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Financial Market Forecast for 2014
1) … I am not a classical economist, yet, this inquiring mind asks, Why doesn’t classical economic theory enjoy greater appeal in the US? Perhaps there are a number of reasons.
1) the existence of a two party political system.
2) parents failing to grasp the importance of liberty and educate children in libertarian ethics.
3) a pursuit of the practical education in public schools during the Rothbard years.
4) the great financial reward that came from employment created a prosperity that blinded the development of ethics.
5) the rapture theory held by Christians; that is that God will come to the rescue of individuals.
6) ongoing development of the US as a global kick ass, might makes empire.
7) on going trade liberalization, and investment liberalization.
8) the Craig Willy post ítor Constâncio, Vice-President of the ECB, on the real causes of the Euro crisis; which describes how eurozone integration aggravated financial speculation and eliminated national democracies’ tools for managing economic problems.
9) as knowledge grew, public unions grew in power to countermand the moral hazard of government.
10) the willingness of society to capitulate to psychiatrists and put psychopaths on SSI disability.
11) regulatory capture, ie Obamacare.
12) growing trade deficits and fiscal deficits.
13) US Federal Reserve intervention and mortgage financing by the GSE which promoted inflationism.
14) A free to choose floating currency system fathered by Milton Friedman, which resulted in the creation of the democratic nation state banker regime in 1971, and resulted in a 42 year period of living hegemonically.
15) Rejection by most, or perhaps better said, failure to consider, the theories whose hypothesis centered around the concept, as Wikipedia relates, that only a free market produces the socially optimal equilibrium with regard to production of goods and services, such as the fundamental theorems of welfare economics and general equilibrium theory, which helped prove further that government intervention could only result in making society worse off (see Pareto efficient).
16) In answering the question “Why am I here” and “What am I to do”, a rejection by others of the concept that I am an entrepreneur managing the outcome of my life; and as such one fails to exercise ongoing discernment in a wise choice of friends, careers, recreation, and partners.
17) The pessimistic Market Sanity report by Ron Paul This will all end in an economic collapse.
2) … There is an alternative to classical economics theory, it is dispensational economics theory, which presents that out of waves of Club Med sovereign, corporate, and banking insolvency, the Eurozone will become an epicenter of great democratic deficit, and will serve as a template for regional governance and totalitarian collectivism throughout the world.
Craig Willy posts The Eurozone’s democratic deficit: A reading list for the perplexed. And I focus on the Transparency International reading suggestion which relates “We are transferring ever-more power to the “democratic black hole” that is the ECB, making it “the most powerful [EU] institution.”
Please consider reading the Lukanyo Mnyanda and Anchalee Worrachate Bloomberg report Italy’s Bonds drop with Spain’s on concern ECB to limit support A Mario Draghi Mandate prevents lenders from using future loans it provides to buy sovereign debt.
The December 6, 2013, ECB Mario Draghi monetary policy Mandate, that prevents lenders from using future loans it provides to buy sovereign debt, establishes Mario Draghi as the EU’s sovereign monetary authority, specifically as the EU’s Seignior, that is top dog banker, who in minting money, takes a cut, and establishes the EU as a region of economic governance, having policies of diktat, and totalitarian collectivist schemes of debt servitude. The Mario Draghi monetary policy Mandate establishes Mario Draghi as father of Eurozone regional governance.
The December 6, 2013, Mario Draghi monetary policy Mandate, means the end of low Treasury Debt Interest Rates in the EU; it terminates liberalism as both a paradigm and age; the democratic nation state and banker regime that was liberalism’s vessel of economic experience, has been sterilized, better said, destroyed as if by a neutron bomb, that leaves the structure intact, but obliterates all life inside. The ECB Draghi Mandate pivots the EU into authoritarianism as both a paradigm and age.
