Category Archives: Currencies

Europe Extends and Pretends

As I’ve been covering over the last few months the data coming out of Europe of late has been slowly getting better, and last nights’ PMI continued the trend. But “better” still needs to be put in context.

Germany Keeps Whistling as Iberia Starts to Burn

Yves here. One of my colleagues is back from a month in Europe (a lot of travel, and lots of meetings with economists and political types). I need to debrief him more fully, but his short take was Portugal is clearly in crisis, with Spain and Italy not far behind, and that the political train wrecks will hit faster than the economic ones. Although I can’t see how the former won’t accelerate the arrival of the latter.

The Fed (Sort of) Speaks, but is the Bond Market Really Listening?

Yves here. As has become typical of late, the markets reacted sharply to the release of the FOMC minutes on Wednesday and Bernanke’s remarks later. For a really good effort at parsing the minutes, see Fedwatcher Tim Duy. The one clear conclusion was how unclear the minutes were:

Satyajit Das: The Truth of the Matter

Satyajit Das reviews three books about our current economic and political woes.

Yanis Varoufakis: The Death of Direct Bank Re-capitalisation: Europe’s (Newest) Day of Shame

The idea was to de-couple the banking from the debt crisis. The reality is that they propose to do nothing of the sort. And deposits are now officially at risk.

Wolf Richter: One Part Of Japan’s Abenomics Salvation Is Already A Fail

Japan’s attack in the Currency War was supposed to make it more competitive in international trade – but that, it failed to do. In fact, the opposite occurred.

Why You Should Stop Worrying About Central Bank Losses

Yves here. I guarantee this post will make some readers’ heads explode. It also explains why Germany would benefit from OMT.

Nikkei Falls 6.4%, Overseas Markets Escalate Hissy Fit Over Cut in World Bank Forecasts, Fed Taper Talk

The big shortcoming being exposed by the Fed’s talk of tapering QE isn’t just that it’s premature. The central bank could have had its cake and eaten it too by using the “T” word and then in case of overreaction, sending minions out to reassure investors that it didn’t mean it, really, they just had to say it to appease the hawks (not in that formula, mind you, the mere fact of running around and looking concerned about markets having a bit of a swoon is more important than content). It’s that any QE exit subjects the Fed to conflicting objectives and Mr. Market may have finally awoken to that fact.

Wolf Richter: Germany Grapples (Again) With The Choice Between Its Constitution And The Euro

Yves here. The consensus view among experts, despite considerable public opposition in Germany, is that the German Constitutional Court will not upend the Eurozone bailout mechanisms by ruling in favor of challenges to their legality. This confirms the policy issue that Dani Rodrik flagged in 2007: you can’t have national sovereignity, democracy, and deep integration of markets at the same time. You can have at most two of the three. Sadly, Europe looks ready to settle on only one on that list.

Nathan Tankus: Memo to Paul Krugman on the Eurozone – Read Your Own Research!

Normally, I’m a harsh critic of neoclassical economics and neoclassical economists. However, sometimes the most frustrating things about neoclassical economists is their lack of familiarity with neoclassical models (especially older ones) and current neoclassical research. Monday provided a rather extraordinary example of this trend: Paul Krugman is apparently not familiar with Paul Krugman’s research!

Yanis Varoufakis: Mixed Messages from the IMF

Yves here. Note how the need to pretend Deutsche Bank is not undercapitalized, mentioned in passing in this post, is playing into policy.

An interview by Yanis Varoufakis, Professor of Economics at the University of Athens, with Tomas Hirst of Pieria. Cross posted from Yanis Varoufakis’ blog.

Russia’s Plan For The BRICS To Dismantle The Dollar System

The status of the US dollar as the world reserve currency gives the US tremendous advantages. Among them: it allows the Fed to export inflation, while the Federal Government can run a huge deficit with impunity. But now an angry Russia has had enough!

Europe’s Depression Worsens

Yves here. Take note in particular the discussion of the state of play in Italy. Even though other countries under the German yoke are complaining, Italy is the one that can credibly defy Germany, and the Germans know it.

I welcome comments from people who are following European media. I’m not sure that Latta’s failure to round up supporters matters much. I’d imagine he wants to position himself as Berlusconi’s messenger rather than a staunch ally.

By Delusional Economics, who is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As I mentioned earlier in the week Italy may have a new parliament but there is very familiar person who appears to be pulling the strings, and how long such an arrangement can last is questionable.

Did the Euro Kill Governance in the Periphery?

Yves here. We’re a little EU-centric tonight as a result of a wealth of particularly good material, which is often a sign that stresses are rising (there was tons of good material in the runup to the crisis as well).

By Jesús Fernández-Villaverde, Professor of Economics, University of Pennsylvania and Luis Garicano, Research Fellow with the Productivity and Innovation Programme, Centre for Economic Performance; Professor of Economics and Strategy, Departments of Management and of Economics. Cross posted from VoxEU

By the end of the 1990s, under the incentive of Eurozone entry, most peripheral European countries were busy undertaking structural reforms and putting their fiscal houses in order. This column argues that the arrival of the euro, and the subsequent interest-rate convergence, loosened a tide of cheap money that reversed the incentives for further reforms. As a result, by the end of the euro’s first decade, the institutions and governance in the Eurozone periphery were in worse shape than they were at the start of the decade.

France Versus Reality

By Delusional Economics, who is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

Yesterday I noticed an interesting paragraph over at efxnews about France and its parallels with what many see in the market today:

It’s a big surprise for some that France is high on the crisis susceptibility index…