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2019-08-21

The defense of the euro gave us negative interest rates

Fed chairman Alan Greenspan stood at the top of his reputation in the early 2000s. Legendary journalist Bob Woodward - who, along with Carl Bernstein, unveiled Watergate and forced President Nixon to resign - published his book Maestro: Greenspan's Fed And The American Boom.

In 2002, he was awarded the honorary Knight of the British Empire by Queen Elizabeth II for his "contribution to global economic stability".

Then came the financial crisis and the Lehman Brothers went bankrupt in 2008. The disaster was imminent and there is now as much consensus as it can among economists, that Greenspan was one of the culprits by holding interest rates too low for too long.

Then came the euro crisis.

Greece was the most urgent problen, but it was resolved for the time being by the EU lending money to Greece so that Greece could pay its loans to the banks.

- The big risk was that Greece would trigger a crisis in Italian, French and German banks. In practice, there is now an EU guarantee for the outstanding Greek government bonds, then Swedish Finance minister Anders Borg said on February 22, 2012.

But the euro crisis persisted. A turning point came when ECB chief Draghi in 2014 held a famous press conference proclaiming that he would save the euro, "whatever it takes", lowered the interest rate to zero and then below zero.

In March 2015, the ECB initiated Quantitative easing (QE) and in October 2018 ECB had bought € 2.5tn (1tn = 1000bn) of euro area securities.

In addition, complex things, like Targeted long-term refinancing operation - TLTRO, Outright Monetary Transactions ("OMT") and Target2 European interbank payment system, were introduced.

Draghi saved the euro, at least for the time being, and now before his departure has the same star gloss as once Allan Greenspan.

But the ECB's minus interest rates spread around the world, firing on real estate, bond and stock prices to an alarmingly high level.

Unfortunately, nobody seems to know how to get out of this.

If Draghi had not saved the euro by "whatever it takes" measures, we would not have had today's situation.

It would have been better if the euro had not existed today. It was not a good idea to introduce it before all the pieces were in place, whenever that will be it, if ever.

Rolf Englund

https://internetional.se/index.html






Investment bubbles are rooted in human psychology, so it is inevitable that they should occur from time to time.

As economists put it, in both investing and lending, the “principals” have been split from the “agents”. When people make decisions about someone else’s money, they lose their fear and tend to take riskier decisions than they would with their own money.

John Authers FT MAY 22, 2010

2019-08-20

Germany to auction a zero-percent 30-year bond

Enligt Keen var orsaken till finanskrisen 2008 för mycket krediter skapade av privata banker

Som han ser det är den privata skuldsättningen den gemensamma nämnare bakom såväl finanskrisen som Den stora depressionen 1929 och den, tycker han, bortglömda Paniken 1837.

– Sverige har en mycket högre skuldnivå bland hushåll än USA

SvD 20 augusti 2019




2019-08-19

Spanish, Portuguese benchmark bond yields hover just above 0%

 It highlights a stunning turnaround from the euro-area crisis

Less than a decade ago, investors could barely be compensated enough to hold the bonds of Spain and Portugal for fear the nations could be severed from the European Union. 

Now, they are a hair’s breadth away from having to pay for the privilege.


Before the global financial crisis, Spain was growing healthily and might have benefited from higher interest rates; Germany was growing more weakly. 

As one monetary policy had to fit all, Spain benefited from low rates aimed at Germany, and enjoyed an epic construction boom that would inflict a severe and enduring recession once the bubble burst.


John Authers Bloomberg 19 augusti 2019




A picnic in a meadow on the Hungarian-Austrian border enabled the first exodus from behind the Iron Curtain. Unintentionally — or not?



Even 30 years on, the question of who orchestrated the events of August 19, 1989, remains unanswered. Was it the newly formed Hungarian opposition? Or the Kaiser's son, in absentia? 

Otto von Habsburg was represented at the picnic by his daughter, Walburga. Or the secret service? Or perhaps some combination of all three?

The undercover role of West Germany's intelligence service and other security services is now regarded as an open secret.


