The Center of the Universe

Romney: Debt is like ‘prairie fire’

Not even a passing mainstream thought to look at currency users like France, Spain, Italy, California, and Illinois, that are facing severe market discipline via solvency/interest rate risk any differently from currency issuers like the UK, US, Japan, and Denmark where those types of market forces remain stubbornly inapplicable.

One would think something so obvious and ‘in their face’ year after year, decade after decade, might get their attention…

Hollande faces budget shortfall test

(FT) François Hollande has promised that he would take whatever measures necessary to rein in France’s heavy public debt, which is rising close to 90 per cent of gross domestic product. He knows that to win backing for his growth initiative from German chancellor Angela Merkel depends on assuring her that France will meet its obligations on its own public finances. The European Commission’s forecast projected a budget deficit next year of 4.2 per cent, compared to the target of 3 per cent set by Brussels and to which Mr Hollande is committed. That amounts to a gap of some €24bn. Mr Hollande is unlikely to give further details of his plans until he gets an independent report on the public finances at the end of June (after National Assembly elections).

Dutch austerity consensus unravels

(FT) Freedom party leader Geert Wilders brought down the country’s ruling coalition last month when he pulled out of talks over budget cuts needed to meet strict EU deficit limits, triggering elections scheduled for September 12. Mr Wilders is campaigning fiercely against what he calls the government’s “subservience” to Brussels’ demands for budget cuts. A poll released on Monday suggests voters are turning against the last-minute budget deal reached after the government fell between the ruling liberals and centre-left opposition parties. The April 26 deal pledged the Netherlands to meet an EU deadline to slash its 2013 budget deficit to below 3 per cent of gross domestic product, down from a projected 4.7 per cent.

Mosler Squad Win Much Interrupted BEC Snetterton Race

By James Broomhead

They have certainly had their ups and downs:

Click here for larger version

Italy, Then and Now

The discount rate cut doesn’t actually do anything for the economy- growth or inflation- but does show their concern.

And the relatively low Q1 state lending is showing the actual continuing policy constraint.

As previously discussed, China has what they consider an inflation problem, and there are precious few, if any, examples of inflation fights that didn’t cause hard landings.

Ch Headlines:

China to lower reserve requirement ratio
Q1 GDP slows in 29 provinces, regions
China 2012 Growth Forecast Cut to 8.1%, Citigroup Says
China 2012 Growth Outlook Revised to 8% From 8.2%, JPMorgan Says
China Growth Seen at 13-Year Low by Pimco as Banks Cut Forecast

I made the point years ago to my partners that as a point of logic the large dealers are severely restricted in their ability to manage themselves.

The reasoning is as follows:

Any one of the many top traders working full time in their specific area of responsibility necessarily know a lot more about it than any manager possibly can.

In other words, any manager will have his hands full keeping up with what any one of the traders is up to, making it impossible, for all practical purposes, to keep up with all of them.

So shareholders should expect things to periodically malfunction from lack of sufficient oversight and supervision as a point of logic.

JPMorgan Sought Loophole on Risky Trading

By Edward Wyatt

May 1 (NYT) — Soon after lawmakers finished work on the nation’s new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank.

First, while this loss is a one time adjustment to capital, the use of this type of ‘trading’ as a profit center is probably a thing of the past.

Additionally, my guess is the whale has been liquidating a long oil position (and maybe paying on long bma ratios) for the last several weeks.

That is, this announcement probably came after their liquidations were pretty much over to minimize losses.

This means the market effects are probably behind us.

Yet another legacy bites the dust:

Japan Will Follow Europe With a Debt Crisis: Kyle Bass

By Jeff Cox

May 10 (CNBC) — Japan is about to join Europe in the debt crisis ranks, with the two regions offering the best opportunities for investors to bet against, hedge fund manager Kyle Bass said.

While the world’s attention has been focused on sovereign debt issues in Greece and elsewhere, Japan will emerge as a problem area as well as the European developments accelerate, Bass told attendees at the Skybridge Alternatives, or SALT, conference.

