The great interest rate rip off part 1

interestrateripoff · February 16, 2010

Breaking news:

Barclays top brass shun bonuses but staff share £2bn

As Barclays reported record profits of £11.6bn this morning, the bank revealed that chief executive John Varley and president Bob Diamond declined bonus payments. By Jill Treanor 116 comments
[*] Shell freezes pay of top executives

Royal Dutch Shell has bowed to pressure from major investors bowed to pressure from major investors by announcing a major overhaul of its executive pay that will see the salaries of top directors frozen Post your comment

[*] Inflation soars to 3.5%

The return of VAT to 17.5% and rising petrol prices have pushed the cost of living to its highest for more than a year. By Heather Stewart 163 comments
[*] Thinking the unthinkable about the euro

Dan Roberts: Conspiracy theorists are having a field day with the question of what might happen to Greece's membership of the euro 51 comments
[*] Turkish oil boss hit by record insider dealing fine

The boss of oil firm Genel Enerji has been hit by a £1m fine for insider dealing – the biggest fine the City watchdog has imposed on an individual

HTC unveils iPhone rival powered by Google's Android

Mobile World Congress: HTC's design-conscious Legend smartphone will come to UK in April 14 comments
[*] Domino's Pizza to open more branches

Franchise pizza delivery group is to step up expansion to 55 stores after an 'exceptional' year. By Zoe Wood 5 comments

[*] IoD: Businesses resort to credit cards

The reluctance of banks to lend to businesses is forcing them into desperate measures, says the Institute of Directors
- Credit card interest rates at their highest for 12 years

More business news
- BA yet to gain official approval for biojet fuel from food scraps
- Tullow allowed to flare Ugandan gas
- Michael Spencer quits as Tory treasurer
- VT Group spurns Babcock bid
- Job cuts signal start of public sector recession

interestrateripoff · February 16, 2010

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VAT rise pushes UK inflation to 14-month high of 3.5pc

Britain's benchmark inflation rate jumped to 3.5pc in January to a 14-month high after a rise in value-added tax.

House prices to slump as credit crunch returns

A second mortgage credit crunch that will send UK house prices into a new tailspin is looming, say economists and credit experts.

Barclays profits near double to hit £11.6bn

Barclays, Britain's third-largest bank, has reported blockbuster profits of £11.6bn for 2009.

Yes, Barclays does deserve to be congratulated

RBS trader's Japan move fuels exodus fears

AstraZeneca buys rights to rheumatoid arthritis drug

Eurozone finance ministers give Greece a month to make drasitc budget cuts

Shell overhauls executive pay after shareholder revolt

FSA fines Turkish executives £1.16m for market abuse

RBS sells commodities businesses to JP Morgan

Business offers students a fine education without the debts

Britain's tax system has become a hopeless mess

Britain is under as much pressure as the PIGS

Monaco might not charge income tax, but its no tax haven

Savers face negative returns

Inflation at 3.7pc will more than wipe out interest payments.

Credit card debt warning

Millions of borrowers face “crippling” debts after credit card rate hikes.

Britain's tax system has become a hopeless mess

EU orders Greece to cut deeper to control deficit

China 'to allow' yuan to rise

Inflation expected to rise above Bank target

UK jobless rate would be 15pc if Britain had joined euro, says CEBR

interestrateripoff · February 16, 2010

Shell freezes top directors' pay after revolt

Shell restricts its bosses' salaries and cuts bonus payments after investors voted down last year's pay scheme 1 Comment

Shell to cut 1,000 jobs and close six refineries

Finance officer Voser takes command at Shell

Inflation hits 3.5% forcing King letter to Chancellor

Bank sticks to forecast of CPI falling to 2% target in 2010; Alistair Darling finally responds to public debt call 89 Comments

COMMENT: Prices hurt now

Letter from the Governor to the Chancellor

RBS fails to sell Sempra's North American arm

Bank offloads European division to JP Morgan but keeps US business after crackdown proposal by President Obama 1 Comment

Obama's proposals hit RBS plan to sell Sempra

JPMorgan Chase in talks to buy RBS Sempra

Barclays bosses forgo bonus as profits soar

Annual profits nearly double to £11.6bn but the bank will not pay its chief executive and president a 'merited' reward 42 Comments

COMMENT: sacrifice for the endgame

HSBC faces anger over pay rise for top team

Euro rebounds after EU pledge to support Greece

Finance ministers reassure the country but warn it has one month to show that its plans to cut its deficit are working

Power station workers walk out on safety fear

Union urges Alstom to take immediate action to fix alleged breach after 500 contractors protest at Staythorpe site

Credit card holders suffer interest rates rise

Average card interest rates have risen to 18.8 per cent with experts saying that providers are passing on costs of defaults

Hard to credit how I was rejected twice

Capital One customers face rate hike

HSBC faces anger over pay rise for top team

Investors are understood to be especially unhappy with sum bank wants to pay Michael Geoghegan, its chief executive

All aboard for HSBC’s £1.7bn train sell-off

HSBC sides with Bank in outlook for economy

Energy giants turn up the heat for dirty power

Two of Britain’s biggest energy companies are lobbying Conservatives to keep high polluting power stations operating