Now, business credit comes from EU’s Seignior, Mario Draghi, and sovereign credit comes from the sovereign debt market place, as it should have been all along, which means funding of Eurozone nation Treasury Debt, will be nada, nothing, and not forthcoming, as buyers of this debt already know that the PIIGS are insolvent sovereigns, and their banks are insolvent financial institutions. The funding of nation state fiscal spending has been literally cut off by the ECB Mario Draghi December 6, 2013 Mandate. While seemingly to support creditworthy firms, the Mandate is the “genesis factor” that will introduce deep recession by eliminating the ECB OMT funding of the EU nation states fiscal budgets.
Fragile peripheral Eurozone nation states, Portugal, PGAL, Italy, EWI, Greece, GREK, and Spain, EWP, must look to the financial marketplace to purchase Treasury Debt. Eurozone fiscal seigniorage, that is fiscal moneyness, that came through LTRO 1, 2, and OMT, has been dealt a lethal blow, and as a result, democracy nation state sovereignty will collapse overnight as a result of ECB Mario Draghi’s diktat that prevents lenders from using future ECB loans to buy sovereign debt.
New regional sovereignty has emerged in Europe. The Eurozone, as a region of economic governance, was fathered, that is has come into being, by the December 6, 2013, Mandate of the ECB’s Chairman. Mario Draghi. In announcing the Mandate that prevents lenders from using future loans the ECB provides to buy sovereign debt, Mario Draghi has destroyed liberalism’s fiat money, and has minted diktat money, that is money that comes by decree, and has announced Eurozone regional economic governance without any democratic constitution. Eurozone regional economic governance has simply come into being through the word, will, and way of Mario Draghi; this establishes Mario Draghi as the EU’s Seignior in charge of regional monetary policy and regional credit.
Life under liberalism was an experience in a debt trade, EU, as is seen in the ongoing Yahoo Finance chart of European Financials, EUFN, NBG, DB, STD, IRE, as well as a currency carry trade, EUR/JPY, as is seen in the ongoing Yahoo Finance chart of Eurozone Stocks, SI, PHG, STX, ALU, ING, DSX, MT, and CCH, based upon the sovereignty of EU nation states, EWI, EWG, EFNL, EWN, EDEN, EIRL, GREK, PGAL, EWO, EWP, as presented in their ongoing Yahoo Finance Chart which produced a moral hazard based prosperity. Said another way, life under liberalism was a series of puts, as Forbes reported Bernanke doubles down on Greenspan Put, Larry Summers exhales in comment at the start of QE3.
Econobrowser posts All quiet on the southern front. After a wild ride in 2011-2012, interest rates have settled down on European sovereign debt. For now.
Life under authoritarianism is an experience in debt servitude; now, life is a series of calls, such as the call of the bond vigilantes of the Interest Rate On the US Ten Year Note, ^TNX, higher from 2.48% on October 23, 2013, was an extinction event, that destroyed fiat money, that is Aggregate Credit, AGG, and the Major World Currencies, DBV, and the Emerging Market Currencies, CEW, as well as the Mario Draghi call to experience in monetary policies of regional governance, and totalitarian collectivist schemes of debt servitude, which establish austerity. AP reports related details Ireland faces more austerity as bailout era ends.
The December 6, 2013, Mandate of Mario Draghi is powering up the singular dynamo of regionalism for the purpose of regional stability, regional security, and regional sustainability. This dynamo replaces liberalism’s dynamos of creditism, corporatism, and globalism.
The ECB Chairman, Mario Draghi’s December 6, 2013 Mandate will have the effect of commencing the destruction of fiat wealth, that is Global Stock Investment, VT, Nation Investment, EFA, and Global Financial Investment, IXG; and will create a global economic recession, and is the “genesis factor” of a soon coming global credit bust and financial system breakdown, that being the deflationary bust, known as Financial Apocalypse, as presented in Bible prophecy of Revelation 13:3-4.
Authoritarianism is characterized by monetary deflation, that is credit deflation, AGG, BWX, EU, and currency deflation, DBV, CEW, FXE, all turning lower in value, stimulating investors to derisk out of fiat wealth, that is World Stocks, VT, as will be seen in the Risk Off ETN, OFF, rising in value, as investors derisk out of debt investments, and deleverage out of currency carry trade investments, which terminates global economic growth and global trade, and introduces economic recession where the beast regime of regional governance and totalitarian collectivism, seen in Revelation 13:1-4, rules via diktat money so as to provide regional security, regional stability, and regional sustainability.
