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2022-07-05

The sick man of Europe? Germany?

Having been masked for decades by the euro – which, compared to the traditional strength of the Deutsche Mark, made German goods more competitive abroad – hidden flaws are now bursting into the open. 

The question is whether the country's economic model can survive and, if not, what that might mean for the eurozone. 

Since reunification, Germany has fashioned itself into an open, trade-integrated, export-driven powerhouse.

It sucked in Russian energy to power its factories. These churned out vehicles, machinery and equipment that were then sold to China. 

Ben Wright Telegraph 5 July 2022

https://www.telegraph.co.uk/business/2022/07/05/germanys-economic-foundations-collapsing/





It’s the summer calm before the winter storm in Europe

France and Germany, the engines of European policymaking, are showing signs of slowdown.

Enrico Letta, Italy’s former prime minister and head of the center-left coalition in Mario Draghi’s unity government, tells me that the European Union response today risks looking like the financial crisis a decade ago: tardy and inadequate

Piecemeal measures like household subsidies, windfall taxes and market exemptions haven't given Putin sleepless nights. Attempts to relaunch Covid-era stimulus initiatives involving joint EU borrowing have stumbled as familiar North-South rifts return.

Lionel Laurent Bloomberg 5 juli 2022

https://www.bloomberg.com/opinion/articles/2022-07-05/a-euro-warning-worth-heeding-from-italy-on-energy


Natural Gas Soars 700%, Becoming Driving Force in the New Cold War

Shortages of the fuel are rippling throughout the global economy, threatening recessions and a further wave of inflation. 

https://www.bloomberg.com/news/articles/2022-07-05/the-global-energy-crisis-just-got-even-worse-here-s-why

 

Either profits are about to fall or, if they don’t, central banks will have to keep raising rates until they do

 Markets run on narratives. With mid-summer has come a different story: The Fed won’t have to be so aggressive because it will soon squeeze the life out of the economy. 

The prospect of lower growth and falling rates would mean that it makes sense to buy bonds.

The loss of enthusiasm for equities reflects a belief that bond yields have risen about as far as they need to. 

The narrative has unmistakably changed, and growth fears may now even be more important than worries about inflation.

Andrew Lapthorne, chief quantitative strategist at Societe Generale

Either profits are about to fall or, if they don’t, central banks will have to keep raising rates until they do. 

John Authers Bloomberg 5 juli 2022

https://www.bloomberg.com/opinion/articles/2022-07-05/earnings-and-stocks-won-t-have-a-happy-ending-in-the-new-slowdown-narrative


2022-07-04

Börsen 4 July 2022


 

The problem: many central banks are pledging to stamp out inflation, “whatever it takes”

Inflation today is the manifestation of a deeper regime shift: the end of the “Great Moderation 

People have long thought this remarkable feat was the result of good policy. There’s an alternative hypothesis. Perhaps it was just good luck. 

The only way to bring inflation down is to crush the interest-rate sensitive parts of the economy that are not responsible for today’s inflation.

We are facing the starkest trade-off between inflation and growth since the early 1980s. Central banks will have to crush the economy to kill inflation. Or we might be forced to live with more inflation. 

This is not a trivial choice.

Jean Boivin FT 4 July 2022

https://www.ft.com/content/feabcdca-8f7d-47ee-8bc1-dd30c23b9354

The writer is head of the BlackRock Investment Institute and former deputy governor of the Bank of Canada


The “Great Moderation” is the name often given to the period from the mid-1980s to 2007, 
when the Federal Reserve kept inflation and economic growth relatively stable… until it all collapsed in spectacular fashion in the global financial crisis of 2008.

Decline to be less wrenching than the 2007-09 Great Financial Crisis

Many observers expect any decline to be a lot less wrenching than the 2007-09 Great Financial Crisis and the back-to-back downturns seen in the 1980s, when inflation was last this high.

The depth and length of the recession will largely be determined by how persistent inflation proves to be, and by how much pain the Fed is willing to inflict on the economy to bring it down to levels it deems acceptable.

Rich Miller Bloomberg 3 juli 2022

https://www.bloomberg.com/news/articles/2022-07-03/long-moderate-and-painful-what-next-us-recession-may-look-like



How the ECB Plans to avoid so-called fragmentation

First line of defense against debt crisis 2.0 is activated

A new instrument to avoid so-called fragmentation is due soon

Here’s what we know about the central bank’s two-pronged strategy

Jana Randow Bloomberg 4 juli 2022 

https://www.bloomberg.com/news/articles/2022-07-04/how-the-ecb-plans-to-keep-markets-in-check-as-it-hikes-rates


ECB governing council has tasked staff with devising a new tool to address fragmentation. 

They hope to announce it at the next policy meeting on July 21. 

