...of th problem and suggested prescription for recovery. I disagree that the EU can be saved by policy, and furthermore assert that the current conditions will only fester cultural animosity.
The Full article is here.
As they begin to adopt Germany’s model, or something along those lines, the other eurozone states will find it nearly impossible to use fiscal stimulus in times of crisis. And with monetary policy already in the hands of the dogmatically anti-inflationary European Central Bank, their only means of adjusting to crises will be to stand by as wages fall and unemployment soars. Ireland—with its collapsed tax revenues, massive cuts in government spending, shrinking wages, and skyrocketing unemployment—is the unhappy exemplar of rigid austerity measures in the new Europe.
This approach cannot be sustained for long. The EU has never had much popular legitimacy: many voters have gone along with it so far only out of the belief that their politicians knew best. Today, they are more suspicious. And if they come to think that further European integration is causing more economic hardship, their suspicion could harden into bitterness and perhaps even xenophobia. Ireland’s new finance minister, Michael Noonan, has told voters that the EU is a game rigged in Germany’s favor; editorials in major Irish newspapers warn of Germany’s return to racist imperialism. As economic shocks hit other EU countries, politicians in those states will also look for someone to blame.
If the EU is to survive, it will have to craft a solution to the eurozone crisis that is politically as well as economically sustainable. It will need to create long-term institutions that both minimize the risk of future economic crises and refrain from adopting politically unsustainable forms of austerity when crises do hit. They must offer the EU countries that are the worst hit a viable path to economic stability while reassuring Germany, the state currently driving economic debates within the union, that it will not be asked to bail out weaker states indefinitely.
The short-term solution is clear—even if the European Central Bank, which is still fighting the war against the inflation of the 1980s and 1990s, refuses to recognize it. The solution is a one-off combination of market purchases of bonds and other financial assets, temporarily higher inflation, and fiscal support with the issuance of a common European bond. Quantitative easing and higher inflation would help ease the pain of adjustment, and a European bond would allow the weaker eurozone states to raise money on international markets. All of this would shore up the euro long enough to allow for further-reaching reforms down the road. The major euro bondholders would have to bear some of the costs—as they should, since they lent excessively during the first years of this century—through either explicit haircuts (in effect a discount of their bonds’ value) or inflation. Germany might not enjoy experiencing temporarily higher inflation, but if this were a one-time cost, it could probably live with the results—as long as it was also reassured that the long-term gain would be stability in the eurozone.
Friday, April 29, 2011
Thursday, April 28, 2011
Say it ain't so, Jor-El
...superman now in the hands of global one-world types. Popular culture has a tenedency to be lag real sentiment, inmsho. But hey, look at the bright side, defense spending will increase leading to a nice bump in GDP...and maybe we can hire him as a contractor...
Wednesday, April 27, 2011
The Fed chair is happy to report...
...at this wonderful gathering of reporters, that there are no material changes to anything the Fed has previously said or done. Thank you. That will be all.
What did we expect for his first official press conference? Another weapon in the inflations expectations arsenal, and a blunt, unpredictable one at that.
No wage inflation, loan activity dismal, banks still teetering, this is no time to raise interest rates. (ignoring the fact that the Rate channel of price and monetary signaling is hopelessly broken at the moment.)
The EOTers...
...the end is nigh. America is doomed. China is eating our lunch. Our currency is wortheless, our officials corrupt, there is nothing anyone can do, buy food and pray.
HA!
The End of Timers have been sounding the alarm. Readers here will note that I believe equity markets will falter in June, and prompt many to reasess their view on risk across the asset spectrum.
But the hysteria emanating from the IMF and FUND MANAGERS (whose opinion on markets are NEVER, by necessity, objective...this includes myself, which is why I typically attempt to remain somewhat general about the actual movements of markets) is intensifying. This is always the case around market turns.
Tuesday, April 26, 2011
Jeremy Grantham's latest...
...my comments in italics as usual. The ususal anti-malthusian arguments apply (such as the implicit assumption that humanity will innovate at lower rates, etc.)
Summary
Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply,
ebbing and flowing in population.
Ancient Greece and Egypt predated this. I would also add that the germ theory and plumbing had more to do with population growth (as mortality decreased dramatically) From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific progress.
Hydrocarbons were not necessarily the driver of growth, merely the by product of an age that included the above health benefits, etc.
Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.
Humanity is a growth sector. Higher life expectancy, lower infant mortality, Much greater understanding of disease control. More minds on the planet mean more genius and more innovation
The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.
