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Monday, June 24

24th Jun - US Close: More BIS, China and Fed

Previously on MoreLiver’s:

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Roundups & Commentary
Markets – Between The Hedges
The Closer – alphaville / FT
Europe: Stocks Plunge To Seven-Month Lows; Banks In Bear Market – ZH
US: Stocks Tumble And Bonds Grumble Despite Dovish Hawks – ZH

Bankers Caught On Tape, Joking About Bailout, And How They'd Never Pay It BackBI

The CDU/CSU election manifesto: Something for everyoneDB Research

EU bank bailout rules: leaked Noonan compromiseBrussels blog / FT
The main issue in dispute can be summed up in one word: flexibility. How much of it should national authorities be allowed under the EU’s new banking union regime when a bank fails? Should losses be nearly automatic on bank owners and bond holders – and, potentially, some deposit holders – or should national authorities be given discretion in the distribution of losses?

European Banking Union: Small StepsCFR
To be optimistic, therefore, is to conclude that European leaders understand the math, and in order to protect the euro would expand the fund when (and only when) needed–an unwritten commitment to do whatever it takes. But the desire of Germany and others to put off that day as long as possible, to exhaust all the other options, hardens their line when it comes to bail-ins. That makes this week’s showdown important.

EU ministers seek resolution on who pays if banks failReuters
EU finance ministers are under pressure to agree who pays for failing banks after failing to reach a deal last week, with Germany and France at odds on how to distribute the costs.

Dallas Fed: Regional Manufacturing Activity "surges" in JuneCalculated Risk

Housing Stocks Near Bear Market; Turn Red Year-To-DateZH

The Fed’s bad timingFelix Salmon / Reuters
If you only read one article on US monetary policy and the latest actions of the Fed, it should be Wonkblog’s interview with St Louis Fed president James Bullard — an interview that answers pretty much every question you might have, with the exception of the “why did they do this” one.

"Bad News Is No Longer Good News"ZH
Morgan Stanley: we think the Hall Pass is over and that this regime changed last week. The big outcome from the earlier-than-expected start of tapering is that going forward, bad economic news will be bad for markets. The market knows and most Fed governors know there are diminishing returns to QE’s efficacy. So, something new and massive would be required in order for poor economic news – should it surface – to be rewarded the way it has been for much of the past year.

What if the Fed Really Does Think it’s Monetizing the Debt?PragCap
So, what if the entity running the program actually believes it’s needed to fund the deficit and plans on removing this huge psychological put from underneath the market based on what I think is a misconception?   The falling deficit and the removal of the Bernanke Put….Talk about a potential double whammy….

Fed Needs Threshold System for Bond Buying Program, Kocherlakota SaysWSJ
The Fed needs to clarify the conditions that would lead it to pull back on the level of stimulus it is now providing the economy, a U.S. central bank official says.

"We are not tightening", says a tightening FedFree exchange / The Economist
The past few days have made it overwhelmingly clear that the Fed is steering this recovery. That should be comforting; all it has to do is steer things in a more expansionary direction! But it isn't, because the Fed keeps looking around and wondering, who's got the wheel?

Neither cast ye your tapering before swine… - alphaville / FT
Fisher is a long-time hawk and it’s difficult to know how representative these comments are — in other words, to what extent he is speaking for others on the FOMC in declaring that the intent behind announcing the strategy last week was to begin sussing out the market’s vulnerabilities, preparing them for the inevitable tapering when it does occur. Maybe we’ll learn more in the minutes.

Fed’s Fisher: Fully in Favor of Dialing Back Bond PurchasesWSJ
Fed’s Dudley: Financial Stability Critical to Effective Monetary PolicyWSJ

Judging Japan’s ExperimentWSJ
Japanese Prime Minister Shinzo Abe’s economic plan seemed to sail off almost flawlessly this year as stocks soared and the yen tumbled from levels late last year. But has Japan really turned a corner?

Abenomics: The Implications for EuropeBruegel
But the main potential effect of Abenomics on Europe lies elsewhere. If PM Abe decides after all to adopt ambitious growth-enhancing measures and Abenomics proves successful, the most important implication for Europe will be that reviving the economy requires a combination of bold macroeconomic and structural policies, with the right sequencing between the two. 

Banks Are Using Secret Channels To Flood China With Loans It Doesn't NeedBI

China cash squeeze eases, but bank shares take big hitReuters
China's cash crunch eased further on Monday after the central bank moved to prevent the money market from seizing up, but bank stocks tanked as the authorities made clear that the days of unlimited cheap official funds are over.

China Cash Crunch Puts Pressure on Small Banks, Moody’s SaysBB
China’s worst cash squeeze in at least a decade may weigh on smaller banks’ financial strength as their reliance on interbank funding leads to an erosion of loan margins, according to Moody’s Investors Service.

PBOC Sees ‘Reasonable’ Liquidity in China’s Financial SystemBB
China said there’s a reasonable amount of liquidity in the financial system and urged banks to control risks from credit expansion, signaling no relief for a cash squeeze that risks exacerbating an economic slowdown.

When it comes to the latest PBoC policy, Mr. Mobius knows bestSober Look
The PBoC acted to calm China's interbank markets this morning, somewhat stabilizing liquidity and short-term rates. Mobius: “While China's housing market problems are similar in scale to those faced during the U.S. subprime mortgage bubble and its banks are rife with bad loans, it won't lead to another Lehman-style crash”.

Okay, we get it, BIS: fiscal policy is not your thingalphaville / FT
Sure, the BIS arguments about the limitations of monetary policy are fair and perhaps even timely. But most of us are living in less than ideal situations when it comes to fiscal policy, particularly with regard to the long-term. The other problem is with the BIS prescriptions. Everyone can’t repair their balance sheets at the same time without hurting aggregate demand.

More on the BIS Annual ReportHistorinhas
I wonder how the steep drop in NGDP at about the same time in a large swath of developed economies can be said NOT to be a monetary problem.

Why financial stability is a necessary prerequisite for an effective monetary policyBIS (pdf)
Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and Chairman of the Committee on the Global Financial System (CGFS), at the Andrew Crockett Memorial Lecture, Bank for International Settlements 2013 Annual General Meeting, Basel, 23 June 2013.

Greatest. Research Note. Ever.The Reformed Broker
Nothing else to say and saying it.

EM sell-off: where are the bottom-fishers?beyondbrics / FT

Suomen vienti sukeltaatyhmyri
Kannattaa varautua sisäiseen devalvaatioon eli tuntuvaan köyhtymiseen

Suomi sukeltaa sisäiseen devalvaatioonPetri Rautiainen / US Puheenvuoro

Saatanan tunarit !Pekka Korpela / US Puheenvuoro