The EU’s Camouflaged Bazooka

Many were disappointed that the EU Summit didn’t conclude with a hard number backstop for the ‘zone’s sovereign debt rolling over next year. We believe if you scratch the surface the bazooka is there

Draghi Turns On Spigots, but Still a Drag

The ECB delivered the much expected 25 bp rate cut, though the decision was not unanimous. There was some immediate disappointment by some players positioned for the outside chance of a 50 bp move. The ECB addressed the liquidity and collateral measures to address the credit crunch. The ECB will provide two 3-year refi operation, which will replace the previous long-term repo operations (LTRO). Participating banks will have the option to return the funds after one year

Pending EU Summit May Curb Response to ECB

The dollar is trading slightly firmer ahead of today’s ECB rate decision and tomorrow’s summit. We expect the ECB to cut by 25bps, with a possibility of a 50bps cut; look to fade knee-jerk reaction. Australia’s employment much weaker than expected; Singapore imposes news taxes on homes

Official Action and Why Italy is Still at the Vortex

The EU Summit is the last opportunity of the year, and some observers say the last opportunity period,
for action that will begin seriously addressing the crisis. Tomorrow France’s Sarkozy is expected to present his proposals tomorrow and Germany’s Merkel Friday.

Germany and French proposals to expedite a fiscal union are important, but watch what Italy does. Before the summit, Italy will likely announce a new package of austerity that will take several important steps toward what Merkel and Sarkozy have in mind that are necessary for fiscal union

News Links: Are Americans really shopping until they drop?

Analysis: Are Americans really shopping until they drop? | Reuters One glance at the numbers for the first big weekend of holiday shopping and you might think Americans are flush with cash and spending it freely. But a deeper look at the data reveals it would be wrong to suggest that conspicuous consumption is back

You couldn’t inflate, even if you wanted to

So here we are, with the ECB demanding deflationary austerity from the member nations in return for the limited bond buying that has been sustaining some semblance of national government solvency, not seeming to realize it can’t inflate with its monetary policy tools, even if it wanted to

Foreign news: Belgium gets austerity, EU prepares for Eurobonds, Netherlands says breakup inevitable, Spain to get IMF bailout

Foreign-language economic and finance links for 26 November

News Links: Downgrade watch begins as debt panel concedes defeat

Downgrade watch begins as debt panel concedes defeat – The Hill’s On The Money Credit rating agencies reiterated Monday that the U.S. is at risk of a downgrade following the announcement that the supercommittee has failed. Standard & Poor’s warned lawmakers not to try and roll back the $1.2 trillion in automatic cuts set to

Brazil: Outlook Vulnerable To Developed Market Developments

Brazil stands out now for being one of the few in EM to be cutting rates. We think most in EM will be cutting rates by Q1 2012 due to the deteriorating global growth outlook, and so BRL will still likely continue to enjoy a big yield advantage over other EM currencies next year. The current account and budget deficits remain very manageable, with inflows of FDI more than covering the former. There are many reasons to remain constructive on BRL, but the DM story unfolding suggests that we are months away from clear sailing for

Warren Mosler’s Big Fat Greek MMT Exit Strategy

It is beginning to look like a Greek exit is ever more likely, which means that the end of the EMU could be near.

Even if exits and a break-up are not inevitable, countries should have a plan on the shelf. It is clear that Germany is going to insist on the maximum austerity it can squeeze from nations facing a run on their debt. Hence, if nothing else, an exit strategy is required for negotiations. The best strategy would be for all the so-called PIIGS to band together with a believable threat to exit together. That could finally break the logjam.

I’m not optimistic about that. In any event, it is time to examine proposals for dissolution. Warren Mosler has formulated what looks like a nice, clean exit strategy that EMU members can adopt. I am reprinting here with his permission

Spain Another Pain

Pressure is mounting on Spain. The 10-year yield today is essentially back to where it was when the ECB broadened its sovereign bond purchase scheme to include Spanish and Italian bonds. On Oct 27, the 10-year yield was near 5.33%. Today it is 100 bp higher. This is not a very conducive environment for tomorrow’s new benchmark offering (up to 4 bln euros of bonds that mature in 2022)

What if foreigners dump government bonds?

when government deficit spends, some of the claims on government will end up in the hands of foreigners. Does this matter