“Greece will circle the drain and be ungovernable in the next 30 to 60 days,” said Bass, founder of Heyman Capital and famous for presciently shorting subprime mortgage bonds before the industry collapsed. “Japan is in the crosshairs of the market…I’ve never seen more mispriced optionality in my entire life.”

The Bank of Japan, the nation’s equivalent of the U.S. Federal Reserve, is effectively monetizing the national debt by buying up 50 trillion yen-worth of Japanese Government Bonds, commonly referred to as JGBs in the marketplace, Bass said.

There are a number of perils commonly associated with the strategy of a central bank trying to print its way out of a debt crisis, not the least of which is inflation and lack of confidence in stability of debt, though Bass did not mention specific threats.

However, he said it’s easy to see a crisis coming.

“The fact of the matter is this is no longer an exercise in quantitative analysis,” he said. “It’s a question of when, not if.”

An aging Japanese population and entitlement culture are primary factors contributing to the national debt problem. Bass used disgraced money manager Bernie Madoff to make a point.

“Madoff taught us something,” Bass said. “You can make promises for a long time as long as you don’t have to live up to them.”

As previously discussed, for all practical purposes there is no political support for leaving the euro. The various populations simply do not trust their own governments with their currency:

Greece’s Tsipras: We Want Euro, but Not Austerity

By Michelle Caruso-Cabrera and Jennifer Leigh Parker

May 10 (CNBC) — The head of Greece’s Radical Left Coalition, Alexis Tsipras, told CNBC Thursday that he will “go as far as I can” to keep Greece in the euro zone, despite declaring earlier this week that the Greek bailout agreement is “null and void” and should be abandoned.

Tsipras (pronounced SEE-Pras), who was unable to form a coalition government this week after his party came second in Sunday’s election, said a Greek exit from the euro zone would be “disastrous.”

Tsipras said he is willing to negotiate with the so-called troika — the International Monetary Fund , the European Union, and theEuropean Central Bank — to keep Greece in the euro zone.

Does this mean the Fed staffers think fiscal policy works?
How about the Fed Chairman?
;)

Fed Worries ‘Fiscal Cliff’ Is as Big a Threat as Europe

By Steve Liesman

May 10 (CNBC) — Officials at the Fed are increasingly concerned about the coming “fiscal cliff,” putting it on par with the European crisis and the housing market as among the US economy’s biggest threats.

gfc & mmt daily

One of Marshall’s regular TV appearances.
Darn, he’s getting good at this!

CTV National Affairs

Obviously neither the author nor CNBC understands the fundamental difference between the issuer of the euro and the users of euro.

In fact, the ECB as per the treaty has no capital requirement, nor does it have any particular use for capital.

However, a general belief has been expressed by various higher ups to the effect that negative ECB capital would somehow be inflationary, and therefore the current imperative for the ECB to have sufficient capital, whatever that means.

So the presumption is any losses the ECB realizes will be ‘matched’ by capital calls to the member nations. Hence the reluctance by the ECB to give Greece, for example, any discounts on the Greek bonds in the ECB’s porfolio.

European Central Bank Leveraged Like Lehman: Author

By Patrick Allen

May 10 (CNBC) — The European Central Bank is indebted to the hilt and is beginning to look like one of the banks it has done so much to save, according to author Satyajit Das.

Having subsidized the European banking industry with its 1 trillion euro ($1.29 trillion) long-term refinancing operation (LTRO), funds that were distributed at well below market prices, the central bank is leveraged to levels Bear Stearns and Lehman Brothers might have felt comfortable with in early 2007.

“If the European Financial Stability Fund was a collateralized debt obligation, the ECB increasingly resembles a highly leveraged bank. The ECB balance sheet is now around euro 3 trillion, an increase of about 30 percent just since Mario Draghi took office in November 2012,” said Das in notes sent to CNBC before an interview on “Squawk Box Europe” on Thursday.

CIC Stops Buying Europe Government Debt on Crisis Concern

By Andres R. Martinez

May 10 (Bloomberg) — Gao Xiqing, president of China Investment Corp., said the nation’s sovereign wealth fund has stopped buying European government debt on concerns about the region’s financial turmoil.

