Italian spreads widening as I type this, the stop-gap measures propounded by the EU area are proving insufficient to a market innoculated against the cacophony of propaganda emitted from the ECB and official channels.
Put another way, the noise filter has been recalibrated, and a new standard of scrutiny and a more cynical view towards the EU's veracity is now THE theme going forward.
Thus, drastic measures such as QE and monetization follow. Recall these have vastly different effects where currency issuers are divorced from fiscal and taxation powers.
Tuesday, November 30, 2010
Sunday, November 28, 2010
Tomorrow's talking points...
...the EU area bailout, and Wikileaks.
The Germany Dispatches
Internal Source Kept US Informed of Merkel Coalition Negotiations
DPA
The US was kept abreast of German coalition negotiations as they took place. Here, Chancellor Merkel's Christian Democrats meet with Foreign Minister Westerwelle's Free Democrats in October 2009. Internal notes from the talks ended up in Washington not long later.
The 250,000 US State Department documents made public by WikiLeaks
reveal that the US has an extensive network of informants in Berlin
and was kept informed of coalition negotiations as Chancellor Merkel
was forming her current government. US officials, the cables show, are skeptical of several top German politicians.
The more than 250,000 secret documents from the US State Department
show just how critical the American diplomats were of the new German
government. In particular, the new Foreign Minister Guido Westerwelle, leader of the pro-business Free Democrats (FDP), is seen in a negative light. The secret reports describe him as incompetent, vain and critical of America. The US diplomats report that they face a challenge in dealing with a politician who is considered an "enigma," who has little foreign policy experience and "remains skeptical about the US." An embassy cable from Berlin from Sept. 22, 2009 describes Westerwelle as having an "exuberant personality." That is why he finds it difficult to take a backseat when it comes to any matters of dispute with Chancellor Angela Merkel," the cable says.
The Germany Dispatches
Internal Source Kept US Informed of Merkel Coalition Negotiations
DPA
The US was kept abreast of German coalition negotiations as they took place. Here, Chancellor Merkel's Christian Democrats meet with Foreign Minister Westerwelle's Free Democrats in October 2009. Internal notes from the talks ended up in Washington not long later.
The 250,000 US State Department documents made public by WikiLeaks
reveal that the US has an extensive network of informants in Berlin
and was kept informed of coalition negotiations as Chancellor Merkel
was forming her current government. US officials, the cables show, are skeptical of several top German politicians.
The more than 250,000 secret documents from the US State Department
show just how critical the American diplomats were of the new German
government. In particular, the new Foreign Minister Guido Westerwelle, leader of the pro-business Free Democrats (FDP), is seen in a negative light. The secret reports describe him as incompetent, vain and critical of America. The US diplomats report that they face a challenge in dealing with a politician who is considered an "enigma," who has little foreign policy experience and "remains skeptical about the US." An embassy cable from Berlin from Sept. 22, 2009 describes Westerwelle as having an "exuberant personality." That is why he finds it difficult to take a backseat when it comes to any matters of dispute with Chancellor Angela Merkel," the cable says.
A fine mess.
The EU area "encourages" bond holders to maintain their exposure to EU-area debt, and issues new bonds via an EU mechanism WITH SENIORITY over previous bonds? I see the strategy to devalue the Euro, but the ramifications for bonds and further issuance is very troubling. This is a terra incognito for the EU with multiple guarantees on debt (in several SOVEREIGN COUNTRIES) without a corresponding fiscal capacity tanatmount to providing a municipal fire department with millions of dollars of new fire-fighting equipment in the midst of a raging fire engulfing an lare section of the city.
The EU area is once again betting its existance on forward GDP, and more specifically, manufacturing output and exports.
This, coupled with the Spiegel articles out tomorrow, does not exactly burnish the ECB's credibility.
So its all a fine mess, and I just have to chuckle at these efforts to hold this creaking old rollercoaster together, and burst out laughing at the people who wish to ride it.
The EU area is once again betting its existance on forward GDP, and more specifically, manufacturing output and exports.
This, coupled with the Spiegel articles out tomorrow, does not exactly burnish the ECB's credibility.
