Get Back To Work Mr. Hollande; French Jobseekers Surge To Record High

Despite all the ‘promises’ French joblessness has risen every month since April 2011… July’s jump is the 2nd biggest sinmce April 2013 and at 3.424 million is a fresh record high. One can only hope (though good luck with that) that the new cabinet – same as the old cabinet – will turn things around. With 80% of French people believing that Hollande cannot fix the economy, we suspect things get worse before better…
French ministers are piling the pressure on Draghi to do something…
*VALLS SAYS NEW FRENCH GOVT STANDS FOR ECONOMIC CLAIRITY *VALLS ECB NEEDS TO GO FURTHER IN FIGHTING INFLATION *VALLS SAYS NEW FRENCH GOVT STANDS FOR ECONOMIC CLAIRITY *VALLS SAYS LOW INFLATION THREATENS EUROPEAN PROJECT Charts: Bloomberg

This post was published at Zero Hedge on 08/27/2014.

Europe: Stagnation, Default, Or Devaluation

Last week’s Jackson Hole meeting helped to highlight a simple reality: unlike other parts of the world, the eurozone remains mired in a deflationary bust six years after the 2008 financial crisis. The only official solutions to this bust seem to be a) to print more money and b) to expand government debt. Meanwhile, Europe’s already high (and rising) government debt levels and large budget deficits raise the question whether we should worry about ‘debt thresholds’, past which increasing deficits, and hence growing sovereign debt, no longer add to growth? Such a constraint could come from one of at least two sources:

This post was published at Zero Hedge on 08/26/2014.

Continued EU Weakness Gives Rise to Two Inflationary Trends

German economy ‘losing steam’ as business confidence plunges again … Survey of optimism among companies adds to gloom enveloping Europe’s biggest economy … Germany’s businesses are rapidly losing confidence in the prospect of a recovery in the eurozone, in a further blow to the single currency’s biggest economy. Companies’ assessment of the business climate is now at a 13-month low, having deteriorated for four successive months, according to a survey of 7,000 firms conducted by the Munich-based IFO think tank. – UK Telegraph
Dominant Social Theme: Something must be done to save Europe and the euro.
Free-Market Analysis: What does the future hold? More and more money stimulation it would seem. China – the BRICS – and the US are printing endless gouts of money, and now it appears as if the European Union is headed in the same direction.
In fact, the EU cannot simply print, as the Germans stand in the way. But according to this article and others, the German economic situation is declining, so perhaps there will be less pushback to plans to stimulate.
Certainly, without German economic vitality, the eurozone is even worse off than it’s been in the past. Here’s more:
The study is the latest blow to Angela Merkel’s hopes of Germany leading the eurozone out of its current economic malaise. Separate data for investor confidence and inflation have also shown activity slowing down. The economy contracted in the second quarter of the year, and another quarter of decline would tip it into recession.

This post was published at The Daily Bell on August 26, 2014.

De-Escalation Algo Pushes Futures To Overnight Highs

It is unclear exactly why stock futures, bonds – with European peripheral yields hitting new record lows for the second day in a row – gold, oil and pretty much everything else is up this morning but it is safe to say the central banks are behind it, as is the “de-escalation” algo as a meeting between Russia and Ukraine begins today in Belarus’ capital Minsk. Belarusian and Kazakhstani leaders will also be at the summit. Hopes of a significant progress on the peace talks were dampened following Merkel’s visit to Kiev over the weekend. The German Chancellor said that a big breakthrough is unlikely at today’s meeting. Russian FM Lavrov said that the discussion will focus on economic ties, the humanitarian crisis and prospects for a political resolution. On that note Lavrov also told reporters yesterday that Russia hopes to send a second humanitarian aid convoy to Ukraine this week. What he didn’t say is that he would also send a cohort of Russian troops which supposedly were captured by overnight by the Ukraine army (more shortly).
Asian equity markets haven’t really followed suit the US/European rally with bourses in Japan, Hong Kong, and China down 0.6%, 0.4% and 1%. The Dollar is softer against the Yen which perhaps added some pressure on Japanese equities. There isn’t much Asian headlines this morning and we suspect parts of the market (HK/China) are still busy with the ongoing earnings season. Asian credits are doing better in relative terms led by sovereigns. Indonesia’s USD bonds continued its march higher (helped by Treasuries) whilst its 5yr CDS spreads are marked 4bps tighter overnight. Asian stocks fall with the Kospi outperforming and the Shanghai Composite underperforming. MSCI Asia Pacific down 0.2% to 148.4. Nikkei 225 down 0.6%, Hang Seng down 0.4%, Kospi up 0.3%, Shanghai Composite down 1%, ASX up 0%, Sensex up 0%. 2 out of 10 sectors rise with health care, energy outperforming and utilities, telcos underperforming

This post was published at Zero Hedge on 08/26/2014.

Yellen Served a Heaping Plate of Waffles and Syrup at the FED’s Annual Jackson Hole Junket

If Janet Yellen had not earned her Ph. D. in economics, she could have been a great short-order cook at Waffle House.
Yellen is as long-winded as Bernanke. She lards her speeches with footnotes, just as he did. She is as evasive as Greenspan, but she uses academic jargon and peripheral statistics to do her work.
Her first Jackson Hole speech shows how adept she is.
First, some background. The FED said in December 2012 that an unemployment rate of 6.5% was one of the two benchmarks to use as a way to evaluate when to raise interest rates. The other was CPI growth at 2%.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
The CPI increase, July 2013 to July 2014, was 2%.
In short, both of the targets have been reached.
So, will the FED raise rates? Which rates? How? The European Central Bank has contracted the monetary base for over a year, and long-term bond rates have fallen. Meanwhile, the short-term ECB rate has dropped like a stone since October 2013.
To avoid dealing with this problem — the #1 policy problem facing the FED — Yellen is waffling. Her speech was pure waffles and syrup.

