Europe gets the follow spot.
http://www.telegraph.co.uk/finance/financialcrisis/#
The Telegraph has torn up the page.
http://www.telegraph.co.uk/finance/comment/liamhalligan/9514169/Will-Mario-Draghi-deliver-on-his-promise-to-buy-bonds.html
Mario Draghi cannot deliver.
76 Comments
Forbidden by the European treaties, such an idea also cuts deep into Germany's inflation-scarred psyche. No wonder the "yield cap" idea was unsourced. No wonder, also, there are now signs of serious resistance from Berlin – or, at least, from Frankfurt, courtesy of the mighty Bundesbank.
Jens Weidmann was last week unable to contain himself. The Bundesbank chief lacerated not only yield caps but also the very idea of further ECB bond-buying. "Such a policy is, for me, too close to a public finance by the printing press," Weidmann declared, well aware that his words chimed precisely with mainstream German opinion. "We should not underestimate the risk that central-bank financing can be addictive like a drug."
Juergen Stark, a former ECB chief economist, also piled in, declaring that "panic-fuelled and hyperactive measures" were having "negative effects on the credibility of and confidence in the bank and the currency". The ECB is treading a "very dangerous path" in "allowing its independence to be eroded by politicians", warned Stark, who resigned last year, in protest at earlier ECB bond-buying.
Weidmann's predecessor as Bundesbank chief, Axel Weber, also quit last year, for the same reason. There have been rumours lately that Weidmann is now thinking of doing the same, rumours he has been "forced to deny" even if he started them himself.
On cue, Draghi has been in retreat in recent days, trying to mollify Teutonic concerns that the eurozone printing presses will be fired up, with dire inflationary consequences. "The ECB will do what is necessary to ensure price stability," Draghi purred. "It will remain independent and will always act within the limits of its mandate."
In practically the same breath, however, Draghi insisted that "exceptional measures" are also necessary. As such, "Super Mario" is widely expected to detail a bond-buying plan to further contain Spanish and Italian borrowing costs after the next ECB policy meeting on September 6 – this coming Thursday. If he fails to do so, after all this hype, then the markets could surely rebel.
For even though financial markets have recently been calm, the eurozone is enduring an alarming slow-motion bank run. During previous chapters of this crisis, depositors and investors fled the "peripheral" countries, putting their money in "core" countries such as Germany. Now, there are growing signs capital is quitting the eurozone altogether. Even after strengthening a little during August, courtesy of Draghi's warm words, the euro is still down 6pc against the dollar since early May. The exodus from monetary union has forced the Swiss National Bank to buy euros to prevent the franc appreciating. The Danish Central Bank, meanwhile, has taken the drastic step of charging for the use of its deposit facility – again to try to prevent an export-pummelling currency spike. Eurozone capital flight also explains, along with our own domestic money-printing, why UK gilts are so low.
With Draghi having whipped the markets up into a state of high expectation on the one hand, and the Bundesbank in open revolt on the other, the pressure on Merkel is now enormous. She has, since returning from vacation, said just enough not to shoot down Draghi's bond-buying plan completely, but it would still be a very big step indeed for her actually to give him the nod to proceed.
The eurozone economy continues to deteriorate. Unemployment hit a record-high of 18m in July, we learnt on Friday, as another 88,000 people lost their jobs. Surveys of business confidence are flashing red, indicating that even Germany itself could be on the brink of recession. Eurozone inflation, meanwhile, is refusing to abate, jumping to 2.6pc year-on-year in August, from 2.4pc the previous month. That could dash any remaining hope of Draghi conjuring up an interest rate cut next week, to go alongside his "exceptional measures".
Even the Chinese are now putting the thumb screws on Merkel. Premier Wen Jiabao last week told the German chancellor that China and the broader international community are "worried" about the prospect of contagion from the single-currency area, in the aftermath of a systemic collapse. Wen has asked Berlin for clarification over whether Italy and Spain would adopt the "comprehensive rescue measures" needed to unlock the EU bail-out machinery, so opening the door to bond purchases by the ECB.
