Author Archives: Yves Smith

Blogs Review: The Forever Recession

As the recovery takes hold in the US, Europe appears stuck in a never-ending slump. With the ECB systematically undershooting its inflation target and recent signs that inflation expectations could become de-anchored, the bulk of commentators in the blogosphere are again calling for more monetary actions. Noticeably, some have completely lost hope in the ability of the European institutions to turn this situation around and are now calling for countries to simply break away from the EMU trap.

Ukraine’s Next Crisis? Economic Disaster

Yves here. While it’s not hard to imagine that war is bad for economies as well as living things, this post gives an overview of some of the costs that the proxy war in Ukraine is inflicting on the economy and hence on the population. Note that this tally does not include the impact of the efforts to render cities in the east uninhabitable by destroying water supplies and other critical infrastructure.

Regulators Punting on “Too Big to Fail” Problem of Repo, Looking to Install Yet Another Bailout Vehicle

The post-crisis era is rife with band-aid-over-gunshot-wound approaches to deep-seated weakness in the financial system. Perversely, because the authorities were able to keep the system from falling apart, albeit via a raft of overt and covert subsidies to the perps, they’ve reacted as if all that needs to be done is a series of fixes rather than more fundamental interventions. One glaring example is a critically important funding mechanism, repo, for firms that hold large inventories of securities and/or enter into derivative positions, such as major capital markets firms like Goldman, Deutsche Bank, and Barclays, as well as hedge funds. Here, the authorities have been giving way to industry demands that will assure that repo, which was bailed out in the crisis, will be bailed out again.

Fracking Waste Disposal Fuels Opposition in U.S. and Abroad

Yves here. We’ve posted on some of the not-as-widely publicized damage done by fracking, such as methane releases and increased incidence of earthquakes, as well as the most obvious hazard, which is contamination of water supplies.

This article describes yet another environmental cost, that of fracking waste disposal. Expect this to become a new NIMBY (not in my back yard) issue as the public becomes more familiar with this risk.

Links 8/16/14

Does the Central Bank Control Long-Term Interest Rates? A Glance at Operation Twist

Although less prevalently talked about today many economists assume that while the central bank has control over the short-term rate of interest, the long-term rate of interest is set by the market. When Post-Keynesians make the case that when a country issues its own sovereign currency the rate of interest is controlled by the central bank and that the government never faces a financing constraint some economists deny this and point to the long-term rate of interest which they claim is under the control of the market. They say that if market participants decide to put the squeeze on the government they can raise the long-term rate of interest.

Don Quijones: Nato-Member Turkey Threatens Western-Owned Banks, Shifts East, Cozies up to Russia

Since the U.S. and EU began imposing and then widening and tightening sanctions against Russia, some U.S. allies have been getting second thoughts. The latest nation to begin severing ties with the U.S.-dominated Western alliance is arguably the most important yet.

Links 8/15/14

Getting Sucked into ObamaCare is a Lot Like Being on Probation

Yves here. Lambert, in his relentless Obamacare skullduggery, has unearthed yet another ugly feature of this Rube Goldberg contraption for enriching health insurers: unprecedented levels of required reporting to the Federal government. Your humble blogger had already flagged one, that Obamacare is designed with the bizarre assumption that everyone in America has a steady paycheck. You are supposed to be able to estimate your income. How can people who are part-time workers, with employers who ratchet up and down how much time they need, supposed to comply? Or even worse, how about self-employed people, who have variable and unpredictable income and expenses, as well as the occasional collection issue.

But Obamacare policyholders are ALSO required to report on a raft of “lifestyle changes” including when you become pregnant (which means you also need to report if you have a change in that “status” via miscarriage or abortion), or a change in “household size”. One assumes that means “household” from an IRS standpoint, but could it mean from a Census perspective? Do renters have to report if they take on a roommate?

And even better, as Lambert discusses in detail, HHS also makes it hard to prove that you’ve made the required updates. Charming.

Is the West Risking Financial Blowback From Sanctions on Russia?

The spectacle of insanely authoritarian policing in Ferguson, as well as media jitters over ISIS and ongoing reports of action in Gaza and Ukraine, has shifted attention a bit away from simply lousy economic results from Europe. That fragility could play in a nasty way into blowback from sanctions against Russia.

The SEC’s Mary Jo White: A Failure, or Doing Her Real Job?

Your humble blogger has to confess to having called Mary Jo White’s appointment incorrectly, based on enthusiastic readings on her from people who’d worked with her as a prosecutor, such as Neil Barofksy. But the default assumption for Obama appointees, that he’d never give anyone who’s rock the status quo a serious role, was the right assessment. White’s ten years in the private sector at Debevoise seems to have reinforced habits that aren’t serving her well, even in her role as Potemkin fixer-upper of an agency that is widely seen as timid and floundering. Not only is she failing to move regulatory measures forward quickly enough, but she’s also engaged in an unseemly amount of turf warfare with other agencies.

LInks 8/14/14

Philip Pilkington: Financial Times Contributors Understand ‘Liquidity Trap’ Better Than Neo-Keynesians Like Krugman

I have long complained that the likes of Paul Krugman have grossly misinterpreted the meaning of the term ‘liquidity trap’. These economists seem to think that we are currently in a liquidity trap despite the fact that yields on bonds are extremely low across the board.