Tuesday, January 31, 2012

Germany as the winner of the euro

Empirical and Thematic Perspectives
Germany’s “Windfall” from Euro-Area Membership and European
 In an essay published last week, we argued that European monetary union, coupled
with Germany’s extraordinary wage restraint, has resulted in a real effective exchange
rate for Germany that is now 15 to 20 percent lower than what would have prevailed if
Germany had its own floating currency. We further argued that this weaker real
exchange rate is providing a significant windfall for Germany’s export sector.
 In this essay, we examine German trade performance since the introduction of the euro
in more detail. We show that Germany’s external surpluses have widened significantly,
led by rapid export growth. With the evolution of the euro keeping trade for the euro
area as a whole near balance, the counterpart to Germany’s rising surplus has been
mounting deficits in the peripheral countries, where the growth of wages has
significantly outpaced that of productivity.
See also the McKinsey study
Antony Mueller: "What's behind the euro crisis and how will it end?"

When it's best to work for government

Are Most Federal Workers Overpaid? CBO Says Yes
By contributors@theatlantic.com (Jordan Weissmann) | The Atlantic
The less educated you are, the better it is to work for the federal government -- at least when it comes to your paycheck.

Monday, January 30, 2012

The future of the American dollar

Greece - debt ratio

Greece debt

Greece debt - maturity profile

Sunday, January 29, 2012

United Socialist States of America

16 Statistics Which Show That The Number Of Americans Dependent On The Government Is At An All-Time High
A higher percentage of the American population is receiving government benefits than ever before.  Yes, there have always been poor people that have needed our assistance, but what does it say about our economy that the number of Americans dependent on the government is at an all-time high?
Comment: There are few countries in the world today where the difference between public rhetoric and reality is so great as in the United States nowadays. The USA doesn't yet match the old USSR, but it's getting close.

State of the Union

Saturday, January 28, 2012

Euro rate

EUR-USD    1.3220   +0.0111      +0.85%
Comment: Have a nice weekend, euro shorties. Don't blame me. I've warned more about going short the euro than I would have liked.

The Fed's follies

BACON: Fleeced by the Fed
Fed’s zero interest rate bails out Wall Street and Treasury, sinks middle class
By James A. Bacon

The Federal Reserve Board announced plans last Tuesday to keep short-term interest rates at near zero for another three years and said it might embark upon another bond-buying program to drive down long-term interest rates. The stock market rallied and President Obama's supporters hailed the rising stock market as a sign of his brilliance as a manager of the economy...
But give Mr. Obama credit for this: While his handmaiden Bernanke plunders the middle class in order to prop up Wall Street and the U.S. Treasury, the president has exploited the resulting uncertainty and unease by posing as a champion of Middle America. That's more than you can say for Newt Gingrich, who is attacking Mitt Romney for the sin of being a successful, wealth-creating capitalist, or for Mr. Romney, who seems incapable of defending himself. Like Sherlock Holmes and Professor Moriarty at Reichenbach Falls, they are locked in a death grip that will plunge them to their political demise. I've never been much of a fan of Rep. Ron Paul, but the man is making more and more sense when he says it's time to abolish the Fed. 
Comment: Some people really seem to be able to learn.

Friday, January 27, 2012

Next stop: Japan

Pesek: Krugman Take on $12 Trillion Question Rings True
By William Pesek
"... Investors trying to predict the next debt crisis after Europe’s tend to look to Washington or Beijing. What about Tokyo? Those betting against Japanese bonds haven’t made much on the trade. Yet consider one inauspicious milestone reached this year.
On Jan. 9, youngsters celebrated Coming of Age Day, donning kimonos, visiting temples and partying the night away. This year, only 1.2 million Japanese turn 20, half as many as in 1970. A shrinking population complicates efforts to repay a $12 trillion debt, more than double the size of the economy...."
Comment: There's no money left for Japan to finance other people's deficits when it runs an own trade deficit. This means that interest rise will be on the rise not just in Japan but also in the US, Ben's prayers not withstanding.

Showdown on Greek debt

Greek Debt Wrangle May Pull Default Trigger
By Abigail MosesOpposition to payouts on Greek credit-default swaps from European Union policy makers is softening as disputes over a voluntary debt exchange threaten to push the nation into default.
Any agreement between the Greek government and the Washington-based Institute of International Finance on debt writedowns will only bind 50 percent of investors in the 206 billion euros ($270 billion) of notes being negotiated, Barclays Capital estimates. Hedge funds may resist a deal, seeking to get paid in full or compensated from insurance contracts.
Comment: Come on guys, take your 70 % haircut and move on.

