote d'Azur, not only Paris). So far, Americans and Russians appear to consider France more as a tourism country than Germans do.



It wouldn't help if Germans invested more in France. About 90% of our direct foreign investments are related to marketing our products. The construction of a factory abroad is a rare exception to the rule.
Moreover, more capital export to France makes no sense because net capital export is in macroeconomics (VGR) the other side of the coin of net goods & services export. It doesn't solve a trade imbalance, it's the other side of the coin of a trade imbalance!

Germany also needs to push for higher wages. This means less cost competitiveness, reduced social problems, higher consumption (= more import of consumption goods) and a smaller savings rate. Our trade balance surplus could disappear and the French trade deficit would become a French problems instead of a Franco-German problem.


In the end, they need to rebuild their industrial production. They're dropped it too far, just like the UK and US. A country should balance its trade over time, and this can only be achieved with a high standard of living (high goods consumption) if the country has the goods production and export-capable services production to afford this.


The deficit country issues are long-term issues which can be resolved in one or two generations with good policies. Germany's responsibility is at most to balance its own trade, so we're not an exogenous source of pressure that makes our friends' problems worse.

Ulenspiegel
05-19-2012, 11:47 AM
In the end, they need to rebuild their industrial production. They're dropped it too far, just like the UK and US. A country should balance its trade over time, and this can only be achieved with a high standard of living (high goods consumption) if the country has the goods production and export-capable services production to afford this.


The deficit country issues are long-term issues which can be resolved in one or two generations with good policies. Germany's responsibility is at most to balance its own trade, so we're not an exogenous source of pressure that makes our friends' problems worse.

For me it would make sense when German companies e.g. car makers(?) would build factories in France, this would lead to a production of internationally competitive products and would reduce the deficit dramatically.

To build industry from scratch that can compete with German companies and first tier Chinese is tough and only works in new fields, which would be?
Maybe cars with electric engine, battery storage systems?

Fuchs
05-19-2012, 11:59 AM
Automotive assembly lines have only a small value added. The real automotive industry are the so-called "Tier One" companies; Faurecia (French), Johnson Controls, Continental and so on.


Promising new industries are in my opinion the biotech industries, most importantly the ones which meddle with human and productive livestock's biochemics.
Grow new limbs, grow replacement organs for transplantation, boost muscle growth (not the least to battle cancer), boost growth of certain body parts certain people are much-interested in (cough), tell the central nervous system in the spine to repair itself after a cut, tell the muscles they have been exercised when they weren't, reduce the probability of cancer through various means ...
(Science has already achieved much of the mentioned stuff on laboratory animals or at least has a clue how to do it!)


We have already cars, refrigerators, phones, TV sets, personal computers - what's left are basically bigger and more attractive housing (not export-capable) and a lot of stuff about our bodies.

The optimisation of existing hardware such as more efficient vehicles and sustainable energy supply are small topics by comparison.

Ulenspiegel
05-19-2012, 01:03 PM
Automotive assembly lines have only a small value added. The real automotive industry are the so-called "Tier One" companies; Faurecia (French), Johnson Controls, Continental and so on.

Sorry, I do no assume that the current car makers are the ones in future, with electric cars it could be that we buy a Bosch or Continental, BMW or Daimler are "only" suppliers. Here I see clear synenergy with energy technology in houses and see clear advantages in this field for local system providers.



Promising new industries are in my opinion the biotech industries, most importantly the ones which meddle with human and productive livestock's biochemics.
Grow new limbs, grow replacement organs for transplantation, boost muscle growth (not the least to battle cancer), boost growth of certain body parts certain people are much-interested in (cough), tell the central nervous system in the spine to repair itself after a cut, tell the muscles they have been exercised when they weren't, reduce the probability of cancer through various means ...
(Science has already achieved much of the mentioned stuff on laboratory animals or at least has a clue how to do it!)

Here I am much more pessimistic when we discussing the demand side: Even cancer treatment with new biochemical drugs like proteins, the most low-tech field of your suggestions, is so expensive, that only a very small fraction of the population (even in developed countries) can get this. There was much hype, however, the results are sobering, ususally because we do still not understand enough about our own bodies.


We have already cars, refrigerators, phones, TV sets, personal computers - what's left are basically bigger and more attractive housing (not export-capable) and a lot of stuff about our bodies.

The optimisation of existing hardware such as more efficient vehicles and sustainable energy supply are small topics by comparison.

Here I disagree, with PV and wind you have really huge markets and with crude >70 USD it is already a no-brainer in many coutries to install them. In contrast to biotech the existing technology works in these fields :-).

Firn
05-19-2012, 01:07 PM
Since last year there is some adjustment underway in Germany. A good example is the last Tarifverhandlung between the strong IG Metall union and employers, with 4,3% pay rise for next year. The deal is for only done for South-Westgermany, better Baden-Wrttemberg or 800,000 but will most likely be adopted by the rest of the country with its 3,6 million workers.

From the FAZ (http://www.faz.net/aktuell/wirtschaft/tarifverhandlungen-gesamtmetall-begruesst-abschluss-im-suedwesten-11756509.html)

This is good news for the workers and if I look at the results of many a German company and the dividends it is more then justified. Anyway this should make it easier for struggling countries to become competitive but it is just a small step on a long road.

I enjoy btw the service of Deutsche Welle. It has also an English channel, which is a bit strange, and has great short videos about business:

To China and back (http://www.youtube.com/watch?v=IxE-nUwyvG8&list=PL78D86E6E055C7D70&index=27&feature=plpp_video)

German Green technology for Japan (http://www.youtube.com/watch?v=Z9KJALx3Els&list=PL78D86E6E055C7D70&index=1&feature=plpp_video)

Boomtime in China (http://www.youtube.com/watch?v=gBmiHj1SiUw&list=PL78D86E6E055C7D70&index=21&feature=plpp_video) - bringing German-type training to China.


P.S: Nepal: Efficient water mills produce electricity (http://www.youtube.com/watch?v=loGJQzZ1Ei8&feature=relmfu)

An uncle of mine is in the business and here in the Alps there are still small "social" plants. Having been in the Himalaya, with many villages far away from roads and many streams I have wondered about this topic. Properly done it should be highly efficient and bring big benefits.

Fuchs
05-19-2012, 01:23 PM
Here I disagree, with PV and wind you have really huge markets and with crude >70 USD it is already a no-brainer in many coutries to install them. In contrast to biotech the existing technology works in these fields :-).


Wind is only good in some places (mostly within about 400 km of the open sea) and photovoltaic power is only cost-effective for small autonomous applications away from the power grid or in areas with a high percentage of dispersed light (due to high percentage of clouds during daytime). Areas with much direct solar radiation such as Spain are better off with solar thermal powerplants.


By the way; it seems I should emphasis the "future" aspect of the Biotech stuff that I listed. It's now too late for France to jump on the wind and solar power train. Even the German PV module producers are dying in droves because the Chinese squeeze them out of the market in cloudy Germany!

ganulv
05-19-2012, 04:27 PM
Even the German PV module producers are dying in droves because the Chinese squeeze them out of the market in cloudy Germany!

Do the German subsidies compare to those given by the Chinese government (http://www.npr.org/2011/11/18/142512090/solar-sector-at-war-over-cheap-chinese-panels)?

Fuchs
05-19-2012, 04:36 PM
The problem is that the buyer of PV modules has advantages from the regulation, not the German producer directly. If I remember correctly, German exports of PV modules enjoy no advantage from our government (other than publicly funded research and the usual advantages offered to all other exports as well).

Surferbeetle
05-20-2012, 04:57 AM
Energy provides a number of interesting engineering (and business) opportunities. The differential between natural gas prices in the US and Europe is significant, ~ $2 USD per million British thermal units (US price) and ~ 10 USD per million British thermal units (European price) and is an interesting arbitrage problem to think about....keeping in mind that the financial services industry comprises ~4.5% respectively of German and French 'gross value added', 7% for the UK, and ~14% of Switzerland's GDP. Natural gas turbine production by European firms such as Siemens and Alstom and Ultra High Voltage Direct Current (UHVDC) equipment by firms such as ABB may be places to watch/invest. The effects of 3D printing technology upon engineering and manufacturing is also very interesting to think about, while international regulatory questions are always an issue. The bigger question in my mind is, however, getting through the Greece issue and estimating where the bottom is really at with respect to share prices. I am not convinced we are at a capitulation point even though market volumes seem to indicate many retail investors are long gone....:wry:

TEXT-Fitch says U.S. shale gas boom threat to euro chemical costs (http://www.reuters.com/article/2012/05/16/idUSWNA737420120516), Wed May 16, 2012 10:30am EDT, Reuters


US wholesale electricity prices are around a third lower than in 2010, and natural gas prices at a 10-year low are a key contributor. Henry Hub gas prices are USD2 per million British thermal units (mmbtu), compared with around USD10/mmbtu for European gas. Pressure is mounting for Gazprom, Europe's main supplier of natural gas, to break the link between its long-term contract prices and oil. However, with no competitive pressure probable from US natural gas exports before 2015, the differential between US and European prices is unlikely to reduce materially in the short term.

EIA, Natural Gas Prices (Dollars per Thousand Cubic Feet, except where noted)
http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm

European Financial Centres 2012, Special Report, Financial Times, www.ft.com

Siemens, You are here: Home Energy Power Generation Gas Turbines
http://www.energy.siemens.com/hq/en/power-generation/gas-turbines/#content=Description


The Siemens gas turbine range has been designed and refined to help you meet the challenges of a dynamic market. Our 15 models with capacities from 5 to 375 MW, are designed with your profitability in mind. Whatever the application, our gas turbines meet the requirements for efficiency, reliability and environmental compatibility, giving low life-cycle costs and the best possible return on investment.

Alstom, Home/ Power/ Fossil/ Gas power/ Gas turbines
http://www.alstom.com/power/fossil/gas-power/gas-turbines/



We have 4 distinctive gas turbines on offer to meet your operational needs:

GT24 and GT26 gas turbines: meeting strict emission standards, reliable supply is combined with excellent fuel efficiency and performance
GT13E2 gas turbine: the best-in-class performance (output, efficiency), with long inspection intervals
GT11N2 gas turbine: a proven gas turbine with more than 1 million fired hours in ambient conditions from -40°C to +50°C

Industries and utilities Power T&D Solutions HVDC HVDC Classic UHVDC
http://www.abb.com/industries/db0003db004333/542b81305d650581c12574a9002560fd.aspx


The increased interest in recent years for transporting clean and renewable energy from remote hydro generation plants has also increased the interest in higher DC transmission voltage than presently used (i.e. 600 kV DC). This has led to development of Ultra High Voltage Direct Current (UHVDC) at 800 kV DC.

800 kV Ultra High Voltage Direct Current (UHVDC) transmissions are economically attractive for bulk power transmissions of 5,000 – 8,000 MW over 1,000 – 1,500 km or above. 800 kV HVDC transmission projects are already in execution phase, and 800 kV is now an established voltage level for bulk power transmission over long distances.

The printed world, Three-dimensional printing from digital designs will transform manufacturing and allow more people to start making things (http://www.economist.com/node/18114221),
Feb 10th 2011 | FILTON | from the print edition, The Economist


FILTON, just outside Bristol, is where Britain’s fleet of Concorde supersonic airliners was built. In a building near a wind tunnel on the same sprawling site, something even more remarkable is being created. Little by little a machine is “printing” a complex titanium landing-gear bracket, about the size of a shoe, which normally would have to be laboriously hewn from a solid block of metal. Brackets are only the beginning. The researchers at Filton have a much bigger ambition: to print the entire wing of an airliner.

