The world economy: Be afraid

Date: 29-09-2011
Source: The Economist

Unless politicians act more boldly, the world economy will keep heading towards a black hole

IN DARK days, people naturally seek glimmers of hope. So it was that financial markets, long battered by the ever-worsening euro crisis, rallied early this week amid speculation that Europe’s leaders had been bullied by the rest of the world into at last putting together a “big plan” to save the single currency. Investors ventured out from safe-haven bonds into riskier assets. Stock prices jumped: those of embattled French banks soared by almost 20% in just two days.

But those hopes are likely to fade, for three reasons.

The Flaws in Basel

Opening RemarksSeptember 22, 2011, 6:30 PM EDT, Business Week

Bloomberg View:

The Basel III banking rules don’t go far enough

The Basel III banking rules are regulators’ third attempt in about two decades to address one of the biggest threats to the global economy: the tendency of financial institutions to go bankrupt during bad times. Among other reforms, the rules require banks to finance their activities with more equity, or capital, as opposed to debt. The equity helps guarantee that the bank’s own shareholders will absorb any losses, instead of turning to taxpayers for bailouts.

Bankers don’t particularly like the new rules. Jamie Dimon, chief executive officer of JPMorgan Chase (JPM), has gone so far as to call them “anti-American,” suggesting that the U.S. break with global regulators and go its own way. Dimon is absolutely right, but for the wrong reasons.

EU: People vs Banks

Avaaz, 29/9

Dear friends across Europe,

The outrageous Greece bailout plan, written by bankers, floods banks and speculators with free taxpayer money and leaves Greece high and dry. Our finance ministers meet in 3 days, let’s send them a massive call to go back to the drawing board, and come back with a plan that bails out Greece, not the banks:

Unbelievable, they’re doing it again. Our governments are giving even more free taxpayer money to banks!

Absolutely, we need to bailout Greece to save Greece, save Europe, and save the Euro. But the current bailout makes us the taxpayers pay back banks for 90% of their foolish investments. Greek people don’t get a cent of investment, and we give a ton of money to rich bankers. And even worse – 30% of our money will go to speculators who will actually make a massive profit from gambling on a bailout!

How on earth did our governments write a bailout plan that floods banks and speculators with our money and leaves Greece with nothing? The answer — they actually asked bankers to write the agreement. Our finance ministers are meeting in 3 days to decide on this plan — let’s send them and our parliaments a massive call to go back to the drawing board, and bailout Greece, not the banks:

http://www.avaaz.org/en/eu_people_vs_banks/?vl

China’s Statistical Failures

 

 Author: Kevin Yan · September 29th, 2011 · RGE EconoMonitor

For China’s onlookers, it is no surprise that official data can sometimes befuddle even the most capable of minds. Yet, China’s National Bureau of Statistics (NBS) is not blind to its reputation for less than spotless data collection and release. A brief exploration into China’s economic indicators can reveal much insight into the dilemmas the bureau continues to face even as reforms for statistical aggregation and analysis are implemented.

The gross domestic product (GDP) is an important indicator of the level of economic growth and health in any country as well as a powerful snapshot of the overall performance in an economy. By zooming in on this particular indicator, the hurdles and peculiarities of China’s statistics could be exposed. To see how China measured, I went through the nominal quarterly GDP numbers from Q4 1999 to Q2 2011 for data collected directly by the NBS and those reported by the provinces. The aggregate numbers should come out to be the same, if not with only minor rounding differences. In a simple calculation, we compare the national GDP growth rate released by the NBS to the summed provincial weighted growth rates reported by local authorities. Unsurprisingly, the calculations show that data reported by the provinces are higher than those collected by the NBS. This difference can be explained by the political priorities of the different actors. The NBS has the responsibility to keep track of economic data and to ensure market participants, as well as the leadership, a clear image of China’s economic performance. However, local authorities are politically motivated to report higher numbers as most get promotions based on economic performance—incentivized since higher growth rates mean better job and income creation for the Chinese population, which ensures the stability of the country and the Chinese Communist Party’s (CCP) grip on power. The NBS numbers are regarded with more accuracy because of the bureau’s access to data on tax revenues, electricity consumption and goods turnover. Provincial governments would also double count productivity numbers from industries with facilities in other provinces; thus, inflating the summed provincial GDP numbers.

Figure 1: National vs. Provincial Growth Rates (%)

Source: NBS and provincial Chinese governments

Take the Loss

 

Author: Barry Ritholtz · September 28th, 2011 ·RGE EconoMonitor

Here is something that you may not think about often enough: Taking losses.

Its something that every rookie trader must learn to do — and all of the TBTF banks refuse to do. Even sovereign nations seem unwilling to accept this simple fact of financial life.

There will be losses. How you handle them determines your fortune, your fate and your future.

Seeing how people handle losses is revealing of their character and integrity. Hiding losses is what rogue traders do. Its also what rogue banks do, and apparently, rogue nations.

$2.3 Billion in losses hidden from UBS sights by a rogue trader is chicken feed. But ponder how many $100s of billions of dollars in mortgage losses are hidden from view? The real rogues are America’s largest banks, and their enablers in Congress. .

When the TBTF banks (via their purchased Congressman) forced the Financial Accounting Standards Board to pass a rule allowing them to hide their mortgage losses — FASB 157 — it showed the dishonest nature of these entities. It was revealing of the lack of integrity of all of the institutions involved — from Congress to the banks to FASB.

On Greek Haircuts

 

Author: Edward Harrison · September 28th, 2011 · RGE EconoMonitor

Most of the writers whose work appear on this blog have long warned that the extend and pretend strategy in Europe would fail. Now, it seems that Europe is moving to a hard restructuring for Greece and recapitalisation for bank creditors. The word is the haircut will be 50% with recapitalisation of the weakest banks to happen concurrently. The devil is in the details however.

