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Sunday, January 20

20th Jan - Weekender: The World



Weekend’s picks on Europe, US and Asia. IMF tells Greece needs more money in the coming years and the external balances are not improving - adding that a Grexit and default would be helpful for Greece. FT's alphaville mentions that the euro area's internal adjustments have not happened. The bailout of Cyprus and the Italian elections together with terrible macro are the near-term sources of worry.

Previously on MoreLiver’s:

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EUROPE
Brussels blog round-up for 12 – 18 January: Europe’s security shortcomings, ‘show’ passports, and is the eurozone returning to normal?europp / LSE

Pictet On The Sudden Depreciation Of The Swiss FrancZH

The European house of mum and dadalphaville / FT
Bad Economy Has Young Europeans at HomeSpiegel
Young Europeans in countries hit hardest by the Continent's economic crisis are finding it difficult to move out of their parents' home. Data shows that over 50 percent of those aged 25 to 34 in some countries have yet to move out.

Will Europe’s Fiscal Compact Work?Project Syndicate
At the start of 2013, the eurozone’s “fiscal compact” entered into force, owing to its ratification on December 21 by a 12th country, Finland, a year after German Chancellor Angela Merkel prodded eurozone leaders into agreement. But will it enforce budget discipline any more effectively than previous agreements?

The biggest threat to Britain’s credit rating is a possible exit from the EU europp / LSE
In advance of David Cameron’s now postponed speech on Europe, Costas Milas explores the ramifications which the prospect of an exit from the EU might hold for the UK’s credit rating.

Make-or-break elections for Merkel coalition partnereuobserver
Regional elections in Lower Saxony on Sunday are being seen as a barometer for Germany's general elections in autumn, with Chancellor Merkel's junior coalition partner struggling for survival.

Russia enlists in currency warbeyondbrics / FT
Russia lambasted Japan and other countries this week for deliberately weakening their currencies to gain competitive advantage in global trade…So how come Russia itself is buying dollars to weaken its own currency?

  CRISIS OVER OR NOT?
Eurozone crisis: It ain’t over yetvoxeu.org
All G7 economies are struggling in the post-crisis climate, but US GDP has recovered to pre-crisis levels, while the Eurozone simply hasn’t. This column portrays the global crisis as a transitory shock for the US, but as a quasi-permanent shock for Europe. The policies that are needed get the Eurozone back on track do not seem to be politically feasible. As tension rises with every quarter of stagnation, prospects for the survival of the euro are not only not improving, they are actually getting worse.

Europe Is Still Broken: Evidence & CommentaryZH
The ECB has failed to correct or really to even ameliorate the deep, persistent imbalances that are so pervasive across the currency union. Don't expect this situation to improve anytime in the near future. It would seem that a broken monetary policy transmission channel may turn into an EMU mainstay, hindering credit expansion and generally curtailing Mario Draghi's ability to effectively arrest the crisis for the foreseeable future.

The euro-zone crisis: Time to celebrate?The Economist
Government-bond markets in peripheral countries are soaring

All pain and no (productivity) gainsalphaville / FT
One of the reasons that the eurozone’s peripherals should be willing to put up with austerity is that it’s helping address internal balances and address falls in competitiveness. That’s the story being sold by the politicians at least.

Europe's Cognitive DissonanceZH
Many are arguing that all is well, crisis averted and the world can go on its merry way to Dow 30,000. However, the reality is extremely different in the real economy

Markets Buy Mario Draghi’s Future UncriticallyWSJ
When ECB President Mario Draghi strode into his Frankfurt press conference on January 10, he had a vision to sell, writes columnist David Cottle.

  CYPRUS
Cyprus Split With IMF on Banks Delays Aid, Christofias Says (15-Jan) – BB

Haven for Oligarchs: Europe's Mounting Reluctance to Bail Out CyprusSpiegel
There is growing resistance in Europe to the planned aid program for Cyprus, because it would also benefit illegal Russian money parked in bank accounts in Cyprus. The government in Nicosia is willing to make concessions, but Brussels is demanding more reforms.

  GREECE
Greece: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of UnderstandingIMF (pdf)

Greece: First and Second Reviews Under the Extended Arrangement Under the Extended Fund Facility, Request for Waiver of Applicability, Modification of Performance Criteria, and Rephasing of Access—Staff ReportIMF

  PORTUGAL
Portugal: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of UnderstandingIMF (pdf)

Portugal: IMF Executive Board Concludes 2012 Article IV ConsultationIMF

Portugal: Selected Issues PaperIMF

Portugal: 2012 Article IV ConsultationIMF

  ITALY
Italy: Economy Rotting While Focus on ElectionsMarc to Market
Unappreciated by many is the fact that the Italian economy has seen the largest contraction (7%) since the crisis began within the euro zone after Greece.  Per capita income is back, according to former ECB's Bini Smaghi, to where it was in the mid-1990s (talk about a lost decade).