Foreign Corrupt Practices Act by wikipedia, http://en.wikipedia.org/wiki/Foreign_Corrupt_Practices_Act

Euro-Austritt Griechenlands kostet Deutschland 77 Milliarden Euro (http://www.wiwo.de/politik/europa/schuldenkrise-euro-austritt-griechenlands-kostet-deutschland-77-milliarden-euro/6621130.html) von Malte Fischer, 12.05.2012, WirschaftsWoche


Ein Austritt Griechenlands aus der Eurozone, verbunden mit der Einstellung des Schuldendienstes, würde die Euro-Länder 276 Milliarden Euro kosten.

The Endgame in Greece—How a Bank Run Can Be Part of the Solution (http://www.piie.com/realtime/?p=2884), by Jacob Funk Kirkegaard | May 16th, 2012 | 02:22 pm, The Peterson Institute for International Economics


If the deposit flight continues unabated, the ECB will be in an awkward position, because it will likely be called upon to provide capital to Greek banks to make up for lost deposits. Presumably the ECB would do so only with a mandate from euro area political leaders, perhaps including explicit euro area sovereign guarantees to continue to lend to Greek banks or allow Bank of Greece Emergency Liquidity Assistance (ELA) to continue. Such a demand would echo what the central bank did when it was forced to accept default-rated Greek bonds after the restructuring in March. As Belgian central bank president Luc Coene said this week: “The issue is one for the politicians…. It will be a political issue—where is the balance of solidarity—rather than a technical issue about whether the banks have been sufficiently recapitalized or not.” The ECB would of course not want to be seen as pushing Greece, leaving that role to elected politicians.

Euro area leaders would then have to decide what to do. They would probably not want to see the Greek banking system collapse immediately, so they would likely go along with the ECB lending money to Greek banks. But they would probably also demand that Greek politicians sign up to the IMF program, or even that they scrap the elections and form a unity or technocratic government. This may seem terribly undemocratic. Such demands would have to be packaged to make them look like the idea came from Greece. But such things have happened before. Only last November, the EU pushed for the installation of technocrats to run the governments of Greece and Italy. Despite the claim by Merkel and Hollande that they would “listen to the Greek people,” Greek bank depositors may speak louder than Greek voters. If a bank run presented an opportunity to win a Greek agreement to stick with the IMF program, European leaders would almost certainly seize it.

More broadly, a devastating domestic bank run in Greece could strengthen the case for keeping the euro area together while it heads toward a fiscal and banking union. Euro area leaders in Germany, France, and elsewhere know that a euro exit by a member state would be very costly throughout the currency region, making them vulnerable to blackmail from opportunistic populists like Alexis Tsipras in Greece. But now the example of Greece has illustrated a new factor—namely, that the threat of a bank run taking place in any country considering a euro exit acts like the functional equivalent of a preemptive nuclear strike on political forces advocating such an exit. Because of the Greek example, populists across the euro area have awakened to a new political reality—that will be blamed for destructive domestic bank run if they pursue their exit strategies.

By bringing forward the economic costs of a euro area exit to the present—before any voters back a euro exit in their country—a bank run in Greece will not only help produce the “right result” in that country (i.e., a pro-IMF program majority), but prevent such policies from even being articulated by populist leaders elsewhere. Such political neutralization of populism would be a huge prize for euro area leaders.

Utilizing the threat of bank runs does take euro area brinkmanship to a dangerous new level. Euro area leaders should think carefully about proceeding down this road. It should only be contemplated if euro area leaders are willing to proceed to pan-euro area bank deposit insurance and other dramatic integration measures to avoid the spread of contagion and bank runs to other member states. If they are prepared to do so, they can call Alexis Tsipras’ bluff by fomenting a bank run in Greece before the new elections are held.

What is market capitulation? (http://www.investopedia.com/ask/answers/189.asp#axzz1vNmFnTCc) by investopedia


The significance of capitulation lies in its implications. Many market professionals consider it to be a sign of a bottom in prices and consequently a good time to buy stocks.

Surferbeetle
05-20-2012, 04:30 PM
Forgot to add a link for Rolls-Royce in my previous post.

Rolls Royce, You are here: Home > Energy > Products > Gas turbine engines > Trent 60
http://www.rolls-royce.com/energy/energy_products/gas_turbines/trent_60/


The Rolls-Royce Trent 60 is the most advanced aeroderivative gas turbine available today. Delivering up to 64MW of electric power in simple cycle service, at 42 per cent efficiency, the Trent 60 has established a new benchmark for fuel economy and cost savings. It also offers operators fast delivery and installation times and beneficial performance.

Mechanical Drive
The Trent 60 is also available for onshore or offshore mechanical drive applications. The Trent 60 is ideally suited to meet the higher power, variable speed demands required by applications like natural gas liquefaction, gas transportation and gas injection for oil recovery. The design flexibility of the Trent 60 allows the same engine that serves the power generation market to meet the needs of mechanical drive service with no design changes.

On to...

The anatomy of the eurozone bank run, May 20, 2012 4:21 pm by Gavyn Davies, Financial Times, www.ft.com


A bank run is now happening within the eurozone. So far it has been relatively slow and prolonged, but it is a run nonetheless. And last week, it showed signs of accelerating sharply, in a way which demands an urgent response from policy-makers.

The fear of bank runs is deeply ingrained in all economists who know anything about the genesis of the Great Depression in the United States in the early 1930s. Then, the failure of the Bank of United States in December 1930 led to multiple bank runs across the country. Bank failures in the following two years wiped out personal savings and greatly exacerbated the collapse of demand in the economy.

The classic account of the crisis, by Milton Friedman and Anna Schwartz, concluded that the collapse was largely the fault of the Federal Reserve, which failed to provide enough liquidity to keep the banks functioning and thus end the panic. After the crash, the establishment of the Federal Deposit Insurance Corporation was intended to ensure that deposit holders never again had to live in fear that their savings would be in jeopardy. What are the lessons for the eurozone?


The standard central bank response to this problem is to provide enough liquidity to solvent banks to ensure that deposit holders are always able to withdraw their money, in which case the panic is eventually supposed to subside. The ECB has done this to the full extent required; in this respect it is not possible to criticise the ECB for failing to fulfill the role of lender of last resort to the entire system. Yet the continuing drain on deposits has not been halted.


Therefore, the run is being caused by concerns about exchange rate risk, not necessarily by the fear of bank failure as such. This makes it much more complicated to deal with, since it is very difficult to offer guarantees against future exchange rate losses to today’s depositors. Germany would not want to stand behind such guarantees to Greek and Spanish citizens in the event of a euro break-up.

Who is Gavyn Davies?


Gavyn Davies is a macroeconomist who is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners. He was the head of the global economics department at Goldman Sachs from 1987-2001, and was chairman of the BBC from 2001-2004.

He has also served as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury, and as a visiting professor at the London School of Economics.

Firn
05-20-2012, 06:48 PM
Cameron urges Hollande to back Eurobonds (http://www.bloomberg.com/news/2012-05-18/cameron-urges-hollande-to-back-eurobonds-rejects-tobin-tax.html) but rejects Eurotobin tax. Hollande wants to press for Eurobonds (http://www.telegraph.co.uk/finance/financialcrisis/9277743/Frances-Hollande-to-set-out-eurobond-plans-at-summit.html) but also the Eurotobin tax (http://www.guardian.co.uk/world/2012/may/18/g8-summit-financial-tax). Merkel supports him on the transaction tax but refuses Eurobonds. And Cameron...

I really seems beggar thy neighbour has become very fashionable among the big countries.

Personally I do think that Eurobonds could help in the short term, something which makes in my mindset quite attractive, however they carry a whole bundle of potential longterm problems. It is strangely similar to the Euro idea but with more downsides for the competivess of Eurozone on the world stage.

Internally Italy the huge transfers from the North to the South have been extremely inefficient at creating national wealth, with the multiplier being certainly much smaller then 1 and getting lower. The South champions quite a few rankings, sadly mostly when it comes to things like the auto blu (http://it.wikipedia.org/wiki/Auto_blu), the cost of the casta politica in general and unemployment etc.

The various regions have but little incentives to become more efficient as the lira and now the Euro kept rolling to support the deficits. This is one of the reasons why we lost competitive ground.

In the European context it will punish the good performers and help the poor ones. Economy is no morality game, but this should go only for the short term and a crisis. To ingrain such a behavior into the Eurozone is highly dangerous for the future of Europe, especially considering the success of the Euro. The Euro did ingrain the belief into Greece and other countries that credit comes cheap and is (always) readily available. It didn't do a lot of good, didn't it.

@Suferbeetle: The classic account of the crisis, by Milton Friedman and Anna Schwartz, concluded that the collapse was largely the fault of the Federal Reserve, which failed to provide enough liquidity to keep the banks functioning and thus end the panic. After the crash, the establishment of the Federal Deposit Insurance Corporation was intended to ensure that deposit holders never again had to live in fear that their savings would be in jeopardy. What are the lessons for the eurozone?

I wanted just to add that Friedman and Schwartz really do sound rather leftist in this regard compared to part of the politcal spectrum of the US if we consider the attacks on the FED for doing their job at pumping liquidity by many and quite creative means into the market. The ECB has done so far a good job in some areas but it was so to conservative in others.

ganulv
05-20-2012, 07:33 PM
I wanted just to add that Friedman and Schwartz really do sound rather leftist in this regard compared to part of the politcal spectrum of the US if we consider the attacks on the FED for doing their job at pumping liquidity by many and quite creative means into the market. The ECB has done so far a good job in some areas but it was so to conservative in others.

I don’t think the Fed is run by the Illuminati or the Elders of Zion, but I do think it needs to be called to task for its role over the medium and long terms (http://www.rollingstone.com/politics/blogs/national-affairs/how-alan-greenspan-helped-wreck-the-economy-20110616).

Surferbeetle
05-20-2012, 07:45 PM
Firn,

Labels of left and right are too confining for 'free market thinkers'...:)

Fiscal imbalances, financial transaction taxes, general mismanagement, and proposed recovery tactics, techniques, and procedures are all topics of interest/still very much under consideration:


Investing in Change (The reform of Europe's financial markets) edited by Andrew Gowers

The American Phoenix (and why China and Europe will struggle after the coming slump) by Charles Dumas and Diana Choyleva

Vorbeben (das Buch zum Crash) von Wolfgang Munchau

Judging from the recent YPF and Bankia experiences (among many others to include IndyMac, Hokkaido Tokushokku bank, Long Term Credit Bank, Nippon Credit Bank, Long- Term Credit Bank, RBS, HBOS, UBS, Credit Lyonnais and Sparkassen) partial and full nationalization always remains in the governmental quiver :eek:

Along those lines this paper on nationalization as a strategy makes for an interesting read:


A Proven Framework to End the US Banking Crisis Including Some Temporary Nationalizations (http://piie.com/publications/testimony/posen0209.pdf), Adam S. Posen, Peterson Institute for International Economics
Testimony before the Joint Economic Committee of the US Congress hearing, “Restoring the Economy: Strategies for Short-term and Long-term Change”
February 26, 2009


That self-preservation, not profit-maximization, strategy by the banks usually entails calling in or selling off good loans, so as to get cash for what is liquid, while rolling over loans to bad risks or holding on to impaired assets, so as to avoid taking obvious losses, and gambling that they will return to value. The result of this dynamic is to create the credit crunch of the sort we are seeing today, and this only adds to the eventual losses of the banks when these losses are finally recognized.2 The economy as a whole, and nonfinancial small businesses in particular, suffer in order to spare the positions of current bank shareholders and top management (and, on the firing line, bank supervisors).


