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

Readable - 12/11/11

Finance/Economics:


Almost all the developed nations have so much debt they can’t think about paying it back. They only worry about keeping up with the interest and refinancing costs. - Bill Bonner


Europe is already in a double dip recession and the sovereign debt crisis has already moved from Greece to Portugal to Ireland to Spain and now to Italy. Belgium, with its lack of a permanent government and 100% sovereign debt to GDP is next on this list. They would be followed by France and its implicit guarantee for a poorly capitalised banking system and Austria and its implicit guarantee for a banking system highly leveraged to central and eastern European debtors. Eventually, every country will feel the impact because a fixed exchange rate system with no lender of last resort is inherently unstable unless you have fiscal integration and/or compatibility. - Edward Harrison


The European project is failing at precisely the point that it had been attempting to solve — nationalism ..... Far from emerging as a unified force, the question will be how divided Europe will become. - Stratfor


Papandreou did not step down to “make way for the rescue package.” He stepped down to get out of the middle of a firefight. ..  No one wants to be the “austerity candidate.” Politics is about dispensing goodies, not about taking them away. Papandreou clearly understands this reality and wants nothing to do with it. - Eric Fry


Only two countries have had lower growth then Italy since 2000 - Haiti and Zimbabwe! - Tyler Cowen


A 2007 PwC/World Bank report tried to estimate the total net tax burden on companies in different countries. Italy has a total net, real corporate tax rate of 68.6 percent, including constituent taxes such as stamp duties, chamber of commerce duties, real estate taxes, fuel taxes, and regional taxes, as well as the more traditional corporate taxes and taxes on the employment of labor.  (NB: not all those taxes are enforced, or borne by the corporation, still it is a grim picture.) That’s the worst in all of Europe. - Tyler Cowen

The root of Italy's problems is that the country financed generous entitlements with high taxes and towering piles of debt, and now finds the money running out as the economy sputters. Indeed, Italy has more pensioners than workers and currently spends about 14 percent of GDP on pensions -- more than any other country in the Organization for Economic Cooperation and Development (OECD). - Foreign Policy

My suspicion is that the 120% debt target for Greece is largely a function of not wanting to suggest that Italy’s debt levels are too high. - Edward Harrison

Ever since the writings of Bagehot in the 19th century, it has usually been accepted that “last resort” market support should only occur when two key criteria are met. First, the borrower should face a liquidity problem, not a solvency problem, because otherwise the central bank would be propping up insolvent entities, and exposing itself to balance sheet losses. Second, to protect itself further against these possibilities, the central bank should only provide this emergency support in exchange for valid collateral. It is hard to argue that ECB purchases of Italian and Spanish sovereign bonds clearly meet these criteria. If this is a liquidity crisis, it is certainly one which could last for several years, and could all too easily morph into a solvency crisis. And, as Finland found when it asked for collateral from Greece, the provision of collateral is not an easy requirement to impose on an independent nation state. What could the ECB ask for in collateral? The Colosseum? - Gavyn Davies

The Germans have, twice in the last century, seen how this sort of monetary policy can end in hyperinflation and national bankruptcy. But how long can the Germans resist the pressure from other members? - Spiegel

And now another breach of confidence is on the horizon, with the Germans being expected to accept the notion that the ECB will be available to ailing euro countries as an almost unlimited reserve fund...The question the German government now faces is whether to preserve the monetary union or have a stable currency. - Spiegel

Is this kind of monetisation sustainable over the medium-term? 100%. If a central bank guarantees investors credibly that they can invest in certain debt instruments and not suffer principal or interest repayment risk, but only currency and inflation risk, some investors are almost definitely going to buy the debt instruments with the greatest yield pick up. Put another way, the only reason not to buy Italian debt at 2 or 300 basis points over Bunds, or Greek debt at 3 or 400 basis points over Bunds is because those governments are not credibly backstopped by the ECB. I should add that that is exactly why investors were in these bonds in the first place. It was only when the solvency issue came to a head that yields began to climb. - Edward Harrison

Here’s another interesting thing: in the 1990s, a number of countries, including Italy, engaged deliberately in transactions which had no economic justification, other than to mask their public debt levels in order to secure entry into the euro. Italy actively exploited ambiguity in accounting rules for swap transactions in order to mislead EU institutions, other EU national governments, and its own public as to the true size of its budget deficit. And Eurostat signed off on these transactions. And who worked at the Italian Treasury at that time? That’s right: “Super Mario” Draghi, who was director general of the Italian Treasury from 1991-2001 when all this was going on, and then joined Goldman Sachs (2002-2005), when the privatisations came up. Interesting that he is now the guy who has to deal with the ultimate fall-out. Karmic justice. - Marshall Auerback