It has been God’s purpose from eternity past to make the Beast Regime, Revelation 13:1-4, also presented as the End Time Monster, Daniel 7:7, and presented as the Two Feet and Ten Toes Global Empire, Daniel 2:25-45, as a world wide empire replacing liberalism’s two iron legs of governance, these being the British Empire, and the US Dollar Hegemonic Empire.
Most assuredly the EU will be a type of revived Roman Empire, in the sense that it will have a European King like Charlemagne. The Sovereign’s shrewd ability to work in regional framework agreements, as foretold in Daniel 8:23, will assure a pan-European identity for all. Like Charlemagne who abandoned the gold standard, and put all of Europe on the same silver currency, The Sovereign will work with The Seignior to establish diktat money; where his word will and way, will be the law of the land, replacing all constitutional law, national law, and historic precedent.
3) … This weeks news report illustrate the degree of sovereign, banking and social crisis in Eurozone.
Reuters reports from Milan, Italy, The oldest bank in the world is on the verge of collapsing. A delay to vital fundraising at Banca Monte dei Paschi di Siena has increased the risk that Italy’s third biggest bank has to be nationalized, a move the government would like to avoid.
Shareholders led by the biggest investor in the bailed-out bank rejected plans for a 3 billion euro ($4 billion) share sale in January and postponed the capital raising until after May 12.
The bank’s chairman and its chief executive may resign following the unprecedented clash with the main shareholder in the Siena-based lender, a charitable banking foundation with close ties to local politicians.
The focus of attention now turns to Rome where both the economy ministry, which has oversight of banking foundations, and the Bank of Italy are closely following events.
The world’s oldest bank needs to tap investors for cash to pay back 4.1 billion euros in state aid it received earlier this year and avert nationalization after being hammered by the euro zone debt crisis and loss-making derivatives trades. The capital increase is part of a tough restructuring plan agreed with the European Commission in order to receive clearance for the state bailout.
A Treasury spokesman said the government’s priority was to give the bailout money back to taxpayers and it had no interest in nationalizing Monte Paschi, ANSA news agency reported on Sunday evening. Sources said the Treasury will continue to encourage all parties involved to find a solution, ANSA reported.
Monte Paschi Chairman Alessandro Profumo, an internationally respected banker who was formerly the chief of UniCredit, said on Saturday he and chief executive Fabrizio Viola would decide whether to step down next month. A board meeting is expected around mid-January.
Profumo and Viola had already secured a pool of banks to guarantee the rights issue, but only if it was carried out by the end of January.They said the delay makes fundraising harder because of likely competition from other Italian and European lenders prompted to seek new capital by an upcoming sector health check, and could precipitate the Tuscan bank’s nationalization.
By forcing a postponement of the rights issue, the cash-strapped Monte dei Paschi foundation, whose stake in the bank is big enough to veto any unwanted decision, is hoping to win more time to sell down its 33.5 percent holding and repay its own debts. The foundation head Antonella Mansi said that carrying out the capital increase in January would massively dilute the foundation’s holding, leaving it with virtually nothing to sell to reimburse debts of 340 million euro.
John Rubino posts What Blows Up First? Part 1: Europe. 2013 was a year in which lots of imbalances built up but none blew up. The US and Japan continued to monetize their debt, in the process cheapening the dollar and sending the yen to five-year lows versus the euro.
China allowed its debt to soar with only the hint of a (quickly-addressed) credit crunch at year-end. The big banks got even bigger, while reporting record profits and paying record fines for the crimes that produced those profits. And asset markets ranging from equities to high-end real estate to rare art took off into the stratosphere.
Virtually all of this felt great for the participants and led many to conclude that the world’s problems were being solved. Instead, 2014 is likely to be a year in which at least some – and maybe all – of the above trends hit a wall.
