Friday, September 30, 2011

The Euroskeptic...

...outlining the reluctance of the Germans to abdicate sovereignty. One of the major themes of this blog is the very concept of "sovereignty" and its changing definition given economic pressures.

By Ambrose Evans-PritchardEconomicsLast updated: September 30th, 2011

Judging by the commentary, there has been a colossal misunderstanding
around the world of what has just has happened in Germany. The
significance of yesterday’s vote by the Bundestag to make the EU’s
€440bn rescue fund (EFSF) more flexible is not that the outcome was a

This assent was a foregone conclusion, given the backing of the
opposition Social Democrats and Greens. In any case, the vote merely
ratifies the EU deal reached more than two months ago – itself too
little, too late, rendered largely worthless by very fast-moving

The significance is entirely the opposite. The furious debate over the
erosion of German fiscal sovereignty and democracy – as well as the
escalating costs of the EU rescue machinery – has made it absolutely
clear that the Bundestag will not prop up the ruins of monetary union
for much longer.

Horst Seehofer, the leader of Bavaria’s Social Christians, said his
party would go "this far, and no further".

There can be no question of beefing up the EFSF to €2 trillion or any
other sum, whether by leverage or other forms of structured trickery.
"The financial markets are beginning to ask whether Germans can afford
all this help. We must not risk the creditworthiness of the German
state," he said.

The best-read story in today’s Handelsblatt is the mounting rebellion
against the EFSF in the Bundesrat, the German senate representing the
interests of the regions. While this chamber does not have the power
to block budget deals, it has begun to express deep alarm about the
drift of events.

Thursday, September 29, 2011

Deutschland Uber alles!


The Paper Dragon... now feeling the effects of all that FDI it gobbled up and put to "use".

Here. We. Go.


Delving into sports again...great article here regarding the anti-capitalist NCAA and its treatment of "student athletes".

Monday, September 26, 2011

The Fed's next move

"Asset purchases are a important tool and must be employed carefully"

By Cloth or Gavel...

...a continuing series here.

The problem with "Justice" being administered by politicians of all people is the administrative process inevitably succumbs to corruption. Plato assumed his "Golden" class of rulers would, by education and temperment, be uncorruptable and never degrade into selfish beings that further their own self interest.

History has not been kind to his prescription for government nor his conceptualization of "justice". Far better to assume corruption, selfishness, and greed then attempt to counteract these forces by accountability and a matrix of checks and balances.

So it is with great interest that I pay attention to what the Catholic Church defines as normative government.

From Benedict's 9/22 speech to the Bundestag:

Allow me to begin my reflections on the foundations of law [Recht] with a brief story from sacred Scripture. In the First Book of the Kings, it is recounted that God invited the young King Solomon, on his accession to the throne, to make a request. What will the young ruler ask for at this important moment? Success – wealth – long life – destruction of his enemies? He chooses none of these things. Instead, he asks for a listening heart so that he may govern God’s people, and discern between good and evil (cf. 1 Kg 3:9). Through this story, the Bible wants to tell us what should ultimately matter for a politician. His fundamental criterion and the motivation for his work as a politician must not be success, and certainly not material gain. Politics must be a striving for justice, and hence it has to establish the fundamental preconditions for peace. Naturally a politician will seek success, as this is what opens up for him the possibility of effective political action. Yet success is subordinated to the criterion of justice, to the will to do what is right, and to the understanding of what is right. Success can also be seductive and thus can open up the path towards the falsification of what is right, towards the destruction of justice. “Without justice – what else is the State but a great band of robbers?”, as Saint Augustine once said . We Germans know from our own experience that these words are no empty spectre. We have seen how power became divorced from right, how power opposed right and crushed it, so that the State became an instrument for destroying right – a highly organized band of robbers, capable of threatening the whole world and driving it to the edge of the abyss. To serve right and to fight against the dominion of wrong is and remains the fundamental task of the politician. At a moment in history when man has acquired previously inconceivable power, this task takes on a particular urgency. Man can destroy the world. He can manipulate himself. He can, so to speak, make human beings and he can deny them their humanity. How do we recognize what is right? How can we discern between good and evil, between what is truly right and what may appear right? Even now, Solomon’s request remains the decisive issue facing politicians and politics today.