Germany exiting the Eurozone would be less disruptive, than massive inflation scenarios in Greece, Portugal, and Spain. If France wants to stay in the Euro, let them. They can have the ECB as well. Then the ECB will print money to bail out the French banks - Mish

By openly acknowledging that Greece could abandon the Euro, Europe's leaders may have set in motion events that will automatically force Greece to leave - Michael Pettis

The significance of Ms. Merkel and Mr. Sarkozy's Cannes declaration is immense. At a stroke, they have introduced foreign-exchange risk into a sovereign-debt market still grappling with the realization that euro-zone government bonds contain unexpected credit risk. - Simon Nixon

The sell-off suggests Europe’s crisis is spiraling into a new stage as investors bet on which countries are most likely to quit the euro, starting with Greece. - Bloomberg

BNP Paribas SA and Commerzbank AG (CBK) are unloading sovereign bonds at a loss, leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis. BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year. Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses. The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values. The trend may undermine European leaders’ efforts to lower borrowing costs for countries such as Greece and Italy, while generating larger writedowns and capital shortfalls. “European regulators and leaders are shooting themselves in the foot because a big investor group for sovereign bonds has been taken out of the market,” said Otto Dichtl, a London-based credit analyst for financial companies at Knight Capital Europe Ltd. “The downward spiral will continue until policy makers find a back-up solution for the sovereigns.” - Bloomberg

On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out. Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time. - Mark Hanson

Analysts’ forecasts show real-estate stocks will rally more than any other industry in China during the next year, even as wagers on declines climb to the highest level since at least 2008. Developers in the MSCI China Index will surge 46 percent on average by November 2012, the most among 21 groups in the equity gauge, based on analysts’ estimates compiled by Bloomberg. At the same time, bearish bets on property companies have doubled to 12 percent of shares available for trading this year, according to Data Explorers, a London-based research firm. Bulls say speculation about the bursting of an asset bubble in China’s property market is overblown and the shares are cheap after the average price-earnings ratio for the group fell 44 percent from an April peak to 5.77. Bears say real-estate stocks will extend this year’s slump after housing transactions in October fell for the first time in three months and government officials pledged to maintain real-estate curbs. - Bloomberg

The value of housing transactions in Hong Kong plunged 50 percent in October from the same month last year to HK$22.5 billion - Bloomberg

65% chance of banking crisis this month: Researchers - CNBC

Depression or great inflation in Europe? - Simon Johnson/New York Times

Contagion will overwhelm without policy response - Marc Chandler/Credit Writedowns

Why we will eventually see monetisation - Credit Writedowns

Does the ECB really have a silver bullet? - Gavyn Davies/Financial Times

Why the ECB might want to back Spain - The Economist

Will the PIIGS exit the Euro? - Mish

Italy's structural problems - Nick Squires/The Telegraph

If you thought Italy was bad... - Nils Pratley/The Guardian

Financial alchemy foils capital rules as banks redefine risk - Liam Vaughan/Bloomberg

Euro banks retreat into mini-crunch - The Guardian

Distortions in baffling bank financial statements - Floyd Norris/New York Times

US economy deeper in debt than before crisis - USA Today

Deja Vu all over again - Patrick Chovanec

China's gold imports surge sixfold - CNBC

Interactive guide to government debt - The Economist

Ray Dalio on how the economic machine works - Zero Hedge

UPA's perverse strategy - Niranjan Rajadhyaksha/Live Mint



Political/Social:

Only four countries (Afghanistan, Cambodia, Haiti, Myanmar and Pakistan) do worse than India in child mortality rate; only three have lower levels of “access to improved sanitation” (Bolivia, Cambodia and Haiti); and none (anywhere—not even in Africa) have a higher proportion of underweight children. Almost any composite index of these and related indicators of health, education and nutrition would place India very close to the bottom in a ranking of all countries outside Africa...There is probably no other example in the history of world development of an economy growing so fast for so long with such limited results in terms of broad-based social progress. - Jene Dreeze and Amartya Sen

Mobile phones could be health time bomb - Firstpost

By March 2012, UPA's options, electoral fortunes will shrink - Firstpost