While Merkel replied by insisting that euro-denominated sovereign debt remains a "safe investment", it is clear that unless Beijing sees some ECB money-printing, and fast, it could soon become a net seller of eurozone government bonds. This is truly alarming. Until now, China has been propping up bond prices with net debt purchases within the eurozone. All the eurocrats' assumptions about funding for future bail-out packages also include a big chunk of money from Beijing. By breaking its silence, China seems to be putting a gun to the Iron Frau's head.
In the end, though, while Merkel is in the spotlight, the decision on whether ECB bond-buying goes beyond the €50bn (£39.6bn) or so of Greek bonds hoovered up since mid-2010, extending to much bigger purchases of Spanish and Italian instruments, rests largely with Spain and Italy themselves. The real obstacle, as Wen intimated, is that Madrid and Rome must apply for assistance from the European Stability Mechanism, the successor to the European Financial Stability Facility, so accepting the attached policy conditions of a formal bail-out. Were this to happen, then Merkel could possibly – no more than that – muzzle the Bundesbank rottweilers and convince the German public, for now, to give her the benefit of the doubt.
What's clear is that, whatever Draghi says this week, nothing will happen before September 12, when the German constitutional court decides if the ESM is actually legal. Then the new bail-out fund must be ratified, which won't happen at least until the end of the month – and that's if all eurozone governments agree.
Even bigger questions loom, though. Spain and Italy had been hoping the ECB would support them on the basis of home-grown austerity measures without enduring the political humiliation, and related market trauma, of applying for a condition-related bail-out. Will Madrid and Rome now bury their pride and agree to some tough Berlin-imposed limits on what they can and cannot do? Will the feisty Spanish and Italian electorates accept such demeaning anti-democratic subjugation?"
Zero Hedge:
Mario Draghi cannot deliver.
"Will Mario Draghi deliver on his promise to buy bonds?
With Ben Bernanke's deeply inconclusive Jackson Hole missive now behind us, all eyes are firmly fixed on European Central Bank president, Mario Draghi.
6:20PM BST 01 Sep 2012
76 Comments
Back in early August, Draghi publicly pledged to do "whatever it takes" to prevent the break-up of the single currency.
This statement, which a vacationing Angela Merkel didn't contradict, was taken as a sign that the ECB would soon be buying large quantities of government bonds issued by essentially bankrupt eurozone nations.
As such, Spanish and Italian yields stopped rising and global markets remained calm during the dog days of summer – moving mainly sideways, albeit on very low volumes.
Encouraged, perhaps, by the soothing power of his rhetoric, and certainly by the German chancellor's silence, Draghi then stuck his head another few inches over the parapet. His "whatever it takes" message was followed up with an anonymously sourced statement that the ECB is considering "caps on yields".
Such a policy would force the ECB to buy a nation's bonds if the yield spread on those bonds widened a certain amount compared with its German equivalent.
If that sounds complicated, then take it from me the policy amounts to an open-ended ECB commitment to buy bonds on a potentially unlimited scale, even if financed by straight-forward monetisation. Forbidden by the European treaties, such an idea also cuts deep into Germany's inflation-scarred psyche. No wonder the "yield cap" idea was unsourced. No wonder, also, there are now signs of serious resistance from Berlin – or, at least, from Frankfurt, courtesy of the mighty Bundesbank.
Jens Weidmann was last week unable to contain himself. The Bundesbank chief lacerated not only yield caps but also the very idea of further ECB bond-buying. "Such a policy is, for me, too close to a public finance by the printing press," Weidmann declared, well aware that his words chimed precisely with mainstream German opinion. "We should not underestimate the risk that central-bank financing can be addictive like a drug."
Juergen Stark, a former ECB chief economist, also piled in, declaring that "panic-fuelled and hyperactive measures" were having "negative effects on the credibility of and confidence in the bank and the currency". The ECB is treading a "very dangerous path" in "allowing its independence to be eroded by politicians", warned Stark, who resigned last year, in protest at earlier ECB bond-buying.
Weidmann's predecessor as Bundesbank chief, Axel Weber, also quit last year, for the same reason. There have been rumours lately that Weidmann is now thinking of doing the same, rumours he has been "forced to deny" even if he started them himself.
