This Boom/Bust show features a wide-ranging talk with Michael Hudson about the impact of the Swiss currency shock, the pending Greek elections, the effects of sanctions, and what the deteriorating Ukraine economy means for Europe.
Read more...Even though traders say they like volatility, their attitude is straight out of Goldilocks: : not only is too little too bad, but so is too much. The recent oil price plunge has sent rattles across financial markets around the world, with more knock-on effects expect as shale gas players start to show signs of stress.
And today’s big event was so unforeseen as to verge on being in black swan terrain. The Swiss National Bank, which had a program in place to keep the euro from falling below 1.20 to the Swiss franc.
The Swiss National Bank abruptly terminated the cap today. The currency move was brutal.
Read more...I’m putting up the entire Boom/Bust show in which Yanis Varoufakis appears, in part because the introductory section discusses how stressed oil producers may use secured lending to borrow more money in an effort to ride out the price bust. That would lead to a further drop in the price of any junk bonds or market value of any existing loans on those companies, since the new secured borrowing would be senior to the existing debt.
Read more...The odds of France leaving the Eurozone, or Frexit, have just gone from a tail risk to plausible thanks to the boost the Hedbo shootings have given to the leader of France’s far right party, the National Front, and its leader, Marine Le Pen. Opinion polls indicate that that she would win the first round of a presidential ballot were elections held now.
Read more...What the Germans seem to have in mind is a financial blitzkrieg against Greece should Syriza win, reducing the land to economic rubble and dust, an example for other potential refractory Euro nations.
Read more...Nothing like the smell of deflation in the morning…
Read more...Yves here. This is a useful and accessible talk by one of the leading Modern Monetary Theory developers, Bill Mitchell of the University of Newcastle, interviewed here by Marshall Auerback of INET.
This talk is wide-ranging, and starts by pointing out that in key ways, Modern Monetary Theory incorporates basic concepts that have perversely omitted from mainstream macroeconomics, largely for ideological reasons. This conversation does not get much into central bank operations, which is the basis for MMT’s claim that it is a much more accurate representation of how monetary operations work for a fait currency issuer like the US than textbook or popular press accounts that are based on outdated “gold standard” notions.
In typical Australian fashion, Mitchell is blunt, so I suspect readers will find this talk to be more lively and accessible than typical economists’ fare.
Read more...Yves here. Yanis Varoufakis discusses the prospects for negotiations between a new, likely Szyria-led Greek government and the Troika over the next Greek restructuring. Varoufakis in effect argues that the Greeks should go hardball because the Trokia’s demands are unreasonable. We’ll find out soon enough whether the incoming government has the public support and the guts to do so.
As much as a Grexit would be a lose-lose of major proportions, Varoufakis argues that the logic of current Eurzone arrangements is driving members to a break-up. Indeed, some observers believe that Germany would like to kick Greece out of the Eurozone. As Marshall Auerback put it by e-mail:
Read more...As far as Germany goes, let me quote Macbeth:
I am in blood
Stepped in so far that, should I wade no more,
Returning were as tedious as go o’er.
Yves here. The triumphalism among Western commentators as the ruble plunged last week is more than a little cringe-making. We’re not yet in Two Minute Hate territory yet, but this feels like a warmup. Robert Parry provides an insanity check:
Official Washington’s “group think” on the Ukraine crisis now has a totalitarian feel to it as “everyone who matters” joins in the ritualistic stoning of Russian President Putin and takes joy in Russia’s economic pain, with liberal economist Paul Krugman the latest to hoist a rock…
Indeed, much of what Krugman finds so offensive about Putin’s Russia actually stemmed from the Yeltsin era following the collapse of the Soviet Union in 1991 when the so-called Harvard Boys flew to Moscow to apply free-market “shock therapy” which translated into a small number of well-connected thieves plundering Russia’s industry and resources, making themselves billionaires while leaving average Russians near starvation.
