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Credit deflation and the reflation cycle to come (part 2)


spunko

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5 minutes ago, HousePriceMania said:

Everyone should read this, it summarises really well where we are, the FED/ECB/BoE are based on the princliple of Occam's razor

https://northmantrader.com/2021/07/29/game-over-5/

They wont taper because they cant.  They wont raise IRs because they can't.  They will not stop down the path they are going down.

The conclusion must be that their economic system is going to collapse with hyper inflation at some point in the future.

I'd say you'd be mad not to buy a house and get out of cash in the next 6-12 months.

Not sure the stock market will hold the answers long term though least with a house you might at least have shelter and some land to grow spuds

Understand the sentiment, but after years of not saddling myself with astronomical debt just to have a house I can't bring myself to dive in when in years to come I'll be crying at having succumbed.

Bad times.

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HousePriceMania
3 minutes ago, Noallegiance said:

Understand the sentiment, but after years of not saddling myself with astronomical debt just to have a house I can't bring myself to dive in when in years to come I'll be crying at having succumbed.

Bad times.

Oh, I think buying a house like investing in shares before the real BKK is a fools errand now, unless you want to hedge against money becoming worthless.  We say yesterday how the establishment will go back on their promises and just take what they like.  

The idea is there though that the bankers will not stop, they will keep expanding the debt until most people can't afford anything and have to use debt to survive, it's enslavement really.

It might be deliberate or these people might just be useless greedy ****s.

We'll never know.

Something's gotta give at some point.

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3 hours ago, Harley said:

Ni is just the thin end of the wedge.  Unpopular ones first, less unpopular/popular ones closer to the election, if we get one:

https://www.express.co.uk/finance/personalfinance/1487336/inheritance-tax-IHT-capital-gains-tax-CGT-National-Insurance-HM-Revenue-Customs-HMRC

It seems the NI increase is going to the NHS, not social care.  This government blatantly lies, a lot.

Plus the accommodation costs if you need residential care are never reported on in clear to understand way, so most people will still be unaware of the true cost situation.

ie The new 85k cap is all well and good if you can be cared for in your own home. However, if need residential care, the accommodation cost is still not covered by that new cap. The problem is that on average, 66% of the total residential care cost is for the accommodation, with the remainder being the actual care cost. Meaning, on average £650/week will still need to be paid for. Most councils do this by putting a charge against your home asset.

That article link attempts to scare its readers by saying IHT will need to increase to pay for care. But if charges against peoples property are made - which councils routinely do - then IHT is irrelevant to the care story... Really makes me angry, but i suppose its just classic 'Fake News'!!!  

    

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Last weeks EIA oil storage report saw US demand hit a record high despite jet fuel still lagging. 2021 still lags 2019 demand but all of that can be accounted for by jet fuel demand being below normal apparently. 

US Henry Hub gas prices approaching $5. Highest since 2014.

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geordie_lurch

I smell a severe drop in most things incoming this week as people digest the news out of America here via ZH - there are now a record 2.2 million more job openings than unemployed workers O.o Emphasis mine

"While consensus was expecting the BLS to report a print of 10MM in July job openings, nobody - not even the most optimistic whispers - was prepared for the shocking 10.934 million job openings that hit the tape at 10am ET sharp. This unprecedented number of job openings was made possible as more than 4.2 million openings were added in the past 7 months, with every single month of 2021 seeing an increase in job openings, the longest such stretch in history.

Looking at the details, the increase in job openings was driven by a number of industries, with the largest increases in health care and social assistance (+294,000); finance and insurance (+116,000); and accommodation and food services (+115,000).

The record number of job openings stands out in stark contrast against the countless Americans who are still collecting various pandemic emergency unemployment claims, which in the latest week was just above 12 million.

But the biggest shocker is that while we were expecting the BLS to report that there were some 1.7MM more job openings than unemployed workers, a testament to just how broken, supply constrained and/or overheating the US job market is, the actual number meant that there were a record 2.232 million more job openings (10.934MM) compared to the total number of unemployed people which as of August was 8.384 million."