On cue, Draghi has been in retreat in recent days, trying to mollify Teutonic concerns that the eurozone printing presses will be fired up, with dire inflationary consequences. "The ECB will do what is necessary to ensure price stability," Draghi purred. "It will remain independent and will always act within the limits of its mandate."
In practically the same breath, however, Draghi insisted that "exceptional measures" are also necessary. As such, "Super Mario" is widely expected to detail a bond-buying plan to further contain Spanish and Italian borrowing costs after the next ECB policy meeting on September 6 – this coming Thursday. If he fails to do so, after all this hype, then the markets could surely rebel.
For even though financial markets have recently been calm, the eurozone is enduring an alarming slow-motion bank run. During previous chapters of this crisis, depositors and investors fled the "peripheral" countries, putting their money in "core" countries such as Germany. Now, there are growing signs capital is quitting the eurozone altogether. Even after strengthening a little during August, courtesy of Draghi's warm words, the euro is still down 6pc against the dollar since early May. The exodus from monetary union has forced the Swiss National Bank to buy euros to prevent the franc appreciating. The Danish Central Bank, meanwhile, has taken the drastic step of charging for the use of its deposit facility – again to try to prevent an export-pummelling currency spike. Eurozone capital flight also explains, along with our own domestic money-printing, why UK gilts are so low.
With Draghi having whipped the markets up into a state of high expectation on the one hand, and the Bundesbank in open revolt on the other, the pressure on Merkel is now enormous. She has, since returning from vacation, said just enough not to shoot down Draghi's bond-buying plan completely, but it would still be a very big step indeed for her actually to give him the nod to proceed.
The eurozone economy continues to deteriorate. Unemployment hit a record-high of 18m in July, we learnt on Friday, as another 88,000 people lost their jobs. Surveys of business confidence are flashing red, indicating that even Germany itself could be on the brink of recession. Eurozone inflation, meanwhile, is refusing to abate, jumping to 2.6pc year-on-year in August, from 2.4pc the previous month. That could dash any remaining hope of Draghi conjuring up an interest rate cut next week, to go alongside his "exceptional measures".
Even the Chinese are now putting the thumb screws on Merkel. Premier Wen Jiabao last week told the German chancellor that China and the broader international community are "worried" about the prospect of contagion from the single-currency area, in the aftermath of a systemic collapse. Wen has asked Berlin for clarification over whether Italy and Spain would adopt the "comprehensive rescue measures" needed to unlock the EU bail-out machinery, so opening the door to bond purchases by the ECB.
While Merkel replied by insisting that euro-denominated sovereign debt remains a "safe investment", it is clear that unless Beijing sees some ECB money-printing, and fast, it could soon become a net seller of eurozone government bonds. This is truly alarming. Until now, China has been propping up bond prices with net debt purchases within the eurozone. All the eurocrats' assumptions about funding for future bail-out packages also include a big chunk of money from Beijing. By breaking its silence, China seems to be putting a gun to the Iron Frau's head.
In the end, though, while Merkel is in the spotlight, the decision on whether ECB bond-buying goes beyond the €50bn (£39.6bn) or so of Greek bonds hoovered up since mid-2010, extending to much bigger purchases of Spanish and Italian instruments, rests largely with Spain and Italy themselves. The real obstacle, as Wen intimated, is that Madrid and Rome must apply for assistance from the European Stability Mechanism, the successor to the European Financial Stability Facility, so accepting the attached policy conditions of a formal bail-out. Were this to happen, then Merkel could possibly – no more than that – muzzle the Bundesbank rottweilers and convince the German public, for now, to give her the benefit of the doubt.
What's clear is that, whatever Draghi says this week, nothing will happen before September 12, when the German constitutional court decides if the ESM is actually legal. Then the new bail-out fund must be ratified, which won't happen at least until the end of the month – and that's if all eurozone governments agree.
Even bigger questions loom, though. Spain and Italy had been hoping the ECB would support them on the basis of home-grown austerity measures without enduring the political humiliation, and related market trauma, of applying for a condition-related bail-out. Will Madrid and Rome now bury their pride and agree to some tough Berlin-imposed limits on what they can and cannot do? Will the feisty Spanish and Italian electorates accept such demeaning anti-democratic subjugation?"