A hedge fund, sovereign wealth fund, or private equity firm with cash is not staying out of these markets for distressed assets at present just because the prices have not yet “fallen enough”; such investors are staying out because the assets are indeed toxic with indeterminate prices.

I would suggest that much of the American political spectrum (not to mention the Western political spectrum as a whole) still (!) fail to recognize that irrespective of whether they hold 1st class, 2nd class, or 3rd class tickets ticket on the Titanic, the end result of a collective political navigation failure is still the same. :eek:

Fortunately Democracy is a wonderful thing, there is no Arab Spring for us, instead we can just vote the bums out. :D

Watcher In The Middle
05-20-2012, 11:57 PM
"Judging from the recent YPF and Bankia experiences (among many others to include IndyMac, Hokkaido Tokushokku bank, Long Term Credit Bank, Nippon Credit Bank, Long- Term Credit Bank, RBS, HBOS, UBS, Credit Lyonnais and Sparkassen) partial and full nationalization always remains in the governmental quiver"

Good timing (or maybe, poor), depending upon one's outlook.

Mortgage Crisis in France - Bank Bailout required? (http://www.zerohedge.com/news/mortgage-crisis-hits-france-front-and-center-are-french-bank-nationalizations-imminent)

To quote from the article:

A direct nationalisation would likely mean some form of capital injection - an unpalatable outcome given the new government rhetoric and the fact that the existing owners' stake would have to be wiped out. CIF is 100% owned by 56 regional cooperative entities.

Just imagine - a newly elected President who wants to take on the banks, may have to as one of his first acts in office, bailout a bank.

Why do I hear echos of 2008 in my head (see Bear, Stearns and both the Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund - Re: Subprime mortgages).

President Hollande - Welcome, now you get to find out that governing ain't easy.

Fuchs
05-21-2012, 12:11 AM
It's probably cheapest to just let them all crash, then nationalise the remains (banks are little more than balance sheets and employees - the balance sheets are crap, and many of the employees are working in socially useless if not harmful jobs) and destroy the investment banking and risk management departments. Rebuild the risk management departments as really, really tiny staffs and enforce rules that make risk management efforts largely unnecessary.


It's too bad that European governments lack competence in regard to financial markets so badly. Just look at the nonsensical parts of the Basel agreements, such as the empowerment of the rating agencies. The governments were regulating the banks as if the banks were doing simple late 19th century banking only.


Well, we have highly developed and organised societies and that enables us to use electricity by simply plugging a device in, it enables us to have a shower, to use on a road where almost everyone drives orderly, to work in multi-thousand people companies and to have a kind of magic chat over any distance.
The other side of the coin is that certain institutions are not only highly developed, but also quite rotten and we seem to be complacent enough to just tolerate that.
Germany for example could vote Merkel out of office, but the replacement is guaranteed to be 95% incompetent on economics, just as most of our ministers of the economy have been for four decades.

Surferbeetle
05-21-2012, 01:03 AM
Good timing (or maybe, poor), depending upon one's outlook.

Hey Watcher,

I would go with most likely poor for the investors/traders caught in this event, but positive for the rest of the financial system.

Why?

IMHO our/the western political class has cravenly passed on exercising their duties to ensure that the market is able to kill unsustainable enterprises before they became to big to fail, and now the only way left is via nationalization. Voters are also part of this in that we have not exercised appropriate supervision and due diligence of those we have elected. Perhaps Monsieur Hollande will take the opportunity given and do the right thing?

Hopefully his econ team can ensure that the nationalization, breakup, and sale of the remaining assets is a case study in how to repay taxpayer funds plus interest.

Hollande Names Pierre Moscovici As French Finance Minister (http://www.bloomberg.com/news/2012-05-16/hollande-names-pierre-moscovici-new-french-finance-minister.html), By Helene Fouquet and Mark Deen - May 16, 2012 12:33 PM MT Bloomberg News


The young Moscovici started in politics as a supporter of the Communist Revolutionary League and left it in his late twenties for the Socialist Party, where he steadily rose to become one of its leaders and a specialist of European affairs.

Moscovici, like Hollande, studied at France’s elite Institute for Political Sciences and Ecole Nationale d’Administration in Paris. After working for the Socialist Party for several years, he ran for deputy in 1997 in the eastern Doubs region.


Hollande also named Michel Sapin Labor Minister, Laurent Fabius Foreign Minister and Manuel Valls Interior Minister. Jerome Cahuzac will run the budget ministry. For the first time, the French government will have an equal number of men and women in its cabinet, Ayrault said.

You might also remember the recent case of Dexia...France has a significant piece of the the liability associated with that failure as well.

Dexia, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Dexia


Dexia N.V./S.A., also referred to as the Dexia Group, is a Belgian-French financial institution active in public finance, providing retail and commercial banking services to individuals and SMEs, asset management, and insurance. The company has about 35,200 members of staff and core shareholders' equity of €19.2 billion as at 31 December 2010, and provides governments and local public finance operators with banking and other financial services. Asset Management and Services provides asset management, investor and insurance services, in particular to clients of the two other business lines. In 2008, the bank received bailouts for €6 billion, and it has become the first casualty of the 2011 European sovereign debt crisis. Negotiations are taking place for its breakup.[2] Its headquarters are in Saint-Josse-ten-Noode, Brussels.[3]

Fortis is a 2008 casualty worth looking at.

Fortis (finance), from Wikipedia, the free encyclopedia
http://en.wikipedia.org/wiki/Fortis_(finance)


Fortis N.V./S.A. was a company active in insurance, banking and investment management. In 2007 it was the 20th largest business in the world by revenue[1] but after encountering severe problems in the financial crisis of 2008, most of the company was sold in parts, with only insurance activities remaining.

The Benelux countries were Fortis's home base and its strength. Fortis's banking operations included network (retail), commercial, and merchant banking; its insurance products included life, health, and property/casualty lines. Products were sold through independent agents, brokers and financial planners, and through branches of Fortis Bank. It was listed on the Euronext Brussels, Euronext Amsterdam, and Luxembourg stock exchanges.

The company was broken up after having critical difficulty financing its part of a joint acquisition of ABN AMRO (as a member of a consortium which also included Royal Bank of Scotland Group and Banco Santander). After receiving a bailout from the Benelux governments, its Belgian banking operations were sold to BNP Paribas, while its insurance and banking subsidiaries in the Netherlands were nationalised by the Dutch government and renamed ABN AMRO. The Dutch insurance arm of Fortis was split off as ASR Nederland.[2]

Fortis retained the rest of its insurance operations (remaining the largest provider in Belgium),[3] and changed its name to Ageas in April 2010, with ownership of the Fortis brand having passed to BNP Paribas.[3]

@ Fuchs,

The Great Depression was an example of relatively quickly clearing the market of malinvestments while Japan's 'Lost Decade' (http://en.wikipedia.org/wiki/Lost_Decade_(Japan)) is an example of a more controlled clearing process.

Tough choices either way...

Watcher In The Middle
05-21-2012, 01:18 AM
"Hopefully his econ team can ensure that the nationalization, breakup, and sale of the remaining assets is a case study in how to repay taxpayer funds plus interest."

Actually, I agree fully with this approach. It's what we should have done here in the US (except not to nationalize, but make them file Chapter 11/Chapter 7 in federal bankruptcy court). And then we should have kicked out all the upper level management in disgrace (& board of directors), and then assigned a task force of special prosecutors to look into each occurrence.

But we didn't do that, and we've been paying for it ever since (undoubtedly, with more to come).

France in particular needs to get to the bottom of this entire real estate mortgage crisis really fast and decisively, because otherwise, you just might see France turn into "Spain, Part II". Don't do like the US is doing -trying to 'push it all down the road'.

M-A Lagrange
05-21-2012, 03:22 PM
France in particular needs to get to the bottom of this entire real estate mortgage crisis really fast and decisively, because otherwise, you just might see France turn into "Spain, Part II". Don't do like the US is doing -trying to 'push it all down the road'.

Makes too long I'm not living in France so I don't really see where you are coming from. If it's true that real estate market in France is getting a little crazy, I do not believe you can compare the situation to Spain. If real estate is too expensive in Paris, it remains accessible in "province". Also, it's a hell to get a credit from the banks. The problem is more that banks do not play their role anymore by refusing to allow grants to small enterprises. This basically kills a lot of business, even if they are health but need cash to fund their growth.

but i might be wrong.

Firn
05-21-2012, 05:34 PM
Well almost all banks are indeed greedy when others are greedy and fearful when others are fearful. It is just all too human and at the same time a strange case of Dr Jekyll and Mr Hyde. Only that both extremes will make the economy suffer be it a couple of years down the road or now.

@Surferbeetle: Banks are unique institutions as when many a banca becomes rotta the economy suffers greatly. As we have seen in dire times it is the citizien who covers the downs of those big banks while he has little from the ups. I believe we really should give a nod to the law of medieval Genua and literally break the big banks, but in away that the pieces can stand on their own feet.

Fuchs
05-21-2012, 07:26 PM
@Surferbeetle: Banks are unique institutions as when many a banca becomes rotta the economy suffers greatly.

It depends. The real economy had been complacent about the leeches in the financial industry and the big consulting firms, but since the crisis began they broke largely free from the banks.

Large corporations not only have a lot of liquidity - they also have their own means to emit bonds and such for foreign capital.

Small businesses have always been better off by dealing with regional savings & loan institutions instead of with the big banks.

Medium-sized companies are in between.


The real economy did its job of mitigating the risks of association with the big banks to the point that German big banks are now desperately in search for large loan customers. These well-done homeworks may be part of the reason why the German economy can now grow faster than long term average (which would be in real terms: working age population growth about -0.5% + annual technological progress rate about +1.5% = 1% p.a. total at most since the capital stock doesn't change much).

Surferbeetle
05-22-2012, 12:38 PM
@ Firn

Banks have been vital to financing large engineering efforts for aeons; the Assyrians had them back when. Speaking of which there was a Tel (http://en.wikipedia.org/wiki/Tell) outside of Mosul with amazing views of the Tigris and incredible work (way too heavy to carry by even a team of rapists of history) that must have been quite the amalgam of engineering, politics, and finance of pull off and build :wry: ... Eurobonds will be interesting to watch and see what results.

@ Fuchs

The distinctions between large, medium, and small banks are perhaps not as clear cut as one might think....and to stir the pot a bit, simplifying...Krugman thinks TBTF can work if managed while Greenspan thinks killing some TBTF off is not a bad thing...:D

The Economist has a timely multi-section report on Banking worth reading:

Special report: international banking: Banking goes digital (http://www.economist.com/topics/banking), May 17th 2012, 4:46 from Schumpeter, Our correspondents discuss how new technologies will affect the future of retail banking, The Economist


Spain is arguably the world’s most competitive banking market. Thanks to its fiercely independent regions, it has a remarkable number of banks for its size. Even more remarkable is the number of branches, some 43,000, which works out at one branch for every 1,000 people, or about six times the number in Britain and more than twice as many as in France and America. “With too many players you end up overbanked because every bank wants to be everywhere,” says Pedro Rodeia at McKinsey. This keen competition pushed some smaller banks to lend recklessly, causing a banking crisis that blew up the economy. Yet it also forced banks to squeeze out costs, which at Santander and BBVA account for less than 50 cents of every euro they earn, despite their huge branch networks. Most large retail banks in other countries would be happy with anything below 60 cents.

