Economic Presence
  • Home
  • Paradox found
    • Paradox found

Eurozone Tragedy-Comedy continues

10/12/2014

0 Comments

 
Ambrose Pritchard from The Telegraph.

"Germany’s exports are falling at the fastest rate since the global crisis in 2009, raising fears of a triple-dip recession and a disastrous relapse for the rest of the eurozone.
Christine Lagarde, the head of the International Monetary Fund, warned that the eurozone is at “serious risk” of falling back into recession if nothing is done, and is in danger of suffering a lost decade. “If the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable,” she said. The wording is a clear call to Germany for an immediate shift in policy.
The ECB warned in its monthly report that the eurozone jobs market has failed to recover as expected, with the numbers out of work for 12 months or longer still rising. “It warrants particular attention from policymakers as it points to an elevated risk of a marked increase in structural unemployment across the euro area, and potential hysteresis effects,” it said. In technical terms, it said there had been an "outward shift in the Beveridge Curve".

The bank said structural unemployment has jumped to 10.3pc and is worst in some of the crisis countries forced to shake up their labour markets. While couched in cautious language this is an admission that the supposed cure of “labour flexibility” imposed by the EU on southern Europe is not working as hoped, and may stem from a false diagnosis of Europe’s jobs crisis. It called for retraining and other “active labour market policies” to bring millions of marginalised people back into the workforce. This is exactly what critics have been saying all along."

Deflationary spiral risk increases

"Ruben Segura-Cayuela, from Bank of America, said low inflation has become “the biggest threat to the dynamics of public debt” in the eurozone, warning that debt ratios risk “spiraling up” even at levels of around 0.5pc."

I love how the "Benchmark" scenarios all have gdp debt levels leveling off and declining in about 5 years. What a joke.

Picture
More:
"Analysts are watching German politics just as closely as ECB language. The rise of Germany’s AfD anti-euro party raises the political bar even further for full-fledged QE, and eurosceptics have announced their intention to file cases at the German constitutional court to block asset purchases once they begin.

The court has already ruled that the ECB’s backstop measures for Italian and Spanish debt (OMT) “manifestly violate” the EU Treaties and are probably “Ultra Vires”, which prohibits the Bundesbank from taking part. Pending cases on QE would raise questions over whether the Bundesbank might have to step aside on asset purchases.

The current circumstances are very different from July 2012, when Mr Draghi had the full political backing of the German finance ministry for his OMT rescue plans. This time he must battle critics across the whole political spectrum in Germany.

Giulio Mazzolini and Ashoka Mody, from the Bruegel think tank in Brussels, said the eurozone seems to be tipping into a “debt-deflation cycle” as rising debt and deflation feed off each other, yet the authorities remain paralyzed and still refuse to face up the gravity of the threat. “Even now, ECB officials regard deflation to be unlikely,” they said."

0 Comments

"Virtually Every Market Is Trading At Very Artificial Levels"

4/16/2013

0 Comments

 
I think this is an older video dating back to 2011 pre-US downgrade. PIMCO'S El-Erian via Zerohedge. Structural unemployment, central bank creating systemic risk, the Eurozone market design issues and execution.Financial repression, deflation. you have heard it all here before. He is more optimisitc then i am aboout China's ability to manage its economy.
0 Comments

Its the End of the World As We Know It

6/4/2012

0 Comments

 
And I feel fine.
There will undoubtedly be some intervention by the Fed and ECB in the coming weeks that will calm the markets. 

I have spent a lot of time thinking about the dynamics of how the macro world would unfold since the “Great Recession”. I was more pessimistic  than turned out to be warranted with respect to the short term performance of the equity markets. My pessimism was based on a belief that long run growth would be much lower in the next decade, and that the systematic imbalances in  the global economy (US-Europe-China) would be very painful. I called for copper to fall in February of 2010, and I called for the purchase of CDS of Spain and Italy in May 2010. I was wrong about the former right about the latter. I also  became aware of the OECD issue of structural unemployment. I chronicled these views in an article published in the Geopolitics of Energy titled “Gimme Shelter: Expect More Volatility in the Oil Market over the Next Decade”. 
 
In my summary of that article I wrote

 “We are entering a period of time where global imbalances can no longer go unattended.  However, there remains significant uncertainty concerning how these imbalances will be resolved - in an orderly fashion or in response to a crisis?  It is certain that global growth prospects will be lower for much of the next decade.

