16/11/2010

Eurocrisis: elegant compromise to soften relations between EU and Ireland

I am just listening to the EU press conference of the Eurogroup. I was unable to fully listen to the start of the conference, but what I understand is that all parties involved stand ready to help out Ireland with their banking sector problem. And there would be short and intensive consultation on technical isses. In this way a compromise is reached between the stubborn Irish position (we don't want help as a government) and the EU Commission and ECB concerns (we need to help the Irish out, because their situation may become unsustainable).

Juncker says now: it's up to the Irish. We will help as the Eurogroup to be supportive. As far as the programma and consultations is concerned, the meetings will be with ECB, EC and IMF, so the Eurogroup will not be involved. There's even some humour between Juncker and Rehn now (in the treaty we trust - but the devil is in the details). Still the Commission will not disclose a specific amount of money/support that is considered.

Earlier in the conference, the EFSF boss outlined that he can raise funding in a couple of days. And he noted that there was considerable interest from Asian countries. So the Asians stand ready to help the Irish.

09/11/2010

When a government resort to money printing... the end of an era is in sight...

 Well, this week is the week of the spill-over: the US-FOMC decision to finance TReasuries by the FED is leading to:
- China further restricting the imports of money,
- investors that flight into gold, commodities and equity,
- growing criticism for Bernanke,
- who will be defended by Obama with the answer that the growth that the QE-stimuli causes will soon be welcomed by many.

The veteran Junker from Luxemburg, doesn't hesitate to point out on behalf of the Eurozone that while the US blame China to maniupate the exchange rate, it is actually calling the pot a cattle as the US does the same (but by increasing the supply of the dollar). But he can't say that out loud in the G20, because we can witness a number of Euro Member States in the periphery that are stumling into the abyss. Only domestic players invest in Spanish, Iris, Greek or Portuguese government securities. So, before we know, there may be a mini-monetary-earthquake in the Eurozone.

In essence we are now witnessing the definitive beginning of the end for the US as a world power. De United States of America have always been living on credit, which was a powerful motor for themselves as well as the world. Yet, here's the day when empty is empty and the effect is over. The only one not to have noticed it, is the US themselves. During the mortgage crisis we could still say that the external effects of the US crisis for other countries was indirect. With Quantitave Easing the effect is more direct because the US directly exports its problems. It all has the sound to it of empiresand states that are at the end of their existence and try the money injection as measure of last resort.

05/11/2010

Bernanke playing with fire and burning his fingers... or outright brilliant?

This week is the second round of Quantitative Easing in the American market. Bernanke throws another 600 billion into the market to boost the US into economic growth. Most Dutch economists have mixed negative feelings about this and point out that the US Fed are choosing the lower interest policy weapon since the Asia crisis, to boost the economy. But we should note that the US Federal Reserve has a dual mission. They must:
- guard the monetary base / interest rate and stability of the coin AND
- create employment,
as compared to the European Central Bank that must only:
- guard the stability of the coin / monetary base / interest rate.

Why this interesting difference?

It is all because of the previous crisis, more than 100 years ago in the US, when the Fed was founded and when there was a huge unemployment. That resulted in the inclusion of the employment goal into the FED mandate. And its this goal that is now leading the US Federal Reserve Board to fill up the tank with more gasoline, when it's already full. And we all now what happens in such a case: spill-overs.

The size of the American economy is one, that results in spillover effects that will travel the whole world. Other currencies are experiencing the pressure and one only hopes that the American motor will indeed kickstart as a result of the easing. The latest unemployment data of the US appear to be hopeful, but then again: no one is solving the Fanny and Freddy problem. And we are only starting to discover what the effects will be of the robo-signing during foreclosures in the USA.

So, while in the US we see some extra demand for Treasuries now that Uncle Ben is out shopping, pension funds all over the world are choosing a hands-off approach of periferal treasuries. And that leaves us in amidst historical times that only afterwards allows us a final verdict on Bernanke: was he burning his fingers or being outright brilliant?