Spanish banks embraced modernisation relatively late. Having been trapped in a bubble for many years during the fascist dictatorship, once they were freed they were able to leapfrog rivals in more developed markets. The most important innovation was the rapid and almost universal adoption by bank customers of electronic bill payments. Spain’s banks have a huge advantage in not having to process cheques or handle transactions in their branches. They have invested diligently in installing the latest and most effective computer systems, making their banks enviably efficient. Their rapid growth and the economic troubles at home raise some question marks. Even so, they have developed an innovative model of banking that is being exported around the world. It may also hold some clues about what banks elsewhere may soon be doing.

Firn
05-22-2012, 05:58 PM
@ Firn

Banks have been vital to financing large engineering efforts for aeons; the Assyrians had them back when. Speaking of which there was a Tel (http://en.wikipedia.org/wiki/Tell) outside of Mosul with amazing views of the Tigris and incredible work (way too heavy to carry by even a team of rapists of history) that must have been quite the amalgam of engineering, politics, and finance of pull off and build :wry: ... Eurobonds will be interesting to watch and see what results.

An amalgam of engineering, politics and finance to build a palace for a reign who staked its claims with captured enemies. They certainly wanted to spread the word of their deeds. The Sumerian merchants trying to account for their goods could not knew that once those marks would enable the Assyrian kings to tell us how they slaughtered the sons of this and that lord in front of his eyes. Or the amount of tribute they collected.

Thankfully the situation in the Eurozone is not quite that grim, and the stronger nations are not plundering the weakest one but are sending money, if with strings attached.

As some of you recall I still hold Greek bonds which lost relative little in nominal value. If Greeces does split from the Eurozone I'm quite sure that this credit will at best worth only a third of its current value. With the GDP measured in neodrachma the debt in Euro would be north of 300% I guess, and that after the famous haircut. Too much even for a far stronger country.

Surferbeetle
05-23-2012, 05:16 AM
Thankfully the situation in the Eurozone is not quite that grim, and the stronger nations are not plundering the weakest one but are sending money, if with strings attached.

Things have not gone 'biblical' yet, but it is very interesting to see how on edge the normally cool, dispassionate, and very cerebral FT has become of late regarding this topic. Andrew Roberts May 18, 2012 7:47 pm article, "Europe’s hubristic imperial overstretch", Gideon Rachman's May 21, 2012 7:40 pm, article, "Time to plan a velvet divorce for the euro" and Martin Wolf's May 17, 2012 7:10 pm article, "A permanent precedent" are well written examples of this trend.

Looking across the channel, we also see posturing in some, not unexpected, quarters:

"Europa braucht den Euro nicht", Thilo Sarrazin schreibt den Euro ab (http://www.wiwo.de/politik/deutschland/europa-braucht-den-euro-nicht-thilo-sarrazin-schreibt-den-euro-ab/6655354.html) von Tim Rahmann, 22.05.2012, WirschaftsWoche


Diplomatie ist nicht die Stärke von Thilo Sarrazin. Der Ex-Finanzsenator und ehemalige Bundesbanker hat ein klares Freund-Feind-Schema und denkt gar nicht daran, lange um den heißen Brei herumzureden. Sarrazin stilisiert sich spätestens seit dem Erscheinen seines 2010er-Bestsellers „Deutschland schafft sich ab“ als Mann, der die „unbequeme Wahrheit ausspricht“.

Kritiker nennen seine vereinfachten Thesen populistisch. In seinem neuen Buch „Europa braucht den Euro nicht“, das heute erscheint, kommt Sarrazin erneut schnell zum Punkt: Der Euro ist ein politisches Projekt, dem jegliche ökonomische Grundlage fehlt. Die Gemeinschaftswährung hat dem Kontinent mehr geschadet als genützt. Kurzum: Europa braucht den Euro nicht. Und Deutschland schon gar nicht.

EUROPA IN DER KRISE, Griechische Linke droht mit Euro-Katastrophe (http://www.handelsblatt.com/politik/deutschland/europa-in-der-krise-griechische-linke-droht-mit-euro-katastrophe/6661788.html), 22.05.2012, 18:00 Uhr, Handelsblatt


Die Euro-Krise treibt seltsame Blüten. Dass einmal die erfolgreichen griechischen Linken gemeinsam mit den zerstrittenen deutschen Genossen in der Bundespresskonferenz in Berlin auftreten, um gemeinsam gegen Bundeskanzlerin Angela Merkel (CDU) und ihre harte Sparpolitik Front zu machen, hätte man sich wohl in den kühnsten Träumen so nicht vorgestellt. Die Spitzenvertreter der am Boden liegende Linkspartei, Fraktionschef Gregor Gysi und Parteichef Klaus Ernst, zeigen sich denn auch mehr als erfreut, dass der Chef der griechischen Linksradikalen, Alexis Tsipras, ihrer Einladung in die Hauptstadt gefolgt ist.

Nach Paris ist Berlin die zweite Station für Tsipras‘ Mission, den Euro-Rettern klar zu machen, dass sie Gefahr laufen, das ganze Euro-Projekt in den Sand zu setzen, wenn sie an ihrer harten, den Griechen aufgezwungenen Reformpolitik festhalten. „Wir brauchen alle einen Plan, um eine Katastrophe abzuwenden“, sagte der Anführer des Wahlbündnisses Syriza. Denn eine Auflösung der Euro-Zone würde am Ende die ganze Welt in Mitleidenschaft ziehen. Es müsse daher alles getan werden, dass diese Entwicklung nicht Realität werde. Unmissverständlich macht der Linken-Politiker klar, dass es weniger an den Griechen liegt, das Schlimmste zu verhindern, sondern einzig und allein an den europäischen Staats- und Regierungschefs. „Die EU-Staaten sollten nicht auf Lösungen beharren, die in die Katastrophe führen“, lautet seine unverhohlene Warnung.

But there are still cooler heads out there looking for solutions:

Parallelwährung als Alternative, Griechenland hat nicht nur die Option «Austritt mit grossem Knall» (http://www.nzz.ch/aktuell/wirtschaft/uebersicht/parallelwaehrung-als-alternative_1.17001850.html) von Christof Leidinger, 23. Mai 2012, Neue Zürcher Zeitung


Allerdings gibt es nicht nur das «Dabeibleiben» oder das «Austreten mit grossem Knall», sondern weitere Möglichkeiten. Zum Beispiel die Einführung einer Parallelwährung zum Euro. Sie könne helfen, eine ökonomische, soziale und politische Katastrophe mit unvorhersehbaren Ansteckungseffekten zu vermeiden, ohne dass die europäischen Institutionen und der Internationale Währungsfonds taktischen Erpressungsversuchen nachgeben müssten, heisst es in einer Studie der Deutschen Bank.

Vor dem EU-Gipfel, Die EU streitet über Eurobonds (http://www.faz.net/aktuell/politik/europaeische-union/vor-dem-eu-gipfel-die-eu-streitet-ueber-eurobonds-11760436.html), Von HENDRIK KAFSACK, BRÜSSEL, 22.05.2012, FAZ


In der EU herrscht vor dem Gipfel der Staats- und Regierungschefs an diesem Mittwoch offener Streit über den Umgang mit der Schuldenkrise. Im Mittelpunkt steht dabei insbesondere die Frage der Einführung von Eurobonds, also der gemeinsamen Begebung von Staatsanleihen durch die Euro-Staaten. Die Bundesregierung sehe in der Schaffung von Eurobonds weiterhin nicht den richtigen Weg, um die Schulden- und Wachstumskrise der EU zu bekämpfen, hieß es am Dienstag aus Regierungskreisen in Berlin. Die Staats- und Regierungschefs sollten bei dem gemeinsamen Abendessen an diesem Mittwochabend besser über die Förderung des Wachstums debattieren.

Für eine Debatte über Eurobonds machten sich außer dem französischen Präsidenten Hollande der italienische Regierungschef Monti sowie EU-Ratspräsident Van Rompuy stark. Beim dem informellen Gipfel an diesem Mittwoch geht es offiziell um die von Frankreich erhobene Forderung, den verschärften Stabilitätspakt um einen EU-Wachstumspakt zu erweitern. Dieser soll etwa die gezielte Förderung kleiner und mittlerer Unternehmen und junger Arbeitsloser oder den Ausbau des Energie- und Verkehrsnetzes umfassen. Konkrete Beschlüsse werden nicht erwartet. Das Treffen soll vielmehr das nächste offizielle Gipfeltreffen Ende Juni vorbereiten.


Skeptisch gegenüber Eurobonds zeigt sich auch der konservative spanische Ministerpräsident Mariano Rajoy, dessen Land in der Schuldenkrise selbst stark unter Druck geraten ist und daher von gemeinsamen Anleihen vermutlich profitieren würde. „Der wichtigste Motor für Wachstum in der EU ist die Finanzstabilität“, hatte Rajoy am Montag in Chicago während des Nato-Gipfels gesagt. Über gemeinsame Anleihen von Euroländern sagte Rajoy, diese benötigten Zeit. Wichtiger seien aber Maßnahmen, die schnell wirkten.


As some of you recall I still hold Greek bonds which lost relative little in nominal value. If Greeces does split from the Eurozone I'm quite sure that this credit will at best worth only a third of its current value. With the GDP measured in neodrachma the debt in Euro would be north of 300% I guess, and that after the famous haircut. Too much even for a far stronger country.

I still have a small sum still sitting on 'black' in the finance sector of the 'core' as the wheel spins. We will see what happens...:wry:

Firn
05-23-2012, 01:20 PM
From the Guardian (http://www.guardian.co.uk/business/2012/may/23/eurozone-crisis-markets-summit-eurobonds)



10.36am: Germany has just managed to sell two year bonds at its lowest borrowing cost ever -- with a yield of just 0.07%.

This morning's sale of two-year Schatz bonds proved popular with investors, even though the bonds won't pay a coupon (a regular payment). Investors snapped up €4.555bn of the bonds, at prices that mean they will have received just 0.07% per year when the money is repaid in 2014. That's down from 0.14% previously.

Germany had offered €5bn of bonds, and could have sold the lot if it had accepted higher yields in return.

This is the first time that Germany has sold a 0.0% coupon* bond - it took the move after seeing record demand for its debt. This indicates that investors are prioritising capital safety at any price, rather than worrying about profitability.

Such low yields mean of course that inflation and GDP growth are lowering the debt burden. For private money Germany did, like the UK and the US pay little and now nothing. I don't know the turnover of debt but it should be around 10-15% IIRC. For the state it would certainly make sense to strech the years and lower the yields asked, considering how much demand there is for this 'safe' heaven.

Especially the UK would greatly benefit from sound public investmen, just like the US and Germany would lend a helping hand to other members of the Eurozone. To some extent it is just the old sad story of persons being greedy when others are greedy and fearful when others are fearful. This concept is rightly ingrained in us humans through our long evolution but it is a poor guideline for macro.


9.38am: New sales figures from the British high street have dealt a blow to hopes that the UK economy is recovering.

UK retail sales fell by 2.3% month-on-month in April, much worse than the 0.8% decline predicted by economists. That's partly due to a drop in fuel sales (after motorists rushed to fill up in late March after a brief panic over a truck drivers strike). On a year-on-year basis, sales were also disappointing - down by 1.1%, versus a forecast of an increase in 1%.

So the UK consumer is reining in its spending, in the face of cutbacks and slowing economy at home and the euro crisis abroad. Not good. As Howard Archer of IHS Global Insight said:

@Surferbeetle: Just a war of words, but rather heavy ones. It won't get biblical but this crisis will leave its traces in the European mind. Insults and pain tend to do.

