Readable - 27/12/11

Conventional wisdom says that sovereign defaults mean the end of the euro: If Greece defaults it has to leave the single currency; German taxpayers have to bail out southern governments to save the union. This is nonsense. U.S. states and local governments have defaulted on dollar debts, just as companies default. A currency is simply a unit of value, as meters are units of length. If the Greeks had skimped on the olive oil in a liter bottle, that wouldn’t threaten the metric system. - John Cochrane

Switzerland is struggling in export markets, but for a long time they have succeeded with a strong safe haven currency.  Germany has had a stronger currency in the past and they did well before the eurozone, believe it or not.  Germany might rather have “the Swiss problem” than co-write loans to Italy.  They just need to survive the transition. - Tyler Cowen

If the euro zone breaks into sorry little pieces, Germany could possibly lose its entire €495 billion Target2 claim. That’s more than $650 billion. It is 60 percent bigger than Germany’s annual federal budget—and larger than the lending under the European Financial Stability Facility and other aid programs that have received more scrutiny. - Bloomberg

The Italian economy has now contracted in eight of the last 15 quarters, and GDP is back in the good old days of 2003.   ......   What is absolutely shocking is that in the ten years  up to 2010 Italy had an average annual growth rate of just 0.28%. Assuming growth of about 0.5% in 2011 (which may now be generous), in the decade to 2011 this will drop to 0.15%, and if we pencil in a contraction of 1% in 2012 (perfectly realistic, in fact it will probably be worse) then the number turns negative. That is to say, on average the Italian economy will have shrunk every year for a decade.   ......   With neither exports nor private consumption able to pull the economy the state has been under constant pressure to offer support via deficit spending, leading to the accumulation of an unsustainable quantity of government debt. This deficit spending is about to come to an end (permanently according to the latest EU agreement), and under these circumstances the economy is likely to remain in or near contraction for as long as it takes to recover competitiveness. The question is, how long is that going to be, and what will happen to the debt dynamics in the meantime. - Edward Hugh

In America, we keep asking why the Germans don't join with the European Central Bank to end the run on the European periphery. The answer is simple: they don't want to end the run on the European periphery. To them, the run on Italy and Greece and Portugal and Spain is a feature, not a bug. It's leverage, and they want to use it. Look how much it has already gotten them. Greece, Portugal, Italy and Ireland are working their way through stringent deficit-reduction plans. The widely disliked governments of Greece and Italy, which proved unequal to the task of fiscal reform, have been toppled. There is a good chance that the euro zone might become what Germany has always wanted it to be: a fiscal union, in which the members meet their deficit targets and reform their labor markets. And none of this would have happened without the markets making their run at the European periphery.    .......    So my concern isn't that the Germans are selfish and calculating. It's that, without quite realizing it, they have become reckless. They are trying to time the market, betting that they can, in essence, manage the run -- that they can do just enough to keep the pressure on without letting matters get totally out of hand. They are like a doctor who, faced with an unhealthy patient presenting signs of a heart attack, demands to see the patient lose weight before they will administer the life-saving treatment. In almost all of their arguments, the Germans are right. The euro does need to be fixed. But first it needs to be saved. The Germans are betting that this is their opportunity to do both. If they're right, it will have been a remarkable play. If they're wrong, it will have been a disastrous one. - Ezra Klein

If the sovereign debt plunges, the banks will need more support; and the ECB will take on the risk. Open Europe said encouraging the banks to “load up on risky sovereign debt just to keep the eurozone ticking over in the short-term” could amount to a “spectacular own goal” by the ECB. Of course central banks can in theory expand their balance sheets as much as they like. In practice, like everyone else, they have to maintain the confidence of the markets. And at this rate, as Open Europe says, “it remains unclear how the ECB would cover losses in the event of a sovereign default.” The ECB can only absorb so many losses before it has to either ask for more capital from member states or print more money - both of which would be politically impossible and damaging to the ECB’s standing. - Louise Armitstead

This 3 year LTRO Ponzi scheme could potentially result in an even bigger money-printing operation than anything the US, British and Swiss central banks have done on their own accounts. It would allow the banks to rebuild their equity with no dilution to shareholders. And if the banks in Italy or Greece became too "profitable" by using cheap ECB funding to buy up their entire sovereign debt markets, then the Italian or Greek governments could always recover the "excess" profits with special taxes. The governments could thus effectively reduce their own cost of funds to the 1% rate offered to banks by the ECB. Of course if the Italian government defaulted on its debts, Italian banks would go spectacularly bust. But these banks would go bust anyway if the Italian government ever defaulted. All the incentives for Italian bank management will therefore be to go for broke in their sovereign debt markets, making maximum use of the new ECB credit lines. That said, however, the European Banking Authority's recent stress tests forced banks to assume mark-to-market losses in the stressed scenarios. These demands from the EBA may inhibit banks from adding more sovereign risk—unless the EBA uses the "fiscal compact" as an excuse to ease up on the stress tests. And it is crucial to remember that banks are likely to use the ECB credit lines only to buy the bonds of their own national governments, partly in response to political pressures but also for prudential reasons. If the Euro were ever to break up, Unicredit would not want to own any Greek or Spanish debt, since this would entail unpredictable currency risks. An Italian bond, by contrast, would be redenominated into the new Lira and would be matched perfectly against Unicredit's borrowings from the Bank of Italy, which would also be redenominated into Lira. Thus, the result of the ECB's covert QE via the banks will be gradually to re-nationalise the banking systems and the sovereign debt structures in Europe. This process will help Club Med countries avoid sovereign debt defaults, but it will make eventual breakup of the euro much less painful – and therefore more likely. - Gavecal

There are many grounds to object to this arrangement. One, as my colleague James Mackintosh has argued, is that it would force banks to replicate the bet on eurozone sovereign debt that Jon Corzine made at MF Global with such spectacularly bad results. But the biggest worry is that European leaders appear to be repeating one of the original sins that led to the eurozone crisis in the first place: forcing banks and insurers to load up on government debt. Mr Sarkozy’s call is perhaps the most explicit sign yet that “financial repression” – the term coined by Carmen Reinhart for using captive domestic investors to keep interest rates low – is one of the main ways that western governments will try to get rid of their huge debt burdens.   .....   Signs of financial repression in the eurozone are already widespread. Greece this week sold six-month bills at auction at a yield of 4.95 per cent, more than 1.5 percentage points lower than Italy recently sold similar bills. But in the secondary markets, the only yields that Bloomberg quotes for Greek short-dated paper are 330 per cent for one-year bills. - Richard Milne