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Eventually Right
18 minutes ago, DoINeedOne said:

Bought some more $HMY Harmony Gold

giphy.gif?cid=ecf05e47wqy5rhfwfztbhtysa7

Once the January 2024 options are released next week I'm intending to yolo a little more money into the PM space, in case David Hunter's fabled melt-up ever happens! :ph34r:

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1 hour ago, Eventually Right said:

Once the January 2024 options are released next week I'm intending to yolo a little more money into the PM space, in case David Hunter's fabled melt-up ever happens! :ph34r:

Not knocking David at all, as he says it's a forecast and he's been bang on with that, but this wait is absolutely interminable. Just get on with it!

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48 minutes ago, Loki said:

Not knocking David at all, as he says it's a forecast and he's been bang on with that, but this wait is absolutely interminable. Just get on with it!

so I take it you're 100% cash apart from your silver coins in your secret knicker drawer? lol

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5 minutes ago, nirvana said:

so I take it you're 100% cash apart from your silver coins in your secret knicker drawer? lol

Why would I be, we haven't even had the melt up yet

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Just now, Loki said:

Why would I be, we haven't even had the melt up yet

ah ok I thought u woz on about the BK lol

PS it's been 'melting up' for 18 months ;o)

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3 hours ago, Bricormortis said:

Image

Last weeks EIA oil storage report saw US demand hit a record high despite jet fuel still lagging. 2021 still lags 2019 demand but all of that can be accounted for by jet fuel demand being below normal apparently. 

US Henry Hub gas prices approaching $5. Highest since 2014.

Interesitng report on their homepage echoing @Cattle Prod point about DUC's declining into a supply squeeze.The drops in the permian seem steep but one factor would be to consider how much these DUCs produce generally until completion.

I do wodner why noone's drillingnew wells at $70-maybe think it won't last.

Interesting to note as well that brent is still holding above $70 despite some Delta worries.Today's leaderboard echoing your point @Bricormortis

image.png.699fd1926a44e96a873cf5ac403ec4f9.png

 

https://www.eia.gov/todayinenergy/detail.php?id=49456

Number of drilled but uncompleted wells declines

Permian region oil well counts

Source: U.S. Energy Information Administration, Drilling Productivity Report

Based on our latest Drilling Productivity Report (DPR), 5,957 drilled but uncompleted wells (DUCs) were in the United States in all DPR regions in July 2021, the lowest for any month since November 2017. The decline in DUCs in most major U.S. onshore oil-producing regions, especially in the Permian region, reflects more well completions and, at the same time, less new well drilling activity. The completion of more wells is increasing oil production in the Permian region, but the completions are reducing the DUC inventories, which could limit oil production growth in the United States in the coming months.

drilled but uncompleted wells in U.S. primary oil-producing regions

Source: U.S. Energy Information Administration, Drilling Productivity Report

Of the five major U.S. oil-producing regions, DUCs in the Eagle Ford, Bakken, and Niobrara regions have declined to their lowest levels since December 2013, and DUCs in the Permian and Anadarko regions have declined to their lowest levels since June 2018. Although this significant reduction in DUCs follows an increasing rate of well completions in the Permian region, both the number of wells drilled and the number of wells completed in all other regions remain at historically low levels.

Indicators of new well drilling in the United States remain subdued. As of September 3, the Baker Hughes active oil rig count was 394 rigs. Although that figure is up 181 rigs from last year, the number is historically low compared with other periods when crude oil futures prices were near similar levels (or at even lower prices). Rising rig counts typically lag four to six months behind a crude oil price increase. If drilling activity doesn’t increase, then well completions and production may be limited because the inventory of DUCs continues to fall.

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22 hours ago, Cattle Prod said:

Oooh I this one. A lot. Dave Hunter approves too 🙂. Credit to @TOzgokmen

Screenshot_20210907-212354_Twitter.thumb.jpg.90476f22700819cb05a3e0f40dfa40df.jpg

Ok dollar. Off you go now...

I'm looking at his twitter feed.He's a proper Prince of darkness isn't he?

He raises a valid point in the first tweet re given the Fed has been buying the bulk of net new issuance,if Biden does get his spending plans passed then fed can't taper becuase if it does rates will rise and recession begins.....