Surferbeetle
05-24-2012, 04:59 AM
@Surferbeetle: Just a war of words, but rather heavy ones. It won't get biblical but this crisis will leave its traces in the European mind. Insults and pain tend to do.

Along those lines, some of my reporting on this topic has been, in hindsight, a bit clumsy and light-hearted in some places. :o

European Banks Unprepared For Greek Exit From Euro (http://www.bloomberg.com/news/2012-05-22/european-banks-unprepared-for-pandora-s-box-of-greek-exit.html), By Elena Logutenkova, Liam Vaughan and Gavin Finch - May 23, 2012 6:50 AM MT, Bloomberg News


Europe’s banks, sitting on $1.19 trillion of debt to Spain, Portugal, Italy and Ireland, are facing a wave of losses if Greece abandons the euro.
While lenders have increased capital buffers, written down Greek bonds and used central-bank loans to help refinance units in southern Europe, they remain vulnerable to the contagion that might follow a withdrawal, investors say. Even with more than two years of preparation, banks still are at risk of deposit flight and rising defaults in other indebted euro nations.


The immediate risk for Europe’s banks, and for the euro region, would be a deposit flight from indebted nations such as Portugal, Ireland, Spain and Italy on speculation those countries also might quit the currency. Lenders in Germany, France and the U.K. had $1.19 trillion of claims on those four nations at the end of 2011, Bank for International Settlements data show.

Should Greece go, its new currency probably would suffer an immediate devaluation of as much as 75 percent against the euro, forcing individuals and companies to default on foreign loans, economists at UBS AG (UBSN) said. Unless European leaders could make a credible case that a Greek exit was an exceptional and isolated incident, depositors in other nations might decide to withdraw euros from banks or shift them to countries seen as safer.


The ECB’s unprecedented provision of 1.02 trillion euros in three-year cash in December and February helped calm financial markets in the first quarter by removing concern that banks unwilling to lend to one another would run out of cash. Lenders in Spain and Italy also used the funds to buy sovereign debt, reducing government borrowing costs.

Euro Decline

The rebound was short-lived as doubts about the health of Spain’s banks and questions over Greece’s future returned. On May 9, the Euro Stoxx Banks (SX7E) index dropped beneath the lows of March 2009. The 30-company index of euro-region banking stocks fell 2.4 percent by 2:45 p.m. Frankfurt time today. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 European banks and insurers reached 308.398 on May 18, the highest since Dec. 19, two days before the ECB’s first offering of long-term funds. The euro fell today to a 21-month low against the dollar.

Lenders probably would need another 800 billion-euro liquidity lifeline from the ECB to help stem contagion from a Greek exit, Citigroup analysts estimated in a May 17 note.

ECB President Mario Draghi said last week that Greece could leave the euro area and signaled policy makers won’t compromise on their key principles to prevent an exit.

Griechenland: Das grosse Pokern um den Euro (http://www.handelszeitung.ch/konjunktur/europa/griechenland-das-grosse-pokern-um-den-euro), Von: Armin Müller, EUROPA 23.05.2012 | 11:54, Handelszeitung


Alexis Tsipras fordert die Deutschen auf, ihre Sommerferien in Griechenland zu verbringen. Der Chef der linksradikalen griechischen Syriza-Partei will nach seinem voraussichtlichen Wahlsieg am 17. Juni die Auflagen des Rettungspakets nicht akzeptieren. Er setzt darauf, dass Griechenland bei einem Austritt weniger zu verlieren hat als die Euro-Zone.

Die deutsche Bundeskanzlerin Angela Merkel warnt davor, dass sich die Griechen mit der Wahl Syrizas aus dem Euro-Land verabschieden.

Beide Seiten pokern hoch. Drei Viertel der Griechen lehnen einen Austritt aus der Währungsunion ab. Das Land steckt in einer Depression. Griechenland ist auf den steten Kapitalfluss aus der Euro-Zone angewiesen. Wird er gekappt, versinkt das Land im Chaos.


Viele verweisen auf das Beispiel Argentiniens, das 2001/2002 die Bindung des Peso an den Dollar auflöste und den Staatsbankrott erklärte. Dank einer massiven Abwertung zog das Wachstum schon kurze Zeit später stark an. Abwertungen brachten in der Vergangenheit auch Russland, Südkorea oder Island wieder auf Wachstumskurs.

Doch der Fall Griechenland ist ungleich schwieriger. Das Land kann nicht einfach abwerten, sondern muss eine neue Währung einführen, während der Euro weiter existiert. Mit der Abwertung entwerten sich auch die Ersparnisse und die Kaufkraft. Im Irak brauchten die Amerikaner drei Monate, um eine neue Währung einzuführen. In dieser Zeit dürfte sämtliches bewegliches Kapital längst aus Griechenland geflüchtet sein.

Ein Austritt aus dem Euro hätte kurzfristig drastischere Auswirkungen auf die Wirtschaft und das Leben der Griechen als die Sparpolitik, gegen die sie sich jetzt wehren. Tsipras’ Drohung ist nicht glaubwürdig.

In der Euro-Zone wächst das Lager jener, die einen Austritt für verkraftbar halten. Nach dem Motto «Lieber ein Ende mit Schrecken als ein Schrecken ohne Ende» berechnen sie, was das kosten würde. Allein die EZB müsste rund 250 Milliarden Euro abschreiben.

Watcher In The Middle
05-26-2012, 05:20 AM
The cost of Greece exiting the euro would be unmanageable and probably exceed the 1 trillion euros ($1.25 trillion) previously estimated by the Institute of International Finance, the group’s managing director said.

The Washington-based IIF’s projection from earlier this year is “a bit dated now” and “probably on the low side,” Charles Dallara said in an interview in Rome today. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again.”

For Greece, in its fifth year of recession, it may be more effective to offer extra money to help its battered economy recover.

The European Central Bank’s exposure to Greek liabilities is more than twice as big as the ECB’s capital, said Dallara, who represented banks in their negotiations with the Greek government on its debt restructuring. As a result, he predicted the bank would be unable to provide liquidity and stabilize the euro-area financial sector.

“The ECB will be insolvent” if Greece were to exit the euro, Dallara said. “Europe would have to first and foremost recapitalize its central bank.”

Greek EURO Exit Cost Over 1 Trillion Euros (http://www.bloomberg.com/news/2012-05-25/dallara-says-greek-euro-exit-may-exceeed-1-trillion-euros.html)

And WHEN (not IF) Greece leaves the EU and moves to an alternate currency, exactly HOW are The Powers That Be (TPTB) going to recapitalize the ECB (European Central Bank)? Inquiring minds want to know.

What these clowns don't understand is that if Greece leaving the euro brings the ECB to it's knees, than literally anybody and everybody else will also have the same, if not far greater impact (Portugal, certainly Spain and/or Italy).

They basically just admitted it's "Game Over".

Fuchs
05-26-2012, 07:44 AM
I stopped reading when I read "recapitalizing its central bank".
That's the most stupid and ignorant thought I've ever read about.

I'm capable of reading English, so I've seen quite a bit.

Surferbeetle
05-26-2012, 03:14 PM
Given Mr Dallara's position, experience, access to information, and credentials it might be worth our time to revisit the received wisdom that 'a central bank can print to it's heart's content' and does not need to worry about the quantity and quality of it's assets. :wry:

The real world is not simple, constraints (consequences) exist, and central banks are not perpetual motion machines. Serious inflation and hyperinflation has visited central banks in Israel, Zimbabwe, and Germany (among others) which thought excessive printing was the answer. Devaluation and flight to quality accompanies excessive printing by central banks. Open market operations are the mechanism by which central banks use assets such as special drawing rights, government bonds, foreign currency, and gold to increase or decrease the amount of base money in the system. The quality and quantity of central bank assets in Europe are a concern in many quarters, keeping in mind that while the European Central Bank is in charge of Euro policy, nations participating within the 17 member Eurozone each have their own central bank. The ECB has mechanisms to encourage, regulate, and protect itself from the Eurozone financal system.

As unemployment spreads across Southern Europe we see the amount of private savings deposits decrease and the number of non-performing private and corporate loans increase, which leads to bank failures at a certain point. Banks are then nationalized, broken up, and sold to save the system since many are TBTF and associated losses are socialized via higher taxes. Tax revenue, however, is also adversely affected by unemployment. State cost and revenue structures become dangerously unbalanced and nations, like Greece, default on their obligations and harm their societies. Since South and North are interconnected via economics (even if the EU and Eurozone dissolve), contagion spreads.

IMO this financial crisis writ large is a turning point for Europe. Very broad brush, the continuum as i see it, ranges from Peace to War via the political continuum of Federalism to Fragmentary Nationalism. The failure of the Holy Roman Empire and the resultant history may be worth consideration...although it is noteworthy that military expenditures within Europe are very low while educational standards are very high this time around.

We will probably see a bit more movement after the upcoming Greek elections and after the next meeting (at least 18 so far according to some reports) of senior Eurozone members on this crisis...if the bank runs don't overtake the political process.

Bottom line, craven politicians eventually have to make hard choices because central banks are not magical institutions that can fix all societal ills by endless printing.


Israeli Inflation from an International Perspective, by Stanley Fischer and David Orsmond, IMF Working Paper WP/00/178, http://www.imf.org/external/pubs/ft/wp/2000/wp00178.pdf

Hyperinflation, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Hyperinflation

Devaluation, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Devaluation

Flucht in den Franken: Die Angst vor der grossen Welle, Von: Armin MllerFoto: Peter Frommenwiler, HANDELSZEITUNG 1220, 20.05.2012 | 09:25, http://www.handelszeitung.ch/invest/flucht-den-franken-die-angst-vor-der-grossen-welle

Open market operation, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Open_market_operation

Monetary base, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Monetary_base

Special drawing rights, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Special_drawing_rights

Finanzkrise, Wo ist unser Gold?, Mittwoch, 08.10.2008, 10:57 · von FOCUS-Redakteur Uli Dönch http://www.focus.de/finanzen/doenchkolumne/finanzkrise-wo-ist-unser-gold_aid_338834.html

European Central Bank, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/European_Central_Bank

Eurozone, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Eurozone

Frozen Europe Means ECB Must Resort To ELA For Banks
By Dara Doyle and Jeff Black - May 25, 2012 4:01 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-05-24/frozen-europe-means-ecb-must-resort-to-ela-as-finance-lights-dim.html

Unsecured Creditors Face Losses In EU’s Plan For Failing Banks
By Jim Brunsden and Ben Moshinsky - May 26, 2012 3:43 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-05-25/unsecured-creditors-face-losses-in-eu-plan-for-failing-banks-1-.html

Bankia Seeks 19 Billion Euros From Spain For Cleanup
By Charles Penty and Emma Ross-Thomas - May 26, 2012 7:05 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-05-25/bankia-said-to-need-eu19-billion-in-state-backing-to-restructure.html

Holy Roman Empire, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Holy_Roman_Empire

Greek legislative election, June 2012, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Greek_legislative_election,_June_2012

Firn
05-26-2012, 07:37 PM
I think it is worth to point out that much of the economic discussion comes with an US point of view, rather similar to recent military matters. In both cases great resources and stable&strong institutions in law, economy and politics are almost taken as given. Add to that the dominance of the dollar in the world economy and you have a rather unique case. In short some central banks have more freedom of action then others. (A old wise local proverb concerning wealth and card games says that it is easy to stink with the trousers full of ****)

I mostly agree with what you wrote, but I really think we have still room for aggressive actions by the ECB. The recent bank troubles in Spain are terrible news. Three years into the crisis we still have much overrated assets on the balance sheets and with the economy in ever deeper crisis and the housing market worse then ever much needs to be written down. The banks need capital and credit, so the taxpayer and the ECB have to step up. The NYT had recently a couple of good articles:

As Bank Loans Dry Up in Spain, Small and Medium Businesses Fight for Life (http://www.nytimes.com/2012/05/27/world/europe/small-and-medium-businesses-suffer-as-spain-bank-loans-shrivel.html?pagewanted=2&ref=business)


Despite the mergers and injections of capital from the banking bailout and reconstruction program begun by the government in 2009, there has been no improvement in lending. According to the Bank of Spain, credit to the private sector fell in March, as it has virtually every month since the fall of 2009. Some businesses say they do not even bother asking for loans anymore.