It’s hard to know which will hit first, but a pretty good bet is that the strong euro (the flip side of a weakening dollar and yen) sends mismanaged countries like France and Italy back into crisis. So let’s start there.
The basic premise of the currency war theme is that when a country takes on too much debt it eventually realizes that the only way out of its dilemma is to cheapen its currency to gain a trade advantage and make its debts less burdensome. This works for a while but since the cheap-currency benefits come at the expense of trading partners, the latter eventually retaliate with inflation of their own, putting the first country back in its original box.
In 2013 the US and especially Japan cheapened their currencies versus the euro, which was supported by the European Central Bank’s relative reluctance to monetize the eurozone’s debt. The chart of the Euro, FXE, over the euro over the past six months, (shows a 5.6% gain; and the chart of the Yen, FXE, shows a 5.8% loss; the EUR/JPY closed at 145.00; and USD/JPY closed at 105.10)
Here’s what a stronger euro means for France: The second-largest and arguably worst managed eurozone country, IB Times reports French economy contracts 0.1% in third quarter The final estimate of France’s gross domestic product, or GDP, in the third quarter remained unchanged at the previous estimation of a contraction of 0.1 percent, indicating that the euro zone’s second-largest economy is struggling to sustain the rebound it witnessed in the second quarter with a growth of 0.6 percent. The third-quarter GDP growth was in line with analysts’ estimates. According to data released on Tuesday by the National Institute of Statistics and Economic Studies, the deficit in foreign-trade balance contributed (-0.6 points) to the contraction in the third quarter, compared to the positive (0.1 percent) contribution made in the preceding quarter.
Recessions, especially never-ending recessions, are fatal for incumbent politicians, so pressure is building for a European version of Japan’s “Abenomics,” in which the European Central Bank is bullied into setting explicit inflation targets and monetizing as much debt as necessary to get there. The question is, will it happen before the downward momentum spawns political chaos that spreads to the rest of the world. See Italian President warns of violent unrest in 2014. And Mike Mish Shedlock reports on French Socialism New law in France: Limos must wait 15 minutes minimum before picking up rides.
Michael Hudson posts in CounterPunch Europe’s deadly transition from social democracy to oligarchy. Ever since the Bank of England was founded in 1694, central banks have printed money to finance public spending. Bankers also create credit freely, when they make a loan and credit the customer’s account, in exchange for a promissory note bearing interest.
Today, these banks can borrow reserves from the government’s central bank at a low annual interest rate (0.25% in the United States) and lend it out at a higher rate. So banks are glad to see the government’s central bank create credit to lend to them. But when it comes to governments creating money to finance their budget deficits for spending in the rest of the economy, banks would prefer to have this market and its interest return for themselves.
European commercial banks are especially adamant that the European Central Bank should not finance government budget deficits. But private credit creation is not necessarily less inflationary than governments monetizing their deficits (simply by printing the money needed). Most commercial bank loans are made against real estate, stocks and bonds – providing credit that is used to bid up housing prices, and prices for financial securities (as in loans for leveraged buyouts).
The reality is made clear by comparing the ways in which the United States, Britain and Europe handle their public financing. The U.S. Treasury is by far the world’s largest debtor, and its largest banks seem to be in negative equity, liable to their depositors and to other financial institutions for much larger sums that can be paid by their portfolio of loans, investments and assorted financial gambles. Yet as global financial turmoil escalates, institutional investors are putting their money into U.S. Treasury bonds – so much that these bonds now yield less than 1%. By contrast, a quarter of U.S. real estate is in negative equity, American states and cities are facing insolvency and must scale back spending. Large companies are going bankrupt, pension plans are falling deeper into arrears, yet the U.S. economy remains a magnet for global savings.
Britain’s economy also is staggering, yet its government is paying just 2% interest. But European governments are now paying over 7%. The reason for this disparity is that they lack a “public option” in money creation. Having a Federal Reserve Bank or Bank of England that can print the money to pay interest or roll over existing debts is what makes the United States and Britain different from Europe. Nobody expects these two nations to be forced to sell off their public lands and other assets to raise the money to pay (although they may do this as a policy choice). Given that the U.S. Treasury and Federal Reserve can create new money, it follows that as long as government debts are denominated in dollars, they can print enough IOUs on their computer keyboards so that the only risk that holders of Treasury bonds bear is the dollar’s exchange rate vis-à-vis other currencies.