Zero Hedge:
September Arrives, As Does The French "Dexia Moment" - France Nationalizes Its Second Largest Mortgage Lender
Submitted by Tyler Durden on 09/01/2012 - 16:32 Bank Run Bond Counterparties European Central Bank Fail Fitch fixed France Greece Housing Market Ireland Italy Lehman Lehman Brothers LTRO Market Share Nationalization Portugal Rating Agency ratings Real estate Reality Repo Market Reuters
September has arrived which means for Europe reality can, mercifully, return. First on the agenda: moments ago the French government suddenly announced the nationalization of troubled mortgage lender Credit Immobilier de France, which is also the country's second lagrest mortgage specialist after an attempt to find a buyer for the company failed. "To allow the CIF group to respect its overall commitments, the state decided to respond favourably to its request to grant it a guarantee," Finance Minister Pierre Moscovici said according to Reuters. What he really meant was that in order to avoid a bank run following the realization that the housing crisis has finally come home, his boss, socialist Hollande, has decided to renege on his core campaign promise, and bail out an "evil, evil" bank. Sadly, while the nationalization was predicted by us long ago, the reality is that the French government waited too long with the sale, which prompted the Moody's downgrade of CIF by 3 notches earlier this week, which in turn was the catalyst that made any delay in the nationalization inevitable. The alternative: fears that one of the key players in the French mortgage house of cards was effectively insolvent would spread like wildfire, leading to disastrous consequences for the banking system. End result: congratulations France: your Fannie/Freddie-Dexia moment has finally arrived, and the score, naturally: bankers 1 - taxpayers 0. Saturday, September 1, 2012
Links 9/1/12
By lambert strether
Bernanke confirms bias towards easing FT (text).
Bernanke signals more stimulus, steps into election battle McClatchy
Ben Bernanke Takes Us on a Stroll Down Memory Lane Bloomberg
Bernanke at Jackson Hole Tim Duy
Bernanke on the defensive Felix Salmon
If QE3 is so close, why is the Fed’s balance sheet shrinking? FT Alphaville
The Jackson Hole Speech People Should Long Remember WSJ. Andy Haldane’s “The Dog and the Frisbee.”
The financial system rests on quicksand FT. Excellent, says Yves.
Big Finance’s Best Friend Boston Review. The aptronymic Bob Shiller.
Spain creates bad bank, injects funds in Bankia Reuters
Weidmann resignation report turns up heat on ECB’s Draghi Reuters
Chart of the day Wonkwire. Falling capex.
Factory orders post biggest rise in one year Reuters
A Dismal Outlook for Growth Economix, Times
America’s Descent into Poverty Economic Populist
Corn, soybean prices at all-time high worldwide, World Bank says LA Times
New rules governing organ transplants to be drawn up amid fear of organ sales on social networking websites Independent
Hermès raises profit and revenue targets FT
Desert storm! World’s wildest party underway at city in the sand as 60,000 gather in searing Nevada heat for Burning Man festival Daily Mail
Mother’s love exports cosplayers to overseas fans Asahi Shimbun
In Search of the Living, Purring, Singing Heart of the Online Cat-Industrial Complex Wired
Political gridlock threat to Japanese spending Times of India
Modern China: A tale of luxury villas and displaced villagers McClatchy
Brazil’s Listless Growth Continues WSJ (JC)
Brazilian Congress waters down forest protection Nature
The Future’s So Bright… Foreign Policy. Africa’s booming economy.
It’s Becoming Clear That No One Actually Read Facebook’s IPO Prospectus Or Mark Zuckerberg’s Letter To Shareholders Henry Blodget
Exclusive: Walmart tests iPhone app checkout feature Reuters
Apple Feels Reporting Drone Strikes ‘Objectionable And Crude’ And Rejects App Techdirt. Tag: reporting-the-news-is-bad.
How many Kindle Fires were sold? Aymco
Software Meant to Fight Crime Is Used to Spy on Dissidents Times (furzy mouse)
An Infantilizing Speech American Conservative
The End of Gasoline Warfare The Archdruid Report
Bernanke confirms bias towards easing FT (text).