If banks load up even more on SGIIP sovereign debt this will make it harder not easier for banks to issue term debt.  So funding markets will stay closed for longer.  This in turn would mean that more banks become more reliant on ECB funding.  We anticipate that neither the ECB nor bank managements would want to see this play out.   .....   Banks' access to ECB funding requires them to post collateral.  So we could have a situation where banks exchange (market-based) unsecured funding with (ECB-based) secured funding.  But if banks encumber more of their balance sheets via ECB repos, then this reduces the amount of assets that senior unsecured bond holders would have a claim over in insolvency.  This means that ECB funding subordinates the remaining senior unsecured investors.   This balance sheet encumbrance may, therefore, increase the cost of banks' non-ECB unsecured funding and make it difficult for banks to wean themselves away from the ECB and back on to senior unsecured. So 'excess' bank usage of the 3 year LTRO runs the risk of creating more banks who are 'addicted' to ECB money - ie the classic model of 'zombie' banks.   .....   Banks that do not access ECB funding (perhaps in a show of strength) would be put at a competitive disadvantage versus those banks that do.  If ECB-funded banks pass through the lower funding costs to customers, they will likely take market share from the 'stronger' banks and structurally depress RoEs for the non-ECB funded part of the market.  If ECB-funded banks don't pass through the lower funding costs they will make fatter margins, so they win again.  Taken in isolation, this would seem to be be a deeply perverse example of moral hazard. - Barcap Macro Sales

“When investors are constantly asking what you have on your books and the board is asking you to reduce your exposure, it doesn’t really matter about the economics of the trade,” said the treasurer of one of Europe’s biggest banks. “Am I going to buy Italian bonds? No.” - Intl Financing review

Don’t get too excited. This bazooka is actually a bulldozer. Rather than having the potential to flatten sovereign debt problems, it can only make them pile up into an untenable mountain — with far too much maturing within the 3-year life of the ECB program.   ......   And gradually, as that pile of near-term borrowing and rollover needs grows ever bigger and ever harder to move, yields will rise sharply even within the 3-year life of the ECB program. Thus, what the ECB has likely provided is a very brief respite, but one that does nothing about the euro area’s underlying debt and growth problems. Debt dynamics, which are proving much too powerful for Europe’s muddle-through course, will soon take hold again, worse than before. - Jed Graham

This would imply an increase in bank leverage ratios far beyond the 30-40 multiples that already exist (which would be a disaster when tighter Basel III capital requirements kick in). In practice, depositors would flee, and you would end up with a European banking system where bank bondholders, not the ECB, would be subject to the losses, since the ECB’s collateral claims would be senior.    ......   As I noted last week, what investors really want isn’t just for someone to buy distressed European debt, but for someone to buy that debt and willingly take a loss on it so the money doesn’t ever actually have to be repaid. This is a solvency issue – a shortfall between money owed and the resources to credibly repay it. There is no legal trick to get around that. Ultimately, you either have to restore credibility, or you have to restructure the claims through default or devaluation. - John Hussman

European banks, especially in the troubled periphery, are mortally dependent upon the ECB for liquidity and finance. These banks will acquire whatever collateral the ECB prefers to lend against. It is not a matter of trying to profit from a spread. A spread would be nice for banks, a subsidy that will help them recapitalize over time. But holding collateral the ECB wants is a matter of life-or-death for them, every day. If the ECB wants Italian bonds, they will be supplied. If the ECB prefers that Italy “face market discipline”, it can quietly hint its concern and steepen the haircuts it imposes when the country’s bonds are offered as collateral. Banks will start to divest, replacing them with whatever the ECB favors.   .......   If European states become dependent on bank finance, they become dependent on ECB finance. The ECB would have the power to manufacture fiscal crises for a misbehaving state at will, and with marvelous deniability. Laundered through banks and then through capital markets, ECB actions would be attributed to nameless bond vigilantes rather than unelected technocrats. ECB haircuts would very quickly be self-justifying, and disentangling cause from effect would be nearly impossible as officials might privately telegraph changes before anything is put in writing. Control would be hidden as a market outcome, a fact of nature. - Steve Waldman

If default and haircuts are not on the table, then allowing banks to finance their sovereign debt holdings at a lower rate than the yield they earn on the sovereign bonds (at the same tenor) is simply a transfer of wealth from the Eurozone taxpayer to the banks. - Ashwin Parameswaran

Make no mistake about it, this is doubling down and raising the stakes.  It’s funding debt through more debt.    .......    Do note also that the ECB has made no strong promise to continue this program, and indeed it is not in a position to make a credible commitment, most of all on the quality of collateral issue.  That means a lot of ups and downs, shifting credibility, and the gains could well collapse quickly. - Tyler Cowen

There is just one little fly in the ointment. We’re going to be gearing the eurozone banking system up on sovereign debt. Which means that if anyone does in fact default then the eurozone banking system really will go bust, crash and burn in a great big ball of flames. - Tim Worstall

Now, with wounded [government and central bank] balance sheets, perhaps the arsenal is empty and the next bust may well be like the old days. GMO has looked at the 10 biggest bubbles of the pre-2000 era and has calculated that it typically takes 14 years to recover to the old trend. An important point here is that almost no current investors have experienced this more typical 1970's-type market setback. When one of these old fashioned but typical declines occurs, professional investors, conditioned by our more recent ephemeral bear markets, will have a permanent built-in expectation of an imminent recovery that will not come. - Jeremy Grantham

What if the entire period from the invention of the steam engine to the invention of the internet were not the normal thing, but the abnormal thing? What if the “lost decade” we have just gone through is actually the mean…the usual…the normal thing? And what if — after nearly 3 centuries — we have just now reverted to it?   .......   Today, there is hardly a stock, bond, municipal plan, government budget, student loan, retirement program, housing development, business plan, political campaign, health care program or insurance company that doesn’t rely on growth. Everybody expects growth to resume…after we have put this crisis behind us. Growth is normal, they believe. But what if it isn’t normal? What if it was a once-in-a-centi-millenium event, made possible by cheap energy? - Bill Bonner

Almost the entire future increase in oil supplies projected by the EIA (Energy Information Administration) is based on unconventional supplies (tar sands, deep-sea drilling, enhanced oil recovery, oil shale, etc.), with the word ‘unconventional’ being shorthand for ‘more expensive’ - Michael Cembalest


Beijing's suburban Miyun County is going to build a large European-style town within five years and no one will be allowed to speak Chinese there, said the county mayor. Wang Haichen said a local village would be turned into a 67-hectare English castle with 16 courtyards of unique houses. It will offer visitors souvenir passports and ban Chinese speaking to create the illusion of being abroad, Beijing News reported today. - Shanghai Daily

Interestingly, Caixin reports that some city governments are forcing local developers to continue buying land whether they want to or not — which makes local efforts to loosen up lending look less like real economic stimulus and more like a dangerous game of pass-the-buck.   .......    I was reading through a recent report by Pivot Capital when I came across the following factoid, which set me back a bit.  It turns out that the average home price in Guiyang – the capital of Guizhou, the poorest province in China — is now nearly the same as in Phoenix, Arizona, a city roughly the same size (4 million people) but with a per capita GDP about 10x Guiyang’s. - Patrick Chovanec

Faced with the political imperative to meet their social housing targets, local governments have done two things to reach their targets:
1. Started projects by digging holes in the ground  – and postponed any actual building until funds become available.
2. Reclassified developments they were doing anyway as social housing. Thus, downtown redevelopment, factory and university dormitories and so on all count now as social housing. We asked our developers how much of the local government‟s social housing build was really „new‟ housing; two-thirds of them said only 0-30%. Furthermore, he says, the central government has quietly broadened its definition of social housing. - Stephen Green/Standard Chartered

