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Currency wars, the Swiss franc, policy divergence and Fed rate hikes

Currency wars, the Swiss franc, policy divergence and Fed rate hikes

Edward here. I wrote the following post with the anodyne title, “The Swiss National Bank turns to negative rates” for Credit Writedowns Pro on 18 Dec 2014, almost three months ago.. But I am now putting it on the blog site because the Fed is poised to reveal tomorrow whether or not they actually will move to a full-on tightening […]

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Wolfgang Schaeuble the Salesman

Wolfgang Schaeuble the Salesman

When the Greek bailout extension deal got done, I mentioned that in the press conference that followed, German Finance Minister Wolfgang Schäuble made it clear he was looking to ‘sell’ the deal to the German parliament. And while he has been successful in doing so, recent evidence suggests that indeed he did have to work to make the deal viable. For me, this highlights the political constraints we are working under and reinforces my view that writedowns are not politically viable in Germany.

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Five Investing Themes That Need Further Examination

Five Investing Themes That Need Further Examination

Tiger 5 – Grexit is inevitable

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Why Understanding Money Matters in Greece

Why Understanding Money Matters in Greece

As Greece staggers under the weight of a depression exceeding that of the 1930s in the US, it appears difficult to see a way forward from what is becoming increasingly a Ponzi financed, extend and pretend, “bailout” scheme. In fact, there are much more creative and effective ways to solve some of the macrofinancial dilemmas that Greece is facing, and without Greece having to exit the euro. But these solutions challenge many existing economic paradigms, including the concept of “money” itself.

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Albert Edwards on China

Albert Edwards on China

In the last post at Credit Writedowns Pro on the jobs number, I promised to talk about currency issues but I didn’t! Here are two issues then: the increasing current account surplus in Germany and the strong dollar’s effect on China. On Germany, it’s notable that merchandise trade as a share of GDP in Germany was 70.8% for the years […]

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When do we decide that Europe must restructure much of its debt?

When do we decide that Europe must restructure much of its debt?

By Michael Pettis It is hard to watch the Greek drama unfold without a sense of foreboding. If it is possible for the Greek economy partially to revive in spite of its tremendous debt burden, with a lot of hard work and even more good luck we can posit scenarios that don’t involve a painful social and political breakdown, but […]

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How to look at the Greece bailout deal

Yesterday, Greece received an agreement in principal to extend its existing bailout program for another four months from the institutions administering that program. I believe this deal is a good basis for further work down the line. But Greece has a lot of work ahead of it, if it is to move to a new program. Moreover, Syriza will have to sell this deal as a bridge to the sustainable economic outcome it sold to its electorate in the January elections. At the same time, the Germans and the Finns at a minimum will have to sell this deal to their parliaments for it to work. Some thoughts below

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Negotiating strategies and political constraints regarding Greece

I am going to leave my market-based analysis and enter the murky waters of the political economy. I don’t like the uncertainty of the political economy, given how it is based on the quixotic and unpredictable actions of individuals. But the political economy is important in crisis situations and one cannot analyze an outcome properly without taking the politics into consideration. I was a diplomat at one point in time and hope that experience will aid me here. I have been good at understanding some of the political constraints in Europe so far and intend to discuss them here.

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A decision-tree framework for thinking about the Greek – Troika negotiations

This is a short post to update you on Greece. I continue to believe a deal can get done. Recent events demonstrate this is so. Nevertheless, the potential for policy error remains high. Brief thoughts below using a decision tree model framework

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Tax Anticipation Notes: A Timely Alternative Financing Instrument for Greece

Tax Anticipation Notes: A Timely Alternative Financing Instrument for Greece

The recent election of an explicitly anti-austerity party in Greece has upset the prevailing policy consensus in the eurozone, and raised a number of issues that have remained ignored or suppressed in policy circles. Expansionary fiscal consolidations have proven largely elusive. The difficulty of achieving GDP growth while reaching primary fiscal surplus targets is very evident in Greece. Avoiding rapidly escalating government debt to GDP ratios has consequently proven very challenging. Even if the arithmetic of avoiding a debt trap can be made to work, the rise of opposition parties in the eurozone suggests there are indeed political limits to fiscal consolidation. The Ponzi like nature of requesting new loans in order to service prior debt obligations, especially while nominal incomes are falling, is a third issue that Syriza has raised, and it is one that informed their opening position of rejecting any extension of the current bailout program.

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Syriza and the French indemnity of 1871-73

Syriza and the French indemnity of 1871-73

The euro crisis is a crisis of Europe, not of European countries. It is not a conflict between Germany and Spain (and I use these two countries to represent every European country on one side or the other of the boom) about who should be deemed irresponsible, and so should absorb the enormous costs of nearly a decade of mismanagement. There was plenty of irresponsible behavior in every country, and it is absurd to think that if German and Spanish banks were pouring nearly unlimited amounts of money into countries at extremely low or even negative real interest rates, especially once these initial inflows had set off stock market and real estate booms, that there was any chance that these countries would not respond in the way every country in history, including Germany in the 1870s and in the 1920s, had responded under similar conditions.

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Gauging the financial crisis end game

Gauging the financial crisis end game

It is quite possible that more than one end game will unfold in the months and years to come. For example, we could see a Greek Eurozone exit. Simultaneously, we could have a crisis unfolding across emerging markets, as the strong U.S. dollar begins to do damage to borrowers in those countries, of which there are many. Quite how it will all pan out is very difficult to predict. If I were a betting man, my money would be on the ‘permanent condition’ becoming the generally accepted view of the future economic environment.

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