By contrast, the Eurozone has a central bank, but Article 123 of the Lisbon treaty forbids the ECB from doing what central banks were created to do: create the money to finance government budget deficits or rollover their debt falling due. Future historians no doubt will find it remarkable that there actually is a rationale behind this policy – or at least the pretense of a cover story. It is so flimsy that any student of history can see how distorted it is. The claim is that if a central bank creates credit, this threatens price stability. Only government spending is deemed to be inflationary, not private credit!
Neoliberal monetarists neglect the debt burden being imposed today from Latvia and Iceland to Ireland and Greece, Italy, Spain and Portugal. If the euro breaks up, it is because of the obligation of governments to pay bankers in money that must be borrowed rather than created through their own central bank. Unlike the United States and Britain which can create central bank credit on their own computer keyboards to keep their economy from shrinking or becoming insolvent, the German constitution and the Lisbon Treaty prevent the central bank from doing this.
When debts cannot be paid or rolled over, foreclosure time arrives. For governments, this means privatization selloffs to pay creditors. In addition to being a property grab, privatization aims at replacing public sector labor with a non-union work force having fewer pension rights, health care or voice in working conditions. The old class war is thus back in business – with a financial twist. By shrinking the economy, debt deflation helps break the power of labor to resist.
It also gives creditors control of fiscal policy. In the absence of a pan-European Parliament empowered to set tax rules, fiscal policy passes to the ECB.
Economic democracy will give way to financial oligarchy, reversing the trend of the past few centuries.
Is Europe really ready to take this step? Do its voters recognize that stripping the government of the public option of money creation will hand the privilege over to banks as a monopoly? How many observers have traced the almost inevitable result: shifting economic planning and credit allocation to the banks?
Even if governments provide a “public option,” creating their own money to finance their budget deficits and supplying the economy with productive credit to rebuild infrastructure, a serious problem remains: how to dispose of the existing debt overhead now acting as a deadweight on the economy. Bankers and the politicians they back are refusing to write down debts to reflect the ability to pay. Lawmakers have not prepared society with a legal procedure for debt write-downs – except for New York State’s Fraudulent Conveyance Law, calling for debts to be annulled if lenders made loans without first assuring themselves of the debtor’s ability to pay.
Bankers do not want to take responsibility for bad loans. This poses the financial problem of just what policy-makers should do when banks have been so irresponsible in allocating credit. But somebody has to take a loss. Should it be society at large, or the bankers?
It is not a problem that bankers are prepared to solve. They want to turn the problem over to governments – and define the problem as how governments can “make them whole.” What they call a “solution” to the bad-debt problem is for the government to give them good bonds for bad loans (“cash for trash”) – to be paid in full by taxpayers. Having engineered an enormous increase in wealth for themselves, bankers now want to take the money and run – leaving economies debt ridden. The revenue that debtors cannot pay will now be spread over the entire economy to pay – vastly increasing everyone’s cost of living and doing business.
Why should they be “made whole,” at the cost of shrinking the rest of the economy? The bankers’ answer is that debts are owed to labor’s pension funds, to consumers with bank deposits, and the whole system will come crashing down if governments miss a bond payment. When pressed, bankers admit that they have taken out risk insurance – collateralized debt obligations and other risk swaps. But the insurers are largely U.S. banks, and the U.S. Government is pressuring Europe not to default and thereby hurt the U.S. banking system. So the debt tangle has become politicized internationally.
So for bankers, the line of least resistance is to foster an illusion that there is no need for them to accept defaults on the unplayably high debts they have encouraged. Creditors always insist that the debt overhead can be maintained – if governments simply will reduce other expenditures, while raising taxes on individuals and non-financial business.
