Inflationeering
Guest post by Azizonomics.
As BusinessWeek asked way back in 2005 before the bubble burst:
Wondering why inflation figures are so tame when real estate prices are soaring? There is a simple explanation: the Consumer Price Index factors in rising rents, not rising home prices.
Are we really getting a true reading on inflation when home price appreciation isn’t added into the mix? I think not.
I find the idea that house price appreciation and depreciation is not factored into inflation figures stunning. For most people it’s their single biggest lifetime expenditure, and for many today mortgage payments are their single biggest monthly expenditure. And rental prices (which are substituted for house prices) are a bad proxy. While house prices have fallen far from their mid-00s peak, rents have continued to increase:
Spain’s property crash
Expect more of this in Spain, as the country falls further into the abyss. In Spain, you can’t just hand over the keys to the bank and move on. This is what they are trying to bail out….
Video below.
The World in Depression 1929-1939 and Now
Somehow we have had that deja vú feeling for a while now. Remember reading Kindleberger’s classical book on the Great Depression? From Voxeu.
The parallels between Europe in the 1930s and Europe today are stark, striking, and increasingly frightening. We see unemployment, youth unemployment especially, soaring to unprecedented heights. Financial instability and distress are widespread. There is growing political support for extremist parties of the far left and right.
Both the existence of these parallels and their tragic nature would not have escaped Charles Kindleberger, whose World in Depression, 1929-1939 was published exactly 40 years ago, in 1973.1 Where Kindleberger’s canvas was the world, his focus was Europe. While much of the earlier literature, often authored by Americans, focused on the Great Depression in the US, Kindleberger emphasised that the Depression had a prominent international and, in particular, European dimension. It was in Europe where many of the Depression’s worst effects, political as well as economic, played out. And it was in Europe where the absence of a public policy authority at the level of the continent and the inability of any individual national government or central bank to exercise adequate leadership had the most calamitous economic and financial effects.
Greek Elections and the Future of the Euro
Guest post by Vix and more.
While this week’s news cycle has been Spain, Spain, Italy and Spain so far (reminiscent of an old Monty Python skit, but I digress), it is easy to forget for a moment or so that Greece is holding another round of elections on Sunday.
As Greek law prohibits polling or publishing poll results in the 14 days leading up to an election, we do not know how voter sentiment about the bailout and remaining in the euro may be ebbing or flowing. Greek voters have certainly a great deal to think about, some of which may have been complicated by the positioning of Syriza’s leader, Alexis Tsipras, who insists that it is possible to repudiate the bailout agreement, start afresh with a new plan that is based on stimulating economic growth and job creation – yet never have to leave the euro zone in the process.
So just how will the Greek elections influence the future of the euro?
Without polls, the Intrade contract that specifies “Any country currently using the Euro to announce intention to drop it before midnight ET 31 Dec 2012” now becomes an even more valuable informational resource. The problem is that in spite of a fair amount of activity, the price of the contract has remained essentially unchanged for the last month, hugging the 40 level (see chart below), which means that participants continue believe that the chance of a Greek exit (I refuse to say ‘Grexit’) by the end of the year is about 40%.
Dimon on big trades
“Traders didn’t understand the risks they took on credit derivatives”-Dimon. We’ll if the traders didn’t understand the risks, we wonder what the superior risk managers understood?
Bloomberg video on Dimon’s prepared testimony on the whale trades.
News That Matters
Ft.com
Spain’s borrowing costs hit a euro-era high on Tuesday amid sagging investor confidence that Europe can prevent its debt crisis from worsening and wrangling among policy makers over how to implement cross-border banking supervision. The yield on Spanish benchmark 10-year debt hit 6.8 per cent just days after eurozone finance ministers agreed a €100bn bailout package for the country’s banks. The move was accompanied by rising bond yields in countries deemed less risky, such as Germany and the UK, where market interest rates have been at record lows.http://www.ft.com/intl/cms/s/0/f29cdbf4-b4a8-11e1-aa06-00144feabdc0.html#axzz1xe4lV9a0
Greece returns to the polls on Sunday in another attempt to elect a viable government, and the outcome of the election remains highly uncertain. Despite the broad-based support for euro membership among all major Greek parties and the general public, S&P is of the view that there is at least a one-in-three chance that Greece will exit. A Greek exit could be brought about almost by accident. A Syriza-led government that fundamentally rejects the reforms agreed with the “troika” – the International Monetary Fund, European Commission and European Central Bank – could lead to a suspension of external financial support. http://www.ft.com/intl/cms/s/0/37a912b2-b468-11e1-bb2e-00144feabdc0.html#axzz1xe4lV9a0
Hillary Clinton accused Russia of sending attack helicopters to Syria in a move that could “dramatically” escalate the conflict, as a senior UN official claimed the country was already in a “civil war”. In some of the toughest language the US has used about Russia’s support for the regime of Bashar al-Assad, the US secretary of state said Moscow’s claims that its arms transfers to Syria were having no impact on the conflict were “patently untrue”. http://www.ft.com/intl/cms/s/0/ceeb4620-b4b5-11e1-bb2e-00144feabdc0.html#axzz1xe4lV9a0
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