Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Memetrics
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1223.2 | 26.7 | 2.23% |
| Eurostoxx Index | 2262.4 | 28.210 | 1.26% |
| Oil (WTI) | 100.9 | 1.110 | 1.11% |
| US Dollar Index (DXY) | 78.445 | -0.624 | -0.79% |
| 10 Year Govt Bond Yield | 2.03% | 0.03% |
Markets are gapping higher on coordinated Central Bank intervention in the money markets. The Federal Reserve, Bank of Canada, Bank of England, Bank of Japan, and the ECB have lowered US dollar swap rates by 50 basis points. “The purpose of these actions is to ease strains in the financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.” the statement said. Separately, the Bank of China lowered reserve requirements for its banks. In some ways, this reminds me of 2008, where the Fed of the government would step in to help ease conditions in the financial markets, short covering would cause the futures to gap up, and then futures would sell off as people contemplate how bad things must be to warrant the action in the first place.
In economic data, ADP Employment came in at 206k for November, well higher than estimates. Productivity was light, and unit labor costs fell more than expected. Yesterday, consumer confidence came in much higher than estimates, which shouldn’t have been a surprise if you have been watching the actual spending data. S&P / Case-Schiller came in -3.6% for September. Overall, the data indicate things are on the mend, albeit slowly.
In keeping with the energy story I have been flogging, the WSJ has an article this morning discussing how the US is about to become a net exporter of refined product. This doesn’t mean we are energy independent – we still import more oil than we export – but we are closer and closer to becoming a net energy exporter. And that will have enormous implications for the US, from our trade deficit to our Middle East policy. Perhaps the peace dividend we have been waiting for since the end of the cold war will finally materialize.
Filed under: Uncategorized |
All Things in Moderation 
Brent:If you have time, can you (or someone else) explain to me how lowering the swap rate 50 basis points is going to solve the European debt crisis? It's an indirect effect, hoping that the lending banks will ease their credit requirements?
LikeLike
Mike:I don't think it is designed to solve the debt crisis. I think it is designed to avert a liquidity crisis. It makes it easier for banks to get short term $ funding from their central banks.
LikeLike
It won't solve the European debt crisis because it doesn't address the sovereign borrowing issues. It is aimed at the banks in the hopes that it eases the credit crunch there. The root cause of the European debt crisis – government spending – is not addressed by this.In fact, it won't solve the credit crunch either. All it does is lower funding costs for banks, and the hope is that lowering funding costs will encourage banks to lend more because it lowers their cost of funds (or increases their spread). However, the problem with European banks is insufficient capital, and central bank efforts to encourage lending in that sort of environment are doomed to fail, just as they have here in the US.
LikeLike
Here's the Fed's press release. It has links to the other country's press releases
LikeLike
BrentThe root cause of the European debt crisis – government spending – is not addressed by this.I'm not sure about this. Do you have a link or something that explains the debt crisis in Europe as being caused by government spending?
LikeLike
OT: a startup is building a "travelocity" model to allow consumers to see health care prices. See http://www.technologyreview.com/biomedicine/39174/?p1=A4
LikeLike
So if you read my John Carney piece from yesterday, then today makes perfect sense. He's absolutely the best!
LikeLike
How much time do you think they have bought before it all falls apart again?
LikeLike
"I'm not sure about this. Do you have a link or something that explains the debt crisis in Europe as being caused by government spending?"Good question. As I understand it, the revenue/spending problem is enormous in greece, merely large in spain & portugal, and not all that significant in Italy – but as interest rates go up, Italy & perhaps other countries will find themselves in trouble. Banks holding greek & other debt will then find themselves in trouble, as those assets lose value. That's where the snowball starts building. Others can offer a more technical explanation.
LikeLike
This is act oneAct 2 is big US dollars being laundered to Europe through the IMFAct 3 is a new round of monetary stimulus in some form by the Fed, possibly as early as December, although January is more likely.
LikeLike
Somebody on "hit and run" commented: "you don't throw money on Greece fire"
LikeLike
I TOLD you that we should be very afraid that Timmy Geithner was in Europe.
LikeLike
Just wanted to stop by and say Baby ashot was born yesterday at 6:42 pm. Baby and mom are both healthy and I am in love already.
LikeLike
Congrats!
LikeLike
PS, good bye low interst rates
LikeLike
"OT: a startup is building a "travelocity" model to allow consumers to see health care prices."Interesting idea. Also interesting that insurance companies consider pricing data proprietary; the company needs to incent providers to provide cost data directly.
LikeLike
Whither Operation Twist, buried today in Potters Field, unsuccessful, unloved, and unmourned.
LikeLike
ashot:Congrats to you and Mrs. inthedark!Scott/Brent:Thanks for the explanation.
LikeLike
Ashot, congratulations!
LikeLike
BrentThe root cause of the European debt crisis – government spending – is not addressed by this.I'm not sure about this. Do you have a link or something that explains the debt crisis in Europe as being caused by government spending? ____________________I'm not going to get into the left / right argument over whether spending is too high or taxes are too low. The move by the central banks doesn't affect the fiscal balances of these countries, which is the root cause of the problem.