Walburga Habsburg Douglas: 'We knew the Iron Curtain could fall'


From 1916 to 1918, my father was crown prince of Austria-Hungary, so he was an important man. But since he didn't want to be the center of attention and the event was aimed at discussing what role Hungary should play in Europe in the future, he sent me to the border as a representative of the Pan-European Union. 

I had already asked the Hungarian government for permission. 
Together, Minister of State Imre Pozsgay and my father sponsored the project.




2019-08-18

12 Reasons Why Negative Rates Will Devastate The World - Albert Edwards

It has been a thesis over 20 years in the making, but with every passing day, SocGen's Albert Edwards - who first coined the term "Ice Age" to describe the state of the world in which every debt issue ends up with a negative yield as capital markets and economies collapse into a deflationary singularity - is that much closer to having the victory lap of a lifetime. Although, we doubt he is happy about it.

Commenting on the interest rate collapse he has been (correctly) predicting ever since he first observed Japan's great bubble bust of the 1980s and which resulted in both NIRP and QE, and which he (correctly) expected would spread across the rest of the world, leading to a "Japanification" of every major bond market...

Zerohedge 18 August 2019

Albert Edwards


In 2013, the International Monetary Fund produced a report acknowledging that it had “underestimated” the effects that austerity would have on Greece’s economy.

Yet the Fund has made the same mistakes in its subsequent deals with Argentina and Ecuador.

The IMF’s bizarre belief in “expansionary austerity” would be laughable if it were not so damaging. 

How can the IMF justify an approach with such a poor track record? 

Jayati Ghosh Project Syndicate 14 August 2019




Was the 1960s the last pre-global decade?

An era long synonymous with progress is now idealised for the opposite reason.

The 1960s must seem like the last stand of a more familiar world.

FT August 16 2019

Då var jag i Lund.




it was on this spot 30 years ago that 600 East Germans walked into Austria — a watershed moment.

In the weeks after the picnic, thousands of East Germans abandoned their DDR-produced Trabants in the nearby fields and crossed into Austria. In less than a month 60,000 East Germans were en route to West Germany via Vienna.

Contrasts sharply with the fence it built on its southern border with Serbia in 2015, after 1m asylum seekers passed through on their way to Germany. 

FT 18 August 2019


Cracking the Iron Curtain: Remembering Hungary’s ‘Pan-European Picnic’

“Hungary was where the first stone was removed from the Berlin Wall” ~ former German Chancellor Helmut Kohl, speaking to mark the reunification of Germany on October 4th 1990.

https://thevieweast.wordpress.com/2009/08/19/cracks-in-the-iron-curtain-remembering-hungarys-pan-european-picnic/



Habsburgs picknick och slutet på järnridån och kommunismen


2019-08-17

There is no logical reason for the bond market to be drastically bidding down yields in anticipation of an impending recession

 The bond traders and speculators are not front-running recession: 

They are front-running the Fed and the rest of the central banks based on their now three times repeated experience since the arrival of Greenspanian monetary central planning that central banks will flood the markets with liquidity and bond-buying in the event of a recession, thereby driving bond prices skyward and yields to rock bottom.

That is, the central banks drive bond prices sky high and speculators, who purchased these bonds on repo and other short-term practically zero-cost credits, laugh all the way to the bank.


Never before has the stupidity of a tiny group of PhDs and political apparatchiks domiciled in the central banks generated such unspeakable windfalls for so many speculators and gamblers.




2019-08-14

Negative yields: Sweden leads the world below zero

The krona has now depreciated about 15 per cent against the euro since negative rates were introduced in 2015,

extending its decline from its post-crisis peak to 24 per cent. 

FT 14 August 2019


Alliansregeringens avskaffande av den tidigare fastighetsskatten 2007 grundades inte på ekonomisk analys.

Motivet var enbart att infria ett populistiskt vallöfte i syfte att kapitalisera på de pedagogiska problemen att förklara logiken bakom skatten. 

I dag utgår en fastighetsavgift på 0,75 procent av taxeringsvärdet. Men eftersom det finns ett tak på drygt 8 000 kronor är avgiften starkt regressiv. Skatteprocenten blir lägre, ju högre fastighetens värde är. Detta är motsatsen till en skatt efter ”bärkraft”. 

