Guest Post: If it walks like a duck and quacks like a duck…

Guest post by Mr. Hannu Visti: translation by MoreLiver. You can follow me on Twitter and Facebook and email me for suggestions and requests.  

If it walks like a duck and quacks like a duck…

…it could be a duck.

Sarkozy and Merkel are tinkering some sort of a stronger economic union to save the monetary union and the common currency. I see here a possible final failure, but also a small glimmer of hope – the same that has faintly twinkled couple of times during the past month and again today.

2nd Dec - Read last night's post

Good day! In this post on SEC's data mining efforts to detect insider dealing and the usual euro crisis.  I suggest you read last night's Sweep the leg instead of this - there was plenty of quality material there. I heard a new name for PIIGS: Subalpine Africa. 

Hearing rumors that Western special forces units are filtering into Syria in preparation of major ground operations. You can follow me on Twitter and Facebook and email me for suggestions and requests.  

1st Dec - Sweep the leg

Howdy ho! If you have your pop culture knowledge in order, today's headline is of course from the era-defining movie Karate Kid. 'Wax on, wax off' as a symbol for the long arduous apprenticeship. 'Sweep the leg' as the Minsky moment when all bets are off and whatever was previously agreed upon does not hold true anymore. 

There is no way to change the EU Treaties to get an effective solution in time, so either they have to come up with something crooked (doing QE while stating it is monetary policy, not fiscal) or downright illegal (do first and ask later, referendums are for wimps anyway). Sweep the leg.

One thing to add: the MEP’s must be hallucinating. They want to have equal rights with other EU institutions over the national budgets. On the same day they write up a code of conduct banning taking or asking for bribes. Oh yeah, even if they would take bribes, they would be banned from the parliament for couple of weeks – not even sacked.

1st Dec - Back To School

Here’s MoreLiver’s Thursday Back to School research recap. Some of the summaries are truncated. Most of this is lifted from @quantivity twitterfeed and NBER. Topics this week are the Euro Zone, Portfolio Management, Anomalies and Herding & Segmentation.

EURO ZONE

The Euro and European Economic Conditions – NBER
This paper reviews (1) the reasons for these economic problems, (2) the political origins of the European Monetary Union, (3) the current attempts to solve the sovereign debt problem, (4) the long-term problem of inter-country differences of productivity growth and competitiveness, (5) the special problems of Greece and Italy, (6) and the pros and cons of a Greek departure from the Eurozone.

Target Loans, Current Account Balances and Capital Flows: The ECB's Rescue Facility – NBER
The European Monetary Union is stuck in a severe balance-of-payments imbalance of a nature similar to the one that destroyed the Bretton Woods System. Greece, Ireland, Portugal, Spain and Italy have suffered from balance-of-payments deficits whose accumulated value, as measured by the Target balances in the national central banks’ balance sheets, was 404 billion euros in August 2011. The national central banks of these countries covered the deficits by creating and lending out additional central bank money that flowed to the euro core countries, Germany in particular, and crowded out the central bank money resulting from local refinancing operations. Thus the ECB forced a public capital export from the core countries that partly compensated for the now reluctant private capital flows to, and the capital flight from, the periphery countries.

1st Dec - Msg to Croatia & Guide to naked beggars

Good morning!  The swap rate cut surely will not make PIIGS- debt and European banks' balance sheet trouble magically disappear - though it helps with immediate liquidity issues. The choice of end game scenarios is still up to Germany, and therefore I've included some links to recent articles from Spiegel. I will be paying a closer attention to the silent signals from Germany - sometimes the most important things are the ones left unsaid. If you are horribly interested in the swap rate cut, after checking my today's links, please visit my swap special from yesterday. Other posts from yesterday were credit guest, morning, extra, and evening.

The extremely weak Chinese PMI explains the sudden need to ease monetary policy, but it will probably only lead to more bubble building, as hardly cheaper credit in China will revive their export markets in Europe. 

Then a special Christmas greeting for my Croatian audience via Nigel: