In my interview with Voice of Russia, I talk about the ECB's fears for its own existence. I use Spain, which is stuck in an existential crisis, as an example of the greatest “achievement” of central banks: the separation of economic reality from stock markets. And I get a chance to lambaste the French finance minister who is once again barking up the wrong tree.
Entries in Central Banks (39)
Unlike Detroit, which will run out of cash next month, Japan prints its own money, so bankruptcy in the Detroit sense is not in the cards. But they do have two things in common: depopulation and a ballooning stock of abandoned houses. For Japan, it’s an issue that even the most prodigious money-printing binge cannot resolve.
Anecdotal evidence has been piling up. Lamborghini sales hit the highest level in 14 years. Ferrari sales jumped 40%. Luxury retailers forecast fat profits. They ascribed it to Abenomics. “The sudden improvement in the stock market led to a big rise in sales at our department stores for luxury brands,” one of them said. But there is a price to pay.
The average Cypriot household had a phenomenal net worth of €670,900 in 2010 – over three times that of German households. That wealth had been sucked out of the cesspool of corruption that the banks and the government were, until neither had a drop of lifeblood left. Now the party is over. And you can almost hear the snickering among European politicians.
There could not possibly be any clouds on the horizon with the Dow and the S&P 500 setting all-time highs, while the German DAX is marching relentlessly towards 8,000 and the Japanese Nikkei is soaring. But just then, a deeply connected representative of the world’s real economy spoils the rosy scenario.
In March, the ECB-organized Eurozone-wide household-wealth survey results trickled out. But when the Bundesbank refused to publish the German data, insiders leaked the reason: too explosive for the bailout era because Italian households were far wealthier than German households. Shocking! And a red herring. The truth turned out to be far more shocking.
In 1969, notes greater than $100, including the cool $10,000 note that would still pay for a lot of things, were retired due to “declining demand.” Prematurely, it turns out. Because demand for cold hard cash, despite plummeting use of it for transactions, has surged. Reason: fear.
Why is it that 17 nations have to fundamentally reorganize themselves and shift sovereignty away from national parliaments to new layers of transnational, beyond-control bureaucracies that can extract untold wealth from taxpayers—just to save the banks?
The ECB and the national central banks of the Eurozone set out to collect “micro-level information” on household wealth. A massive bureaucratic undertaking. Surveys went out in 2010. Results are now ready. No one in Europe had ever done a survey on that scale before. And no one might ever do it again. Because, in the era of bailouts, the results are so explosive that the Bundesbank is keeping its report secret—and word has leaked out why.
Euros entered circulation on January 1, 2002. For six years, they grew on trees in southern Europe. But the bubble got pricked. Since then, the monetary union has been in crisis. Almost half of its existence! Until suddenly, its problems were solved. But now confidence in the monetary union is weaker than ever. With a hue of resignation in Germany.
By the irony of timing, the Dow hit an all-time high as markets opened. Exuberance wafted through the air. Hype was flowing thickly. Happy days were back. New highs beget new highs. And everyone knew why: the Fed’s money-printing and asset-purchase operations. By the irony of timing... because 30 minutes later, kitchen-table reality polluted the scene.
Bank bailouts have made owners of otherwise worthless bank debt whole through a circuitous process by which taxpayers transferred their money to investors. Even in Greece. Even a bank that had siphoned off $1 billion through fraud and embezzlement. It wasn’t fair. But fairness had nothing to do with it. That’s how bailouts were done. Until now.
Deutsche Bank, long coddled by the German government, is mired in “matters” from Libor rate-rigging to carbon-trading tax-fraud. Now a new “matter” seeped out: the bank had known for years about the impact of commodities speculation on food prices and the havoc it wreaked on people in poor countries. And it lied about it to the German Parliament.
“I’m sitting on cash,” Felix Zulauf said when he was asked in an interview where he was putting his money. With decades of asset management experience under his belt, he’d founded Zulauf Asset Management in Switzerland in 1990. But now he was worried—and has turned negative on just about everything.
The announcement couldn’t have been more glorious in crisis-struck Italy: Ferrari booked records sales and profits in 2012. Dazzling in every aspect. Not a single cloud darkened the horizon. Except in Italy where sales collapsed. And in the rest of the world, where central-bank printer ink stained the records.
Hasbro, second largest toymaker in the US, confessed it would miss revenue estimates. Christmas wasn’t kind. Despite “double digit growth” in emerging markets, revenues fell by 2% for 2012 and by 3.8% for the quarter. Other corporations are in a similar predicament. But substantive inflation would have covered it up—not that the Fed hasn't been trying.
“I cannot be disillusioned because I no longer have any illusions about Europe,” muttered Euro Group President Jean-Claude Juncker last week after the horse trading over Greece’s bailout had failed once again. But he isn’t the only one who lost his illusions. “There are better alternatives to the bailout policies of Chancellor Merkel,” declares the man who’ll run against her in 2013; alternatives that “protect taxpayers and don’t only benefit the banks.”
A Lehman Brothers kerfuffle erupted, this time in Germany, in broad daylight. With a stunning amount: up to €800 million ($1.04 billion) in fees for the insolvency administrator. It blows away the German record of €70 million. Hedge funds are raising a ruckus, on the surface to shame the insolvency administrator into backing off. It worked. Almost. But suddenly, there are new allegations—against the hedge funds.
Young educated Greeks face a wall of unemployment. With little chance of finding a job in their field, they’re competing for any kind of job. Wages have plummeted. The economy has shriveled by 19.4% since 2007. Promises that education would open doors to a better future have evaporated. And Germans march around, telling Greeks how to run their country. Because the euro has become a religious dictum.
“Yellen and Cisco lift US stock futures,” the headline read enticingly in the morning. Priceless. Their pronouncements were driving up the markets. But by the time the markets closed, the manipulative power of Fed Vice Chairman Janet Yellen had dissipated; the DOW was down 1.45%. And across the Atlantic, the German Bundesbank issued a tough warning about the very policies Yellen was propagating.