I fear it will come up short

Italy has about €200bn in debt to roll over later this year and an additional €305bn next year.

Megan Greene FT 28 June 2022

https://englundmacro.blogspot.com/2022/06/ecbs-new-tool-may-come-up-short.html


OMX

 



Crisis requires us to make another leap forward in the process of EU fiscal integration

 Europe as a common shield: protecting the euro area economy from global shocks

Keynote speech by Fabio Panetta, Member of the Executive Board of the ECB, at the European Parliament’s Innovation Day “The EU in the world created by the Ukraine war”

So if we think back to those words of Jean Monnet, the current geopolitical , recognising that it is an illusion that EMU can function smoothly without a fiscal capacity at European level to respond to such external shocks.

Brussels, 1 July 2022

https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220701~254252d76e.en.html

Stora språnget – Wikipedia

Prodi: It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created."

"I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created."

Romano Prodi, EU Commission President.  Financial Times, 4 December 2001

https://englundmacro.blogspot.com/2011/12/prodi-it-is-politically-impossible-to.html

If the euro area wishes to avoid the nuclear option of complete disintegration, it will have to make the leap towards fiscal union.

Jean Monnet, the EU’s godfather, the French functionary, believed in gradually unifying post-war Europe through discrete projects run by a caste of technocrats, with the end-point left deliberately ambiguous.

Europe, he said, “will not be built all at once, or as a single whole: it will be built by concrete achievements which first create de facto solidarity.”

It is time to set Monnet aside. Tell voters what the real choices are.
 
The debt crisis is exposing problems in the basic design of the European Union  

The Economist print 2 September 2011


ECB erbjöd 2.200 miljarder euro i subventionerade lån - väntas lyfta vinsten för bankerna

När räntorna nu ska höjas väntas det lyfta vinsten för bankerna i euroområdet med upp till 24 miljarder euro.

Centralbankens direktion ska nu diskutera hur den kan begränsa de extra pengar som bankerna kommer tjäna via de subventionerade lånen genom att bara placera dem hos centralbanken. 

DI/Direkt 4 juli 2022

https://www.di.se/live/ecb-vill-begransa-bankernas-vinster-pa-billiga-lan-nar-rantan-stiger/


ECB to discuss blocking banks from multibillion-euro windfall 

The ECB started offering the loans — known as targeted longer-term refinancing operations (TLTRO) — in September 2019. 

Initially they were available at the ECB’s deposit rate of minus 0.5 per cent. 

But after the pandemic hit, the ECB cut the rate to minus 1 per cent, in effect paying banks even more to borrow money, provided they did not shrink their loan books. 

FT 3 July 2022

https://www.ft.com/content/5ce8f458-8a59-4789-820a-8c59ed67f416


Targeted long-term refinancing operation - TLTRO

TLTRO is a super-cheap funding vehicle for banks that choose to participate, getting liquidity into the more challenged parts of the EU’s regional banking system.

Think Greece and Italy.

Bloomberg 21 January 2019

https://www.nejtillemu.com/draghi.htm


2022-07-03

Central bankers case relies on thinking there is no better alternative

 But if so, they had better be absolutely right and unfortunately their argument is weaker than many think. 

It makes little sense to cause a recession to deal with temporary supply hiccups.

The last line of argument for tightening into a supply-triggered recession is to avoid a wage-price spiral. But the rationality of this depends on the risk being more than theoretical.

Martin Sandbu 3 July 2022

https://www.ft.com/content/c1fe1e65-7bf8-4c2b-aca7-6d7eecfc4db1


Peggy A Flapper In Hollywood av Carina Beckerman

Eftersom jag har äran att vara en av Carinas 849 vänner på Facebook kollade jag upp boken.

Den är på engelska och har världen som marknad.

Inte visste jag var en Flapper var. Så jag kollade på Wikipedia och körde det genom Google Translate och fick med vissa justeringar fram följande:

Flapper var en subkultur av unga västerländska kvinnor på 1920-talet som bar korta kjolar (knähöjd ansågs kort under den perioden), guppade (?) håret, lyssnade på jazz och visade sitt förakt för vad som då ansågs vara acceptabelt beteende. Flappers sågs som fräcka för att ha på sig överdrivet mycket smink, dricka alkohol, röka cigaretter offentligt, köra bil, behandla sex på ett avslappnat sätt och på annat sätt strunta i sociala och sexuella normer.

Ah, ännu en bok om feminism tänkte jag. Men det lät samtidigt lite lockande så jag läste boken.

Det var ingen feministbok. Det visade sig dessutom vara två böcker.

En om Peggy, som visade sig vara  Margaret Mitchell, hon som skrev Borta med vinden, 'Gone With the Wind'. På ett mycket skickligt sätt har författaren fått det att låta som om det verkligen är Margaret Mitchell som berättar om livet i Södern och sitt liv. Jag kan dock föreställa sig att de som känner Carina lite närmare här och där kan undra när det är MM som berättar och när det är Carina.