Almost half of Gansu Highway's outstanding loan principal and interest due this year -- 24.1 billion yuan -- is being rolled over into its outstanding bank debt, and the company plans to repeat that exercise every year until at least 2019 when it is forecast to owe lenders 148.9 billion yuan, according to a chart in the prospectus it issued for a 2 billion-yuan bond sale last month.    .....    Gansu Highway’s situation encapsulates the problem of local government borrowers, which often have minimal or no plans to repay debt aside from borrowing more money, says Fitch’s Chu.    .....    “In the past, Chinese banks could carry borrowers like this indefinitely,” she said. “But today they don’t have the large cash reserves they used to to do this. I don’t see how all of this doesn’t turn into a major problem at some point.” - Bloomberg

Relative optimists (like the folks at Dragonomics) put China’s actual debt to GDP ratio at 90%.  Pessimists (like Victor Shih, Michael Pettis, or the folks at Fitch) put it at 200% or higher — Greek levels. - Patrick Chovanec

On India's Food Security Bill:

Food security comes from ensuring three things: creating jobs and income, ensuring higher food output by raising productivity, and creating a safety net to feed those who can’t do so themselves in distress situations. What the Food Security Bill does is to make the exception the rule: offering food subsidies to almost all people (65 percent of the population) without an end-date. This is irresponsible populism. A government that does nothing in its seven-year tenure (so far) to improve agricultural productivity and which fails to invest in research and infrastructure suddenly wants to end food insecurity with a bill two years before an election. - R. Jagannathan

Sonia Gandhi’s controversial Food Security Bill has a ticking time-bomb inside. While it is well known that priority households will get rice, wheat or coarse grains at throwaway prices of Rs 3, Rs 2 and Re 1 a kg, a small clause inserted in the Bill will ensure that these prices may become politically impossible to change. According to BusinessLine, the Bill has replaced the original intended phrase of “not less than”s 3, Rs 2 and Re 1 by the words “not exceeding”. This shift in phrasing means that if ever the government wants to raise the price of over-subsidised grain, it will have to get the law amended by Parliament. This is a ticking time-bomb since price increases will not merely be an executive decision of the government, but will call for debates and discussions in Parliament. One can bet that no political party will ever call for raising prices, even when they become uneconomical. - R. Jagannathan

The proposed food security Bill may cost Rs 2 lakh crore annually for the Government.    ...   Earlier the annual cost was estimated at Rs 1-1.5 lakh crore, but a latest calculation by the Commission for Agriculture Costs and Prices (CACP) could show a higher outgo. The Finance Ministry allocated Rs 60,572.98 crore in the Budget for food subsidy during current financial year. - The Hindu

The present Union government believes (under the influence of NGOs) that whatever is desirable is also feasible. Cheap food, abundant public employment and a generous welfare state can be created simply because one believes it can be. It does not seem to matter if the resources to do so are nowhere in sight. - Siddharth Singh

What does the new legislation do? It creates Orwellian categories like priority households and general category households. And it introduces more forms of differential pricing. In short, it wilfully incorporates into its design three features that have made schemes in the past a failure: impractical targeting categories, administrative complexity, and incentives to game. It almost reads like a set-up. - Pratap Mehta

Labour in FCI (Food Corporation of India) is highly organised and an unskilled worker (loading and unloading job) earns around Rs 35,000 per month. Hundreds of them get more than Rs 1 lakh a month and the highest is about Rs 1.85 lakh per month. - Gulati/Gujral

The problem is not that the poor do not deserve food security, but a harebrained scheme is not going to deliver it. The FSB, as currently conceived, is a messy compromise between what Sonia Gandhi’s NGO mob wants and what the government thinks its finances can afford. Net result: the FSB captures the worst of both worlds. It will neither guarantee food security nor help the government keep its finances in some shape in a year in which the world is going downhill. In fact, we shouldn’t  call it the Food Security Bill, but the Sonia and Rahul Political Insecurity Bill. FSB is meant to secure the political fortunes of Sonia and Rahul Gandhi, never mind the cost. Feeding the poor is only incidental to its aims.    ........    The UPA government has thrown caution to the winds and is trying to do too many things without thinking about their implications and implementation. Just look at the initiative overload it has convinced itself about: after NREGA, it has legislated the Right to Education, and now is planning the Food Security Bill and universalising health care. It is also planning to legislate tougher land acquisition and mining bills – both of which will take a huge amount of executive time – not to speak of the National Manufacturing Policy.    .......    Quite clearly, the driving force behind all these initiatives is the political interest of the First Family – not national interest or the interests of the poor. Proof: you cannot have long-term food security without an agricultural revolution, but the food and agricultural ministries are on opposite sides of the FSB battle. Clearly, Sonia Gandhi’s political needs are trumping good policies. Bad politics is leading to bad economics.    .......    The bottomline: the country has enough resources to feed the poor, but not the voracious political ambitions of the First Family. -R. Jagannathan

Taken with the earlier ‘charitable projects’ her government has devised – from the farm loan waiver to the rural employment guarantee scheme, which is leaking like a sieve and has had an unforeseen negative impact on rural wages and inflation – the ill-conceived food security initiative has the capacity to bust the bank.    .....    The reflexive instinct to throw money to win political goodwill shows the government’s utter lack of imagination in conceptualising models of economic growth that can empower and enrich people. - Venky Vembu

The policy effort has been extremely skewed towards redistribution over the last three-four years versus trying to boost productivity and have some strong growth generation and growing the pie bigger. So as long as that focus remains, unfortunately the risk do remains to the downside, and food security bill precisely brings into the same old point, not to forget that in the context of what happened to FDI in retail a few days back. So any effort to grow the pie bigger is getting challenged politically but any effort to redistribute is always welcome. This is going to be not sustainable. - Chetan Ahya

On India's retail FDI debate:

Fewer jobs are precisely the point. What India needs is fewer jobs; fewer jobs in retail, fewer jobs in apparel and, most of all, fewer jobs in farming. India cannot become even a middle income country if most of its workers, for example, are farmers. To improve its standard of living, India must use fewer people to produce more agricultural output. Fewer workers in farming (or retail) means more workers producing more goods in other industries. The same basic lesson holds throughout an economy, it is the declining sectors that allow other sectors to advance. Instantaneously? Immediately? With higher wages for every worker? No. Transitions always involve some pain; creation always involves some destruction; growth always involves change. The alternative, however, is stagnation. The politics of growth are difficult because those who lose from change are always present and are often more numerous and perhaps even more deserving than the present winners, the capitalists, the business people, the international mega corps; but today’s losses and gains are fleeting, the permanent winners are the workers and consumers of the future who will know only the benefits of productivity. - Tyler Cowen

On India's Lokpal (ombudsman) Bill:

Team Anna is playing into the government’s hands with the childish belief that legislation alone can curtail corruption. Lawyer friends say more than sufficient laws exist to deal with corruption, from block level to PM, but are never invoked due to the kind of protection the system gives the corrupt. Parties when in power protect each other and themselves by keeping corruption cases on the back burner. Now and again, the CBI is made to squeak just so that the ‘other’ party or political leader behaves politically. The Lokpal that promises now to be a huge, wieldy, gigantic authority set up at exorbitant cost will settle into the usual mix of complacency, inaction and even a bit of corruption on the side. - Seema Mustafa

The decision on a gargantuan bureaucratic machinery that would impact so many lives so deeply need not be taken in a hurry. It cannot be a careless decision. Team Anna and its threats can wait. - Akshaya Mishra

Is the media supporting Team Anna as strongly as it was in August? The answer is ‘no’. A cursory glance at Saturday’s headlines gives you an idea. Is urban India still divided into ‘For Anna’ and ‘Anti Anna’, which were the only acceptable positions in society a few months ago? The answer is ‘no’ as well. There’s a third acceptable position: ‘anti-corruption, but not in agreement with how Team Anna is going about it’. - Anant Rangaswamy

Returning to economic stagnation is bad enough by itself. But this is not the forgiving India of the past. This India has tasted growth, progress, optimism and aspiration. - Shekhar Gupta

The rush to find an all-party consensus on setting up an anti-corruption agency has found expression in the predictable lunacy of caste- and community-based reservations for the proposed Lokpal.   ......   These are the same parties that have sliced and diced society into caste- and community-based vote banks and advanced their own fortunes by playing ‘identity politics’ to perfection. - Venky Vembu

This debate misses the main reason why the Lokpal is likely to flop. Even if the Lokpal controls the CBI, it will have no control over the courts. These seem incapable of convicting any resourceful person beyond appeals within his or her lifetime. Little will be achieved if the Lokpal initiates a thousand cases that then drag on for decades, with the accused out on bail. Example: the murder case of LN Mishra, former chief minister of Bihar and right-hand man of Indira Gandhi, is dragging on 37 years after his killing in 1975. The 27-year-old man accused of murder is now an ailing 64. Of the 39 witnesses he cited to prove his innocence, 31 have died, gravely prejudicing the case against him. No less than 22 different judges have handled the trial over the years. The case is being tried on a day-by-day basis, the fastest possible. If this happens in a VIP’s case, what hope of justice do lesser mortals have? The corruption case against Sukh Ram, former telecom minister, has gone on for 16 years. The High Court has just pronounced him guilty, but he can appeal to the Supreme Court. He is now 85 years old and ailing, and may not live to hear the Supreme Court’s verdict. - Swaminathan Aiyar

A clerk in Madhya Pradesh has been accused of amassing assets disproportionate to his income. The police reportedly seized property papers worth Rs 40 crore from his residence. The clerk works at the regional transport office in Indore. Dhuldhoi, who is posted here in the Regional Transport Office (RTO), owns 49 bigha land at different places, four plots, a huge bungalow, another house and a hotel, Superintendent of Police Manoj Singh said. Besides, gold ornaments weighing over one kilogram and silver jewels totaling 4.5 kg were also recovered. He has made substantial investments in life insurance policies, has five bank accounts and owns four costly vehicles and two two-wheelers, he said. The clerk joined the government service in 1996 and presently his monthly salary is Rs 16,000, he said. - CNN-IBN

On India's parliamentary logjam:

The current parliament has done the least work of any in a quarter of a century. - The Economist

UPA-2 is effectively over. All that is left to do is to create the right conditions for the next election, and go for it.    ......    If the most powerful politician in the UPA will not back her own government on reforms, the divorce between power and responsibility is now complete.    ......    When people have the power to propose huge spending without having to figure out where the money is going to come from, accountability goes out of the window. The result is what we have called Rahul-flation — excess inflation resulting from mindless political spending. - R. Jagannathan

As far as disturbances in Parliament go, my own preference is strongly in favour of a debate. Parliamentary obstructionism can be a part of parliamentary tactics but I admit it should be used in the rarest of rare cases. I think this tendency of too much obstructionism arises when there is a breakdown of consultation between government and opposition groups, or when a crucial debate is not being allowed. Of course, this leads to a legitimate reaction that, is Parliament losing its purpose? Overall though, I’m not sure such negativism is valid because Parliament has also shown great resilience and it quickly gets itself out of a crisis and back on track. But still, I believe all of us have to seriously introspect and make sure obstructionism is used very rarely. Is it being used too frequently now? My candid answer is yes, it is, it needs to come down significantly. - Arun Jaitley

Forget the sorry spectacle in Parliament, in the heart of New Delhi, these days. In nearby Haryana, there has been no discussion in the assembly on any bill for the past decade. Bills are passed the same day they are introduced.   .......    Certainly, the one institution that is the heart-beat of democracy, Parliament, has been reduced to a public tamasha. It’s been happening over the several years, but the descent into chaos is particularly stark in the 15th Lok Sabha. C.V. Madhukar, director of PRS Legislative Research, says this is the most disrupted Lok Sabha in the last 25 years.   ........    Besides, he asks, “Our Speaker has a lot of power to penalise members who disrupt the House. Why is it never used? Why are marshals not called to remove them?”     .........    The current Lok Sabha has 76 members who have been charged with heinous crimes, ranging from murder to dacoity.    ........    Cho Ramaswamy, a satirist and journalist from Chennai, has an entirely different argument. He believes that democracy “is in crisis because it is the poor and marginalised who dictate terms. All parties pander to them, in spite of the economy getting into crisis, and politicians are lavishing subsidies on them.”  -  Saba Naqvi


The West Bengal government just got Rs. 8,750 crore from the central government (read: the Indian taxpayers) to buy time as the state ostensibly tries to fix the enormous hole on its balance sheet. There were no strings attached to this bailout. - Livemint

The average time taken by ships to unload and load at Indian ports is nearly 96 hours, almost 10 times longer than in Hong Kong, a government estimate showed last year. - Bloomberg

One official, monitoring government infrastructure projects, said that of 558 government projects, 241 were delayed as of end-July, resulting in a cost overrun of some 20 percent, or more than $31 billion. The projects, which include setting up airports, new railway lines, shipping ports, roads and power plants, have been delayed by more than two years on average due to issues of land acquisition, environmental clearance and rising costs. - Business World

It is a well-established part of law that an internet host or search engine or site is not responsible for all the content that users may post on it – though they can certainly frame rules and take measures to reduce abuse. But should they be tried for this? Is the Delhi court unwittingly trying to play nanny or muzzle the social media? - R. Jagannathan

For some strange reason, the Indian authorities classify gold imports under merchandise imports, although, for all practical purposes, it is a capital account transaction. It is equivalent to Indians buying an overseas asset. Its impact might be the same in terms of cash flow or liquidity, but in terms of the trade deficit optics, it has a crucial role to play.   .....    India’s current account deficit, even if one were to be conservative, will not exceed 3.5% of GDP for 2011. Now, if one took out gold imports, the current account deficit is about 1% of GDP. Absolutely normal and even desirable for a developing nation. - V. Anantha Nageswaran

Female bargaining power in rural Haryana, as in much of northern India, is constrained by widespread discrimination against women.  In recent years, however, women successfully demand private sanitation facilities from potential husbands as a precondition for marriage. - Yaniv Stopnitzky


A shocker from Bangalore where 300 children who were trafficked, drugged and forced to beg have now been rescued by the police. What's more shocking is that over a third of these children are infants, all under the age of three. The infants are drugged and used all day to beg for money. They run when they notice the camera. Older kids too are tutored to hide and stay away from cameras and controlled by street bosses who are hardly seen. But it’s the chronic drugging of 108 rescued infants that's most shocking as some were asleep even two days after the rescue. - IBN

An estimated 1,500 children went missing in Delhi between January and April.

