I’m still mystified as to the market reaction on Wednesday to the coordinated central bank effort at waving a bazooka at the escalating European financial crisis. But as readers pointed out in comments, the big move was overnight, in futures, when trading is thin, and there was no follow through when markets opened. And volume was underwhelming.
Read more...By Warren Mosler, an investment manager and creator of the mortgage swap and the current Eurofutures swap contract and Philip Pilkington, a journalist and writer based in Dublin, Ireland
Recently the Greek economist Yanis Varoufakis responded to the euro exit plan that we published on Naked Capitalism a few days ago. While Varoufakis was broadly supportive of the plan if an exit was absolutely necessary, he criticised some of the details therein.
Read more...After telling readers that the Eurozone leadership looks to be suffering from “dulled reaction times…so out of line with market events that even if they were to snap our of their stupor now, it would be too late,” news reports suggest that they have finally roused themselves.
Or have they?
Read more...This post originally appeared on Credit Writedowns Editorial note: this article is neither a policy recommendation or a prediction. Rather, this articles looks to outline one potential outcome of the current policy choices in the European sovereign debt crisis, building upon the discussion from three recent articles “Deflationary crisis responses”, “Predicting the future of policy […]
Read more...Cross-posted from Credit Writedowns Marshall Auerback was on Fox Business last week talking about the European sovereign debt crisis. He said he is very concerned not just about the national solvency problem in the euro zone but also about the debt deflationary policy remedies now being implemented across the whole of the euro zone. He […]
Read more...Cross-posted from Credit Writedowns The most important debate of our lifetimes is now ongoing. For many, the answer will be existential. First, the question: Should the ECB “write the check’ for the euro area national governments? In thinking about the answer to this all-important question, I prefer to shift the focus by changing the verb […]
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Dean Baker is co-founder of the Center for Economic and Policy Research. He previously was a senior economist at the Economic Policy Institute and an assistant professor of economics at Bucknell University. He has a Ph.D. in economics from the University of Michigan. His latest book, The End of Loser Liberalism, has recently been released to download free of charge on the CEPR website.
Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.
Philip Pilkington: The overarching thesis of your book The End of Loser Liberalism is quite a provocative one. This isn’t just a book about economics as such. Instead, if I were to venture using a term that appears to be coming back in fashion, it’s a work of political economy. You write that the current political debate – wherein the left are seen as restricting and constraining the ‘free market’ while the right are seen as letting it free to work – is completely skewed. You write that liberals and progressives need to take a different line on this. Could you explain this basic premise in a little more detail, please?
Dean Baker: The conventional view is that conservatives place a huge value on market outcomes. It is common for progressives or liberals to deride them as “market fundamentalists”, as though they worship the market as an end in itself. By contrast, liberals/progressives are supposedly prepared to use the hand of government to override market outcomes in order to promote goals like poverty reduction or equality. I argue in the book that this view is completely wrong, and worse that it plays into the hands of the right.
I argue that the right has quite deliberately structured markets in a way that have the effect of redistributing income upward. The upward redistribution of the last three decades did not just happen, it was engineered.
Read more...This is Naked Capitalism fundraising week. Over 600 donors have already invested in our efforts to shed light on the dark and seamy corners of finance. Join us and participate via our Tip Jar or read about why we’re doing this fundraiser and other ways to donate, such as by check or another credit card portal, on our kickoff post and one discussing our current target.
By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Economic Perspectives.
The markets are again in free-fall and, once again, a lazy Mediterranean profligate is to blame. This time, it’s an Italian, rather than a Greek. No, not Silvio Berlusconi, but his fellow countryman, Mario Draghi, the new head of the increasingly spineless European Central Bank.
At least the Alice in Wonderland quality of the markets has finally dissipated. It was extraordinary to observe the euphoric reaction to the formation of the European Financial Stability Forum a few weeks ago, along with the “voluntary” 50% haircut on Greek debt (which has turned out to be as ‘voluntary’ as a bank teller opening up a vault and surrendering money to someone sticking a gun in his/her face).