Den dominerande storyn är det amerikanska inbördeskriget, livet i Södern före det, under kriget och livet i Södern efter det. Research-arbetet bakom är imponerande. Historiker av facket delar säkert den uppfattningen.

Livet före inbördeskriget förefaller ha varit trevligt om man var rik och av god familj.  Det var inget konstigt att ha slavar. Det hade alla. Även människor som inte ansågs grymma. Sådan var tidsandan. 

Tidsandans kraft är stor, brukar jag tjata om och det är lätt att tro att man lever i verkligheten när man i själva verket bara lever i dagens tidsanda.

Boken handlar om en viss tid. Precis som man måste sätta punkt måste man ha en början. Man kan dock sakna den franska bakgrunden till Sydstaterna. 

Fransmän och engelsmän kämpade länge om vilka som skulle dominera Amerika. När den franske upptäcktsresande Robert Cavelier de La Salle hittade vägen mellan de stora sjöarna i norr och mexikanska golfen i söder år 1682 döpte han området till Louisiana, efter Ludvig XIV av Frankrike.  


Som barn fick man vid läsning av Den Siste Mohikanen lära sig att Uncas, som väl alla mohikaner, var ädel och tapper och kämpade med engelsmännen mot fransmännen och deras allierade, de svekfulla och blodtörstiga Huronerna.

I boken kan man läsa om den mest berömda repliken i filmhistorien.

"Frankly, my dear, I don't give a damn" is a line from the 1939 film Gone with the Wind starring Clark Gable and Vivien Leigh. The line is spoken by Rhett Butler (Gable), as his last words to Scarlett O'Hara (Leigh), in response to her tearful question: "Where shall I go? What shall I do? This line is slightly different in Margaret Mitchell's 1936 novel Gone with the Wind, from which the film is derived: "My dear, I don't give a damn." (Wikipedia)

Högt på listan över icke-värdelöst vetande återfinner man i boken källan till den repliken.

Margaret Mitchell, liksom många andra av hennes samtida flappers, hade ett antal mer eller ofta mindre väl valda partners, med eller utan vigslar. Han hette Berrien, en som hon gifte sig med, som visade sig vara både alkoholist och våldsam. De bestämde sig för skilsmässa och enligt boken sade han faktiskt."My dear, I don't give a damn." 

Nu vet vi det.

Enligt boken var alkoholism och misshandel vanligt förekommande i Södern liksom i den filmvärld som bok nr 2 handlar om - Hollywood från början till 1939 då Borta med vinden hade premiär. 

Där beskrivs ingående bland andra Mary Pickford, Couglas Fairbanks, Charlie Chaplin, Greta Garbo, Humphrey Bogart, Erroll Flynn och Marlene Dietrich.

Före 1934 och The Hays Code var amerikanska filmer inte alls så pryda. Sedan blev det mera som Doris Day.

Boken torde vara ett måste för alla som gillar filmhistoria och för dem som vill veta mer om Söderns historia.


From 1980s Debt Crisis to Crypto Era, Financial Stability Monitoring

 The IMF’s Global Financial Stability Report, introduced in 2002, was a step toward a more comprehensive assessment of risks in financial markets and cross-border capital flows.

The introduction of the Global Financial Stability Report marked an important step toward a more comprehensive and frequent assessment of cross-border capital flows and financial market risks.

IMF 22 June 2022

https://blogs.imf.org/2022/06/22/from-1980s-debt-crisis-to-crypto-era-financial-stability-monitoring-is-always-evolving/

Financial Stability Risks Grow as War Complicates Push to Contain Inflation

https://blogs.imf.org/2022/04/19/financial-stability-risks-grow-as-war-complicates-push-to-contain-inflation/

 

Capital Markets Regulation Is Stronger, but Some Gaps Still Must be Closed

https://blogs.imf.org/2022/06/29/capital-markets-regulation-is-stronger-but-some-gaps-still-must-be-closed/

A Hot Housing Market Is a Financial Crisis Risk

The longer prices defy the Fed, the harder the Fed might try to break them.


The US housing market is either the car at the end of “Thelma and Louise” or “Chitty Chitty Bang Bang” — soaring one last time before (spoiler alert) crashing into a ravine or defying the laws of physics and flying forever.

The Fed might well feel inclined to keep squeezing the market until it breaks. Those of us who were sentient in 2008 know how that can go.

The banking system is better prepared for such an event than it was 14 years ago, but the new ecosystem of non-bank lenders springing up in the wake of the crisis may not be. 

Better hope this thing has airbags.  