Kraft's profits soar as new markets grow

The American owner of Cadbury reports strong advance in developing regions as domestic business stagnates

Investors balk at Bharti Airtel’s African deal

News of overpriced third attempt to gain foothold in Africa sent shares in Indian company tumbling by 9 per cent

Mobile link for India and South Africa is off

Time is up for Bharti Airtel and MTN Group's merger talks

Sales up as new chief takes wheel at Jaguar

Carl-Peter Forster becomes worldwide chief executive at Land Rover-maker as company's fortunes appear to be turning

Jaguar Land Rover names GM chief as new boss

A spanner in the works

Cheaper, smarter, new mobiles make Barcelona bow

Vodafone launches the world’s cheapest mobile phone and Microsoft unveils new operating system to boost smartphone

A deal that flies under a flag of convenience

It’s an odd competition climate that would bathe a BA-American alliance in sunlight. But this is the flight path we’re on

Bite the bullet. Kick Greece out of the euro

The cracks in the currency have long been apparent. The Greeks have acted irresponsibly and must pay the penalty

interestrateripoff · February 16, 2010

UK inflation accelerates to 3.5%

The UK inflation rate rose to 3.5% in January from 2.9%, figures show, the fastest annual pace for 14 months.

Stephanomics: Men of letters

Calculate your inflation rate

Little comfort for savers

Barclays profits jump to £11.6bn

Banking giant Barclays sees its annual profits increase by 92% to £11.6bn in 2009, boosted by the sale of its fund management arm.

Record fine for insider trading

The City watchdog, the Financial Services Authority, issues the largest fine in its history against an individual for insider trading

MORE FROM BUSINESS

Shell freezes top executive pay

House prices rose 2.9% in 2009

Banks 'still restricting loans'

Scottish house prices 'rising'

Eurozone expects 'fragile' growth

Sausage firm sees sales sizzle

Sports events 'boost economy'

Corus production to end 'in days'

Energy bill loophole 'will close'

Banks sale 'may take five years'

Defence firm rejects bid approach

Building societies 'face threat'

YOUR MONEY

New front for cybercrime battle

Boiler scheme benefits thousands

Claims firm misled customers

ECONOMY

Japan sets inflation target of 1%

Japan economic growth speeds up

Jobs market 'still on the ropes'

COMPANIES

Mobile firm Bharti in African bid

Independent talks with Lebedev go on

Celtic announce drop in turnover

interestrateripoff · February 16, 2010

European Union Sets Deadline for Greece to Make Cuts

By THE ASSOCIATED PRESS 9:00 AM ET

European finance ministers said in a statement that Greece must show by March 16 that it is on track to cut its deficit.

Opposition Grows in Germany to Bailout for Greece

Wall Street Follows European Markets Higher

By THE ASSOCIATED PRESS 6 minutes ago

Traders reacted to strong earnings from Barclays but remained wary about the Greek debt crisis and the response from the European Union.

Barclays Reports Profit Doubled in 2009

By JULIA WERDIGIER 6:40 AM ET

The bank also said its top two leaders would forgo bonuses for a second year in a row.

Inflation Rises Above Target in Britain

By DAVID JOLLY 7:05 AM ET

But the country's top central banker attributed most of the increase to higher sales taxes and fuel prices, and said the effect would likely be temporary.

Greece Pressed to Take Action on Economic Woes

interestrateripoff · February 16, 2010

Greece Ahead of Deficit-Cutting Goals, Minister Says (Update2) - Bloomberg.com

Greece is ahead of its deficit- reduction targets and will not require any bailout from the European Union, Finance Minister George Papaconstantinou said. “There’s no actual need for” a bailout, he said after a meeting of finance ministers in Brussels to review Greece’s plan to trim the EU’s biggest budget shortfall. “Greece has not asked for a bailout.”
Preliminary Greek Finance Ministry figures on Feb. 12 showed a surplus of 574 million euros ($785 million) in January, buoyed by revenue from a one-time tax on corporate profit, compared with a deficit of 1.55 billion euros a year earlier.

Euro-region finance ministers yesterday ordered Greece to prepare new deficit-cutting measures in case the government can’t show sufficient progress in reducing the shortfall by a March 16 progress review. Investors expressed their skepticism about Greece’s efforts by pushing the risk premium on Greek debt higher for a third day.

“There are no specific additional measures” being prepared, Papaconstantinou said, after commenting yesterday that the government was “doing enough on the deficit.”

Climbing Costs

Greek borrowing costs climbed and the extra yield investors demand to hold Greek 10-year debt instead of German equivalents increased to 320 basis points, from 305 basis points yesterday. That’s more than twice the difference at the start of November. Credit-default swaps on Greek government debt rose 15.5 basis points to 370 points, according to CMA DataVision prices.

interestrateripoff · February 16, 2010

Bank of England|Publications|News|2010|Letter from the Governor to the Chancellor (10.30am), 16 February 2010

News Release

Letter from the Governor to the Chancellor (10.30am)

16 February 2010

Following the announcement that CPI inflation in the 12 months to January was 3.5 per cent, the Bank has published a letter from the Governor to the Chancellor, as required by the monetary policy remit. A copy of the letter is available below.

