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Thread: EUCOM Economic Analysis - Part I

  1. #21
    Council Member Surferbeetle's Avatar
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    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 is thoughtful, very well written, and provides an interesting window into the world of finance for those so inclined.
    Sapere Aude

  2. #22
    Council Member slapout9's Avatar
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    Quote Originally Posted by Surferbeetle View Post
    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 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.

  3. #23
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    Default Econ SITREP

    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, 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, 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, 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.
    Sapere Aude

  4. #24
    Council Member Surferbeetle's Avatar
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    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, 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]
    Sapere Aude

  5. #25
    Council Member Surferbeetle's Avatar
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    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/StandardandP...licofItaly.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/2011-0...bt-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/2011-1...ast-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/2011-1...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/...1/02/index.htm
    Last edited by Surferbeetle; 10-16-2011 at 07:58 PM. Reason: spelling
    Sapere Aude

  6. #26
    Council Member Surferbeetle's Avatar
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    Default Unification, part zwei?

    Two viewpoints...

    Germany will never leave the eurozone, by Dr. 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://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
    Sapere Aude

  7. #27
    Council Member Fuchs's Avatar
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    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 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).

  8. #28
    Council Member Fuchs's Avatar
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    Slightly related to topic:
    A google translate version of a FAZ.net (one of the big German national newspapers) article.

    How to save us Knax foxes made - Finance - FAZ.pdf

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

  9. #29
    Council Member Surferbeetle's Avatar
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    Default Currency Fluctuations

    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 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 on 14 Oct, 2010
    Sapere Aude

  10. #30
    Council Member Fuchs's Avatar
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    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.

  11. #31
    Council Member Surferbeetle's Avatar
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    Central Banks Ease Most Since ‘09 to Avert Europe-Led Slump, 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.
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  12. #32
    Council Member davidbfpo's Avatar
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    Default The scariest moment of my ministerial life

    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/b753cb42-1...#ixzz1f8jH7ngU
    davidbfpo

  13. #33
    Council Member Fuchs's Avatar
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    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.

  14. #34
    Council Member Surferbeetle's Avatar
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    Dollar Funding Costs Decline for Second Day After Swap Rate Cut, 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, 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.
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  15. #35
    Council Member Surferbeetle's Avatar
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    Draghi Signals ECB May Step Up Debt Measures If EU Considers Fiscal Union, 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, 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

    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.
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  16. #36
    Council Member Fuchs's Avatar
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    “A new fiscal compact” is “definitely the most important element to start restoring credibility,”
    "compact" or "contract"?

  17. #37
    Council Member davidbfpo's Avatar
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    Default Fiscal compact er means Fiscal Union

    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/f...o-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?
    davidbfpo

  18. #38
    Council Member Fuchs's Avatar
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    It's especially symptomatic of political elites who are adept at bartering and law, but know little about economic theory.

  19. #39
    Council Member Surferbeetle's Avatar
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    Gentlemen,

    When considering the genesis of the EU as an economic and political entity I wonder about the contributory impacts of the Roman Empire (177AD), the Holy Roman Empire (1600), the Marshal Plan (1947), the 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 (died in 1973) as well as many other European agreements, frameworks, organizations, and institutions.

    • A map of the Roman Empire's maximal extent (AD 117) superimposed over today's Europe


    • A map of the extent of the Holy Roman Empire (around 1600) superimposed over today's Europe


    • A map of the European Union (2011) superimposed upon the globe


    Why did recent statesmen such as Konrad Adenauer & 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?

    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, 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.
    Sapere Aude

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    Council Member Fuchs's Avatar
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    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.

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