“Something profoundly is wrong with the Western Civilization.”
Another must view video with Niall Ferguson continue. Continue reading
What would happen if the euro collapses as in collapses? Despite all the Economic effects, that wouldn’t be offset by the fees lawyers would collect, we could even get the blame game escalating into war. Below are Citi’s bullet points to remember should the political experiment fail, courtesy James Pethokoukis.
1. A break-up of the Euro Area would be rather like the movie ‘War of the Roses’ version of a divorce: disruptive, destructive and without any winners. A break-up of the 17-member state Euro Area, even a partial one involving the exit of one or more fiscally and competitively weak countries, would be chaotic. A full or comprehensive break-up, with the Euro Area splintering into a Greater DM zone and around 10 national currencies would create financial and economic pandemonium. It would not be a planned, orderly, gradual unwinding of existing political, economic and legal commitments and obligations.
A secret report into the operations of Ireland’s National Asset Management Agency, the state agency set up to purge Irish banks of their toxic property loans, has recommended that the government should consider selling it off as a single entity http://ftalphaville.ft.com/thecut/2011/12/08/786001/dublin-urged-to-sell-toxic-loans-as-job-lot/
JPMorgan Chase has increased its lending to troubled eurozone economies, reports the FT, as US rivals retreat from the region. The bank’s loans in Spain, Italy, Greece, Portugal and Ireland have jumped 9 per cent since September 30 http://ftalphaville.ft.com/thecut/2011/12/08/785821/jpmorgan-expands-eurozone-lending/
Demand for dollar funding from the ECB has jumped sharply after a price cut agreed with the US Federal Reserve, suggesting that banks are more comfortable about tapping the ECB for help, says the FT. Thirty-four banks obtained $50.7bn in three-month loans yesterday and five took $1.6bn in one-week dollar liquidity http://ftalphaville.ft.com/thecut/2011/12/08/785721/demand-for-ecb-dollar-liquidity-surges/
Germany on Wednesday insisted that its European partners must undertake the politically fraught process of changing EU treaties, or at least accepting a binding new eurozone accord, reports the FT. On the eve of a European summit in Brussels to stem the eurozone crisis http://ftalphaville.ft.com/thecut/2011/12/08/785711/germany-insists-on-new-treaty/
Europe is in difficulties, that is for sure. With many of the Med countries imploding, and contagion spreading to core Europe, man needs to look abroad for opportunities. The politicians are trying to save the Euro project, which will eventually fall, while the Economies are falling further into the abyss. For the financial reader, it is all figures, but in real life, people are not getting jobs, and struggle to make ends meet. This is creating a dangerous situation, where Europe might feel the “brain drain” symptoms in the long run, just like Yugoslavia and other countries experienced after the crisis those countries went through. Europe is old, tired and a political chaos getting increasingly de united by the day. What we didn’t expect though, was the young well educated would go to countries like Angola. What’s next, Europeans working in factories for the Chinese? Welcome to New Europe, by El Pais;
George Osborne, the chancellor, will be forced to admit that the black hole in UK public finances has increased by almost £30bn, requiring the government to impose years of further austerity on the public sector, http://ftalphaville.ft.com/thecut/2011/11/29/769441/uk-faces-bigger-budget-hole/
Japan’s jobless rate rose more than expected in October, says Bloomberg, reaching 4.5 per cent in October compared to 4.1 per cent in September. Bloomberg’s survey of 29 economists’ came up with a median estimate of 4.2 per cent. Panasonic and TDK are cutting jobs as the yen’s continuing strength threatens erodes export profits, http://ftalphaville.ft.com/thecut/2011/11/29/769361/japans-unemployment-rate-jumps/
Germany is the only country in Europe that can act to save the eurozone and the wider EU from “a crisis of apocalyptic proportions”, the Polish foreign minister warned on Monday in a passionate call for more drastic action to prevent the collapse of the European monetary union, http://ftalphaville.ft.com/thecut/2011/11/29/769261/polish-minister-calls-for-germany-to-act/
S&P could announce a negative outlook on France’s AAA rating within a week, reports La Tribune, citing several sources. The newspaper says an announcement was expected last Friday but was postponed for unknown reasons. http://ftalphaville.ft.com/thecut/2011/11/29/769231/sp-reportedly-about-to-lower-frances-outlook/
and much more…
Markets are all over the place. SNB to intervene or not. Meanwhile Paramo is out giving another speech. This time on the Contagion in Europe. Nothing really new, but worth reading. We wish the ECB good luck.