Lars Calmfors DN Debatt 14 augusti 2019

Fastighetsskatten


2019-08-13

US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.

How Richard Vague Discovered Gravity: An Interview + Book Review of A Brief History of Doom: Two Hundred Years of Financial Crises

Richard Vague observes in this book, of the economic hierophants who are “… in power at the time of a financial crisis to later assert that crises cannot be predicted or prevented and that when a crisis happens, we are in the grip of economic complexities that we can neither foresee nor prevent nor entirely understand” 

Richard Vague has discovered with “causal elegance” that we can understand the performance of any modern economy through changes in the ratio of privatedebt to GDP and that private“overlending is the necessary and sufficient explanation for a majority of financial crises…” 

Posted on August 13, 2019 by Yves Smith

Highly recommended

“I don’t believe that a new QE program is just around the corner,” said Stefan Kipar, the bank’s euro-area economist.

“You have to imagine the communications disaster if they say they are doing a new round of QE, and two weeks later the Federal Constitutional Court says the Bundesbank can’t participate.”

Bloomberg 13 August 2019


German Constitutional Court





Argentina's 48% Stock Rout

Second-Biggest in Past 70 Years. 

Similar one-day sell-off in 2002 

Only Sri Lanka has suffered a worse single-day drop since 1950.

Bloomberg 12 August 2019 


Argentina’s Massive Sell-Off Had a 0.006% Chance of Happening

The rout in Argentina’s dollar bond due January 2028, which drove up the yield by 525 basis points, was a 4-sigma event, according to Bollinger Bands. That means the move was four standard deviations away from its 20-day moving average, an event that’s expected to happen only once in several decades.


“Black Swan” events — those well outside an ordinary distribution of outcomes 

Questions may also be asked about the IMF’s record-breaking rescue package for Argentina, with which its outgoing director Christine Lagarde was closely associated.

The fund has an unhappy history with Argentina, having agreed more than 20 programmes, most of which ended in failure. 

The latest chapter started with a $50bn bailout in June 2018, increased by $7bn three months later 

F T 12 August 2019

I likhet med Carl Bildt trodde Argentina att det skulle vara bra med fast växelkurs.

Since 1991, the peso has been fixed to the dollar at a one-to-one rate under a currency board system och satte kursen till
1 Peso = 1 Dollar


Det gick inte bra i Argentina heller.





2019-08-12

The fact that investors are replacing banks as the most important providers risks a severe correction in the future

Like generals fighting the last war, markets and regulators have taken steps to strengthen the banking system since the financial crisis. 

The problem is that in any future credit downturn, the hand brakes that banks can apply will have less impact than ever before. 

This will increase volatility and intensify any developing financial crisis.

Satyajit Das Bloomberg 26 July 2019

Argentina’s international bonds and stocks tumbled after a populist opposition candidate routed President Mauricio Macri in a shock primary election result.

The nation’s euro-denominated notes due in 2028 collapsed, sending the yield up almost three percentage points to 13.46%


https://www.bloomberg.com/news/articles/2019-08-12/markets-set-to-sell-off-in-argentina-after-macri-loses-primary

Konungariket Sverige lånar för när­varande till negativ nominell ränta

Den tioåriga statsobligationsräntan är minus en kvarts procent. 

Inflations­rensat betyder det att långivarna betalar Sverige 1,5–2 procent om året för att få låna ut till oss. Varje år, under tio år framåt. 

I Tyskland är räntan negativ till och med på 30-åriga lån.

Detta ter sig onekligen som upp- och nedvända världen. 

Klas Eklund DN Debatt 12 augusti 2019





The global downturn has already begun.

Asset prices will undoubtedly begin to reflect this, and possibly quite soon. 

Fed’s decade-long Plan A — blanket the economy with money, and hope for normalisation — has failed. There is no Plan B. 

Rana Foroohar FT 11 August 2019

2019-08-11

Central Banks Cry for Budget Help

From Federal Reserve Chairman Jerome Powell to European Central Bank President Mario Draghi, the demands are mounting for governments to loosen their budgets if the slowdown takes hold.

https://www.bloomberg.com/news/articles/2019-08-11/central-banks-cry-for-budget-help-but-only-some-are-getting-it?srnd=premium-europe

Drygt 70 procent av Vietnams befolkning är i dag under 40 år, och har inga egna minnen av kriget

Desto viktigare, anser Bao Ninh, att de unga får lära sig historien. Om inte, blir följden att de inte förstår varför deras förfäder slogs och kämpade.

