News links for 22 April 2013
“Nowhere else in Europe are neo-Nazis and right-wing extremists profiting as greatly from the financial crisis as in Athens. As they terrorize the country with violence, the police stand back and prosecutors are powerless.”
“Fitch has stripped Britain of its top triple-A rating, moving it down one notch to “AA+” as a weaker economic outlook continues to push up the country’s debt. Here is Fitch’s statement.”
“Addressing an influential audience over lunch in the IMF buildings on Wednesday, Professor Robert Barro of Harvard University, a life-long critic of fiscal stimulus, launched a tirade against what he saw as the sloppy thinking of Keynesians.
Christine Lagarde, IMF managing director, insisted that she was not looking for fiscal stimulus anywhere. The fund does not want to slow austerity plans in the eurozone periphery – Greece, Cyprus, Spain, Italy, Portugal or Ireland. Instead it is seeking less severe deficit reduction measures largely in three countries – the US, UK and Germany – which it deems to have “fiscal space”.”
“Under plans outlined by Ireland’s new Insolvency Service on Thursday, Irish borrowers struggling to meet their loan repayments would have to cut back their living expenses and consider feeding themselves on around €8.80 (£7.50) a day.
When working out the monthly amount of debt repayments that someone can afford, the service said there will be guidelines on how much money a debtor will need left after paying debts in order to maintain a reasonable standard of living.
Limits on spending mean that individuals having trouble with their mortgage could have to curb their spending on holidays or other luxuries.”
“The disposable income of Greek households decreased by 8.3 percent in the final quarter of 2012 compared to a year earlier, according to figures published by the Hellenic Statistical Authority (ELSTAT).
Household final consumption also fell 11.2 percent in Q4 of 2012, to 30.2 billion euros from 33.9 billion in the same quarter in 2011, ELSTAT said.”
“How a terrible misidentification of two people with no connection to the Boston bombing spread so far, so fast”
“The federal deficit continues to shrink. Through the first six months of the fiscal year, revenues have come in higher than expected, while spending has come in lower than expected. As a result we are lowering our deficit forecast for the current and next two fiscal years.”
“Modern market-based economies are not wired to function well at artificial prices for any prolonged period of time. The pricing system loses its critical signaling role. Markets operate less well. And, critically, resources are misallocated – both in the financial sector and also in certain parts of the real economy.
So, less than five years after a global crisis triggered by irresponsible risk-taking, concerns are again surfacing about bubbles. The worry is heightened by the fact that both governments and central banks now have fewer weapons to counter the detrimental effects of another financial crisis.”
“”One thing that is abundantly clear of late is the market’s near-term inflation expectation has notably declined,” wrote Ian Lyngen, rates strategist at CRT Capital.
That declining expectation has undercut the TIPS market to the point returns are trailing those for normal Treasury bonds for the first time in five years. A Thursday auction of $18 billion in five-year TIPS saw the weakest demand in over four years. Based on the so-called break-even rate, or the difference between TIPS yields and normal Treasury yields, expectations for inflation over the next decade fell last week to 2.4%, the lowest level since November.”
“IThe stock market isn’t the only thing that has set records this spring. Barron’s semiannual Big Money poll of professional investors also is setting a record — for bullishness, that is. In our latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for U.S. stocks — an all-time high for Big Money, going back more than 20 years. “
“European economic policy to date has been focused on persistent and consistent push of public and financial sector liabilities onto the shoulders of households and non-financial companies. The correct path, as I have argued since the beginning of the crisis, would have been first imposing the burden of the crisis onto the shoulders of lenders and other financial investors in the banking sector, followed by a more gradual, structural and deep reforms of the public expenditure and services provision, supported by more aggressive monetary policy bypassing the broken banking sector to inject liquidity directly into the euro area economies, while minimising the impact of austerity on those in need and taxpayers in general.”
“The European Union may need to enact treaty changes to create a new institution to shut down failing banks, Dutch Finance Minister Jeroen Dijsselbloem said.
The EU can pursue most of its banking-union strategy under existing treaties, Dijsselbloem, who chairs the so-called Eurogroup of euro-area finance ministers, told reporters in Washington today.
“I know that we can push forward at least 80, 90 percent of the project, and the final decision on having a singular resolution authority may need to make a treaty change,” Dijsselbloem said.”
“Most Austrians are in favor of relaxing the strict banking secrecy rules that have isolated the Alpine republic from its European peers, according to two polls published on Saturday.”
“The two young brothers from Cambridge seemed to be on promising paths, one a scholarship student at college, the other fighting for a national title in amateur boxing.
And then, apparently with little warning, they veered violently off track, deep into the darkness, setting off deadly bombs, authorities are convinced, at one of Boston’s most iconic and joyful events.”
