by ilene - February 24th, 2015 7:34 pm
By John Mauldin
Some things never change. Here is Eugen von Böhm-Bawerk, one of the founding intellectuals of the Austrian school of economics, writing in January 1914, lambasting politicians for their complicity in the corruption of monetary policy:
We have seen innumerable variations of the vexing game of trying to generate political contentment through material concessions. If formerly the Parliaments were the guardians of thrift, they are today far more like its sworn enemies. Nowadays the political and nationalist parties … are in the habit of cultivating a greed of all kinds of benefits for their co-nationals or constituencies that they regard as a veritable duty, and should the political situation be correspondingly favorable, that is to say correspondingly unfavorable for the Government, then political pressure will produce what is wanted. Often enough, though, because of the carefully calculated rivalry and jealousy between parties, what has been granted to one has also to be conceded to others — from a single costly concession springs a whole bundle of costly concessions. [emphasis mine]
That last sentence is a key to understanding the crisis that is unfolding in Europe. Normally, you would look at a country like Greece – with 175% debt-to-GDP, mired in a depression marked by -25% growth of GDP (you can’t call what they’re going through a mere recession), with 25% unemployment (50% among youth), bank deposits fleeing the country, and a political system in (to use a polite term) a state of confusion – and realize it must be given debt relief.
But the rest of Europe calculates that if they make concessions to Greece they will have to make them to everybody else, and that prospect is truly untenable. So they have told the poor Greeks to suck it up and continue to toil under a mountain of debt that is beyond Sisyphean, without any potential significant relief from a central bank. This will mean that Greece remains in almost permanent depression, with continued massive unemployment. While I can see a path for Greece to recover, it would require a series of significant political and market reforms that would be socially and economically wrenching, almost none of which would be acceptable to any other country in Europe.…
by ilene - February 24th, 2015 3:16 pm
In 2008, Canadian economist Jeff Rubin stunned the oil market with a bold prediction: With the world economy growing at 5 percent a year, oil demand would grow with it, outpacing supply, thus lifting the oil price from $147 to over $200 a barrel.
The former chief economist at CIBC World Markets was so convinced of his thesis, he wrote a book about it. "Why the World is About to Get a Whole Lot Smaller" forecast a sea change in the global economy, all driven by unsustainably high oil prices, where domestic manufacturing is reinvigorated at the expense of seaborne trade and people's choices become driven by the ever-increasing prices of fossil fuels.
In the book, Rubin dedicates an entire chapter to the changing oil supply picture, with his main argument being that oil companies "have their hands between the cushions" looking for new oil, since all the easily recoverable oil is either gone or continues to be depleted – at the rate of around 6.7% a year (IEA figures). "Even if the depletion rate stops rising, we must find nearly 20 million barrels a day of new production over the next five years simply to keep global production at its current level," Rubin wrote, adding that the new oil will match the same level of consumption in 2015, as five years earlier in 2010. In other words, new oil supplies can't keep up with demand.
Of course, Rubin at the time was talking about conventional oil – land-based and undersea oil – as well as unconventional oil sands. The shale oil "revolution" in the United States that took off soon after the publication of his book has certainly changed the supply picture, and the recent collapse in oil prices has forced Rubin to eat his words. With U.S. shale oil production soaring from 600,000 barrels a day in 2008 to 3.5 million barrels a day in 2014, the United States over the past few years has flooded the market with new oil from its shale formations, including the Eagle Ford in South Texas and the Bakken in North Dakota. According to the Energy Information Administration (EIA), total…
by ilene - February 24th, 2015 2:42 pm
Emily Glazer at the Wall Street Journal reports on JP Morgan's move to reduce large deposits, worth about $390 billion, down to about half of that. The fees will presumably force the clients into switching to other ways of holding their money and/or other less liquid investments. The stock market likes the news, shares are up about 2.5%.
To read the full WSJ articles, paste the title into Google's search bar and click, then click on the article from the WSJ in Google's list.
New deposit fees likely to reduce deposits by billions
J.P. Morgan Chase & Co. is preparing to charge large institutional customers for some deposits, citing new rules that make holding money for the clients too costly, according to a memo reviewed by The Wall Street Journal and people familiar with the plan.