Getting loans to start a company may be even harder. “How are you going to get new businesses going if there is no one willing to take a risk and lend you money?” said Edward Hugh, an economic guru who blogs on Spain’s economy. “The problems become circular and self-perpetuating.”

Banking officials agree that the restructuring has made credit harder to come by, but they say they can do little about it. “The banks here are asked to provision more capital to guard against loan losses,” an official from CECA, the Spanish savings bank association, said. “And if they are asked for more capital, then the possibilities of giving credit are limited.”

Giant Lender in Spain Asks for Billions to Fend Off Collapse (http://www.nytimes.com/2012/05/26/business/global/spanish-lender-seeks-state-aid-ratings-cut-on-5-banks.html?ref=business)


MADRID — Spain’s banking crisis worsened Friday as the board of Bankia, the country’s biggest mortgage lender, warned that it would need an additional 19 billion euros ($23.88 billion), far beyond what the government estimated when it seized the bank and its portfolio of delinquent real estate loans earlier this month.

A bit to explain the German point of view: Germany Looks to Its Own Costly Reunification in Resisting Stimulus for Greece (http://www.nytimes.com/2012/05/26/world/europe/german-reunification-pains-inform-stance-on-greece.html?ref=business)


MUNICH — When Germany wants to understand Greece and the crisis afflicting Europe it not only looks south to the Continent’s periphery but also turns inward, to the former East Germany, still struggling more than two decades after German reunification.

To an extent not often appreciated by outsiders, the lessons provided by that experience — with the nation pouring $2 trillion or more into the east, by some estimates, to little immediate benefit — color the outlook and decisions of policy makers and the attitudes of voters, a majority of whom would like to see Greece leave the euro zone, polls show.

Surferbeetle
05-26-2012, 09:00 PM
I think it is worth to point out that much of the economic discussion comes with an US point of view, rather similar to recent military matters. In both cases great resources and stable&strong institutions in law, economy and politics are almost taken as given. Add to that the dominance of the dollar in the world economy and you have a rather unique case. In short some central banks have more freedom of action then others. (A old wise local proverb concerning wealth and card games says that it is easy to stink with the trousers full of ****)

Wow! Almost spilled my beer when I read that one. :D

Well, the beauty of SWJ/a free market of ideas/the inter-webs is that anyone is able to take a position and advance/defend it if they can, everybody learns something in the process, and hopefully the, uh, cream rises to the top. :wry:

So, as we watch the slo-mo bank-run and hear the whooshing sound of big money running to the hoped for safety of Bunds and Treasuries I am wondering how all this recent activity impacts the monstrously large, global over the counter derivatives market (~ 600 trillion USD in the second half of 2010 keeping in mind that the combined GDP of the EU was in the neighborhood of 16 trillion USD in 2010) beyond further politicizing the regulatory frameworks? BIS says that interest rate swaps are the largest component of this market, JP Morgan has recently been in the news in this arena, and I wonder who is next...


OTC derivatives market activity in the second half of 2010, Monetary and Economic Department, May 2011, http://www.bis.org/publ/otc_hy1105.pdf


After contracting by 4% in the first half of 2010, total notional amounts outstanding of over- the-counter (OTC) derivatives rose by 3% in the second half, reaching $601 trillion by the end of December 2010 (Graph 1, left-hand panel, and Table 1). Notional amounts outstanding of credit default swaps (CDS) continued to contract, falling by 1% after the 7% decline in the first half, while outstanding equity-linked contracts shrank by 10%. Gross market values1 of all OTC contracts went down by 14%, driven mainly by the 17% decline in the market value of interest rate contracts. CDS market values fell by 19%. Overall gross credit exposure2 dropped by 7% to $3.3 trillion, compared with a 2% increase in the first half of 2010.

J.P. Morgan’s losses reveal market chaos, By David Weidner, MarketWatch, May 11, 2012, 3:16 p.m. EDT, http://www.marketwatch.com/story/jp-morgans-losses-reveal-market-chaos-2012-05-10


Already two alternate narratives are making their way into the media. The first is that J.P. Morgan’s $2 billion trading loss and $800 million or more blow to earnings is the result of some rogue in England known in the markets as the London Whale. See MarketWatch report on J.P. Morgan loss.

The second narrative is one told by The Financial Times in the aftermath: that this loss is inconsequential.

“So far the numbers are not enough to dent J.P. Morgan’s balance sheet, nor its capital-adequacy ratios much, nor its ability to return money to shareholders,” the publication said in its “Lex” column, adding that it would only serve to give “ammo” to bank critics.

Watcher In The Middle
05-27-2012, 04:19 AM
This is the type of situation that scares me:


Europe continues to fight the wrong battle, and continues to spread contagion risk.

It is clear that Greece has had a solvency issue now for over 2 years. The ECB and Troika chose to treat it as a liquidity problem. Maybe, they could have argued that in early 2010, but by the summer of 2011 it was obvious to any credit observer that the problem was solvency, yet they continued to treat it as one of liquidity. That is scary because if they feel to see the problem correctly now, they will fail miserably. Not only is the problem clearly solvency, but now forced currency conversion has been added to the mix. Any “solution” from the EU must now address that risk, and it is not the same as solvency. Programs that can protect against solvency may do nothing for the redenomination risk.

Not only did Europe fail to address the problems, but in spite of convincing themselves that all these programs prevented contagion risk, they actually ensured contagion risk. That contagion risk, that they forced on themselves is now coming back to haunt them, and must be carefully addressed in any policy “solutions”.

Europe Fighting the Wrong Battles Again with Dangerous Consequences (http://www.tfmarketadvisors.com/2012/05/26/europe-fighting-the-wrong-battles-again-with-dangerous-consequences/)

Want to see the really scary parts? - check out those pie charts. 82% of the interest due on bonds are to either ECB bonds (29%) or Troika loans (53%). Only 18% is private sector.

And then take a look at the Greek indebtedness maturing within the next 6 years - only 2% is private sector.

When I read the entire post - there's just no out. And it's obvious that there's no workable 'firewall' to make a practical solution of "What happens in Greece stays in Greece".

What are the implications for political/society instability when Greece implements the Drachma - it's not only devaluation risk, but also conversion risk. The conversion risk may be a greater problem.

Surferbeetle
05-27-2012, 10:22 PM
When I read the entire post - there's just no out. And it's obvious that there's no workable 'firewall' to make a practical solution of "What happens in Greece stays in Greece".

What are the implications for political/society instability when Greece implements the Drachma - it's not only devaluation risk, but also conversion risk. The conversion risk may be a greater problem.

You post some interesting links and ask some interesting questions, which make me think about how the 'discussion' between the philosophers Immanuel Kant (22 April 1724 – 12 February 1804) and Thomas Hobbes (5 April 1588 – 4 December 1679), regarding the primacy of Democracy or that of State Power, compares to today's events.

"Greece: Western Mistress, Eastern Bride" is how Robert D. Kaplan leads off the chapters describing Greece in his book: Balkan Ghosts (A Journey Through History). The turbulent political and economic history described comes across as very much a Hobbesian world:
"Greece is Europe's last port of call, where the Balkans begin to be dissolved completely by the East. As such, approaching from the opposite direction, Greece is also where the oxygen of the West begins to diffuse the crushing and abstract logic of the Mesopotamian and Egyptian deserts." Can Syzriza (or any other Greek political party or movement), credibly gain the acquiescence of the populace, negotiate a compromise with the EU, and manage to sustainably extract, appropriate, and regulate Greek capital without causing strife? If so, extend and pretend may still be a possibility. Access to commodities, geography, history of civil war, diaspora size, education, ethnic and religious composition, political incidents, changes in GDP, etc are all tea leaves that may be examined to gauge the possibility of internal national strife (protests or otherwise). Meanwhile, Christine Lagarde of the IMF has bravely started a public discussion regarding the relative wealth of EU members (~ a combined GDP of 16 trillion USD in 2010) and the role that taxation plays in Western Society, but that is only part of the puzzle. I think you are right about the importance of conversion risk, this along with macro imbalances, fiscal policies, and 'North and South' concerns of EU members, may all be memes too far at the moment (for developing political consensus)? As a result, capital controls are being actively looked at. At this point then it appears to me that the actions of the EU, and surrounding nations, seem to be more focused upon political and economic concerns than those of significant social unrest.

Long story short: I am still in European financial equities. Things change all the time, so we will see what comes... :wry:


Balkan Ghosts (A Journey Through History), Robert D. Kaplan, ISBN 0-679-749810

Seeing the Elephant (The US Role in Global Security), Hans Binnendijk and Richard L. Kugler, ISBN 1-59797-100-6

Strong Societies and Weak States, Joel S. Migdal, ISBN 0-691-01073-0

Leashing The Dogs of War (Conflict Management in A Divided World) edited by Chester A. Crocker, Fen Osler Hampson, and Pamela Aall, ISBN 10-929223-96-X

Greek Civil War, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Greek_Civil_War

Israel-Cyprus Deal On Gas As Lebanon Won’t Negotiate, by Eduard Gismatullin - Apr 19, 2012 6:26 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-04-18/israel-cyprus-deal-on-gas-as-lebanon-refuses-negotiation-energy.html

Greeks Must Stop ‘Trying To Escape Tax,’ Lagarde Tells Guardian, By Mike Harrison - May 26, 2012 12:04 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-05-26/greeks-must-stop-trying-to-escape-tax-lagarde-tells-guardian.html

Swiss eye capital controls if Greece goes, by Alice Ross in London and Haig Simonian in Zurich, May 27, 2012 5:47 pm, Financial Times, www.ft.com

Notfallszenario der Nationalbank, SNB prüft Einführung von Kapitalverkehrskontrollen, sollte die Euro-Krise eskalieren, Sebastian Bräuer, Daniel Hug, 27. Mai 2012, NZZ am Sonntag, http://www.nzz.ch/aktuell/wirtschaft/uebersicht/notfallszenario-der-nationalbank_1.17055832.html

Watcher In The Middle
05-28-2012, 06:29 AM
The real issue with Greece that I see is that both the ECB and the Troika are the primary (and immediate) creditors to Greece. If Greece just decides to default on their 'deal' and fail to implement the austerity programs, then both the Troika & ECB cut them off. So Greece goes into default. But their money (the Euro) is still at it's full convertibility rate, ie Greek euro = Italian euro = French euro = German euro.

So, the result will be expanded bank runs in Greece (assuming there's any money left in Greek banks), Portugal, Spain, and possibly Italy. Why? Because nobody wants to go back to their original pre-euro currency, because if you are in one of the PIIGS and you have to have your money revert back to the national (pre euro) currency, you just suffered an immediate devaluation in your holdings. Move your money into Euros - immediately. And get the money in your hands.