– I dag kan man höra unga människor säga: ”Varför skulle vi slåss mot fransmännen, varför lät vi dem inte stanna? Eller amerikanerna? Om de fått vara kvar hade vi varit som Thailand, de har fått leva i fred.” 



2019-08-10

The Great Recession, which saw the collapse of 27 major financial companies worldwide, didn’t feature people running on banks.

Instead, the Great Recession featured banks running on banks. 

In 2008, financial panic here at home took down, in succession, Countrywide Financial, Bear Stearns, Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers, AIG, and Washington Mutual.

Laurence Kotlikoff via John Mauldin 9 August 2019




As soon as people start to think a bank is going bust, it’s doomed. 
So it needs enough equity to absorb severe losses and continue operating. 

Bloomberg Editorial 16 April 2018

The alchemy is “the belief that money kept in banks can be taken out whenever depositors ask for it”


Lord Mervyn King, former governor of the Bank of England.  



En sak gemensam; förändringar i hur jetströmmen beter sig.

Det visar sig att värmeböljorna och torkan i Nordamerika och Europa samt stormregnen och översvämningarna i Asien har en sak gemensam; förändringar i hur jetströmmen beter sig.

SvD  2019-07-13


Climate change: how the jet stream is changing your weather

2019-08-09

Brad deLong. With no Lehman panic—if Bernanke, Paulson, and Geithner had not


 allowing Lehman's bankruptcy uncontrolled and then justifying their actions by claiming that they were forbidden by law to support a too-big-to-fail institution that was insolvent and not just illiquid... 

Without that, no reason to fear even as bad as the S&L crisis.


Reflections 11 Years After the Crash


Lehman Brothers

Treasury Secretary Henry Paulson of Goldman Sachs

Ben Bernanke

David Stockman's Conspiracy Theory

2019-08-07

Announcing the end of the strong dollar policy is easier than actually ending it

“The dollar is overvalued now,” said Mr Setser, “because the US is the only major advanced economy with a central bank whose interest rates are significantly above zero.”




FT 6 August 2019

Climate change: how the jet stream is changing your weather

Northern Atlantic current is shifting course — with implications for crops and sea levels

“It is essentially the most important weather phenomenon,” says Tim Woollings, lecturer in physical climate science at Oxford university. 

“If you had to choose only one piece of information to get a handle on the weather in the northern hemisphere . . . then that would be the jet stream, what it is and where it is going.”


 Nu tycker jag väderkartan ser annorlunda ut.

Vindarna kommer från nord, och från öst och från sydväst, hur som helst.

 Rolf Englund 5 december 2010

2019-08-06

To be fair to the Chinese, their huge fiscal and monetary pump priming in 2009-10

albeit carried out purely in their own interest, helped put the global economic show back on the road. 

Were Beijing to sell off its Treasury holdings, extreme market volatility would follow

John Plender 6 August 2019

Negative interest rates does not bring big macroeconomic gains

 As symbolic politics it is proving disastrous — most of all in Germany, where it is turning people against the Eurozone.

Many Germans treasure their frugality, perhaps excessively or irrationally, and it has become an important part of the narrative Germans tell themselves about the economic order they have built.

Tyler Cowen Bloomberg 6 augusti 2019 



2019-08-04

Now central bankers must ease monetary policies in response to populist mistakes for which they themselves will be blamed

In recent years many central banks changed their communication approach, shifting from Delphic utterances to a policy of full transparency. But since the crisis, many of their public forecasts of growth and inflation have missed the mark. 

That these might have been the best estimates at the time convinces no one. That they were wrong is all that matters. 

This has left them triply damned in the eyes of politicians: 

they failed to prevent the financial crisis and paid no price; 

they are failing now to meet their mandate; 

and they seem to know no more than the rest of us about the economy.



