The separation of abodes from investments should work to the advantage of rentals in future years. We’re not suggesting that Americans will give up on single-family owner-occupied housing. The idea of a single-family home of your own is just too deeply embedded in the American culture. But many who have no pride of home ownership and who would vastly prefer to yell for the “super” (New York-ese for the building superintendent) than to apply a wrench to a leaky pipe have bought houses and apartments in past decades only to participate in capital appreciation.Read more ›
Articles By: Guest Author
Each new version of the European debt crisis will spook the bond markets yet again. When you look at the economies of the euro-peripheral countries, it is hard to see how they can dig themselves out without a great deal of pain and serious spending cuts, which of course means slower economies and even more pain. But that is the only way through, short of the Eurozone basically guaranteeing all debt for a long time, which means you are asking Finnish and German and Dutch and French voters to agree to take on more taxes to pay that debt. Or it means a real loss of sovereignty and control for debtor nations.Read more ›
QE is, in fact, a ‘crop failure’ for the dollar. The Fed’s shifting of securities out of the economy and replacing them with clearing balances removes interest income. And the lower rates from Fed policy also reduces interest paid to the economy by the US Treasury, which is a net payer of interest. But the global markets mistakenly believed QE was producing a bumper crop for the dollar. They all believed, and some to the of panic, that the Fed was ‘printing money’ and flooding the world with dollars. Last week I suggested that higher crude prices were the last thing holding down the dollar, and that as crude started to fall I suggested it was all starting to reverse. It’s now looking like it’s underway in earnest.Read more ›
Guest Author Polyvios Petropolous argues that the European Union must put in place the contingency plans for a Greek debt restructuring in secret before the plan is announced and executed. To end bailouts without such a plan in place would result in Lehman-style default that would have grave negative consequences for Europe and the world economy.Read more ›
The following editorial by Timo Soini, the head of the True Finns party in Finland, on perceived corporatism in the EU bailouts of the eurozone periphery appeared in Monday’s Wall Street Journal. We are reprinting it here because the original version was posted and then inexplicably edited, excising key bits of the argument. Below, the areas which are highlighted are the excised bits. (hat tip Karl Denninger.)Read more ›
Systemic risk is not driven by close macro integration. If this were the case, US states would have far higher exposure to systemic credit risk. Instead, systemic exposure is very high for European sovereigns. The roots of systemic risk lie in the flows, liquidity, risk premiums, and liquidity shocks of financial markets. Managing these financial market channels is crucial in keeping systemic default risk low.Read more ›
The latest figures from the US show that the consumer price index rose 0.5% in March, whilst the core personal consumption expenditure price index rose only 0.1%. This column explains the roles of these competing measures and argues that US monetary policymakers should pay close attention to headline inflation. It warns that neglecting headline inflation risks feverish boom-and-bust cycles with prolonged periods of high unemployment.Read more ›
We debated whether to call Section 3 “Devaluation & Transformation” or ‘Transformation and Devaluation” because we could not be sure (or possibly know) which would be generally recognized first. We finally opted for “Devaluation and Transformation” because the world is already experiencing substantial currency devaluation. Currency devaluation is apparent through the process of prevailing inflation, even if the majority of economists and market participants are looking elsewhere. Transformation will come after this becomes more widely known.Read more ›
Is there a viable currency to replace the US dollar when over-leverage, economic imbalances and consequent money printing ultimately lead to an overwhelming decline in confidence in the dollar as a store of value?Read more ›
The following is the second in a series of posts by QB Partners on the dollar standard monetary system. The first post is available for review at Credit Writedowns. In section 1, we tried to lend perspective to the current global monetary system, its weaknesses and predisposition to fail, whom it benefits and harms, and the natural incentives of various participants to push it towards demise. Though obvious to us and many of you, this state of affairs has not been widely addressed by global leaders responsible for steering public economic policies. And though there have been some overtures towards public acknowledgement made by prominent people, such talk has no doubt been seen by active Western policy makers as inconvenient and maybe even irresponsible discourse. Officially, a “strong dollar policy” remains in effect.Read more ›
The global crisis has called into question how banks are run and how they should be regulated. Highly leveraged banks went under, threatening to drag down the entire financial system with them. Here, David Miles of the Bank of England’s Monetary Policy Committee, shares his personal views on the optimal leverage for banks. He concludes that it is much lower than is currently the norm.Read more ›
In April 1989, Mexico’s external debt negotiator, Angel Gurria, asked his country’s commercial bank creditors for a 55 percent haircut. This was the opening pitch of the newly created Brady Plan, which finally addressed both the debt overhang of developing countries and the weak balance sheets of their commercial bank creditors, ultimately resolving the LDC Debt Crisis.
More than twenty years later, Europe is in the midst of a similar sovereign debt and banking crisis. The EU is in a destabilizing feedback loop that it cannot control. Sovereign credit is deteriorating and this is reducing confidence in national banking systems, causing or increasing the likelihood that sovereigns will have to assume bank liabilities. This further impairs the sovereign credit and increases the lack of confidence in the banks.
We review the basic tenets of the Brady Plan in the context of our personal experience working on many of these sovereign restructurings and how they could apply in a comprehensive solution for the European debt crisis. The markets and the Eurozone desperately need a positive confidence shock in the form a comprehensive plan that simultaneously addresses the sovereign debt overhang and the balance sheets of European commercial banks.Read more ›