So, the smart move is to make a hard withdrawal of your money in euro (or dollar) denominated currency. It's already been happening, and now it's accelerating.

The smart money says that to stop the outflow (bank runs), the EU has to kick Greece out of the euro & force Greece to move to the drachma.

But the problem with doing that is that once you start that process, the ECB and Troika holdings of Greek sovereign debt (and non-sovereign Greek debt) just basically became radically devalued, if not functionally worthless. And those are big numbers. But it doesn't just stop with Greece.

So what does the ECB and the Troika do? They have got no good options.

Truth of the matter is that right now Greece holds the cards. They've just shown Portugal, Spain, Iceland, and Italy the way to deal with this situation. IMO, they get to 'party on' while other (primarily the Northern European) nations get to keep picking up the tab.

Not to worry. In 6 months or so, when the US finances melt down (say January - April, 2013), we'll make the entire European quandary look like a sideshow.

Watcher In The Middle
05-28-2012, 06:48 AM
Then we get this:


Spain may recapitalize Bankia (BKIA.MC) with Spanish government bonds in return for shares in the bank which last week asked for rescue funding of 19 billion euros ($24 billion), a government source said on Sunday.

Bankia could use the sovereign paper as collateral to get cash from the European Central Bank, forcing the ECB to get involved with restructuring Spain's banking sector, laid low by lending to property developers in a boom that ended in 2008.

Another 19 Billion Euro Bailout - for Bankia (http://www.reuters.com/article/2012/05/27/us-spain-bankia-idUSBRE84Q0FB20120527)

Short summary:

1) Spanish government source
2) Float what amounts to be 19 billion euros of junk bonds
3) Sells them off to the ECB at face value.
4) Uses the proceeds to "recapitalize" Bankia.

Greece all over again....only on a far larger (and completely unaffordable) scale.

Watcher In The Middle
05-29-2012, 05:28 AM
Here's somebody to pay attention to.

And the Smart Money Says.... (http://brucekrasting.blogspot.com/2012/05/capital-controls-coming-to-greece-and.html)

Now if it's Switzerland that sets down the initial capital controls, then everybody else in the EU will have to follow. No choice.

"Capital Controls" = A ban on money transfers in/out of country. Limits on the amount of cash that can be withdrawn from a bank or ATM.

Think what that immediately does to the business environment. For products like pharmaceuticals or petrochemicals being produced at different facilities located in different nations, imagine the headaches. Think about the effects on a corporation like EADS.

I watched the different Sunday Washington "talking heads' all pontificating over US political fights (like over Bain Capital), and it's more than clear to me that those folks are truly clueless over just how bad and on-the-edge economic issues are in Europe.

If there are nation-by-nation capital controls implemented all across the EU, then the entire EU marketplace start to crumble - and anybody who believes those negative economic effects won't reach US shores is just flat out nuts.

As an aside, now we know why all those US multinationals with all those cash hordes held outside of the US wanted so desperately to cut a deal to be allowed to move that money back into the US at a more favorable tax rate. There's going to be a whole lot of CFO's/corporate treasurers with large cash positions in the different EU countries who are going to be sweating blood.

Fuchs
05-29-2012, 06:36 AM
I watched the different Sunday Washington "talking heads' all pontificating over US political fights (like over Bain Capital), and it's more than clear to me that those folks are truly clueless over just how bad and on-the-edge economic issues are in Europe.

Admittedly, wrong continent and the trade relations aren't that huge anyway. Few %GDP.

The more worrying problem is that the talking heads don't have a clue how unsustainable the U.S. economy is and that any recovery of the usual kind is only an acceleration towards the next huge crash.

Firn
05-30-2012, 05:32 AM
Smart money has been terribly wrong in so many occasions in those last years that I certainly do not stand in awe. Many top guys of said smart money were smart in the sense that they earned lots of money despite the very mixed bag of performances.

---

Spain is not Greece. It is a modern developed economy with a relative strong national and regional institutions which handled its (national) public debt very well for many , many years. It has also a stable government.

Spains initial crisis was in some ways pretty US-like. A low saving rate, cheap and easy credit and lax oversight led to a great party which inflated the wealth of the citiziens especially due to ever higher housing prices. As everything was on a high investors from abroad wanted to join the fun and kept it going. Then the bubble burst and now the private demand has collapsed, entering a vicious downwards spiral with too little help from the state which hit the austerity brake too soon.

The Spanish banks have, as we have seen still a lot of overvalued assets on the balance sheets as one has to expect during such a terrible local crisis without aggressive action. Bankia has been composed of many regional banks with hardly any relative foreign assets, making them fully exposed to the Spanish crisis. The state will step in, no doubt about that.

Personally I think that Spain must stimulate its economy with help from the ECB. A considerably higher debt of 85% of the GDP with an economy not in deep depression would even make for lower yields, but most important of all it would put so much wasted potential back at work.

Fuchs
05-30-2012, 08:45 AM
Spain is not Greece. It is a modern developed economy with a relative strong national and regional institutions which handled its (national) public debt very well for many , many years.

I've read this meme often enough, its popularity seems to stem from Krugman.

No, Spain's fiscal policy has been 100% incompetent and disastrous for a long time. They had faked prosperity and decent budgets like the Greeks, their methods was merely less brazen. They had a huge bubble.
Now either they understood that there was a bubble - then they had horrible policy because they allowed it to grow and blow up.
Or they did not understand there was a bubble - then they were utterly stupid, way below common sense.


This is a country which never got its youth unemployment under control (never below 17%).


I don't get why so many people are so lenient regarding the Spanish and their horrible economic policies whenever the language is English. May it be that the U.S. and London housing bubbles would otherwise create too much cognitive dissonance among anglophones?

J Wolfsberger
05-30-2012, 12:53 PM
I've read this meme often enough, its popularity seems to stem from Krugman.

Krugman among others. But the nice thing about Krugman is that he'll reverse course and say exactly the opposite if you wait for a little while. I think of him as the man who argues with himself - and loses.

As for the "cognitive dissonance among anglophones," I think its a language independent epidemic. The root cause is economic illiteracy. But that's probably a topic for another board.

Fuchs
05-30-2012, 02:16 PM
Economic policy should be context sensitive.

An economic advisor can contradict an earlier statement and be totally consistent in his economic science at the same time. Most people don't get that, as they're used to ideology instead of scientific models.

J Wolfsberger
05-30-2012, 03:51 PM
Economic policy should be context sensitive.

An economic advisor can contradict an earlier statement and be totally consistent in his economic science at the same time. Most people don't get that, as they're used to ideology instead of scientific models.

In general I agree with you. Willingness to change one's position as a consequence of following the data is a necessary component of intellectual integrity.

I also agree that economic policy should be context sensitive. In Mr. Krugman's case, however, the context seems to be ... something other than current world wide economic problems.

As to the use of models, having spent a good bit of my early career developing, maintaining and applying some very complex, high fidelity models and simulations, I can assure you they will lie to you faster than a shady used car salesman. :D

That is especially true when they are used to bolster an ideological position (ala Krugman) rather than evaluate circumstances.

Fuchs
05-30-2012, 04:24 PM
I succeeded to get a 1.3 grade for my diploma dissertation (microeconomics, fiscal policy) without making use of a single equation. :D


Krugman's worst fault is imho his short term focus.
It's difficult to stand an argument against him (/his position) without resorting to long term arguments.

Firn
05-30-2012, 07:23 PM
Well Spain did have a relative firm grip on the national deficit, as I wrote, however did nothing to reign in the happy private/regional party where the credit drinks got too cheap for the good of most. Some got more fun out of it then others but for all the deflationary morning came. That hardly anybody tries to keep such bubbles under control is deeply human. Who wants to bust a good party? Certainly not the politicians who think they are doing great due to their own wise rule and are glad to get reelected...

Unemployment was always high, even if you account for the black labour market, and this has to be Spains biggest weakness. It should have put all that pre-crisis inflow of cheap money to much better use, just like the US, especially with an eye on youth unemployment. A good economic policy would have given them much more liberty of action, now they are hounded by the markets and the crisis.

---

This crisis has given me again faith in macro. For example I did expect relative high inflation around 2010-11 after all that easing in 2008, but basic macro (liquidity trap etc) and decent logic helped some to get it right. Krugman was one of them. With demand that low and the economic heart, the banks, pumping the lifeblood of the economy so slowly and out of sync the inflation has indeed been very low by historical standards.

---

The earthquakes in Northern Italy have not just caused once again a tragic loss of life but inflicted very significant damage on our cultural heritage and economy. If the destruction of old castles and churches is tragic then the collapse of relative modern industrial buildings is a scandal.

Fuchs
05-30-2012, 07:53 PM
Well Spain did have a relative firm grip on the national deficit, as I wrote, ...

What they did was they postponed the bill. Not impressive.

What's more interesting is is their mild trade balance deficit of at most 1% GDP p.a..

This trade balance deficit indicates that Spain was almost sound if seen as a black box. They just proved unable to organise their economic activity in a way that's sustainable and meeting the demands (such as proper distribution of jobs = income to the youth). They had almost as much output as input, but they failed at the allocation. Badly.

Assume they had had no bubble - would they have been then able to sustain the government without substantial budget deficit? NO.
Why not? After all, the outside view on the black box reveals no such problem.
The answer is that they have absolutely huge dysfunctionalities in their society, and instead of addressing them properly they elected a liar who played in a small war and meanwhile the people partied in a party which the black box was able to sustain, but not their very own society, the inside of the black box.
Spain is a puzzle that cannot be joined. Little fits togethe, they have major work to do.


Now maybe this made more clear why I am so disgusted by references to how exemplary Spain was until the crisis (which is all too often presented as if it was merely a 100% exogenous shock).


For example I did expect relative high inflation around 2010-11 after all that easing in 2008, but basic macro (liquidity trap etc) and decent logic helped some to get it right. Krugman was one of them. With demand that low and the economic heart, the banks, pumping the lifeblood of the economy so slowly and out of sync the inflation has indeed been very low by historical standards.

I expected and expect huge USD inflation, but I do so for a game theory reason. The liquidity trap is actually a reason FOR huge inflation.
As usual, Krugman is on the (very) short term side on this.

My reasoning is strategical; the U.S. has exploited the reserve currency status of the USD a lot and can be expected to go on with it, but it's not going to be able to go on forever. The U.S. economy is unsustainable (see balance of trade, savings rate coupled with population growth rate).
At some point the idea of a surprise inflation is going to be irresistible and it will happen.
The huge financial meltdown and crisis was a huge opportunity for such a huge surprise inflation, not the least because the huge deflationary forces in the economy had to be countered with easy money. Now all they would have needed to do was tell the Fed to buy U.S. treasuries in order to improve overall cash liquidity - buy almost all treasuries. Then burn them. What would happen when deflationary forces and all the other special effect disappear? HUGE inflation for one or two years, price rigidities broken (wages!) - and the damage would be on part of the USD cash owners - such as the Bank of China or how they're called. The average American has no savings (thus savings rate close to zero), almost no American has substantial savings in liquid assets (M3).

Apparently, Obama and Bernanke do not think alike - or he thinks it's better to do this even later. After all, trade partners proved to be hugely gullible and resumed to tolerate trade balance deficits at almost the old volume
Maybe the U.S. is with its political institutions too incapable to pull something like this off anyway. In that case they will eventually do it by accident, with more pain and less benefit.
I say the U.S. gets a huge inflation within 15 years that clears a lot of the accumulated old imbalances. This is imo independent of their fiscal situation and dependent on trade and savings instead.

