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Economist first, attorney second. I enjoy critiquing the current groupthink spewing from the academics, central bankers, journalists and banksters regarding the world’s fiscal, financial and economic condition. The groupthinkers seem to think that we are muddling through a post-Great Financial... More
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  • Around The Globe 04.14.2013 0 comments
    Apr 14, 2013 9:03 PM
    Around the Globe 04.14.2013

    Lockhart Calls Unfounded the View That Fed Monetizes U.S. Debt - Bloomberg.

    Fed Holdings SOMA 01.2013

    Atlanta Fed President Dennis Lockhart denies that the Fed is monetizing the country's debt. Central banksters are supposed to say this, so they do. When the Federal Reserve buys debt, it is by definition monetizing the debt. Just because it purchases the debt on the market rather than directly from the government does not change the essence of its actions. Note the chart above. The Fed owns a significant portion of the debt stock over three years in duration.

    The reason given for these purchases is that they will eventually kickstart the economy. The real reasons that for all of this money printing is to maintain low interest rates so the government can afford to finance itself and to pump up the stock market.

    EU Affirms Debt-Cut Strategy in Face of 'Fragile' Outlook - Bloomberg.

    Markit Eurozone PMI Flash March 2013

    Europe save the really stupid stuff for weekend press releases. We have three this weekend starting with this doozie. The Germans will continue to insist on budget cuts while affected Eurozone countries die. For the umpteenth time, the eurocrats predict an economic recovery right around the corner for the eurozone without any evidence to support this forecast.

    Does the chart above point to increasing economic output? PMIs remain ensconced in contractionary territory and will remain there as long as governments and consumers are simultaneously cutting spending.

    EU Set to Clash on Bank Deal as Germany Sees Treaty Limit - Bloomberg.

    As astute readers of Dareconomics know, there will never be a banking union. Germany and the rest of the FANG countries will never pay for the insolvent banks of the periphery especially when they have their own insolvent banks to worry about. The latest dilatory tactic deployed by the German government is supporting EU treaty changes to create a banking union rather than a multilateral agreement.

    Treaty changes take years and require referendums in many of the EU countries. Moreover, other countries will attempt to add their agendas once the process is opened up.

    The rich countries either have to put up or shut up at this point. Perhaps after elections, Merkel will level with her people and explain that the continuation of the Eurozone will require hundreds of billions of the German taxpayers' euros. Then again, maybe they will just continue kicking the can down the road until it's too late to solve the problem.

    Schaeuble Favors 'Liability Hierarchy' in European Bank Bailouts - Bloomberg.

    In one sentence Schaeuble claims that Cyprus is an exception but then holds it restructuring out as a template for future bailouts. From the words of the various eurocrats who have spoken on the issue, it is very clear that depositors will be taking losses on future bank bailouts. I don't want anyone in Spain or Italy to be surprised when they lose half their money overnight one of these days. Get your money out now while you still can. The smart money has already left.

    This is my informal test for the dodginess of any financial transaction. If a CFO could lose his job over conducting the transaction, then it is ripe for a panic. Let's say Apple collapsed tomorrow, could you blame a CFO for investing his firm's excess cash in AAPL commercial paper? No, the company is running like a top.

    Now the same CEO gets caught with €1bn worth of deposits in Spain and Italy when a banking crisis forces depositors to take losses, could you blame him then? Hell, yeah.

    The 2nd hypothetical is foreseeable, while the 1st is not. The smart money, aka "The I don't want to be fired money," is leaving the eurozone as we speak.

    Analysis: Euro zone bank troublespots don't come down to size | Reuters.

    Bank assets to GDP

    Here is the chart mentioned in the article. It would have been very easy to include it. The piece misses the most significant factor regarding asset quality. In a financial crisis, all loans and assets are considered suspect. A large bank is a disaster waiting to happen and small countries like Luxembourg and Malta would be forced to allow banks to fail setting off a domino effect throughout the financial system.

    EU Increases Efforts to Fight Tax Evasion - WSJ.com.

    Austria Defies Mounting Pressure to End Bank Secrecy.

    Even Luxembourg is scaling back bank secrecy. Amidst this environment, it is only a matter of time before Austria follows suit. The PM supports this, while the FM is against it. The EU is out of money and is doing anything and everything to increase revenue. Tax cheating is rampant within the Eurozone, and they seem determined to wipe it out through cooperation.

    Can China Turn 'Economy on Steroids' to Real Growth?.

    No. China relies too much on its export sector for organic growth. As long as large economies like the Eurozone, Japan and the U.S. exhibit contraction to low growth, China's economic activity will remain suppressed.

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