Europe

Financial (De)Globalization and the European Experiment

Europe is embarked on a grand experiment, managing modern financial crisis without a dealer of last resort, so refusing to follow the lead of the 2008 Fed.  The scientist in me thrills at this opportunity to gather new data from unexplored territory; the citizen in me quails at the brinksmanship, what Martin Wolf has called "just in time, just enough". Read more

Posted by Perry G. Mehrling at 9:03 pm

Liquidity, Public and Private

A week ago, Mark Carney, chairman of the Financial Stability Board, warned of emerging global consequences of the escalating eurozone crisis.  The problem, he said, is contraction of global liquidity.

What he is worried about, apparently, is disruption of the global funding system as continental European banks retrench.  In normal times, these global banks serve as funding intermediaries, gathering short term funds from all ends of the earth at one price, and lending them on to other ends of the earth at a slightly higher price.  Trouble for these banks means trouble for global credit markets.

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Posted by Perry G. Mehrling at 7:43 am

Euro Summit Statement Explained

Okay, so here is the statement, but what does it mean?  Felix Salmon offers an unnamed advisor's flowchart.  Let's see if Money View thinking can do better.

Words are of limited help here (unless perhaps you are a Munchau!).  What is important is to understand the balance sheet relationships, and that takes a video.

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Posted by Perry G. Mehrling at 3:06 pm

First Liquidity, then Solvency

First ECB, then EFSF

Tightening money market conditions in Europe have now claimed their first victim, Dexia, and in so doing shifted the focus of policymakers from sovereign debt to banking recapitalization.  But it is just a change in approach; the underlying problem remains the same.

The demise of Dexia should remind everyone that liquidity kills you quick.  In this regard, Trichet's reminder that no European bank should worry about liquidity is reassuring, or should be anyway.

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Posted by Perry G. Mehrling at 12:44 pm

Twisting in the Wind

While waiting for TALF

Bernanke did everything he could last week, short of a QE3 expansion of the Fed’s balance sheet, but apparently the market was expecting more.   A creature of habit, the market was fixated on the balance sheet that has done the global heavy lifting since Lehman, rather than on the balance sheets that are poised to do the heavy lifting now, namely the other central banks that jointly announced unlimited dollar lending last week, especially the ECB. Read more

Posted by Perry G. Mehrling at 9:29 am

Bazooka

Understanding QE3

Liquidity is not a problem within the Eurozone, insisted European Central Bank president Trichet last Monday.  But the markets didn’t believe him.  The question now is whether the announcement last Thursday of a coordinated central bank intervention—by the ECB and also the Swiss National Bank, Bank of Japan, Bank of England, and the Fed--gives more reason to believe.  Read more

Posted by Perry G. Mehrling at 8:16 pm

Fizzle at Jackson Hole

One silence, and one silo

So no QE3, at least not on the Fed’s own balance sheet, and not yet, but that was no surprise since expectations had been managed down by the time Bernanke gave his speech.  

What Bernanke did not say, maybe could not say, is that the major worry confronting central bankers today is Europe, and contagion from whatever happens there.  He didn’t say it, because he remembers all too well being dragged over the coals in Congress for the $600 billion credit line he opened for foreign central banks after Lehman, when the Fed stepped in as international lender of last resort at a time when global dollar funding markets were frozen. Read more

Posted by Perry G. Mehrling at 7:22 am

Refinance Euro-style

Grand Bargain at last?

Big doings in Europe on the Greek debt crisis.  As I read it, the new plan has three essential elements. 

First, and essential, is a recognition of losses.  There is to be a bond swap, risky old Greek debt for riskfree new debt of the European Financial Stability Facility.  For debt holders, face values may stay the same, but maturities will be drastically extended (up to 30 years) and interest rates drastically reduced (3.5% is mentioned).   More or less these same terms will then be applied to a refinancing of Greece itself by the EFSF. Read more

Posted by Perry G. Mehrling at 5:13 am

Brinkmanship or Statesmanship?

The Political Economy of Debt

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Posted by Perry G. Mehrling at 7:20 pm

What's Next in Europe - David Hale

In part 3 of INET's interview with David Hale, he praises the German success in emerging markets, and tells us why Anatole Kaletsky expects the euro to weaken.

In this video: 
David Hale