“A devastating earthquake and tsunami in Japan
disrupted global manufacturing; the Arab spring
drove up oil prices; fi nancial strains in euro area
fi nancial and sovereign debt markets deepened;
growth in the United States decelerated sharply;
and the standoff about raising the ceiling on U.S.
government debt sapped confi dence in policy
making”
It’s mostly the fault of all the others then and not a chronic lack of political leadership in Europe?
@PR Guy
You selectively quote the report. In particular, you omit the vital sentence that precedes your quote: “Following a barrage of unfavorable shocks in
the first half of 2011, global economic activity has weakened and has become more uneven.”
Had you read beyond the first paragraph, or indeed had you included the whole of the first paragraph, this apparent omission would not be a problem.
Ta for link. Will take a while to ‘deconstruct’ this one …
The IMF (pg. 18) are urging that the Eurozone should become a monetary union!
‘Ultimately, a European Resolution Authority, backed by common deposit guarantee and resolution funds, would provide a permanent instrument to do so, while also improving ex-post burden sharing and providing an EU-centered backstop.’
Note the phrase ‘…ex-post burden sharing…’
PR translations:
“most
recent indicators point to a general convergence
toward low growth”
…that’s the bravest face we could put on it and when we say ‘most’, we excluded the ones that were showing a meltdown coming.
“uncertainties surrounding bank balance sheets
continue to rattle investors”
…and these uncertainties will remain as there is no intention of forcing the banks to simply come clean – so that there are no uncertainties. Ah, no we can’t because then there would be a meltdown. Honesty is not the best policy.
“Ideally, capital should
be raised through private solutions”
…but forcing PSI involvement would cause a meltdown and we are only being idealistic here so just bail them out please.
“An escalation of the strains in euro area debt
markets also poses risks for emerging Europe”
Now that Italy has been downgraded, we have reclassified it as an emerging economy (aka third’ish world) instead of one that is simply melting down.
“Banks that do not
have exposures to Greece, Ireland, and Portugal (left panel), and Spain and Italy (right panel), are not included
in the computation.”
Er, but we couldn’t find any that aren’t going to be involved in this meltdown.
“but it has
also meant that shocks in one region increasingly
affect the other, with spillovers progressively
traveling both ways.”
So, all in all, meltdown is actually unavoidable and you heard it here first.
Nice title: Navigating Stormy Waters. Conjures up an image of those old pictures of sailing ships in the middle-ages, surrounded by sea serpents, whirlpools, the edge of the flat world being approached, violent storms, etc.
@Edward
You are accusing a PR Guy of selectively quoting? Popes praying or bears in woods come to mind?
You will notice in a later post that I did actually read past the first paragraph. In fact I had read all of it by 2.45pm. Have you? Let’s have your take on it instead of sniping at mine. Or are you just disagreeing with me about the chronic lack of political leadership in Europe – perhaps you could point out to me where you’ve spotted it.
And what @Colm McCarthy says above about the IMF urging the the Eurozone to become a monetary union is correct – this is precisely correct and this is what will happen. This is the main purpose of this report – to encourage it and to do it pronto (and to try and please avoid a meltdown).
@Colm McCarthy
S’pose this means our cheque for saving the Euro and holding the line for the vichy_banking system for a while is in the ex-post!
@PR
Europe cannot do much unless it tackles the dollar reserve problem and its terrible pegged twin – China.
Lorenzo gave a interesting speech a few days ago but hes all talk…………
‘Ultimately, a European Resolution Authority, backed by common deposit guarantee and resolution funds, would provide a permanent instrument to do so,
Can we get the Cern crowd to fly those neutrons faster than light and bring us all back to 2008 so Ireland can have the same solution as everyone else?
Ford Madox Ford was featured in the Guardian today via Steve Bell and his picture Work has a depiction of the dystopian Irish past which is probably also the dystopian Irish future .
The two men behind him are imported Irish labourers, recognisable by their costume. ..
The Irish couple by the tree are feeding their baby with gruel, while an older man stands by the tree looking resentful. This aspect of the painting recalls Carlyle’s discussion of unemployed Irish migrants in his book Past and Present.
Or even Ford Madox Brown
@The Dork of Cork
But Dr Merkel has just said she will recapitalise German banks if that’s the craic – even though German (and French) banks, we were told, didn’t need recap a few days ago. A week is obviously a long time in a debt/liquidity/solvency/credit crunch* crisis.
*choose one as appropriate, as directed by your PR Guy.
@PR
Well what does recapitalise really mean in this envoirment ? – America wants to sustain its mindless consumption and China wants to sustain its capital spending empires- Europe will & is getting squeezed.
They will just stuff more euro paper in and get shredded paper out as the real economy collapses.
European austerity just means it transfers our consumption elsewhere which I am sure America & China appreciates – you cannot get austerity in a closed world loop.
They must raise the money supply & taxes , not kill or keep static the money supply in a envoirment of raised taxes.
They have got the whole bank thing back to front because of Hayek’s indoctrination – Banks and indeed money itself are just a utility of the physical economy , they are not the economy.
And the QE reduce the money velocity and hope the banks give out some credit will not work either – they must introduce & spend raw currency rationally into the medium and recognize the losses
They will figure it out eventually , unfortunetly we will all be eating raw turnips at that stage.
I just want to see one Journalist tell Jean Claude tommorow that wage deflation is inflation by other means – keeping everything on ice until it all melts catastrophically
They tried to make me go to recap but I said ‘no, no, no’
Yes I’ve been in the red but when I come back you’ll know know know
I ain’t got the time and if my regulator thinks I’m fine
he’s s tried to make me go to recap but I won’t go go go
I’d rather be at home with Sarko
I ain’t got seventy days
Cause there’s nothing
There’s nothing you can teach me
That I can’t learn from Mr Minsky
I didn’t get a lot in class
But you don’t need brains to be in banking
The man said ‘why do you think you here’
I said ‘It’s all the fault of the policymakers
I’m gonna, I’m gonna lose my bonus
so I always keep a PR guy near
He said ‘I just think you’re depressed,
this me, yeah bonus , and the rest’
I don’t ever wanna lend to peripherals again
I just ooh I just need a friend
I’m not gonna spend ten weeks
have everyone think I’m on the mend
and today the markets are up and it’s risk on again
@seafóid
Very good.
She’s dead these days isn’t she? The one with all the hair – Amy Winedrinker or something like that? I’m not really up on my pop culture. RIP. I bet she never dreamed there would be a cover version on IE.
We’ll be getting ‘SiCo’ leaving comments here next.
@The Dork of Cork
“unfortunetly we will all be eating raw turnips at that stage.”
Unlikely.
Once we get back to that stage, bankers will revert to becoming robber Barons and come round to take your turnips from you at the sharp end of a broadsword before you and yours get anywhere near them. Then they’ll tell you that they will lend you a turnip but you will have to give three turnips back next year and if you default, they will come round for the original turnip and take all your topsoil too (and quarter you).
We will then take to living in the turnips. Developers will stack one-bed turnips on top of each other and call them ‘first time buyer turnips’ and create a turnip bubble. Some bright spark will then turn turnips into CDO’s but a turnip blight will visit our lands and we will all default and have to emigrate. Then the whole sorry mess will start over again.
@ All
It may be too early to come to any particular conclusion regarding the impact of the latest developments on Ireland cf.