Bernanke signals more stimulus, steps into election battle McClatchy
Ben Bernanke Takes Us on a Stroll Down Memory Lane Bloomberg
Bernanke at Jackson Hole Tim Duy
Bernanke on the defensive Felix Salmon
If QE3 is so close, why is the Fed’s balance sheet shrinking? FT Alphaville
The Jackson Hole Speech People Should Long Remember WSJ. Andy Haldane’s “The Dog and the Frisbee.”
The financial system rests on quicksand FT. Excellent, says Yves.
Big Finance’s Best Friend Boston Review. The aptronymic Bob Shiller.
Spain creates bad bank, injects funds in Bankia Reuters
Weidmann resignation report turns up heat on ECB’s Draghi Reuters
Chart of the day Wonkwire. Falling capex.
Factory orders post biggest rise in one year Reuters
A Dismal Outlook for Growth Economix, Times
America’s Descent into Poverty Economic Populist
Corn, soybean prices at all-time high worldwide, World Bank says LA Times
New rules governing organ transplants to be drawn up amid fear of organ sales on social networking websites Independent
Hermès raises profit and revenue targets FT
Desert storm! World’s wildest party underway at city in the sand as 60,000 gather in searing Nevada heat for Burning Man festival Daily Mail
Mother’s love exports cosplayers to overseas fans Asahi Shimbun
In Search of the Living, Purring, Singing Heart of the Online Cat-Industrial Complex Wired
Political gridlock threat to Japanese spending Times of India
Modern China: A tale of luxury villas and displaced villagers McClatchy
Brazil’s Listless Growth Continues WSJ (JC)
Brazilian Congress waters down forest protection Nature
The Future’s So Bright… Foreign Policy. Africa’s booming economy.
It’s Becoming Clear That No One Actually Read Facebook’s IPO Prospectus Or Mark Zuckerberg’s Letter To Shareholders Henry Blodget
Exclusive: Walmart tests iPhone app checkout feature Reuters
Apple Feels Reporting Drone Strikes ‘Objectionable And Crude’ And Rejects App Techdirt. Tag: reporting-the-news-is-bad.
How many Kindle Fires were sold? Aymco
Software Meant to Fight Crime Is Used to Spy on Dissidents Times (furzy mouse)
An Infantilizing Speech American Conservative
The End of Gasoline Warfare The Archdruid Report
http://www.guardian.co.uk/business/debt-crisis
-
2 Sep 2012: On the agenda this week: a big decision in the mining industry, and fears for sales figures at the supermarket - 2 Sep 2012: As the Netherlands prepares to vote, the radical left, anti-austerity Socialist party has been making all the running
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2 Sep 2012: Germans and the French remain far apart on policy, on how to fix the crisis and on the political future of the eurozone - 31 Aug 2012: Decision to close two Vauxhall plants for one week comes after warning that eurozone crisis has hit car purchases
- 31 Aug 2012: Bad bank is part of ambitious new banking law Spain's conservative government promises will save ailing finance sector
this was yesterday.
Ireland 'may have to cut public sector wages'
31 Aug 2012
| Comment Employment 'catastrophe’ if euro bloc splits
31 Aug 2012
| 3 Comments Draghi plan under threat amid EU split
31 Aug 2012
| 14 Comments 
Eurozone unemployment hits record 18m
Jobless numbers across the 17-nation eurozone hit a record 18m in July, the EU statistics agency said this morning.31 Aug 2012
| 6 Comments UN warns of 'catastrophic' rise in youth unemployment
The UN's International Labour Organisation has warned of a "catastrophic" rise in unemployment, especially among the young, if debt-wracked Greece were to leave the eurozone or if the bloc were to split.31 Aug 2012
| 8 Comments ECB to cut eurozone growth forecasts, says Nowotny
The European Central Bank will lower its growth forecasts for the eurozone when it releases estimates next week, according to ECB Governing Council member Ewald Nowotny.31 Aug 2012
| Comment Bundesbank chief 'considered resigning over ECB bond buying'
Bundesbank chief Jens Weidmann considered resigning several times because of his opposition to a new bond-buying plan by the European Central Bank but was persuaded by the German government to stay, according to reports.31 Aug 2012
| 9 Comments Japan could run out of money in a month
Japan's government is planning to suspend some state spending as it could run out of cash by October, with a deficit financing bill blocked by opposition parties trying to force the Prime Minister into an early election.31 Aug 2012
| 57 CommentsMonetary Versus Fiscal Policy, Revisited
One recurring complaint from commenters on this blog is that they can’t figure out where I stand on monetary versus fiscal policy as a response to a deeply depressed economy. Sometimes, they say, I declare that monetary policy is ineffective once you’re at the zero lower bound; other times I berate Ben Bernanke for not doing more. Which is it?