CIC will continue to look for new investments in Europe as part of its strategy to boost allocations to infrastructure, private-equity assets as well as emerging markets to help boost returns, Gao said. CIC, with an estimated $440 billion in assets, is the world’s fifth-largest country fund, according to Sovereign Wealth Fund Institute.

“What is happening in Europe right now is of course of concern,” Gao said 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.”

Europe’s turmoil is reigniting on the second anniversary of policy makers’ first attempt to prevent Greece’s woes from spreading. That raises fresh doubt over the strategy just as Greece’s election spurs concern that the country may not meet the terms of its international rescues and will seek a solution outside the euro.

Is Norway Preparing for a European Bond Disaster?

By John Carney

In case you thought US voters were any different than their euro counterparts:

61% Believe Europe Needs to Cut Government Spending to Save Economy

May 9 (Bloomberg) — Newly elected leaders in France and Greece have signaled that austerity efforts in their countries may be coming to an end, but as far as Americans are concerned, that’s a move in the wrong direction. A new Rasmussen Reports national telephone survey finds that 61% of American Adults believe cuts in government spending would do more to improve the economic and financial situation in France and Greece than increases in that spending. Just 20% think more government spending is the better way to go. Eighteen percent (18%) are not sure. (To see survey question wording, click here.)

The survey of 1,000 Americans nationwide was conducted on May 7-8, 2012 by Rasmussen Reports. The margin of sampling error is +/- 3 percentage points with a 95% level of confidence. Field work for all Rasmussen Reports surveys is conducted by Pulse Opinion Research, LLC. See methodology.

FNMA may have always had only a market to market issue and not a long term cash flow issue.

And its always been a public/private partnership with govt’s role that of the funding model, so I never saw govt funding as a ‘bailout’

The public purpose of FNMA is to get lower income earners in their own homes, which it has successfully done for maybe 50 years for millions of American owners and their families.

The ‘real’ cost of the program is the alternative use of the actual goods and services devoted to this mission.

(Just me, but seems like it’s been a net gain.)

Note that banking is a public private partnership as well, with govt providing the funding, directly or indirectly, and private capital pricing the risk. So for me, govt provided liquidity for banking isn’t a ‘bailout’ but a necessary and continuous condition, all presumably serving public purpose.

Fannie Mae Won’t Seek Aid After Reporting $2.7 Billion Profit

By Clea Benson

May 9 (Bloomberg) — Fannie Mae, the biggest backer of U.S. home loans, said it won’t seek Treasury Department aid after reporting net income of $2.7 billion for the first quarter.

The Washington-based company, which has operated under U.S. conservatorship since it was seized in September 2008, cited lower credit-related expenses, a decline in serious delinquency rates and a drop in its inventory of owned properties as contributors to the improvement, according to a statement released today. The company has drawn a total of $117.1 billion in aid while under government control.

The first-quarter profit reflected a “less significant decline in home prices,” the company said in a Securities and Exchange Commission filing.

See below, seems 75% still support the euro vs trusting their own leaders with their own currency.

Also, unfortunately, the non MMT world pretty much still fails to grasp that mass unemployment is a macro problem and a manifestation of unspent income. That the only way the output gap gets filled is by some sector spending more than its income; and that the issuer of the currency is the only entity that isn’t inherently revenue constrained when it spends.

EU’s Response to Crisis Will ‘Convince People,’ Van Rompuy Says

May 9 (Bloomberg) — European Union President Herman Van Rompuy said the EU’s response to the sovereign-debt crisis will “convince people” of the value of being in the 27-nation bloc.

“We will convince people of the sense and the meaning of EU membership by results,” Van Rompuy said in a question-and- answer session posted on the Euronews website today. “That’s why we have to stabilize the euro zone and that’s why we have to increase economic growth and create jobs.”

“There is still a huge majority in most of the countries for membership of the European Union and the euro zone,” Van Rompuy said. “Even in Greece, I saw an opinion poll just before the election which said that 75 percent of people don’t want to leave the euro zone.”

Student Loans Continue to Drive Consumer Credit in March 2012

By Steven Hansen