  SPAIN
Massive Fraud in Spain Threatens Entire Government of Prime Minister Mariano Rajoy; Protestors in Madrid Shout "Resignation"Mish’s


UNITED STATES
The Future's so Bright ...Calculated Risk
It looks like economic growth will pickup over the next few years…The key short term risk is too much additional deficit reduction too quickly.

U.S. Oil-Production Rise Is Fastest EverWSJ

  FEDERAL RESERVE
The Federal Reserve's Balance Sheet and Earnings: A primer and projectionsFED
Using the FOMC's stated exit strategy principles and the Blue Chip financial forecasts of the federal funds rate, the projections have the Federal Reserve's portfolio beginning to contract in 2015, returning to a more normal size in 2018 or 2019, and returning to a more normal composition a year thereafter.

The Legacy of Timothy Geithner Economix / NYT
Mr. Geithner came to Treasury in the middle of a severe financial crisis, a set of problems that he helped to create and then worked hard to prevent from worsening. As president of the Federal Reserve Bank of New York, starting in 2003, he watched over – and failed to defuse – the buildup of systemic risk.

Fed's balance sheet grows above $3 trillion, finally impacting the monetary baseSober Look

Fed Concerned About Overheated Markets Amid Record Bond Buys BB

Do 2007 Fed Transcripts Make Yellen Frontrunner To Succeed Bernanke?Econospeak

  DEBT CEILING & FISCAL CLIFF
How Game Theory Explains Washington's Horrible Gridlock The Atlantic
Why Congress can't even reach a mini-bargain -- and why kicking the can down the road will remain the most likely outcome.

Analysis: Preparing for the unthinkable: Could markets handle a U.S. default?Reuters
Squabbling in Washington over the debt ceiling is again raising the specter that the United States may be forced to delay payments on its debt. While the stigma of a default would be damaging enough to investor sentiment, the chaos from a breakdown in financial markets' systems that might result would be even scarier.

Fiscal Cliff Update: a Short-Term Debt Limit Extension Shifts the BattlefieldCFR
http://blogs.cfr.org/kahn/2013/01/18/fiscal-cliff-update-a-short-term-debt-limit-extension-shifts-the-battlefield/

The case for deficit optimismWonkblog / WP
For all the sound and fury, Washington’s actually making real progress on debt.

  MACRO DATA
Preliminary January Consumer Sentiment declines to 71.3 – Calculated Risk
Consumer Sentiment Drops at Start of Year – WSJ
Consumer sentiment at year low; fiscal debate weighs – Reuters
Housing Starts and Building Permits Hit Multi-Year Highs – Bespoke
Growth in personal income remains rather weak when compared to... – RCS


ASIA
  JAPAN
Japan seems to be preparing to embark on a major effort to right its economic ship. As it does so, an interesting debate is emerging over just what the Japanese economy needs.
http://www.economist.com/blogs/freeexchange/2013/01/japanese-economy

Shinzo and the Helicopters (Somewhat Wonkish)Krugman / NYT
Way back in the early stages of this crisis I argued that we’d entered a looking-glass realm in which virtue was vice and prudence was folly. We’re still in that realm — and Japan, of all places, seems to be the first major government to figure that out.

The Wrong Growth Strategy for Japan Project Syndicate
Japan’s new government, seeking to boost economic growth, could be about to shoot itself in the foot by destroying its one great advantage: the low rate of interest on government debt and private borrowing. If that happens, Japanese conditions will most likely be worse at the end of Prime Minister Shinzo Abe’s term than they are today.

  CHINA
The Limits of China’s Consumer RevolutionProject Syndicate
After the global economic crisis weakened the external demand that fueled China’s economic growth over the last three decades, the country’s leaders agreed that domestic consumption must become the new engine of economic growth. But China cannot achieve stable, sustainable growth unless it also upgrades its manufacturing sector.

Charting China’s Economy: The Fourth QuarterWSJ
China’s economy has bounced back. A return to accelerating growth in the fourth quarter breaks seven straight quarters of declining growth and draws a line under concerns that the world’s second largest economy is heading for a hard landing. China Real Time charts it out.

Analysis: Property risk reigniting as China economy turns cornerReuters
Business is booming in Beijing's real estate offices -- good news for property agents like Zhang Huanhuan, but a headache for China's policymakers as worries resurface about the sustainability of investment in the sector.

A Raft of Surprises From China Stats ChiefWSJ
In a surprise move, China’s chief statistician on Friday revealed that the nation’s labor pool is dwindling, and suggested maybe it was time to adjust China's sensitive one-child policy and retirement age. And for good measure, he gave out the closely guarded figure of China’s Gini coefficiency – a yardstick of income inequality.

What Happens When China Goes “Gray”?The Diplomat
Developed economies are beginning to struggle with aging populations and more retirees. China may soon join them.

Charting China’s EconomyWSJ
China’s economy has bounced back. A return to accelerating growth in the fourth quarter breaks seven straight quarters of declining growth and draws a line under concerns that the world’s second largest economy is heading for a hard landing. China Real Time charts it out.

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