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Athens vs. Brussels: Greece Inches Closer to Renewal of Debt Crisis
Athens vs. Brussels: Greece Inches Closer to Renewal of Debt Crisis
After new Greek Finance Minister Giannis Varoufakis had been repeatedly rebuffed on his introductory tour of European capitals, he opted for flattery and solicitation during his visit to Berlin last week. German Finance Minister Wolfgang Schäuble, Varoufakis said, had been an object of his admiration since way back in the 1980s for his dedication to Europe. He said that his host’s career, focused as it has always been on European unity, has been impressive.
Varoufakis went on to say that Germans and Greeks are linked by their experiences of suffering. Just like the Germans, who were yoked with the burdensome Versailles Treaty after losing World War I, his country too has been humiliated by agreements forced onto it from the outside. Both countries, he said, suffered from deflation and economic depression, the Germans in the 1930s and the Greeks today. “The Germans understand best how the Greeks are doing,” Varoufakis said.
Schäuble’s sympathy for Varoufakis’ plight was limited. Indeed, the German finance minister sees Greek demands for an end to the troika and for a renegotiation of previous agreements as an affront. “We agreed to disagree,” is how Schäuble summed up their meeting, a tête-à-tête that took 45 minutes longer than the one hour that had been scheduled.
Just one day prior to his meeting with Schäuble last Thursday, Varoufakis had been given the cold shoulder at European Central Bank headquarters in Frankfurt. ECB head Mario Draghi rejected virtually all of Varoufakis’ requests, including his demand for more leniency on debt repayments. That evening, the ECB opted to stop accepting Greek government bonds as collateral, a move which will make it even more difficult for banks in Greece to access liquidity. The move came as a surprise to Varoufakis. Draghi had told him nothing about it during their meeting that morning.
…click on the above link to read the rest of the article…
Draghi’s Dangerous Bet: The Perils of a Weak Euro
Draghi’s Dangerous Bet: The Perils of a Weak Euro
The recent decision by the European Central Bank to open the monetary floodgates has weakened the euro and is boosting the German economy. But the move increases the threat of turbulence on the financial markets and could trigger a currency war.
The concern could be felt everywhere at this year’s World Economic Forum in Davos, the annual meeting of the rich and powerful. Would the major central banks in the United States, Europe and Asia succeed in stabilizing the wobbling global economy? Or have the central bankers long since become risk factors themselves? The question was everywhere at the forum, being addressed by experts at the lecturns and by participants in the hallways.
Central banks, said Harvard University economics professor Kenneth Rogoff, are surely the greatest source of uncertainty in the eyes of the financial markets, a statement that was not disputed by others on the panel. The fact that monetary policies at central banks in the US, Europe, Japan and elsewhere are drifting apart poses a major risk for the stability of financial markets, he said.
“It’s important for the international community to work together to avoid currency wars which no one can win,” Min Zhu, deputy managing director of the IMF, told the conference.
…click on the above link to read the rest of the article…
Axel Merk: Why Asset Prices Must Return To Lower Levels
Axel Merk: Why Asset Prices Must Return To Lower Levels
Saying it’s been a busy week and half on the central bank front is perhaps a sizeable understatement.
First, the Swiss National Bank stunned the world (and its brethren central banks) by removing its peg to the Euro. This was quickly followed by Mario Draghi finally making good on his longtime threat of firing QE bazooka, announcing that the ECB will pursue a 60 billion Euro per month easing program for the next 16 months. And amidst all the smoke, the Canadian central bank snuck in a surprise rate cut to its interest rate.
To make sense of both the “Why?” behind these extreme moves, as well as the “What?” in terms of their implications, Axel Merk, founder and Chief Investment Officer of Merk Funds joins us this week.
In his opinion, recent events are exactly the kind the symptoms he’s been expecting as the prime strategy pursued by central banks since 2008 — to force capital into speculative assets — approaches its natural and inevitable denouement. Indeed, he projects the surprises in store for us and the systemic instability we’re beginning to see are just getting started:
Ultimately, central banks are just sipping from a straw in the ocean. I did not invent that term. Our senior economic advisor, Bill Poole, who is the former president of the St. Louis Federal Reserve taught us this: that central banks are effective as long as there is credibility.
What central banks have done is to try to make risky assets appear less risky, so that investors are encouraged or coerced into taking more risks. Because you get no interest or you are penalized for holding cash, you’ve got to go out and buy risky assets. You’ve got to go out and buy junk bonds. You have to go out and go out and buy equities.
…click on the above link to read the rest of the article…
Mario Draghi: Charlatan Of The Apparatchiks
Mario Draghi: Charlatan Of The Apparatchiks
Well, he finally launched “whatever it takes” and that marks an inflection point. Mario Draghi has just proved that the servile apparatchiks who run the world’s major central banks will stop at nothing to appease the truculent gamblers they have unleashed in the casino. And that means there will eventually be a monumental crash landing because the bubble beneficiaries are now commanding the bubble makers.