"Legality"... laugh or cry...this once again reminds me of one of my favorite vignettes regarding tyranny. "Legality" in the middle kingdom is a perilous and fragile concept.

As the autumn harvest draws ever nearer, villagers in Liuxiazhuang have found themselves, quite suddenly, landless.

Documents provided to Al Jazeera by township-level officials showed contracts the government entered into on September 10 - less than two weeks ago.

Four days later, villagers at Liuxiazhuang received notices of the confiscation of parts of their farmland and the bulldozers promptly rolled in.

This took place just weeks ahead of the autumn harvest, and the farmers could hardly believe they had not only lost their land, but their last season of crops.

It did not appear that the new developers could wait a single moment for work on their latest project - a series of industrial and manufacturing parks - to begin.

Deputy Party Secretary Li Xiaofei, who is in charge of Liuxiazhuang, explained, "everyone" had been aware of this project and the plans to convert the land into a large-scale industrial and commercial park.

"During this entire land dispute, we have followed the laws. Everything we have done us is legal. Of course, what has happened is unfortunate," said Li.

Re-defining "news". an event considered "news" if it was both certain and obvious?

The power players in Russia are having a fun time engineering news given their soviet experience.

Prime Minister Putin has accepted Dmitry Medvedev’s proposal for him to run for the presidency in 2012, made at the convention of the United Russia party in Moscow. Putin also put forward Medvedev to lead the party’s election list.
“I consider it to be the right move for the congress to support party’s leader Vladimir Putin as a presidential candidate,” announced the Russian president, talking of the presidential elections, which have been set for March 2012.
Vladimir Putin, who is the leader of the United Russia Party, addressing the delegates at the gathering, in his turn, has called on the party to put Dmitry Medvedev at the top of the list of candidates at the forthcoming parliamentary elections in December 2011.

Thursday, September 15, 2011


...the churn goes on in the Paper Dragon.

From the FT:

More than a quarter of pre-tax profits at China’s Yangzijiang Shipping Holdings in the second quarter came from an unexpected source – not its core shipyard business, but from lending money to other companies.

In a similar vein, China Mobile has set up a finance arm to lend money, while PetroChina already has a number of financial vehicles in place.

They are part of a growing number of Chinese companies using excess cash to fund indirectly the country’s shadow banking system as Beijing’s monetary tightening makes it more difficult for small and medium-sized firms to access the formal banking sector.

At the same time it allows the companies – some estimates say 90 per cent of the shadow lenders are state-owned – to make healthier returns than they could by leaving the cash on deposit.

“Everyone does it; they just don’t tell you,” says Vincent Chan, equity strategist for Credit Suisse in Hong Kong. “The difference with Yangzijiang is that they do it in the listed entity, not at the group or parent level.”

China Economic Daily, a state-run newspaper, reported that 64 listed non-financial companies had issued loans this year as of the end of August. It said that they had lent a total of $16.9bn, up 38.2 per cent from last year, according to stock market filings.

Of these companies, 35 lent at rates higher than the standard bank rate, with the highest at a 24.5 per cent annualised rate. The report added that at least nine out of ten companies engaged in lending were state-owned, such as China Railway Group and the property arm of China’s food giant Cofco.

The Palindrome...

...aka Soros outlines some of the problems I have been discussing here for years. None of this is politically possible as EU core citizens are tired of solving yet more problems their elected (and non-elected EU commission) members create.

Full article here.

Unfortunately the capacity of the financial authorities to take the measures necessary to contain the crisis has been severely restricted by the recent ruling of the German Constitutional Court. It appears that the authorities have reached the end of the road with their policy of “kicking the can down the road.” Even if a catastrophe can be avoided, one thing is certain: the pressure to reduce deficits will push the eurozone into prolonged recession. This will have incalculable political consequences. The euro crisis could endanger the political cohesion of the European Union.

There is no escape from this gloomy scenario as long as the authorities persist in their current course. They could, however, change course. They could recognize that they have reached the end of the road and take a radically different approach. Instead of acquiescing in the absence of a solution and trying to buy time, they could look for a solution first and then find a path leading to it. The path that leads to a solution has to be found in Germany, which, as the EU’s largest and highest-rated creditor country, has been thrust into the position of deciding the future of Europe. That is the approach I propose to explore.