03/10/2010

Good analysis by the Economist: Wilders gets most of what he wants

This analysis by the Economist hits the nail on the head:

Mr Wilders has emerged as the real winner of these prolonged negotiations. His determination to protect the Dutch welfare system by halting immigration permeates the government programme. On top of this, he has not been obliged to tone down his notorious rhetoric, although the cabinet will inevitably be associated with it. The danger for the two coalition parties is that their government will miss the opportunity for genuine economic reform and instead be remembered for turning the Netherlands in on itself.

It is very difficult for us, the Dutch people living here and now, to determine our position about how to best proceed. Would it have been better if the left-wing parties had their go at the coalition or is it a very smart move to ringfence Wilders as part of the minority coalition. At yesterdays CDA-conference we have heard both opinions in all their nuances. And the Economist also outlines the risks involved.

Yet, there is one question that is not discussed much nowadays, but it is the main question that divides supporters and adversaries of this coalition. That is the question to which degree we think that the Dutch people will remain coolheaded enough to save their own democracy. Supporters of the minority coalition believe that we will be alert enough to not run ourselves into a less democratic environment and that one day the magic of Wilders will stop. Yet, the adversaries fear that the Dutch will act like zombies who follow Wilders whereever he goes, as long as he is providing sweets to the public.

I'm not so sure myself, but as a matter of principle -and until the contrary reveals itself- I will stick to the vision that the Dutch can remain coolheaded when necessary.

21/07/2010

Bernanke still uncertain as to economy.... US will not be the first wagon of economic recovery

Breaking news: Bernanke remains quite careful when talking about the US economy, de US Treasuries immediately slide en we'll have to see what equities will do and the dollar. I think it will be a hot summer, certainly now that the Obama legal package will ensure some further regulation for the banking sector (which cannot lend as much due to necessary buffers, leading to lower economic growth). The only upshot of his talk was that Bernanke found the risks in the banking system to be not as large as they used to be.

Meanwhile, the Dutch political parties are hesitating and discussing the best way to act after the elections. I may hope that with former Prime Minister Lubbers, things will start rolling, because the economic developments aren't waiting for us until we are done determining our new coalition here.

25/06/2010

Stimulate the economy or choose for spending cuts...?

The big question of today in the Netherlands (and perhaps also the world) is whether we should try to further stimulate the economy, encouraging the consumer to spend or whether we should cut (government) spending to ensure that in the future, the Dutch government can still cary its own weight?

I think that the answer may be suprisingly simple, but I don't hear it coming up in the debate in the Netherlands. And the answer is that we know from research that, although there are only 1 million citizens that have some stock in the stock markets, all 16 million inhabitants of the Netherlands become nervous when the stock markets fall. And consumers quickly react by saving money and not spending it.

Now, if we look ahead, the chances are very considerable that there will be more turbulence on the financial markets, leading to a consumer that is unwilling to spend. In that situation, one might find an argument for the Keynesian approach in which governments should increase spending. But, one could also say that experience from other countries tells us that cutting deep and quickly is far more beneficial than waiting and muddling through. So, let's not be afraid to let the recession bite and choose for and anticipate subdued government and consumer spending.

An additional argument for cutting government spending is that in practice, not much of the initial cutting proposals are being effected properly. They often sound tough, but are then modified by later compromises, ideas and newer insight. So the best bet in my opinion would be to choose for spending cuts and letting the citizens take care of themselves and their savings for a while.

You're welcome.

04/06/2010

Banks stow away more money than during Lehman-crisis and politicians appear to remain unaware

Financial Times reports that the European banks now deposited more than 320 billion euro at the ECB, afraid of lending it to one another. This amount is higher than during the Lehman episode. And as a surprise, weblog Geenstijl is alert and reports about this matter. The AEX has plunged a bit and the Dow fell through the 10.000.