Very much along the lines of Luke Gromen thesis 'the fed is trying to ride two horses with one ass.'

Important for those of us expecting a period of serious dollar weakness before the sh1t hits the fan.

image.png.2f4b2963ae371585740c592a3593c640.png

image.png.0ed142f700619e9e140217bb4c6a8725.png

image.png

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Germany has lost patience with QE: that spells big trouble for southern Europe

Read this exclusive extract from our Economic Intelligence newsletter and sign up at the bottom of the article to get it every Tuesday

AMBROSE EVANS-PRITCHARD8 September 2021 • 5:00am

Bundesbank chief Jens Weidmann now has a vocal chorus of allies openly calling for tapering

Germany’s long-simmering anger with the European Central Bank is again coming to the boil. It is hard to justify perennial bond purchases and negative rates when German inflation is near 4pc and rising, the highest since the Reunification boom in the early 1990s.

Political realities are forcing the ECB’s ultra-dovish governing council to prepare for bond tapering sooner than it wants – and sooner than it should, if you are a New Keynesian – in order to head off a bust-up with Europe’s anchor power.

It will have to start pulling away the shield that has protected the high-debt Club Med states from market forces for almost seven years, and that has conveniently covered their entire borrowing requirements under the cloak of “monetary policy”. The first treacherous step could happen as soon as Thursday.

It is this monetary tightening in conjunction with parallel moves by the US Federal Reserve that poses the chief risk to overheated global asset markets, not the Delta variant.

German irritation should not be underestimated. The German Centre for European Economic Research (ZEW) this week published an extraordinary paper, more or less alleging that ECB governors from the high-debt states are exploiting quantitative easing in order to bail out their own insolvent governments, and doing so in violation of EU treaty law.

It says the southern governors are acting as de facto proxies for their finance ministers in a monetary union that has fallen captive to “fiscal dominance”. It suggests that the ECB is continuing to purchase bonds at this juncture “because otherwise some euro states could run into acute financing problems”.

I would qualify this. Some governors vote with the doves even though they are not from high-debt states. They do so because they know that the euro will blow apart if the South is left to its fate. But the effect is the same: an easy money majority under Christine Lagarde is ramming through an inflationary policy against the express protest of German-led hawks in the North.
 

Eurozone inflation hits 3pc

Line chart with 8 lines.

% change in inflation vs the same month a year ago

View as data table, Eurozone inflation hits 3pc

The chart has 1 X axis displaying Time. Range: 2014-12-07 23:02:24 to 2021-08-25 00:57:36.

The chart has 1 Y axis displaying Inflation, % change year on year. Range: -1 to 4.

2015201620172018201920202021-101234SOURCE: Eurostat

Eurozone inflation hits 3pc

% change in inflation vs the same month a year ago

Inflation, % change year on year

End of interactive chart.

The ZEW’s caustic view is broadly shared by the German Council of Economic Experts (Five Wise Men) and most of the Ordoliberal establishment. Former Bundesbank chief Axel Weber said at a recent forum in Frankfurt that the ECB had lost the plot on inflation and would soon be forced to take “active measures” to contain the fall-out, including rate rises. That would hit complacent markets like a thunderbolt.

It is above all the view of Friedrich Merz, the designated “finance superminister” of the next government if the Christian Democrats keep power in this month’s election.

Mr Merz said the ECB had reached “the limits of its mandate” and was playing down evidence of surging prices in everything from the daily shopping basket, to rent, home prices, and filling up the petrol tank.

Inflation is particularly corrosive in Germany, not because of Weimar mythology but because just half the population owns property or equities. The other half rents for life and mostly keeps savings in bank deposit accounts. This half is being pauperised. Furthermore, negative rates are destroying the business model of the small cooperative and savings banks that provide 90pc of credit for the Mittelstand family firms, the backbone of the German socio-economic system.

Grumbling in Germany has long been a fixture of the eurozone. Nothing much ever happens. There was barely a hiccup after the German constitutional court ruled last year that the ECB was acting ultra vires and subverting the fiscal sovereignty of national parliaments.