But it’s not a contradiction. Mike Woodford’s latest paper, especially taken in tandem with his paper last year at the Cambridge Keynes conference, actually explains it all.
What Mike demonstrates is the point that liquidity-trap worriers have been making for a long time – actually, ever since my 1998 piece. Current monetary policy is indeed ineffective in a liquidity trap; but there is still scope for central bank action in the form of credible commitments to keep monetary policy easy in the future, when the economy is no longer at the zero lower bound.
The trouble is how to make those credible commitments. Actually, it’s a two-stage problem. First you have to convince the central bank itself that it’s a good idea to signal that you won’t return to normal policy (say a standard Taylor rule) as soon as the economy lifts off from the liquidity trap; then you have to convince the private sector that the central bank will not, in fact, just revert to type once the crisis is past.
My judgment back in late 2008/early 2009 was that it would take a long time to get through those two stages; indeed, as Mike’s paper makes clear, four years into the Lesser Depression the Fed is still inching up toward stage one. Meanwhile, the slump was already upon us.
What about fiscal policy? As Mike pointed out in his earlier paper, fiscal stimulus in a liquidity trap doesn’t require that you convince the market that you’re going to behave differently once the crisis is past. It doesn’t depend on expectations at all; the government just goes out and creates jobs. So it made a lot of sense to argue for stimulus as the main immediate response to the slump.
But isn’t fiscal stimulus also a hard sell politically? Yes, indeed – although the truth is that we did get some, and it probably had a major impact in softening the economic blow. And we would have had more if not for the scorched-earth opposition of Republicans, which is not a problem of economic analysis.
So what should well-meaning economists do now, with both fiscal and monetary policy falling short? The answer is, campaign on both fronts, trying to convince influential players both that austerity is wrong and that the Fed needs to start signaling its willingness to see more inflation before it raises rates.
And that’s more or less where I am."
But it’s not a contradiction. Mike Woodford’s latest paper, especially taken in tandem with his paper last year at the Cambridge Keynes conference, actually explains it all.
What Mike demonstrates is the point that liquidity-trap worriers have been making for a long time – actually, ever since my 1998 piece. Current monetary policy is indeed ineffective in a liquidity trap; but there is still scope for central bank action in the form of credible commitments to keep monetary policy easy in the future, when the economy is no longer at the zero lower bound.
The trouble is how to make those credible commitments. Actually, it’s a two-stage problem. First you have to convince the central bank itself that it’s a good idea to signal that you won’t return to normal policy (say a standard Taylor rule) as soon as the economy lifts off from the liquidity trap; then you have to convince the private sector that the central bank will not, in fact, just revert to type once the crisis is past.
My judgment back in late 2008/early 2009 was that it would take a long time to get through those two stages; indeed, as Mike’s paper makes clear, four years into the Lesser Depression the Fed is still inching up toward stage one. Meanwhile, the slump was already upon us.
What about fiscal policy? As Mike pointed out in his earlier paper, fiscal stimulus in a liquidity trap doesn’t require that you convince the market that you’re going to behave differently once the crisis is past. It doesn’t depend on expectations at all; the government just goes out and creates jobs. So it made a lot of sense to argue for stimulus as the main immediate response to the slump.
But isn’t fiscal stimulus also a hard sell politically? Yes, indeed – although the truth is that we did get some, and it probably had a major impact in softening the economic blow. And we would have had more if not for the scorched-earth opposition of Republicans, which is not a problem of economic analysis.
So what should well-meaning economists do now, with both fiscal and monetary policy falling short? The answer is, campaign on both fronts, trying to convince influential players both that austerity is wrong and that the Fed needs to start signaling its willingness to see more inflation before it raises rates.
And that’s more or less where I am."
Reuters: nothing.
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