The Chancellor’s reply to the Governor is also available below.

Enquiries to the Bank of England Press Office on 020 7601 4411.

Key Resources

Letter from the Governor to the Chancellor

Download PDF (123k)

16 February 2010 Letter from the Chancellor to the Governor

Download PDF (823k)

16 February 2010

interestrateripoff · February 17, 2010

700,000 Britons swell the ranks of 'underemployed'

Number of people who cannot work as many hours as they want rises to 2.8m

Agile, smaller enterprises are leading a revival in the industry

Excessive focus on big manufacturers is a distraction from the sector’s real innovators

Econoblog: The death of the full time job

Today's unemployment numbers were economically uninteresting - but socially fascinating.

interestrateripoff · February 17, 2010

Breaking news:

Jump in unemployment casts new doubt on recovery

Claimant count shows surprise rise to 1.64m, the highest since 1997, and the number of 'economically inactive' people has hit a record level
[*] Toyota to fit brake-override on all models

Japanese carmaker vows to improve quality control as it examines reports of power-steering problems with Corolla

35 comments
[*] Gordon Brown calls on developed world to honour Gleneagles aid pledges

OECD reveals development aid is falling $21bn short of promises made at Gleneagles in 2005

[*] Judge blocks Milford Haven port strike

A high court judge has blocked a strike in Wales as BA cabin crew brace themselves for a legal challenge to its strike ballot

The Business

China's economic boom

Audio (10min 25sec): The panel discuss the rise of the world's fastest-growing economy and the opportunities for British companies in the far east
- China sells $34bn of US Treasury bonds
- Analysis: Why China and America can't release their embrace
[*] Google chief extends olive branch to mobile phone groups

Mobile World Congress: Eric Schmidt has stressed Google's involvement in mobile is designed to make the operators money 4 comments

More business news

interestrateripoff · February 17, 2010

FT Alphaville Dumping US T-bills

A good day for China conspiracy theorists, a bad one for holders of US Treasuries, as official US figures confirmed that earlier paranoia about Beijing’s plans to dump Treasuries were proven correct.
From Wednesday’s FT:

Foreign demand for US Treasury securities

fell by a record amount in December
as China purged some of its holdings of government debt, the US Treasury department said on Tuesday.

China sold $34.2bn in US Treasury securities during the month… leaving Japan as the biggest holder of US government debt with $768.8bn. China overtook Japan as the largest holder in September 2008.

Not only that. The overall monthly sell-off of $53bn worth of Treasuries was the biggest on record. Net purchases of long-term US securities declined to $63.3bn from $126.4bn in November, according to the Treasury figures.

However, foreigners overall increased their purchases of US equities, buying $20.1bn in December after buying $9.7bn the previous month. Japan’s holdings for example rose 1.5 per cent in December to $768.8bn, while China’s dropped 4.3 per cent to $755.4bn.

Fun and games looming?

interestrateripoff · February 17, 2010

Obama says US economy is over worst of crisis

The President says that $787 billion stimulus has saved two million jobs but admits "work is far from over" 1 Comment

Reality takes a bite out of Obama recovery plan

Paulson scorns Obama's banking reforms

Surprise jump puts dole queue at 13-year high

Number of claimants surges to its highest level since 1997 but unemployment holds steady at 2.45 million 122 Comments

COMMENT: a long way to go to recovery

Mandelson denies Labour about-turn on spending

BBC to launch its first iPhone applications

The broadcaster tells Barcelona conference of its proposal to replicate its online content on mobile phones 5 Comments

Top Gear races to take top spot on iPlayer

iPhone casts a hex on games consoles

Reader's Digest collapses and puts 117 jobs at risk

The UK division of the world’s largest-selling circulation magazine collapses after failing to plug its pension gap 18 Comments

Reader's Digest on brink as rescue deal fails

John S. Zinsser

Toyota may recall Corolla on steering fault

Chief says company may have grown too quickly as problems with another model threatens to add to 8.5m car recall

Wills & Co censured in risk case follow-up

FSA says it would have fined private client stockbroker £1.5m had it not already been winding down its business

L&G predicts upturn on investment rise

Insurer expects a rebound in revenues after a 7% fall last year; 'stunning' fund management performance lifts shares

Campaigning insurers proffer cash for clout

Business big shot: Tim Breedon

Inflation leaps to 3.5 per cent after VAT rise

The consumer prices index has surged to an annual rate of 3.5 per cent — an increase of 2.9 per cent from December

City fears blowout on inflation target

Inflation explained

Shell tries to appease investors with pay caps

Chairman of oil group's remuneration committee says changes are being made after shareholder talks

BNP Paribas bankers share €500m bonus pool

France's biggest bank beats fourth quarter profit forecasts and awards staff on average €125,000 for 2009

Google announces ‘We come in peace’

Google has urged the mobile giants to work with it after relations between them have appeared to become strained

Cheaper, smarter, new mobiles make Barcelona bow

Google v Facebook. This time it’s personal

Kraft's profits soar as new markets grow

The American owner of Cadbury reports strong advance in developing regions as domestic business stagnates

Mandelson attacks Kraft over closing Cadbury plant

Kraft to produce more of its brands in Britain

Simon in bid to become US mall-owner behemoth

America’s biggest shopping centre bids $10bn for bankrupt General Growth with other bidders likely to enter fray

The issue is performance-related

Shell’s board is still reeling from having its pay plan voted down by shareholders at last May’s annual meeting

Intangible values we forget at our peril

We blame regulators, we blame pay, but one lesson of the financial crisis is the need to focus on culture and leadership

interestrateripoff · February 17, 2010

[/url]

Long-term unemployment highest since 1997

Number claiming Jobseeker's Allowance highest since Labour came to power, while overall jobless falls slightly.