To resolve a crisis in which the impossible becomes possible it is necessary to think about the unthinkable. To start with, it is imperative to prepare for the possibility of default and defection from the eurozone in the case of Greece, Portugal, and perhaps Ireland. To prevent a financial meltdown, four sets of measures would have to be taken. First, bank deposits have to be protected. If a euro deposited in a Greek bank would be lost to the depositor, a euro deposited in an Italian bank would then be worth less than one in a German or Dutch bank and there would be a run on the banks of other deficit countries. Second, some banks in the defaulting countries have to be kept functioning in order to keep the economy from breaking down. Third, the European banking system would have to be recapitalized and put under European, as distinct from national, supervision. Fourth, the government bonds of the other deficit countries would have to be protected from contagion. The last two requirements would apply even if no country defaults.

Famous last words...

A senior advisor to the People’s Bank of China said China’s currency
will be fully convertible in the next 5 years as long as there is no
major shock to the economy
. Li Daokui dismissed suggestions that
freely floating the yuan will hurt China’s exports and its economy.

“With a fully convertible currency there will be both inflows and
outflows of currency. So currently there is a great, great potential
for our households and enterprises to get our foreign currency
reserves and go out and invest abroad,” Daokui said Wednesday at the
summer meeting of the World Economic Forum in Dalian.

Daokui said China was looking at both yuan convertibility and
liberalization of interest rates as part of a bundle of reforms. He
said the next step in the liberalization agenda would be to free up
the amount of foreign currency Chinese households and businesses can
get access to.

Tuesday, September 13, 2011


...from a popular site.


"China increases its gold reserves in order to kill two birds with
one stone"

The China Radio International sponsored newspaper World News Journal
(Shijie Xinwenbao)(04/28): "According to China's National Foreign
Exchanges Administration China 's gold reserves have recently
increased. Currently, the majority of its gold reserves have been
located in the U.S. and European countries. The U.S. and Europe have
always suppressed the rising price of gold. They intend to weaken
gold's function as an international reserve currency. They don't
want to see other countries turning to gold reserves instead of the
U.S. dollar or Euro. Therefore, suppressing the price of gold is
very beneficial for the U.S. in maintaining the U.S. dollar's role
as the international reserve currency. China's increased gold
reserves will thus act as a model and lead other countries towards
reserving more gold. Large gold reserves are also beneficial in
promoting the internationalization of the RMB."

Wednesday, September 07, 2011

Amazing article...

...on how to think and conceptualize "risk".


...finally getting around to a pay-roll tax holiday it appears. Something Warren Mosler has advocated since the start of the troubles.

Getting payment streams back to normal and repairing confidence is all that this economy needs to stage a comeback...all the international levers are in place.

Saturday, September 03, 2011

Just a bit late.

Self explanatory...

Sovereign-debt difficulties in Europe pose a threat to the euro and financial institutions in the region, said World Bank President Robert Zoellick.

“The world economy is entering a new danger zone this autumn,” Zoellick said in remarks prepared for a speech in Beijing today. “The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the Monetary Union, banks and competitiveness of some countries.”

European sovereign default risk rose to a record yesterday after a report showed employment in the U.S. unexpectedly stagnated in August, adding to signs the global economic recovery is weakening. Stocks sank in August, sending the MSCI All-Country World Index down 7.5 percent for the biggest loss since May 2010.

Friday, September 02, 2011

UBS's Donovan sums it up

"Markets need to remember that they exist on politicians' sufferance."

That is certainly a fair observation given current political phagocytosis of capital allocation.

The chart...

...that the entire investment world is talking about.

Thursday, September 01, 2011

Macroprudential measures...

...include capital controls, according to a short paper from the St. Louis Fed that can be found here.

The punch line of the argument:

Surely free capital flows, like free trade in goods, carry large
benefits. Yet the proposition that trade in dollars carries no
more risk than trade in goods remains controversial. If regulating internal debt accumulation is important for limiting
systemic risks, then regulating external debt accumulation
should be similarly important. Moreover, measures targeted
at specific capital flows, such as short-term external debt,
do not exclude the benefits of capital flows in the form of
foreign direct investment and other equity flows.