For those who are “certain” that the BRICs have decoupled from  the developed world, that structural unemployment does not matter and the Europe  and US will muddle through and will be back to 3%+ grow soon, I end with the  words of the poet Yeats.

 Excerpt from ‘The Second  Coming’:

Turning and turning in the widening gyre
The falcon cannot hear the falconer; 
Things fall apart; the centre cannot hold; 
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned; 
The best lack all convictions, while the worst
Are full of passionate intensity."

 My pessimism was bounded because while I thought from its beginning (2002) that Euro was untenable; I assumed that while things would be markedly worse in China and Japan -their situations still would be manageable. 

In the intervening 6 months, I have spent a lot of time thinking about transition dynamics and end game, with the recent realization that the former is way more important than the latter. The unprecedented central bank balance sheet expansion by the Fed and ECB that has (temporarily IMO) buoyed the financial markets. Notwithstanding Europe is in recession and it looks
increasingly like China, Japan and the US are slowing down. In short - my macro call (that went against the herd) has been bang
on.
 
And yet I expected a better policy response from all countries then those that have been evidenced. I expect in the days to come that we will get a good news announcement from the IMF, ECB, Fed or Germany on the Eurozone or US economy that will comfort the markets and reverse the markets current free fall. I am even more convinced that what will be offered will just kick the can down the road and that the road is approaching the end of the cliff.

I have become convinced by my studies that policy makers have lost the ability to manage the system and some sort of catastrophic wash out even in the global economy and stock market is coming. There isn’t a single country that is correctly managing its policy response correctly, (imo, though the US is the least bad of a terrible cohort).

As an example, below is a screen shot of a slide shown at a recent Milken Institute panel at which Hugh Hendry was one of the participants. There is 62 Trillion in loans the European banking system – many of these will have to be sold for Basil 3.(BTW as a frame of reference world GDP  was 63 Trillion USD in 2010.) How much deleveraging is required is difficult to say for sure because I am not sure how much the shadow banking system differs between them. If you assume shadow banking is the same for both than the European Banking system will  have to decrease by more than 50%. How much will Basil 3 require? How much can they fudge? How much will be purchased by the ESM/ECB? Regardless, this is inherently  deflationary. And then you have the inevitable China and Japan writedowns. Even massive central bank money printing by these countries will make the USD stronger and be inherently deflationary for countries the US (and Canada). It seems not unreasonable that there needs to be a credit writedown across the world that begins to approach 1/2 to 1 year of world GDP. This seems like the mother of all credit market events. 

My macro view is that Europe and China are going to be trying to devalue against the USD and that this will be inherently deflationary. So I am expecting a massive wave of deflation prompted by a hard landing (collapse) Europe China and Japan. The policy response to this will be massive money printing and inflation. It appears that deflation follwed by inflation will be the transition dynamics.



 
Picture
0 Comments

Inaugural Post - Irving Fisher - The more things change the more they stay the same.

8/19/2011

0 Comments

 
As it turns out  for my first post I am going to highlight the writings of Irving Fisher “The Purchasing Power of Money” published in 1911 -  the year my father was born. This one is for you Reinhold.

Robert J Shiller recently published a short paper discussing Fisher’s work titled ‘Irving Fisher, Debt Deflation and Crises’ http://cowles.econ.yale.edu/P/cd/d18a/d1817.pdf  (hat tip:Professor Serletis)

Shiller’s behavioural ideas about contracting in terms of baskets rather that individual currencies are interesting but I am struck by how much the Fisher quotes still ring true today. Consider them in the context of the credit binge, the popping of the housing bubble and where investor psychology is today.

 “The  public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.”

 Fisher also talks about the aftermath of a debt bubble and the problem a society has extracting itself from the consequences that follow. 

“Each dollar of debt still unpaid becomes a bigger dollar, and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes. In that case, the liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast, as it increases the value of each dollar owed. Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed.”