Raghuram G. Rajan Procect Syndicate 31 July 2019


Raghuram Rajan, one of the few economists to see the financial crisis coming, 
wins the Financial Times and Goldman Sachs Business Book of the Year award

FT 28/10/2010




2019-08-03

Central banks should consider giving people money

Expecting the fiscal authorities to help out looks like wishful thinking

Central banks posting cheques to households, is detailed in a superb new book, 

The Case for People’s Quantitative Easing by the economist Frances Coppola. 

One problem with this common sense idea is its simplicity, which rarely appeals to economists charged with taking important decisions. 


Eric Lonergan FT 2 August 2019

Wiseman's Wisdoms

Adults In The Room: My Battle With Europe’s Deep Establishment by Yanis Varoufakis


För att få en skymt av inblick i "det djupa EU" rekommenderar jag en krävande bok: "Adults in the Room" av Yanis Varoufakis, som under en kort tid var Greklands finansminister. 

Dess knappt 500 sidor borde vara obligatorisk läsning, icke minst för alla oss som gillar EU-tanken.

Rolf Gustavsson



Ambrose

https://www.telegraph.co.uk/news/2017/04/28/yanis-varoufakis-brexit-advice-theresa-may-avoid-negotiating/?li_source=LI&li_medium=li-recommendation-widget

Amazon

https://www.amazon.com/Adults-Room-Battle-Europes-Establishment-ebook/dp/B01ICK4IWK/ref=sr_1_1?keywords=Adults+in+the+Room&qid=1564807119&s=amazon-devices&sr=8-1

2019-07-25

Mario Draghi Has to Explain One Last Thing So what happened, exactly, at Monte Paschi?

Mario Draghi, who steps down as president of the European Central Bank in October, deserves praise for almost single-handedly saving the euro. 

But thorny questions still remain about how well he oversaw the region’s banks, and one in particular: Banca Monte dei Paschi di Siena SpA.

As governor of the Bank of Italy between 2006 and 2011, he was ultimately responsible for regulating it. 

Crucially, the central bank signed off on Monte Paschi’s mammoth takeover of a rival at the peak of the financial crisis. 

It was a deal that eventually left the world’s oldest lender mired in scandal and bailouts.

Bloomberg 25 July 2019

The world's oldest bank, Siena-based Banca Monte dei Paschi di Siena SpA


ECB

Timbro: EU är för många inom svensk borgerlighet synonymt med tillväxt, utveckling och välstånd. – EU-frågor diskuteras sällan i Sverige.

– Konsekvensen blir att borgerligheten står handfallen när EU ställs inför avgörande vägval, så som skedde när EU-kommissionen 2017 presenterade sin vitbok om olika vägval för samarbetet framöver.
I ett läge när vi verkligen hade behövt en EU-debatt rådde närmast fullständig tystnad.




Margaret McConnell, head of the Applied Critical Thinking unit, a little-known enclave of the New York Fed

with a big mandate: to poke holes in the most basic assumptions that central bankers make -- which can lead to big policy mistakes when they’re wrong.

The financial crisis offers plenty of illustrations. The Fed got housing markets wrong before the crash, and its estimates of labor resources in the recovery have been off, too. 

McConnell’s conclusion after 2008 was that economics as practiced at today’s central banks has embedded blind spots.

Bloomberg 24 July 2019

2019-07-24

A Decade of Low Interest Rates Is Changing Everything

 “This is the new abnormal,” says David Kelly, chief global strategist at JPMorgan Asset Management, which oversees $1.8 trillion. 

Bloomberg 23 July 2019

Plender: Why markets need to heed the lessons from the 1970s

Extremely low real bond yields suggest a monetary system that has lost credibility

It is, by now, a familiar statistic, but one that retains its ability to shock: more than $13tn of government bonds are trading at negative yields. 

But while this may strike many as unnatural, it is not unprecedented. In the Great Inflation of the 1970s real interest rates were extremely low or negative across much of the developed world.

The music plays on for now.

John Plender FT 24 July 2019

More by Plender




Liquidity Shock - perfect storm scheduled for August


By David Stockman. Posted On Tuesday, July 23rd, 2019

The US Treasury has been running down its GTA account for months to pay salaries and keep the government going. 

This has been a net injection of money into the US economy. 