LikeLike
Yay ashot, we're so proud, and that love affair will last a lifetime. Enjoy every minute of it.
LikeLike
BrentI'm not trying to start a left/right debate, just asking a question. It seems to be a rather simple generalization to a very large problem which obviously includes government spending along with many other factors. I was trying to understand why you simplified it to only government spending, that's all. No worries.
LikeLike
lms:It's really about borrowing more than spending per se.
LikeLike
johnIsn't the fact that we're in a global financial crisis the reason for the added borrowing though.
LikeLike
"It's really about borrowing more than spending per se. "Aka who is willing to lend to fill in the gap between spending and taxing.
LikeLike
"Baby and mom are both healthy and I am in love already."Glad you have joined the daddy club! Congratulations and joy to you.
LikeLike
lms:Other way around
LikeLike
"Isn't the fact that we're in a global financial crisis the reason for the added borrowing though. "But who is willing to lend at what rates and based on what probability of being paid back anytime soon? The crisis has exposed core problems in the design of the Eurozone that are rooted in the original founding treaty and the laws governing the ECB.
LikeLike
think about it this way, you can't increase spending, until somebody lends you money, the shortfall that jnc brought up
LikeLike
I should add partially the reason. I tend to believe that the collusion between governments and finance is what got us into this mess.Anyway, I need to get to work.
LikeLike
"I should add partially the reason. I tend to believe that the collusion between governments and finance is what got us into this mess."Collusion between governments and finance helped cause the global financial crisis, but the Eurozone was either going to have to change eventually or blow up.You may find this of interest.Austan Goolsbee on why the euro zone won’t survive "Germany’s productivity has gone way up. Normally, that would mean their currency appreciates, which lessens the advantage that gives their economy [in exports]. But unlike virtually every other advanced country in the world, the manufacturing share of output in Germany has risen over the last 20 years. And part of the explanation is that, just as in China, Germany has an export-oriented growth strategy fueled by a currency that’s undervalued. But that undervalued currency has been at the expense of Southern Europe. And the main point of the piece is that there’s no obvious way for Southern Europe to grow, and if they can’t grow, they can’t balance their budgets no matter how much austerity they engage in.".."So low mobility, plus having the wrong currency values, plus no subsidies, is a toxic mix."
LikeLike
From Tony Crescenzi of PIMCO, yes Virginia, this is easing: "Keep in mind that any use of the Fed’s swap facility expands the Fed’s monetary base: all dollars, no matter where they are deposited, whether it be Kazakhstan, Japan, or Mexico, wind up back in an American bank. This means that any time a foreign central bank engages in a swap with the Federal Reserve, the Fed will create new money in order to make the swap. Use of the Fed’s liquidity swap line in late 2008 was the main cause of a surge in the Fed’s monetary base at that time. The peak for the swap line was about $600 billion in December 2008. Some observers will therefore say that the swap line is a backdoor way to engage in more quantitative easing " http://www.cnbc.com/id/45492703 Now, if you're the Fed, how do you "cover' the story of backdoor easing going to help Europe? You engage in front door easing, and say the US economy needs it!
LikeLike
"I tend to believe that the collusion between governments and finance is what got us into this mess."In Greece, as I understand it, the problem isn't just excessive borrowing, but that there were shenanigans within gov't that obfuscated the degree to which revenue fell short of spending. When that became known, the value of greek bonds dropped sharply, as bondholders realized the likelyhood of being repaid was smaller than anticipated. (where have we heard this story before?). Banks who'd invested heavily in greek debt suddenly found their balance sheets skewed by suddenly devalued assets. If Greece had their own currency, it could be devalued to stimulate exports & foreign capital investment. But because they're in the EU, that's not an option. They're stuck with currency priced for europe as a whole.
LikeLike
As pointed out by another reader elsewhere, the Fed auction for today was cancelled for technical difficulties.The technical difficulty being of course the jump in yields that would have occurred and the low bid to cover ratio. LOL
LikeLike
bsimon:I would say that the shenanigans were only obscured from the Greek public. It was not a huge shock to the bond market, but what WAS a shock was how far Germany would go to psuh the euro zone to the limit before rescuing.
LikeLike
Where is everybody? It's a great day to talk fiscal and monetary policy, and there's only a couple of us around. It's like putting the Super Bowl on the Game Show Network dammit!
LikeLike
john, there is still a tax fairness discussion the cpa sex thread. certainly not tied to current events….
LikeLike
john:I'm reading but have nothing to contribute because I have only a rudimentary knowledge of economics. It sounds like the euros are asking for more IMF involvement too. But that sounds more complicated, with 187 member states in the IMF.Euros to ask for IMF help
LikeLike
bsimon:Sigh! (does the head down, Charlie Brown walk away)
LikeLike
Mike:We give the IMF it's funding firepower, which is why it's head is always an American. Keep reading, and watching Bloomberg or CNBC. You will get there.