The reason why this won’t work is that trying to collect today’s magnitude of debt will injure the underlying “real” economy, making it even less able to pay its debts. What started as a financial problem (bad debts) will now be turned into a fiscal problem (bad taxes). Taxes are a cost of doing business just as paying debt service is a cost. Both costs must be reflected in product prices. When taxpayers are saddled with taxes and debts, they have less revenue free to spend on consumption. So markets shrink, putting further pressure on the profitability of domestic enterprises. The combination makes any country following such policy a high-cost producer and hence less competitive in global markets.
This kind of financial planning – and its parallel fiscal tax shift – leads toward de-industrialization. Creating ECB or IMF inter-government fiat money leaves the debts in place, while preserving wealth and economic control in the hands of the financial sector. Banks can receive debt payments on overly mortgaged properties only if debtors are relieved of some real estate taxes. Debt-strapped industrial companies can pay their debts only by scaling back pension obligations, health care and wages to their employees – or tax payments to the government. In practice, “honoring debts” turns out to mean debt deflation and general economic shrinkage.
This is the financiers’ business plan. But to leave tax policy and centralized planning in the hands of bankers turns out to be the opposite of what the past few centuries of free market economics have been all about. The classical objective was to minimize the debt overhead, to tax land and natural resource rents, and to keep monopoly prices in line with actual costs of production (“value”). Bankers have lent increasingly against the same revenues that free market economists believed should be the natural tax base.
So something has to give. Will it be the past few centuries of liberal free-market economic philosophy, relinquishing planning the economic surplus to bankers? Or will society re-assert classical economic philosophy and Progressive Era principles, and re-assert social shaping of financial markets to promote long-term growth with minimum costs of living and doing business?
At least in the most badly indebted countries, European voters are waking up to an oligarchic coup in which taxation and government budgetary planning and control is passing into the hands of executives nominated by the international bankers’ cartel. This result is the opposite of what the past few centuries of free market economics has been all about.
Mike Mish Shedlock posts Toxic smoke cloud engulfs Greece; Six years of relentless recession; Horrific statistics. Greece to assume the rotating presidency of the EU. On January 1, Greece assumes the rotating presidency of the European Union in a state close to suffocation, not only via austerity adjustments since 2010, but also literally, by a toxic cloud fueled by wood fires that replace conventional heating.
The beret dense smog that grips these days Athens or Thessaloniki is also a metaphor for the political gridlock: the government insists on not lowering the tax on heating oil to intractable limits for broad social layers, but a group of 41 deputies of the conservative New Democracy (ND), rector of the bipartite Executive, has unsuccessfully raised a parliamentary motion to reduce it.
An authentic rebellion aboard the party of Prime Minister Antonis Samaras. ND and Pasok socialist now number just 152 seats in a House of 300, and the rebel MPs representing about one-third in the ranks of ND.
The mutiny of the conservatives is just the penultimate chapter of an intestine, economic, but with clear political implications, the result of six years of recession and unfathomable weariness of citizenship to the endless cuts crisis.
27.4% unemployment (nearly 52% among those under 24 years)
3.8 million Greeks living in poverty or social exclusion in 2012 (400,000 more than the previous year)
350,000 households without electricity for non-payment bills
30% of the population have no access to public health care
Virtual paralysis of the universities, which since September run almost unattended by the dismissal of officials
Three killed by asphyxiation because of home fires for warmth
Four out of five blocks of flats facing the winter without heating due to inability to afford it
21 continuous quarters recession
34.6% of the Greek population at risk of poverty or social exclusion
SYRIZA, leads most polls of likely voters ahead of ND
Neo-Nazi Golden Dawn carries between 9% and 11% of the votes and is now the third political force
Only 33% of citizens believe possible ND victory if the election were held today
The once mighty Pasok, houses more than a trashy expectations 5% support, compared with 44% of votes in 2009
How much longer the “New Democracy” government of Prime Minister Antonis Samaras can hang together remains to be seen.
Should Samaras lose a vote of confidence for any reason, the Greek house of debt that cannot and will not be paid back all comes crashing down.
