Francesco Clemente ‘Fire’Now that Larry Summers has been ejected from the Obama airlock into deep space we wonder who the replacement will be? Reports suggest a ‘Business Executive’, why not reach into the deep freeze and revive the corpse of ex- GM honcho Rick Wagoner?
Wagoner is a no- brainer! Not only did the people who worked for him hate him, but he ran an American industrial icon into the ground before he was unceremoniously dumped by the same Obama who needs him badly, now! Thanks to Wagoner, America has the (in)famous Hummer H2 to live down. A little (more) plausible deniability (to go along with the plain- vanilla denial) is just what the Obama regime needs!
To review: Summers is the former Clinton Treasury Secretary, mentored by Robert Rubin. As such, he was one of (many) architects of the financial crisis. In addition to believing all of the usual foolishness about efficient markets, he bought into the radical deregulation arguments pushed by the free market absolutists.
Summers was the Treasury Secretary when Glass Steagall was repealed. Instead of speaking out against the irresponsible Gramm–Leach–Bliley Act (Financial Services Modernization Act of 1999) that allowed the Financialization of America to progress, he actively supported it. Instead of explaining to the public how Glass Steagall had prevented every Wall Street crisis since the Great Depression from spilling over onto Main Street, he rolled over for Citibank.
What a fleeping sap? Summers almost single- handedly bankrupted Harvard. He wants to return but will security allow him onto the campus? If they (‘They’) are smart they will send him packing to China …
How about those Europeans? Looks like austerity is a no- go, even for the ‘disciplined’ Irish. How does one go about getting growth out of double- digit contraction? Let’s ask (Ambrose Evans- Pritchard) Rick Wagoner:
Ireland has shown what happens when you grasp the fiscal nettle, slashing public wages by 13pc – to applause from EU elites – without offsetting monetary and exchange stimulus. Irish bonds have spiked even higher to a post-EMU record 6.38pc.
This was triggered by two client notes: Barclays said Ireland may need the IMF’s help; Citigroup’s Willem Buiter said Ireland “may not be able to make whole” creditors of both sovereign debt and the bank. Dr Buiter has also said a default by Greece is “a high probability event”.Two years into its purge, Ireland has a budget deficit near 20pc of GDP. It is 12pc if you strip out the bank rescues, but the reason why the bad debts of Anglo Irish keep spiralling upwards is that the economy keeps spiralling downwards. House prices have fallen 35pc. Nominal GDP has contracted 19pc.
“Ireland’s debt is ballooning, while its capacity to pay has collapsed,” said Simon Johnson, ex-chief economist at the IMF. He said the country has made a Faustian pact with Europe, able to draw ECB loans worth 75pc of GDP so long as Irish taxpayers shield European creditors.
In any case, the IMF itself has become the problem, operating as an arm of EU ideology under Dominique Strauss-Kahn. It
offers no remedy since it acquiesces in the EU’s ban on debt-restructuring.In Greece it backs a policy that will leave the country with public debt of 150pc of GDP after its ordeal – allowing French and German creditors to shift a big chunk of Greek risk to Asian taxpayers through the IMF, and to EU taxpayers through the eurozone rescue.
Mr Strauss-Kahn committed up to €250bn of IMF money for Europe’s rescue without prior approval from the IMF Board, to
the fury of Asian directors. He has promulgated an insidious doctrine that sovereign defaults are “Unnecessary, Undesirable, and Unlikely”.Let us be honest, the Fund has become a font of incoherence, an engine of moral hazard. In August, it abolished its credit ceiling and created a new tool to rush fresh debt to states that need more debt like a hole in the head.
Simon Johnson says the solution for EMU’s orphans is debt reduction along the lines of “Brady Bonds” in Latin America in the 1980s, forcing creditors to share pain in an orderly fashion and giving debtors a way out of the morass.
In fairness to EU policymakers, perhaps the problem really is so big that if they let Greece, Portugal, or Ireland restructure debt they risk instant contagion to Spain, and from there to Italy. Perhaps they really have no choice. If so, monetary union has created a monster.
Meanwhile the Chinese are allowing the renmimbi to revalue upwards against the dollar. Good news, eh Mr. Wagoner? What has happened to crude oil? Is that US dollar simply another piece of crap as Fed honcho Ben Bernanke suggests (wants)?
Priced in oil, dollars are valuable and becoming more so. Excess dollars are spent on gold. The oil market appears to be seeking a place to lie down. While some analysts feel a crash is less likely in the future than a Japan- style lost decade, the decline in oil prices in the face of all the ‘Peak Oil Talk’ by people who know better indicates that the ‘work’ that is done with the oil is singularly unproductive and becoming more so. At some point the paradigm does not support new crude production and shortages appear.
Don’t tell me that shortages of input #1 won’t lead to a crash! This has happened over and over. It’s not different this time.
Keep in mind that shortages that appear because economic activity cannot support its own costs are permanent. Cost squeezes have been undermining the world’s economy since 2004 and unaffordable inputs – even at low nominal prices – are the culprit.
What is happening in Europe validates this ‘unaffordability’ concept. ‘Work’ done in the uncompetitive Club Med countries cannot service the same countries’ debts.
Meanwhile, a friend who is in foreclosure asks me how long it will take before the bank/servicer evicts him from his house? I suggest the rate of evictions is a matter of bank cash flow. Since foreclosures represent a recognized loss somewhere on the banks’ cosmic balance sheet(s) there must be sufficient cash flow to the system to allow the recognition without requiring ‘outside’ capital (bailouts). Since bank system cash flow is a consequence of Treasury yield spreads the current shrinkage of the yield curve is starving the banks of cash flow.
That and mortgage servicer fraud is likely to push more foreclosures off into the future, farther than banks would like as future costs (losses) of foreclosure will be greater than they are currently.
Welcome to deflation!
