by ilene - July 4th, 2015 4:15 pm
Courtesy of Perry Mehrling
The 85th Annual Report of the BIS is not perhaps the obvious first choice for beach-reading on a holiday weekend, but having read through its 119 pages, the core message reminds me of nothing so much as the most memorable line of the 40-year-old summer blockbuster “Jaws”: “You’re going to need a bigger boat.”
Notwithstanding everything that has been done since the Great Financial Crisis, it is not at all safe to go back in the water. Indeed danger of financial fragility is greater now than a year ago.
The danger this time comes, interestingly, not so much from the banks as from the policymakers, who persist in using empirically discredited pre-crisis thinking as a guide to macroeconomic policy. The problem, in a nutshell, is that “a monetary policy focused on managing near-term inflation and output may do so at the cost of higher fluctuations in credit and asset prices than in the past.” (p. 75)
In the modern financially globalized economy, the connection of monetary policy to domestic inflation and output is much attenuated, while the connection to asset prices is much increased. Monetary authorities who are focused on stabilizing quarterly aggregate demand can and do easily miss the effect of their actions on building up financial imbalances in the longer run, especially so when those imbalances are building up outside their own national borders.
In this respect, the biggest danger comes from the largest policy actors, the Fed and the ECB, since the “dollar zone” accounts for nearly 60% of world GDP, and the “euro zone” much of the rest (p. 87). The major central banks are keeping domestic interest rates low in an effort to stimulate domestic output in the short run, but the consequence is to blow asset bubbles in the world as a whole. The problem is “excess financial elasticity” and the current major source of the problem is policy.
Why are they doing it? The problem, suggests the Report, is with the faulty ideas on which policy makers are depending (p. 13):
by ilene - July 4th, 2015 5:35 am
Courtesy of The Automatic Earth.
Walker Evans Waterfront in New Orleans. French market sidewalk scene 1935
The IMF Debt Sustainability Analysis report on Greece that came out this week has caused a big stir. We now know that the Fund’s analysts confirm what Syriza has been saying ever since they came to power 5 months ago: Greece needs debt relief, lots of it, and fast.
We also know that Europe tried to silence the report. But what’s most interesting is that this has been going on for months, as per Reuters. Ergo, the IMF has known about the -preliminary- analysis for months, and kept silent, while at the same time ‘negotiating’ with Greece on austerity and bailouts.
And if you dig a bit deeper still, there’s no avoiding the fact that the IMF hasn’t merely known this for months, it’s known it for years. The Greek Parliamentary Debt Committee reported three weeks ago that it has in its possession an IMF document from 2010(!) that confirms the Fund knew even at that point in time.
That is to say, it already knew back then that the bailout executed in 2010 would push Greece even further into debt. Which is the exact opposite of what the bailout was supposed to do.
The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone‘s public sector. There was no debt restructuring in that deal.
Reuters yesterday reported that “Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and [the IMF] that has been simmering behind closed doors for months..
But that’s not the whole story. Evidently, there was a major dispute inside the IMF as well. The decision to release the report was apparently taken without even a vote, because it was obvious the Fund’s board members wanted the release. The US played a substantial role in that decision. Why the timing? Hard to tell.
The big question that arises from this is: what has been Christine Lagarde’s role in this charade? If she has been instrumental is keeping the analysis under wraps, she has done the IMF a lot of reputational damage, and it’s getting hard to see how she could possibly stay on as IMF chief. She has…
30% Bail-In Haircuts on Greek Deposits Over €8,000 Coming Up; Banks to Raid Deposits to Avert Collapse
by ilene - July 3rd, 2015 5:49 pm
Courtesy of Mish.
30% Bail-In Haircuts Coming Up
I warned countless times over the last six months that Greek citizens need to pull their deposits before it was too late.
Today I report it’s too late. 30% bail-in haircuts on Greek bank deposits are coming up.
Banks to Raid Deposits to Avert Collapse
The Financial Times reports Greek Banks Prepare Plan to Raid Deposits to Avert Collapse
Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.
The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.
“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”
Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the leftwing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared unconstitutional.
Depositors can withdraw only €60 a day from bank ATM cash machines, while requests to transfer funds abroad have to be approved by a special finance ministry committee in co-operation with the Greek central bank.