Reader's Digest UK put into administration

Reader's Digest has put its British subsidiary into administration, putting around 117 jobs at risk.

The ten most most valuable brands in the world

Brand Finance has published its 2010 Global 500 Survey of the world's most valuable brands. Here's the top 10.

BNP sets new benchmark on bonus restraint

French bank BNP Paribas pays its investment bankers less than a third of the income they generated last year.

BoE rate setters voted 9-0 to halt QE

All nine members of the Bank of England's MPC voted not to expand the central bank's quantitative easing policy this month.

'BlackBerrys are the only devices to work in a crisis'

Stanford investors sue Caribbean banks to recoup losses

Toyota boss to skip US Congress hearing

FTSE 100 flirts with 5,300 mark on a good day for blue-chips

The wizardry that cast a bad spell on Greece

How the publishing industry is failing eBook customers

Barclays has changed the rules of the game

US home-building nears six-year high

Eight million people 'economically inactive'

King says inflation rate jump to 3.5pc 'temporary'

Branson says Britain's deficit is a serious risk to recovery

Underemployment rose sharply over recession

interestrateripoff · February 17, 2010

Eurozone exports down 18 per cent in 2009- International Business-News-The Economic Times

Eurozone exports fell 18 per cent in 2009 as world trade contracted and the euro soared against the US dollar, according to official EU
data published Wednesday.

The EU statistical agency Eurostat said the 16 countries that use the euro also consumer far less foreign goods last year, with imports from the rest of the world down 22 per cent, as a recession held back company and consumer spending.

Eurozone exports to Britain, the eurozone's major trading partner, were down 22 percent while exports to the US fell 20 per cent. China was the only major economy to buy more eurozone goods, with a 2 per cent increase, as it escaped the worst of the global downturn.

Total eurozone exports were euro 1.27 trillion ($1.74 trillion) last year, outpacing imports for a trade surplus of euro22.3 billion for the entire year.

Before market tensions about the debt problems of countries like Greece hurt the euro in recent weeks, European businesses complained that the high value of the currency was hurting their ability to sell French wine or German cars to customers using dollars in the US or Asia.

For the 27-nation European Union, exports fell 16 per cent while imports dropped 23 per cent. It reported a trade deficit of euro 105.5 billion.

It's the exportless recovery.

interestrateripoff · February 17, 2010

UK unemployment sees slight fall

Unemployment falls for the second consecutive month but the number of people claiming Jobseeker's Allowance rises.

Flanders: The young recession

Unemployment in your area

BBC UK jobs tracker

Reader's Digest in administration

The UK arm of magazine publishers Reader's Digest, established in 1938, has gone into administration.

Toyota considers Corolla recall

Japanese carmaker Toyota mulls a recall of the world's best-selling car, the Corolla, as it also denies any cover-ups

More at the link.

interestrateripoff · February 17, 2010

Greece Rescue Collides With the Policy Trilemma naked capitalism

A fair number of policy commentators are hewing to the view that somehow the EU will cobble together some sort of solution to the Greek fiscal mess because the alternatives look vasty worse. As Paul Krugman noted:

Now what? A breakup of the euro is very nearly unthinkable, as a sheer matter of practicality. As Berkeley’s Barry Eichengreen puts it, an attempt to reintroduce a national currency would trigger “the mother of all financial crises.” So the only way out is forward: to make the euro work, Europe needs to move much further toward political union, so that European nations start to function more like American states.

But that’s not going to happen anytime soon. What we’ll probably see over the next few years is a painful process of muddling through: bailouts accompanied by demands for savage austerity, all against a background of very high unemployment, perpetuated by the grinding deflation I already mentioned.

Yves here. Yet we have the spectacle of Greece signaling that it isn’t exactly up for what its creditors want from it, as the Financial Times reports:

Greece is expected on Monday to resist pressure for an immediate tightening of its current austerity package as it fights to win back the confidence of international financial markets and its eurozone neighbours.

Both Germany and the European Central Bank have been pushing Athens to strengthen its existing fiscal stability plan by adding measures such as a 1 to 2 per cent increase in value-added tax and further public-sector wage cuts in return for financial assistance.

In an appearance on French television on Sunday night Jean-Claude Trichet, the ECB president, called on Greece “to take the extra measures that will be necessary to make credible their turnaround plan”.

But Athens is fighting to postpone any decision on further measures until mid-March, when officials from the European Union, ECB and International Monetary Fund are due to carry out a forensic inspection of Greece’s deficit-cutting plans.

“It makes no sense to rush into additional measures until they are seen to be necessary,” said a senior Greek official.

