Credit Writedowns » Edward Harrison

Chart of the day: The Grexit decision tree

Edward Harrison — Wed, 23 May 2012 15:00:19 +0000

The Financial Times has gone through the very useful exercise of creating a decision tree on what a Greek exit from the euro zone entails. I think the Europeans are now actively preparing for a Grexit because to not do so would be folly. But that doesn't mean that they want Greece to be forced out. Much of what we hear for public consumption is real. But much of it is also political posturing to improve negotiating positions. This decision tree can be helpful in figuring out what's real and what's just bluff

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[Premium] Daily commentary: thoughts on austerity as a policy tool and on India as a black swan

Edward Harrison — Wed, 23 May 2012 14:41:49 +0000

The news flow today is about the same as it has been throughout the week: JPMorgan Chase and Facebook in the US and Greece and to a lesser degree now Spain in the EU. I think these are the wrong narratives to be focused on. As I wrote yesterday, I believe China will suffer a hard landing but that India will be worse than China. In my view, the economic slowdown in India is the biggest story that's not making headlines. Then there is the debate over austerity. I posted on how we had the same debates about austerity under the gold standard while Hoover was President in the US during the Great Depression (see Hoover on austerity to balance the budget and defend the dollar in 1932). Here's my view on that debate

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[Premium] Daily commentary: On free money for the German government

Edward Harrison — Wed, 23 May 2012 00:43:46 +0000

Not a lot to say today but I do have a lot of links. The stories today are all the same, which is why I don't have a lot to add. One story to note is that the German government is now borrowing 2-year money at zero percent. This tells you that the Germans continue to benefit from Europe while the periphery does not. The prevailing narrative as to why this is so is because the Germans are frugal and conservative and the peripherals are not

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[Premium] India will be worse than China

Edward Harrison — Tue, 22 May 2012 18:39:08 +0000

When I listed my Ten Surprises for 2012 in January I predicted that China would have a hard landing, defined as quarterly growth below 5% annualised by the end of this year. But I also said that India would be worse than China. And it is this combination that makes me more concerned about the global growth slowdown in emerging markets than the crisis in Europe. This is a big, big story but no one is talking about it because Europe is sucking up all of the air

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Ray Dalio on Deleveraging

Edward Harrison — Tue, 22 May 2012 12:51:43 +0000

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

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[Premium] Why Europe’s extend and pretend strategy will fail

Edward Harrison — Tue, 22 May 2012 01:19:32 +0000

Michael Pettis had a great write-up on the situation in Spain and Europe's depressing prospects. While his conclusion that Spain will be forced to exit the euro zone is something I have yet to endorse, the logic he uses surrounding many of the economic and policy constraints bears remembering. In particular, his comments on Europe's inability to extend the crisis and pretend their banks are solvent are important because the undercapitalisation of Europe's banks lies at the heart of this crisis

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[Premium] The Germans have already blinked

Edward Harrison — Tue, 22 May 2012 00:40:02 +0000

The talk about Greece being kicked out of the euro zone has clearly been overdone. Some have suggested that the Germans had reached their fill and that they would 'stare the Greeks down' in this high stakes game of chicken. I have maintained that European policy makers in Greece, in Germany and throughout the euro zone are steadfastly committed to the euro. Recent reports of discussions now ongoing support this. Moreover, these reports show that Germany is indeed willing to compromise on core issues causing crisis in the euro area. These reports also hint at the form that euro zone compromises will take on the fiscal and growth pacts now being contemplated as the silver bullet to Europe's sovereign debt crisis. I do not believe the compromises currently on discussion are going to be a definitive solution for Europe. I would sooner label them a variant of 'extend and pretend' than something definitive. Nevertheless, these talking points do demonstrate continual movement toward fiscal integration in the manner I indicated in November during the Italian crisis

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[Premium] Daily commentary: On Facebook’s IPO, JPMorgan’s losses, Spain’s bank run and Greece’s exit

Edward Harrison — Mon, 21 May 2012 19:35:49 +0000

As always, I have a lot of links on Monday. Three or four stories have dominated the news in each market for the past week. In the US, it is about either JPMorgan Chase's escalating losses, Facebook's IPO or the general aimlessness of the market. In Europe, the dual stories are Greece and Spain. In Greece, the talk is of an imminent exit from the eurozone, while in Spain the question revolves around Spanish bank insolvency. Other news outside of the G8 has been pushed to the side

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

Edward Harrison — Mon, 21 May 2012 18:19:18 +0000

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

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[Premium] Pushback on the imminent Grexit meme

Edward Harrison — Mon, 21 May 2012 12:54:40 +0000

I still find it hard to believe a Greek exit from the euro zone is imminent. So it's good to see someone push back on the concept that a Greek exit from the euro zone is imminent. John Dizard at the FT does just this in a piece out today entitled "Everybody chill – Grexit is not really imminent"

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