Financial contagion and public policy
Since the writings of Walter Bagehot financial contagion has become an issue that is discussed widely in policy, market and academic research circles.  Taking a broad perspective embracing different views and studies, contagion could be defined as a situation in which instability in a specific financial market, institution or country is transmitted to one or several other markets, institutions or countries. A first characteristic of contagion is that the spread of instability would usually not happen without an initial trigger event – which often appears to be a relatively contained event. A second characteristic is that the transmission of instability is in some way abnormal, for example, in terms of its speed, strength or scope. Though spillovers are to be expected in an interconnected financial system, contagion is distinct in that it often reflects a market failure and a dangerously amplified transmission of instability.
The underlying market failure consists of the fact that contagion often involves externalities.  As a result, the private costs of the initial financial market failure, that is the costs to the actor triggering contagion, are lower than the social costs. In the specific case of the sovereign debt crisis in Europe, the trigger could, for example, be that a country in a precarious fiscal situation does not seriously implement the necessary fiscal consolidation measures. This could lead interest rates on this particular country’s government debt to rise and could in turn also constrain economic growth in that country. This is what I call the “private costs” of such behaviour. Although in this case the lack of fiscal discipline is something which is strictly related to one country, this circumstance may still lead volatile financial markets to also lower their expectations about fiscal consolidation efforts in other countries. As a result, those other countries also begin to face costs in terms of significantly increased interest rates on their government debt.
“Something is going to go ‘bang’ soon,” fears Alexander Graf Lambsdorff, 45, a member of the European Parliament for Germany’s business-friendly Free Democratic Party (FDP). Then the lights will go out in Brussels.
The power outage would be the consequence of a serious breakdown in European democracy, a downing of the power lines connecting Brussels and Europe’s citizens. If Brussels no longer had the confidence of citizens, or what the Treaty on European Union refers to as the “peoples of Europe,” the European Parliament, Council and Commission would be operating without the basis of legitimacy. The idea of peace, freedom and prosperity would be out of juice.
The failed German Bund auction on Wednesday dampened sentiment in Asian stock markets on Thursday, particularly in Japan where the Nikkei 225 in the morning hit its lowest level since April 2009, reports the FT. http://ftalphaville.ft.com/thecut/2011/11/24/761231/bund-auction-reverberates-through-markets/
Investors paid record amounts to protect themselves against the risk of default by Bank of America on Wednesday, as fears grow over US banks’ exposure to the eurozone debt crisis, says the FT. Credit default swaps on BofA rose as high as 495 basis points, http://ftalphaville.ft.com/thecut/2011/11/24/761211/us-bank-credit-default-swaps-jump/
The Brazilian government has suspended Chevron’s drilling rights in Brazil until it clarifies the causes of an offshore oil spill, reports Reuters. Brazil’s National Petroleum Agency said it decided to halt Chevron’s drilling rights after determining that there was evidence that the company had been “negligent” http://ftalphaville.ft.com/thecut/2011/11/24/761241/brazil-suspends-chevrons-offshore-drilling-rights/
The Irish government wants European authorities to share the cost of Ireland’s €63bn ($84bn) bank bail-out because “reckless lending” by international banks to Irish banks contributed to their collapse, http://ftalphaville.ft.com/thecut/2011/11/24/761181/ireland-seeks-eu-help-over-bank-bail-out/
Financial markets were quite volatile over the period since the September FOMC meeting. Investor senti- ment was strongly influenced by prospects for Europe, as market participants remained highly attuned to de- velopments regarding possible steps to contain the fis- cal and banking problems there. Economic data releas- es that were, on balance, somewhat better than market participants expected provided some support to finan- cial markets.
Longer-term Treasury yields declined appreciably fol- lowing the release of the September FOMC statement. Investors reportedly viewed the Committee’s assess- ment of the economic outlook as more downbeat than anticipated. In addition, the announcement that the Federal Reserve would lengthen the average maturity of its portfolio by purchasing longer-term Treasury securi- ties and selling an equivalent amount of shorter-term Treasury securities reportedly contributed to the de- cline in longer-term yields on the day. Yields on cur- rent-coupon agency MBS also moved lower on the an- nouncement that the Federal Reserve would begin to reinvest principal payments on agency securities in agency MBS. Over the following weeks, movements in yields were driven by shifts in investors’ assessments of the ongoing efforts to address the European fiscal and banking situation and by somewhat stronger-than- expected U.S. economic data. On balance since the September FOMC meeting, Treasury yields on shorter- dated securities and the expected path of the federal funds rate implied by money market futures quotes were not much changed. Yields on Treasury securities with maturities beyond 10 years moved down. Meas- ures of near-term inflation compensation derived from nominal and inflation-protected Treasury securities rose slightly over the intermeeting period, while similar measures of longer-term inflation compensation were about unchanged.