Remember the good old days when China suffered the wrath of the toothless tiger of International Organizations and their worthless photo ops and selfies? The Germans are the target of the policy makers struggling to combat global financial imbalances as the German current account surplus as percentage of GDP far exceeds that of China, making the Germans the target of the world’s slings and arrows for creating such outrageous fortunes.
Archive for the ‘G-20’ Category
Last year the FED turned over $ 88.9 billion in profit to the U.S. Treasury, which was the “earned income” from the Fed’s QE program, for Bernanke’s Fed is the world’s largest coupon clipper. The Fed’s earnings are supposed to be turned over to the Treasury at regular intervals so why isn’t the Fed forwarding its gains to help the Treasury have more income to pay off the governments immediate expenses. If last year’s profits totaled $88.9 billion, this year’s gains should be larger as the balance sheet has grown by almost $850 BILLION. So where is the money, Ben?
Yesterday, I had a global macro session with some of the best users of the Notes From Underground. They are disciplined in pursuit of profit but as most of my readers try to do, pursue causation as a prelude to correlation. Carl had prepared a white board chart of all of the relevant events that are set to play out in September. April may be the cruelest month but September 2013 will certainly give T.S. Eliot’s poem a run for the grand title. The desire to anticipate any of the events may lead to a “wasteland” of capital. So thanks to Carl, let me restate the list of events:
Notes From Underground: G-20 Communique is Anything But (Seems Like an Agenda for a Political Platform)July 21, 2013
This weekend brought the results of two days of meetings of the financial ministers and central banks chiefs from the 20 “most significant” economies. The purpose of this visit to Russia was to set the agenda for the September G-20 meeting in St. Petersburg. Reuters posted a piece, “Text–Closing Communique From G20 finance Ministers Meeting,” which filters the results of two days discussions to seven main points. It is a WORTHLESS effort as the communique is filled with diplomatic language that assuages the egos and policies of every participant. The finance leaders OUGHT TO BE EMBARRASSED to release this nonsense. From Reuters:
As expected, the G-20 communique was more insipid blathering about global growth, BIS capital regulation and the enactment of some new macroprudential regulations to ensure global financial tranquility. To reflect on the lack of consistency in this communique, let me quote from point 20: “We welcome the OECD report on addressing base erosion and profit shifting and acknowledge that an important part of fiscal sustainability is securing our revenue bases.” This is pure nonsense for it reflects the great divide that exists between the old line powers of the G-7 and the more broad-based and emerging economies found within the structure of the G-20.The old line (developed) economies want to preserve their tax bases so as to have enough revenue to maintain previous promises of retirement and pension programs for their aging populations.
Notes From Underground: Was Obama at the G-20? Is Soros daft? Was the G-20 Communique was Drafted By the OWS Scribe?November 6, 2011
In President Obama’s G-20 press conference the mood was somewhat upbeat as he boasted that the economic powerhouses had made progress on the issues of economic growth. The President also was confident that Europe can meet it challenges as leaving Cannes, he felt that a “solid foundation has been built.” It seems that Obama failed to capture the real mood of the FAILED G-20 meeting as the Financial Times had two very morose articles about the G-20 and a solution on the European debt crisis.
Today the new President of the ECB, Mario Draghi, established himself as a true leader and moved to undo the damage of the über arrogant Jean Claude Trichet. The two rate increases in the last six months by the European bank were an overshoot of mammoth proportions as the peripherals were in the midst of a severe credit crisis and moving toward austerity budgets. Spain, which maybe in the worst condition of all–21.5% unemployment and a deflating housing market–was not in need of a EURIBOR increase as its mortgage rates float in reference to the bank rate. If Trichet did not understand the depths of the credit crisis then he should have never been the ECB president. It was always reported that the ECB decisions were unanimous, but today’s move by Draghi indicates that Mr. Trichet rode roughshod over the bank’s policy making for it was reported that it was a 25 basis point decision by unanimous consent.
The G-20 meeting in Paris seemed to yield agreement that the Europeans need to come to a vibrant resolution of the Sovereign debt issue and some plan as to how to recapitalize its problem banks. The G-20 COMMUNIQUE read like an alphabet soup of global regulatory groups (IIF, YNFCCC, MDB, IOSCO, IMF, WEB, FSB, GSIFI, SIFI, BIS … you get the idea). The Communique opens: “We welcome the adoption of the ambitious reform of the European economic governance.” This is a very brazen statement for I have not read where Europe has taken any such measures, such as fiscal unification.