Regarding

...pre-crisis inflow of cheap money...
Wrong country for this story. East Europe and Greece had this symptom, not Spain.

http://www.tradingeconomics.com/chart.png?s=sptbeubl&d1=20000101&d2=20120531
http://www.tradingeconomics.com/spain/balance-of-trade
Not that much apparently. This is the weird thing. They financed their construction bubble themselves in the end. It was a huge resource mis-allocation, a stupidity on huge proportions.

Firn
06-06-2012, 05:40 PM
@Fuchs: I think we had that discussion before.

1) Compared to the balance of trade of other countries, for example Italy, Spain had indeed a great influx of foreign goods and capital especially considering the size of the economy. Trading ecomics has indeed some good graphs about it.

2) The Euro did radically narrow the spread and increase the amount of foreign bond holders. The Spanish state was financed in this sense thanks to the Eurozone with a lot more foreign money leaving more capital for the private sector which as I stated in 1) did also experienced a greater relative amount of foreign or foreign-backed capital.

3) As you wrote and I mentioned before the government and the regions happily enjoyed the ride on the crest of the wave. The housing boom greatly helped to keep the debt of the state low by turbocharging the economy and thus tax revenue. In retrospect the managed not just the bust but also the boom poorly.

----


Yesterday I invested heavily in European index fonds with a good composition of good enterprises. The DAX got the highest relative share. We will see how things go in the long run.

Fuchs
06-06-2012, 07:32 PM
Firn, the Spanish paid for almost all their imports with exports. The trade balance deficit was far less than 1% GDP!
(The U.S. trade balance deficit was an order of magnitude bigger in %GDP!)

The statistics simply say "NO!" to the idea that the Spanish boom or government was financed with foreign capital.

That "the Euro led to a huge capital influx" story is valid for the Baltics, Greece, Portugal, maybe Hungary and so on. It is NOT the story of the Spanish.
The Spanish squandered their own resources and work.


-----------------

Btw, I have recently engaged in some discussions about economics with Americans online. It is astonishing how readily they discuss matters they don't understand for lack of education and keep ignoring arguments and evidence in favour of talking points and aggressive behaviour towards the other tribe or whom they perceive as part of it.
Party line ideology has clearly taken over both on the left and right. Economic science is often being despised by both wings, and I suspect it's not so much for its actual limitations, but because it gets in the way of their ideology with its actual strong points.

The left cannot understand that the economy needs more investment and is really not only about consumption.
The right cannot understand the small role of tax rates for economic growth, what drives potential GDP growth or even the most basic concepts of market imperfections stemming from the early 20th century or even from the 19th century.
Both wings have absolutely no problem with living in a fantasy world regarding historical outcomes, the state of the science and many other things. They're utterly comfortable living in their non-real worlds.

Then again, we're basically on autopilot in regard to economic policy in Germany with no smart remarks from either wing... :mad:

Firn
06-06-2012, 08:24 PM
That "the Euro led to a huge capital influx" story is valid for the Baltics, Greece, Portugal, maybe Hungary and so on. It is NOT the story of the Spanish.
The Spanish squandered their own resources and work.


I think we have to agree to disagree on that issue. Anyway I do agree that especially macro has been intertwined by many with political views, and certainly not only in the US, even if there we have reached new extremes. It is of course rather helpful to have "science", often financed by private interests, supporting, neatly fitting, political arguments.

From an Italian or Latin ;) point of view cui bono is deeply ingrained, perhaps because we had for such a long timeframe in much of Italy institutions working quid pro quo. Maybe one can say that there is a strong tendency to be loyal to the friends and relatives. Nobody stands above that, including my person. Greece has pushed that to European extremes, showing well that the interest of the public can suffer greatly in such circumstances. It is the age old problem that one hand has the power to hand out the public good while an other has the money to "wash" the first one.

ganulv
06-06-2012, 09:18 PM
Btw, I have recently engaged in some discussions about economics with Americans online. It is astonishing how readily they discuss matters they don't understand for lack of education and keep ignoring arguments and evidence in favour of talking points and aggressive behaviour towards the other tribe or whom they perceive as part of it.
Party line ideology has clearly taken over both on the left and right. Economic science is often being despised by both wings, and I suspect it's not so much for its actual limitations, but because it gets in the way of their ideology with its actual strong points.

Relative to the rest of the world do we even have a left in the United States? I don’t know of anyone further to the left than Krugman who isn’t automatically labeled as a radical by the taste-makers in the media and political parties.

I can’t speak for economic science as practiced anywhere outside of the U.S. but here economists (and political scientists to a lesser degree) enjoy a respect unknown to other social scientists. Those working within academia are able to demand salaries commensurate with natural scientists and never asked to answer the “Why do we even need your discipline, anyway?” question. Students looking to make a career in government service are going to be advised to seek a degree in economics (or, again, political science) and to not make life hard for themselves by looking elsewhere in the social sciences or, God forbid, the humanities.

It would be interesting to me to be a fly on the wall when non-U.S. economists discuss their American counterparts. I say this because I wonder whether the empirical blindness and narrowness of vision of your interlocutors also typifies professional economists within my country (as compared to economists from other national traditions).

Fuchs
06-06-2012, 10:46 PM
Relative to the rest of the world do we even have a left in the United States?

Well, the average Republican would be considered a Nazi in Germany (and many neocons would have run the risk of getting incarcerated as criminals), while the Democrats' "progressive" left wing reminds me of our 1950's conservatives save for what Americans call "social" (= sex-related) topics.

There are a couple countries without a true left wing or with an entirely ineffectual right wing, so the U.S. is not alone in its political extremism.

ganulv
06-06-2012, 10:55 PM
Well, the average Republican would be considered a Nazi in Germany (and many neocons would have run the risk of getting incarcerated as criminals), while the Democrats' "progressive" left wing reminds me of our 1950's conservatives save for what Americans call "social" (= sex-related) topics.

More than once I have referred to someone as a fascist (for example (http://en.wikipedia.org/wiki/Rick_Santorum)) and been accused of casting aspersions when I was just using the term descriptively.

Fuchs
06-07-2012, 08:19 PM
aspersions

Again a new word. For some unknown reason I've begun to learn new English words recently. Strange, for I believed I had already almost all of them in my passive repertoire.


Telling the truth about extremists is rarely appreciated by those who tolerate and cooperate with them.

The U.S. has been so much isolated from the rest of the world (especially from the non-anglophone world) and has such a low opinion about learning from others (assuming it should still be the other way around) that extremism of many kinds is quite widespread by now.

* % population incarcerated
* civilian gun ownership
* military spending
* small government vs. big government debate (next to non-existent in most countries)
* evolution vs. some nonsense (basically a rested case for almost a hundred years in Europe)
* evangelicals
* anti-abortion (even the Irish aren't that crazy about it and no, I won't quote the newspeak used to describe the opposing sides of this issue)
* de-industrialisation and over-emphasis of financial sector (OK, some European countries match this)
* campaigning against labour unions
* ludicrous ideas about what effects tax cuts can (supposedly) cause
* fetishism about "small business" owners and the upper class
* about zero net savings nationwide (!)
* share of fat people
* executive empowerment, hollowing out of civil rights
* money in politics on a never seen before scale
* lack of nature sciences and engineering studies graduations up to the point that about half of the manufacturing outsourcing is being justified by lack of skilled labour alone
* disrespect for the idea of compromise and deals (including utter disrespect for obligations once accepted voluntarily in treaties)
* ludicrous tolerance for hypocrisy, incompetence, manipulation, deception and public lying
* xenophobia, disrespect of foreign cultures/countries that do not bow to the U.S.


Europe has about as much extremism, but only in regional pockets, not continent-wide.

ganulv
06-08-2012, 04:41 AM
Hard to argue with the majority of your list, but in my own opinion:



Civilian gun ownership isn’t good or bad in and of itself. I grew up in a very rural area with a high rate of gun ownership and gun violence was not an issue. Gun politics in the U.S. does tend to be knee-jerk and ill-informed, but so does all politics.
I assume the zero net savings is not unrelated to the pride of place afforded homeownership in the U.S. Which is not to say that it does not remain an isuse.
I don’t know how truly xenophobic most Americans are. I think dismissive and ignorant of foreign counties’ citizenry might be better characterizations. Still, we don’t have an equivalent to the FN.

Fuchs
06-08-2012, 10:29 AM
I don’t know how truly xenophobic most Americans are. I think dismissive and ignorant of foreign counties’ citizenry might be better characterizations. Still, we don’t have an equivalent to the FN.
[/LIST]

Uhmm, Republicans in Arizona?



Its major current policies include economic protectionism, a zero tolerance approach to law and order issues, and a strong opposition to immigration. (...) The party's opposition to immigration is particularly focused on non-European immigration, and includes support for deporting illegal, criminal, and unemployed immigrants

About which party of both is this wikipedia snippet? Guess!


Republicans also waged a months-long campaign against a supreme court judge candidate in part because of her being "hispanic". To Europeans, most "hispanics" are Caucasians and the woman in question couldn't be much more pale.

Surferbeetle
06-08-2012, 12:51 PM
China Reduces Interest Rates For First Time Since 2008, By Bloomberg News - Jun 7, 2012 9:02 PM MT, http://www.bloomberg.com/news/2012-06-07/china-cuts-interest-rates-for-first-time-since-2008.html


China cut borrowing costs for the first time since 2008 and loosened controls on banks’ lending and deposit rates, stepping up efforts to combat a deepening slowdown as Europe’s debt crisis threatens global growth.

The one-year lending rate declines by a quarter percentage point today to 6.31 percent, the People’s Bank of China said in a statement yesterday. The one-year deposit rate drops the same amount, to 3.25 percent. The extra leeway banks will get to determine rates at variance from the official setting was called a “milestone” by UBS AG.

The move, before China reports inflation, investment and output figures tomorrow, may signal that the economy is weaker than the government anticipated. Policy makers across the globe are also girding for a deeper impact from Europe’s woes, with Australia and Brazil also lowering rates in the past eight days. In South Korea, a pause in raising the benchmark has lasted a year, with the central bank staying on hold today.

Europe should stop arguing and look to Asia, By Jin Liqun and Keyu Jin, June 7, 2012 8:33 pm, Financial Times, www.ft.com


Viewed from China, the management of the eurozone debt crisis offers a stark contrast to the handling of the 1997-98 east Asian crisis. In that episode, Thailand, South Korea and Indonesia were all forced to implement tough austerity programmes imposed by the International Monetary Fund. But these countries also lost no time in restructuring their economies. Within about three years, their economies were back on track. This serves as both a warning and a lesson to the eurozone.

Unlike many of today’s Europeans, the people of east Asia did not have the luxury of large relief funds from outside their countries. The people had to tolerate hardship, and they did not believe in the magic of street demonstrations. In a poignant case, the Korean people contributed gold and household foreign exchanges to the government to help ease fiscal pressure. China made a commitment not to devalue its currency. Politicians took action rather than indulged in endless debates.

Clearly this has not been the case in Europe. The Greek and Spanish crises have not been seen as shared challenges. They have marched to discordant national anthems. Endless bargaining on terms and conditions for piecemeal bailouts has wasted a lot of time, each summit only reinforcing the belief that the eurozone is stuck in a cul-de-sac. This approach is anathema to a Chinese mindset: in The Art of War, Sun Tzu advocated setting fire to ships behind battling troops. Sometimes no way back is the best reason to fight for survival.



The writers are the chairman of the supervisory board at the China Investment Corporation and an assistant professor at the London School of Economics