“Mr. Antonio Borges, Director of the International Monetary Fund’s European Department, issued the following statement today in Brussels after remarks at the launch of the Fund’s latest European Regional Outlook report:
“Let me be clear about some earlier comments I made. The Fund can only lend its resources to countries, and cannot use these resources to intervene in bond markets directly. We are lending to several European countries that have asked us for support. We do not have any additional requests for support from European members and we are not contemplating any market involvement with the EFSF.
“Any alternative lending modalities to what we do now would require a different legal structure and the use of a different source of financing. We have not discussed these issues with our membership.”
It is remarkable how straightforward the political choice has now become for Germany, a choice that has been confronting Berlin for months: does it help out with the recapitalisation of French banks or not? Dexia has now made it impossible to avoid the question any longer and for the fairly obvious reason, it seems to me: were France to try and carry the burden it would lose its triple A status and pull the foundation from under the EFSF (aprt from ruining Sarkozy’s chance of re-election).
But how to stop too many hungry mouths at the table: that is the question!
The Wall Street Journal reports that Antonio Borges, director of the IMF’s European Department told a press briefing that the Fund could intervene in bond markets alongside the Eurozone’s bailout fund and he expects the size of Greece’s second rescue package to be modified.
The IMF’s purchases of eurozone bonds in the secondary market would give an “additional element of credibility because of the conditionality the IMF requires” and attract more investors, said Borges.
Meanwhile, Borges said that the size of Greece’s second bailout package, now estimated at €109 billion, is “outdated.”
“All figures were extremely tentative,” he said, adding that the next program will have to place greater emphasis on generating economic growth instead of focusing mainly on Greece’s balance sheet.
@DOCM, MH
This guy Borges must be confused. So much for all the smoke he blew at us.
““Let me be clear about some earlier comments I made. The Fund can only lend its resources to countries, and cannot use these resources to intervene in bond markets directly. We are lending to several European countries that have asked us for support. We do not have any additional requests for support from European members and we are not contemplating any market involvement with the EFSF.”
@colm cmcarthy
First, mistyped your name just then as cool mccarthy, but it didn’tlook right somehow. Couldn’t leave it like that.
Second, the potential monetary union (“EMU” perhaps?) makes this link worth reading for two reasons.
Third, this phrase “while also improving ex-post burden sharing” should be written on a piece of paper repeatedly by everybody until they realise the significance of the third word in.
Clarification courtesy RTE
“In a dramatic turnaround, a senior official for the International Monetary Fund has retracted an earlier statement that the fund could intervene in bond markets to support struggling Italy and Spain.
Antonio Borges says that “the fund can only lend its resources to countries, and cannot use these resources to intervene in bond markets directly.”
He says that “any alternative lending modalities to what we do now would require a different legal structure” for the IMF and added that such changes had not been discussed with the fund’s members.
At a news conference in Brussels earlier today Borges said the IMF could possibly invest alongside the eurozone’s bailout fund to help Italy and Spain.”
This guy is in charge of European bailouts and doesn’t even know the legal constraints on the IMF. And he moved markets????
Borges is a clearly a plonker who has been slapped down by Washington.
The make the points below as reported by Reteurs and then declare the comments inoperative is a joke:
“Maybe even the IMF could invest alongside the European Financial Stability Facility (EFSF). We would certainly be ready to play that role,” Borges told a news conference.
“Any investment we would make in Spain or Italy would be based on full confidence that these countries are on the right track — that they are solvent and they are taking all the measures they should,” he said.
“Because the EFSF now has the ability to invest in secondary markets, we could invest alongside them supporting the debt markets in Italy and Spain with an additional element of credibility,” he said.
Borges said that while this was still in the realms of the hypothetical, such action could be taken in exceptional circumstances and had been done before.
“We are just offering the possibility,” he said.
Asked how quickly could the IMF start buying Spanish and Italian bonds, Borges said:
“We are first waiting for the ratification of the EFSF and then for some clarity on how they want to move ahead. We are offering to be cooperative and work alongside them if necessary, as soon as possible, but these things do take time,” he said.
“The most important thing, in our view, is that as soon as the authorities know how to use the EFSF, if that is clearly communicated to the market, it can have a very important stabilising effect.”
The main option for the IMF was to extend a precautionary credit line to Spanish and Italian governments, also alongside the EFSF, which is likely to get such powers, along with the remit to intervene in the bond markets, by the end of next week when all euro zone national parliaments should have ratified them.
But the IMF could go further and invest directly in Spanish and Italian bonds, although to do that it would have to create a Special Purpose Vehicle, Borges said.
“We can also create our own special purpose vehicles, all of those options are possible, some of them have been used in the past, it is not a particular innovation, it would be feasible,” he said.
@ceteris
It was to be laundered through an SPV.
You may recall that up to July 2007 banks used to set up SPVs off-balance sheet and finance them short to invest long in overrated exotic bonds, many of which had inappropriate AAA ratings.
Any parallels or similarities with any real sovereign bonds are exist solely in the imagination of the reader.
@Mr Borges
Would you like to hire my services? My ‘special’ IMF rate is $4,500 per day plus lavish expenses plus the opportunity to claim diplomatic immunity whenever I have been chasing something I shouldn’t have been chasing.
@MH
A plonker of the highest order.
@Seafoid
She is saying strict conditionality for recaps and the really interesting bit is new haircuts.
Now what do you make of the markets. Did Borges move them or are they not afraid of 50% haircuts for Greece. The financials all gained large percentages. Where is Eoin Bond..we need some insight.
@PR
Good one – but I think there would be acts of pointless farcical dissidence at that stage as peasants would realize they had nothing left to lose , while Kings would live a short ,cold, damp sorry existence. http://www.youtube.com/watch?v=-8bqQ-C1PSE
@ All
Borges may be a lot of things but a plonker he is not. He simply peaked too soon. The subliminal message is quite straightforward. And it comes from Washington and is directed at Berlin. Move, or we will!
I would like to ask a few questions about monetary policy to someone with a real understanding of monetary economics. Karl Wehlan perhaps?
First question: we can see that in the weekly balance sheet of the ECB that the sums on the deposit facility are ever increasing. Is that not the equivalent to a tighthening of the monetary stance?
Second question: the yields on the government bonds of some countries (example: yields of 5-year bunds) are well below the main refinancing rate of the ECB. Is that not an abnormal situation?
P.S. John Bruton’s views on eurobonds and the gold standard (Irish Times) may be a bit on the simplistic side but in this comment he is unquestionably hitting the nail on the head.
“Economics focused insufficiently on economic history, and finance was taught as if it was a branch of mathematical engineering rather than something influenced by psychology and politics”.
@DOCM
Don’t agree with you. When you have to retract a statement of fundamental importance within hours of issuing it (seemingly on the basis that the organization you represent does not have legal authority) then you display incompetence or, at the very least, all the hallmarks of a plonker.
I’m surprised he has not resigned.
@ Ceterisparibus
I would not bet on it! It was a message of fundamental importance and it did get across.
cf. the latest on Dexia. (They would say that, would n’t they!).
Btw, he is ex the Great Vampire Squid and probably a buddy of Barrosso.
@DOCM
The message he delivered was the IMF would buy Italian and Spanish sovereign bonds…when he knew, or ought to have known, that they had no legal authority to do so…and as he now admits will not happen.
I believe that this is major erroneous market moving information and it had the effect on European markets.