Greek deposits are guaranteed up to €100,000, in line with EU banking directives, but the country’s deposit insurance fund amounts to only €3bn, which would not be enough to cover demand in case of a bank collapse.
With few deposits over €100,000 left in the banks after six months of capital flight, “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalisation. . . It could even be flagged as a one-off tax,” said one analyst.
It’s Too Late…
by ilene - July 3rd, 2015 3:27 pm
Courtesy of Joshua Brown, The Reformed Broker
Much ado about not much. Labor Force Participation Rate falls again, 400,000 people basically dropped out, maybe forever, but the unemployment rate hits a low not seen since the spring of 2008.
Average hourly earnings were subdued, possibly putting the FOMC on pause. Or not. I’m increasingly convinced they plan to flip a coin in September. The new FOMC dot plot below:
Labor force participation is now at its lowest level since I was born in 1977. This is because – I don’t know if you know this – there are a lot of boomers in America that have been retiring lately, something demographers could never have seen coming for the last forty years. Also, traditional manufacturing, clerking, phone-answering and repair jobs are increasingly being carried out via software and robotics. That’s not going to change. Bureau of Labor officials pointed out that “At least we’re not f***ing Greece.”
Some details via Bloomberg:
The addition of 223,000 jobs followed a 254,000 increase in the prior month that was less than previously estimated, a Labor Department report showed Thursday in Washington. The jobless rate fell to a seven-year low of 5.3 percent as more people left the labor force.
The median forecast in a Bloomberg survey called for a 233,000 advance.
Average hourly earnings at private employers held at $24.95. They increased just 2 percent over the 12 months ended in June, following a 2.3 percent gain the prior month.
The participation rate, which indicates the share of the working-age people in the labor force, decreased to 62.6 percent, the lowest since October 1977, from 62.9 percent.
This is all “on-trend” data and the trend remains weakly strong. Or strongly weak, depending on whether you’re reading this in Canada or not.
by ilene - July 3rd, 2015 2:36 pm
Financial Markets and Economy
Oil prices fall as U.S. shale shows resilience (Market Watch)
Crude-oil futures fell Friday, with Nymex crude trading at its lowest level in more than two months, dragged lower by concerns over resilient U.S. shale production in the face of low oil prices and high OPEC production.
Light, sweet crude futures for delivery in August CLQ5, -0.61% fell 35 cents, or 0.6%, to $56.58 a barrel in electronic trading. August Brent crude on London’s ICE Futures exchange LCOQ5, -0.56% fell 41 cents, or 0.7%, to $61.66 a barrel.
Greece is having NO effect on Europe's economy (Business Insider)
Despite warnings about the Greek debt crisis spilling over to the rest of Europe and the uncertainty surrounding Greece's fate in the eurozone, the EU is actually in great health.
Markit's latest PMI reading for the eurozone — a measure of whether the bloc's economy is growing or shrinking — shows that its economy is growing at its fastest pace in 4-years.
The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 21-27 June 2015, according to data from STR, Inc.
FTSE 100 lower as bank shares fall; weekly loss in sight (Market Watch)
U.K. stocks slipped Friday, moving toward a weekly loss, with bank stocks under pressure and as Greek-crisis uncertainty weighed on European assets.
The FTSE 100 UKX, -0.21% fell 0.1% to 6,624.11, led by losses among financial, basic-material and industrial issues. The benchmark was looking at a 2% loss for the week, heading toward its worst weekly loss in a month.
RBS faces a $13 billion fine for its pre-financial crisis behaviour (Business Insider)
Royal Bank of Scotland has been warned in a US court that it could face a $13bn (£8.3bn) bill in a
by ilene - July 3rd, 2015 2:15 pm
This weekend brings on another pivital event in the political drama: The "Greferendum" (as Zero Hedge calls it). What-to-do-about Greece has been an issue plaguing the financial markets for years and perhaps, just perhaps, the vote and its outcome on Sunday will get the embattled country and the EU one step closer to a resolution.
So at risk of telling the yet-again story yet-again, here's the latest from Zero Hedge, in several articles expertly glued together to cover current developments and various perspectives.