This post was published at Gary North on August 25, 2014

Europe’s Real Borrowing Costs

Just what Europe needs… more QE… this is the real problem – not only is demand for credit weak in the periphery as the balance sheet recession rolls on, but “real” borrowing costs are at near-record highs… Despite Draghi’s earlier comments and promises, cramming SME loans down the throats of borrowers at suppressed risks will do nothing but kill bank balance sheets (most critically the ECB’s)…
These are “market” rates… i.e. what real risk is being priced at away from the hand of Draghi…

This post was published at Zero Hedge on 08/23/2014

Occam’s Razor and Bank Lending

I received an interesting question on bank lending just a bit ago.
The question is in reference to Euro Bond Bubble Guaranteed to Burst where I stated …
“Would QE by the ECB spur European bank lending? Of course not. Banks do not lend from excess reserves. Banks lend (provided they are not capital impaired), when credit-worthy borrowers want credit and banks perceive risks worth lending.”
Reader Kenneth from Stockholm, Sweden writes …
As a layperson I must say this makes perfect sense, but I have a problem applying Occam’s Razor to it. For Occam’s Razor to hold, one must assume that the central bank has never talked to a banker, right? Surely the commercial banks must know why they are or aren’t lending? Or is there a hidden pretext for the ZIRP and QE that the central bankers are not telling us? Please don’t say it’s because they’re stupid. A well deserved insult maybe, but that would not hold as an explanation for this.

This post was published at Global Economic Analysis on Saturday, August 23, 2014

The G-20′s Solution To Systemically Unstable, “Too Big To Fail” Banks: More Debt

It’s been 6 years since Lehman went bankrupt overnight, stunning bondholders who were forced to reprice Lehman bonds from 80 to 8 (see chart below) in a millisecond, and launching the world’s worst depression since the 1930s, which courtesy of some $10 trillion in central bank liquidity injections, has been split up into several more palatable for public consumptions “recessions”, of which Europe is about to succumb to the third consecutive one even if for the time being the Fed’s has succeeded in if not breaking the business cycle, then certainly delaying the inevitable onset of the next major contraction in the US economy.
Paradoxically, instead of taking advantage of this lull in volatility and relative economic calm, and making the financial system more stable, all so-called regulation has done, is paid lip service to the underlying problems, hoping that should the next crisis appear the Fed will be able to delay it yet again by throwing countless amounts of taxpayer money at the problem. In the meantime, the biggest banks have gotten so big that the failure of one JPM or Deutsche Bank, and their hundreds of trillions in gross notional derivatives, would lead to the biggest financial and economic catastrophe ever witnessed and make 2008 seem like a fond memory of economic euphoria.
So finally, with a 6 year delay, the western world’s “government leaders” have finally decided to do something about a TBTF problem that has never been more acute. According to Reuters, in November said leaders will agree “that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.” In other words, suddenly the $2.8 trillion in Fed injected excess reserves, split roughly equally between US and European banks, are no longer sufficient, and while regulators are on one hand delaying the implementation of Basel III and its tougher capital rules, on the other they are tacticly admitting that whatever “generous” capital buffer banks have on their books right now will not be sufficient when the next crisis strikes.

This post was published at Zero Hedge on 08/23/2014

Economic Freedom vs Debt Slavery

Pierre Poilievre, Canadian MP, makes a plea for his nation not to follow in the footsteps of countries like the United States, where people have been encouraged to go into debt which will be impossible to repay, or like Europe, which is now ensnared in welfare programs that are impossible to stop without complete social upheaval.

  • Official US Debt is now larger than its economy.  Through current or future taxation, the US citizen is on the hook for this debt.
  • The US is on the cusp of funding 100% of the Chinese Military – just with interest payments alone!
  • The direction the US is going reflects the socialist policies already in place in Europe, where Greek citizens are taking to the streets to demand their government not halt the flow of welfare checks they have become so dependent upon.
  • It’s good that Europe has bail-out fund, but S&P has recently downgraded that fund, indicating that it, too, will soon need a bail-out.

The New Great Depression

CNBC’s European Squawk Box had an interesting interview session with author and economist, Richard Duncan.  Looking back over the last 40 prosperous years, ever since the last remaining link between the US dollar and gold was removed, the world has evolved into a form of financial creditism.  Duncan notes that the central banks of the world have been able to provide easy credit and the world has greatly benefited. However, there comes a point where borrowers are unable to take on more debt. If the government does not step in and provide QE or some other kind of spending programs, there will be another Great Depression. Duncan even goes on to say that, in fact, a depression is unavoidable and inevitable, but it can be delayed if the government decides to benefit society further by spending on 21st century technologies in the nano science and medical fields, for example.

Another interesting part of this segment that should be noted is where the panel brings up the comparison of the present situation with the past, where central banking policy was to raise interest rates rather abruptly in order to curb reckless borrowing. “When you throw money into the system ….. the good guys out there won’t borrow and spend because they’re too cautious. It’s the bad guys who come in and borrow and spend. … There’s lots of bad guys around, we can see them all over the place – we know they’re there!”    Touché.