Europe

Sweden’s deflated economy: Sub-zero conditions

"Sweden’s economy, which it oversees, grew three times faster than the euro zone’s in 2010 and dodged Europe’s double-dip recession in 2012-13. The Riksbank felt confident enough in recovery to start raising interest rates in 2010. The Riksbank worried that rising household borrowing and soaring house prices could lead to trouble down the road. It therefore opted to 'lean against the wind', in central bankers’ parlance, and deflate the credit boom before it burst catastrophically. It seems instead to have taken the air out of everything but exuberant markets. Unemployment in Sweden has held steady, while Swedish private-sector debt as a share of GDP is higher now than it was in 2010." Continue reading →

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Bulgarian Pres. Blames ‘Lack Of Faith In Institutions’ For Bank Runs

"Bulgarians’ lack of faith in institutions sparked runs on two banks and triggered the worst financial crisis in 17 years, the nation’s president said. 'Let me make this very clear: there is no banking crisis in my country, but there is a crisis of confidence,' Rosen Plevneliev said today. With low trust in institutions, rumors, attempts at destabilization and speculative attacks can 'create a panic,' the president said. The central bank blames an 'organized attack' of 'criminal actions' for the run on First Investment Bank. Corporate Commercial Bank lost deposits because of a dispute between a majority shareholder and a large depositor, Capital newspaper reported June 18, citing unidentified people." Continue reading →

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The Curious Case Of The Bulgarian Bank Runs

"Because of the extent of the fraud, BNB say that nationalizing CorpBank is not an option – it describes it as 'a bottomless barrel'. The Bulgarian Finance Ministry estimates that the cost of the deposit guarantee will raise the public deficit from 1.8% of gdp to 3%, putting it at the Maastricht treaty limit. This will be seen as a considerable disappointment in Brussels, which in the recent European Semester report advised the Bulgarian government not to allow the deficit to rise any further. And it raises considerable questions about the capability of the BNB to supervise banks effectively. Only a month ago CorpBank was given a clean bill of health. Now it is bankrupt because of a major fraud." Continue reading →

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German Gold Stays in New York in Rebuff to Euro Doubters

"Surging mistrust of the euro during Europe’s debt crisis fed a campaign to bring Germany’s entire $141 billion gold reserve home from New York and London. Now, after the Free Democratic Party, which flirted with bringing the gold home, dropped out of Chancellor Angela Merkel’s coalition and was replaced by the Social Democrats, the government has concluded that stashing half its bullion abroad is prudent after all. Ending talk of repatriating the world’s second-biggest gold reserves is a rebuff to critics including the anti-euro Alternative for Germany party, which says all the gold should return to Frankfurt so it can’t be impounded to blackmail Germany." Continue reading →

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Tax Collectors Grow More Aggressive; Payers Caught in the Middle

"Her Majesty's Revenue & Customs doesn't have enough power, or so the British Parliament is told. HMRC wants to be both judge and jury when it comes to recalcitrant taxpayers. It wants to the ability to 'raid bank accounts' and to do so without a court warrant. What comes across clearly in both the IRS stance and in the requests by the HRMC is a certain level of arrogance that is magnified by modern communication facilities. The pushback against intrusive tax collection is growing, even as agency demands for more power and revenue are expanding as well." Continue reading →

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Finance Goes From Foe to Friend in Hollande Government

"During his election campaign in 2011, President Francois Hollande famously called finance his 'greatest adversary.' In a speech today, French Finance Minister Michel Sapin called finance 'a friend,” quickly specifying that he was talking about 'good finance.' The new stance comes as the president’s popularity is at a record low and his economic policies have drawn the ire of members of his own Socialist Party and of allied groups. Recovery remains anemic and joblessness is at a record high. Global finance, however, has stuck with Hollande. Investors have piled into French bonds, giving Hollande’s government borrowing costs that are close to the lowest on record." Continue reading →

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Is War Part of a Wall Street Party?

"The consistent raising of nuclear tensions justifies continued economic reactions in order to keep Western economies stable and on track, which may include further justifications for continued monetary easing. International tensions also provide a rationale for a 'flight to safety' that reinforces the primacy of Western markets, in particular US bonds and equities. The up and down security posture of the West versus Russia (and China) can create alternatively a depression of 'animal spirits' and waves of euphoria that can lift markets. Finally, a fluid period of inter-state animosity can provide justifications for an eventual stock market crash that can usher the next phase of economic internationalism." Continue reading →

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Europe’s Pain is the World’s Gain

"Last week the ECB announced that it was cutting its headline lending rate to 0.15 percent and taking its deposit rate to negative 0.10 percent. That means banks must pay the ECB to hold their money, a move the ECB hopes will spur lending. It will also make $545 billion worth of inexpensive loans available to banks with the caveat that they lend more to the private sector. First tranche euro zone banks will be permitted to borrow up to 7% of the value of their corporate loans with additional tranches of funding [on the way]. While the goal of easing is to improve economic conditions at home, the money will ultimately flow to where it can find the greatest returns, as our own experience has shown." Continue reading →

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An Ever Deeper EU to Join the Wall Street Party?

"The central bankers have reason to inflate. The European experiment is precarious and economies around the world are teetering. Part of Mr. Andors's speech, no doubt, has to do with creating the possibility, rhetorically at least, that the EU, too, can join in the mass inflation building around the world. This no doubt seems the only way out for those who have engineered the current economic cul de sac. They will print and print until the danger is past and stock markets have traveled through the roof. Wealth is to be destroyed and pensioners bankrupted, but the system itself is to be perpetuated and expanded. It continues to be a cynical exercise in creating haves and have-nots." Continue reading →

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ECB: Bank With Us … and We’ll Charge You Interest

"This morning, the ECB took the radical stepof cutting its deposit rate to negative 0.1 percent. It also lowered its benchmark lending rate (similar to the federal funds rate the U.S. Federal Reserve has been raising and lowering for decades) to 0.15 percent from 0.25 percent. Furthermore, it tried to boost the mortgage and business loan businesses by offering to buy Asset Backed Securities (ABS) and by launching more Long-Term Refinancing Operations. While central banks in Sweden and Denmark took tentative steps in the direction of negative rates, the ECB’s move is unprecedented because no major world central bank has ever tried it before." Continue reading →

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