@ Incognito
Both of your observations are clear examples that the ECB has lost control of it’s monetary policy transmission mechanism, and are the justifications behind both their “emergency” liquidity measures as well as their purchasing of certain EZ government bonds. The ECB has lost the ability to affect the flow and cost of credit within the Eurozone as a result of interbank lending freezing up and government spreads blowing out (or inwards for the stronger members). German credit conditions have been easing all year despite the ECB raising rates by 50bps, for instance.
@Incognito
Allow me to guesstimate the answers, discard as amateur as you like:
1. Yes and no. If the ECB was not instantly dishing out the cash in LTROs (Long Term Refinance Operations) then cash would just pile up at the ECB. As it is, it is more a sign that banks with cash do not want to lend, even secured, because they do not like the counterparties and the assets that the counterparties are putting up (for secured repo) smell of elderberries. They are hamsters, all of them.
2. Yes. See dash for security above.
Never mind long-term bonds being below the refi rate, they are below inflation rates. The US 30 year is below 3%, the 10 year below 2% and the 5 year below 1%. The 3 month t-bill has been negative at times over the last few months.
@Bond. Eoin Bond
Yes, I now think that the ECB has lost the plot. My intuition is that there is a massive tightening of monetary and financial conditions going on, especially in Spain and Italy. That this tightening is completely unwarranted. Also, I wonder to what extent the ECB understands that this tightening is taking place. In addition, there is a confidence shock in the Euro Area, leading us straight into a recession.
I also think that the only way to get monetary policy back on its feet is buying government bonds, especially those of Spain and Italy. Ireland and Portugal would also help, but more to create a positive confidence shock than anything else (given that the support programmes have cut off the financing channel). I am happy to see the improvement of Irish bond yields in that respect. But the bond buying of the ECB has been completely erratic, and as a result impotent in my opinion.
Btw,Spiegal carrying Borges story without the subsequent retraction.
“As admirable as it is for Reichenbach and his 30 nation-builders to be bringing order to Athens”
30 nation builders ? Jesus – is there something wrong with Germans ?
Have they no historical memory ?
Nation building is a organic process – these guys do not want a Greek nation , they want a compliant market state like the Irish Fairies have provided them with.
Maybe something was lost in translation but I doubt it.
They are messing with the wrong people down there – the Greeks will eat them alive.
A Regional war is not far away – Turkey is getting stroppy already.
Expect the unexpected.
@ Ceterisparibus
It (IMF would buy Italian and Spanish bonds) does not have to happen because Merkel got the message. Your faith in legal niceties is admirable but they are not what guide our destinies. The US holds a veto over the decisions of the IMF and is the major influence upon them. And it was Germany that insisted upon IMF involvement in the euro bailout arrangements because Merkel was unwilling to accept the responsibility on behalf of Germany despite mouthing slogans about “doing everything to defend the euro”.
Her chickens have now come home to roost.
Mr bernanke I understand has done some study on the effects of tight money in recessionary times…maybe he could give a seminar jn Frankfurt
This latest IMF fluff is not helpful. The IMF are meant to be scary brilliant mysterious figures, who ride in and restore order.
Their authority has already been compromised by ‘partnering’ with the ECB and EC…whereas in fact they need to pwn the ECB.
We’ve also found that the US has no authority over the plump ditherer and her maniacal imp sidekick.
The IMF need to consider hiring magicians and Hollywood producers to feign an alien landing…and have the aliens make the IMF their mouthpiece.
Watching the VB show tonight and it struck me how pathetic both the atlantist and euro centric Irish elite really are.
Why did they not just stay on the Ranch ?
The Irish / IMF spokesman – (his name escapes me because as he was so boringly drab) claimed we need credit banks ? – why do we need credit banks ? what organic wealth have they created ?
I tell you they have created nothing , Nada ,zilch.
We don’t need them – never have.
They are a permanent externality to trade – a financial tape worm.
All you need is currency and a bank that stores it.
Do some people on here owe pundits like McWilliams an apology? Sure his prescriptions could be naive/over the top, and he was way of base at times, but he provided a consistent, far sighted and thoughtful analysis at a time when a lot of supposed profesionals were concentrating on such vital questions as the best way of maximising trade with Diego Garcia.
Its time to get over this myopic way of thinking and start looking at the bigger picture.
Time to give Paul Hunt contributor status and free reign. (ie time to accept the importance of politics)
@all
tuned to the VB show – on the positive side it appears that Donal Donovan, of the UL/TCD adjunct professorial class and ex_IMF, can now spell ‘citizenry’ … and then the bombshell from a Member of the Fiscal Advisory Council …
‘Greece could leave, or be asked to leave, the Euro.’
What insufferable arrogance, and patent ignorance of the fact that no mechanism exists for a country to leave the EuroZone. It is however, a fact that a certain member could leave, or be asked to leave the Fiscal Advisory Council. Might be time for a Dear John from Dear John ….
@ The Greeks
In solidarity.
@all
I’m now concerned at increasing empirical support for the rumour that Lorenzo was cloned in late 2010 – and there are certainly more than one of them – they have been spotted on various influential boards, on the VB show, and dare I mention it, on this blog. Vigilance is advised …
@Little John Bruton
I’m in agreement on the EuroBond issue. The childer of the local serfs have no-shooze, let alone neu-shooze. You might also give a little tutorial to the Kemmy School adjunct on the VB panel on how the EU operates. Blind Biddy reckons that you shudda run for the Park – ‘wudda been a shoe-in’ says she. That said, keep up the good work.
@DOCM
I do believe in the rule of law. What other options are there. Having looked at it a bit closer I now believe the Borges got carried away and thinking he was still with Golden Sacks started mouthing off obout SPIV vehicles and such like.
Not the type you need in charge of European rescue missions.
Pretty infographics from Fox News, it may be blocked in some areas.
‘also improving ex-post burden sharing’
What does that mean.
‘Hey, remember those bankers Vegas bills we made you pay for last year. Well here’s the really good news. The bankers have agreed to go to Vegas only once a year from now on. So even if they lose big again you probably won’t have to pay so much next time.
We’re on your side. We want you to know that.’
@ All
Off topic I’m afraid.
The death of Steve Jobs has been announced.
Whatever about the value or otherwise of finance capitalism, and even the question of the sustainability of Western society in the way we have it, we have lived through an age of incredible technical evolution and design, and it is sad to see one of the great innovators die young.
Apple released a statement paying tribute: “Steve’s brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives … The world is immeasurably better because of Steve.”
“Amusing ourselves to death” by Neil Postman is a cracker.
On the subject of the importance of politics, it may be of interest to indulge in some speculative joining up of the dots using this FT Deutschland article as a base.
The idea it deals with is that put forward by Sweden that the EIB be used to fund the forced recapitalisation of Europe’s banks. In other words, to find a means of following the advice given by Lagarde at the end of August and in response to which European officials threw their hands up in horror. Banking crisis, what crisis?
FT Deutschland also carries a leader with a vibrant plea for recapitalisation at a European level on this basis.
The resemblances to the post Lehmans experience is obvious. US banks also had to have their arms twisted to take their medicine, whether they liked it or not. It would seem that the mandate given by ECOFIN to re-do the stress tests may result in the conclusion that practically all banks need the medicine!
The advantage of the EIB solution is that there would be no need to raise additional capital i.e. no impact on national budgetary arithmetic or threat, one would assume, to sovereign ratings. The UK is reported as being opposed. This is not surprising given that the solution would be an EU27 rather than and EZ17 one and Cameron is in a delicate position with his own troops. But this should not be an insurmountable obstacle given that Osborne has stated the blindingly obvious that it is in the UK’s interest to bring the euro crisis to a stop.
