Europe’s leaders must start making tough decisions | The A-List | Must-read views on today’s top news stories – FT.com – FT.com:
...There are several, partially compatible ways out of this. One is to make states individually safe by going far beyond the requirements of the Maastricht treaty and bringing public debts down to levels where solvency cannot be challenged anymore. It implies decades-long austerity. Another way is to make the financial system safe by putting limits to the banks’ exposure to their sovereigns and creating a eurozone-wide deposit insurance. It implies that states renounce the convenience of having ‘their’ banks. The third way is to change the mandate of the European Central Bank. This implies breaking with the Bundesbank’s heritage and giving the ECB a governance structure adequate to a new, quasi-fiscal role. A last option is to move towards fiscal union so that individual state solvency stops being a concern for markets. It means accepting both shared responsibility over public debts and ex-ante oversight of national budgetary decisions.
2011/10/26
2011/10/24
Guest Post: The Paradox of Thrift — Debunked | ZeroHedge
Guest Post: The Paradox of Thrift — Debunked | ZeroHedge
...
This misconception that the paradox of thrift applies in normal markets has done immense harm to the economy and eroded the savings of the middle-class and retirees. For three generations, central bankers attacked savers by artificially reducing interest rates — in the belief that lower savings would boost demand and stimulate the economy. Low interest rates simply forced savers to assume more risk, in order to earn a return on their investment, and encouraged speculation.
The traditional work hard and save ethic that is the backbone of the capitalist system has been supplanted by the consume, borrow and speculate profligacy that got us into such a mess. High levels of public and private debt, inflation, volatile investment returns and rising income inequality are all consequences of the low-interest policy pursued by the Fed. Today’s giant casino is a far cry from the cautious, prudent investment outlook of our grandparents’ generation.
...
This misconception that the paradox of thrift applies in normal markets has done immense harm to the economy and eroded the savings of the middle-class and retirees. For three generations, central bankers attacked savers by artificially reducing interest rates — in the belief that lower savings would boost demand and stimulate the economy. Low interest rates simply forced savers to assume more risk, in order to earn a return on their investment, and encouraged speculation.
The traditional work hard and save ethic that is the backbone of the capitalist system has been supplanted by the consume, borrow and speculate profligacy that got us into such a mess. High levels of public and private debt, inflation, volatile investment returns and rising income inequality are all consequences of the low-interest policy pursued by the Fed. Today’s giant casino is a far cry from the cautious, prudent investment outlook of our grandparents’ generation.
2011/10/23
2011/10/22
2011/10/19
View: Hidden Utility of Paul’s Balanced Budget Plan - Bloomberg
View: Hidden Utility of Paul’s Balanced Budget Plan - Bloomberg
U.S. Representative Ron Paul, the libertarian seeking the Republican presidential nomination, performed a valuable public service this week when he unveiled a budget plan that shows exactly what balancing the $3.8 trillion budget through spending cuts would look like.
U.S. Representative Ron Paul, the libertarian seeking the Republican presidential nomination, performed a valuable public service this week when he unveiled a budget plan that shows exactly what balancing the $3.8 trillion budget through spending cuts would look like.
There is no sunlit future for the euro - FT.com
There is no sunlit future for the euro - FT.com
Inside the eurozone, adjustment of imbalances remains essential. But it is also vastly difficult, because the exchange rate has gone. In its place, comes adjustment via depression and default. A currency union with structural mercantilists in the core now threatens a permanent slump in the periphery. Solving that is the true cure. Can it be done? I wonder.
Inside the eurozone, adjustment of imbalances remains essential. But it is also vastly difficult, because the exchange rate has gone. In its place, comes adjustment via depression and default. A currency union with structural mercantilists in the core now threatens a permanent slump in the periphery. Solving that is the true cure. Can it be done? I wonder.
2011/10/18
Why big businesses are bad for business
I saw this article when using the Financial Times app and thought you might be interested:
Financial Times, 5:52 PM Tuesday 18th October 2011
Why big businesses are bad for business
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By Luke Johnson
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Large public companies have more in common with government than with entrepreneurs and start-ups – and frequently do not generate jobs, but destroy them
Read the full article at: http://www.ft.com/cms/09417d98-f969-11e0-8e7e-00144feab49a.html
2011/10/15
FT Column – Steve Jobs: fashion inspiration
I saw this article when using the Financial Times app and thought you might be interested:
Financial Times, 1:38 AM Saturday 15th October 2011
FT Column – Steve Jobs: fashion inspiration
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By Vanessa Friedman
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I arrived home from the Paris fashion shows last week to hear the news that Steve Jobs had died. Strangely, in all the thousands of pages devoted to Jobs
Read the full article at: http://www.ft.com/cms/b36c6690-f336-11e0-8383-00144feab49a.html
2011/10/12
First aid is not a cure - FT.com
First aid is not a cure - FT.com
By Martin Wolf
...
