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On Europe: "A Willing Lender Of Last Resort May Not Be Enough"
It is becoming clearer and clearer that some new policy option is required in Europe - but as JPMorgan's Michael Cembalest excellent cartoon description of the never-ending circular arguments among European leaders would put it - you would have to be a wide-eyed optimist to believe it will be a decisive one. Comparing the progress of the European Monetary Union with structural changes in the US around the end of the 19th century, it is arguable that more time is needed before judgment is passed but they may not get the chance. The resolution of a staggering EUR10 trillion in peripheral sovereign, household, and corporate debt may not wait. Durable unions are signaled by signs of wage convergence and unilateral transfers of wealth to smooth regional income difference - while a lender of last resort appears to be most people's solution, it likely will not be enough given the competitive divergences.
See the full reserch article below for the complete cartoon ridiculousness of the reality that is our European leaders
How long can this [ZH: FARCE] go on? It feels like a new policy option is needed (particularly in Spain, which looks terrible), but you would have to be a wide-eyed optimist to believe it will be a decisive one. Over the weekend, I reread an influential paper from the 1949 US Quarterly Journal of Economics which looked at how the US survived the Great Depression. A critical factor: US regional transfers undertaken by the US Treasury which were “unilateral in nature, akin to a capital movement, a gift or an indemnity in international trade”. These unilateral transfers enabled weaker US districts to maintain a level of growth and consumption which would otherwise have been impossible. Other signs of the US monetary union becoming more durable are found in the gradual disappearance of regional wage differences (1st chart). If the hallmarks of a durable union include unilateral transfers to smooth out regional income differences, and signs of wage convergence, Europe could sure use a lot more of both. Just having a willing lender of last resort may not be enough.
From a political perspective, the European Monetary Union might deserve more time before final verdicts are rendered, as it’s only 10 years old. But from an economic perspective, they may not get the chance: the resolution of a staggering €10 trillion in Peripheral sovereign, household and corporate debt may not wait. The pressure is resulting in the propagation of views like this: the Italian newspaper Il Giornale wrote that Germany, not Greece, is Europe's real problem,
"because it is bursting with health and, as a result, is also causing its neighbors to burst. Germany has to adjust to the rest of Europe, not the other way around."
Ah yes, German growth is the problem. I am rendered speechless by this logic, and can only guess that it is a manifestation of combining insufficiently similar countries in a monetary but-not-fiscal union (see chart below). Even if post-election Greece remains in the Euro, none of the fundamental questions will have been answered. The idea that Italy would run a budget surplus before interest of 4% of GDP for 25 years (as per the European Redemption Fund proposal) is frankly ridiculous.
No one has any idea what will happen next, as the Europeans are making it up as they go. From an investments perspective, it makes sense to continue to watch Europe mostly from the sidelines and focus on other things.
Full Michael Cembalest analysis link.
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Dishes are done, bitchez!
One of my favorite movie quotes ... "..the dishes are DONE, mannn...."
Was not expecting to see it here :)
Looks like the final hour of trading will ream in those who shorted earlier today. they're bound and determined to close the dow up triple digits today on hopium and mirrors.
I'd like to see US from 1980 to 2010 also
And India, China, Taiwan, Korea, Cambodia, Vietnam etc etc - not because they are a union, but they are influencing patterns worldwide.
Who needs willing lenders when you have taxpayers?
Or a printing press for that matter... and then a 100% capital gains tax on non-corporate entities just for good measure! :)
But what about these "bail ins" I've been hearing about over the last day or so? Won't it work because it's "in" and not "out"? Since it's the opposite it must be good, correct?
German "growth". Anyone have any recent recon photos of the Krupp works or DWM?
the best part of this whole thing is now everyone is STANAG compliant, or in the case of the poor cousins still Warsaw Pact. It makes it easier to make money when you don't have an entire buffet line of munitions to re-tool for between production runs.
Krupp does not exist
http://www.thyssenkrupp.com/
" - you would have to be a wide-eyed optimist to believe it will be a decisive one."
Or a true beleiver in the genious of big government proponants...........
John Corzine for instance
The ONLY possible policy option is break up of the political utopia called euro.
Modern socialist societies with cradle to grave support only work if inflation can be counted on to decrease the purchasing power of the currency over time. The ECB however IS DOING ITS JOB!! This is causing problems, (who would ever suspect that a central bank would do such a thing??!!) that we are not seeing in the USA where Bernacke IS dutifully debasing the dollar. If the ECB continues on this reckless course of maintaining the integrty of the Euro then individual countries will have to deal with the fallout. They may even have to own up to the truth that they have been making big promises that they cannot keep (and heads will roll). Probably the ECB will give a little but my money is bet on the ECB to continue to do its duty to its one (and only one) goal...zee stabeeleetee....
This bullshit about transfer payments is tiresome.