Mark Gongloff Bloomberg 29 juni 2022 

https://www.bloomberg.com/opinion/articles/2022-06-29/a-hot-housing-market-is-a-financial-crisis-risk

 

Commercial property investors - shadow banking sector

https://englundmacro.blogspot.com/2020/08/concerns-mount-over-reckless-2008-style.html



Varning för Johan Pehrson

Han visserligen inte skägg, vilket är modernt, men är i alla fall orakad.

Kanske skall han baxa sitt parti över spärren?

Men ni som tänker stödrösta på liberalerna bör först betänka att Liberalerna är Sveriges europavänligaste parti. Kanske man skulle kunna kalla partiet extremt.

- Vi har en långsiktig vision om ett federalt Europa.

EU har stärkt demokratin i Europa. Vi vill fördjupa och utöka EU-samarbetet.

Vi vill ...  införa ett europeiskt FBI med operativa befogenheter, ett gemensamt EU-försvar och en gemensam gränspolis för bevakning av EU:s yttre gränser, kan man läsa på partiets site.

https://www.liberalerna.se/politik/eu-europeiska-unionen


- Sverige ska införa euron som valuta. 

Den europeiska valutan, euron, är både ett politiskt och ett ekonomiskt projekt. Genom en gemensam valuta fördjupas den integration som ytterst syftar till att omöjliggöra konflikter mellan Europas länder. 

Sverige blir fattigare av att stå utanför eurosamarbetet.

Som medlemmar i euro-samarbetet skulle vi få möjligheter att påverka den europeiska monetära politiken genom inflytande både i Euro-finansministrarnas Eurogrupp och i den Europeiska centralbanken, skriver de troskyldigt.

https://www.liberalerna.se/politik/euron


Men kan verkligen det gamla folkpartiet kallas extremt?

Läs själva vad de har skrivit.

Fp-vision för framtidens EU:

40 medlemsländer, 800 miljoner invånare och debatter över språkgränserna, Europa har för medborgarna blivit en lika självklar politisk nivå, som den egna kommunen eller egna nationen.

Lars Leijonborg, Partiledare (fp) och Cecilia Malmström, EU-parlamentariker (fp) Liberala Nyhetsbyrån 9/5 2000

http://www.nejtillemu.com/ceciliamalmstrom.htm#biszum


2022-07-02

Fredrik Johansson - en moderat konsult

 Första gången jag var i Almedalen var 1994. Då befann sig ekonomin sedan flera år i centrum av den politiska debatten. 

Det skriver Fredrik Johansson på ledarplats i SvD

Jo, 1992 kämpade Carl Bildt och Ingvar Carlsson för den fasta växelkursen. Med känt resultat.

- Nittiotalskrisen var en global inbromsning som hängde samman med en rad olika faktorer.

- Att den slog särskilt hårt mot Sverige berodde på att vi hade ackumulerat obalanser och svagheter under drygt två decennier.

Han nämner dock inte den fasta växelkursen.

Det har han väl betalt för att inte göra.

Han är nämligen något så ovanligt som en konsult (Hallvarsson & Halvarsson) som dessutom varit huvudsekreterare i moderaternas programkommitté.

Dock säger han en del sanningar.

- Med inflationssiffror som vi inte sett på decennier, höjda räntor och fallande tillgångsvärden är väljarnas privatekonomiska oro på väg upp som valrörelsen potentiella raket. 

Få partier verkar förberedda på det. 

Ännu färre verkar veta vad som behöver göras.

Fredrik Johansson SvD 2 juli 2022

https://www.svd.se/a/ja4jqq/almedalsveckan-politiken-forsoker-salja-ormolja


Moderaterna förespråkar ett starkt och fördjupat samarbete mellan suveräna europeiska nationer - EU-skvadern

https://englundmacro.blogspot.com/2021/11/moderaterna-foresprakar-ett-starkt-och.html


Fredrik Johansson: Euron – för Sveriges skull



 Fredrik Johansson SvD 9 oktober 2021

https://englundmacro.blogspot.com/2021/10/fredrik-johansson-euron-for-sveriges.html


Edward Chancellor, The Price of Time: The Real Story of Interest

 Det är en fantastisk bok. Jag rekommenderar dig starkt att läsa den när den släpps i mitten av augusti.

Att ta ut ränta ansågs länge vara omoraliskt. De kallade det "ocker", en term som vi nu tar för att betyda alltför höga räntor. Ursprungligen betydde det något intresse alls.

De monoteistiska religionerna – judendom, kristendom och islam – ansåg alla att ocker var synd. Forntida buddhistiska texter fördömer också ocker.

Det gjorde även Platon och Aristoteles.

Räntor är inte bara priser; de är information.

Proudhon kallas ofta "anarkismens fader" men var i dagens terminologi mer av en socialist. Han sa berömt, "egendom är stöld." Inte överraskande var Proudhon vän med Karl Marx, även om de senare föll isär.