The largest U.S. bank by assets is aiming to reduce the affected deposits by up to $100 billion by the end of 2015, according to a bank presentation Tuesday morning.
Plan comes as bank seeks to discourage certain deposits amid new regulations, low interest rates
The plan won’t affect the bank’s retail customers, but some corporate clients and especially an array of financial firms, including hedge funds, private-equity firms and foreign banks, will feel the impact, according to an internal bank memo reviewed by The Wall Street Journal. The bank is focusing on around $200 billion of certain “excess” deposits from financial institutions out of a total $390 billion of financial-institution deposits, according to the presentation.
J.P. Morgan is making the moves because certain deposits are less profitable to handle than they used to be. New federal rules essentially penalize banks for holding deposits viewed as prone to fleeing during a crisis or a stressed environment.
The Wall Street Journal reported in early December that J.P. Morgan and several other banks, including Citigroup Inc., HSBC Holdings PLC, Deutsche Bank AG and Bank of America Corp. , had spoken privately with clients in recent months to inform them that new regulations are making some deposits less profitable, in some cases telling clients they would charge fees or work to find alternatives for some of the deposits. The moves have thrown into question a cornerstone of banking, in which deposits have been seen as one of the industry’s most attractive forms of funding.
by ilene - February 23rd, 2015 12:35 am
To the surprise of nobody except a few alarmists, the finance ministers of the European Union reached a deal with Greece on Friday, extending the country’s existing bailout until the early summer. Greece’s new left-wing Syriza government had been telling everyone for weeks that it wouldn’t agree to extend the bailout, and that it wanted a new loan agreement that freed its hands, which marks the deal as a capitulation by Syriza and a victory for Germany and the rest of the E.U. establishment.
In retrospect, it is clear that Tsipras and Varoufakis overplayed their hand. Their early bluster riled up the Germans and alienated other players that they needed to win over, such as the E.C.B. and the European Commission. Since Varoufakis is an academic game theorist, this is a bit surprising, but perhaps not entirely so. Having been swept into office practically out of nowhere, Syriza’s leaders were understandably giddy, and understandably eager to meet the demands of the popular protest movement that was responsible for their rise.
Full article: How Greece Got Outmaneuvered – The New Yorker.
Cartoon and articles shared by Josh Brown of the Reformed Broker: What Greece Won
- Scoreboard: Here's What Each Side Got in the Greece Negotiations (Bloomberg)
- Greece saved from disaster – for two days (BBC)
- How Greece Got Outmaneuvered (New Yorker)
by ilene - February 22nd, 2015 11:33 pm
By Elliott Wave International
Editor's note: This article was adapted from the February issue of The Elliott Wave Financial Forecast, a publication of Elliott Wave International. All data is as of Jan. 30, 2015. (Click here for the full version of the article, including specific near-term forecasts.)
A significant hint of economic softening is the slight decline in average hourly earnings in December. It came despite "a healthy 252,000 increase in jobs. "Economists are struggling to explain the phenomenon," says the Associated Press. "I can't find a plausible empirical or theoretical explanation for why hourly wages would drop when for nine months we've been adding jobs at a robust pace," says a perplexed economist.
The chart above of the U.S. Labor Force Participation Rate presents a similar conundrum. Why is it falling when job growth is rising? The answer, we think, is the emerging force of deflation.
Notice that the peak participation rate of 67.3% came from January to March 2000, as the major stock indexes topped, after which inflation first began to falter. When stocks rallied to their 2007 top, there was a mild bounce in the rate, but the latest stock market rally failed to generate any sustained rise in the rate of work force participation. Workers appear so discouraged that the pool of available employees is back to where it was in 1978.
The opening chapter of Robert Prechter's, Conquer the Crash, illustrates various other measures depicting a long-term economic deterioration. He writes, "The persistent deceleration in the U.S. economy is vitally important, because it portends a major reversal from economic expansion to economic contraction."
As "great" as it was, the Great Recession of 2008-2009 was just a prelude. Click here to continue reading the complete version of this article, a part of the newest issue of EWI's newsletter, free.
This article was syndicated by Elliott Wave International and was originally published under the headline Why the Workforce Still Shrinks as Job Growth Rises.