The communique also noted that the G-20 nations agreed, “Those with large current account surpluses will also implement policies to shift to growth based more on domestic demand. Those with large current account deficits will implement policies to increase national savings.” Coupled with this was the vacuous words: “All countries will undertake further structural reforms to raise potential growth.” The concept of growth seemed to have been the most significant issue but when you cut through the platitudes I just cannot imagine from where the growth is going to be generated. If the SURPLUS NATIONS INCREASE DOMESTIC DEMAND WHILE THE DEFICIT NATIONS INCREASE SAVINGS IT SEEMS THAT THE EFFECT TO GLOBAL GROWTH WILL BE NEUTRAL.
The KEYNESIANS in the Obama administration cannot possibly accept this at a time when the push is for greater fiscal stimulus to generate the economic growth that FED policy has been unable to do by itself. Another area of UNCERTAIN AGREEMENT is the issue of SECRETARY GEITHNER pushing for the Europeans to use the ECB as a guarantor of European sovereign bonds. Geithner continues to pursue the Henry Paulson game plan but he fails to realize that the ECB just does not have the same legal authorities as the U.S. Treasury and FED.
Ambrose Evans-Pritchard reported that the Geithner push was rejected out of hand. Evans-Pritchard reported that Josef Ackermann, head of Deutsche Bank and the chairman of the IIF, said plans to leverage the EFSF may be illegal. “We cannot allow a rescue fund of this magnitude. The [constitutional] court wouldn’t permit, and nor would the people.” (Sunday’s London Telegraph). The main area of agreement from the G-20 is that the IMF is going to play a very large role in the financial rescue of the peripheries and most probably Spain and Italy. Christine Lagarde was pushing for increased IMF funding but Geithner and other heads of developed nations believed that the $390 BILLION IMF was a large enough war chest to deal with Europe’s problems.
It seems that Geithner believes in the IMF‘s larger role but wants to withhold further funding until the Eurocrats come up with a COMPREHENSIVE PLAN. Geithner let it be known in a Bloomberg interview on Oct. 11 that the European debt crisis is affecting U.S. growth and the “U.S. is going to do everything we can to make it more likely that they move as aggressively as they need to.” The EU is the second largest market for U.S. exports, trailing only Canada. The Obama administration is very worried that a slowing European economy will scuttle all of its economic stimulus plans, making President Obama’s reelection possibility an uphill battle.
Clarification: Readers of Notes From Underground are very aware that I have pushed for the IMF to enhance its war chest by issuing GOLD-BACKED BONDS, thus utilizing its GOLD hoard. Presently, the IMF has 90.5 million ounces of GOLD with a market value of $164.1 billion at market prices on August 31,2011. The IMF does not carry the GOLD on its books at market prices so I am confused by the $390 billion war chest to which Geithner and Lagarde refer.
More important though, under the Second Amendment of theARTICLES OF AGREEMENT IN APRIL 1978, the “IMF DOES NOT HAVE THE AUTHORITY UNDER ITS ARTICLES TO ENGAGE IN ANY OTHER GOLD TRANSACTIONS SUCH AS LOANS, LEASES, SWAPS, OR USE OF GOLD AS COLLATERAL…” (from the IMF website). Thus, my proposal is now laid to rest unless the IMF and its member nations wake up to the 21st Century and find a way to utilize all its assets. If the IMF is to become a bigger player in the developed world it needs to become much more creative in how it looks to stabilize the world in times of great systemic risk.
An Aside: THE GERMAN/FRENCH 10-year-note spread widened to a record 92 basis points on Friday, not a healthy sign for France.
On the other side of the world the Chinese 2/10 spread was a positive 32 points and the 2/10 spread in India was +33 points. These are very flat curves in the two largest BRICS, indicating that money is too tight in both those nations. Just something else to keep an eye on as so much uncertainty exists in the world.
Tonight will be all quick hitters as the big news is sparse, to say the least. The Fed released the minutes of the September FOMC meeting. Besides discussing the idea of QE3, the most interesting read was that Fisher was not as hawkish as his NO VOTE seemed. This makes sense as his speeches this week have been pretty DOVISH and I had thought that he was contradicting himself.
The breaking news during the weekend was the growing unrest in Middle Eastern nations as the contagion of TAHRIR SQUARE has created a desire for change in the autocracies dominating many Arab governments. Libya is the newest hotspot and protests against the Qaddafi regime has been met by state violence. Bahrain has also seen increased political unrest as the SHIITE majority is pushing for a greater say in how the small emirate is governed.