Where does Merkel stand on all of this? A good question! Raising hares about treaty changes while conceding on the substance seems to be the most plausible answer, if not on the means at least on the objective.
I forgot to mention a piquant detail. Werner Hoyer, the current German Minister for European Affairs, is the German candidate to replace the Belgian Philippe Maystadt as head of the EIB. He could be described as a committed CDU European with long experience of European affairs.
Anyone read the IT letters page today? I’d almost swear one of our more excentric commentators on here wrote in to the Madam on banking/monetary policy…
Somewhat surprised by the tone and content of the article. It pitts a sensible Germany against a conniving scheming Greece as being one of if not the main ’cause’ of the the Euro trouble. There is not even a mention of reckless lending by banks in the article.
Yet if €200 billion Greek debt were written off, that would solve the Greek problem for now.
Meanwhile at least €2000 billion (if not a lot more) has been wiped off European stock markets in the last two months.
How can the destruction of the European economic system be justified by the insistence that the lenders, both countries and banks, will have their pound of flesh.
Wow! The French are really digging in behind the scenes on not wanting their banks to be put under the microscope of new and realistic stress tests.
The EBA now says its review of banks’ capital requirements won’t need to be done using new stress tests. It reckons it already has enough data, collected from the last stress test, to be able to work out recap needs (I’m not sure how old that data is – 6’ish months or more? – or whether it is any longer relevant/up to date).
Is this an admission that they already know who needs what… and that when they sat the IMF down after the DSK mishap to spell out the predicament to them and to moan about European politicians (particularly short ones) trying to ignore reality, that was when the IMF decided to start telling Europe (via Christine, to make it more palatable) that they needed to recap their banks pronto? And when they were still ignored, they sent Timmy G over to tell them again they needed to recap the banks pronto (and yet still they assured us they didn’t need to). And now they’re all suddenly swinging into line: “Yes, recap, what a great idea.” Except the French, who are ominously silent.
Since that meeting of FM’s in Poland, someone has put down a really big ‘do it or else’ threat. I wonder who it was and what they said? It was unlikely to be someone who was elected into their position.
I think we can look forward to being told one thing (bad but not too bad) about how much recap is going to happen but not then seeing how much is really going in/on.
Of course, the other explanation for not conducting new stress tests is that there just isn’t enough time left – we are in that part of the film where the hero is standing there with a pair of wirecutters, trying to disarm the bomb and the counter is down to 4 seconds. Which one do I cut? Red or green?
I can’t help but keep thinking they are going to throw Greece to the wolves once they have found a good way to do the recap. Even to the point of being able to put off paying the next tranche if the recap can be done before then – no point in throwing good money after bad eh?
I only subscribe to conspiracy theories because I know for sure they happen all the time in political and financial circles.
B-E-B
Nul points for that shot I’m afraid, if I’ve got the right letter. Our esteemed Leeside colleague would never submit such a misleading dorkument, let alone to a Dublin paper.
I think you will find that most ‘post-Keynesians’ and related MMTers would agree that credit is created by banks not governments, and that the process is essentially horizontal, with CBs largely responding to trends in the private sector.
‘the extent to which credit creation arises, given a particular monetary policy stance, depends therefore on the strategic plans of the banks’
Endogenous money: Sheila Dow in
A Handbook of Alternative Monetary Economics eds Arestis and Sawyer 2006
That’s why the Dork is correct in pointing to the High Priesthood of banking. Remember what they said to Galileo ?
Michael Lewis on Ireland …..
“With global markets in turmoil in recent days on fears Greece may default on its debts even amid a second expected bailout, Lewis expects ”it will be very messy” and ”Greece will leave the euro” with ”creditors taking huge losses.” Following on, ”I can’t believe the Irish are not going to join that party” and default on its debts, letting its banks fail. ”These sort of things could happen and it might even be healthy for them to happen rather than have this huge overhang,” he said.
On the difference between Ireland and Greece, Lewis said: ”The Irish just have a greater talent for suffering. If you imposed on the Greeks what the Irish have imposed on the Irish population, people would be getting shot.”
Grim!!
@Bond Eoin Bond
I have not bought the Times since Geraldine Kennedy took over – is their other Dorks still reading that rag , I disagreed with the previous editor in many things but he was much more balanced and eclectic.
Anyway what was the jist of the letter ?
@ Dork
in fairness its not the substance of what you’ve been arguing (which even for a banker is relatively difficult to comprehend at times), it was more the style and format that it was being argued in, in combination with the People’s Republic of Cork residence. 🙂
“…Government, controls the process of money production by selling debt. It increases money supply using the central bank and distributes this money to its banks. It protects its banks, because they are necessary components, of the state-run, money-production process.
Modern money production is the pinnacle of a socialist structure. It is not a free market. It is not capitalist and is profoundly unfair and discriminatory….
The Federal Reserve was created by government in 1913, just prior to the 1920s and caused the Great Depression with loose monetary policies. Nixon dissolved Bretton Woods, because the US was haemorrhaging gold. US banking reform in the 1990s increased banking protection (with the Federal Deposit Insurance Corporation, Fannie Mae and Freddie Mac) provided by the state rather than exposing banks to market forces. The common thread in these events is government expansion of its power over money supply and the sale of its own debt. He should be calling for an end to the socialisation of money production….”
@Bond
In fairness I am much more statist then the typical Zero Hedge wingnut – being a Gaullist before I grew up.
But despite my or others personnel beliefs about money – it is best to recognize the true power of game theory & primate power dynamics in the whole credit train crash thingy, don’t you think ?
PS – just got off the phone with Merv the Gov and we both agree the planet is f£$Ked.
But our main concern is how to make money out of it.
Did you ever try this opium thingy Bond ?
@ Dork
‘In fairness I am much more statist then the typical Zero Hedge wingnut – being a Gaullist before I grew up’
Indeed you are and rightly so IMHO. That’s why you couldn’t have written the letter.
I strongly recommend this little tome for a flavour of what credit creation is all about. Plenty of whips and chains.
@Paul
Yeah , I think the author was on the Kaiser report a few weeks ago if I am not mistaken.
He seemed to suggest credit came before money – with money needed to pay soldiers and the like in advanced agricultural / slave economies.
I am not so sure but then I am just a Dork – a simple village is only a bunch of primates doing each other credit favours so I guess he may be right.
@ Dork
I read it on me holiers. Massively researched and interdisciplinary. Well worth the price.
64 replies on “Regional Economic Outlook: Europe”
“A devastating earthquake and tsunami in Japan
disrupted global manufacturing; the Arab spring
drove up oil prices; fi nancial strains in euro area
fi nancial and sovereign debt markets deepened;
growth in the United States decelerated sharply;
and the standoff about raising the ceiling on U.S.
government debt sapped confi dence in policy
making”
It’s mostly the fault of all the others then and not a chronic lack of political leadership in Europe?
@PR Guy
You selectively quote the report. In particular, you omit the vital sentence that precedes your quote: “Following a barrage of unfavorable shocks in
the first half of 2011, global economic activity has weakened and has become more uneven.”
Had you read beyond the first paragraph, or indeed had you included the whole of the first paragraph, this apparent omission would not be a problem.
Ta for link. Will take a while to ‘deconstruct’ this one …
The IMF (pg. 18) are urging that the Eurozone should become a monetary union!
‘Ultimately, a European Resolution Authority, backed by common deposit guarantee and resolution funds, would provide a permanent instrument to do so, while also improving ex-post burden sharing and providing an EU-centered backstop.’