But that would not be a solution if it merely led to indefinite financing of fundamentally uncompetitive economies. At the same time, one-sided and unduly hasty adjustment would exacerbate the downturns in the eurozone and world economies. What is needed is financing and adjustment. Unless and until that difficult combination is achieved, we are delivering first aid not a cure.
By Martin Wolf
...
But that would not be a solution if it merely led to indefinite financing of fundamentally uncompetitive economies. At the same time, one-sided and unduly hasty adjustment would exacerbate the downturns in the eurozone and world economies. What is needed is financing and adjustment. Unless and until that difficult combination is achieved, we are delivering first aid not a cure.
2011/09/28
2011/09/27
What do the banks’ target returns on equity tell us? | Martin Wolf's Exchange | Economic commentary from the Financial Times – FT.com
What do the banks’ target returns on equity tell us? | Martin Wolf's Exchange | Economic commentary from the Financial Times – FT.com: According to a FT article last week, Lloyds’ bank has a target return on equity of 14.5 per cent. Banks like to argue that this is the level of return on equity they need to earn, in order to gain funding from the markets. Naturally, remuneration is linked to achieving such objectives. The question, however, is whether such objectives make any sense. The brief answer is: no.
2011/09/21
What Comes After 'Europe'? - WSJ.com
A potential terrible future scenario for Europe:
What Comes After 'Europe'? - WSJ.com: BRET STEPHENS
The riots of Athens will become those of Milan, Madrid and Marseilles. Border checkpoints will return. Currencies will be resurrected, then devalued.
What Comes After 'Europe'? - WSJ.com: BRET STEPHENS
The riots of Athens will become those of Milan, Madrid and Marseilles. Border checkpoints will return. Currencies will be resurrected, then devalued.
Spain, not Greece, may be the biggest eurozone threat - FT.com
Spain, not Greece, may be the biggest eurozone threat - FT.com
By Charles Dumas - 20110921
Greek default is the high-profile threat to eurozone banks that hogs the headlines, and drives down the share prices of the region’s banks. But, aside from the Greek banking system itself, Greece is not a major threat to European banking solvency.
...
To get a fuller measure of the burden that may fall upon the state’s resources, we need to add a country’s household and net business debt to net government debt as these will have to be serviced in some fashion from that country’s income. By this broader definition, Italy comes off relatively well, with total debt a little over 200 per cent of gross domestic product. Greece at nearly 230 per cent is less bad than Spain, as well as Britain and Japan. Way out on their own, however, are Portugal at over 300 per cent, and Ireland at 330 per cent. Diana Choyleva and I in our latest book* explain why this means the credit of Portugal and Ireland, and probably Spain, could well become more threatened than Italy – though not as badly as Greece, which has particularly acute government debt and deficit problems.
...
In Portugal, non-financial companies (NFCs) have debt that is 16 times their pre-interest profit. An interest rate of little over 6 per cent would wipe that profit out. In Spain the numbers are 12 times and 8 per cent, respectively. So its entire NFC sectors are junk – a designation that kicks in at a ratio of about 10 times. The somewhat less dire Spanish ratio is exactly where Japan was in 1995-96. Japan had no real GDP growth between 1996 and 2002 – an ominous precedent – and finally emerged into growth again after a massive bank-debt write-off in spring 2003.
But Spain’s current situation is in several respects far worse than Japan’s back then. First, Japan had a currency, which devalued in real terms by 20 per cent over the six years to 2002, aiding adjustment. Spain is fixed in the euro.
...
By Charles Dumas - 20110921
Greek default is the high-profile threat to eurozone banks that hogs the headlines, and drives down the share prices of the region’s banks. But, aside from the Greek banking system itself, Greece is not a major threat to European banking solvency.
...
To get a fuller measure of the burden that may fall upon the state’s resources, we need to add a country’s household and net business debt to net government debt as these will have to be serviced in some fashion from that country’s income. By this broader definition, Italy comes off relatively well, with total debt a little over 200 per cent of gross domestic product. Greece at nearly 230 per cent is less bad than Spain, as well as Britain and Japan. Way out on their own, however, are Portugal at over 300 per cent, and Ireland at 330 per cent. Diana Choyleva and I in our latest book* explain why this means the credit of Portugal and Ireland, and probably Spain, could well become more threatened than Italy – though not as badly as Greece, which has particularly acute government debt and deficit problems.
...