Yves here. This is not exactly the way to win friends or bolster market confidence.

Ambrose Evans-Pritchard points to another wee problem: the EU made a commitment in advance of member states going along. And right now, they, like Greece, are not making the right noises either:

The EU has issued a political pledge to rescue Greece – and by precedent, all Club Med – without first securing a mandate from the parliaments of creditor nations.

Holland’s Tweede Kamer has passed a motion backed by all parties prohibiting the use of Dutch taxpayer money to bail out Greece, either through bilateral aid or EU bodies. “Not one cent for Greece,” was the headline in Trouw. The right-wing PVV proposed “chucking Greece out of EU altogether”.

Germany’s Bundestag has drafted an opinion deeming aid to Greece illegal. State bodies may not purchase the debt of another state, in whatever guise.

The EU is entering turbulent waters by defying these irascible and sovereign bodies. It had no choice, of course. Europe’s banking system was – and is – at imminent risk as Greek contagion spreads across Club Med. The danger of a “sovereign Lehman” setting off a chain reaction is very real, with Britain too in the firing line. I find myself in the odd position of backing drastic EU action, for fear of worse. We all go down together if this escalates.

The last two weeks have cruelly exposed the Original Sin of monetary union: that EMU was launched without an EU treasury or debt union. This will be tested again and again by bond vigilantes until such a mechanism is created. Europe’s hope of fending off markets with “constructive ambiguity” must fail, as will become obvious this week if EU finance ministers fail to flesh out rescue details.

Yves again. At the danger of taxing the patience of regular readers, I want to reintroduce a construct of Dani Rodrik’s which has direct bearing on the Euro struggles:

I have an “impossibility theorem” for the global economy that is like that. It says that democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full.

To see why this makes sense, note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs.

So what do we do?

One option is to go for global federalism, where we align the scope of (democratic) politics with the scope of global markets. Realistically, though, this is something that cannot be done at a global scale. It is pretty difficult to achieve even among a relatively like-minded and similar countries, as the experience of the EU demonstrates.

.........

Thomas Ferguson and Peter Temin argue why things went awry:

The German government found itself in an impossible position as the recession of the late 1920s deepened. Like so many other countries, the German government’s budget went into deficit as the recession progressed. The Weimar government lacked the political will to deal with the impending crisis, substituting rash statements about customs unions and Reparations for serious budgetary action. German banks failed in 1931, but the problem was not primarily with them. Instead, the crisis was a failure of political will in a time of turmoil.

Notice that the austerity measures were effectively imposed against the public’s will:

Pressed to get this mountain of debt under control, Brüning tried a variety of ploys. They all failed. Eventually, a budget calling for savage spending cuts, lower taxes, cuts in the pay of government officials, and smaller transfers to the Laender and municipalities had to be enacted by Noteverordung. But the move outraged deputies and key business figures on the right who wanted deeper cuts, while angering many on the left who considered the budget palpably unfair. As the big business oriented German People’s Party (DVP) committed binary fission, a majority of the Reichstag exercised its constitutional right to reject the decree. Hindenberg and Brüning reacted with a fateful

step: They dissolved the Reichstag, called new elections, and reenacted the Noteverordung with minor changes.

More at the link.

interestrateripoff · February 17, 2010

Obama Starts Push to Cast Stimulus Bill as a Success

By SHERYL GAY STOLBERG 44 minutes ago

President Obama defended his year-old stimulus package on Wednesday, as his administration begins an effort to defend past and future economic programs.

Stimulus Jobs on State’s Bill in Mississippi

Toyota Takes New Steps to Restore Confidence

By HIROKO TABUCHI and NICK BUNKLEY 39 minutes ago

Toyota’s chief on Wednesday described new measures like a brake-override system and quicker disclosure of defects.

Fed Board Diverged on Timing of Policy Shift, Minutes Show

By SEWELL CHAN and JACK HEALY 50 minutes ago

The committee had different opinions as to the timing and order of the Fed’s plans to begin the tightening monetary policy.

Wall Street Tries to Rally on Housing Report

By JAVIER C. HERNANDEZ

Concerns about Greece and its debt problems eased on Wednesday after a meeting of European finance ministers.

Elders of Wall St. Favor More Regulation

DealBook

BofA and S.E.C. Say Settlement Needs No Changes

By LOUISE STORY 42 minutes ago

The two parties said in court filings that they do not believe their latest settlement needs to be changed to reflect the suggestions of the federal judge overseeing the case.

Lufthansa Pilots Vote to Strike Next Week

By JACK EWING 8:50 AM ET

The vote to hold a four-day strike follows the breakdown of talks between the pilot union and the airline over the pilots’ demand that Lufthansa promise not to lay off cockpit personnel.

Spain Cheered by Strong Bond Issue, Despite Lingering Recession

By REUTERS 11:40 AM ET

Signs arose that fears surrounding sovereign debt in Europe may be easing for now in Spain and in Portugal.

Party Gridlock in Washington Feeds Fear of a Debt Crisis

interestrateripoff · February 17, 2010

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion | The Onion - America's Finest News Source

The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy.

"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."

"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."

According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, "Oh my God, he's right. It's all a mirage. All of it—the money, our whole economy—it's all a lie!"