Read more...Cross-posted from Credit Writedowns. Follow me on Twitter at edwardnh for more credit crisis coverage. Disclaimer: This piece on the impact of Italy’s potential insolvency on the sovereign debt crisis is not an advocacy piece. It is supposed to be an actionable prediction of what I see as likely to occur. That said, see link […]
Read more...Cross-posted from Credit Writedowns. Follow me on Twitter at edwardnh for more credit crisis coverage. Here’s an interpretation of the euro zone I have been meaning to discuss. I touched on it in the update to my post on how austerity in Europe works. In a fixed exchange rate environment like the euro area, you […]
Read more...By Philip Pilkington, a journalist and writer living in Dublin, Ireland In waking a tiger, use a long stick. – Mao Tse-tung Well, it looks like it could finally be happening. The Chinese housing bubble could well be bursting right before our eyes. The bubble has long been present for all to see, with news […]
Read more...I had been somewhat concerned at OccupyOakland’s call for a general strike, since failure to have a tangible impact would undermine rather than enhance the notion that the movement has power. A visible failure could easily produce a shift in the tone of ever-fickle press coverage.
But this first effort by an Occupation at flexing its muscles seems to have gone well. One indicator: the Financial Times took note of the strike, placing the story on the front page of its Web edition. Key extracts:
Read more...Even though the Greek move to blow up the latest Eurorescue plan caught the world’s attention, another pushback is underway, this via the blue chip lobbying group, The International Institute for Finance.
The threat, which has surfaced before and is picked up in an article by Bloomberg, is that raising capital levels as mandated under the latest version of the Eurorescue plan, won’t take place by selling equity, retaining earnings (which would almost certainly mean constraining pay levels) or accepting government equity injections (which will come with nasty strings attached). Instead, banks will just shrink to meet the targets by selling risky assets. (Note that the targets, which are being met with howls by the industry, are for them to write down sovereign and reach a core capital level of 9% by June 30, 2012).
This is meant to be a threat. “Shrinking assets” implies less lending. Less lending would put a downward pressure on economic growth. Recessionary or near recession conditions tend to lead voters to throw elected officials out. So this sabre rattling is clearly meant to get the officialdom back in line.
How seriously should we take this?
Read more...Yves here. Note the comment at the end, that Sarkozy’s sales pitch to China on the levered up EFSF did not go so well. If the Chinese don’t relent, this greatly reduces of this scheme working, even in the short term. And further note that the flagging European growth is the result of the austerity hairshirt being imposed on highly indebted economies. Ambrose Evans-Pritchard has a pointed article on the consequences of the beggar-thy-neighbor German stance.
By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness
Angela Merkel has been warning for quite some time that Europe’s economic woes will take up to a decade to fix and that it is time for Europe to rethink its economic strategy after years of living “beyond its means”. It seems fairly obvious from those statements that the rest of the world is going to have to get use to Europe moving into a slow growth phase while it attempts to adjust away from what it considers to be unsustainable debt.
In an attempt support the transition while keeping Europe together the European leaders have put together 3 part package to save Greece, re-capitalise the banks and provide a stability mechanism for countries that run into trouble. The problem is that once you understand the technicalities behind what they have come up with you come to realise that real economic growth is the only thing that actually matters. The latest news out of Europe for many of the 17 member nations is not good at all in that regard.
Read more...This site has had plenty of company in expressing doubts about the latest episode in the continuing “save the banks, devil take the hindmost” Eurodrama. The same issues came up over and over: too small size of rescue fund, heavy reliance on smoke and gimmickry to get it even to that size, insufficient relief to the Greek economy (the haircuts will apply to only a portion of the bonds), no assurance that enough banks will go along with the “voluntary” rescue, and way way too many details left to be sorted out.
But it is a particularly bad sign to see disagreement within the officialdom about the just-annnounced deal.
Read more...