LikeLike
"If Greece had their own currency, it could be devalued to stimulate exports & foreign capital investment. But because they're in the EU, that's not an option. They're stuck with currency priced for europe as a whole."Well, if Greece had their own currency, they would not have been able to borrow at low Eurozone rates. Profligate spenders like Greece benefit from being able to borrow at lower rates than they would otherwise. The stable countries like Germany get a lower exchange rate (thus helping their exporters) than they otherwise would have. Leaving the EU does nothing for Greece – their debt is denominated in Euros and the new currency would depreciate against the euro, increasing the value of the debt in their own currency. If it weren't for the Euro, the Deutschemark would be much stronger. So, Germany will try and hold the Euro together.Don't forget one huge problem – tax evasion is a national sport in those southern European countries. The revenues to fix the problem are sitting in Swiss bank accounts. It will be a tough sell to the German people that they have to sacrifice when the Italian and Greek governments won't even go after their own tax evaders.
LikeLike
BrentDon't forget one huge problem – tax evasion is a national sport in those southern European countries. The revenues to fix the problem are sitting in Swiss bank accounts.I'm not trying to be difficult here, just understand, I thought government spending was the root problem not tax evasion. JohnTechnical difficulties for the Fed auction……..can they do that just because?
LikeLike
lms:Apparently LOL
LikeLike
John or Brent will correct me, but I believe the Fed auction is discretionary. We can schedule a sale when we believe there will be many buyers and we can reschedule until we like it.Right guys?
LikeLike
There are regular auctions, but not every day:http://www.treasurydirect.gov/instit/auctfund/work/work.htmHere's today's cryptic announcementhttp://www.newyorkfed.org/markets/pomo/display/index.cfm
LikeLike
"Germany Open to Boosting IMF Funds to Fight Crisis" http://www.cnbc.com/id/45496004 See how all the seemingly distantly related moves slowly come together at some point?
LikeLike
"Leaving the EU does nothing for Greece – their debt is denominated in Euros and the new currency would depreciate against the euro, increasing the value of the debt in their own currency. "I always assume that real sovereign debt default goes hand in hand with leaving the EU."I'm not trying to be difficult here, just understand, I thought government spending was the root problem not tax evasion. "The problem is the difference between what they spend and what they take in as taxes, i.e. their ongoing structural deficit that was made worse by, but by no means is entirely attributable to, the post 2008 financial crisis.We have a mini-version here with the Federal government being unwilling to "bail out the states" when they have significant budget issues. Imagine California trying to get a bailout at this point. Republicans = Germans.
LikeLike
"I'm not trying to be difficult here, just understand, I thought government spending was the root problem not tax evasion."Keep in mind also that previous Greek governments flat out lied about the size of their fiscal deficits and were in violation of the terms of the EU treaty.
LikeLike
jnc:Lying is such a harsh word when it come to financial matters!
LikeLike
"Lying is such a harsh word when it come to financial matters! "So's "pimp slapping" the SEC. I like to call things as they are.
LikeLike
Ok then here's one for you. Merkel may have intentionally or accidentally constructed the most the most intricate German offensive operation since the Schlieffen Plan
LikeLike
john:Sweet WWI reference. That, I got.Been reading a little more on the IMF thing. This guy sounds pretty skeptical that the IMF can do anything at all.
LikeLike
Can't pull it up, because I'm registered. Wolf is good though.
LikeLike
"the most intricate German offensive operation since the Schlieffen Plan "Nice. Are we Belgium then?
LikeLike
jnc:Already been overrun, remember Dexia?
LikeLike
john:Some of the salient bits of the FT article:What role can the IMF play? Not much of one. It lacks the firepower: its total uncommitted usable resources are only about $440bn. True, it might raise more money from interested outside countries. But it cannot hope to make up for the reluctance of the eurozone’s leading players to provide the support needed. Even if it had the resources, programmes for individual members would surely fail. The only programme that would make sense would be one for the eurozone as a whole, since programmes for troubled countries would have to include a reasonable prospect for higher aggregate eurozone demand.[snip]So how might the IMF help? Now is the time for what John Maynard Keynes called “ruthless truth-telling”. And what is the truth that it should tell? It is that the eurozone has a choice between bad and calamitous alternatives. The bad alternative is radical policies to promote adjustment, while warding off a wave of sovereign debt restructurings, financial crises and a true depression. The calamitous alternative is that depression, along with a break-up of the project. The IMF should speak up for the world’s interest in the less bad outcome. The eurozone alone can make the choice.Wolf lists some prescriptions as well.
LikeLike
Thanx, Mike – it was behind an impenetrable paywall for me.
LikeLike
This is just me, but I think for public consumption, everyone is underestimating how far in the US is going to go on this. Obam knows he can't be re-elected in a depression.I said earlier this week that the thing Americans should REALLY be afraid of is Tim Geithner's presence in Europe.
LikeLike
ashot,Congratulations on the new addition to your family.
LikeLike
"I said earlier this week that the thing Americans should REALLY be afraid of is Tim Geithner's presence in Europe."Do you think the Republicans will be able to gain political traction via an argument of "no bailout for Europe"?
LikeLike
"I think for public consumption, everyone is underestimating how far in the US is going to go on this. Obam knows he can't be re-elected in a depression."Obama reelection prospects aside, isn't avoiding a depression preferable to not?
LikeLike