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Eurointelligence Displays Stunning Ignorance Regarding Target2

July 13, 2018

Eurointelligence Displays Stunning Ignorance Regarding Target2

On two recent days, Eurointellence made stunningly bad comments about the escalating capital flight from Italy.

The latest Target2 Chart from the ECB is from May. Newer totals are available in some individual countries.

Debtors, primarily Italy and Spain, now owe Germany close to €1 trillion. Realistically, this money cannot and will not be paid back except by a central bank bailout.

Yet, Eurointelligence whitewashed this as no big deal.

July 9 – German Panic About Target2

The German debate on the balances of the Target2 payment clearing system continues to rage. There are two reasons for this. On the one hand, the Bundesbank’s Target2 credit with the Eurosystem was over €976bn at the end of June, and is within weeks of exceeding the symbolic figure of one trillion. On the other hand, Germans have taken notice of Paolo Savona’s plan B for Italy to exit the euro, which involved defaulting on Italy’s external debt including its Target2 balance which is under €481bn and growing. In this context Peter Boehringer, the AfD MP and chair of the Bundestag’s budget committee, has criticised Olaf Scholz in a budget debate for making no risk provisions for the possibility of default on Target2 claims. Frankfurter Allgemeine has also spoken to Christian Dürr, the deputy leader of the FDP group in the Bundestag, who says it’s about time the finance minister put on the political agenda the threat of a default on the German taxpayer. The position of the CDU group is that the situation will correct itself because of the coming end of the ECB’s asset purchase programme, and trust in the eurozone’s southern states returning as a result of the ongoing economic recovery.

…click on the above link to read the rest of the article…

Italy Target2 Imbalance Hits Record €432.5 Billion as Dwindling Trust in Banks Plunges 

November 7, 2017

Contrary to ECB propaganda, Target2 imbalances are a direct result an unsustainable balance of payment system. The imbalances represent both capital flight and debts that can never be paid back. If you think Italy can pay German and other creditors a record €432.5 Billion, you are in Fantasyland.

The interesting aspect of Italy’s new record Target2 Imbalance is that it comes just as Dwindling Trust in Italian Banks is on the rise.

Just 16 percent of Italians have confidence in the country’s lenders, down from an already meager 17 percent in June, according to a poll by the SWG research group of Trieste on Friday. Only 24 percent trust the Bank of Italy, plunging from 36 percent in June.

One likely reason: a tortuous bank crisis that caused losses for savers and led the government to rescue three lenders with taxpayers’ money this year. The vanishing confidence is likely to show in campaigns for national elections expected by next spring.

Supporters of the populist Five Star Movement and anti-migrant Northern League have the least confidence in lenders and the Bank of Italy among those with a definite opinion, according to the survey of 1,000 adults conducted Oct. 23-25.

Confidence in Banks Plunges

The eurosceptic Five Star Movement just happens to have the largest share of the vote in recent polls.

Target2 Discussion

Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.

Pater Tenebrarum at the Acting Man blog provides this easy to understand example: “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.”

…click on the above link to read the rest of the article…

There Are 66,719 Empty Mansions In Vancouver

February 11, 2017

There Are 66,719 Empty Mansions In Vancouver

One year ago, when we first started discussing the Vancouver housing bubble, which as we first speculated – and was later confirmed – was the result of Chinese oligarch money-launderers parking “hot cash” in this offshore housing market (at least until a 15% property tax on foreign purchases made Seattle the new Vancouver), we said that Vancouver houses had become the de facto new Swiss bank account, and because of that the houses – once purchased – would remain a highly overprized, if vacant tribute to China’s soaring capital outflows.

Now, courtesy of data by urban planner Andy Yan of Simon Fraser University’s City Program, this has been confirmed because according to the latest census numbers, as of 2016 there were 25,502 unoccupied or empty housing units in the City of Vancouver. Expanding to include the entire metro area, Yan found that vacant or temporarily occupied dwellings have more than doubled since 2001 to 66,719 last year as neighborhoods have hollowed out.


A home sits empty, and awaiting demolition, at the corner of Parker Street 
and Victoria Drive in Vancouver on Wednesday

Yan compared census data for Vancouver over several decades to see how the percentage of “unoccupied” units or ones “occupied solely by foreign residents and/or temporary present residents on Census Day” has doubled during that time the Vancouver Sun reported. In 1986, it was 4%. By 2016, it had doubled to 8.2%.

“Exact definitions and measures have changed slightly over 30 years and patterns should be interpreted as directional,” Yan writes in a report released Wednesday.

The number of Vancouver’s prized, if vacant, mansions far outstrips other municipalities with 25,502 units that are either unoccupied or owned by temporary or foreign residents.

Yan said most of these were concentrated in three areas: Coal Harbour, Marine Gateway and Joyce-Collingwood. Surrey came in second at 11,195, Burnaby at 5,829 and Richmond at 4,021.

…click on the above link to read the rest of the article…

Why Capital Is Fleeing China: The Crushing Costs of Systemic Corruption

September 4, 2015

Why Capital Is Fleeing China: The Crushing Costs of Systemic Corruption

What China will be left with a poisoned land stripped of talent and capital.