As expected (and as tipped here on Thursday immediately after news broke that an IMF study conducted prior to the imposition of capital controls in Greece suggests debt relief for Athens is necessary if anyone hopes to create some semblance of sustainability), Greek PM Alexis Tsipras is now leaning hard on voters to carefully consider the fact that one-third of the troika has effectively validated the Greek government’s position on creditor writedowns.
“This position was never proposed to the Greek government over the five months of negotiations, wasn’t included in final offer tabled by creditor institutions, on which people are going to vote on July 5,” Tsipras said in a televised address, making it clear to Greeks that the proposals they are voting on effectively do not reflect the views of the institution that is perhaps the country’s most influential creditor.
“This IMF report justifies our choice not to accept an agreement which ignores the fundamental issue of debt,” he added, driving the point home.
Clearly, this puts Europe, and especially Germany, in a rather unpalatable position. Many EU officials have for months insisted that IMF participation is critical if the Greeks hope to secure a third bailout. The IMF meanwhile, has stuck to a position first adopted years ago (something we’ve noted in these pages multiple times of late); namely that official sector writedowns will ultimately be necessary if Brussels hopes to finally put the Greek tragicomedy to bed. This means Brussels (and Berlin) will now be forced to choose between IMF involvement (which the EU says is a precondition for a deal) and haircuts (which the EU says aren’t possible).
Greek Banks Down to Last €500 Million; Vote for Servitude Takes Slight Lead; IMF Says Greece Needs Another €60 Billion Bailout
by ilene - July 3rd, 2015 8:39 am
Courtesy of Mish.
- A "yes" vote in favor of servitude has now reached a slight majority according to some Greece referendum polls. How accurate the polls are is an issue.
- Yanis Varoufakis, Greece’s finance minister, said he would resign if Greeks voted Yes in Sunday’s referendum on the country’s bailout. "I will not sign another extend and pretend agreement", said Varoufakis.
- Greece to run out of essential food and medicine within days and banks down to last €500 million.
- Daily allowance of cash from ATMs has dropped from €60 to €50.
- Three quarters of business leaders think Greece will be forced to leave the eurozone in the next 12 months.
Vote for Servitude Takes Slight Lead
Reuters reports 'Yes' Camp Takes Slim Lead in Greek Bailout Referendum Poll
Supporters of Greece's bailout terms have taken a wafer-thin opinion poll lead over the 'No' vote backed by the leftist government, 48 hours before a referendum that may determine the country's future in the euro zone.
The poll by the respected ALCO institute, published in the Ethnos newspaper on Friday, put the 'Yes' camp on 44.8 percent against 43.4 percent for the 'No' vote. But the lead was well within the pollster's 3.1 percentage point margin of error, with 11.8 percent saying they are still undecided.
Given a volatile public mood and a string of recent election results that ran counter to opinion poll predictions, the result is in effect completely open.
Credit ratings agency Fitch said the banks were already effectively bust and would go to the wall within days unless the European Central Bank increases emergency liquidity assistance to help them cope with a wave of withdrawals.
There has been little time for campaigning but Tsipras is due to address a mass rally of 'No' supporters in Athens' central Syntagma Square outside parliament on Friday evening, while 'Yes' campaigners plan a rally at the old Olympic Stadium.
Greek Banks Down to Last €500 Million
Greece is sliding into a full-blown national crisis as the
by ilene - July 3rd, 2015 4:53 am
Courtesy of The Automatic Earth.
Dorothea Lange Miserable poverty. Elm Grove, Oklahoma County, OK 1936
So now they do it. Now the IMF comes out with a report that says Greece needs hefty debt restructuring.
Mind you, their numbers are still way off the mark, in the end it’s going to be easily double what they claim. Not even a Yanis Varoufakis haircut will do the trick.
But at least they now have preliminary numbers out. The reason why they have is inevitably linked to the press leak I wrote about earlier this week in Troika Documents Say Greece Needs Huge Debt Relief. If that hadn’t come out, I’m betting they would still not have said a thing.
It’s even been clear for many years to the IMF that debt restructuring for Greece is badly needed, but Lagarde and her troops have come to the Athens talks with an agenda, and stonewalled their own researchers.