Nor did anything happen when a group of elder statesmen warned that uncontrolled debasement is destroying the foundations of the German social market economy, and risks setting off a “social explosion”.

What is different this time is that inflation can be felt everywhere – gefühlte Inflation – and parts of the German economy are patently overheating. One can argue that the picture is more akin to stagflation as rising prices collide with slowing growth (due to supply bottlenecks) but this merely takes us back to the conflicts of the 1970s: Club Med central banks let stagflation run; the Bundesbank fought it.

ECB President Christine Lagarde has accepted the need for a 'local adjustment' in bond purchases, a euphemism for tapering CREDIT: REUTERS

There is a suspicion that QE is being used to fund German credits to southern Europe by stealth through the ECB’s Target2 payments nexus, with no democratic legitimacy and beyond the Bundestag’s budgetary oversight.

Germany’s Target2 credits have reached €1.1 trillion. The liabilities of Italy and Spain together exceed €1 trillion. The ECB says this is a mechanical side-effect of QE, but that is precisely the problem. Germany is being drawn deeper into a trap where it stands to lose ever larger sums if the monetary union breaks apart and Target2 debts are crystallised.

Events are nearing the point where Germany must either challenge this process or accept that it has lost control of the euro, and forever hold its peace.

Excess liquidity is in any case causing ever more surreal mispricing in asset markets. Last week the unthinkable finally happened: average real yields on European corporate junk bonds fell below zero for the first time.

Bank of America calls it the “last hurrah of the compression trade”. It reminds me of the Club Med compression trade just before the onset of the EMU debt crisis, when 10-year Greek bonds were trading like German Bunds with a risk spread of 21 basis points.

Such anomalies will become untenable once the ECB sets the hare running on tapering. Mrs Lagarde and her allies would prefer to delay this fateful moment but it is becoming too dangerous to keep swatting aside the objections of the northern creditor bloc. To persist would risk undermining German political consent for monetary union.

Germany’s rate of inflation rate has been increasing

Bar chart with 20 bars.

Year-on-year change in the consumer price index (%) 

Value added tax rates were temporarily reduced between July-Dec 2020

View as data table, Germany’s rate of inflation rate has been increasing

The chart has 1 X axis displaying Time. Range: 2019-12-26 05:16:48 to 2021-08-06 18:43:12.

The chart has 1 Y axis displaying

%

. Range: -1 to 5.

%Value added tax rates were temporarily reduced between July-Dec 2020Jan '20Apr '20Jul '20Oct '20Jan '21Apr '21Jul '21-1012345SOURCE: DestatisGermany’s rate of inflation rate has been increasingYear-on-year change in the consumer price index (%) 

End of interactive chart.

Bundesbank chief Jens Weidmann has been biding his time, repeating his mantra that “the ECB is not there to take care of the solvency protection of the states”, but otherwise waiting for the right moment to strike. He now has a vocal chorus of allies. The Dutch and Austrian governors are openly calling for tapering this quarter followed by a complete end to pandemic bond purchases (PEPP) by next March – though other forms of QE will drag on.

Bowing to the inevitable, Mrs Lagarde has accepted the need for a “local adjustment” in bond purchases, a euphemism for tapering. This is a critical turning point in eurozone history.

Tapering by the ECB is nothing like tapering by the US Federal Reserve, the Bank of Japan, or the Bank of England. The latter trio are lenders-last-resort for fully-sovereign countries that borrow in their own currency under a national treasury and cannot plausibly go bankrupt.

The ECB does not have powers to act as a lender-of-last resort, except when backing up a rescue by the eurozone bail-out fund (ESM), which requires the assent of the Bundestag and other parliaments. Member states such as Italy or Spain are no longer monetary sovereigns and can most certainly go bankrupt, as the Greek drama revealed.

Nothing has changed in this respect since the eurozone debt crisis. The EU’s decision last year to issue joint debt for its one-off Recovery Fund was a political coup for Brussels federalists, but it was not Europe’s ‘Hamilton Moment’ and did not mutualise national debts.

Club Med’s rising debt

Bar chart with 5 bars.

Southern European economies’ debt levels as a percentage of GDP

View as data table, Club Med’s rising debt

The chart has 1 X axis displaying categories.

