Föhrenbergkreis Finanzwirtschaft

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Archive for 12. Mai 2012

If Greece goes…

Posted by hkarner - 12. Mai 2012

Date: 11-05-2012

Source: The Economist

AS WE argue in our briefing this week, a Greek exit from the euro zone would not just be chaotic for Greece itself but would also invite questions about the status of Portugal, Ireland and others. So what would policymakers have to do at the moment of a Greek exit to persuade investors and depositors that Greece really was the exception proving the rule of euro unity?

It would not be enough to spout reassuringly about togetherness when the irreversibility of euro membership had just been disproved. A credible commitment to mutualise the debts of remaining euro-zone countries would probably do the trick, but it is hard to see how such a pledge could be made credible enough in the near future. There is no consensus among Europe’s elites that this is the way to go; and the political journey to that destination would rightly require parliamentary votes and refererendums. Den Rest des Beitrags lesen »


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China’s Economy May Soon Get a Loosening

Posted by hkarner - 12. Mai 2012

Date: 11-05-2012
Source: BusinessWeek

When will Beijing take steps to boost its flagging economy? That’s an ever more urgent question after disappointing trade, investment, spending, and output numbers released over the past two days. Now easing could come quickly, most likely with a further cut in bank reserve ratios, economic analysts say.

“The data is a signal they need to do a little bit more in terms of restoring confidence and loosening policy,” says Andrew Batson, research director at Beijing-based economic consultancy GK Dragonomics. “We have been expecting a reserve ratio cut for weeks. Now they could do that in fairly short order.”

“Today’s data on April spending and output put another nail into hopes that China’s economy is bottoming out,” writes Mark Williams, chief Asia economist at London-based Capital Economics, in a May 11 research note. China’s economy grew just 8.1 percent in the first quarter, its slowest pace since 2009. “This run of poor data will shake policymakers’ confidence and we expect it to prompt further policy easing. A required reserve ratio cut must surely be imminent.” Den Rest des Beitrags lesen »

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Germany to Euro Zone: Do as We Say, Not as We Do

Posted by hkarner - 12. Mai 2012

Date: 11-05-2012
Source: The Wall Street Journal By STEPHEN FIDLER

Germany’s solution to the euro-zone crisis is for other countries to become more like Germany. Or at least more like the way Germany sees itself. For some economists, it’s not so much that the advice is wrong, it’s that the timing is bad.

The prescription is well-known: Governments should curb their budget deficits and be as fiscally responsible as Germany. Weaker economies must be restructured and labor markets overhauled so as to replicate Germany’s economic makeover of a decade ago, which kept wages in check and remade the country into the export powerhouse it is today. Monetary policy across the euro zone, meanwhile, needs to be focused, as Germany’s has long been, on keeping inflation in check.

Germany’s economic weaknesses are not emphasized. It was Germany (along with France) that rode a coach and horses through the agreement designed to limit budget deficits in the euro zone, and its government debt is still higher as a proportion of economic output than is Spain’s. Large swaths of its banking sector are weak; important parts of its services industries are unreconstructed and its retail sector is of another age. Den Rest des Beitrags lesen »

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China Gives Up On Europe, Will Target Africa Instead

Posted by hkarner - 12. Mai 2012

Author: Tyler Durden · May 10th, 2012 · RGE EconoMonitor

That China has finally given up on Europe is no news (granted, however, it will make it more complicated for various European newspapers to make up articles alleging China will bail out Europe now that this is no longer the case): after all even the Norwegian sovereign wealth fund has finally learned its lesson, and having been burned enough times, has made it quite clear it will have nothing to do with Europe’s insolvent periphery. China, which has already lost enough money on Europe, has now decided to do the same. From Bloomberg: “China Investment Corp. has stopped buying European government debt because of an economic crisis on the continent, though it continues to look for new investments there, said CIC President Gao Xiqing. “What is happening in Europe right now is of course of concern,” Gao said yesterday in an interview in Addis Ababa, Ethiopia, during the World Economic Forum on Africa. “We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds.” Sorry Europe: you had your chance. As for where China will invest its capital in the future? Why the one continent so far untouched by globalization, and which has the most debt capacity of all… Den Rest des Beitrags lesen »

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Marc Faber Sees A 1987-Like Crash Approaching

Posted by hkarner - 12. Mai 2012

Author: Tyler Durden · May 10th, 2012 ·RGE EconoMonitor

When given the opportunity to expand on his thoughts, Marc Faber, of the Gloom, Boom, & Doom Report, provides dismally clarifying detail on the state of the world. In this excellent (must-watch on a day when nothing changed but European stocks dead-cat-bounced) Bloomberg TV interview, the admittedly ursine Faber reflects on the US (slowing of revenue growth and the real linkages to European stress) noting that unless we get a huge QE3, there will be “a crash, like in 1987″ noting he believes we have seen the highs for the year; on the likelihood of QE3 (agreeing with us that the Fed won’t act unless asset markets plunge first); on Greece’s exit of the Euro and whether policy-makers can manage the exit properly “bureaucrats in Brussels and the media are brainwashing everybody that if Greece exited the euro, it would be a disaster. My view is the best would be to dissolve the whole euro zone; on the difference between investment markets and economic reality (thanks to financial repression); and on the global race-to-debase I do not have a high opinion of the U.S. government, but the bureaucrats in Brussels make the government in the U.S. look like an organization consisting of geniuses. The bureaucrats in Brussels are completely useless functionaries“.  Den Rest des Beitrags lesen »

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How the Latin Triangle Swallowed the Euro

Posted by hkarner - 12. Mai 2012

Author: Ed Dolan · May 11th, 2012 ·RGE EconoMonitor

Back in 1996, Rudiger Dornbusch wrote a paper about the political economy of exchange rates in Latin America. He called it “The Latin Triangle”. It describes a cycle in which governments become trapped in inappropriate fixed-exchange rates that inevitably end unhappily. Latin America has put that particular form of economic instability behind it, but a new version of the Latin triangle seems to be playing itself out in Europe today, both in the weaker members of the euro area (the so-called PIIGS) and in some of the newer member states that chose fixed rates (the BELLs—Bulgaria, Estonia, Latvia and Lithuania). This post explores the implications of the Latin American experience for Europe today.

The Latin triangle

Dornbusch’s model, shown here in a slightly modified diagram, is simple. The horizontal axis measures real GDP relative to its natural value. The vertical line through A and B is positioned at full employment. The vertical axis shows the real exchange rate, with appreciation upward. Dornbusch emphasizes that under a fixed exchange rate regime, real wages increase as the currency appreciates. That happens because the nominal wage tends to keep pace with domestic inflation while appreciation lowers the relative price of imported goods. Any point above the diagonal line through A and C requires an unsustainable rate of foreign borrowing. Its negative slope reflects the fact that either an increase in real GDP or an increase in the real exchange rate cause the current account to move toward deficit.

The cycle begins from point A, where the external balance is sustainable and output is at the full employment level. With a fixed exchange rate, any rate of inflation faster than that of the country’s trading partners will cause real appreciation. The current account begins to move toward deficit and the economy moves upward from A toward B.

The reasons for the real appreciation vary from case to case. In the Latin American examples of Mexico, Chile, and Brazil that inspired the original model, real appreciation is the result of inflation momentum. Fixing the exchange rate slows inflation via the nominal anchor effect, but either because of doubts about the credibility of the anchor or institutionalized indexation of wages and prices, inflation does not stop immediately. Den Rest des Beitrags lesen »

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