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Tuesday, November 22

22nd Nov - Behave Yourself

Last night I posted La La Land and have little to comment on my editorial there. Commentary today is again giving very little hope for a happy ending and a great unraveling of the euro project is seen probable. The tone is also changing – what was once deemed impossible or unwanted (euro exits) is now seen as inevitable, something to hope for and ultimately beneficial. But try getting that message through to the eurocrats. Today's featured video is @Google Presents: Daniel Kahneman, uploaded on 10th November.

- MoreLiver

News (Tue morning) – BTH
Danske Daily (22-Nov) – Danske Bank (pdf)
Morning Briefing (22-Nov)BNY Mellon
Market Preview (22-Nov) – SaxoBank
Today in Euromess (21-Nov): Time for a eurobond? – Wonkblog / WP
Weekly Bull/Bear RecapRational Capitalist Speculator
  RCS's weekly came out late, but is still worth it.

FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT

Euro Schizophrenia in GermanyTestosterone Pit
Plans A: An integrated and centralized Eurozone, B: Eurobonds, C: ECB prints unlimited amounts of money to monetize the sovereign debt of whatever country needs it, D: Germany exits the EZ and starts a mini-Eurozone of like-minded states who believe in the exotic concept that a currency shouldn’t lose its value.

The Next Strategic Target: De Gaulle’s EU LegacyPIIE
No euro area fiscal entity exists, so the ECB cannot perform a "bridge function" until the proper authorities take over. With a euro area fiscal entity decades away, any bridge set up by the ECB would only be a bridge back to its own printing presses in Frankfurt… The ECB now faces a new round of "strategic bargaining" with euro area governments to complete the partially built euro area institutional house. The issue now is how the ECB might influence the political process toward a "quantum leap" in European integration, as repeatedly advocated by former ECB president  Jean-Claude Trichet and other policymakers.

Solvency or Liquidity? (r-g)Fatashmihov
If there are multiple equilibrium points (markets as usual and the self-reinforcing higher yields because of high yields), we need to find a way to coordinate to the good one, the one without default. Looking at last week, it seems that we are going in the opposite direction. So it looks like the only way out is for all of us suddenly become optimistic, or the ECB steps in and helps us coordinate to the good equilibrium.

The ECB must step in to save the eurozoneThe A-List / FT
George Soros: The interest rate ceiling should be regarded as an emergency measure. In the medium term it could encourage politicians to abandon fiscal discipline. In Italy, for instance, Silvio Berlusconi will be waiting for Mario Monti to trip up. Therefore the breathing space gained by imposing it should be used to establish appropriate fiscal rules and to devise a growth strategy that would enable the eurozone to grow out of its excessive indebtedness.

As the World Crumbles: the ECB spins, FED smirks, and US Banks PillageNomi Prins
So, now we’re just barely in the second quarter of the game of thrones, where the big banks are the kings, the ECB, IMF and the Fed are the money supply, and the populations are the powerless serfs. Yeah, let’s play the ECB inflation game, while the world crumbles.

Germany dismisses eurobond plan ahead of EU commission proposalsIrish Times
Even before the commission unveils its proposals tomorrow, Berlin’s response to the initiative has been as swift and dismissive as always. “The chancellor and the federal government do not share the belief of many that eurobonds would be a cure-all for the crisis,” said Steffen Seibert, government spokesman.

Will Greece unravel by Christmas?
We are caught, it seems, in one of those self-reinforcing loops that almost always presage a collapse.  Rational behavior by individual agents leads towards a catastrophic event the threat of which reinforces the behavior. I don’t see any way to get out of this loop except with a Bagehot-style intervention – a very unlikely but immediately credible announcement by Germany and France that they are prepared to guarantee all deposits in the Greek banking system.

Possible Greek Solution: Two DrachmasMarketBeat / WSJ
The Greek solution and the ultimate end to the euro crisis is a currency devaluation, full stop… two reasons for adopting dual exchange rates. The most pressing is to create relief from a crisis in trade balances while controlling the broader balance of payments arising from capital flows. The second reason is to control the runaway inflation that typically accompanies a devaluation.

Official Denial in Greece Regarding "Indefinite Liquidity and Banking Stability"; Is a Worthless Guarantee Twice as Good When Doubled?Mish’s
State guarantees to Greek commercial banks are to double from 30 billion to 60 billion euros in order to secure liquidity in the market, Greek finmin told on Monday.

Mosler/Pilkington: A Credible Eurozone Exit Plannaked capitalism
1. Upon announcing that the country is leaving the Eurozone, the government of that country would announce that it would be making payments – to government employees etc. – exclusively in the new currency. Thus the government would stop using the euro as a means of payment. 2. The government would also announce that it would only accept payments of tax in this new currency. This would ensure that the currency was valuable and, at least for a while, in very short supply.

For Euro Investors, Time to Check the Fine PrintWSJ
Comments and summarizes the Nomura report, previously discussed yesterday by alphaville / FT and ZeroHedge (has the full paper)

How Italy’s democracy leads to financial crisisForeign Affairs
Monti’s appointment fits an established Italian pattern: fiscal laxity under populist center-right governments followed by brief emergency periods of technocratic austerity under the center-left and EU. To make fiscal responsibility stick this time, Brussels should back Monti as he builds up a popular mandate for gradual reform.

Goldman Explains What The Supercommittee Failure MeansZH
No ratings downgrades for now, but another "negative outlook" seems possible.

How We Were All MisledThe New York Review of Books
Review of Boomerang: Travels in the New Third World by Michael Lewis

Mark Ames: Libertarian Liars: Top Reagan Adviser, Cato Institute Chairman William Niskanen: “Deficits Don’t Matter”naked capitalism
Niskanen: “The simple relationship between deficits and inflation is as close to being empty as can be perceived”,  “There are no necessary relationships between the deficit and money growth”, “Evidence doesn’t support” the assertion that deficits crowd out private borrowers”, to which Mark Ames: Now William Niskanen is dead… May the bastard writhe in pain.

FiveBooks Interviews: Adam Roberts on Science Fiction ClassicsThe Browser

Fed the GameSF FED
ECB the GameECB
A Monetary Policy Simulation GameSNB
Taito Monetary Policy GameBoF