The chart has 1 Y axis displaying values. Range: 0 to 250.

Debt as a % of GDPFranceSpainPortugalItalyGreece050100150200250SOURCE: EUROPEAN COMMISSIONClub Med’s rising debtSouthern European economies’ debt levels as a percentage of GDP

End of interactive chart.

While Europe is rebounding from the pandemic in better shape than originally feared, the Covid trauma has nevertheless caused a jump in Club Med debt ratios by 15 to 25 percentage points of GDP. The debt levels were high before. They are even higher now and the divergence with Northern Europe is even more extreme.

The combination of the ECB shield and Mario Draghi’s halo effect have allowed Italy to get away with an expansionary budget deficit of 12pc of GDP this year without a flicker of protest from bond markets. Yet the country will end 2021 with a debt burden near 160pc, a level unseen since the creation of the post-War Italian Republic, and clearly untenable for an ageing sub-sovereign with a near-zero productivity growth rate.

Quantitative easing has been suppressing the signals in Europe’s debt markets for so long that we have almost forgotten why it was such a life-saver. It has fostered an illusion that monetary union is at last established on a sound footing.

Yet the euro remains fundamentally dysfunctional, without a fiscal union or a genuine banking union to back it up, held together by bond purchases on the stretched margins of EU treaty law. Tapering could be a rude awakening.

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30 minutes ago, spygirl said:

Germany has lost patience with QE: that spells big trouble for southern Europe

Read this exclusive extract from our Economic Intelligence newsletter and sign up at the bottom of the article to get it every Tuesday

AMBROSE EVANS-PRITCHARD8 September 2021 • 5:00am

Bundesbank chief Jens Weidmann now has a vocal chorus of allies openly calling for tapering

Germany’s long-simmering anger with the European Central Bank is again coming to the boil. It is hard to justify perennial bond purchases and negative rates when German inflation is near 4pc and rising, the highest since the Reunification boom in the early 1990s.

Political realities are forcing the ECB’s ultra-dovish governing council to prepare for bond tapering sooner than it wants – and sooner than it should, if you are a New Keynesian – in order to head off a bust-up with Europe’s anchor power.

It will have to start pulling away the shield that has protected the high-debt Club Med states from market forces for almost seven years, and that has conveniently covered their entire borrowing requirements under the cloak of “monetary policy”. The first treacherous step could happen as soon as Thursday.

It is this monetary tightening in conjunction with parallel moves by the US Federal Reserve that poses the chief risk to overheated global asset markets, not the Delta variant.

German irritation should not be underestimated. The German Centre for European Economic Research (ZEW) this week published an extraordinary paper, more or less alleging that ECB governors from the high-debt states are exploiting quantitative easing in order to bail out their own insolvent governments, and doing so in violation of EU treaty law.

It says the southern governors are acting as de facto proxies for their finance ministers in a monetary union that has fallen captive to “fiscal dominance”. It suggests that the ECB is continuing to purchase bonds at this juncture “because otherwise some euro states could run into acute financing problems”.

I would qualify this. Some governors vote with the doves even though they are not from high-debt states. They do so because they know that the euro will blow apart if the South is left to its fate. But the effect is the same: an easy money majority under Christine Lagarde is ramming through an inflationary policy against the express protest of German-led hawks in the North.
 

Eurozone inflation hits 3pc

Line chart with 8 lines.

% change in inflation vs the same month a year ago

View as data table, Eurozone inflation hits 3pc

The chart has 1 X axis displaying Time. Range: 2014-12-07 23:02:24 to 2021-08-25 00:57:36.

The chart has 1 Y axis displaying Inflation, % change year on year. Range: -1 to 4.

2015201620172018201920202021-101234SOURCE: Eurostat

Eurozone inflation hits 3pc

% change in inflation vs the same month a year ago

Inflation, % change year on year

End of interactive chart.

The ZEW’s caustic view is broadly shared by the German Council of Economic Experts (Five Wise Men) and most of the Ordoliberal establishment. Former Bundesbank chief Axel Weber said at a recent forum in Frankfurt that the ECB had lost the plot on inflation and would soon be forced to take “active measures” to contain the fall-out, including rate rises. That would hit complacent markets like a thunderbolt.