Screams then filled the Senate Chamber as lawmakers and members of the press ran for the exits, leaving in their wake aisles littered with the remains of torn currency.

I disagree money is based on trust, it's a highly efficient bartering system rather than you having to cart around tangible trading goods you simply carry paper. It's far more efficient and allows a more productive economy the problem is that trust can be abused by the political elites.

However I would say the constant creation money by the bankers has created serious distortions in the monetary system. There is no trust therefore there cannot be any value.

interestrateripoff · February 17, 2010

"We will not have any more crashes in our time."

- John Maynard Keynes in 1927

"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."

- Irving Fisher, Ph.D. in economics, Oct. 17, 1929

“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.”

—Washington dispatch

May 1, 1930

“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States—that is, prosperity.”

—Herbert Hoover, Address at annual dinner of the Chamber of Commerce of the United States

October 2, 1930

“During the past year you have carried the credit system of the nation safely through a most difficult crisis. In this success you have demonstrated not alone the soundness of the credit system, but also the capacity of the bankers in emergency.”

—Herbert Hoover, Address before the annual convention of The American Bankers Association, Cleveland

interestrateripoff · February 17, 2010

Mish's Global Economic Trend Analysis: Krugman Says Inflation Is The Answer

Inquiring minds are considering The Case For Higher Inflation by Paul Krugman.

Olivier Blanchard, normally at MIT but currently the chief economist at the IMF, has released an interesting and important paper on how the crisis has changed, or should have changed, how we think about macroeconomic policy. The most surprising conclusion, presumably, is the idea that central banks have been setting their inflation targets too low.

I’m not that surprised that Olivier should think that; I am, however, somewhat surprised that the IMF is letting him say that under its auspices. In any case, I very much agree.

No Praise For Blanchard

While Krugman praises Blanchard, I took the opposite view in Inflation Targeting Madness and Economically Illiterate Fools at the IMF.

Inflation Targeting Madness

Taking property prices into consideration, inflation was running well over 4% in 2005-2006.

But Keynesian fools do not measure asset bubbles or housing prices. They only measure their distorted look at the CPI. By the time the Fed reacts to that, bubbles have already been blown and are about to implode.

Imagine Spain and Greece attempting to target for 4% inflation now. Hells bells, imagine the EU to do it in general.

One of the reasons the EU is in trouble now is its one interest rate fits all policy fueled massive inflation in Spain but not Germany.

It is the height of idiocy to think Soviet Union style command economics works. But that is exactly what Blanchard proposes. He wants central bankers to control interest rates, inflation targets, capital requirements, domestic spending, and asset prices.

History has proven central planning to be the height of economic folly. It led to the collapse of the Soviet Union. Bernanke's 2% targeting led to the biggest credit boom and housing bubble in history, yet instead of seeing inflation and cheap money as the problem, Blanchard wants even cheaper money in the asinine belief "higher inflation would make monetary policy more effective in crisis periods."

Real World Q&A

Once again, Krugman supports his view with academic formulas instead of real world functionality.

Let's play real world Q&A.

1Q. In the real world, if the ECB were to target inflation at 4% what would it be in Germany, what would it be in Greece, and what would it be in Spain?

1A. The answers are unknown. However, the higher the inflation target, the bigger the economic distortions between countries in the European Union. Spain had an enormous property bubble that has now burst. Spain also has unemployment above 20%. Somehow we are supposed to believe this would not have happened if the ECB opted for higher inflation. The idea is silly.

2Q. Is there anything magic about a 4% target?

2A. Of course not. The Fed could not spot bubbles at Bernanke's 2% target. Is it supposed to spot them at 4%? Why is 4% better than 3% or 8% anyway? What would our housing bubble or stock market bubble have looked like at 4%? Blanchard and Krugman are guessing at numbers, guaranteed wrong. On the other hand, I am not guessing. The ideal inflation target is zero.

3Q. Can the Fed determine where liquidity goes?

3A. The Fed can only supply liquidity. The Fed cannot determine where the money goes or if it goes anywhere at all. Excess reserves at $1.2 trillion is proof enough. So is Japan's 20 year history of foolish deflation fighting. Bear in mind, the Fed cannot adequately measure prices in the first place.

4Q. Will wages keep up?

4A. They never do.

5Q. What would rising prices do to those out of a job?

5A. Those out of a job would be crucified.

6Q. What about interest on the national debt?

6A. It would soar. The national debt is $12.3 trillion. Interest on the national debt is already $383 billion and rising.

7Q. Who benefits from inflation?

7A. Inflation benefits those with first access to money, the banks and the already wealthy. It is a stealth tax on the middle class and poor whose wages never keep up with inflation. That problem is compounded by rising property taxes, sales taxes, etc, that eats consumers alive. Those at the bottom end of the totem pole get hit even harder. Their wages do not rise and they have no assets to inflate.

8Q. Has printing money ever solved anything? Anywhere?

8A. No.

