Ray Dalio on Deleveraging

Ray Dalio was featured in Barron’s at the weekend. He spoke about the various options available to affect a private sector deleveraging. He sees three ways which he calls austerity, restructuring, and money printing.

Below is an excerpt of his commentary

Hoover on austerity to balance the budget and defend the dollar in 1932

I have written quite a few posts highlighting the statements made by Herbert Hoover during his US presidency as he struggled with the economic contraction of the Great Depression. The general tenor of Hoover’s comments and actions goes to redoubling efforts toward balancing the federal budget in order to bring back the fiscal discipline that Hoover felt was proper irrespective of the macro environment and that Hoover also believed would support the US dollar.

In the past, some commenters have expressed doubt about Hoover’s deficit hawk bona fides. Having looked through the assortment of Hoover documents at the American Presidency Project, what is clear to me is that Hoover was indeed committed to balancing the budget by cutting expenditure and raising taxes despite the economic slide

Europe’s depressing prospects

By Michael Pettis Normally I don’t like to write about European prospects in the midst of a very rough patch in the market because in that case there isn’t much I can say that isn’t already being said. I find it more useful to wait for those recurring periods in which the markets recover and

Spain: Double Barrel Disappointment

The fact that Spanish bank shares have rallied today (3.1% at pixel time) and have easily outperformed the market (IBEX up 0.3%) following Moody’s downgrade of 16 Spanish banks should be understood as a bit of a fluke. Some observers will use this price action as evidence that rating agencies are laggards. While there can be little doubt that the epithet is true, it is also true that today’s correction comes despite some other bad news as well. This was in the form of the Bank of Spain’s latest assessment that bad loans in the banking system rose in March to 8.37%

The euro zone has become a political economy black hole

Without going into the detail of my member posts, here’s what I can say: it is clear Greece will eventually exit the euro zone. The question is the timing. But, the political about-face necessary to prevent contagion is a lot larger than politicians are now prepared to take

On JPM’s Dimon’s still unassailable position and Facebook as the new Yahoo

I spoke to Paul Waldie and Brian Milner of the Globe & Mail on BNN’s headline on Monday. The big story was JPMorgan Chase and the London Whale trades. JPMorgan Chase’s CEO Jamie Dimon, as the leading lobbyists for the hands-off regulatory approach for US banks, has become a lightning rod for criticism of too big to fail banks in the US. Even so, I think it’s unlikely that Dimon will be forced out of his position. We also talked about Yahoo and the oversubscribed Facebook IPO. They are going to have to execute really, really well to justify the IPO valuation

US housing starts up 40% in last year but still half of 50-year average

Housing starts in the US were up today. The Wall Street Journal writes that number came in at 717,000, up from a low of 478,000 in April

Another chart of the day: Greek bank deposits collapse

The chart below via Reuters’ Scott Barber is what an economic depression looks like. It covers Greek bank deposits from 1998 to present

Chart of the day: The German-Spanish 10 Year Spread is at an all time high

Spanish bond yields are spiking with no obvious reason to believe they will come down anytime soon. That puts the Spanish-German 10-year spread at an all time high

Will the Greek exit be voluntary or involuntary?

Ever more voices are talking about the possibility of Greece leaving the euro zone despite the fact that there is no formal mechanism for a euro are member country to exit the single currency. This talk, however, makes sense because Greece’s situation is untenable economically and politically. The Grexit is a question of when and how not if

Spain: EU estimates for contraction now considerably deeper

This is not a good day for Spain. The day began with the EU Commission revising its estimates for the Spanish economy. The contraction is now expected to be considerably deeper. Spain unveiled its new efforts to address the banking problems. It is the fourth one since the crisis began and the second one since Rajoy became PM. Spain is forcing the banks to boost their loan loss provisions on real estate loans by 30 bln euros. They have already put aside about 54 bln euros. The Center for European Policy Studies warns that bank losses could be as high as 380 bln euros. Moody’s estimates Spanish bank losses could be around 305 bln euros

Super SGP coming – ECB: “A stronger and stricter fiscal framework is required”

The long-held view in German policy circles has been that the European sovereign debt crisis is a clear indication that the stability and growth pact (SGP) was not sufficiently robust in addressing fiscal discipline. The ECB is now addressing this with a policy paper