How bad ideas worsen Europe's debt meltdown - John Cochrane/Bloomberg

US-China trade wars - Mish

China's epic hangover begins - Ambrose Evans Pritchard/The Telegraph

China's real estate downturn - Patrick Chovanec

RIP UPA2, early elections are the only way forward - R. Jagannathan/Firstpost

Will India remain in limbo until a 1991-like crisis prompts it to act? - Firstpost

An economy in the frying pan - Livemint

True cost of dynasty: Sonia sends us a Rs. 545,000 crore bill - R. Jagannathan/Firstpost

Our democracy is creaking, but it works - Saba Naqvi/Outlook India

Interesting interview of Arun Jaitley - Tehelka

The crash of Rupee is crash of confidence - Swaminathan Aiyar

Food security: Easy to feed poor, but not Gandhi family - R. Jagannathan/Firstpost

Strong Lokpal, weak judiciary: recipe for failure - Swaminathan Aiyar

False fears about the Food Security Bill? - Himanshu/Livemint

Is child malnutrition in India over-stated? - Arvind Panagariya/Times of India

Delhi's missing kids - Soumik Mukherjee and Shonali Ghosal/Tehelka

Bangalore's shameful begging racket - Deepa Balakrishnan/IBN

Readable - 12/12/11

The EU agreement is a historic one, in the sense that it marks the end of Keynesian policy as a tool in European economic management after more than half a century of being more or less the dominant view. From now on maintaining the debt level has priority, and if your economy will shrink without stimulus, then let it shrink! - Edward Hugh


In concentrating on long-term fiscal reform and not the crisis at hand, the Dec. 8-9 European Union summit asked the wrong questions -- then failed to answer even those. - Bloomberg


Suppose a government is, in fact, running actual deficits greater than 3% of GDP, or "structural" deficits greater than 0.5%, which is the desired maximum. It will be impossible, at that point, to credibly say, "Uh oh, you're running larger deficits than are allowed - therefore, you're going to have to pay a penalty, which will effectively drive you into larger deficits. Otherwise, you're going to lose your vote in the EU, which will accelerate the risk of your disorderly departure from the union." - John Hussman


By explicitly stating PSI is over, the EU is implying the big bazooka will be there to fund any shortfalls in rolling over bond maturities. - Global Macro Monitor


Any “set things right” action on Germany’s part is, one way or another, a form of doubling down.  If it fails it means a bigger eurozone implosion in the future than would happen now, including much higher costs for Germany.  The choice is not “German action vs. doom now,” it is “German action and some chance of even bigger doom later on vs. doom now.”  That’s a tough call. - Tyler Cowen


Europe doesn't face a liquidity problem. It faces a solvency problem. What investors really want isn't just for someone to buy distressed European debt, but for someone to buy that debt and willingly take a loss on it so the money doesn't ever actually have to be repaid. That isn't going to happen easily. Short of major fiscal improvements in Europe (which appear increasingly hopeless in the face of an oncoming recession) any solution will have to explicitly or implicitly impose losses on someone. In my view, the best "someone" is the investors who willingly made the loans in expectation of earning a spread, and who knowingly took a risk. - John Hussman


For three years from 1986 to 1989 countless financial CEOs, spokespersons, commentators, regulators, lobbyists, journalists, consultants, and hacks warned Mexico would never sell another bond in our natural lives if anything like the structured default of the Brady bond were to occur. Once it occurred, Mexico was back in the market within about nine months. - David Apgar


It is an easy political stance to say, "We should go back to the drachma and lira and peso." It makes for nice, nationalistic demagoguery. But if you start thinking about the consequences, it gets much harder. When you walk to the edge of the abyss and look over, you can't see the bottom. It is a long, long, long way down. - John Mauldin


There is no evidence that fiscal austerity depresses demand and activity to the point that the government deficit actually fails to improve or indeed increases, i.e. there is no empirical evidence whatsoever for the existence of a Keynesian Laffer curve. So fiscal austerity should work, i.e. it will restore fiscal sustainability despite depressing activity and growth, if it is politically possible to stick to it. - Willem Buiter


Greece (and other countries on Europe's periphery) do face years of austerity and cut backs, with very little in the way of real growth (and especially employment growth). What I haven't got clear is how political systems which have been based on cushioning citizens from reductions in their real living standards are going to handle this new reality. - Edward Hugh


On the one hand, there are those who believe that the end justifies the means. If saving the Euro requires the destruction of the notion of money as a common good, so be it. The fact that the Euro is slowly destroying Europe (as was entirely predictable), thus leads our “Keynesians” to recommend measures and actions which have been specifically forbidden in the treaties, the German constitution, or the bylaws of the ECB.  ..........  I also have a lot of sympathy for the German view of questioning why we should sacrifice every rule, and treaty, to uphold a currency that is clearly not working for a number of countries? Must the survival of the Euro in Southern Europe really only occupy every waking hour, of every European policymaker (and investor)? Must it really take precedence over every other institutional framework? In short, is the Euro really the end-all, be-all of European civilization; the altar on which everything else can be sacrificed? Is this really as good as we get? Or are European policymakers only trying to save the Euro (and sacrificing the youth of a number of countries) to avoid having to admit that they made a colossal mistake? - Charles Gave


The question in the end comes always down to whether one wants to take the losses as soon as possible and begin again with a clean slate, or whether one wants to delay the day of reckoning by doing again – and usually on a bigger scale – what has led to the crisis in the first place. The choice is always between short term pain in exchange for long term gain or the avoidance of short term pain in exchange for long term misery. - Pater Tenebrarum


The problem is not a political one but is now an economic one. In other words, French politicians may decide to ignore economics but the rules of economics are not ignoring France and France may well not be able to cling to Germany much longer. - Anatole Kaletsky


 I do not think that anyone in France would suggest that if Germany left the Euro, or if France simply refused the German constraint, the French economic situation would improve. Our problems are of our own making and are not so much related to having the wrong currency, as to having a welfare, and regulatory, state on steroids. - Francois Xavier Chauchat