It is akin to QE and has overwhelmed the effects of quantitative tightening (bond sales) by the Fed pulling in the opposite direction. 

Or put another way, it has masked the underlying withdrawal of dollar liquidity. 

US debt ceiling 
“This agreement is a total abdication of fiscal responsibility by Congress and the president,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a Washington advocacy group.


2019-07-21

Following the 2008 global financial crisis, central banks bet that greater activism on the part of other policymakers would be their salvation, helping them to normalize their operations.

But that activism never came, and central bankers are now facing a lose-lose proposition.

MOHAMED A. EL-ERIAN Project Syndicate July 19, 2019 


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

2019-07-19

Another IMF chief from Europe would be a scandal after the last decade of policy crimes

They hijacked the Fund to rescue monetary union at a time when the eurozone had no lender-of-last resort - due its own recklessness and political paralysis - and had therefore exposed a string of sovereign states to bankruptcy. 

The eurozone bail-outs consumed 80pc of total IMF lending between 2011 and 2014 



Death of the Phillips curve brings political foes together at the graveside

Larry Kudlow offered effusive praise last week to Alexandria Ocasio-Cortez after her quizzing of Jay Powell in Congress. She asked Mr Powell about how the Phillips curve seemed to have vanished over time.

Any convergence between them over the direction of policy risks being grounded in wildly diverging theories of how the economy works, both probably wrong.

Mr Trump awarded the Presidential Medal of Freedom to Mr Laffer earlier this year.

Martin Sandbu FT 6 July 2019


The Fed seems finally to have given up on the Phillips trade-off. So far, though, policymakers have no answers to the larger questions. And that leaves policy adrift.

Megan Greene FT 21 July 2019



Jämviktsarbetslöshet - NAIRU

Death of the Phillips curve - Nonsens.


If the economy takes off above Stall Speed the Philips Curve will be back.


Englund 2017

The Law of Supply and Demand

2019-07-18

Klas Eklund: Bankerna har "tightat till" lånevillkoren och man har i dag livremmar och hängslen.

Klas Eklund, tidigare chefekonom på SEB och nu seniorekonom, på Mannheimer Swartling, konstaterade att motståndskraften i dag är mycket starkare i dag än tidigare, som vid den svenska krisen i början på 1990-talet och den 
amerikanska skuldkrisen 2008, samtidigt som räntorna är extremt låga. 

Bankerna har också "tightat till" lånevillkoren och man har i dag livremmar och hängslen. 

"Det motsäger inte att det finns grupper som lånar för mycket, men den gruppen är inte så stor att den utgör en systemrisk för samhället", sade Eklund. 

Tisdagen den 2 juli 2019 



2019-07-15

John Mauldin final letter of the six-part series of reply to Ray Dalio’s essays

the existential problems we are talking about (and neither of us use the word “existential” lightly) will resolve themselves in a highly tumultuous manner if we as a society don’t face them directly and soon. 

Total federal debt is now $22.5 trillion plus another $3 trillion of state and local debt. 

Annual deficits are running at an average of $1.2 trillion and growing. 


2019-07-14

Värmeböljorna och torkan har en sak gemensam; förändringar i hur jetströmmen beter sig

Under extremåren 2003, 2010, 2018 och 2019, uppvisade jetströmmen ett märkligt beteende. Strömmen saktade ner och fick djupt svängande Rossbyvågor. 



Väderkartan är konstig (inte som den var förr)

2019-07-09

Firefighting — Bernanke, Geithner and Paulson reflect on the financial crisis

Top policymakers look back on lessons learnt and mistakes made during 2008 meltdown.

Martin Sandbu FT 9 July 2019


Stanley Fischer said there was “no legal basis” for what the Fed did on multiple fronts after the collapse of Lehman Brothers. 

The Dodd-Frank Act passed by Congress - when anti-banker sentiment was at its peak - prevents the Fed from acting freely as a lender of last resort... 

The authorities may not rescue individual companies, or lend to non-banks, or offer blanket guarantees of bank debt and money market funds. 

The lightning-fast action and $1.5 trillion of emergency loans that restored control in 2008 is no longer possible.

Ambrose 18 June 2019