There is not one rational reason why the ECB should be purchasing $1.24 trillion of existing sovereign bonds and other debt securities during the next 18 months. Forget all the ritual incantation emanating from the central bankers about fighting deflation and stimulating growth. The ECB has launched into a massive bond buying campaign for the sole purpose of redeeming Mario Draghi’s utterly foolish promise to make speculators stupendously rich by the simple act of buying now (and on huge repo leverage, too) what he guaranteed the ECB would be buying latter.
So today’s program amounts to a giant bailout in the form of a big fat central bank “bid” designed to prop up prices in the immense parking lot of French, Italian, Spanish, Portuguese etc. debt that has been accumulated by hedge funds, prop traders and other rank speculators since mid-2012. Never before have so few—-perhaps several thousand banks and funds—-been pleasured with so many hundreds of billions of ill-gotten gain. Robin Hood is spinning madly in his grave.
…click on the above link to read the rest of the article…
The ECB Will Fail Given The “History Lessons Of US And Japan”, Warns Deutsche Bank
The ECB Will Fail Given The “History Lessons Of US And Japan”, Warns Deutsche Bank
Recall that the stated purpose behind the reason why Mario Draghi’s ECB is about to launch a European government debt monetization program ranging between EUR500 and 1000 billion is to halt deflation, spark credit creation and rekindle inflation. Alas, if that is indeed the case, then as Deutsche Bank said has already determined apriori, it will be a failure. Here’s why from the biggest German bank.
First, a broad strokes preview of what the world’s most confused Central bank will do this week:
[The ECB] is trapped down a dark alley and they will bite. For all the pros and cons of public QE as well as the hows and whens, at the end of the day the market has pushed the ECB into that corner. Within the context of the practical limitations of QE, we have no doubt that Draghi once again will leave a warm fuzzy feeling that they are prepared to do all that it takes. Of course, like OMT, it probably doesn’t mean they are buying BTPs come February 1st, but that doesn’t matter for BTPs. It also doesn’t matter for the Euro zone outlook given the dubitancy of QE efficacy.
And here is why the ECB too will follow its peers, the Fed and BOJ, in failing to boost inflation expectations which at last check were below the Lehman collapse levels and sliding fast (see “The Chart That Terrifies The Fed“)
…click on the above link to read the rest of the article…
The ECB’s risky crossing of the Rubicon | European Voice
The ECB’s risky crossing of the Rubicon | European Voice.
Eurozone monetary officials are expected to make history when they gather for the European Central Bank’s next policy-setting meeting on 22 January. Observers expect that Mario Draghi, the president of the European Central Bank (ECB), and his colleagues will finally cross the Rubicon and announce the launch of a large-scale programme of quantitative easing (QE) – in other words, high-volume purchases of government bonds.
Although the ECB has resisted QE for more than five years, even as other major central banks embraced it, Benoît Coeuré, a member of its executive board, has already called it the “baseline option”.
On the face of it, the ECB has many reasons to launch QE. For two years, inflation has consistently failed to reach the 2% target. In November, the annual price growth was just 0.3%, while the recent collapse in oil prices will generate further downward pressure in the coming months. Even more important, inflation expectations have started to de-anchor: forecasters and investors expect the undershooting of the target to persist over the medium term.
Euro Forecasters See Pain After Worst Year Since 2005
Euro Forecasters See Pain After Worst Year Since 2005
Midway through European Central Bank President Mario Draghi’s May press conference in Brussels, the euro rose to its strongest level during his tenure. Then he said the ECB was ready to introduce more stimulus measures, sending it into a slide that strategists say will extend into 2015.
Europe’s common currency, which appreciated to $1.3993 that May day, ended last year down 12 percent against the dollar, its biggest loss since 2005. Strategists, who were too timid with their call for a decline in 2014 to $1.28, now see a slump to $1.18 by the end of this year. The euro set a four-year low of $1.2004 today.
A weaker euro is key for Draghi as he tries to spur the region’s struggling economy and ward off deflation. He started this year by telling German newspaper Handelsblatt that the risk of deflation in the region cannot be excluded, bolstering speculation policy makers will soon start actions such as buying bonds that tend to weigh on a currency.
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A statement full of Keynesian fallacies – Ludwig von Mises Institute Canada
A statement full of Keynesian fallacies – Ludwig von Mises Institute Canada.