0 Comments

    Author

    Karl Pinno

    Categories

    All
    60 Minutes
    Abnormal Returns
    Academic Publishing
    Advice For Econ Students
    Age
    Aid
    Algo Trading
    Aluminum
    Argentina
    Assortive Matching
    Austerity
    Bank Of England
    Behavioural Economics
    Bio Weapons
    Bis
    Bloomberg
    Bonds
    Bono
    Book Of Mormon
    Brain
    Brazil
    Brics
    Bridgewater Associates
    Buffet
    Calgary
    Canada
    Capital Flight
    Carola Binder
    Cds
    Central Banks
    Chainmail Bikinis
    Chanos
    Child Rearing
    China
    Chris Martenson
    Christmas Wishlist
    Climate Change
    College Humor
    Commercial Banks
    Commodities
    Community
    Computer Programming
    Confirmation Bias
    Conservatism
    Conservative
    Constructive Ambiquity
    Consumer Confidence
    Copper
    Corporate Lending
    Counterparty Risk
    Creativity
    Credit
    Culture
    Cwb
    David Einhorn
    David Rosenberg
    Debate
    Debt Crisis
    Deflation
    Demographics
    Depression
    Development
    Dragons
    Dr. Ed's Blog
    Econ Blogs
    Economics
    Ecri
    Education
    Electricity
    Eurasia Group
    Eurozone
    Excercise
    Externalities
    Falkenblog
    Ferguson
    Fertility
    Filtering
    Financial Crisis 2008
    Financial Engineering
    Financial Reform
    Financial Repression
    Financial Research
    Fiscal Policy
    Fiscal Stimulus
    Fisher
    Fixed Income
    Flood
    Food Prices
    Frank And Cook
    Fraud
    Freidman
    Ft
    Game Theory
    Gender
    Generalist
    George Soros
    Get Smart
    Giffen Good
    Global Banking
    Global Economy
    Gmo
    Godfather
    Gold
    Goldman Sachs
    Great Careers
    Greece
    Greenlight Capital
    Happiness
    Hayman Capital Management Lp
    Hbo
    Health
    Hedge Funds
    Homosexuality
    Housing Market
    Hubbard
    Hugh Hendry
    Hussman
    Ian Bremmer
    Imf
    Inception
    Income Smoothing
    India
    Inequality
    Inflation
    Inflationary Expectations
    Inside Job
    Interest Rates
    Interfluidity
    Intuition
    Inventories
    Iran
    Iraq
    Italy
    Janusian Thinking
    Japan
    Jordan Peterson
    Jp Morgan
    Judgement
    Kalecki Equation
    Krugman
    Kyle Bass
    Larry Smith
    Larry Summers
    Lehman Brothers
    Levitt
    Liberal
    Lonely Island
    Luck
    Macro
    Macro Intro
    Macro Predictions
    Management Consulting
    Marginal Revolution
    Market Design
    Market Monetarism
    Marx
    Matt Taibbi
    Mercantilism
    Michael Portillo
    Milton Friedman
    Mircea Eliade
    Mish
    Mishkin
    Monetary Policy
    Monetary Stimulus
    Multipliers
    Mundell
    Music
    Nanex
    Nfl
    Noahpinion
    Nobel Price In Economics
    Oil Price Volatility
    Oil Production
    Omitted Variable Bias
    Optimism Bias
    Overcomingbias
    Palantir
    Pettis
    Phillips Curve
    Placebo
    Podcasts
    Poker
    Poland
    Politico
    Politics
    Portfolio Management
    Prisoner's Dilemma
    Productivity
    Psychology
    Publishing
    Quality
    Quantitative Easing
    Race
    Rand Paul
    Ray Dalio
    Rbc Theory
    Real Interest Rates
    Reality Tv
    Recession
    Redistributionist Reform
    Regulators
    Regulatory Capture
    Remembrance Day
    Research
    Richard Wilkinson
    Riots
    Risk
    Risk Taking
    Robots
    Roubini
    Russia
    Ryan
    Sachs
    Salt
    Saudi Arabia
    Sec
    Seth Klarman
    Shadowbanking
    Shiller
    Signaling
    Smes
    Snap
    Social Policy
    Social Unrest
    Society
    Sorkin
    Soros
    S&P
    Spain
    Specialization
    Speculation
    State Sponsored Terrorism
    Status
    Steve Jobs
    Steven Keen
    Stress
    Structural Unemployment
    Structure Finance
    Sugar
    Suicide
    Svars
    Systemic Risk
    Tax
    Taylor Rule
    Technology
    Ted
    Television
    The Clash
    The Economist
    The Wire
    Thinking
    Thoureau
    Trade
    Trilemma
    Turkey
    Tyler Cowen
    U2
    Unemployment
    Us 2012 Election
    Us Economy
    Us Foreign Policy
    Velocity
    Volatility
    Welfare
    Williams
    Words
    Work
    Writing
    Zerohedge
    Zig Ziglar

    Archives

    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    February 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011

    RSS Feed

Powered by Create your own unique website with customizable templates.