We can just inflate the debt away. Yipee!

interestrateripoff · February 17, 2010

FT Alphaville ‘The risk of [Greek] contagion is low but…’

Brian Yelvington, formerly of CreditSights and now director of fixed income research at Knight Libertas, on Tuesday published his thoughts on the possibility of systemic contagion in the eurozone.
By his reckoning:

We believe a transmission mechanism exists between Euro sovereign risks and the global financial system. The possibility of Greece (or another problem country) becoming a systemic threat is a nonzero probability. However, we do feel that central banks across the globe have their eyes wide open at the problem, and this diminishes the probability that such contagion could occur

That said, in the event that “non-zero” probability turns into reality, Yelvington believes eurozone banks face two main problems, as far as the possibility — real or imagined — of spillover from the unfolding Greek drama is concerned:

1) the amount of ratings arbitrage they have with respect to same currency sovereign credit risk

2) the enormous amounts of emerging markets lending they engage in – some 70% of the world’s total according to the BIS.

On the first point (emphasis FT Alphaville’s):

. . . under Basel II guidelines, a financial institution that went long same currency sovereign risk benefitted from low risk weightings. This caused a large base of natural appetite for Euro area sovereign risk.

As downgrades and mark-to-market losses have mounted, there is no doubt some need to shed this risk. To our reckoning, this was no small part of the credit undulations over the past month as banks have shed assets.

The need to shed these assets is obvious. Higher risk weightings damage capital ratios and wider spreads cause losses – further damaging capital ratios.

This key link between the sovereign risk and the financial institutions of the Euro area are the largest cause for concern with respect to the problem becoming a systemic issue that would cause global financial problems.

Recall in the credit crisis, a crisis of confidence ensued whereby levered players were shut out of interbank repo markets and some ultimately failed. Under a fractional banking system all that is required to bring down a financial institution is a similar crisis of confidence.

As for the second, Yelvington published the follow table to demonstrate the heavy exposure of European banks to emerging markets (click to enlarge):

Yelvington highlighted (in yellow, above) the fact that European banks have more than 70 per cent of the $4,300bn in total exposure to developing country lending risks.

More at the link.

The UK taxpayer is on the hook for billions. Aren't we lucky.

interestrateripoff · February 17, 2010

http://www.marketoracle.co.uk/Article17286.html

Put simply, the U.S. Government CAN NO LONGER AFFORD to pay market rates of interest. This is why interest rates HAD TO BE ARBITRARILY RIGGED AT LOW RATES.
Obscene amounts of interest rate swaps with embedded bond trades have been utilized by the likes of Goldman Sachs and other Fed / U.S. Treasury proxy institutions to give U.S. monetary elites complete mastery over the entire interest rate curve. Goldman Sachs has had a huge hand in this:

The unsavory exploits of Goldman Sachs [and J.P. Morgan-Chase] have been a recurring topic in this space for a number of years now. Goldman’s high-jinx [or plunder, perhaps?] in our global capital markets has been well documented over the years,

In more recent times, the altering of component weightings in benchmarks like the Goldman Sachs Commodities Index [GSCI] have led to massive liquidations and subsequent [temporary] price collapses of leveraged commodities positions held by pension and hedge funds. Goldman Sachs is an institution that has long been regarded as a proxy institution for the U.S. Treasury.

More at the link.

interestrateripoff · February 17, 2010

Mish's Global Economic Trend Analysis: "Three Paths Forward" - Kansas City Fed on Current U.S. Fiscal Imbalance, Hyperinflation, Printing

It's a rare and welcome event to see the Fed discuss the horrible fiscal policies in Washington D.C., monetary printing, and hyperinflation. For a voting member of the FOMC to do so makes it all the more welcome.

Inquiring minds are certainly interested in Knocking on the Central Bank’s Door by Thomas M. Hoenig, President, Federal Reserve Bank of Kansas City.

The United States is moving into an era in which government finance is taking center stage. Fiscal measures taken to bring the economy out of recession, mounting longer-term liabilities for Social Security and Medicare, and other growing demands placed on the federal government have invited a massive buildup of government debt now and over the next several years.

Congressional Budget Office (CBO) projections have the federal debt reaching an unsustainable level of two to five times our total national income within the next 50 years, which leads us to an inescapable conclusion—U.S. fiscal policy must focus on reducing this debt buildup and its consequences.

In managing our nation’s debt going forward, it strikes me that we have only three options. First, the worst choice for our long-term stability, but perhaps the easiest option in the face of short-term political pressures: We can knock on the central bank’s door and request or demand that it “print” money to buy the swelling amounts of government debt. Second, perhaps more tolerable politically, although damaging to our economy: We can do nothing so long as domestic and foreign markets are willing to fund our borrowing needs at inevitably higher interest rates. Or third, the most difficult and probably the least palatable politically: We can act now to implement programs that reduce spending and increase revenues to a more sustainable level. ...

As a central banker, it is my responsibility to anticipate and avoid the consequences that an unchecked expansion of the debt may have on monetary policy. It is a fact that the current outlook for fiscal policy poses a threat to the Federal Reserve’s ability to achieve its dual objectives of price stability and maximum sustainable long-term growth, and therefore is a threat to its independence as well.