Today we were also informed that the consumer spending in April in Europe dropped considerably as a result of the European crisis. Everyone immediately started saving again. Which means that spending will indeed fall this year, when the eurocrisis continues (quite likely as Greece is completely unable to pay back).

It is surprising to note that this market reality hasn't reached the Dutch politicians. The economic crisis is still here. Yet, we see Emile Roemer -leader of the leftwing Socialistische Partij- claiming that he is going the redistribute the profits of Dutch banks of last year as if Robin Hood himself.

Well, dream on Emile, have a look at the P&Ls of last year and you'll see no profits there...

21/05/2010

Politicians shut down the markets...

I am wondering lately: could things become even worse than having Greek butter on the head? This week we got the answer, and it was the German government that gave it to us by unilaterally introducing a prohibition on short-selling (as a response to financial markets developments). Because the Germans find it clear that those crooks at banks and financial markets are messing with us politicans and we will get back to them. Even the Dutch parliament followed that same line of reasoning today. And the stock markets in the US continued their nose dive.

I remember well that two years ago, at the beginning of the crisis, we were all afraid that politcians would overreact on the crisis. Well, we finally experience it now. With Lehman, it was the distrust between banks that lead to a frozen/absent market. But now, the mechanism is more direct. Politicians themselves shut down the markets and thus create an atmosphere of distrust and unease. Because the real killer for a market is politicians stepping in en messing with the trades directly. So at first we had a liquidity-crisis, then a trust-crisis, followed by a euro-crisis which now results in a political-financial crisis.


Things aren't proceeding that well this way. And all of that because essentially Merkel comes from Eastern Europa and hasn't learnt that well how financal markets work. It would be quite remarkable if, in the end, the 'communist system and upbringing' turns out to be responsible -in this indirect way- for the euro failing and for the end of eurocapitalism.....

11/05/2010

Greek butter on the heads of politicians...?

The past few days were all about Greece, the European Union and the financial system. All kinds of stuff happened that amazed me. Most remarkable was, IMHO, the reflex by politicians to blame the financial markets (and/or banks) that the trade in Greek governments bonds halted. Rating agancies were blamed for putting Greece on the hot seat. Politicians felt that speculants, banks and anyonemore were speculating Euroland to its downfall, which is why new regulation should be designed to counteract such speculative trades.

Let's look at this from a distance. The European politicians decide to introduce the euro and realize this requires fiscal discipline. Yet, the disciplining mechanism (stability pact: a well chosen name) is not being used, nor followed. The euro thus becomes a coin with some loose ends.

Meanwhile, financial markets have seriously realised that all sorts of loans may have counterparty risks (having learnt this the hard way by being too careless with the bus loads of cheap money since 2000). Whether it is a bank or a government that you lend out money too, there is always a counterparty risk. And particularly rating agencies are very eager to demonstrate that they did learn their lessons from the crisis. They won't be caught redhanded by giving out AAA-ratings. No, they now more seriously look at risks than before. And apply that lesson to Greece. Only to be heavily blamed by the politicians for doing so and upsetting the markets.

The conclusion seems clear to me. The current size and maturity of the financial markets does not leave a lot of room for immature politicians who think it is possible to build a European Union without respecting their own basic agreements on budgets. What happens in the financial markets is not so much caused by speculation. It is better to state that it is the direct but delayed result of political inabilities and inaction. The grudge that politicians hold towards speculaters thus returns as a boomerang to hit themselves.

01/05/2010

The beginning, why did I start this blog?

This is a blog about amazement and wonder. I am often surprised about what happens in the Netherlands, how the public react and about the views of Dutch politicians. Aren't we just running around as headless chickens too often? Talking through our hats? Don't we, Dutch people, often find things too selfexplaining whilst they are actually not? I can really be surprised sometimes and this blog is just a place to vent my observations and to create a public archive of my personal surprise.

Perhaps it surprises you that, some 10 years after blogging evolved, I am now taking up this blog..? Well, that seems a pretty good start for me. You are surprised, I am surprised, We are surprised.