US States, GDP per capita
Washington, D.C.: 174500
California: 51914
Texas: 45940
New York: 57423
Florida: 40106
Massachusetts: 58108
Mississippi: 32967
Puerto Rico: 23380
That is the end result WITH "transfer payments" over period of 200 years, the losers are still losers. Those differences in the US are btw much greater than within Eurozone among core nations (Germany, France, Netherlands, Italy, Spain, Austria)!
What's the per-capita GDP of Brussels (the European equivalent of DC)?
And the point of this list? Since GDP includes government expenditures (but not transfer payments), one would expect that a small city from which all government expenses are paid would have a very high GDP per capita.
Put another way, you could have the exact amount of government expenses originate from 50 satilite government offices across 50 states and the amount of those expenses would still be too high or too low depending on who you ask. But your list would now seem "normal".
Toward the NWO at full speed.
Maybe Lagarde's idea for a new world currency is on the way.
If that were true, i would love to see them try to take out Swissie and the Pound after the Euro.
And the barbarous relic, of course.
The Euro IS the new world currency, well behaved, related to gold and stable...it is just a problem for (all the) profligate countries.
HY getting bid in a major way, anybody know whats the scoop on that?
The final sentence sums it up nicely!
Search engine test: Mary Jo Kopechne / Leola Anderson.
Let's see what happens.
Here's the link:
http://occupywallst.org/forum/mary-jo-kopechne-and-leola-anderson-rest-i...
R-money and his team claim that the other driver in his fatal accident was "drunk," "driving 130 kph," failed to get back in after passing a truck, and crossed over the center line. In all versions that they tell, R-money was hit by the other car.
But a photo has been found of both cars when they were towed in. The flimsy Citroen DS and the parish Mercedes 180. (Yes, the other driver was a priest, Monseigneur Albert Marie, now deceased.)
The accident was straight head-on. But the damage was moderate, not much more than a fender bender. The Citroen DS was notoriously flimsy. The two cars' hoods were bent and the front ends were pushed back to the engines -- that's all. This was an accident with one car moving, not both of them, and at a speed of approximately 60 kph.
Photos at Occupy Security page on Facebook.
Mrs. Leola Anderson was killed because she had no seat belt. She had been crammed into the back seat with three other people. This was 1968, about 20 years prior to general use of air bags.
The story blaming the priest was invented after he passed away. It is politically useful. Still, the accident damage indicates that R-money hit the Mercedes 180 as it sat still waiting to come out into an intersection at a branch in the road.
This is worse than Chappaquiddick. Ted Kennedy owned up to his responsibility.
Anyone ever hear of Germany opening assembly plants in Greece? Romania? Did they open R&D centers in Italy or Latvia? See many Fiats in Germany? None of the above. German mercantilism is going to sink the continent.
Is that some kind of joke/irony?
If Germany doesnt open plants or do R&D in other places, its probably because they can do it cheaper and more efficiently in Germany. This is typical socialist jargon that effectively means - if you are more productive, efficient and harder working then you should be forced to pay for everyone else - because if you want to keep what you earn for yourself, thats just unfair (and you are rich and selfish).
Same old dumb arguments for communism as there every was. I would offer an alternative solution, Germany leaves the Euro and does what it does best - raise everyones standard of living by producing an abundance of quality goods and services.
The problems with many countries in the EU is not to do with the people in general, but due their political class, socialism, fractional reserve banking and interference by international bankers.
CRAP. German companies have plants throughout Europe, Russia, China, Malaysia, USA, Brazil, South Africa. The ignorance on this blog is breathtaking -
Blaming fractional reserve banking ??? And International bankers?
And just how is state-financed industry in China (a.k.a. socialism) hurting them ???
What?
Yes, as we all know the Chinese man in the street has been living like a king ever since Mao's glorious socialist revolution.
The chart of relative competitiveness shows you why German firms didn't open any factories in the other euro economies.
German 'mercantalism' isn't the problem - the problem is that banks lent everyone else artificially cheap money (mostly whisked from thin air) to consume German goods that they otherwise could never have bought.... and now the borrowers can't possibly pay it back.
http://en.wikipedia.org/wiki/List_of_Volkswagen_Group_factories
Haribo is one of the biggest manufacturers of gummi and jelly sweets in the world, with its products mainly consisting of Gummi Bears, other jelly sweets and liquorice. There are five factories in Germany and 13 throughout the rest of Europe.
Romania - Continental Tyre
The German group Henkel will build a third factory in Romania, in Roznov city, south-east of Piatra Neamt
German tools, equipments and appliances producer Bosch plans to build another production plant in Romania,
The Bosch Group is present in Romania since 1994 and includes five companies: Robert Bosch SRL – distribution of equipment and spare parts, BSH Electrocasnice – import and distribution of household appliances, Bosch-Rexroth – manufactures electric machinery components, Bosch-Rexroth from Blaj – manufactures power tools and the Bosch Communication Center from Timisoara.