Note the phrase ‘…ex-post burden sharing…’
PR translations:
“most
recent indicators point to a general convergence
toward low growth”
…that’s the bravest face we could put on it and when we say ‘most’, we excluded the ones that were showing a meltdown coming.
“uncertainties surrounding bank balance sheets
continue to rattle investors”
…and these uncertainties will remain as there is no intention of forcing the banks to simply come clean – so that there are no uncertainties. Ah, no we can’t because then there would be a meltdown. Honesty is not the best policy.
“Ideally, capital should
be raised through private solutions”
…but forcing PSI involvement would cause a meltdown and we are only being idealistic here so just bail them out please.
“An escalation of the strains in euro area debt
markets also poses risks for emerging Europe”
Now that Italy has been downgraded, we have reclassified it as an emerging economy (aka third’ish world) instead of one that is simply melting down.
“Banks that do not
have exposures to Greece, Ireland, and Portugal (left panel), and Spain and Italy (right panel), are not included
in the computation.”
Er, but we couldn’t find any that aren’t going to be involved in this meltdown.
“but it has
also meant that shocks in one region increasingly
affect the other, with spillovers progressively
traveling both ways.”
So, all in all, meltdown is actually unavoidable and you heard it here first.
Nice title: Navigating Stormy Waters. Conjures up an image of those old pictures of sailing ships in the middle-ages, surrounded by sea serpents, whirlpools, the edge of the flat world being approached, violent storms, etc.
@Edward
You are accusing a PR Guy of selectively quoting? Popes praying or bears in woods come to mind?
You will notice in a later post that I did actually read past the first paragraph. In fact I had read all of it by 2.45pm. Have you? Let’s have your take on it instead of sniping at mine. Or are you just disagreeing with me about the chronic lack of political leadership in Europe – perhaps you could point out to me where you’ve spotted it.
And what @Colm McCarthy says above about the IMF urging the the Eurozone to become a monetary union is correct – this is precisely correct and this is what will happen. This is the main purpose of this report – to encourage it and to do it pronto (and to try and please avoid a meltdown).
@Colm McCarthy
S’pose this means our cheque for saving the Euro and holding the line for the vichy_banking system for a while is in the ex-post!
@PR
Europe cannot do much unless it tackles the dollar reserve problem and its terrible pegged twin – China.
Lorenzo gave a interesting speech a few days ago but hes all talk…………
‘Ultimately, a European Resolution Authority, backed by common deposit guarantee and resolution funds, would provide a permanent instrument to do so,
Can we get the Cern crowd to fly those neutrons faster than light and bring us all back to 2008 so Ireland can have the same solution as everyone else?
Ford Madox Ford was featured in the Guardian today via Steve Bell and his picture Work has a depiction of the dystopian Irish past which is probably also the dystopian Irish future .
http://en.wikipedia.org/wiki/Work_(painting)
The two men behind him are imported Irish labourers, recognisable by their costume. ..
The Irish couple by the tree are feeding their baby with gruel, while an older man stands by the tree looking resentful. This aspect of the painting recalls Carlyle’s discussion of unemployed Irish migrants in his book Past and Present.
Or even Ford Madox Brown
@The Dork of Cork
But Dr Merkel has just said she will recapitalise German banks if that’s the craic – even though German (and French) banks, we were told, didn’t need recap a few days ago. A week is obviously a long time in a debt/liquidity/solvency/credit crunch* crisis.
*choose one as appropriate, as directed by your PR Guy.
@PR
Well what does recapitalise really mean in this envoirment ? – America wants to sustain its mindless consumption and China wants to sustain its capital spending empires- Europe will & is getting squeezed.
They will just stuff more euro paper in and get shredded paper out as the real economy collapses.
European austerity just means it transfers our consumption elsewhere which I am sure America & China appreciates – you cannot get austerity in a closed world loop.
They must raise the money supply & taxes , not kill or keep static the money supply in a envoirment of raised taxes.
They have got the whole bank thing back to front because of Hayek’s indoctrination – Banks and indeed money itself are just a utility of the physical economy , they are not the economy.
And the QE reduce the money velocity and hope the banks give out some credit will not work either – they must introduce & spend raw currency rationally into the medium and recognize the losses
They will figure it out eventually , unfortunetly we will all be eating raw turnips at that stage.
I just want to see one Journalist tell Jean Claude tommorow that wage deflation is inflation by other means – keeping everything on ice until it all melts catastrophically
They tried to make me go to recap but I said ‘no, no, no’
Yes I’ve been in the red but when I come back you’ll know know know
I ain’t got the time and if my regulator thinks I’m fine
he’s s tried to make me go to recap but I won’t go go go
I’d rather be at home with Sarko
I ain’t got seventy days
Cause there’s nothing
There’s nothing you can teach me
That I can’t learn from Mr Minsky
I didn’t get a lot in class
But you don’t need brains to be in banking
The man said ‘why do you think you here’
I said ‘It’s all the fault of the policymakers
I’m gonna, I’m gonna lose my bonus
so I always keep a PR guy near
He said ‘I just think you’re depressed,
this me, yeah bonus , and the rest’
I don’t ever wanna lend to peripherals again
I just ooh I just need a friend
I’m not gonna spend ten weeks
have everyone think I’m on the mend
and today the markets are up and it’s risk on again
@seafóid
Very good.
She’s dead these days isn’t she? The one with all the hair – Amy Winedrinker or something like that? I’m not really up on my pop culture. RIP. I bet she never dreamed there would be a cover version on IE.
We’ll be getting ‘SiCo’ leaving comments here next.
@The Dork of Cork
“unfortunetly we will all be eating raw turnips at that stage.”
Unlikely.
Once we get back to that stage, bankers will revert to becoming robber Barons and come round to take your turnips from you at the sharp end of a broadsword before you and yours get anywhere near them. Then they’ll tell you that they will lend you a turnip but you will have to give three turnips back next year and if you default, they will come round for the original turnip and take all your topsoil too (and quarter you).
We will then take to living in the turnips. Developers will stack one-bed turnips on top of each other and call them ‘first time buyer turnips’ and create a turnip bubble. Some bright spark will then turn turnips into CDO’s but a turnip blight will visit our lands and we will all default and have to emigrate. Then the whole sorry mess will start over again.
@ All
It may be too early to come to any particular conclusion regarding the impact of the latest developments on Ireland cf.
“Mr. Antonio Borges, Director of the International Monetary Fund’s European Department, issued the following statement today in Brussels after remarks at the launch of the Fund’s latest European Regional Outlook report:
“Let me be clear about some earlier comments I made. The Fund can only lend its resources to countries, and cannot use these resources to intervene in bond markets directly. We are lending to several European countries that have asked us for support. We do not have any additional requests for support from European members and we are not contemplating any market involvement with the EFSF.
“Any alternative lending modalities to what we do now would require a different legal structure and the use of a different source of financing. We have not discussed these issues with our membership.”
It is remarkable how straightforward the political choice has now become for Germany, a choice that has been confronting Berlin for months: does it help out with the recapitalisation of French banks or not? Dexia has now made it impossible to avoid the question any longer and for the fairly obvious reason, it seems to me: were France to try and carry the burden it would lose its triple A status and pull the foundation from under the EFSF (aprt from ruining Sarkozy’s chance of re-election).
But how to stop too many hungry mouths at the table: that is the question!
