08:09 – Mario Draghi made what may in retrospect be recognized as a strategic blunder last week when he announced that the ECB would do whatever was necessary to save the euro. It was certainly a tactical blunder by anyone’s standard. Draghi’s comment led to a big upswing in the markets, which took his word for it. The trouble is, it is not within the power of Draghi or the ECB to save the euro, and whatever measures he announces today will either fall well short of what is required or will exceed the authority of the ECB.
The Germans do not control the ECB, and it’s quite possible that Draghi will today announce that the ECB will grant the ESM a banking license. Doing so is not in their power, and is specifically prohibited by treaty, but that may not stop them. And if the ECB announces that it will grant the ESM a banking license, the Germans will go berserk. In effect, granting the ESM a banking license will allow it to make unlimited purchases of sovereign bonds without “sterilizing” those purchases by selling other bonds that it already holds, which means those purchases will be funded by printing money. That is the line in the sand that Germany refuses to cross. If the ECB takes this step, it paints Germany into a corner with only one way out: departing the euro and returning to its own sovereign currency. And you can bet that Germany, which absolutely refuses to give the southern tier what amounts to an unlimited right to spend Germany’s money, will depart the euro before it allows that to happen.
So, Draghi has two choices. He can announce steps that are grossly insufficient to save the euro, and the markets will respond accordingly. Or he can announce that the ECB will grant the ESM a banking license, and Germany will respond accordingly. It sucks to be Draghi.
10:00 – What a shocker. Mario Draghi announced precisely nothing, and the markets are responding accordingly. Draghi didn’t give them the ESM banking license. He didn’t even cut the interest rate. All he did was promise to do something unspecified at some unspecified future date. So much for yet another “last chance to save the euro”. News flash: there is no chance, last or otherwise, for the euro. Speaking of which, I just moved series two of The Walking Dead to the top of our Netflix disc queue.
I just spent a couple hours cleaning up my lab, unpacking and inventorying chemicals, and so on. I really need to get some horizontal space freed up.
Well, looks like some people/entities are going for a massive haircut. Do you think there’s a way to profit from this situation? After all, one person/entity’s loss is anothers gain…
Go short on the euro.
Short the euro? Doesn’t that require that someone take the other side of
that bet? Please tell me no one is that stupid. My opinion of my species
is low enough already.
Well, obviously, there are lots of them. The euro is still trading at above $1.20, which is simply ridiculous.
The US is bad enough, with real debt (counting unfunded commitments) somewhere around $100 trillion, rather than the $15 trillion or so that the government acknowledges. The EU is much worse, with higher debt levels, less GDP per capita, and an aging and moribund population. Anyone who holds their currency, let alone lends them money, is an idiot.
Yeah, but what Draghi said last week is actually what needs to happen, as the markets proved. Several economists I follow, who did not miss either the housing bubble or the re-wrapped mortgage crisis, all agree that the only way out for an intact euro and EU, is to guarantee the bonds of all member states. Now if the FANG nations do not have enough smarts to insert their minders into the economies of the southern tier to see to it that proper balancing occurs, then they are not as smart as they think.
There was an analysis somewhere recently (I think maybe it was in The Economist), of how much it would cost Germany to withdraw from the euro. That analysis indicated it would be considerably more expensive to do that, than to remain. Germany has to be aware of the same figures, so I think there is very little chance of Germany withdrawing. Which explains the recent shift of the FANG nations to try and eject the troubled countries from the euro, rather than withdrawing themselves.
The 2nd season of “The Walking Dead” is simply amazing. You will hate the first 7 or 10 episodes and then just get shocked out of your chair. The story is that good and the director plays it to the full extent. BTW, I cannot watch it within 8 hours of bedtime as it freaks me out too much.
On the usenet group rec.arts.sf.written, somone recently posted what would the world of 2037 look like. I replied the following to them:
> So, who thinks they can predict 2037 better than those writers predicted 2012 in 1985?
>
> Some things I think MIGHT happen:
> Russian Federation falls apart.
> End of Saudi Arabia’s monarchy; any guesses what the new name would be?