Haven't we moved past Greece already? Well, no. Based on reported holdings of Greek debt in the European banking system, the implied losses on Greek debt alone are now enough to put many European banks into capital shortage. Europe could solve Italy's issues tomorrow and European banks would still face a banking crisis. - John Hussman


So, why are French banks selling protection on France like it is going out of style? Why are Italian banks doubling down on Italy?  Because if the bailouts work, it is free money.  Huge tightening on top of the spread income until the bailout finally wins.  If the sovereign defaults, is the bank really going to be around anyways? - Peter Tchir


I doubt whether much of the available EFSF resources (whatever they turn out to be) will actually be used to support the sovereigns, directly or indirectly. Rather they will just use enough to allow the ECB to argue that they are acting jointly with the fiscal facility. - Willem Buiter


Ironically, the ECB purchaser-of-last-resort and eurobond alternatives probably would break up the euro zone. The inflationary strains of the former, and the accountability problems of the latter, would never survive the next referendum in a euro zone state. The purpose of the euro is to facilitate trade and commerce – not facilitate government borrowing.   .........   This, then, is the impasse euro zone bond investors have reached. To avoid losses, they clamor for alternatives that could disrupt the currency itself – one of the few things that might actually make them worse off in real terms than they are right now. - David Apgar


Have Europe’s debt crisis and deflationary-bust moved beyond the powers of an ECB’s magic wand? Not that I don’t believe in Santa Claus, or in the ability of central banks to cure every ill, but it seems to me that, should the ECB decide (a day late and a Euro short?) to now intervene in size to prevent the European bond markets from deteriorating further, it would face some very significant hurdles. - Louis-Vincent Gave


An unlimited commitment to monetize the sovereign paper would imply that the ECB has surrendered any ability to control either quantity of reserves in the system or manipulate short-term interest rates. In short, its ability to execute monetary policy will have been abandoned. It would in effect become an off-budget financing arm of a non-existent and at the same time dysfunctional pan-Europe Finance Ministry. - Richard Alford


Let us imagine that, tomorrow, the ECB follows every editorialists’ advice and comes in to mop up a third of Spanish and Italian debt in a bid to get yields fixed at, say 5%. Will our Spanish and Italian bondholders a) jump at the chance to get out of their positions with a smaller loss than forecast? Or b) sit tight and allow themselves to be transformed into junior bond holders? Indeed, the Greek precedent (where basically the ECB insisted on being made whole while the private sector shared in the losses of lending money to the spendthrift Greek government) means that the default assumption of sovereign debt holders should be that a mass intervention of the ECB into their markets will relegate them to the “junior ranks.” And needless to say, most institutions who invest in sovereign bonds are not looking to be junior bond holders. They are looking for absolute safety. So in a perverse way, massive purchases by the ECB may actually highlight that the asset one owns is anything but safe; implying that for an ECB intervention to work, the amounts would likely have to be staggering. This is why I tend to believe that even if the Bundesbank did agree to monetization (which is hardly a foregone conclusion), the window for this to work may now have closed. Instead we should brace ourselves for either defaults, or countries leaving and re-denominating debt in local currencies. - Louis-Vincent Gave

Investors were quite excited last week when central banks announced a coordinated reduction in the interest rate for U.S. dollar swap lines. It's interesting that the more arcane an intervention is, the more excited investors get - maybe because complex-sounding interventions allow Wall Street's imagination to run wild and substitute for actual understanding. - John Hussman

What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world's policy makers are increasingly wrecking the prospects for long-term economic growth. The world's standard of living (what we can consume for the work we do) is intimately tied to its productivity (what we can produce for the work we do). That productivity requires our scarce savings to be allocated to productive physical capital, and to productive human capital (primarily education). Nietzsche famously said "What does not kill me makes me stronger." The corollary is "What constantly rescues me makes me weaker." The world will only stop looking for bailouts when policy makers stop handing them out. - John Hussman

The amazing thing about the Japanese situation is that Greenspan and Bernanke both made statements that Japan should write down bad debts, but when the US faced the same situation, Bernanke not only did the opposite, but now says that letting Lehman collapse was his biggest mistake. - Mish

The U.S. government doesn’t have enough spare cash to bail out a lemonade stand. - Peter Schiff

I need the money - Pranab Mukherjee (while pushing for FDI in retail)

FDI in retail was permitted up to 1996. Only in 1997 was a formal ban introduced.

So FDI in retail has been put on hold. What a sorry spectacle this has been, and what a shameful figure every political party has cut in the whole fiasco! If the Congress displayed once more how inept it is, its allies exposed themselves yet again as self-serving opportunists, and the BJP proved beyond doubt that as the principal Opposition party, it feels its only duty is to oppose anything that the government may propose. At least, about the Left, you have to say this much: that they consistent in their rabid adherence to long-discredited dogma. But the others?      ...........      Whether our politcians are part of the ruling alliance, support the government from outside, or are in opposition, all of them are plumbing the depths currently, clutching at any excuse for empty bombast that they hope will obscure their utter loss of credibility. And in the process, make a mockery of all parliamentary procedure, decorum and responsibility.     ..........     We live in dark times. And strangely enough, the light at the end of the tunnel is neither the escape route nor the lights of an onrushing train, In fact, there’s no light visible. It’s just the tunnel. - Sandipan Deb

Modern India has a choice. The first, for all its painful bumps, leads toward greater openness, competition and prosperity. The second goes backward and means India will fall further behind China and other Asian upstarts. Which will it be, Prime Minister Singh?     ..........     India’s historical laggard status reflects a longstanding romance with Karl Marx and too little familiarity with Joseph Schumpeter. There’s still an excess of Marx and the German philosopher’s statist solutions in Asia’s No. 3 economy and not enough of Austrian Schumpeter’s creative destruction. - William Pesek

Investors are pulling out money and India is no longer the darling of the investment community. Over the last few years, we’ve quietly ignored policy-makers in the hopes that industrialists would find ways around them; that cannot continue indefinitely. The country cannot sustain such high growth with this government, which is enacting a comedy show for the world to witness. -  Krishna Gupta


The lame-duck Manmohan Singh government may, going forward, become even more lame, and be crippled from taking anything but the most populist policy decisions in the hope that taking the path of least resistance will at least maximise its survival quotient. In every way, the UPA government is a dead man walking. - Venky Vembu

Under the current system, India’s democracy is condemned to be run by the lowest common denominator — hardly a recipe for decisive action. - Shashi Tharoor

Consider India's position in the World Bank Group's Doing Business 2012 rankings. India ranks 132nd overall out of 183 countries as a desirable place to do business, just above Nigeria and just below the West Bank and Gaza. In several individual rankings, India is near the very bottom. For example, for starting a business, India ranks 166th, for obtaining construction permits, India ranks 181st, and with respect to enforcing contracts, India ranks 182nd.  - Daniel Wagner

India is among the four countries—behind Pakistan and Srilanka—in the world where power T&D losses are above 20 per cent. The global average of T&D losses is about 4 per cent. - Samiran Saha