The Wall Street Journal reports that Antonio Borges, director of the IMF’s European Department told a press briefing that the Fund could intervene in bond markets alongside the Eurozone’s bailout fund and he expects the size of Greece’s second rescue package to be modified.
The IMF’s purchases of eurozone bonds in the secondary market would give an “additional element of credibility because of the conditionality the IMF requires” and attract more investors, said Borges.
Meanwhile, Borges said that the size of Greece’s second bailout package, now estimated at €109 billion, is “outdated.”
“All figures were extremely tentative,” he said, adding that the next program will have to place greater emphasis on generating economic growth instead of focusing mainly on Greece’s balance sheet.
@DOCM, MH
This guy Borges must be confused. So much for all the smoke he blew at us.
““Let me be clear about some earlier comments I made. The Fund can only lend its resources to countries, and cannot use these resources to intervene in bond markets directly. We are lending to several European countries that have asked us for support. We do not have any additional requests for support from European members and we are not contemplating any market involvement with the EFSF.”
@colm cmcarthy
First, mistyped your name just then as cool mccarthy, but it didn’tlook right somehow. Couldn’t leave it like that.
Second, the potential monetary union (“EMU” perhaps?) makes this link worth reading for two reasons.
Third, this phrase “while also improving ex-post burden sharing” should be written on a piece of paper repeatedly by everybody until they realise the significance of the third word in.
Clarification courtesy RTE
“In a dramatic turnaround, a senior official for the International Monetary Fund has retracted an earlier statement that the fund could intervene in bond markets to support struggling Italy and Spain.
Antonio Borges says that “the fund can only lend its resources to countries, and cannot use these resources to intervene in bond markets directly.”
He says that “any alternative lending modalities to what we do now would require a different legal structure” for the IMF and added that such changes had not been discussed with the fund’s members.
At a news conference in Brussels earlier today Borges said the IMF could possibly invest alongside the eurozone’s bailout fund to help Italy and Spain.”
This guy is in charge of European bailouts and doesn’t even know the legal constraints on the IMF. And he moved markets????
Borges is a clearly a plonker who has been slapped down by Washington.
The make the points below as reported by Reteurs and then declare the comments inoperative is a joke:
“Maybe even the IMF could invest alongside the European Financial Stability Facility (EFSF). We would certainly be ready to play that role,” Borges told a news conference.
“Any investment we would make in Spain or Italy would be based on full confidence that these countries are on the right track — that they are solvent and they are taking all the measures they should,” he said.
“Because the EFSF now has the ability to invest in secondary markets, we could invest alongside them supporting the debt markets in Italy and Spain with an additional element of credibility,” he said.
Borges said that while this was still in the realms of the hypothetical, such action could be taken in exceptional circumstances and had been done before.
“We are just offering the possibility,” he said.
Asked how quickly could the IMF start buying Spanish and Italian bonds, Borges said:
“We are first waiting for the ratification of the EFSF and then for some clarity on how they want to move ahead. We are offering to be cooperative and work alongside them if necessary, as soon as possible, but these things do take time,” he said.
“The most important thing, in our view, is that as soon as the authorities know how to use the EFSF, if that is clearly communicated to the market, it can have a very important stabilising effect.”
The main option for the IMF was to extend a precautionary credit line to Spanish and Italian governments, also alongside the EFSF, which is likely to get such powers, along with the remit to intervene in the bond markets, by the end of next week when all euro zone national parliaments should have ratified them.
But the IMF could go further and invest directly in Spanish and Italian bonds, although to do that it would have to create a Special Purpose Vehicle, Borges said.
“We can also create our own special purpose vehicles, all of those options are possible, some of them have been used in the past, it is not a particular innovation, it would be feasible,” he said.
@ceteris
It was to be laundered through an SPV.
You may recall that up to July 2007 banks used to set up SPVs off-balance sheet and finance them short to invest long in overrated exotic bonds, many of which had inappropriate AAA ratings.
Any parallels or similarities with any real sovereign bonds are exist solely in the imagination of the reader.
@Mr Borges
Would you like to hire my services? My ‘special’ IMF rate is $4,500 per day plus lavish expenses plus the opportunity to claim diplomatic immunity whenever I have been chasing something I shouldn’t have been chasing.
@ grumpy
What is the St Vincent de Paul doing in this?
Meanwhile, Merkel “willing to recap” says FT
http://www.ft.com/intl/cms/s/0/557e20d6-ef5e-11e0-bc88-00144feab49a.html#axzz1Zi6XgIZV
@MH
A plonker of the highest order.
@Seafoid
She is saying strict conditionality for recaps and the really interesting bit is new haircuts.
Now what do you make of the markets. Did Borges move them or are they not afraid of 50% haircuts for Greece. The financials all gained large percentages. Where is Eoin Bond..we need some insight.
@PR
Good one – but I think there would be acts of pointless farcical dissidence at that stage as peasants would realize they had nothing left to lose , while Kings would live a short ,cold, damp sorry existence.
http://www.youtube.com/watch?v=-8bqQ-C1PSE
@ All
Borges may be a lot of things but a plonker he is not. He simply peaked too soon. The subliminal message is quite straightforward. And it comes from Washington and is directed at Berlin. Move, or we will!
I would like to ask a few questions about monetary policy to someone with a real understanding of monetary economics. Karl Wehlan perhaps?
First question: we can see that in the weekly balance sheet of the ECB that the sums on the deposit facility are ever increasing. Is that not the equivalent to a tighthening of the monetary stance?
Second question: the yields on the government bonds of some countries (example: yields of 5-year bunds) are well below the main refinancing rate of the ECB. Is that not an abnormal situation?
@ All
FYI
http://www.ft.com/intl/cms/s/0/04993d2a-ef6f-11e0-941e-00144feab49a.html#axzz1Zoi4VlVv
P.S. John Bruton’s views on eurobonds and the gold standard (Irish Times) may be a bit on the simplistic side but in this comment he is unquestionably hitting the nail on the head.
“Economics focused insufficiently on economic history, and finance was taught as if it was a branch of mathematical engineering rather than something influenced by psychology and politics”.
@DOCM
Don’t agree with you. When you have to retract a statement of fundamental importance within hours of issuing it (seemingly on the basis that the organization you represent does not have legal authority) then you display incompetence or, at the very least, all the hallmarks of a plonker.
I’m surprised he has not resigned.
@ Ceterisparibus
I would not bet on it! It was a message of fundamental importance and it did get across.
cf. the latest on Dexia. (They would say that, would n’t they!).
http://www.google.com/hostednews/afp/article/ALeqM5iw2lWHWvVJbI4ZKNL3–L6GYHjxw?docId=CNG.0da18d83c6e4954b6c06c0cc06beb8d0.131
Btw, he is ex the Great Vampire Squid and probably a buddy of Barrosso.
@DOCM
The message he delivered was the IMF would buy Italian and Spanish sovereign bonds…when he knew, or ought to have known, that they had no legal authority to do so…and as he now admits will not happen.
I believe that this is major erroneous market moving information and it had the effect on European markets.
@ Incognito
Both of your observations are clear examples that the ECB has lost control of it’s monetary policy transmission mechanism, and are the justifications behind both their “emergency” liquidity measures as well as their purchasing of certain EZ government bonds. The ECB has lost the ability to affect the flow and cost of credit within the Eurozone as a result of interbank lending freezing up and government spreads blowing out (or inwards for the stronger members). German credit conditions have been easing all year despite the ECB raising rates by 50bps, for instance.