Edward Chancellor kallar denna era efter 2008 för "Proudhons dröm." Centralbankerna pressade räntorna till de lägsta nivåerna i historien och i vissa fall faktiskt under noll. Kredit var inte bara gratis; det var bättre än gratis.

För moderna penningpolitiska beslutsfattare ses räntan främst som ett medel för att kontrollera nivån på konsumentpriserna. Ur detta perspektiv är det inga problem att ta räntorna under noll för att avvärja deflationens ondska.

Men att påverka inflationsnivån är bara en av flera funktioner av intresse, och kanske den minst viktiga. 

 Argumentet i denna bok är att det krävs ränta för att styra allokeringen av kapital och att det utan ränta blir omöjligt att värdera investeringar.”

John Mauldin 2 juli 2022

Min vän Rob Arnott presenterade mig för Edward Chancellor med en lysande recension av hans nya kommande bok, The Price of Time: The Real Story of Interest.

Jag är halvvägs genom de första kapitlen, men jag kan säga att boken är magistralt i sin omfattning. Han beskriver orsakerna till den nuvarande snedvridningen av marknaderna och varför rikedom och inkomstskillnader blivit så uttalade under de senaste 20 åren.

John Mauldin 24 juni 2022

It’s an amazing book. I highly recommend you read it when it is released mid-August.

Charging interest was long regarded as immoral. They called it “usury,” a term we now take to mean excessive interest rates. Originally it meant any interest at all.

The monotheistic religions—Judaism, Christianity, and Islam—all considered usury sinful. Ancient Buddhist texts also condemn usury. 

So did Plato and Aristotle.

Interest rates aren’t simply prices; they are information.

Proudhon is often called the “father of anarchism” but in today’s terminology was more of a socialist. He famously said, “Property is theft.” Not surprisingly, Proudhon was friends with Karl Marx, though they later fell apart.

Edward Chancellor calls this post-2008 era “Proudhon’s Dream.” Central banks pushed interest rates to the lowest levels in history and in some cases actually below zero. Credit wasn’t just free; it was better than free.

To modern monetary policymakers, interest is viewed primarily as a lever to control the level of consumer prices. 

From this perspective, there’s no problem in taking interest rates below zero to ward off the evil of deflation. 

But influencing the level of inflation is just one of several functions of interest, and possibly the least important. The argument of this book is that interest is required to direct the allocation of capital, and that without interest it becomes impossible to value investments.”

John Mauldin 2 July 2022

https://www.mauldineconomics.com/frontlinethoughts/time-has-a-price

My friend Rob Arnott introduced me to Edward Chancellor with a glowing review of his new forthcoming book, The Price of Time: The Real Story of Interest.

We exchanged emails and I asked for a PDF copy of the book which he graciously sent.

I am partway through the first few chapters, but I can say the book is magisterial in its scope. He describes the reasons for the current distortion of the markets and why wealth and income disparity were so pronounced in the last 20 years. 

John Mauldin 24 June 2022

https://www.mauldineconomics.com/frontlinethoughts/inflation-reaches-unicorns


Now interest rates are rising and asset prices are coming down.

Edward Chancellor Reuters 30 June 2022

https://englundmacro.blogspot.com/2022/06/james-grant-founder-of-grants-interest.html


Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken.

Rolf Englund blogg 5 december 2009

https://englundmacro.blogspot.com/2014/08/skriande-uppenbart.html






– En ränta strax över 1 procent är nog ungefär vad euroområdets ekonomi klarar av

Marcus Widén är ekonom med fokus på ECB och euroområdet. Han tror att ECB kommer att höja räntan från 0 till 1 procent under loppet av året för att dämpa inflationen som han tror stiger till drygt 9 procent under hösten.

Inflationen skiljer sig markant åt mellan olika länder. Vilken inflationstakt ska då centralbanken förhålla sig till när den sätter räntan?

– Det där är inget jättelätt läge, säger Marcus Widén.

Johan Carlström SvD 1 juli 2022

https://www.svd.se/a/Orv2Ok/rekordhog-inflation-i-europa-kommer-bli-en-jobbig-host


Till och med de smartaste EU-advokaterna har ännu inte hittat sätt att förena ett rent räddningsinstrument med no-bailout-klausulen i Maastrichtfördraget, och hitta ett sätt att avvärja en kamp i den tyska författningsdomstolen.

https://englundmacro.blogspot.com/2022/07/german-judges-will-let-it-pass-whatever.html


En mjuklandning håller på att bli en avlägsen dröm

FT 1 juli 2022

Fin bild

https://www.ft.com/content/67c0096e-230f-44cb-8277-2001ae46795b


En mjuklandning - möjlig men osannolik


2022-07-01

Tyska domare kommer att låta det passera vad lagen än säger

 Till och med de smartaste EU-advokaterna har ännu inte hittat sätt att förena ett rent räddningsinstrument med no-bailout-klausulen i Maastrichtfördraget, och hitta ett sätt att avvärja en kamp i den tyska författningsdomstolen.

