The European Central Bank was once known for its focus on price stability. Since the global economic crisis, however, its role has extended to saving banks and sovereign countries. This column argues that such a move has badly harmed the institution’s legitimacy – something that will damage both its policy effectiveness and confidence in the governing bodies of the EU as a whole.
Author: Guest Author
Warren Mosler has three proposals specifically designed to get sales up to make sure business has a good paying job for anyone willing and able to work. He arguess that’s good for businesses and all the people who work for them and says these proposals are bipartisan. His view is that they are supported by Americans ranging from Tea Party supporters to the Progressive left, and everyone in between
The following is excerpted from today’s UBS research note by Stephane Deo, Paul Donovan and Larry Hatheway on the consequences of a euro break-up. The full note is embedded below.
Ben Bernanke’s Speech to the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming
The Richmond Fed manufacturing index fell to -10 in August from -1 in July, joining other manufacturing index sugessting contraction in the sector.
If the Chairman has to do something, then the real question is what policy response is adequate to a) reviving asset prices and b) returning the US to trend real GDP growth (since the portfolio balance channel appears to be the only one left for monetary policy transmission to work). Many institutional investors may be realizing that is a null set given current political configurations, and so whatever the Chairman delivers – even if he goes boldly where no Fed governor has ever gone before – may have a very short half life, as we saw with the last move of pegging the 2 year US Treasury yield at the fed funds rate.
This week’s Outside the Box is in the tradition of showing the other side of the argument. Normally, anything George Soros says or does politically has my blood pressure up about 20 points. Yet, I posted another piece of his today in Over My Shoulder – and then ran across this longer piece from Der Spiegel. Note this is from a dedicated Europhile wanting to save the euro. He succinctly outlines what must be done if it is to be saved, and does it as well as anyone. (I know that among my readers there are both likers and haters of Soros, but as an observer of markets he is to be respected. And this is an article in which his acumen is in evidence.
In 2010, Euro area’s savings were insufficient to finance investment. Business needed to borrow to finance their investments and households savings were not enough to fill the gap. This is why the euro area runs a current account deficit, and is a net borrower.
Andy Lees takes a sceptical view of fiat currency and the excess credit it has created over the past forty years and uses a few charts to demonstrate his points.
Investors are anticipating the unravelling of the 21 July 2011 “solution” and a breakdown of the interbank-market that would throw the economy into an “immediate recession” like the one experienced after the Lehman bankruptcy. This column argues that this will happen without quick and bold action. The EFSF can’t work as designed but if it were registered as a bank – which would give it access to unlimited ECB re-financing – governments could stop the generalised breakdown of confidence while leaving the management of public debt in the hand of the finance ministers.
The global crisis of 2008-09 hit emerging markets nearly as hard as it hit rich countries, which is welcome news compared to previous crises in which emerging markets often suffered much more than developed economies. This column explores emerging economies’ growth dynamics since the crisis.
If we have learned anything from the current financial mess, it’s that building wealth is dependent on rational analysis, careful decision making, and risk management. That’s why sticking close to home at a time when our markets are more uncertain than ever is a recipe for disaster and absolutely the wrong thing to do. Not only will you miss out on the world’s fastest-growing markets, but the odds are exceptionally high that you will miss as much as 50% or more in potential returns over the next decade.