The new Fed - worse to the pervers

Jeff Tucker explains: "We are getting a sense of what life is like with the new Fed policy of openness. It means that the chairman tries to beat the world record for the longest, most-boring press conference in modern history. Ben Bernanke is getting even better at that crucial skill of repeatedly saying nothing at great length. The better he gets at this, the longer he is willing to entertain questions from reporters. 
They all ask some version of the same question, in any case. It’s the cocktail-hour question asked of every economist: What does the future hold and what should be done about it? The problem is that Bernanke doesn’t know more about the future than the markets know. Actually, looking at the transcripts of the 2006 FOMC meetings, the Fed knows much less than the markets know.  But at least we now know what Bernanke thinks he knows. A short summary of the flurry of news from the Fed yesterday: The economy is still in the tank, it will stay that way for years, interest rates will be held at zero and savers can go to hell..."

Thursday, January 26, 2012

The US at a crossroads

The Innovation Nation vs. the Warfare-Welfare State
By Alex Tabarrok
This is our national identity crisis in a nutshell: Do we want government spending half its money on redistribution and military, or re-dedicating itself to science, infrastructure, and health research?
We like to think of ourselves as an innovation nation, but our government is a warfare/welfare state. To build an economy for the 21st century we need to increase the rate of innovation and to do that we need to put innovation at the center of our national vision. 
Innovation, however, is not a priority of our massive federal government. Nearly two-thirds of the U.S. federal budget, $2.2 trillion annually, is spent on the four biggest warfare and welfare programs, Medicaid, Medicare, Defense and Social Security. In contrast, the National Institutes of Health, which funds medical research, spends $31 billion annually, and the National Science Foundation spends just $7 billion.
Comment: Sorry, Alex, it's too late by now. It was back then a long time ago when Murray talked about the warfare/welfare state that things could have changed.


Wisdom: From Philosophy to Neuroscience, by award-winning science writer Stephen S. Hall, examines ancient concepts of wisdom through the lens of modern brain science.  In a section called “Eight Neural Pillars of Wisdom,” Hall takes a fresh look at human qualities long associated with wisdom–including compassion, emotional regulation, the ability to discern what’s important, and the skill of coping with uncertainty–and suggests that modern neuroscience is providing radical new insights about how these timeless virtues evolved.  Based in part on a 2007 article in The New York Times Magazine, Wisdom is also a meditation on the seeds of wisdom, aspects of wisdom in everyday life, and the future of wisdom in our complex society. More

Comment: The more knowledge we have and the easier it is to access it, the more we feel the dearth of wisdom in our world. Wisdom has become the rarer of the two in the face of a growing abundance of knowledge.

End the Fed

The Fed’s Men Behind the Curtain 
By Jeffrey TuckerThe debate about the Fed is under way, and thank goodness. But as with many policy debates, there really shouldn’t be a debate at all. That’s because, if you think about it, the idea of central banking makes no sense....
What is the worst cost of the Fed? It has made the federal government, no matter how big it gets, beyond failure. This is the ultimate moral hazard. It has puffed up the leviathan state beyond anything that should ever exist in the world. It’s not taxes that have done this. It is the Fed. In this way, it has made itself the ultimate enemy of freedom itself. And as goes freedom, so goes human rights...

US debt card

Fed's new inflation-target triggers bond buying

Bernanke Makes Case for More Bond Buying
 By Caroline Salas Gage and Craig Torres
Ben S. Bernanke laid the groundwork for a third round of large-scale asset purchases should unemployment remain higher than the Federal Reserve would like while inflation falls below a newly-established target.
The Federal Open Market Committee “recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation,” Bernanke said yesterday at a press conference in Washington.
Comment: What's amazing about Ben is that he feels no shame to make a fool out of himself. I guess the reason is that he feels in good company with his fellow fools who surround him.

Euro rate

EUR-USD           1.3147    +0.31%
Comment: I don't remember how many times we warned here about going short on the euro when the crowd cried that the euro would fall below 1.20 and it seemed as if it was only I to say that soon it would go over 1.30 again. No mercy for those who are stupid enough to follow the crowd and fall victim to propaganda - sometimes their own propaganda.

Wednesday, January 25, 2012

End of the ride

Financial-Sector Job Cuts Announced: 200,000
 By Simeon Hyman
More than 200,000 job cuts were announced in the global financial-services industry last year and many of those will take place this year and next. Among those chopping heads: Bank of America is cutting 34,075 employees; HSBC Holdings plans to reduce staff by 33,295; and ING Group expects to eliminate 19,000 positions. Other layoffs are in the works at Citigroup and Northern Trust, which plan about 4,500 layoffs each. That dismal news mirrors dismal fourth-quarter earnings -- thus far one-third of all financial companies have reported numbers and they are down 26 percent from the prior quarter. That's much worse than analyst expectations of a 9 percent decline.
Comment: What the Greenspan illusion has given the Bernanke reality takes away.

Remember the Maestro

Panderer to Power
At each critical stage of his life, Alan Greenspan chose to chase fame and control rather than principle and freedom. Sheehan's book exposes this remarkable enigma who once wrote an article praising the gold standard. It is not only a wonderful financial analysis; it makes for a gripping character study as well.
On Sale for only $19!