Europas ledare och myndigheter – framför allt Tysklands politiska klass – kommer att göra vad de alltid gör när problem kommer. De kommer att uthärda tills det blir farligt.

De kommer då att göra det minsta som krävs för att hålla ihop strukturen. Tyska domare kommer att låta det passera vad lagen än säger.

Alternativet är att låta den monetära unionen sönderfalla, och det är för hemskt att tänka på.

Ambrose Evans-Pritchard Telegraph 28 juni 2022

 

Den tyska konstitutionen förblir suverän och Författningsdomstolen förbehåller sig rätten att stryka alla EU-lagar eller fördrag.

Är EU en enhetlig superstat lik Förenta staterna, eller är det en klubb av helt suveräna stater som förblir "fördragens ägare", som det tyska domstolens som känt insisterar på?

Ambrose Evans-Pritchard Telegraph 11 juni 2021



Even the cleverest EU lawyers have yet to find ways to reconcile a pure bailout instrument with the no-bailout clause of the Maastricht Treaty, and therefore to find a way to head off a fight in the German constitutional court.

Europe’s leaders and authorities – above all Germany’s political class – will do what they always do when trouble arrives. They will prevaricate until matters become perilous. 

They will then do the minimum necessary to hold the structure together.  German judges will let it pass whatever the law says.  

The alternative is to let monetary union disintegrate, and that is too awful to contemplate.

Ambrose Evans-Pritchard Telegraph 28 June 2022

https://www.telegraph.co.uk/business/2022/06/28/europes-banks-priced-economic-armageddon/


The German constitution remains sovereign and the Verfassungsgericht reserves the right to strike out any EU law or treaty.

Is the EU a unitary superstate akin the United States, or is it a club of fully sovereign states that remain the “Masters of the Treaties”, as the German court famously insists?

Ambrose Evans-Pritchard Telegraph11 June 2021


A brief period of stagflation

 The five-year breakeven — the spread in interest rates between ordinary U.S. government bonds and inflation-protected bonds that are indexed to consumer prices


Investors appear to believe that we’re only going to have a year or so, if that, of elevated inflation, and after that we’ll be back to roughly the Fed’s long-run target of 2 percent inflation

Inflation, once it has become entrenched in expectations, can become self-perpetuating; the only way to bring it down is to engineer an extended period in which demand falls short of supply — that is, a recession.

Because it will take a while for inflation to fully reverse its rise, there’s a good chance that we’ll see a brief period of economic stagnation combined with continuing inflation — stagflation.

And sooner than many people believe, the Fed may find itself reversing course, trying to undo the “stag.”

Paul Krugman 1 July 2022

Opinion | Wonking Out: Taking the ‘Flation’ Out of Stagflation - The New York Times (nytimes.com)

Börsen 1 juli 2022

 



OMXSPI-indexet stängde upp 0,8 procent,

OMXS30 handlades upp 0,2 procent.






2022-06-30

James Grant, the founder of Grant’s Interest Rate Observer, calls interest the “universal price”...

 ... because it performs so many roles. For a start, it constitutes the capitalisation or discount rate without which valuation is impossible.

Infflation is back, and along with it a widespread obsession about the future direction of interest rates. This is hardly surprising. In the past, a dose of tight money has brought prices under control. However, interest’s role in ensuring price stability is just one of its many functions. Our neglect of those other functions explains why the financial markets are in such a jumpy state today.

James Grant, the founder of Grant’s Interest Rate Observer, calls interest the “universal price” because it performs so many roles. For a start, it constitutes the capitalisation or discount rate without which valuation is impossible. As every business student learns, a company’s present value is calculated by discounting future cash flows.

 “Anticipation is always at a discount”, said the Scotsman John Law in the early 18th century. The Austrian economist Ludwig von Mises observed that if humans did not value consumption in the present over the future then an apple in a hundred years’ time would be worth the same as an apple today: an evident absurdity.

We have witnessed much such absurdity in financial markets in recent years. After the global financial crisis of 2008 central bankers reduced short-term interest rates to zero, and even lower in Europe and Japan. Longer-term rates declined too. 

The collapse in discount rates justified a great inflation in asset prices. The valuations of companies whose cash flows lay in the distant future benefitted most. Easy money pushed up property prices in many cities around the world.

Very low borrowing costs can help keep chronically unprofitable enterprises alive. So-called zombie companies were first observed in Japan in the late 1990s around the time when the country’s central bank reduced its policy rate to zero

American companies have availed themselves of low-cost credit to spend trillions of dollars buying back shares.