> Decline of cable TV; people will watch on their computers.
> Disposable computers.
> Complete sex-change operations — skeleton rebuilt, appropriate hormones at appropriate levels, etc.
> Conservative US politicians trying to appeal to Muslim voters.
1. Mainland China will have 200 operating nuclear reactors for power and steam production
2. South Korea will have 50 operating nuclear reactors for power and steam production
3. The USA will have 2 more states
4. Many people will be plugged in directly in to the Internet through a brain socket
5. Iran and Israel will have exchanged nuclear weapons with 100,000,000 people dead in Cairo, Tel Aviv and Tehran – the rest of the middle east has major radiation poisoning
6. China will have invaded and taken away Siberia from Russia – nukes were threatened but not used after China threatened invasion of Russia itself
7. Anyone needing major surgery past the age of 75 in the USA will be euthanized unless they can pay for it themselves in India or China
8. The USA federal debt will be 37 trillion dollars
9. Europe will be purging non-Europeans from their continent
10. Global warming will be proven to be false
There is just no way that the northern tier, particularly Germany and Finland, will assume an open-ended, unlimited, decades-long commitment to pay the bills of the other nations. In effect, that’d be impoverishing themselves to support incompetent economies at second-tier standards of living, reducing their own standards of living to second-tier status as they do so.
As to cost, it will cost Germany hundreds of billions of euros to depart the euro. That’s a sunk cost; they’ve already assumed it, whether or not they leave the euro. If they don’t leave the euro and assume responsibility for the ongoing debts of the southern tier, it’ll cost them tens of trillions of euros. Staying in the euro with the current makeup of the eurozone is a total sucker bet. Whether Germany leaves the euro or the euro leaves the southern tier doesn’t really matter nearly as much. The point is that Germany, Finland, and the other northern tier cannot remain in the same currency as the profligate southern tier countries.
Well, aside from the profligate part, which Dean Baker among others, has thoroughly disproved, we agree on everything else. Southern Europe got in trouble because of their housing bubble, which was fueled by the northern banks; not because they were off-course in profligate spending. In fact, all but Greece and Italy were in the process of moving towards their goals when the housing bubble burst. Just like in the US, the housing price collapse caused a banking crisis, which caused a recession, and nobody can get ahead—or even stay on course—in a recession, which looks to be spiraling worse in Europe than it has been in the US. Bernanke just made us taxpayers bail out all our banks and investment sectors, and we muddled through at a 40% average wealth loss to the average American, but Europe has refused to do that. Lucky them.
Nevertheless, I do not underestimate the desire of Europeans everywhere to be united—North and South. IMO, it is the reason this has dragged on as long as it has. But I do think that the North is strong enough to eject the South from the euro, and leave them to figure out how to cope with a new, devalued currency. Problem with that is that the North’s success is almost wholly dependent on exports to the South. A devalued southern currency will kill the North’s economies. So it is very much a real double-edged sword. Merkel’s refusal to guarantee the South (and I say Merkel, because I do not believe she represents the people any longer) is going to cost Germany very, very dearly.
No one’s mentioned the passing of Gore Vidal? I thought he would have been a hero to some here…
I’m going to miss singer Tony Martin more than Gore Vidal.
Gore Vidal was not a hero to me; that word is badly misused these days but to discuss it now would involve a long rant. He could write rings around his former nemesis WFB and I liked his “Burr”, “Lincoln,” and many of his essays. He is a necessary corrective to much that is taught and thought about American history and was, despite shortcomings, character flaws and other issues that afflict us all, a treasure to this nation. One of my brothers acknowledged some of this but then complained of his arrogant and smug attitude and persona, and I told him to forget the damned tee-vee persona and read the books. But sadly, none of my siblings read and none of them care a fig for the outdoor life; they’ve stuck themselves down in Megalopolis for the duration and watch Faux Nooz and CNN and old movies, while commuting through monstrous traffic and noise, and buying shit at the malls all the time.
Whoops, I feel a rant coming on….gotta run errands…C ya!