Which makes you wonder, why would any economist still want to work at the Fund? What is it about your work being completely ignored by your superiors that tickles your fancy? How about your conscience?
Why go through 5 months of ‘negotiations’ with Greece in which you refuse any and all restructuring, only to come up with a paper that says they desperately need restructuring, mere days after they explicitly say they won’t sign any deal that doesn’t include debt restructuring?
By now I have to start channeling my anger about the whole thing. This is getting beyond stupid. And I did too have an ouzo at the foot of the Acropolis, but I’m not sure whether that channels my anger up or down. The whole shebang is just getting too crazy.
For five whole months the troika refuses to talk debt relief, and mere days after the talks break off they come with this? What then was their intention going into the talks? Certainly not to negotiate, that much is clear, or the IMF would have spoken up a long time ago.
At the very least, all Troika negotiators had access to this IMF document prior to submitting the last proposal, which did not include any debt restructuring, and which caused Syriza to say it was unacceptable for that very reason.
by Market Shadows - July 3rd, 2015 2:10 am
Financial Markets and Economy
Did the IMF Just Open Pandora's Box? (Zero Hedge)
By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.
Baker Hughes rig count rises for the first time in 29 weeks (Business Insider)
The number of US oil rigs in use just rose for the first time in six months.
On Thursday, we learned that US oil rigs in use rose by 12 to 640, the first increase since December 5, 2014.
Weekly Initial Unemployment Claims increased to 281,000 (Market Watch)
A quick graph of unemployment claims … Note: Starting with this release, the DOL is including a table of unadjusted State-level "advance"claims.
Asia shares subdued as U.S. data disappoints, fret over Greece, China (Business Insider)
Asian stocks were little changed on Friday, with investors reluctant to stake out fresh positions after disappointing U.S. employment data and cautious ahead of Greece's weekend referendum which may decide its future in Europe.
China's increasingly volatile markets may upstage Greek concerns in the session, after that country's securities market regulator said it had opened an investigation into suspected market manipulation after a slump of more than 20 percent in Chinese stocks since mid-June.
Customers at Iannis's gas station in an industrial area in southeast Athens may be disappointed if they try to pay with plastic.
He's set a limit of 50 euros ($55) for credit and debit cards, not enough
by ilene - July 3rd, 2015 1:56 am
Courtesy of David Stockman
Yesterday the embattled Greeks delivered still more body blows to the rotten regime of Keynesian central banking and the crony capitalist bailout state to which it is conjoined. By defaulting on its IMF loan, walking away from the troika bailout program and taking control of its insolvent domestic banking system, Alexis Tsipras and his band of political outlaws have shattered a giant illusion.
Namely, that the world’s debt serfs will endlessly and meekly acquiesce to whatever onerous, eleventh hour arrangements might be concocted by their official paymasters——even when these expedients are for no more noble or sustainable purpose than to forestall a Monday moring hissy fit among the gamblers in the world’s financial casinos.
So at midnight on June 30 the proverbial can was not kicked again as scheduled. Instead, Greek democracy kicked back. And it is to be hoped that the end result will be a mighty boot to the tyranny of the status quo in the form of a resounding “no” vote on Sunday.
The latter would clarify that everything at issue between the parties is false. There is no way to pay Greece’s debts, modify the troika austerity plan, save the euro, rescue Greece’ banking system or stabilize Europe’s hideously mispriced and distorted debt markets.
It's all going to blow and it should. The entire European mess has been concocted by statist politicians and policy apparatchiks who falsely and arrogantly believe they can defy the laws of markets, sound money and fiscal rectitude indefinitely.
The truth lost in all the meaningless “puts and takes” of the latest negotiations is that Greek state was bankrupt five years ago; it can not reform, save, skimp, or grow its way out of its crushing debt, and should stop looking for ways to accommodate its paymasters. It urgently needs to default massively and decisively, and is in a ideal position to do so.
That’s because the clowns who run the troika have taken themselves hostage. That is, they have shifted virtually the entirety of Greece’s unpayable debts from private banks and bond funds to the taxpayers of Europe, the US, Japan and even the unwary citizens of Peru, Senegal and Bangladesh.