Investors may now regret having lent to over-leveraged companies and governments. Over the past decade, however, they had little choice. The era of ultralow interest rates induced a desperate scramble for yield.

Now interest rates are rising and asset prices are coming down.

Edward Chancellor Reuters 30 June 2022

https://www.reuters.com/breakingviews/its-time-rediscover-importance-interest-2022-06-30/

Edward Chancellor’s “The Price of Time: The Real Story of Interest” will be published by Penguin on July 7.


The ghost of Takahashi haunts Abenomics

Edward Chancellor examines the similarities between Japan’s current economic situation and that of the 1930s

FT 31 March 2013

https://englundmacro.blogspot.com/2016/07/korekiyo-takahashi-and-helicopter-money.html


James Grant, ZIRP and Helicopter Money

https://englundmacro.blogspot.com/2015/09/james-grant-zirp-and-helicopter-money.html



A simple model for inflation that Jerome Powell should understand

Federal Reserve chairman Jerome Powell today acknowledged that he doesn’t understand inflation. See below.

This is somewhat alarming given the fact that the Fed’s is given operational independence to ensure price stability.  If Powell doesn’t have a model for understanding why should the Fed been independent?

Lars Christensen 29 June 2022

https://marketmonetarist.com/2022/06/29/a-simple-model-for-inflation-that-jerome-powell-should-understand/

Börsen 30 juni 2022

 


Som lägst var OMXSPI nere på indexnivån 727,48 vilket var nytt årslägsta

 Facit under årets sex första månader blev minus 29,2 procent.



The S&P 500 fell more than 20%, marking its worst first half of a year since 1970.


Riksbanken har beslutat sig för att höja styrräntan från 0,25 till 0,75 procent

Vad gäller Inflationen spår Riksbanken att denna kommer ligga kvar över 7 procent under resten av 2022.  

DI 30 juni 2022

https://www.di.se/live/riksbanken-hojer-styrrantan-till-0-75-procent/

OBS att 0,75 procents ränta inte är hög.
Den är låg. Långt under den förväntade inflationen.

“whatever, it’s fake.”

  When investors realised that lending to Greece was way riskier than lending to Germany, they freaked out. Borrowing costs for European governments diverged. The euro tottered.

Super Mario saved the day with his power ballad “whatever it takes”.  However, this third solution relied on easy money, meaning it was temporary.

“whatever it takes” would rapidly become “whatever, it’s fake.” 

Facing record euro-area consumer inflation, at 8.1%, the ECB will raise interest rates by 25 basis points next month. Lord help us. 

What, then, should the euro do? 

 The euro is a downside risk. It is a potentially unsafe, unsound, and unnatural experiment. 

Rather than long-term prosperity, the euro might have enabled little more than unsustainable debt burps in the Palazzo delle Finanze. That suggests shrinking, and a smaller fiscal club. Or just ending it altogether.

 If it looks like the single currency will implode, the ECB Berlin may step in to save the single currency. Welcome to a massive United States of Europe.  

Alternatively, if it looks like the euro may implode, Brussels Berlin may kick some other capitals out. Welcome to either a smol United States of Europe, or none. 

One currency to rule them all? Or one currency to fool them all?

Edward Price FT Alphaville 30 June 2022

https://www.ft.com/content/6e1b4292-6619-46bb-85c3-38b5f659e105

Edward Price is a former British economic official and current teacher of political economy at New York University’s Center for Global Affairs.


Varför betalade ECB 1.800 miljarder kronor för att rädda euron?

Rolf Englund 15 augusti 2007




Frida Bratt

 ”Vi vet att konjunkturen kommer få en smäll av centralbankernas räntehöjningar, och därför handlar oron nu mycket om den sämre konjunkturens inverkan på bolagens förväntade vinster”, säger Frida Bratt, sparekonom på Nordnet.

Köplistan hos nätmäklarna Nordnet och Avanza toppas av Ilija Batljans krisande fastighetsjätte SBB, för andra månaden i rad.

”SBB genomgår nu en förtroendekris på aktie- och obligationsmarknaden, efter bland annat ifrågasatta värderingar och tidvis märklig kommunikation. Men från privatspararna är förtroendet fortsatt högt”, säger Frida Bratt.

DI 30 juni 2022

https://www.di.se/nyheter/branda-sparare-litar-pa-batljan-tar-hem-vinst-i-juniraketer/


– Det är lätt att känna att man vill trycka på säljknappen, men risken är då att man inte riktigt kommer in igen, säger Nordnets sparekonom Frida Bratt.

SvT 24 januari 2022

https://www.svt.se/nyheter/ekonomi/lista-det-ska-du-gora-om-borsen-faller


2022-06-29

The next recession will be marked by a severe stagflationary debt crisis

Central banks will eventually wimp out and accept higher inflation – followed by stagflation – once a hard landing becomes imminent, because they will be worried about the damage of a recession and a debt trap, owing to an excessive build-up of private and public liabilities after years of low interest rates.