Here comes the Malthus...geometric population growth coupled with Arithmetic food growth (or in this case an increasing rate of "decay" of finite resources) must equal a crisis.
Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.
Like Milton Friedman said "There is no cure for high prices like high prices" This is a static analysis ignoring the inevitable behavioral effects from price signals.
The problems of compounding growth in the face of fi nite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
OK, fine.
The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
Growth has a way of declining. Trees do not grow to the sky.
But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
In real or nominal terms?
Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
What would a 10% decline in growth in the BRIC countries do to this prognostication? How likely is that event considering the current conditions for growth?
Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.
???
Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the possibility that China may stumble.
China may stumble? Have you been reading this blog?
From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.
Chicken before the egg. Slowing growth rates will have the desired effect on commodities.
We all need to develop serious resource plans, particularly energy policies. There is little time to waste.
OK then. Lets make Saudi Arabia the 51st state, and buy a large portion of saharan West Africa. We need breeding room.
Summary
Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply,
ebbing and flowing in population.
Ancient Greece and Egypt predated this. I would also add that the germ theory and plumbing had more to do with population growth (as mortality decreased dramatically) From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific progress.
Hydrocarbons were not necessarily the driver of growth, merely the by product of an age that included the above health benefits, etc.
Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.
Humanity is a growth sector. Higher life expectancy, lower infant mortality, Much greater understanding of disease control. More minds on the planet mean more genius and more innovation
The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.
Here comes the Malthus...geometric population growth coupled with Arithmetic food growth (or in this case an increasing rate of "decay" of finite resources) must equal a crisis.
Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.
Like Milton Friedman said "There is no cure for high prices like high prices" This is a static analysis ignoring the inevitable behavioral effects from price signals.
The problems of compounding growth in the face of fi nite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
OK, fine.
The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
Growth has a way of declining. Trees do not grow to the sky.
But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
In real or nominal terms?
Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
What would a 10% decline in growth in the BRIC countries do to this prognostication? How likely is that event considering the current conditions for growth?
Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.
???
Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the possibility that China may stumble.
China may stumble? Have you been reading this blog?
From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.
Chicken before the egg. Slowing growth rates will have the desired effect on commodities.
We all need to develop serious resource plans, particularly energy policies. There is little time to waste.
OK then. Lets make Saudi Arabia the 51st state, and buy a large portion of saharan West Africa. We need breeding room.
Winning
Mr. Mosler and his MMT theory are doing their best Sheen impersonation. The below excerpt from a well-known bond trader demonstrates that Warren's ideas are percolating among the decision-makers of the world. Readers here will note the similarities.
2. MYTHS REGARDING FOREIGN INVESTORS FUNDING THE UNITED STATES AND EXTERNAL LIABILITIES:
Firstly, the most important item to understand is the USA discharges its
debt in $US. So the entire argument of rating agencies behind ‘external
funding pressures’ is moot. Functionally there is no difference between a
holder of UST’s who is domiciled in USA or abroad, as they are both $US
dominated savers. The only difference is the foreign saver has no ‘need’ to
save in $US (where a USA investors needs $US as a means of exchange and to
pay his taxes).
So, what if foreign now dump their ust’s?
Foreign investors own ust’s and $us because they WANT to own them. By
engaging in fx driven trade policies, foreigners ‘pay up’ to get $US which
allows them greater sales into the USA market. If foreigners didn’t want to
save in $US, they would change their fx policy which would result in less
market share in USA economy. Foreigners can’t be both buyers and sellers
simultaneously. If foreigners wanted to own less $US, the result would be a
smaller current account deficit in USA, which again using a financial
balance framework would either result in more private savings, or a smaller
govt deficit. Bottom line – if foreigners want to have fewer savings in $US,
either private savers must increase savings, or the govt deficit must fall.
3. MYTHS REGARDING FOREIGN INVESTORS FUNDING THE UNITED STATES AND EXTERNAL LIABILITIES part II:
The same way banks offer savers demand deposits and term deposits (ie
chequing accounts versus savings accounts) the USA economy offers savers the
same in the form of $US (demand assets) or UST (term asset). Foreign savers
can therefore keep their $ at their Fed Reserve account and earn basically
zero (functionally a ‘chequing’ or demand account) or buy UST’s
(functionally a ’savings’ or term account) and earn a coupon. There is no
other way to save in risk free space. As said above, foreigners who engage
in fx driven trade policies must accumulate $US demoninated assets. The only
choice they have is term vs demand assets. So indeed if foreigners declined
to own ust’s and alternatively kept their savings in $US at the Fed, the
result could be a higher and steeper term structure for USA rates. If the
Treasury decided to sell less ust’s and more tbills, this term structure
rise could be negated. Note foreigners actions are never about SOLVENCY, its
merely a function of liquidity preference.
