International Monetary Fund
Subsistence farming never worked because being self-sufficient was firstly nigh-on impossible and secondly limited as well as being dependent on the climate.
As macro news continues to trickle in better than expected, the latest batch being benign (if completely fake) Chinese inflation data (CPI 2.6%, Exp. 2.6%, Last 2.7%) and trade data released overnight which saw ahigher than expected trade balance ($28.5bn vs Exp. $20.0; as exports rose from 5.1% to 7.2%, and imports dipped from 10.9% to 7.0%, missing expectations), markets remain confused: is good news better or does it mean even more global liquidity will be pulled. As a result, the release of an encouraging set of macroeconomic data from China failed to have a meaningful impact on the sentiment in Europe this morning and instead stocks traded lower, with the Spanish IBEX-35 index underperforming after Madrid lost out to Tokyo to win rights to host 2020 Olympic Games. Even though the news buoyed USD/JPY overnight, the pair faced downside pressure stemming from interest rate differential flows amid better bid USTs. The price action in the US curve was partly driven by the latest article from a prolific Fed watcher Jon Hilsenrath who said many Fed officials are undecided on whether to scale back bond purchases in September. Hilsenrath added that the Fed could wait or reduce the programme by a small amount at the upcoming meeting. Going forward, there are no major macroeconomic data releases scheduled for the second half of the session, but Fed’s Williams is due to speak.
Emerging markets’ currencies are crashing, and their central banks are busy tightening policy, trying to stabilize their countries’ financial markets. Who is to blame for this state of affairs? The cause of this state of affairs, in one word, is austerity. Weak demand in Europe is the real reason why emerging markets’ current accounts deteriorated (and, with the exception of China, swung into deficit). Thus, if anything, emerging-market leaders should have complained about European austerity, not about US quantitative easing. Fed Chairman Ben Bernanke’s talk of “tapering” quantitative easing might have triggered the current bout of instability; but emerging markets’ underlying vulnerability was made in Europe.
Wealth has besotted people since time immemorial. It’s accrued, amassed, hidden, stolen and we would even die sometimes for it, or at least knock someone off more than likely to get what they have.
Pouring forth from all of the nations on the Continent, like a Preacher with the "Good News," is the notion that Europe is over the recession, that every country is doing just fine and that all problems have been solved. This, in our opinion, could not be further from the truth. It is the spiel of the day and reality will be found in the footnotes of tomorrow as long as tomorrow is after September 22... Even Draghi was forced to admit that thing smay have got a little ahead of themselves...
*DRAGHI SAYS CAN'T SHARE ENTHUSIASM ABOUT RECOVERY
As a reminder, September 22 is the date for the German Elections. All of Europe and the IMF are keeping their heads down, playing nice and saying very little until this date comes and goes.
Today we present the Target2-system and the fiscal bail-out facilities in our series on European efforts to bail out itself. For new readers, check out part 1 here http://bawerk.net/?p=123
Reading the financial press, one gets the impression there are only two sides to the austerity debate: pro-austerity and anti-austerity. In reality, we have three forms of austerity. There is the Keynesian-Krugman-Robert Reich form which promotes more government spending and higher taxes. There is the Angela Merkel form of less government spending and higher taxes, and there is the Austrian form of less spending and lower taxes. Of the three forms of austerity, only the third increases the size of the private sector relative to the public sector, frees up resources for private investment, and has actual evidence of success in boosting growth.
In a sense the markets are experiencing a "Vietnam Moment" where we all believed what we were told and we all accepted the official headlines until the day came when we found out we had been flimflammed and you know the results of that fiasco. We believe that the markets are quite close to a shift in psychology where people and institutions alike no longer blindly accept the stories as told.
With the value of the rupee plunging to new lows, the current account deficit at an all-time high and inflation running at nearly a ten-percent annual clip, India is in serious economic trouble. Indeed many are beginning to wonder whether the country is edging toward a replay of the events in the summer of 1991. Back then, an acute balance of payments crisis forced New Delhi into the indignity of pawning its gold reserves in order to secure desperately needed international financing. At a small public event the other week, Duvvuri Subbarao, the outgoing head of the central bank conceded that policymakers rarely learn from their mistakes: "...in matters of economics and finance, history repeats itself, not because it is an inherent trait of history, but because we don’t learn from history and let the repeat occur."
The first signs are emerging that the cult-like status given to the world's central bankers is starting to wane, with significant market implications.
If you thought August had more than enough events to crush the best laid vacation plans of Wall Streeters and men, you ain't seen nothing yet. Presenting "explosive" September.
Much data and events next week. Politics risks trumping economics.
The most likely path of collapse to take place within the U.S. includes economic destabilization caused by a loss of the dollar's world reserve status and petro-status. This fiscal crisis event will likely not occur in the midst of a political vacuum. The central banks and international financiers that created our ongoing and developing disaster are not going to allow the destruction of the American economy, the dollar, or global markets without a cover event designed to hide their culpability. They need something big. Something so big that the average citizen is overwhelmed with fear and confusion. A smoke and mirrors magic trick so raw and soul shattering it leaves the very population of the Earth mesmerized and helpless to understand the root of the nightmare before them. The elites need a fabricated Apocalypse. Enter Syria...
It’s a big mistake. Maybe some might say that the Fed altogether is a mistake itself. But, it’s made some big, ugly mistakes that don’t bare thinking about and yet there’s no understanding why they took those decisions.
- UN Insecptors to leave Syria early, by Saturday morning (Reuters)
- Yellen Plays Down Chances of Getting Fed Job (WSJ)
- JPMorgan Bribe Probe Said to Expand in Asia as Spreadsheet Is Found (BBG)
- No Section 8 for you: Wall Street’s Rental Bet Brings Quandary Housing Poor (BBG)
- Euro zone, IMF to press Greece for foreign agency to sell assets (Reuters)
- Brothels in Nevada Suffer as Web Disrupts Oldest Trade (BBG)
- U.S., U.K. Face Delays in Push to Strike Syria (WSJ); U.S., U.K. Pressure for Action on Syria Hits UN Hurdle (BBG)
- Renault Operating Chief Carlos Tavares Steps Down (WSJ)
- Vodafone in talks with Verizon to sell out of U.S. venture (Reuters)
- Dollar Seen Casting Off Euro Shackles as Fed Tapers (BBG)