From today’s Open Europe news summary:
Draghi: ECB ready to initiate QE to counter low inflation
In an interview with Handelsblatt, ECB President Mario Draghi warned that persistently low inflation in the Eurozone meant that “the risk that we do not fulfill our mandate of price stability is higher than six months ago”. Draghi reiterated that the ECB was ready to step in with a programme of Quantitative Easing, noting that “We are in technical preparations to adjust the scope, speed and composition of our measures for early 2015.”
ECB President Mario Draghi’s latest statement is full of Keynesian fallacies, to wit:
1. That price stability is a worthy goal. No, monetary stability is essential, so that prices may reflect the true preferences and productive limitations of the market in order to allocate scarce resources to their most important purposes as dictated by the market.
Stability and Prosperity in Monetary Union by Mario Draghi – Project Syndicate
Stability and Prosperity in Monetary Union by Mario Draghi – Project Syndicate.
FRANKFURT – There is a common misconception that the euro area is a monetary union without a political union. But this reflects a deep misunderstanding of what monetary union means. Monetary union is possible only because of the substantial integration already achieved among European Union countries – and sharing a single currency deepens that integration.
If European monetary union has proved more resilient than many thought, it is only because those who doubted it misjudged this political dimension. They underestimated the ties among its members, how much they had collectively invested, and their willingness to come together to solve common problems when it mattered most.
Yet it is also clear that our monetary union is still incomplete. This was the diagnosis offered two years ago by the so-called “Four Presidents” (the European council president in close collaboration with the presidents of the European Commission, the European Central Bank, and the Eurogroup). And, though important progress has been made in some areas, unfinished business remains in others.
Read more at http://www.project-syndicate.org/commentary/ecb-eurozone-economic-union-by-mario-draghi-2015-1#xhi0fOW003jg7kTI.99
Another Keynesian Debt Boondoggle: How Brussels Plans To Turn Zero New Cash Into A $400B Stimulus | David Stockman’s Contra Corner
The desperation and fraud of the Keynesian policy apparatus gets more stunning by the day. Apparently, the pettifoggers in Brussels will soon be announcing a new $400 billion bazooka to blast the euro-economy out of its lethargy. This massive new “stimulus” is supposed to spur all manner of infrastructure and private investment that is purportedly bottled-up for want of cheap capital in the private markets.
Are they kidding? Thanks to the Draghi Put (“whatever it takes”) and the hedge fund gamblers who have gone all-in front running the promised ECB bond-buying campaign, this very morning the corrupt and bankrupt government of Spain can borrow all the money it could possibly need for infrastructure at hardly 2.0% for ten years. And any healthy German exporter or machinery maker can borrow at a small spread off the German 10-year bond which is trading at 73 basis points. For all intents and purposes, sovereigns of any stripe and reasonably healthy businesses in most parts of Europe can access capital at central bank repressed rates which are tantamount to free money.
And, yet, these fools want to bring coals to Newcastle. Well, its actually worse than that because not only does Newcastle not need any coal, but the impending “Juncker Plan” doesn’t include any new coal, anyway!
…click on the above link to read the rest of the article…
Yellen’s Message to Draghi: Print, Baby, Print! |
Yellen’s Message to Draghi: Print, Baby, Print! |.
Bloomberg informs us that there is a “Yellen Message to Europeans Divided on QE: Do Whatever It Takes”. The belief that central bank bureaucrats can “rescue” the economy by printing more money evidently remains as firmly ingrained as ever. As Paul Singer, the head of Elliott Management, remarked on this in a recent letter to investors (note that Mr. Singer has an excellent track record as an investor spanning four decades):
“Central bank manipulation of prices and risk taking has become the norm over the last six years, because it is so hard for investors to see the downside. QE and ZIRP have been ‘free,’ as far as most people are concerned, in terms of stability, asset price and economic growth, and economic recovery. ‘Free’ in this context means devoid of future countervailing negative consequences. Unfortunately, this particular magic bullet is illusory — the negative consequences are only in their early stages of unveiling…
“Central bankers do not understand that it was their tinkering, manipulation, bailouts and false confidence that encouraged and enabled the insanity that led to the fragility and collapse. Partially as a result of that misunderstanding, the developed world has doubled down on the same policies, feeding the central bankers’ supreme self-confidence. Political leaders have been content to stand aside and watch the central bankers do their seemingly magical and magnificent work.
The believers in the wisdom of this central-banker-centric economic world have been crowing and gloating that those (like us) who have raised concerns about the risks posed by the post-crisis, monetary-dominated policy mix (inflation, distortions, growing inequality, lower growth) are just ‘wrong’ and should apologize for a ‘massive error.’ This, shall we say, ‘Krugmanization’ of a substantial portion of the economics profession and punditocracy is in its triumphalist phase, and whether its smug non-stop ‘victory lap’ ultimately represents an embarrassing high-water mark is for subsequent events to reveal.”
(emphasis added)
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