@Incognito
Allow me to guesstimate the answers, discard as amateur as you like:
1. Yes and no. If the ECB was not instantly dishing out the cash in LTROs (Long Term Refinance Operations) then cash would just pile up at the ECB. As it is, it is more a sign that banks with cash do not want to lend, even secured, because they do not like the counterparties and the assets that the counterparties are putting up (for secured repo) smell of elderberries. They are hamsters, all of them.
2. Yes. See dash for security above.
Never mind long-term bonds being below the refi rate, they are below inflation rates. The US 30 year is below 3%, the 10 year below 2% and the 5 year below 1%. The 3 month t-bill has been negative at times over the last few months.
@Bond. Eoin Bond
Yes, I now think that the ECB has lost the plot. My intuition is that there is a massive tightening of monetary and financial conditions going on, especially in Spain and Italy. That this tightening is completely unwarranted. Also, I wonder to what extent the ECB understands that this tightening is taking place. In addition, there is a confidence shock in the Euro Area, leading us straight into a recession.
I also think that the only way to get monetary policy back on its feet is buying government bonds, especially those of Spain and Italy. Ireland and Portugal would also help, but more to create a positive confidence shock than anything else (given that the support programmes have cut off the financing channel). I am happy to see the improvement of Irish bond yields in that respect. But the bond buying of the ECB has been completely erratic, and as a result impotent in my opinion.
The Euro Tragedy
http://www.spiegel.de/international/europe/0,1518,790138,00.html
Btw,Spiegal carrying Borges story without the subsequent retraction.
“As admirable as it is for Reichenbach and his 30 nation-builders to be bringing order to Athens”
30 nation builders ? Jesus – is there something wrong with Germans ?
Have they no historical memory ?
Nation building is a organic process – these guys do not want a Greek nation , they want a compliant market state like the Irish Fairies have provided them with.
Maybe something was lost in translation but I doubt it.
They are messing with the wrong people down there – the Greeks will eat them alive.
A Regional war is not far away – Turkey is getting stroppy already.
Expect the unexpected.
@ Ceterisparibus
It (IMF would buy Italian and Spanish bonds) does not have to happen because Merkel got the message. Your faith in legal niceties is admirable but they are not what guide our destinies. The US holds a veto over the decisions of the IMF and is the major influence upon them. And it was Germany that insisted upon IMF involvement in the euro bailout arrangements because Merkel was unwilling to accept the responsibility on behalf of Germany despite mouthing slogans about “doing everything to defend the euro”.
Her chickens have now come home to roost.
Mr bernanke I understand has done some study on the effects of tight money in recessionary times…maybe he could give a seminar jn Frankfurt
This latest IMF fluff is not helpful. The IMF are meant to be scary brilliant mysterious figures, who ride in and restore order.
Their authority has already been compromised by ‘partnering’ with the ECB and EC…whereas in fact they need to pwn the ECB.
We’ve also found that the US has no authority over the plump ditherer and her maniacal imp sidekick.
The IMF need to consider hiring magicians and Hollywood producers to feign an alien landing…and have the aliens make the IMF their mouthpiece.
Watching the VB show tonight and it struck me how pathetic both the atlantist and euro centric Irish elite really are.
Why did they not just stay on the Ranch ?
The Irish / IMF spokesman – (his name escapes me because as he was so boringly drab) claimed we need credit banks ? – why do we need credit banks ? what organic wealth have they created ?
I tell you they have created nothing , Nada ,zilch.
We don’t need them – never have.
They are a permanent externality to trade – a financial tape worm.
All you need is currency and a bank that stores it.
Do some people on here owe pundits like McWilliams an apology? Sure his prescriptions could be naive/over the top, and he was way of base at times, but he provided a consistent, far sighted and thoughtful analysis at a time when a lot of supposed profesionals were concentrating on such vital questions as the best way of maximising trade with Diego Garcia.
Its time to get over this myopic way of thinking and start looking at the bigger picture.
Time to give Paul Hunt contributor status and free reign. (ie time to accept the importance of politics)
@all
tuned to the VB show – on the positive side it appears that Donal Donovan, of the UL/TCD adjunct professorial class and ex_IMF, can now spell ‘citizenry’ … and then the bombshell from a Member of the Fiscal Advisory Council …
‘Greece could leave, or be asked to leave, the Euro.’
What insufferable arrogance, and patent ignorance of the fact that no mechanism exists for a country to leave the EuroZone. It is however, a fact that a certain member could leave, or be asked to leave the Fiscal Advisory Council. Might be time for a Dear John from Dear John ….
@ The Greeks
In solidarity.
@all
I’m now concerned at increasing empirical support for the rumour that Lorenzo was cloned in late 2010 – and there are certainly more than one of them – they have been spotted on various influential boards, on the VB show, and dare I mention it, on this blog. Vigilance is advised …
@Little John Bruton
I’m in agreement on the EuroBond issue. The childer of the local serfs have no-shooze, let alone neu-shooze. You might also give a little tutorial to the Kemmy School adjunct on the VB panel on how the EU operates. Blind Biddy reckons that you shudda run for the Park – ‘wudda been a shoe-in’ says she. That said, keep up the good work.
@DOCM
I do believe in the rule of law. What other options are there. Having looked at it a bit closer I now believe the Borges got carried away and thinking he was still with Golden Sacks started mouthing off obout SPIV vehicles and such like.
Not the type you need in charge of European rescue missions.
Pretty infographics from Fox News, it may be blocked in some areas.
forexnewsnow.com/infographic-the-eu-debt-crisis-in-charts
‘also improving ex-post burden sharing’
What does that mean.
‘Hey, remember those bankers Vegas bills we made you pay for last year. Well here’s the really good news. The bankers have agreed to go to Vegas only once a year from now on. So even if they lose big again you probably won’t have to pay so much next time.
We’re on your side. We want you to know that.’
@ All
Off topic I’m afraid.
The death of Steve Jobs has been announced.
Whatever about the value or otherwise of finance capitalism, and even the question of the sustainability of Western society in the way we have it, we have lived through an age of incredible technical evolution and design, and it is sad to see one of the great innovators die young.
http://www.guardian.co.uk/technology/2011/oct/06/steve-jobs-timeline-apple?newsfeed=true
@ rf
+1
Time to set aside the disastrous delusion that there is any economics which is not also political economy.
@ Gavin
the hyperbole has been magnificent
“Steve Jobs was a monumental resource for mankind not seen since Thomas Edison and his untold visionary achievements will be greatly missed.” http://blogs.ft.com/fttechhub/2011/10/steve-jobs-1955-2011/#axzz1ZkLpwelM
Apple released a statement paying tribute: “Steve’s brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives … The world is immeasurably better because of Steve.”
“Amusing ourselves to death” by Neil Postman is a cracker.
On the subject of the importance of politics, it may be of interest to indulge in some speculative joining up of the dots using this FT Deutschland article as a base.
http://www.ftd.de/politik/europa/:milliardenhilfen-eu-investitionsbank-als-retter-fuer-geldhaeuser-im-gespraech/60112476.html
The idea it deals with is that put forward by Sweden that the EIB be used to fund the forced recapitalisation of Europe’s banks. In other words, to find a means of following the advice given by Lagarde at the end of August and in response to which European officials threw their hands up in horror. Banking crisis, what crisis?
FT Deutschland also carries a leader with a vibrant plea for recapitalisation at a European level on this basis.