In typical plain-vanilla recessions, US and global equities tend to fall by about 35%.  But, because the next recession will be both stagflationary and accompanied by a financial crisis, the crash in equity markets could be closer to 50%.

Nouriel Roubini Project Syndicate 29 June 2022

https://www.project-syndicate.org/commentary/stagflationary-debt-crisis-by-nouriel-roubini-2022-06


 

Börsen 29 juni 2022

 






Lagarde “We need to do what we have to do, which is to bring it back to 2%, and we shall do so.”

Bloomberg 29 June 2022



Federal Reserve Chair Jerome Powell made that clear that the real concern is that the US might be facing sustained higher inflation well above the Fed’s 2% target.

Bloomberg 29 June 2022




Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked

 When Wall Street collapsed in 2008, triggering the global Great Recession, various explanations were offered: regulatory capture by financiers who had replaced industrialists in the capitalist pecking order; a cultural proclivity toward risky finance; failure by politicians and economists to distinguish between a new paradigm and a massive bubble; and other theories, too. 

All were valid, but none went to the heart of the matter. So, what is really going on? 

My answer: A half-century long power play, led by corporations, Wall Street, governments, and central banks, has gone badly wrong. As a result, the West’s authorities now face an impossible choice:  Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked.

For 50 years, the US economy has sustained the net exports of Europe, Japan, South Korea, then China and other emerging economies

The lion’s share of those foreigners’ profits rushed to Wall Street in search of higher returns. 

On the back of this tsunami of capital heading for America, the financiers were building pyramids of private money (such as options and derivatives) to fund the corporations building up a global labyrinth of ports, ships, warehouses, storage yards, and road and rail transport.

When the crash of 2008 burned down these pyramids, the whole financialized labyrinth of global just-in-time supply chains was imperiled.

To save not just the bankers but also the labyrinth itself, central bankers stepped in to replace the financiers’ pyramids with public money.

After two decades of a central-bank-supported bonanza of soaring asset prices and rising corporate debt, a little price inflation was all it took to end the power game that shaped the post-2008 world in the image of a revived ruling class. 

So, what happens now?

The West’s authorities now face an impossible choice:  Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked.

Yanis Varoufakis Project Syndicate 22 June 2022

https://www.project-syndicate.org/commentary/inflation-is-result-of-empowered-financial-markets-by-yanis-varoufakis-2022-06


The US current-account deficit, the crux of my fundamental case against the dollar, has deteriorated dramatically over the past two years...

 ... from -2% of GDP in the first quarter of 2020 to -4.8% in the first quarter of 2022, with the just-reported data for early 2022 revealing the second-sharpest quarterly deterioration since 1960.

America’s current-account deficit hasn’t been this large since mid-2008 in the depths of the global financial crisis.

Surprisingly, domestic saving has since rebounded

good reason to believe that interest rates would remain uncomfortably low.

As a result, the US current-account adjustment would be increasingly concentrated in the sharp depreciation of an overvalued dollar. 

(But ...)

Stephen S. Roach Project Syndicate 27 June 2022

https://www.project-syndicate.org/commentary/why-post-pandemic-dollar-strengthened-not-weakened-by-stephen-s-roach-2022-06


The markets are right to worry about a higher risk of recession

Having rightly worried about the Fed both underestimating the threat of inflation and failing to evolve its policy stance in a timely manner, markets now feel that a late central bank scrambling to play catch-up risks sending the US economy into recession.

Mohamed El-Erian FT 29 June 2022



An overheated housing market important reason why the Fed is raising rates

 The Fed needs to remove the heat from demand without prompting an accident among mortgage financiers.



The key question now is whether the sector can be brought into some kind of even keel without causing an accident along the way. And which parts of the financial system might be the most vulnerable.

Just as money market mutual funds developed to allow investors to avoid paying for deposit insurance, as they would have to do on funds held in banks, so non-bank financial institutions have been able to seize yet more business that would once have been done by traditional lenders. 

Most non-Americans will only have heard of two; and very few Americans will have heard of all of them

John Authers 29 June 2022

https://www.bloomberg.com/opinion/articles/2022-06-29/housing-market-disquiet-grows-with-price-data-mortgage-tremors


Englunds lag 3 (Inflation and the housing market)

Räntan (A) är vad som behövs för att stoppa inflationen.

Räntan (B) är den som gör att bostadsmarknaden kollapsar.

Om A är större än B har vi ett stort problem.

Englund: Englunds lag 3 (Inflation and the housing market) (englundmacro.blogspot.com)



Leverage and Deleveraging

https://internetional.se/leverage.htm