- What can possibly go wrong: Tepco Successfully Removes First Nuclear Fuel Rods at Fukushima (BBG)
- Japan's Banks Find It Hard to Lend Easy Money (WSJ)
- U.S. Military Eyes Cut to Pay, Benefits (WSJ)
- Airbus to Boeing Cash In on Desert Outpost Made Field of Dreams (BBG); Dubai Air Show: Boeing leads order books race (BBG)
- Sony sells 1 million PlayStation 4 units in first 24 hours (Reuters)
- Russian Tycoon Prokhorov to Buy Kerimov's Uralkali Stake (WSJ)
- Google Opening Showrooms to Show Off Gadgets for Holidays (BBG)
- Need. Moar. Prop. Trading: Federal Reserve considering a delay to Volcker rule (FT)
- Raghuram Rajan plans ‘dramatic remaking’ of India’s banking system (FT)
- SAC Capital's Steinberg faces insider trading trial (Reuters)
Given our earlier discussion of Nobel winner Sargent's comments on Greece and the gold standard, and the ongoing melt-up in asset markets due to the 'limitless money-printing' of central banks around the world, we thought it worth a look at what a gold standard is (and is not). Before 1974, U.S. dollars were backed by gold. This meant that the federal government could not print more money than it could redeem for gold. While this constrained the federal government, it also provided citizens with a relatively stable purchasing power for goods and services. Today's paper currency has no intrinsic value. Professor Larry White asks, should the United States return to a gold standard?
Economic data can be and is commonly used as a political tool. The EU is just the latest example of this. In the US we’ve seen this same game played out using GDP numbers.
Nobel Winner Dares To Go There: "No Reason To Fear Deflation... Greece May Benefit From Gold Standard"Submitted by Tyler Durden on 11/16/2013 12:45 -0500
"Historically, there is no reason to fear deflation," Nobel Laureate Thomas Sargent explains to Germany's Wiwo.de, "we all benefit from lower prices." Crucially, he continues, "countries with declining prices, such as Greece, must improve the competitiveness they have lost in recent years," requiring falling wages and rising productivity (and falling unit labor costs) which will lead to companies cutting prices, "this is not a dangerous deflation, but part of the necessary correction so that these countries are internationally competitive again." That central banks pursue an inflation rate of around 2%, Sargent blasts, is because they consider it their job to "make bad debt good debt," adding that inflation is "a major redistribution machine - reducing the real debt burden for the benefit of creditors and devaluing the assets of the creditors." A return to a gold standard,he concludes, to prevent governments and central banks from limitless money-printing "would not be foolish."
Not only is there a positive relationship between stronger public finances during the crisis and faster post-GFC growth, but the relationship holds both within and outside Europe. We have two observations. First, the results may help explain why Keynesian pundits resort to nonsensical arguments. They often claim that poor performance in countries attempting to contain public debt proves austerity doesn’t work, which is like deciding your months in rehab stunk, and therefore, rehab is bad and heroin is good. A more honest approach is to compare fiscal actions in one time period with results in later periods, after the obvious short-term effects have played out. But if Keynesians did that, they would reveal that their own advice has failed. Second, the effects discussed by Aslund don’t receive enough attention. As Tyler Cowen (who gets credit for the pointer) wrote, Aslund’s perspective “is underrepresented in the economics blogosphere.”... Until now, we haven’t offered research on intermediate-term effects – horizons of 2-5 years as in the charts above.
A hot, phenomenally profitable export product with minuscule input costs and unlimited potential.
The notion that the euro area crisis is over has recently been heavily propagated by EU politicians and the mainstream media. However, it is way too early for such victory laps. Hans-Werner Sinn is perfectly correct in pointing out that the ECB's attempts to restore the 'monetary policy transmission mechanism' by suppressing interest rates in the periphery is going to perpetuate capital malinvestment,delay the necessary reforms and these interventions have actually scared private capital away, as investors require adequate compensation for the risks they are taking. Meanwhile, savers are ultimately paying for this ongoing waste of scarce capital. It is high time that central banking is recognized for the disease it is. Without central banks aiding and abetting credit expansion, this situation would never have arisen. Even a free banking system practicing fractional reserve banking could not possibly have created such a gigantic boom-bust scenario. Money needs to be fully privatized – the State cannot be trusted with it.
This morning has seen a plague of talking-head-based soundbites propagated through the mainstream media as 'fact' and actionable. One that caught our eye, from none other than "largest asset manager in the world" Larry Fink of Blackrock, simply beggared belief:
- *FINK SAYS JAPANESE INVESTORS QUESTIONING INVESTING IN U.S. DEBT
As we recently noted, the Japanese bond market is now dead (for all intent and purpose) but a glance at the following chart of credit reality suggests those Japanese investors might stop to reflect a little on their own reality...
The EU may have many worries and woes that are slapping it around its face right now (and it could be said for a number of years), but there is one thing that is worrying economists more than the sovereign-debt crisis and that’s the fact that prices are not increasing enough.
If you have not already, it is time to modify your UST trading strategy to adapt to current market conditions. Buyer beware...
The latest myth of a European recovery came crashing down two weeks ago when Eurostat reported an inflation print of 0.7% (putting Europe's official inflation below that of Japan's 1.1%), followed promptly by a surprise rate cut by Mario Draghi which achieves nothing but sends a message that the ECB is, impotently, watching the collapse in European inflation and loan creation coupled by an ongoing rise in unemployment to record levels (not to mention the record prints in the amount of peripheral bad debt). Needless to say, all of this is largely aggravated by the EURUSD which until a week ago was trading at a two year high against the dollar, and while helpful for Germany, makes the so-needed external rebelancing of the peripheral Eurozone countries next to impossible. Which means that like it or not, and certainly as long as hawkish Germany says "nein", Draghi is stuck in a corner when it comes to truly decisive inflation-boosting actions. But what is Draghi to do? Well, according to BNP's Paul-Mortimer Lee, it should join the "no holds barred" monetary "policy" of the Fed and the BOJ, and promptly resume a €50 billion per month QE.
One of the mysteries surrounding the insolvent, and already once bailed out Spanish banking sector, has been the question why reported bad loans - sharply rising as they may be - are still as relatively low as they are currently, considering the nation's near highest in the Eurozone unemployment rate, and in comparison to such even more insolvent European nations as Greece, Cyprus and Slovenia. Courtesy of the just completed bank earnings season, and a WSJ report, we now know why: it turns out that for the past several years, instead of accurately designating non-performing loans, banks would constantly "refinance" bad loans making them appear viable even though banks have known full well there would be zero recoveries on those loans. In fact, as the story below describes, banks would even go so far as making additional loans whose proceeds would be just to pay interest on the existing NPLs - a morbid debt pyramid scheme, which when it collapses, no amount of EFSF, ESM or any other acronym-based bailout, will be able to make the country's irreparably damaged banks appear even remotely viable.
When the US federal government was shutdown, China jumped in on the financial bandwagon and suggested that we build ‘a de-Americanized world’, which boils down to getting rid of the dollar as the international reserve currency.
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European monetary policy/monetary conditions are too tight and, Citi's FX Technical group explains, the EURO is too strong thereby exacerbating the effects of the internal devaluation in Europe (as we noted here). Looser monetary policy and a weaker currency are becoming increasingly necessary conditions for the Eurozone to recover/survive. The present period in the Eurozone, Citi adds, where the financial architecture is coming apart at the seams is not remotely unprecedented and in fact offers a very compelling historical perspective for significant devaluation of the EUR in the years ahead.