It is above all the view of Friedrich Merz, the designated “finance superminister” of the next government if the Christian Democrats keep power in this month’s election.

Mr Merz said the ECB had reached “the limits of its mandate” and was playing down evidence of surging prices in everything from the daily shopping basket, to rent, home prices, and filling up the petrol tank.

Inflation is particularly corrosive in Germany, not because of Weimar mythology but because just half the population owns property or equities. The other half rents for life and mostly keeps savings in bank deposit accounts. This half is being pauperised. Furthermore, negative rates are destroying the business model of the small cooperative and savings banks that provide 90pc of credit for the Mittelstand family firms, the backbone of the German socio-economic system.

Grumbling in Germany has long been a fixture of the eurozone. Nothing much ever happens. There was barely a hiccup after the German constitutional court ruled last year that the ECB was acting ultra vires and subverting the fiscal sovereignty of national parliaments.

Nor did anything happen when a group of elder statesmen warned that uncontrolled debasement is destroying the foundations of the German social market economy, and risks setting off a “social explosion”.

What is different this time is that inflation can be felt everywhere – gefühlte Inflation – and parts of the German economy are patently overheating. One can argue that the picture is more akin to stagflation as rising prices collide with slowing growth (due to supply bottlenecks) but this merely takes us back to the conflicts of the 1970s: Club Med central banks let stagflation run; the Bundesbank fought it.

ECB President Christine Lagarde has accepted the need for a 'local adjustment' in bond purchases, a euphemism for tapering CREDIT: REUTERS

There is a suspicion that QE is being used to fund German credits to southern Europe by stealth through the ECB’s Target2 payments nexus, with no democratic legitimacy and beyond the Bundestag’s budgetary oversight.

Germany’s Target2 credits have reached €1.1 trillion. The liabilities of Italy and Spain together exceed €1 trillion. The ECB says this is a mechanical side-effect of QE, but that is precisely the problem. Germany is being drawn deeper into a trap where it stands to lose ever larger sums if the monetary union breaks apart and Target2 debts are crystallised.

Events are nearing the point where Germany must either challenge this process or accept that it has lost control of the euro, and forever hold its peace.

Excess liquidity is in any case causing ever more surreal mispricing in asset markets. Last week the unthinkable finally happened: average real yields on European corporate junk bonds fell below zero for the first time.

Bank of America calls it the “last hurrah of the compression trade”. It reminds me of the Club Med compression trade just before the onset of the EMU debt crisis, when 10-year Greek bonds were trading like German Bunds with a risk spread of 21 basis points.

Such anomalies will become untenable once the ECB sets the hare running on tapering. Mrs Lagarde and her allies would prefer to delay this fateful moment but it is becoming too dangerous to keep swatting aside the objections of the northern creditor bloc. To persist would risk undermining German political consent for monetary union.

Germany’s rate of inflation rate has been increasing

Bar chart with 20 bars.

Year-on-year change in the consumer price index (%) 

Value added tax rates were temporarily reduced between July-Dec 2020

View as data table, Germany’s rate of inflation rate has been increasing

The chart has 1 X axis displaying Time. Range: 2019-12-26 05:16:48 to 2021-08-06 18:43:12.

The chart has 1 Y axis displaying

%

. Range: -1 to 5.

%Value added tax rates were temporarily reduced between July-Dec 2020Jan '20Apr '20Jul '20Oct '20Jan '21Apr '21Jul '21-1012345SOURCE: DestatisGermany’s rate of inflation rate has been increasingYear-on-year change in the consumer price index (%) 

End of interactive chart.

Bundesbank chief Jens Weidmann has been biding his time, repeating his mantra that “the ECB is not there to take care of the solvency protection of the states”, but otherwise waiting for the right moment to strike. He now has a vocal chorus of allies. The Dutch and Austrian governors are openly calling for tapering this quarter followed by a complete end to pandemic bond purchases (PEPP) by next March – though other forms of QE will drag on.