With 3,57,000 employees, BSNL produces Rs 27,044 crore in annual revenues. Bharti Airtel, with just 5 percent of BSNL’s employee strength, had a turnover that was more than twice its size at Rs 59,467 crore. Vodafone, with more than 12 times its revenue globally, has all of 84,000 employees. - R. Jagannathan

The real issue obviously is the fact that politicians don’t like professionals invading their turf – and that is why Nandan Nilekani is being given the thumbs down by the system. - R. Jagannathan

During the Anna Hazare movement, Sibal summoned representatives of the social networks. In a king-and-subjects interaction, he kept them waiting, then kept them standing in his room; gave them a pre-emptive dressing down; and snapped: "I don't want any anti-government stuff on your networks. Fix it." There was no room for discussion.    .........     If Kapil Sibal is to defend himself against the charge of sycophancy, he is on a weak footing. There were many prior potential triggers for tackling social media, including fanatic religious posts, derogatory comments by Pakistan sympathisers, Anna Hazare, and more. That he finally picked a post that targeted Sonia Gandhi suggests that this was not out of serious, objective concern about India's stability, security or secular fabric. - MSN News

The $950bn worth of gold held by Indian households is the equivalent of 50 per cent of the country’s nominal GDP in dollar terms. All those gorgeous necklaces and other extravagances weigh 18,000 tonnes, or 11 per cent of the world’s stock. India imports 92 per cent of its gold, making it the third largest of its merchandise imports behind crude oil and capital goods. Gold made up 9.6 per cent of imports so far for the year ending March 2012 – significantly expanding the current account deficit. - Macquarie Report

The paradox is that as the rupee depreciates, inflation worsens since imported goods cost more in rupee terms. And when inflation worsens, it makes more sense to hold gold to retain the value of your wealth. But as more gold is imported, it skews out trade gap, contributing to the rupee’s weakness. - R. Jagannathan

The great Wall Street re-hypothecation scandal - Christopher Elias/Reuters

European CEOs prepare for Euro break-up - Bloomberg

The Japan endgame - Wolf Richter/Zero Hedge

The facts they don't want you to know - Niels Jensen/Credit Writedowns

India inches closer to crisis - Swati Bhat & Emily Kaiser/Livemint

Is India heading the Eurozone way? - Arjun Parthasarathy/Firstpost

How to ruin the Indian economy: a political primer - Venky Vembu/Firstpost

Mumbai property: Is price correction inevitable? - Pranab Datta/Livemint

Retail FDI: evenly distributed shame - Sandipan Deb/Livemint

Aam bania is more powerful than the aam aadmi - Swaminathan Aiyer/Times of India

Kapil Sibal and the slippery slope to a nanny state - Venky Vembu/Firstpost

Taxing investors to pay NGOs - Ajay Shah

Let's raid the PSU treasuries - Sunil B.S./Livemint

Readable - 04/12/11

Finance/Economics:


Countries don't go broke - Walter Wriston, early 1980s


We just may be in the midst of the biggest bubble in history. The complacency that the accumulation of all the ills of the many and massive bubbles that have ripped through the global economy in the past twenty years can simply be resolved by quantitative easing, monetization, printing money or whatever you wish to call it is simply stunning to us. The loss of confidence takes longer to happen than you think it should and happens faster than you thought it could. Governments can finance themselves until they can’t. Risk free is risk free until it isn’t. - Global Macro Monitor


The early founders acknowledged that a tighter fiscal union would eventually be necessary if the euro experiment were to survive. And eventually is now. As in this month. - John Mauldin


Not every stupid economic idea has to be defended to the bitter end. - Hans Joachim Voth

Mrs. Merkel has been speaking in Berlin this morning, and she seems to be ruling out everything. But what the markets want to know is, what IS the solution? - The Telegraph

In the immediate term, honoring the spirit of the treaty as originally conceived risks tearing down the very thing the treaty was intended to build: Europe’s single currency. If the price of preserving the ECB’s credibility is to destroy the monetary union over which the ECB presides, what’s the point? Merkel may be ready to burn the village to save it. Europe’s other leaders should tell her firmly, no thanks. - Bloomberg

Germany and the ECB have so far hoped that their view of the crisis is correct: The periphery is in trouble because of a lack of fiscal discipline and structural reforms. So, fiscal discipline and structural reforms are the necessary solutions even if they imply painful adjustment and sacrifices for the periphery for a number of years. Germany and the ECB may turn out to be right, but we suggest that the painful medicine will be—however necessary over the medium term—too painful and recessionary in the short run and for long enough that it will not be viable. Also, the EZ periphery’s fundamental loss of competitiveness—manifesting itself in now unsustainably large current account deficits—requires a real depreciation that will not be achieved quickly enough with reforms and deflation that depress output for too long before they restore growth. Thus, debt reductions and real depreciation via an EZ exit and a return to national currencies will become—however costly—unavoidable and less painful than the alternative of recessionary deflation. - Nouriel Roubini

If countries like Belgium lack a national consensus, while others like Italy and Spain have minorities (who pay more than their numerical share) who are not really convinced they want to be in the country, then how can a fiscal union which would be based on some countries permanently paying (the so called transfer union) while others continually receive hope to hold itself together politically? - Edward Hugh

With continued Target2 credit access, Greece could theoretically continue to issue unrestricted amounts of euro banknotes — which could, logically, be used to settle cross-border payments, allowing it to continue running up eurosystems debts. Thus, in that scenario identification markers for Greek issued euronotes might suddenly become a good idea. But, of course, that would be nothing more than the unofficial reinstatement of the drachma itself. A fact which in itself means that Greek default inevitably equals eurozone breakup. As Whittaker concludes, it is this fact, above all, that persuades Germany and others to keep lending, whether this is via EFSF loans, levered EFSF loans, ECB-backed loans, Eurobonds or the eurosystem itself. - Izabella Kaminska

Two years ago I suggested that if a young and unknown politician in Europe wanted to become an important player, there were two things he should do: criticize Germany, and attack the euro. These are both likely to be enormous vote getters over the next two years, and they are the reason why, in my opinion, the extremist parties of the right and left will do so well in the next few elections. - Michael Pettis

Since the Italian and Greek governments lack democratic legitimacy, any decisions they make are suspect/can be reversed after elections. - Edward Harrison

In a 3-year study, EU concluded there is no evidence that drinking water can cure dehydration and has banned bottles from stating that claim. Previously, EU officials banned the selling of overly bent bananas and curved cucumbers but backed off after international ridicule. - Mish

It is easy for other European governments to complain about Germany being stubborn, but Germany's concerns are well placed. The desire to use the ECB to print money is nothing more than a veiled desire to steal fiscal resources disproportionately from the German people. - John Hussman

This phrase 'lender of last resort' has been bandied around by people who, it seems to me, have no idea what lender of last resort actually means, to be perfectly honest. It is very clear from its origin that lender of last resort by a central bank is intended to be lending to individual banking institutions and to institutions that are clearly regarded as solvent. And it is done against good collateral, and at a penalty rate. That's what lender of last resort means. That is a million miles away from the ECB buying sovereign debt of national countries, which is used and seen as a mechanism for financing the current-account deficit of those countries, which inevitably, if things go wrong, will create liabilities for the surplus countries. In other words, it would be a mechanism of transfers from the surplus to the deficit countries. - Mervyn King