Lessons from History

Throughout history, there are many examples of severe fiscal strains leading to major inflation. ... German hyperinflation is one classic and often-cited example, and with good reason. When I was named president of the Federal Reserve Bank of Kansas City in 1991, my 85-year old neighbor gave me a 500,000 Mark German note. He had been in Germany during its hyperinflation and told me that in 1921, the note would have bought a house. In 1923, it would not even buy a loaf of bread. He said, “I want you to have this note as a reminder. Your duty is to protect the value of the currency.” That note is framed and hanging in my office.

Someone recently wrote that I evoked “hyperinflation” for effect. Many say it could never happen here in the U.S. To them I ask, “Would anyone have believed three years ago that the Federal Reserve would have $1¼ trillion in mortgage back securities on its books today?” Not likely. So I ask your indulgence in reminding all that the unthinkable becomes possible when the economy is under severe stress. ...

Last Friday, I read that an economist at the IMF raised a question of whether central banks should allow higher rates of inflation during normal times to give them more room to adjust for shocks. While this may sound like a reasonable theory from a credible economist, my concern is that it rationalizes solutions to short-term problems that too often take an economy down the wrong path. ...

Three Paths Forward

Returning to my opening comments, I see just three ways forward in dealing with our current and prospective fiscal imbalances. While each involves considerable pain only the third will resolve the imbalances without eventually causing inflation to accelerate or precipitating a financial and economic crisis.

Monetize. One option for dealing with a fiscal imbalance is for the central bank to succumb to political pressure and monetize the debt. ... This process often appears benign at first, but if it goes on unchecked, the outcome is almost always higher levels of inflation and ultimately a loss of confidence in the value of the currency and the economy. Walter Bagehot’s famous dictum about banks holds equally true for governments—once their soundness is questioned, it is too late.

Policy Stalemate. The second path forward is a stalemate between the fiscal and monetary authorities. In such a stalemate, the fiscal imbalance grows while an independent central bank maintains its focus on long-run price stability. ... Eventually, this combination of large debt, and high cost of borrowing and capital weakens economic growth and undermines confidence in the economy’s long run potential. Slowly, but inevitably, if the fiscal debt goes unaddressed, the currency weakens, as does access to global financial markets. And the cycle worsens, leading ultimately to a financial and economic crisis.

Equitable Fiscal Discipline. The Canadian experience in the second half of the 1990s is suggestive of the third—and the only responsible—way to resolve our growing fiscal imbalance: By addressing its source in an environment of price stability. ... In the United States, the Federal Reserve’s policies in the early 1980s provide a vivid example of the benefits that arise from the exercise of central bank independence. During this time, high interest rate policies designed to lower inflation were deeply unpopular both among elected leaders and the broad public. But the Federal Reserve was able to exercise its independence and pursue long-term goals which systematically reduced inflation and changed the psychology of the nation regarding its expectation about inflation’s path. As a result, the United States has had nearly three decades of low inflation.

Knowing inflation is not an acceptable alternative to strong fiscal management, a government faced with rising debt levels must provide a credible long-term plan to reestablish fiscal balance. The plan must be clear, have the force of law and its progress measureable so as to reassure markets and the public that the country has the will and ability to repay its debts in a stable currency.

To be broadly accepted, the plan must be seen as fair, in which there is a sense of shared sacrifice across all segments of the economy. Without being specific, these requirements suggest an approach in which we are willing to disappoint a host of special interests. It means, for example, controlling budget earmarks, trimming subsidies to numerous economic sectors, and resolving our banking problems and the perception that Wall Street is favored over Main Street, all of which would otherwise foster mistrust and cynicism among the public. ...

No Short Cuts

Finally, there are no short-cuts. We currently must adjust from a misallocation of resources. There is no way to avoid some short-term pain in fixing the fundamentals in our economy. It is inconvenient for the election cycle, and it is undeniably terrible to have at least 10 percent of the labor force out of work. But short cuts now mean people out of work again in only a few years because we again try and avoid difficult adjustments. Outlining a credible course for managing our debt for the future will accelerate the restoration of confidence in our economy and contribute importantly to sustainable capital investment and job growth.

Conclusion

As I mentioned in the beginning, the fiscal projections for the United States are so stunning that, one way or another, reform will occur. Fiscal policy is on an unsustainable course. The U.S. government must make adjustments in its spending and tax programs. It is that simple. If pre-emptive corrective action is not taken regarding the fiscal outlook, then the United States risks precipitating its own next crisis. ...

The only difference between countries that experience a fiscal crisis and those that don’t is the foresight to take corrective action before circumstance and markets harshly impose it upon them. In time, significant and permanent fiscal reforms must occur in the United States. I much prefer this be done well before anyone feels an irresistible impulse to knock on this central bank’s door.

Hoenig Ridicules The IMF Chief Economist

It is good to see someone else ridicule the IMF. I did so in Inflation Targeting Madness and Economically Illiterate Fools at the IMF.

The big difference is that Hoenig in a position of authority.

Hoenig On Congressional Spending

That someone on the Fed would openly express fiscal concerns about Congressional spending and hyperinflation, while blasting the chief economist at the IMF is unprecedented.

Hoenig clearly hits the mark with concerns over "controlling budget earmarks, trimming subsidies to numerous economic sectors, and resolving our banking problems and the perception that Wall Street is favored over Main Street, all of which would otherwise foster mistrust and cynicism among the public."