Bowing to the inevitable, Mrs Lagarde has accepted the need for a “local adjustment” in bond purchases, a euphemism for tapering. This is a critical turning point in eurozone history.

Tapering by the ECB is nothing like tapering by the US Federal Reserve, the Bank of Japan, or the Bank of England. The latter trio are lenders-last-resort for fully-sovereign countries that borrow in their own currency under a national treasury and cannot plausibly go bankrupt.

The ECB does not have powers to act as a lender-of-last resort, except when backing up a rescue by the eurozone bail-out fund (ESM), which requires the assent of the Bundestag and other parliaments. Member states such as Italy or Spain are no longer monetary sovereigns and can most certainly go bankrupt, as the Greek drama revealed.

Nothing has changed in this respect since the eurozone debt crisis. The EU’s decision last year to issue joint debt for its one-off Recovery Fund was a political coup for Brussels federalists, but it was not Europe’s ‘Hamilton Moment’ and did not mutualise national debts.

Club Med’s rising debt

Bar chart with 5 bars.

Southern European economies’ debt levels as a percentage of GDP

View as data table, Club Med’s rising debt

The chart has 1 X axis displaying categories.

The chart has 1 Y axis displaying values. Range: 0 to 250.

Debt as a % of GDPFranceSpainPortugalItalyGreece050100150200250SOURCE: EUROPEAN COMMISSIONClub Med’s rising debtSouthern European economies’ debt levels as a percentage of GDP

End of interactive chart.

While Europe is rebounding from the pandemic in better shape than originally feared, the Covid trauma has nevertheless caused a jump in Club Med debt ratios by 15 to 25 percentage points of GDP. The debt levels were high before. They are even higher now and the divergence with Northern Europe is even more extreme.

The combination of the ECB shield and Mario Draghi’s halo effect have allowed Italy to get away with an expansionary budget deficit of 12pc of GDP this year without a flicker of protest from bond markets. Yet the country will end 2021 with a debt burden near 160pc, a level unseen since the creation of the post-War Italian Republic, and clearly untenable for an ageing sub-sovereign with a near-zero productivity growth rate.

Quantitative easing has been suppressing the signals in Europe’s debt markets for so long that we have almost forgotten why it was such a life-saver. It has fostered an illusion that monetary union is at last established on a sound footing.

Yet the euro remains fundamentally dysfunctional, without a fiscal union or a genuine banking union to back it up, held together by bond purchases on the stretched margins of EU treaty law. Tapering could be a rude awakening.

Germans have been claiming to be against QE since it started, but still continue regardless.

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2 minutes ago, Hancock said:

Germans have been claiming to be against QE since it started, but still continue regardless.

Gensns dont like the theory if QE. However, with low inflation they had to take it in the chin.

Now Germany has high inflation, they are tasting the reality of QE.

 

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9 hours ago, Hancock said:

Germans have been claiming to be against QE since it started, but still continue regardless.

Goldman Sachs have been in control of the EU since before 2008, I used to post a piccie about it so pplllllleeeeaaaassse stop trying to blame the Krauts, it's a Central Bank problem YET AGAIN :P

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5 minutes ago, nirvana said:

Goldman Sachs have been in control of the EU since before 2008, I used to post a piccie about it so pplllllleeeeaaaassse stop trying to blame the Krauts, it's a Central Bank problem YET AGAIN :P

Bit tinfoil Corbynish.

GS - and other US IBs - are just not a big thing in Europe.

EU companies raise capital a totally differently way to the US and UK.

GS is not a CB FFS.

 

 

 

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10 hours ago, spygirl said:

Germany’s Target2 credits have reached €1.1 trillion. The liabilities of Italy and Spain together exceed €1 trillion. The ECB says this is a mechanical side-effect of QE, but that is precisely the problem. Germany is being drawn deeper into a trap where it stands to lose ever larger sums if the monetary union breaks apart and Target2 debts are crystallised.

Events are nearing the point where Germany must either challenge this process or accept that it has lost control of the euro, and forever hold its peace.

Target2 will be the Killshot for the average German, when they realise that they have been working hard so Italy/Spain can borrow to buy the goods.  And now they are going to default!  Oh well, they made the bed and now they have to lie in it.

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