2. MYTHS REGARDING FOREIGN INVESTORS FUNDING THE UNITED STATES AND EXTERNAL LIABILITIES:
Firstly, the most important item to understand is the USA discharges its
debt in $US. So the entire argument of rating agencies behind ‘external
funding pressures’ is moot. Functionally there is no difference between a
holder of UST’s who is domiciled in USA or abroad, as they are both $US
dominated savers. The only difference is the foreign saver has no ‘need’ to
save in $US (where a USA investors needs $US as a means of exchange and to
pay his taxes).
So, what if foreign now dump their ust’s?
Foreign investors own ust’s and $us because they WANT to own them. By
engaging in fx driven trade policies, foreigners ‘pay up’ to get $US which
allows them greater sales into the USA market. If foreigners didn’t want to
save in $US, they would change their fx policy which would result in less
market share in USA economy. Foreigners can’t be both buyers and sellers
simultaneously. If foreigners wanted to own less $US, the result would be a
smaller current account deficit in USA, which again using a financial
balance framework would either result in more private savings, or a smaller
govt deficit. Bottom line – if foreigners want to have fewer savings in $US,
either private savers must increase savings, or the govt deficit must fall.
3. MYTHS REGARDING FOREIGN INVESTORS FUNDING THE UNITED STATES AND EXTERNAL LIABILITIES part II:
The same way banks offer savers demand deposits and term deposits (ie
chequing accounts versus savings accounts) the USA economy offers savers the
same in the form of $US (demand assets) or UST (term asset). Foreign savers
can therefore keep their $ at their Fed Reserve account and earn basically
zero (functionally a ‘chequing’ or demand account) or buy UST’s
(functionally a ’savings’ or term account) and earn a coupon. There is no
other way to save in risk free space. As said above, foreigners who engage
in fx driven trade policies must accumulate $US demoninated assets. The only
choice they have is term vs demand assets. So indeed if foreigners declined
to own ust’s and alternatively kept their savings in $US at the Fed, the
result could be a higher and steeper term structure for USA rates. If the
Treasury decided to sell less ust’s and more tbills, this term structure
rise could be negated. Note foreigners actions are never about SOLVENCY, its
merely a function of liquidity preference.
The sound of metal fatigue...
...creaking and groaning in the edifice of the EU experiment. Deficits falling due to asuterity measures, public debt rising, and nominal and real living standards decreasing. Not good.
The euro zone's aggregated budget deficit fell last year as most countries slashed government spending to restore market confidence in public finances, but the debt still grew, Eurostat data showed.
The European Union's statistics office said on Tuesday the budget deficit in the euro zone in 2010 was 6.0 percent of gross domestic product, down from 6.3 percent in 2009.
Public debt, however, rose to 85.1 percent from 79.3 percent in 2009.
All euro zone countries except Germany, Ireland, Luxembourg and Austria improved their budget balance last year, but debt rose in all euro zone countries except Estonia.
Eurostat said Greece, which was forced to seek emergency funding from the euro zone last year because it was effectively cut off from market borrowing due to its large debt, cut its budget gap to 10.5 percent of GDP from 15.4 percent in 2009.
This is well above the initial target of the Greek austerity program of 8 percent and even above the latest estimate from the European Union and the International Monetary Fund of 9.6 percent.
The euro zone's aggregated budget deficit fell last year as most countries slashed government spending to restore market confidence in public finances, but the debt still grew, Eurostat data showed.
The European Union's statistics office said on Tuesday the budget deficit in the euro zone in 2010 was 6.0 percent of gross domestic product, down from 6.3 percent in 2009.
Public debt, however, rose to 85.1 percent from 79.3 percent in 2009.
All euro zone countries except Germany, Ireland, Luxembourg and Austria improved their budget balance last year, but debt rose in all euro zone countries except Estonia.
Eurostat said Greece, which was forced to seek emergency funding from the euro zone last year because it was effectively cut off from market borrowing due to its large debt, cut its budget gap to 10.5 percent of GDP from 15.4 percent in 2009.
This is well above the initial target of the Greek austerity program of 8 percent and even above the latest estimate from the European Union and the International Monetary Fund of 9.6 percent.
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