The resemblances to the post Lehmans experience is obvious. US banks also had to have their arms twisted to take their medicine, whether they liked it or not. It would seem that the mandate given by ECOFIN to re-do the stress tests may result in the conclusion that practically all banks need the medicine!
The advantage of the EIB solution is that there would be no need to raise additional capital i.e. no impact on national budgetary arithmetic or threat, one would assume, to sovereign ratings. The UK is reported as being opposed. This is not surprising given that the solution would be an EU27 rather than and EZ17 one and Cameron is in a delicate position with his own troops. But this should not be an insurmountable obstacle given that Osborne has stated the blindingly obvious that it is in the UK’s interest to bring the euro crisis to a stop.
Where does Merkel stand on all of this? A good question! Raising hares about treaty changes while conceding on the substance seems to be the most plausible answer, if not on the means at least on the objective.
I forgot to mention a piquant detail. Werner Hoyer, the current German Minister for European Affairs, is the German candidate to replace the Belgian Philippe Maystadt as head of the EIB. He could be described as a committed CDU European with long experience of European affairs.
Anyone read the IT letters page today? I’d almost swear one of our more excentric commentators on here wrote in to the Madam on banking/monetary policy…
@ Mr Bond
From Cork too.
http://www.irisheconomy.ie/index.php/2011/10/05/regional-economic-outlook-europe/#comments
Whoops wrong link – that could have been embarassing.
http://www.irishtimes.com/letters/
@ceteris
re Der Spiegel article
http://www.spiegel.de/international/europe/0,1518,790138,00.html
Somewhat surprised by the tone and content of the article. It pitts a sensible Germany against a conniving scheming Greece as being one of if not the main ’cause’ of the the Euro trouble. There is not even a mention of reckless lending by banks in the article.
Yet if €200 billion Greek debt were written off, that would solve the Greek problem for now.
Meanwhile at least €2000 billion (if not a lot more) has been wiped off European stock markets in the last two months.
How can the destruction of the European economic system be justified by the insistence that the lenders, both countries and banks, will have their pound of flesh.
Wow! The French are really digging in behind the scenes on not wanting their banks to be put under the microscope of new and realistic stress tests.
The EBA now says its review of banks’ capital requirements won’t need to be done using new stress tests. It reckons it already has enough data, collected from the last stress test, to be able to work out recap needs (I’m not sure how old that data is – 6’ish months or more? – or whether it is any longer relevant/up to date).
Is this an admission that they already know who needs what… and that when they sat the IMF down after the DSK mishap to spell out the predicament to them and to moan about European politicians (particularly short ones) trying to ignore reality, that was when the IMF decided to start telling Europe (via Christine, to make it more palatable) that they needed to recap their banks pronto? And when they were still ignored, they sent Timmy G over to tell them again they needed to recap the banks pronto (and yet still they assured us they didn’t need to). And now they’re all suddenly swinging into line: “Yes, recap, what a great idea.” Except the French, who are ominously silent.
Since that meeting of FM’s in Poland, someone has put down a really big ‘do it or else’ threat. I wonder who it was and what they said? It was unlikely to be someone who was elected into their position.
I think we can look forward to being told one thing (bad but not too bad) about how much recap is going to happen but not then seeing how much is really going in/on.
Of course, the other explanation for not conducting new stress tests is that there just isn’t enough time left – we are in that part of the film where the hero is standing there with a pair of wirecutters, trying to disarm the bomb and the counter is down to 4 seconds. Which one do I cut? Red or green?
I can’t help but keep thinking they are going to throw Greece to the wolves once they have found a good way to do the recap. Even to the point of being able to put off paying the next tranche if the recap can be done before then – no point in throwing good money after bad eh?
I only subscribe to conspiracy theories because I know for sure they happen all the time in political and financial circles.
B-E-B
Nul points for that shot I’m afraid, if I’ve got the right letter. Our esteemed Leeside colleague would never submit such a misleading dorkument, let alone to a Dublin paper.
I think you will find that most ‘post-Keynesians’ and related MMTers would agree that credit is created by banks not governments, and that the process is essentially horizontal, with CBs largely responding to trends in the private sector.
‘the extent to which credit creation arises, given a particular monetary policy stance, depends therefore on the strategic plans of the banks’
Endogenous money: Sheila Dow in
A Handbook of Alternative Monetary Economics eds Arestis and Sawyer 2006
That’s why the Dork is correct in pointing to the High Priesthood of banking. Remember what they said to Galileo ?
Michael Lewis on Ireland …..
“With global markets in turmoil in recent days on fears Greece may default on its debts even amid a second expected bailout, Lewis expects ”it will be very messy” and ”Greece will leave the euro” with ”creditors taking huge losses.” Following on, ”I can’t believe the Irish are not going to join that party” and default on its debts, letting its banks fail. ”These sort of things could happen and it might even be healthy for them to happen rather than have this huge overhang,” he said.
On the difference between Ireland and Greece, Lewis said: ”The Irish just have a greater talent for suffering. If you imposed on the Greeks what the Irish have imposed on the Irish population, people would be getting shot.”
Grim!!
@Bond Eoin Bond
I have not bought the Times since Geraldine Kennedy took over – is their other Dorks still reading that rag , I disagreed with the previous editor in many things but he was much more balanced and eclectic.
Anyway what was the jist of the letter ?
@ Dork
in fairness its not the substance of what you’ve been arguing (which even for a banker is relatively difficult to comprehend at times), it was more the style and format that it was being argued in, in combination with the People’s Republic of Cork residence. 🙂
“…Government, controls the process of money production by selling debt. It increases money supply using the central bank and distributes this money to its banks. It protects its banks, because they are necessary components, of the state-run, money-production process.
Modern money production is the pinnacle of a socialist structure. It is not a free market. It is not capitalist and is profoundly unfair and discriminatory….
The Federal Reserve was created by government in 1913, just prior to the 1920s and caused the Great Depression with loose monetary policies. Nixon dissolved Bretton Woods, because the US was haemorrhaging gold. US banking reform in the 1990s increased banking protection (with the Federal Deposit Insurance Corporation, Fannie Mae and Freddie Mac) provided by the state rather than exposing banks to market forces. The common thread in these events is government expansion of its power over money supply and the sale of its own debt. He should be calling for an end to the socialisation of money production….”
@Bond
In fairness I am much more statist then the typical Zero Hedge wingnut – being a Gaullist before I grew up.
But despite my or others personnel beliefs about money – it is best to recognize the true power of game theory & primate power dynamics in the whole credit train crash thingy, don’t you think ?
PS – just got off the phone with Merv the Gov and we both agree the planet is f£$Ked.
But our main concern is how to make money out of it.
Did you ever try this opium thingy Bond ?
@ Dork
‘In fairness I am much more statist then the typical Zero Hedge wingnut – being a Gaullist before I grew up’
Indeed you are and rightly so IMHO. That’s why you couldn’t have written the letter.
I strongly recommend this little tome for a flavour of what credit creation is all about. Plenty of whips and chains.
http://www.amazon.com/Debt-First-5-000-Years/dp/1933633867
@Paul
Yeah , I think the author was on the Kaiser report a few weeks ago if I am not mistaken.
He seemed to suggest credit came before money – with money needed to pay soldiers and the like in advanced agricultural / slave economies.
I am not so sure but then I am just a Dork – a simple village is only a bunch of primates doing each other credit favours so I guess he may be right.
@ Dork
I read it on me holiers. Massively researched and interdisciplinary. Well worth the price.