The piece goes on to debunk in considerable detail the caricature of Putin presented in America, the most important element being the charge that Putin was the aggressor in Ukraine and is therefore getting what he deserved. Mind you, Putin is still an authoritarian, but we don’t find that objectionable in many of our putative allies, starting with the Saudis.
Read more...Yves here. This important post by Michael Pettis addresses whether the efforts of the Chinese to diversify their foreign investments away from the dollar will be a negative for the US. Pettis is skeptical of that thesis, and some of his reasons are intriguing. Like quite a few experts, he doubts that China’s role in sponsoring an infrastructure bank will be a game changer, and he also points out, as we have regularly, that the Chinese cannot deploy their foreign exchange reserves domestically without driving the renminbi to the moon (via selling foreign currencies to buy RMB), which is the last thing they want to have happen. A more surprising, but well argued thesis is that reduced Chinese purchases of US bonds would be a net plus for the US.
Get a cup of coffee. This is a meaty, important article.
Read more...Who needs sanctions when intellectual capture produces such swimming results? The US-led restructuring of the Russian economy after the USSR fell is a gift that keeps on giving.
Hoisted from comments:
Read more...Yves here. Since the financial media is covering the continuing meltdown of the ruble intensely, we thought it would be helpful to add some information that seems to be missing from most reporting. This post by Jacques Sapir from the 14th (hat tip Michael Hudson) provides important detail on the importance of oil to the Russian economy (far less than typically depicted, although it is the biggest source of foreign exchange), the impact of the fall of the ruble and oil prices on the domestic budgets, and the odds of a Russian default. Note that Sapir is sanguine on the default front and does not see a rerun of 1998 in the offing, by virtue of of Russia having large foreign currency reserves. Note that Menzie Chinn of Econbrowser differs, and uses a chart from the Economist to make his point:
Read more...Many observers have become unduly excited about what they depict as efforts to break the dollar hegeomony, such as the joint effort by the so-called BRICS nations to form a development bank. While having a suite of internationals funding entities, particularly ones focused on activities that in theory increase the collective benefits of relying on a reserve currency, are seen to be important, it does not follow that launching useful new funding institutions will break dollar dominance. As much as US abuse of its position as issuer of the reserve currency is correctly resented, there isn’t a competitor waiting in the wings. The Eurozone has blown it with its failure to clean up even sicker banks than the US has, and by compounding a bad situation with its adherence to destructive austerity policies. China clearly has the potential to displace the US longer-term, but it is unwilling to run the requisite trade deficits, since that means exporting demand and hence jobs. And no country had made the transition from being a major exporter to being consumer-driven smoothly; a crisis or protracted malaise would also delay China displacing the US as currency top dog.
But not being able to get rid of the dollar any time soon does not mean that countries that the US is trying to punish by using its influence over international payments system won’t find nearer-term escape routes.
Read more...Regulators look to be getting more serious about financial firm misconduct, as witness their new-found willingness to file criminal charges against banks. Not that has happened yet as regards JP Morgan, the US bank with far and away the biggest rap sheet of all US financial firms. But as we’ll discuss, while it is good to see regulators getting tougher with banks, this move still falls in the category of “too little, too late,” particularly since it looks to a last-ditch effort to improve departing attorney general Eric Holder’s file of media clips.
Here is an overview of the JP Morgan investigation from the Wall Street Journal:
Read more...The New York Times yesterday published a new story by Ben Protess and Jessica Silver-Greenberg on how Federal prosecutors are investigating reopening cases against big banks and hitting them with additional charges. Reader Richard D, who was curious about the story, wrote, “It is hard for me to know whether this is a momentous event, or a nothingburger.”
It’s actually somewhere in the middle. While it represents prosecutors starting to use muscles that had atrophied, at least as far as financial firms are concerned, as readers will no doubt suspect, the shift falls well short of the levels of official zeal needed.
But there’s actually an important shift discussed at some length in the article that may have bigger ramifications: that powerful bank consultants and lawyers are no longer being taken at their word.
Read more...