Credit Writedowns » Marshall Auerback

Spain is the New Greece

Marshall Auerback — Wed, 02 May 2012 11:30:03 +0000

Spain has become the new Greece. Actually, in many respects Spain is now worse than Greece. The Spanish unemployment rate is already so high and unlike Athens, Madrid has made no headway in reducing its public debt levels (whereas the Greeks are close to running a primary fiscal surplus at which point they could leave and turn the problem back on to Brussels). Moreover, Spain has a huge private debt burden that is twice that of Greece

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Greece and the Troika’s Treachery

Marshall Auerback — Fri, 10 Feb 2012 13:00:00 +0000

Marshall Auerback suggests the Troika's goal in the Greek deal is to make the deal so miserable for the Greek people that the Spanish, Portuguese, Irish and Italians don't even begin to think of trying to get a similar haircut on their debt

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The Elephant in the Room Is Spain, Not Italy

Marshall Auerback — Tue, 07 Feb 2012 21:30:47 +0000

The decision for Europe’s bosses is this: they must ultimately confront the consequences of their policy choices. They can destroy the eurozone by continuing with the same failed mix of policies or by salvaging it by adding what has been missing from the outset: a mechanism for shifting surpluses to the deficit regions in the form of productive investments (as opposed to handouts or loans)

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Jobs data highlight huge potential for capital loss in Treasuries

Marshall Auerback — Fri, 03 Feb 2012 20:45:36 +0000

I have been making a big deal about strength in the household series of employment and the trend in IUCs. These are statistical series that do not get revised out of recognition. They often tell the tale at turning points. Given that past household survey employment and IUC trends have persisted, the current bond market rally will be even more insane and the stock market will probably continue to work higher, even though the favorable seasonable window has closed. I expect the recent trend of large outflows from stocks to bonds over the last year (and last five years) to be reversed in 2012. Not only are interest rates at generational lows but many high-quality companies are yielding (at 2.5% or even better) well above the yield on the 10-year U.S. note

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The ECB is Engaging in Massive QE

Marshall Auerback — Tue, 17 Jan 2012 21:25:12 +0000

Despite the ongoing hawkish rhetoric from the ECB, there are signs that they are getting it: The LTRO can't work, as you're essentially just swapping one liability for another one (albeit more long term in duration, therefore making it better for the banks). But note the way the ECB balance sheet is expanding: The consolidated assets of the European system of Central Banks is now 4.4 billion euros or $5.7 billion. In effect, the consolidated ESCB balance sheet is almost two times that of the Fed and its increase over the last 6 months is almost equal to the entire increase in the Fed’s balance sheet over the last several years. Bottom line: the system of European Central Banks (ESCB) has been engaged in massive QE and much more is in the pipeline. With such massive injections of “liquidity” into the European banks, a European Lehman type failure with Lehman’s systemic consequences becomes ever less likely

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The Road to Serfdom

Marshall Auerback — Fri, 11 Nov 2011 01:20:43 +0000

As for Italy itself, the country runs a primary fiscal surplus. As George Soros has noted: “Italy is indebted, but it isn’t insolvent.” Its fiscal deficit to GDP ratio is 60% of the OECD average. It is less than the euro area average. Its ratio of non-financial private debt to GDP is very low relative to other OECD economies. It is not at all like Greece. It has a vibrant tradeable goods sector. It sells things the rest of the world wants. You introduce austerity at this juncture, and you will cause even slower economic growth, higher public debt, thereby creating the very type of Greek style national insolvency crisis that Europe is ostensibly seeking to avoid. And then it will move to France, and ultimately to Germany itself. No passenger is safe when the Titanic hits the iceberg

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Europe’s Non-Solution

Marshall Auerback — Wed, 26 Oct 2011 17:30:41 +0000

Let’s not get bogged down in numbers. The EFSF could have 440 billion euros behind, 1 trillion, 2 trillion, even 10 trillion euros, but it all comes back to the funding sources. The French are right: it makes no sense to implement this program without the backstop of the ECB, which is the only entity that could make any guarantees credible, by virtue of its ability to create unlimited quantities of euros. Both the leading policy makers within the euro zone and market participants continue to conflate two distinct, but related issues: that of national solvency and insufficient aggregate demand. Policy makers want the ECB to do both, but in fact, the ECB is only required to deal with the solvency issue. When you do that in a credible way, then you get the capital markets re-opened and you give countries a better chance to fund themselves again via the capital markets. It means you do not actually need several trillion dollars, because you have a credible backstop in place

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Core Europe Sitting Pretty in their PIIGS Drawn Chariot

Marshall Auerback — Tue, 04 Oct 2011 12:30:00 +0000

The “solution” currently on offer – i.e. the talk surrounding the European Financial Stability Fund (EFSF) now includes suggestions of ECB backing. This makes eminent sense. Let’s be honest: the EFSF is a political fig-leaf. If 440 billion euros proves insufficient, as many now contend, the fund would have to be expanded and the money ultimately has to come from the ECB -- the only entity that can create new net financial euro denominated assets -- which means that Germany need no longer fret about being asked for ongoing lump sums to fund the EFSF in a way that would ultimately damage its triple AAA credit rating

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The Euro Endgame

Marshall Auerback — Fri, 19 Aug 2011 18:00:00 +0000

There appear to be no happy outcomes here (although as my friend, Tom Ferguson always reminds me, “If you want to have a happy ending, go see a Disney film”). We appear to be entering most dangerous time for Europe since World War

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Massive Iceberg Ahead for the European Monetary Union

Marshall Auerback — Thu, 21 Jul 2011 00:39:44 +0000

Guilio Tremonti, the Italian Finance Minister, last week compared Germany and its small-minded Chancellor Angela Merkel to a first-class passenger on the Titanic. To repeat: this is not a problem confined to the periphery. The sovereign risk problem applies to the central core countries, such as Germany and France, as it does to the Mediterranean “profligates”. Once a run on the currency starts and moves into the banking sector, then none of the governments will be able to do anything other than to oversee financial and economic collapse while the fiddlers in Brussels and Frankfurt try to spin some line about “special circumstances” or something without admitting the whole system they imposed on the area is the cause of this crisis

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