Category Archives: Currencies

Simon Johnson: JP Morgan at Risk if Euro Breaks Up

I’m surprised it has taken this long for Someone Serious to make the argument set forth in a new article by Simon Johnson at Bloomberg, which in short form says “You are dreaming if you think a European financial crisis stays in Europe.”

Johnson somewhat undercuts the urgency and importance of his article by working from the assumption that the eurozone dissolves back into its earlier configuration of one currency per nation. Economists and analysts have discussed other scenarios, such as a exit by Greece, which has the potential to precipitate contagion in Portugal, Spain, and Italy; an exit by Germany; a split into more economically homogeneous sub-groups (most likely north v. south). And Bloomberg refrains from putting the real sizzler in the headline: Johnson considers JP Morgan to be vulnerable and explains why.

“The Eurozone’s Strategy is a Disaster”

Yves here. Mr. Market is in a tizzy today over, per Bloomberg, “concerns over the slowdown of growth”. Cynics might note that journalists have to attribute motives to market moves, when their waxing and waning often defies logic. Nevertheless, we’ve had disappointing reports out of China, a bad Philly Fed manufacturing report, a less than stellar initial jobless claims report, and not so hot housing data this AM, and more and more signs of inability to bail out the sinking Titanic of the Eurozone (a meaningless announcement compounded by continued focus on ongoing German court challenges to more aggressive support of rescues. Even if these cases lose, any uncertainty and delay has the potential to accelerate the ongoing bank run out of periphery countries).

This post from VoxEU is a good short form summary of how the Eurozone got into this fix.

New York Times Misidentifies Main Cause of Slow Motion European Bank Run

It’s feeling like 2007 all over again. The New York Times has a bizarre and prominent story (now the lead item on its business page) on how the lack of integrated bank supervision in Europe is causing a breakdown in interbank lending. The New York Times (and the Wall Street Journal) getting it wrong when the FT gave straightforward, informed accounts was a frequent feature in the early phases of the crisis (both US papers upped their game considerably as the bad financial news increased).

NC Crowdsourcing: Will the Euro Survive?

All eyes in finance are on Greece…

Satyajit Das: The Euro-Zone Debt Crisis – It’s Now ABOUT Germany NOT UP TO Germany!

Yves here. Das’ post has a lot of useful information, but like a lot of finance people, he is hostage to a conventional markets-driven reading of the issues. Governments are not households or businesses. When the private sector delevers, unless a country is running a big surplus (as Germany is) you can’t have government delever at the same time. So Germany’s notion of virtue (that governments and private citizens should wear an austerity hair shirt) works only for Germany.

There are also ways to prevent an Euro train wreck that don’t involve using German’s balance sheet, such as having the ECB issue bonds, or do revenue sharing (say on a per capita basis, as Marshall Auerback suggested in a NC post). Or the ESM could be given a banking licence via the ECB so that it has the ability to deploy unlimited capital to sort out the solvency issue (as France has suggested). Yanis Varoufakis’ “Modest Proposal” is another approach. But if Germany continues to oppose having the ECB take a much more aggressive stance, Das’ concerns are germane.

The Crisis Shifts to Italy

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As we head towards Greece’s weekend election, rumoured to be celebrated by the locals by moving ever larger sums of money elsewhere, the Eurozone appears to be seriously straining under the constant pressure of its ongoing crisis.

Bank Bonds vs German Intransigence

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

The fallout from the Spanish bank “bailout” continued overnight with Spanish yields moving back up and over their November 2011 euro area highs:

Spanish Bank Rescue: Will the Treatment Make the Patient Worse?

Spain has reversed itself and asked the Eurozone for “up to” €100 billion after not long ago insisting it could go it alone. The proximate cost was the increase in its sovereign debt yields in the wake of the announcement of a bailout of Bankia, which was cobbled together from dud cajas. Even though Spain’s bond auction last week got off better than expected, that was likely in part due to the expectation that the creditor states would indeed ride in to the rescue.

But will the latest, yet to be finalized remedy do anything more than buy a little time?

Marshall Auerback: Beware German Trojan Horses – More “Europe” Might Mean More Fiscal Austerity

By Marshall Auerback, a portfolio strategist and hedge fund manager

As several newspapers have recently highlighted, Germany is slowly but surely moving toward a plan to combine much of Europe’s bad debt into a single fund with the idea of paying it off over 25 years.

Cleaning Up the Mess: What to Do About Teetering Eurobanks?

Yves here. The Financial Times and New York Times tonight both have good overviews on the state of play in the effort to contain a slow-motion Spanish bank run. On the one hand, the Spanish government is in a position to tell the Eurocrats that it will consider only a bank bailout and not be required to take on further austerity measures. Given that retail sales have fallen nearly 10% year to year, it’s hard to see how anyone could expect more austerity to be a good idea.

Although markets reacted as if a deal was imminent, the FT makes it sound as if quite a few details need to be ironed out. And no wonder…

Yanis Varoufakis: Why Europe Should Fear Fine Gael-like ‘Reasonableness’ Much, Much More Than it Fears Syriza

By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog.

The establishment view in Europe is that the problem is too much debt (by profligate countries like Greece) and, therefore, that the solution must involve (a) austerity and (b) structural reforms (which increase the competitiveness of the weaker states). The problem, however, is that the establishment view is profoundly mistaken and, as a result, the proposed treatment poisons the patient. If this is so, Europe (and the world) have a lot more to fear from the ‘reasonableness’ of political parties like Fine Gael et al than from the ‘ultra-leftists’ of Syriza.

Europe is Falling Apart

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from http://www.macrobusiness.com.au/2012/05/europes-problems-multiply/“>MacroBusiness.

It feels as if Europe has rolled the clocks back to 2011 as the effects of the ECB’s LTRO have now well and truly warn off and the markets appear to have reconnected with idea that the fundamental issues of the Eurozone have never been addressed.

Europe’s Black Cygnets Grow

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from http://www.macrobusiness.com.au/2012/04/europes-lunatics-rise/“>MacroBusiness.

And so the black cygnets scuttle from the shadows again.

Over the weekend, Angela Merkel’s Christian Democrats suffered an 8.3% swing in North Rhine-Westphalia as the Social democrats (SDP) and the Greens garnered a majority. Although this is only a state election, called after the previous SDP led minority government was unable to get approval for its budget, North Rhine-Westphalia is the country’s most popular state and seen the bellwether for national government. Of note is the fact that the SDP-Greens coalition governed Germany under Chancellor Gerhard Schröder from 1998 to 2005. Although this is as much about state politics and personalities, especially the SDP leader Hannelore Kraft, the flow-on effects at a national level from such a large turn around are very obvious:

Michael Hudson: Paul Krugman’s Economic Blinders

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College. His new book summarizing his economic theories, “The Bubble and Beyond,” will be available in a few weeks on Amazon.

Paul Krugman is widely appreciated for his New York Times columns criticizing Republican demands for fiscal austerity. He rightly argues that cutting back public spending will worsen the economic depression into which we are sinking. And despite his partisan Democratic Party politicking, he said from the outset in 2009 that President Obama’s modest counter-cyclical spending program was not sufficiently bold to spur recovery.

Europe’s Problems Multiply

Yves here. Notice how someone in the officialdom actually said “There is no alternative”. Nothing like being explicit.

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

Overnight, Greek Leftist leader, Alexis Tsipras, gave up on his attempts, or at least pretence of them, to form government. The gauntlet has now been handed to PASOK leader, Evangelos Venizelos, who again has 3 days to attempt the same.