“The authorities knew that broadly distributing the images — some captured by ubiquitous surveillance cameras and cellphone snapshots and winnowed down using sophisticated facial-recognition software — would accelerate the digital dragnet, but they did not realize the level of chaos it would create.
Intelligence and law enforcement officials said the authorities in Boston weighed the risks of some mayhem against their growing fear that time was slipping away and that heavily armed and increasingly dangerous men, and possibly accomplices, could wage new attacks in the Boston area or beyond.”
“The Obama DOJ says it intends to question the Boston bombing suspect “extensively” without first Mirandizing him”
“The complaints, seven in total, reflect German unease about the mounting costs of dealing with the three-year debt crisis and fears that the ECB bond-buying program may violate the taboo against direct central bank financing of state budgets.”
“As I noted last time, the Dutch are now paying the price for years of poor housing policy, including:
ridiculously easy credit, with a third of mortgages guaranteed by the government;
mortgage interest tax relief and generous subsidies offered to home buyers;
a dysfunctional rental market that encourages households to strive for owner-occupation; and
severely restricted housing supply, which ensures that changes in demand flow predominantly into homes prices rather than new construction.”
“European Union negotiators are expected to finalize the bloc’s first common rules on mortgage lending on Monday, in an attempt to avoid a repeat of property bubbles that helped fuel the euro zone’s debt crisis.”
“The Reinhart-Rogoff argument about a tipping point for debt was influential around the world. Yet the idea that there could be a natural cap for debt, which, when breached, would usher in sharply lower growth, is absurd.
Such mechanical explanations don’t fit with history: in 1945, Britain had debt of 220% of GDP but no economic disaster struck. Nor do they fit with commonsense: why should high debt produce low growth rather than, as is happening now, low growth lead to higher debt?”
“Troubles overseas are threatening the U.S. recovery for the fourth year in a row. This time it’s weakening economies abroad, rather than tumbling financial markets, signaling turbulence ahead.
U.S. exports of goods to the European Union are declining outright. Growth in overall U.S. exports has been sputtering for months, after a three-year postrecession surge. And major U.S. companies are reporting increasingly dour overseas outlooks tied to the recession-plagued euro zone and slowing growth in other leading economies such as China.
The renewed fears of a global slowdown come after months of hope that a stronger recovery was finally taking shape.”
“is the new deal doomed to fail? Kathimerini discussed the issue with several economic analysts who have been following the case closely. They all seem to agree that the troika’s projections regarding the Cypriot recession are optimistic. The emergence of a funding gap, a second bailout and some form of Cypriot debt restructuring, are almost unavoidable, they claim.”
“traditional measures of potential output focus on the inflationary consequences of level of actual output. If inflation remains contained or falling, then by definition actual output is equal to or less than potential output. Borio et al, however, note that the economy may be on an unsustainable path even when inflation remains contained. Arguably, measures of potential output should incorporate information about financial factors that might signal the economy is on such a path.”
““The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not,” Mr Gross told the Financial Times. “You’ve got to spend money.””
“The European Union’s chief bureaucrat said the bloc should place a greater emphasis on policies that stimulate growth in the short term, and less on cutting government spending.
In a speech Monday, European Commission President José Manuel Barroso said the policy of austerity pursued by the EU in recent years no longer has the political and social support needed to work.
His comments are the latest in a series of public statements that indicate a shift in European economic policy is under way.”
“The Amherst researchers, in their vicious review, did find some errors in the maths underlying Prof Reinhart and Prof Rogoff’s warning about the precipitous decline in economic growth associated with debt ratios of more than 90 per cent. But one cannot read their analysis and then conclude that the case for austerity – and a tough line on debt – is much weakened.”
“The troubles in the eurozone periphery are reversing the flow of migrants in Europe. If Poland was known just a few years ago for huge outflows of workers, now Spaniards, Portuguese and Italians are being tempted east.”
“Commerzbank, which is shedding staff and shutting down loss-making shipping and real estate units, is asking shareholders to approve a fifth capital increase in four years at today’s meeting as it seeks to repay a remaining 1.6 billion euros in state aid. The bank, which had a loss of 716 million euros in the fourth quarter, hasn’t paid a dividend since the financial crisis erupted in September 2008 and its shares have lost 93 percent of their value since then.”
“Minutes before the bombs blew up in Boston, Jeff Bauman looked into the eyes of the man who tried to kill him.
Just before 3 p.m. on April 15, Bauman was waiting among the crowd for his girlfriend to cross the finish line at the Boston Marathon. A man wearing a cap, sunglasses and a black jacket over a hooded sweatshirt looked at Jeff, 27, and dropped a bag at his feet, his brother, Chris Bauman, said in an interview.
Two and a half minutes later, the bag exploded, tearing Jeff’s legs apart.”