The bottom line is this, the call for massive ECB purchases of distressed European sovereign debt is not simply a call for a liquidity-providing intervention, but is an attempt to address a solvency issue. Liquidity issues can often be addressed through temporary increases in the stock of money, but to address solvency issues, you have to print permanent money. A memorable instance of permanent money creation as a means of financing budget deficits was in 1922, when Germany began printing money in order to keep paying striking workers in the Ruhr even though they were not producing goods and services. The shift to printing money triggered an immediate flight away from the German mark. The resulting hyperinflation is well-remembered by the German people even if the rest of the world has forgotten. - John Hussman

As the ECB prints and the Euro declines and inflation rises, then what? Will Italy and Greece really cut back pensions when inflation is rising? Will Germany be forced to raise their social benefits to catch up to Greece and Italy? Printing takes off the pressure, and inflation ensures that the higher levels of benefits are necessary.  Will this actually become self fulfilling inflation as the austere countries race to provide benefits similar to those frivolous countries? - Peter Tchir

At this point most investors would dump their entire holdings of Italian debt to any sucker – the ECB, European Financial Stability Facility, IMF or whoever – willing to buy it at current yields. If a lender of last resort appears, Italy’s entire debt stock of €1,900bn will be soon supplied. - Nouriel Roubini

The IMF can be refunded by its 186 members. One of which, the US, is required to pay 17.72% of all funding. While the Eurozone countries combined pay -only?!- around 30%. The idea is clear: get the whole world to pay, since if they don't, they too will suffer the consequences. And the Eurozone doesn't have the means to do it by itself. Go through the IMF and Europe saves two thirds of the cost. - The Automatic Earth

I think to pursue competitiveness policies by manipulating or steering down the nominal values of the exchange rate is a loser's game. In the limit, it gets you to Zimbabwe, which didn't exactly become a hub of competiveness - Willem Buiter

These are strange times, and strange arguments abound. Some argue that the Japanese government, for example, can go on printing debt indefinitely and there is no risk. Others say a central bank shouldn't worry about losses, although to my ears there is something strange about an ultimate financial backstop itself being insolvent. Banking is all about trust, whatever type of banking it is. I remember sitting in my office in London when queues formed outside Northern Rock just around the corner. This brought home to me the role of faith and trust. The deposits of this bank were backed by the UK government. This was made clear on TV and also directly to the queues outside this commercial bank. However nobody left the queue and we had the first bank run since the introduction of deposit guarantees. However the simple fact is that nobody knows what happens to faith in the paper currency of a developed world currency when the headline ‘Central Bank Goes Bust’ is on the front page of the papers. I don’t know either but the Northern Rock example suggests that it would be dangerous to run the experiment to find out! Who at any central bank really wants to take this risk?

European purchases of bars and coins more than doubled to 118.1 tonnes in the third quarter, accounting for 30% of total coin and bar demand and making it the single largest source of demand for bullion in this form. - Reuters

Over the next decade, the US government expects to spend more than $40 trillion. Even if the $1.2 trillion in automatic cuts are allowed to go through, the amount totals just 3% of the expected outlays. In a masterstroke of hypocritical accounting, $216 billion of these proposed “cuts” merely represent the expected reductions in interest payments that would result from $984 billion of actual cuts - Peter Schiff

Based on Congressional Budget Office projections, this year’s U.S. fiscal gap is $211 trillion, or about 14 times gross domestic product. By comparison, Greece’s is 12 times GDP. Germany's is three times GDP. - Laurence Kotlikoff

Credit default swaps on banks are blowing out even in the U.S., despite leverage ratios that are substantially lower (in the 10-12 range, versus 30-40 in Europe). As of last week, CDS spreads on U.S. financials were approaching and in some cases exceeding 2009 levels. Bank stocks are also plumbing their 2009 depths, but with a striking degree of calm about it, and a definite tendency for scorching rallies on short-covering and "buy-the-dip" sentiment. There is a strong mood on Wall Street that we should take these developments in stride. I'm not convinced. - John Hussman

China's local government debt may be almost 3 trillion yuan ($473 billion) higher than the figure given by the nation’s audit office, if loans taken out by township governments are included, the Economic Observer reported. Duyang, a township in Yunfu city in the southern province of Guangdong, has more than 200 million yuan worth of debt while its annual fiscal revenue is only 500,000 yuan, the Beijing- based Economic Observer said - Bloomberg

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis—on the brink of bankruptcy. In his memorable formulation: every province in China is Greece.

Everything appears normal in Wenzhou. The streets leading from the city center to the surrounding factory districts are jammed as usual with trucks and delivery vans, new Range Rovers and dilapidated Citroen taxis. Beneath the surface, however, a mad race to collect debts is under way. For much of October, the Kid says he slept only two or three hours a night as he pondered how to claw back outstanding loans. "If people could get their money back just by holding other people at gunpoint, there would have been a riot in Wenzhou," he says. "It seems calm on the surface, but the chaos is underneath." - Austin Ramzy

Property sales  in Mumbai’s overheated market have dropped by a jaw-dropping 70 percent from  2007 peak levels while overall prices have risen 20 percent. - Knight Frank report

Here are the options, now choose - Nouriel Roubini

Someone please send this chart to the Germans - Joe Weisenthal/Business Insider

Unicredit Bombshell shouldn't be the last one - Jonathan Weil/Bloomberg

Deutsche bank could transfer contagion - Simon Johnson/Bloomberg

Video: Congressional insider trading - Credit Writedowns

China's economy on the brink of collapse? - The Epoch Times

Is Manmohan taking us back to 1991? - R. Jagannathan/Firstpost

Now, inclusive non-growth - Business Standard

Budget in tatters, fiscal deficit set to soar - S. Gangadharan/DNA

FDI in retail: Why the politicians are wrong - Firstpost

Business tycoons tweet frustration amid political instability - Firstpost

The RBI should forget forex rates and focus on inflation - Ajay Shah/Firstpost

Make it easier for millions to start a business - Swaminathan Aiyer/Times of India

Political/Social:

War, plague, famine, heart disease, cigarettes, road trauma: six very effective killers of human beings. But they're all amateurs when their records are compared to the number one mass murderer of all time. The humble mosquito, and the deadly diseases it carries, is estimated to have been responsible for as many as 46 billion deaths over the history of our species. That staggering number is even more frightening in context - it means that mosquitoes are alleged to have killed more than half the humans that ever lived. - Loz Blain

The irony is that there are plenty of grounds on which the opposition parties can hold the Indian government to account, given the past two-plus years of wholesale misgovernance. Their failure to do that, except by contributing to high-decibel hysterics, only reflects a colossal lack of political imagination. - Venky Vembu

Genetic Genocide: Wiping out humanity's biggest killer - Loz Blain/Gizmag

No country for young children - Sandip Roy/Firstpost