Corruption isn’t just bribes and influence-peddling: it’s protecting the privileges of the few at the expense of the many. Rampant pollution is corruption writ large: the profits of the polluters are being protected at the expense of the millions being poisoned.

This is why capital and talent are fleeing China: systemic corruption has poisoned the nation and raised the cost of doing business. External costs such as environmental damage must be paid eventually, one way or the other.

Either the cost is paid in rising chronic illnesses, shorter lifespans and declining productivity, or profits and tax revenues must be siphoned off to clean up the damage and the sources of environmental degradation.

In large-scale industrial economies such as China and the U.S., that cost is measured not in billions of dollars but in hundreds of billions of dollars over a long period of time.

I have often noted that one key reason why the U.S. economy stagnated in the 1970s was the enormous external costs of runaway industrialization were finally paid in reduced profits and higher taxes.

China’s manufacturing base simply isn’t profitable enough to pay for the remedial clean-up and pollution controls needed to make China livable. That means labor and all the other sectors will have to pay the costs via higher taxes.

Pollution and environmental damage is driving away human capital, i.e. talent.This loss of talent is difficult to quantify, but it’s not just foreigners who have worked in China for years who are pulling up stakes to escape pollution and repression–talented young Chinese are finding jobs elsewhere for the same reasons.

The game-changer is automation, i.e. robots and software eating the world. To understand the impact on China, let’s start with unit labor costs, i.e. the cost of labor needed to produce each unit of output.

…click on the above link to read the rest of the article…

 

Will the Fed Have to Save Emerging Markets with QE4?

September 3, 2015

Will the Fed Have to Save Emerging Markets with QE4?

The risk-off tide is rising, and sand castles of QE will only hold the tide back for a brief period of apparent calm.

A funny thing happened on the way to permanently expanding global markets: unintended consequences. Borrowing cheap, abundant U.S. dollars seemed like a good idea when the dollar was declining, and few voiced any concern when $9 trillion was borrowed in USD-denominated debt around the world in the years since 2009.

Few saw the possibility of the USD rising, or that if it did appreciate against other currencies, that the blowback would destabilize the global economy.

It turns out a strengthening USD has triggered capital flight as other currencies devalue. Anyone propping up their currency to stem the flood tide faces another unintended consequence–a faltering export sector: China: Doomed If You Do, Doomed If You Don’t (September 1, 2015).

Meanwhile, the Imperial economy is suffering its own spate of unintended consequences, notably rising yields, a.k.a. quantitative tightening. As emerging markets and nations attempting to defend their currency pegs to the USD sell U.S. Treasury bonds (which have been held as foreign exchange reserves), the yields on the Treasuries rise as a matter of supply and demand.

As supply increases, sellers must offer higher yields to entice buyers to soak up the inventory.

This increase in yields reverses the primary effect of quantitative easing, i.e. declining yields/interest rates in the U.S.

This dynamic undermines both the emerging markets and the U.S. Emerging markets are not really restored to growth by selling Treasuries; the strong dollar continues to crush their currencies and dampen growth, as assets must be sold to pay back debt borrowed in USD.

Rising rates threaten the feeble U.S. “recovery” as well.

So what’s the solution to this inconvenient dynamic? QE4, of course. Why would the Federal Reserve launch QE4, if not to push rates down in the U.S.?

…click on the above link to read the rest of the article…

People’s Bank of China Freaks Out, Devalues Yuan by Record Amount, Vows to “Severely Punish” Capital Flight

August 11, 2015

People’s Bank of China Freaks Out, Devalues Yuan by Record Amount, Vows to “Severely Punish” Capital Flight

Everything has started to go wrong in the Chinese economy despite its mind-bending growth rate of 7%. Exports plunged and imports too. Sales in the world’s largest auto market suddenly are shrinking just when overcapacity is ballooning. The property market is quaking. Electricity consumption, producer prices, and other indicators are deteriorating. Capital is fleeing. The hard landing is getting rougher by the day. But Tuesday morning, the People’s Bank of China pulled the ripcord.

In a big way.

It lowered the yuan’s daily reference rate by a record 1.9%. The yuan plunged instantly, and after a brief bounce, continued to plunge. Now, as I’m writing this, it is trading in Shanghai at 6.322 to the dollar, down 1.8% from before the announcement. A record one-day drop.

The PBOC had kept the yuan stable against the dollar. As the dollar has risen against other major currencies, the yuan followed in lockstep. Over the past week, the Yuan’s closing levels in Shanghai were limited to vacillating between 6.2096 and 6.2097 against the dollar. Over the past month, daily moves were limited to a maximum 0.01%. The PBOC controls its currency with an iron fist.

Hence the shock to the currency war system.

The Nikkei, beneficiary of the most aggressive currency warrior out there, had been up, nearly kissing the magic 21,000 at the open for the first time in a generation, but plunged 200 points in one fell swoop when the news hit. Then the Bank of Japan jumped in with its endless supply of freshly printed yen, furiously buying Japanese ETF to stem the loss. The lunch break put a stop to all this. Then the Nikkei plunged again. Maybe the folks at the BOJ were late getting back to their trading stations. But now they’re back at work, mopping up ETFs.

…click on the above link to read the rest of the article…

 

 

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