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Monday, September 24

24th Sep - US Close: Bring out the clowns

So we wait the end of the week and news from Spain. Meanwhile, Merkel to meet Draghi and Lagarde in closed meetings in the coming 2 days. They are not going to be talking about golf. My conspiracy theory du jour is that the eurocrats want to prepare the leverage of the ESM because of Greece. They will kick out Greece after the US elections, and need to have enough of nominal backstoppage in place for Spain and Italy. Bond market support from the ECB, bank loans from the ESM? 

Some commentators believe that while the eurocrats are clearly worried and prepared to act, they miss the original point - too much debt, too little bank capital. The need for sovereign restructurings and bank recaps either through credit or equity injections is critical. Banks are not stupid, and prefer to wait for the eventual bailouts, instead of accumulating the funds by themselves. Why dilute yourself when you can beg?

From an outside source: the officials of a major nation (off-the-record, of course) believe ECB’s previous governor Mr. Trichet was "a clown, dangerous and destroyed the continent’s economy". They also see the odds of euro surviving very low – around 1 in 3. My domestic readers are probably happy to know that Finland’s economy is expected to crash around 20% if it stays in the eurozone, but stay unchanged if it leaves.

Previously on MoreLiver’s:
22.9. Disregard This Post (links to euro breakup analysis)
21.9. Weekender: Weekly Support (weekly reviews and previews)

Roundups and Commentary
News – Between The Hedges
Markets – Between The Hedges
Recap – Global Macro Trading
The Closer alphaville / FT
USD Posts Gains as Dow Drifts Lower – BNY Mellon
  Summing up the state of play in Greece
The T Report: I Love It When a Plan Comes TogetherTF Market Advisors
Tyler's US Summary: Winners Lose As Safety Outperforms – ZH
TV: Bloomberg, BBC
Debt crisis: live – The Telegraph
The Euro Crisis Blog – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank
European 10yr Yields and Spreads – MTS indices

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Buiter on good news, bad newsalphaville / FT
Good: ECB’s OMT, ESM agreements, pro-Europe election results. Bad: banking union talks. PIIGS.

Spanish Military Threatens Treason As Catalonia Seeks Secession ReferendumZH
Spain Warns Catalonia Separatists of Treason Charges in Military Court Mish’s
Viva España? Spain’s other crisisalphaville / FT
There’s nothing like a financial crisis to bring out a surge of nationalism. In Spain’s case the situation is especially serious and seemingly getting worse. So much so that some argue that the growing constitutional crisis could soon eclipse the country’s fiscal problems. The two, you see, are very closely entwined.

Turning German (or trying to)alphaville / FT
Credit Suisse’s charts of trade balances. The PIIGS trade deficit is narrowing, but mostly because of decreased imports (they’re broke, after all). Also, goods are and services are a minor part of
Spain’s current account balance.

Proposal to Leverage ESM to 2 Trillion Euros; Is Merkel's Rubber Stamp Ready?Mish’s
The ESM is supposed to have €500 billion of firepower of which Germany's contribution is €190 billion. The nannycrats want to leverage that to €2 trillion. If they do, losses of 25% will wipe out the entire ESM.

An unpleasant surprise may lurk in euro zone GDP numbersMacroScope / Reuters
The euro zone economy may be doing far worse than most economists want to believe. That’s not good news for a central bank trying to rescue the single currency through a hotly-contested bond purchasing programme that has yet to get started.

Excuses Not To Do MoreTim Duy’s Fed Watch
I think the story here is that fiscal stimulus is only a temporary measure, not a long-run solution.  The long-run solution is dealing with the debt overhang, which can be addressed with more aggressive monetary policy.

Geopolitics and the DollarMarc to Market
The confrontation with Iran is widely perceived as the most worrisome geopolitical event on the horizon…face-off between Japan and China over the disputed islands.

Dallas Fed Fisher on Monetary PolicyThe Big Picture
Remarks before the Harvard Club of New York City Sep-19-2012

Global Equity Markets: Returns and CompositionThe Big Picture
Couple of charts and tables from JP Morgan

QE Infinity and US Stock MarketDavid Kotok / The Big Picture
Quick calculations pointing to higher stock prices during this decade, assuming Fed keeps its word on unemployment targeting.

Chart of the week: EM fx reservesbeyondbrics / FT
After years of accumulation, emerging markets are not stockpiling the dollars as they once were. Currency depreciation worries, slowing exports, a possible end to the commodity supercycle – there are various reasons why overflowing reserves might hold less appeal. But some countries are bucking the trend.

Carrying liquidity as far as you canalphaville / FT
BoaML takes a look at the interest rate differentials as exchange rate drivers.

The Roots of Chinese/Japanese RivalryProject Syndicate
Much like in Germany in the 1840’s, when appeals to private enterprise converted the entire middle class to nationalism, China’s capitalist restoration has awakened mass nationalism. Hundreds of millions now see themselves as sharing in the nation’s dignity, and are eager both to contribute to it and to defend it from insult.

Urpilainen: Suomi ei hyväksy kriisirahaston kasvattamistaYLE
Valtiovarainministeri Jutta Urpilaisen mukaan EU:n pysyvän kriisirahaston kasvattaminen ns. vivuttamalla oli hiljattain esillä euroryhmän kokouksessa Kyproksessa. (otsikko virheellinen: Urpilainen ei tämmöistä luvannut. Hienoa touhua taas suojatyölaitokselta...)

Nordea: "EVM:n vivuttaminen lisäisi julkisen rahan riskiä"TalSa
EVM:n vivuttaminen olisi ristiriidassa Suomen politiikan kanssa. Nyt on haettu vakuuksia omille lainarahoille, mutta vivuttamisen jälkeen sanottaisiin suoraan, että näillä rahoilla oltaisiin valmiita ottamaan vastaan ensimmäiset tappiot, jotta yksityiset sijoittajat välttyisivät omiltaan, von Gerich sanoo. Vastustamista on helppo perustella. Vivuttaminen toisi julkisille rahoille lisää riskiä ja voisi muuttaa sijoittajien kannustimia väärään suuntaan, hän toteaa.

Stubb: Suomelle tarjoillaan eurokeskustelussa mustaapekkaaMTV3
Stubbin (kok) mielestä kansainvälisessä mediassa on nyt halukkuutta hämmentää eurokeskustelua tuomalla esiin kantoja, jotka eivät todellisuudessa edusta Suomen linjaa. (=olkaa hiljaa!) 

Talousnobelisti: Euroalueelle pankkiunioni, talletussuoja ja yhteiset velatTalSa
Talousnobelisti Joseph Stiglitzin mukaan euroalueelle tarvitaan pankkiunionia, talletussuojarahastoa ja yhteisiä velkoja – ja nopeasti. Muuten kriisi uhkaa repiä koko järjestelmän hajalle.

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