Germany has proven to be too expensive for Nokia. Production is now being shifted to the company's other European factories - mainly Romania, where Nokia will soon be opening a brand-new factory.
Sundbäck says that personnel costs at the Bochum facility, which used to be Nokia's television factory, are ten times what they are in Romania.
German Draxlmaier Group plans to invest EUR 30 million for expanding its production capacity its local factory in Satu Mare, West of Romania
Carmaker Ford has started the production of the EcoBoost engine at its factory in Craiova, Romania this week. The company wants to manufacture 800,000 such engines at its factories in Romania and Germany between 2012 and 2015.
I don't buy into the hypothesis that unilateral transfers of money from region to region or some (forced) convergence of wages is necessary for a successful economic region. Quoting the 1949 US Quarterly Journal of Economics as evidence that the U.S. did it and that helped the U.S. doesn't seem to be very convincing evidence to me.
Did the U.S. really weather the Great Depression better than Europe or other regions that didn't have the unilateral transfers of money? Maybe that paper gave some evidence of that, but this article certainly doesn't. Economists have a dog in that fight/discussion anyway. They have a reason to spin things so that economists are the good guys and helped make things all better.
Murray Rothbard points out in his tome, America's Great Depression, that most of the government interventions had a deleterious effect on the economy, making the depression much worse and last far longer than if they would have left well enough alone.
Historian, Thomas E. Woods, Jr. makes the same point in his talk comparing the two depressions of the 1920s, posted on YouTube here.
That's not even getting into the real crux of the issue... namely that it is the government through its central bankers that caused the boom and the inevitable bust that comes after it via their artificial manipulations of the interest rates which are key means by whicha healthy economy self regulates itself if left alone.
It is not some amazing coincidence that so many countries, so many households and so many families and so many individuals are in debt far beyond their means to pay.
As history has repeatedly shown us, that's what happens when governments, via their central bankers, create and artificial and unsustainable boom by artificially suppressing interest rates below their healthy market equilibrium levels.
Artificially low interest rates, trick people, companies and governments into thinking there is more savings (capital) available than there truly is. It may make perfect sense to borrow money at very low interest rates to start projects, build houses etc. if the economy is humming along. It makes sense (if those interest rate signals were truly accurate and not a central banker's lie) for more companies etc. to borrow when those rates are that low than if they were at true market equilibrium rates. Thus starts the boom.
Unfortunately, artificially low interest rates also causes fewer people to save. There's less benefit in doing so if you aren't receiving as much benefit for postponing your desires for some future benefit. They also tend to skew things such that savers put their saved capital elsewhere, like perhaps in collectibles like art, antiques, bigger homes etc. particularly if inflation is higher than the interest rates. Or perhaps they invest in other countries where they'll get a higher return.
Eventually, it all snaps back like a rubber band. It turns out that the apparent amount of capital available for this boom was an inflationary illusion. It starts to cost more for the bridge, or stadium, or corporate headquarters than originally planned. As the economy adjusts to the fact that the money isn't quite as valuable people have to cut back a bit here and there. That starts the contraction which is felt all over.
Banks which loaned money at very low interest rates when things were booming, suddenly find that some of the people they loaned money to lose their jobs. Many people are in way over their heads lured in by the free flowing money the central bankers were pumping out.
Governments find that the bonds that seemed like they could easily be serviced when the economy was booming get hit in multiple ways. Tax revenues drop when people lose jobs. Property taxes income drops when housing prices do, and especially when homes sit vacant. Meanwhile crime goes up, more people are incarcerated. More people need public service in the form of food stamps, or "temporary" shelter.
The real culprit in all of this isn't more government... ie. collecting more taxes from one region to send to another region to help even out the pain and suffering (that they caused).
I think the convergence of wages is more of an effect than a cause of a healthier economy. Allowing free movement of people from regions with few opportunities to regions with more opportunity should be a benefit to the economy.
People try to blame Germany for not sharing more, but I think their rigidness in not inflating their currency, and the discipline that engenders has served them very well. I think the generous printing and frequent devaluations of many of the other countries helped to promote a culture more prone to spending too freely, and less prone to saving which can help generate the capital needed for factories such as the Germans have that give them such desirable exports.
That's fine, but why would, say, Germans care two hoots about some backwater on the fringes of Europe i.e. a 'successful economic region' if they weren't artificially tied to it?
it's irrelevant. you wonder why they do, the fact is that they do. now, of course them being German, they want to see some efficiency when they spend money, but that's a different story
I don't think they "do" enough, at least according to many in the mainstream media clamoring for them to start transferring money to these other regions "for their own benefit".
They claim it's good for them (the Germans) in the long run as they need these other regions to prosper in order to buy their goods.
I think that may sound reasonable on the surface, but won't hold up to scrutiny.
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