In Portugal, non-financial companies (NFCs) have debt that is 16 times their pre-interest profit. An interest rate of little over 6 per cent would wipe that profit out. In Spain the numbers are 12 times and 8 per cent, respectively. So its entire NFC sectors are junk – a designation that kicks in at a ratio of about 10 times. The somewhat less dire Spanish ratio is exactly where Japan was in 1995-96. Japan had no real GDP growth between 1996 and 2002 – an ominous precedent – and finally emerged into growth again after a massive bank-debt write-off in spring 2003.
But Spain’s current situation is in several respects far worse than Japan’s back then. First, Japan had a currency, which devalued in real terms by 20 per cent over the six years to 2002, aiding adjustment. Spain is fixed in the euro.
...
2011/09/14
A national epidemic that hurts the young - FT.com
A national epidemic that hurts the young - FT.com
By Luke Johnson
A thirty-something Italian acquaintance moved to London a few years ago to run a technology start-up.
I asked: “Why did he leave such a beautiful country to live in our expensive, crowded city?” He explained that institutions and businesses in Italy are controlled by old men who refuse to surrender power to the next generation – with 74-year-old Silvio Berlusconi being a prime example.
By Luke Johnson
A thirty-something Italian acquaintance moved to London a few years ago to run a technology start-up.
I asked: “Why did he leave such a beautiful country to live in our expensive, crowded city?” He explained that institutions and businesses in Italy are controlled by old men who refuse to surrender power to the next generation – with 74-year-old Silvio Berlusconi being a prime example.
Risk Rises at ECB as Europe Banks Lose Deposits - Bloomberg
Risk Rises at ECB as Europe Banks Lose Deposits - Bloomberg
By Yalman Onaran - Sep 14, 2011 12:01 AM GMT
European banks are losing deposits as savers and money funds spooked by the region’s debt crisis search for havens, a trend that could worsen economic and financial conditions.
By Yalman Onaran - Sep 14, 2011 12:01 AM GMT
European banks are losing deposits as savers and money funds spooked by the region’s debt crisis search for havens, a trend that could worsen economic and financial conditions.
2011/09/07
Economics fails to resolve exceptions to the rule - FT.com
Economics fails to resolve exceptions to the rule - FT.com
By John Kay
As the financial crisis continues to evolve, the Queen’s question at the London School of Economics – why have academic economists so little to contribute to predicting the course of events – continues to be all too pertinent.
Robert Lucas, professor of economics at the University of Chicago and Nobel Prize winner for his seminal contributions to macroeconomics, proffered an answer in 2009. The crisis was not predicted, he explained, because economic theory predicts that such events cannot be predicted. Faced with that response, a wise sovereign will seek counsel elsewhere.
By John Kay
As the financial crisis continues to evolve, the Queen’s question at the London School of Economics – why have academic economists so little to contribute to predicting the course of events – continues to be all too pertinent.
Robert Lucas, professor of economics at the University of Chicago and Nobel Prize winner for his seminal contributions to macroeconomics, proffered an answer in 2009. The crisis was not predicted, he explained, because economic theory predicts that such events cannot be predicted. Faced with that response, a wise sovereign will seek counsel elsewhere.
We must listen to what bond markets are telling us - FT.com
We must listen to what bond markets are telling us - FT.com
By Martin Wolf
What is to be done? To find an answer, listen to the markets. They are saying: borrow and spend, please. Yet those who profess faith in the magic of the markets are most determined to ignore the cry. The fiscal skies are falling, they insist.
By Martin Wolf
What is to be done? To find an answer, listen to the markets. They are saying: borrow and spend, please. Yet those who profess faith in the magic of the markets are most determined to ignore the cry. The fiscal skies are falling, they insist.
2011/09/06
Euro crisis requires market solution
Euro crisis requires market solution
By Lee Robinson
Published: August 31 2011 15:38 | Last updated: August 31 2011 15:38
Ultimately the euro crisis remains a pressure cooker building up steam dehttp://www.blogger.com/img/blank.gifspite the protestations of the currency system being saved by multiple political interventionshttp://www.blogger.com/img/blank.gif. Yet after a half dozen supranational attempts to instil order within the sovereign nations of the EU, the markets are clearly not listening. Instead a market solution is now needed...
By Lee Robinson
Published: August 31 2011 15:38 | Last updated: August 31 2011 15:38
Ultimately the euro crisis remains a pressure cooker building up steam dehttp://www.blogger.com/img/blank.gifspite the protestations of the currency system being saved by multiple political interventionshttp://www.blogger.com/img/blank.gif. Yet after a half dozen supranational attempts to instil order within the sovereign nations of the EU, the markets are clearly not listening. Instead a market solution is now needed...
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