So its all a fine mess, and I just have to chuckle at these efforts to hold this creaking old rollercoaster together, and burst out laughing at the people who wish to ride it.
Wednesday, November 24, 2010
Seeking the blameworthy...
Blame, blame, blame. It is a pity commentators don't take a more serious tac and investigate the incentive structures that FULLY explain this licentious, avaricious behavior.
Still, this article does relate some very useful nuggets:
One is the role of financial intermediaries, such as banks. Rather than seeking the most productive outlet for the money that depositors and investors entrust to them, they may follow trends and surf bubbles. These activities shift capital into projects that have little or no long-term value, such as speculative real-estate developments in the swamps of Florida. Rather than acting in their customers’ best interests, financial institutions may peddle opaque investment products, like collateralized debt obligations. Privy to superior information, banks can charge hefty fees and drive up their own profits at the expense of clients who are induced to take on risks they don’t fully understand—a form of rent seeking. “Mispricing gives incorrect signals for resource allocation, and, at worst, causes stock market booms and busts,” Woolley wrote in a recent paper. “Rent capture causes the misallocation of labor and capital, transfers substantial wealth to bankers and financiers, and, at worst, induces systemic failure. Both impose social costs on their own, but in combination they create a perfect storm of wealth destruction.”
Still, this article does relate some very useful nuggets:
One is the role of financial intermediaries, such as banks. Rather than seeking the most productive outlet for the money that depositors and investors entrust to them, they may follow trends and surf bubbles. These activities shift capital into projects that have little or no long-term value, such as speculative real-estate developments in the swamps of Florida. Rather than acting in their customers’ best interests, financial institutions may peddle opaque investment products, like collateralized debt obligations. Privy to superior information, banks can charge hefty fees and drive up their own profits at the expense of clients who are induced to take on risks they don’t fully understand—a form of rent seeking. “Mispricing gives incorrect signals for resource allocation, and, at worst, causes stock market booms and busts,” Woolley wrote in a recent paper. “Rent capture causes the misallocation of labor and capital, transfers substantial wealth to bankers and financiers, and, at worst, induces systemic failure. Both impose social costs on their own, but in combination they create a perfect storm of wealth destruction.”
Tuesday, November 23, 2010
Cross-Holdings...
...that would make a Keiretsu blush. United Europe has chained themselves to the Jolly Rodger.
Recursive Fed reaction functions...
...in the latest Fed Minutes, the Fed mentions that it has revised its forecast of economic growth in ligth of "asset market developments...reflecting heightened expectations".
This is curious considering the Fed has willfully altered the asset mix with QE2 (which, once again, has no net effect and even if it did had an effect, this would be deflationary and diametrically opposed to the Fed's desired outcomes.). Put another way, moved the target to the place they shot the arrow, and now claim success
This is curious considering the Fed has willfully altered the asset mix with QE2 (which, once again, has no net effect and even if it did had an effect, this would be deflationary and diametrically opposed to the Fed's desired outcomes.). Put another way, moved the target to the place they shot the arrow, and now claim success
Monday, November 22, 2010
QE2 Red Shifting
The Dollar Index measuring the currency’s performance against those of six major trading partners has climbed as much as 5.1 percent from its low this year on Nov. 4. Futures traders have slashed bets for a decline in the dollar against the euro, yen, Australian dollar and Swiss franc, data from the Commodities Futures Trading Association in Washington show.
Leaders from Chinese Premier Wen Jiabao to John Boehner, the nominee to be the next speaker of the House of Representatives, have said Fed Chairman Bernanke’s plan to print money and buy $600 billion of U.S. government debt will cause instability and faster inflation. The $4 trillion-a-day currency market is signaling the Fed’s strategy is unlikely to debase the dollar as long as the economy continues to strengthen.
No net effect. Furthermore, the risk is tilted to the deflationary side (given the context of the current environment of banking malaise, etc.) since swapping interest bearing assets (bonds) with non-interest bearing assets (cash) removes current and future income streams from the economy.
In astronomical terms, whatever effect QE2 was supposed to have is Red-shifting at a large and increasing rate.
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