For those counting, Greece received 240 billion euros in aid, in a foolish attempt by the Troika to keep Greece in the eurozone. Most of the loan has been earmarked for the recapitalization of banks and the payment of interest on the debt, which now accounts for 157% of GDP.
Germany and the ECB are adamant there will not be writedowns on that debt. Both are in fantasyland.
Default, accompanied by a messy eurozone breakup awaits.
Shaun Richards posts Prospects for the Euro area and the European Central Bank in 2014
The peripheral Euro area nations have a particular problem from the two areas of monetary tightening.
These are the countries with the weakest banks and so any monetary tightening from stronger financial conditions imposed by the ECB will hit them the hardest. Today has seen a symbolic move on the front as the troubles at the world’s oldest bank Monte Paschi in Italy mean that the largest shareholder has voted to delay a cash call. Those wondering about the background to this can find it back on my post on January 28th. But the fundamental issue here is that banks facing capital and regulatory pressure are unlikely to be keen to lend and those under the severest pressure are mostly to be found in the periphery.
Inflation and disinflation. The disinflationary pressure of late 2013 was driven at least in part by the strong Euro and the shock effect of the 0.7% reading for consumer inflation in October was strong. Actually readers of this blog will not have been shocked at all but the media are now on the ECB’s case. There was some relief in inflation rising in November to an annual rate of 0.9% but there are two major problems for the ECB ahead in 2014.
1. Inflation below target-and looking likely to remain so- adds to the pressure to ease policy further.
2. Actual disinflation or falling prices is occuring in places where the debt burden is worst of all. For example Greece has the worst debt burden of 170% of economic output (and rising) whilst consumer prices and the GDP deflator are falling. The fact that wages and economic output are falling too makes this situation extremely toxic as another haircut or default looks inevitable. On every measure it looks less and less affordable.
But whilst there is some ennui about the situation in Greece -not shared here- there can be none about Italy. Previously Italy was a nation with a high public debt but with controlled annual deficits whereas now it has deficits which means that the debt is growing. As of the halfway point of 2013 it was at 133.3% of GDP and just as significantly it had risen from 125.6% a year earlier. In short unless Italy completely turns around and finds some decent economic growth the debate in 2014 will turn to a debt haircut there especially if these numbers from today spread throughout her economy.
In November 2013 the total producer price index decreased by 0.1 with respect to the previous month; the index of producer prices decreased by 0.1 on domestic market and marks no variation on non-domestic market……The index decreased by 1.8% compared with November 2012 (-2.3% on domestic market and -0.4% on non-domestic market).
On such a road one starts to wonder if the recent rise in Value Added Tax (a sales tax) was as much to nudge consumer inflation higher as to provide extra revenue. Of course however you spin it such moves are the last thing an already weak economy needs. So this year the saying that all roads lead to Rome might be particularly apt for the Euro area.
What next for the ECB? It has a genuinely difficult problem and I have pointed out before that much of it has been caused by politicians sticking their head in the sand and leaving all the economic heavy lifting to it. Unless it is willing to be the first major central bank to take interest-rates into negative territory then that game is mostly over so it is left with its balance sheet and its currency. The rest will be debating how to expand rather than contract the ECB’s balance sheet
Rather ironically the ECB may be hoping for an oil price or commodity price rise. I have two final thoughts for you. We will soon be finding out the price elasticity for Euro area exports to Japan as we observe an exchange rate which has reached 145 Yen. Also whilst I do not think we are there yet there are scenarios for 2014 where the ECB does take the plunge into negative interest-rates.
4) … Elaine Meinel Supkis posts on the new normal weather phenomena of ice age winter. Ice breakers can’t free global warming fanatic ship from antarctic summer ice. As December comes to a close, yet another sub-zero front will blow through the Northeast US.
5) … The stock market will turn from a bull market to a bear market in early 2014.
Philosophical economics posts The single greatest predictor of future stock market returns. Big selloffs usually occur in association with recessions. That’s where market timers make their money–by anticipating turns in the business cycle. A hint to bears: if you’re calling for a recession right now, in this monetary environment, you’re doing it wrong.