I have some thoughts on the macro backdrop below.

Euroscepticism

Now, obviously I am a eurosceptic and have been saying here for over three years that not only is the euro zone too big, but that the EU itself is too big as well. Here’s my view. When thinking about economic nationalism, it should be clear that Europe’s enlargement strategy in both the EU and the euro zone has put together countries which have very different economic profiles. Doing so was always going to create tension in a major economic downturn.

Inflation will soon be the last problem that central banks will fear

Sunday, September 25, 2011, Roubini Blog

 

Nouriel Roubini : while monetary policy has limited impact when the problems are excessive debt and insolvency rather than illiquidity, credit easing, rather than just quantitative easing, can be helpful. The European Central Bank should reverse its mistaken decision to hike interest rates. More monetary and credit easing is also required for the US Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labor, real estate, and commodity markets feeds disinflationary pressures.

Horst Reichenbach Ein beinharter Deutscher soll Griechenland retten

Silke Wettach (Brüssel) 29.09.2011 Wirtschaftswoche.de

• Die Griechenland-Taskforce der EU-Kommission. Der Verwaltungsexperte soll dem Pleiteland auf die Beine helfen. Reichenbach gilt als knallhart – und wurde auch deshalb in Griechenland nicht gerade mit offenen Armen empfangen.

Horst Reichenbach, Leiter der Greichenland-Taskforce der EU-Kommission steht vor einer großenHerausforderung. Foto: REUTERS/Yiorgos Karahalis REUTERS

Was hat man ihm nicht alles an Etiketten angeheftet, seit im Juli bekannt wurde, dass Horst Reichenbach die neue Expertengruppe der EU-Kommission für Griechenland leiten würde. Die deutsche Presse sprach von einem „Chefaufpasser“ (Die Welt) und einem „Katastrophenhelfer“ (Financial Times Deutschland). In Griechenland wurde der gebürtige Kieler gar als „Regent des Vierten Reichs“ und als „Statthalter Angela Merkels“ betitelt.

Reichenbach vermeidet nun alle Emotionalität und beschwichtigte bei seinem ersten Auftritt in Athen, er komme als Vertreter der EU-Kommission und nicht als Deutscher. Schon in den ersten Wochen in seinem neuen Job lässt er erkennen, warum er den Zuschlag erhalten hatte. Reichenbach liebt die leisen Töne, vermeidet Besserwisserei.

Ordinary Leaders Facing Extraordinary Job

Date: 28-09-2011
Source: The Wall Street Journal

Labour Party leader Ed Miliband, left, at his party conference on Tuesday, and Prime Minister David Cameron, right.

Spare a thought for politicians. European and U.S. political leaders have come in for a lot of criticism since the start of the crisis. They seem an unimpressive bunch compared with the giants of previous generations, unequal to the crisis that engulfs them. Certainly the crisis has produced no notable acts of statesmanship, no bold or decisive acts of leadership, no soaring flights of oratory to match Franklin D. Roosevelt’s „nothing to fear but fear itself.“ For the most part, they have dithered and prevaricated as the economy fragments around them; ordinary people over-whelmed by extraordinary events.

Offener Krone-Leserbrief an Herrn Bundeskanzler Faymann

Sehr geehrter Herr Bundeskanzler!

 

Hab versucht Ihnen meine untenstehende Nachricht auf dem Weg des „Freien Worts“ der Kronenzeitung zukommen zu lassen. Das hat aber – aus mir unerklärlichen Gründen – nicht geklappt. Ein bedauerlicher Irrtum! Umso mehr, als die Redaktion und ganz Österreich genau weiß, dass die Kronenzeitung Ihre tägliche Lieblingslektüre ist – und es immerhin um einen berühmt gewordenen Brief an deren unvergessenen Herausgeber Hans Dichand (†) geht:

Von: Joe Ofenböck [mailto:j.ofenboeck@aon.at]
Gesendet: Montag, 26. September 2011 00:28
An: ‘leser@kronenzeitung.at’
Betreff: Offener Krone-Leserbrief an Herrn Bundeskanzler Faymann

Sehr geehrter Herr Bundeskanzler Faymann!

Kronenzeitungs-Leser haben nicht vergessen was Sie, Herr Bundeskanzler, in dem berühmten Brief an Hans Dichand (†) am 26. Juni 2008 allen Österreichern versprochen haben …dass zukünftige [EU]Vertragsänderungen, die die österreichischen Interessen berühren, durch eine Volksabstimmung in Österreich entschieden werden sollen. Jetzt stellt sich heraus, dass Sie Ihr Versprechen bereits gebrochen haben! 

Wie? Indem Sie im Parlament den sogenannten „Euro-Rettungsschirm“ zur Abstimmung vorlegten, der nur durch den Bruch des Lissabon-Vertrags, genau: der No-Bailout-Klausel des Art. 125, überhaupt erst entstehen konnte. Wenn der Bruch eines Vertrags durch die EU keine wesentliche Änderung ist, was sonst? Aber es kommt noch schlimmer. Sie haben die Erfüllung Ihres feierlichen Versprechens auch noch aktiv hintertrieben!

• Als Sie letzte Woche  doch tatsächlich versucht haben, den „Euro-Rettungsschirm“  im Parlament als „Blinde Kuh“-Gesetz durchzupeitschen – ohne Abgeordneten-Vorlage des Texts!
• Noch am gleichen Tag ließen Sie – Ihre Parteigenossen von der SPÖ zusammen mit ÖVP und Grünen(!) – einen Antrag zur Durchführung einer Volksabstimmung darüber niederstimmen!