Capital Speculator posted on Thursday December 27, 2013 Rising US Interest Rates. As the bond vigilantes continue to call the Benchmark Interest Rate, ^TNX, higher from 3.0%, and as alarm grows over Club Med fiscal funding abilities, investors, are going to derisk out of debt trade investments and out of carry trade investments, pivoting the financial market from a bull market to a bear market.
6) …. An inquiring mind asks, what are you going to believe regarding the future of Europe?
Are you going to believe the Austrian economics viewpoint of a European Union breakup or the Dispensation economics viewpoint of the emergence of a One Euro Government, that is a European Super State, with great democratic deficit?
Both are totally logically, the latter presents from Ephesians, 1:10, that God has appointed Jesus Christ as the steward of all things economic and political for the maturing, completion and perfection of liberalism as both a paradigm and age. And the latter viewpoint integrates from Revelation 6:1-2, that Jesus Christ has opened the first seal of the Scroll of end time events, releasing the Rider on the White Horse, who has a bow, without any arrows, symbolic of economic sovereignty, to effect a global coup d’etat, to transfer sovereignty from bankers and nation state democracies to nannycrats and regional bodies such as the ECB, to bring forth the Beast System of Revelation 13:1-4, as a replacement for the libertarian despised Creature from Jekyll Island.
The Scripture of Revelation 6:1-2, relates “came out conquering, and to conquer”.
When the Rider on the White Horse was released on October 23, 2013, he began his ride over planet earth to conquer governments, bankers and investors, beginning first with the Emerging Market Nations, EEM, of Turkey, TUR, Brazil, EWZ, Indonesia, IDX, Thailand, THD, and the Philippines, EPHE.
He began conquering with the Means of Economic Destructionism, that is the Benchmark Interest Rate, ^TNX, by enabling the bond vigilantes to begin calling the rate higher from 2.48%, and by enabling the currency traders to begin short selling currencies, destroying the monetary authority of the central banks of the periphery nations, as well as the national sovereignty, and the seigniorage, that is the moneyness of those nations, this being reflected in the fiat wealth, that is the stock value of said nations, and their banks, and corporations, trading significantly lower in value. The outcome of his ride is an ever increasing victory as investors and people in the nations are being reduced to debt peons.
In Europe, Jesus Christ is active in economic administration of France, where there is no mismanagement of the economy as John Rubino writes in What Blows Up First? Part 1: Europe, as he states, “France is the second-largest and arguably worst managed eurozone country”. Jesus Christ is in active administration of the country, bringing its economy into greater economic contraction via a larger foreign trade balance, bringing forth economic recession. Furthermore, the exceedingly great genius of Jesus Christ is seen in the Mike Mish Shedlock report New law in France: Limos must wait 15 minutes minimum before picking up rides. Here Jesus Christ is maturing, completing and perfecting klepto socialism, making France the prime example of a mature socialist state.
There are two choices of viewpoints being presented, only one is truth, meaning that which is reliable for belief or a trust worthy promise.
The viewpoint of Austrian economics is based upon the life experience and essays of Mises, Hayek, and Rothbard.
The viewpoint of Dispensation economics is based upon the life experience of the Apostle Paul, who wrote the Epistle to the Ephesians, and the life experience of the Apostle John, who wrote the Revelation of Jesus Christ.
I find the economic doctrine of Paul and the dream given to John in his 90s, by angels, while living in exile on the Patmos, very believeable, and chose to rely upon these for economic vision and life experience; it sets me free to know the only right there is, that being “keeping Christ’s Word” as presented in Revelation 3:8, and not denying His name, so as to experience the full salvation of God.
As far as truth goes, we will soon see if the Austrian economics viewpoint is correct in a breakup of the Eurozone, or if the Dispensational economics viewpoint is correct in the formation of a One Euro Government, with policies of diktat in regional economic governance and schemes of debt servitude in totalitarian collectivism.
For further reading I encourage, Four sources to determine one’s rights, which presents a wider critique of Austrian economics theory.